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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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THE UNITED STATES SHOE CORPORATION
(Name of Subject Company)
THE UNITED STATES SHOE CORPORATION
(Name of Person(s) Filing Statement)
COMMON SHARES, WITHOUT PAR VALUE
(AND ASSOCIATED PREFERENCE SHARE PURCHASE RIGHTS)
(Title of Class of Securities)
912605102
(CUSIP Number of Class of Securities)
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JAMES J. CROWE, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
THE UNITED STATES SHOE CORPORATION
ONE EASTWOOD DRIVE
CINCINNATI, OHIO 45227-1197
(513) 527-7501
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of the person(s) filing)
With a copy to:
WILLIAM F. HENZE II, ESQ.
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3939
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is The United States Shoe Corporation, an
Ohio corporation (the "Company"). The address of the principal executive offices
of the Company is One Eastwood Drive, Cincinnati, Ohio 45227-1197. The title of
the class of equity securities to which this Statement relates is the common
shares, without par value (the "Shares"), of the Company, together with the
associated preference share purchase rights (the "Rights") issued pursuant to
the Rights Agreement, dated as of March 31, 1986, as amended by the First
Amendment to the Rights Agreement, dated as of March 23, 1988, each between the
Company and Morgan Shareholder Services Trust Company (as successor to Morgan
Guaranty Trust Company of New York), and by the Second Amendment to the Rights
Agreement, dated as of June 1, 1993 (as so amended, the "Rights Agreement")
between the Company and The Bank of New York, as Rights Agent.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer by Luxottica Acquisition Corp.,
a Delaware corporation ("LAC") and an indirect wholly-owned subsidiary of
Luxottica Group S.p.A., a corporation organized under the laws of the Republic
of Italy ("Luxottica"), disclosed in a Tender Offer Statement on Schedule 14D-1,
dated March 3, 1995 (as amended, the "Schedule 14D-1"), to purchase all
outstanding Shares, including the associated Rights, at a price of $24 per Share
(and associated Right), net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated March 3, 1995 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which together constitute the "Offer").
According to the Schedule 14D-1, the address of the principal executive
offices of LAC is 1209 Orange Street, Wilmington, Delaware 19801, c/o The
Corporation Trust Company and the address of the principal executive offices of
Luxottica is Via Valcozzena 10, 32021 Agordo (Belluno), Italy.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above, which information is incorporated
herein by reference.
(b)(1) The following describes material contracts, agreements, arrangements
or understandings and any actual or potential conflict of interest between the
Company or its affiliates and the Company, its executive officers, directors or
affiliates:
Certain information with respect to certain contracts, agreements,
arrangements or understandings between the Company and certain of its
directors, executive officers and affiliates is set forth in pages 6 to 26
of the Company's Proxy Statement dated April 22, 1994 for the Company's
1994 Annual Meeting of Shareholders (the "Proxy Statement"), a copy of
which is filed as Exhibit 1 hereto and incorporated herein by reference.
The Associates' Discounted Stock Purchase Plan and the amendment to the
1988 Employee Incentive Plan described in the Proxy Statement became
effective following their approval by the shareholders of the Company at
its annual meeting held on May 26, 1994.
On July 29, 1994, the Board of Directors of the Company (the "Board of
Directors") adopted the Total Return to Shareholder Plan (the "TRS Plan")
to replace the Company's Key Executive Long-Term Incentive Program (the
"LTI Program"). Under the TRS Plan, beginning in 1994 and for each year
thereafter, a three-year performance period will be established, and for
each performance period a target award will be determined for each
participant in the TRS Plan. The target award generally will be based upon
median competitive levels for long-term incentive opportunities as
determined by the Compensation Committee of the Board of Directors. At the
end of each three-year period the total return for that period (share price
appreciation plus reinvested dividends) for an investment in Shares of the
Company will be compared with a similar investment in the shares of a
designated peer group of corporations. Awards then will be made to
participants based on the Company's ranking in the peer group, ranging from
50% of a participant's target award if the Company is in the 40th
percentile to 200% of a participant's target award if the Company is in at
least the 90th percentile. No awards will be made if the Company's ranking
in the peer group is below the 40th percentile. All awards under the TRS
Plan will be in cash or in Shares which will be restricted and subject to
forfeiture if the participant terminates his or her employment during the
three-year period following the award. The Plan also provides for
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payouts in the event of a change in control. A transition plan is in effect
whereby executives may earn prorated awards based on total share price
appreciation for the three-year periods ending with fiscal year 1994 and
fiscal year 1995. The LTI Program will be phased out during this transition
period.
On September 23, 1994, the Board of Directors approved the entry by
the Company into Amended and Restated Severance Compensation Agreements
(each, a "Severance Agreement") with executive officers of the Company for
the stated purpose of reinforcing and encouraging the continued attention
and dedication of members of the Company's management to their assigned
duties in the event of a Change in Control (as defined in the Severance
Agreement) of the Company.
Generally, each of the Severance Agreements amended each of the
original Severance Compensation Agreements (i) to provide that in the event
of a compensated termination of an executive before the expiration of two
years following a Change in Control, the Company would pay in a lump sum to
such executive (a) the full base salary to which the executive is entitled
through the date of termination, (b) credit for unused vacation, (c) a
prorated portion of the executive's Annual Bonus Target (as defined in the
Severance Agreements) under the Company's annual incentive cash bonus
program and of the executive's TRS Bonus Target (as defined in the
Severance Agreements) under the TRS Plan, and (d) an amount equal to three
times the sum of the executive's annualized base salary and Annual Bonus
Target for the year in which the Notice of Termination (as defined in the
Severance Agreements) is given; provided, however, that the amounts
described under this clause (d) would be reduced by the amounts payable to
the executive under clauses (b) and (c) above and provided further that the
amounts described under this clause (i) would be further reduced to the
extent that the Net After Tax Amount (as defined in the Severance
Agreements) received by the executive would be increased by reducing the
amounts described under this clause (i) so that such amounts would not be
subject to the excise tax on "excess parachute payments" imposed by Section
4999 of the Internal Revenue Code of 1986 (the "Code"); (ii) to eliminate
the lump-sum payment to the executive if the executive is employed on the
date six months following a Change in Control; and (iii) to eliminate the
adjustment intended to take into account impending retirement at age 65,
avoidance of parachute payments under Section 280G of the Code and
compensation from other employment. All amounts payable under the Severance
Agreements are in lieu of, and not in addition to, any payment to which the
executives otherwise would be entitled under the Company's Economic Bridge
Program (as described below) in the event of a change in control. A copy of
a form of Severance Agreement (the "Form of Severance Agreement") is filed
as Exhibit 2 hereto and is incorporated herein by reference. The foregoing
description of the Severance Agreements is qualified in its entirety by
reference to the text of the Form of Severance Agreement.
In connection with the Severance Agreements, the Company also amended
and restated the related Trust Agreements to provide for payment of all
amounts due under the Severance Agreements. The Trust Agreements were
amended to conform to changes made to the Severance Compensation Agreements
and to conform to current Internal Revenue Service guidelines. A copy of a
form of amended and restated Trust Agreement (the "Form of Amended and
Restated Trust Agreement") is filed as Exhibit 3 hereto and is incorporated
herein by reference. The foregoing description of the Amended and Restated
Trust Agreements is qualified in its entirety by reference to the text of
the Form of Amended and Restated Trust Agreement.
On November 1, 1994, the Company entered into Amendment No. 1 to
Employment Agreement with Bannus B. Hudson (the "Amendment to Hudson
Employment Agreement"). The Amendment to Hudson Employment Agreement
provides generally that (i) Mr. Hudson's term of employment is extended
until July 31, 1998 and his annual salary is increased to $650,000 from
$500,000, (ii) Mr. Hudson is entitled to a termination payment of an amount
equal to twice his then current annual salary without regard as to whether
he has accepted other employment, (iii) in the event of Mr. Hudson's death
after his termination of employment but prior to receipt of the full
termination payment, the remaining payment will be paid by the Company to
his beneficiary, and (iv) in the event Mr. Hudson terminates the Employment
Agreement, as amended, as a result of merger or consolidation of the
Company into another corporation, or the sale of all or substantially all
of its assets or the assets of any
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one or more of the Company's Women's Specialty Retailing Group, Optical
Group or Footwear Group, Mr. Hudson is entitled to the termination payment
of an amount equal to twice his then-current annual salary without regard
as to whether such termination occurs during or after the term of
employment referred to in clause (i) above. A copy of the Amendment to
Hudson Employment Agreement is filed as Exhibit 4 hereto and is
incorporated herein by reference. The foregoing description of the
Amendment to Hudson Employment Agreement is qualified in its entirety by
reference to the text of the Amendment to Hudson Employment Agreement.
The Company has agreed to pay Charles S. Mechem, Jr., Chairman of the
Board of Directors, $125,000 annually for his services as a part-time
employee.
Effective January 1, 1995, the method for calculating benefit accruals
under The United States Shoe Corporation Pension Plan (formerly the
Salaried Employees Pension Plan) (the "Company Pension Plan") was changed
from a final average pay formula to a cash balance formula for eligible
associates other than those in the Footwear Group. Under the cash balance
formula, each quarter participants receive a benefit credit equal to a
percentage of their compensation based upon their years of service as
follows: 1 to 4 years of service, 1.375%; 5 to 14 years of service,
1.8125%; and 15 or more years of service, 2.5%. The cash balance account
also is credited with assumed "earnings" each quarter at a rate equal to 1%
over the average 90-day Treasury Bill rate. Each participant's initial cash
balance will be equal to the present value of such participant's accrued
benefit as of December 31, 1994. Participants who have attained age 50 and
completed 15 years of service as of January 1, 1995, will receive
additional benefit credits based on the participant's age and years of
service with the Company. The benefit formula under The United States Shoe
Corporation Supplemental Executive Retirement Plan was also revised to
reflect the change in calculating benefit accruals under the Company
Pension Plan. In addition, effective January 1, 1995, benefits under the
U.S. Specialty Retailing Division Profit Sharing Plan for eligible
employees of the Women's Specialty Retailing Group were frozen and
participants in such plan became eligible to participate in the Company
Pension Plan.
Effective January 1, 1995, The United States Shoe Corporation Tax
Incentive Savings Plan (formerly the Salaried Employees Tax Incentive
Savings Plan) was amended to change the basis matching contribution from
$.50 per $1.00 on the first 5% of pay deferred to $1.00 per $1.00 on the
first 3% of pay deferred and to add a discretionary match of up to $.50 per
$1.00 on the first 3% of pay deferred. The Tax Incentive Savings Plan
covers substantially all employees of the Company and its subsidiaries
other than the hourly employees of the Footwear Group.
On February 1, 1995, the Compensation Committee of the Board of
Directors approved a bonus payment in the amount of $200,000 to Noel E.
Hord to be paid in the event of the successful completion of a sale of the
Footwear Group to Nine West Group Inc.
In order to retain the services of certain key members of management,
the Company entered into Special Bonus Agreements, dated as of February 2,
1995 (each, a "Special Bonus Agreement"), with David Stouffer, James J.
Crowe, Edwin C. Gerth and Robert J. Petrik. Generally, the Special Bonus
Agreements provide for the payment by the Company to the executive of a
special bonus (the "Special Bonus") equal to the executive's base annual
salary, determined at the time that such Special Bonus becomes payable to
the executive or as of February 2, 1995, whichever is greater. Pursuant to
the Special Bonus Agreements, the Special Bonus will be payable to the
executive if (i) the executive is employed by the Company as a full-time,
active associate on February 1, 1997, (ii) the Company terminates the
executive other than for Cause (as defined in the Special Bonus Agreement)
on or prior to February 1, 1997, or (iii) the Company agrees in writing
prior to February 1, 1997 to pay to the executive the Special Bonus. The
Special Bonus Agreement does not affect any rights that the executive may
otherwise have to receive other bonus payments, incentive compensation or
economic bridge payments from the Company. A copy of a form of Special
Bonus Agreement (the "Form of Special Bonus Agreement") is filed as Exhibit
5 hereto and is incorporated herein by reference. The foregoing description
of the Special Bonus Agreements is qualified in its entirety by reference
to the text of the Form of Special Bonus Agreement.
On February 2, 1995, the Board of Directors approved the adoption of a
new retirement plan for outside directors. Under this Plan, a member of the
Board of Directors who retires with five or more years
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of service as an outside director (i.e., a director who is not a full-time
employee of the Company or it subsidiaries) will receive a quarterly
retirement benefit commencing at age 72 (or if later, when such director
retires) and payable for life equal to the retainer he or she receives as a
director immediately prior to his retirement. Payments under this plan
terminate upon the death of the director.
On February 2, 1995, the Board of Directors adopted revisions to The
United States Shoe Corporation Economic Bridge Program for employees of the
Company (as supplemented and amended, the "Economic Bridge Program"). The
Economic Bridge Program provides a salary bridge benefit and continuation
of group medical, dental and life insurance benefits upon an involuntary
termination of employment under stated circumstances, or upon voluntary
termination of employment after a "change in control" (as defined in the
Economic Bridge Program) if the covered employee is not offered comparable
employment and coverage under a comparable economic bridge program after
the change in control. The amount of the salary bridge benefits for
executive officers generally is equal to 36 weeks of base salary plus one
week of base salary for each year of service with the Company plus one week
of base salary for each year of age over age 40, not to exceed 64 weeks
total. If an eligible employee's employment ends at or within two years
after a change in control has occurred, the amount of the salary bridge
benefits for executive officers generally is equal to 48 weeks of base
salary plus two weeks of base salary for each year of service with the
Company plus one week of base salary for each year of age over age 40, not
to exceed 78 weeks total. Group medical, dental and life insurance benefits
are provided for the number of weeks for which salary bridge benefits are
payable. Individuals with Severance Agreements are subject to provisions in
such agreements which provide that any payments under the Severance
Agreements will be in lieu of and not in addition to any payment to which
the individual would otherwise be entitled under the Economic Bridge
Program in the event of a change in control, as defined in the Economic
Bridge Program. A copy of the Economic Bridge Program is filed as Exhibit 6
hereto and is incorporated herein by reference. The foregoing description
of the Economic Bridge Program is qualified in its entirety by reference to
the text of the Economic Bridge Program.
(b)(2) To the best knowledge of the Company, except as may otherwise be
described herein there are no contracts, agreements, arrangements or
understandings or actual or potential conflicts of interest between the Company
or its affiliates and LAC or Luxottica, or each of their executive officers,
directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) At meetings of the Board of Directors held on March 8, 10, and 14-15,
1995, the Board of Directors met with its financial and legal advisers and
considered the Offer and various matters related thereto, including reports by
the Company's financial adviser, James D. Wolfensohn Incorporated ("Wolfensohn")
on the financial condition and performance and potential values of its three
businesses; the terms and conditions of the Offer; progress toward the Board's
objective of enhancing shareholder value, including the after-tax consequences
to the Company of certain transactional alternatives, and other matters. At its
March 14-15 meeting, the Board of Directors unanimously determined that the
Offer is inadequate and not in the best interests of the Company and its
shareholders. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS REJECT THE OFFER AND NOT TENDER ANY OF THEIR SHARES PURSUANT TO
THE OFFER. The Board of Directors believes that the best means of providing
value to shareholders is to explore fully all alternatives, and has directed its
financial adviser and management to continue to do so.
A copy of a letter to shareholders communicating the Board of Directors'
recommendations and a form of press release announcing such recommendations are
filed as Exhibits 7 and 8, respectively, and are incorporated herein by
reference.
(b) In reaching the conclusions referred to in Item 4(a), the Board of
Directors took into account numerous factors, including but not limited to:
(i) The Board's familiarity with the business, financial condition and
prospects of the Company and of its Women's Specialty Retailing Group,
Optical Group and Footwear Group and, as a result of the
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strategic review of the Company's three business units and corporate
configuration which had been initiated in 1994, its previous analyses of
possible strategic alternatives to the Offer;
(ii) The written opinion of Wolfensohn to the effect that the
consideration offered pursuant to the Offer is inadequate, from a financial
point of view, to the shareholders of the Company (a copy of the opinion of
Wolfensohn is filed as Exhibit 9 hereto);
(iii) An analysis of the price offered in the Offer as a multiple of
certain historical financial results of the Company and a comparison of
such price to prices paid for acquisitions of comparable companies and to
trading prices of the Shares;
(iv) The fact that the Offer is subject to financing, and to numerous
other conditions;
(v) The value to the Company and its shareholders of the Company's
definitive agreement to sell the Footwear Group to Nine West Group Inc.,
described in Item 7 below; and
(vi) The interest expressed by other parties in exploring potential
alternative transaction strategies.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Wolfensohn as the Company's financial adviser in
connection with the evaluation of and response to the Offer and other matters
arising in connection therewith. In addition, the Company has retained Abernathy
MacGregor Scanlon as public relations adviser and D.F. King & Co., Inc. ("D.F.
King") to assist the Company with its communications to shareholders with
respect to, and to provide other services to the Company in connection with, the
Offer.
Pursuant to a letter agreement dated as of August 1, 1994, the Company has
retained Wolfensohn to provide advisory and investment banking services with
respect to a general review of the Company's strategic and financial position
for a cash fee equal to $150,000 per month, payable on the date of the letter
agreement with respect to the period from August 1, 1994 through December 31,
1994. Pursuant to a letter agreement dated as of September 1, 1994 (the
"September 1, 1994 Letter Agreement"), the Company has retained Wolfensohn to
provide advisory and investment banking services with respect to a possible
transaction (a "Footwear Group Transaction") relating to a disposition or
disaggregation of or business combination involving the Company's Footwear
Group. The September 1, 1994 Letter Agreement provides for the payment by the
Company to Wolfensohn of a cash fee equal to 1% of the Aggregate Consideration
(as defined below) in connection with a Footwear Group Transaction, minus
$375,000.
Pursuant to a letter agreement dated as of January 16, 1995 (the "January
16, 1995 Letter Agreement"), the Company has retained Wolfensohn to provide
advisory and investment banking services with respect to possible transactions
(each, a "Transaction") relating to a disposition or disaggregation of or
business combination involving one or more of (i) the Company, (ii) the
Company's Women's Specialty Retailing Group and (iii) LensCrafters, PLC and the
other subsidiaries constituting the Company's optical business (the "Optical
Group"). The January 16, 1995 Letter Agreement provides for the payment by the
Company to Wolfensohn of a cash fee equal to (a) $150,000 per month from and as
of January 1, 1995 for a minimum of six months (such $900,000 payable on
execution of the agreement) of which 50% is credited towards any Transaction fee
described in clause (b) below and (b) with respect to each Transaction, a cash
Transaction fee equal to 1% of the Aggregate Consideration or 1% of the Spin-Off
Value (as defined below), as the case may be, of such Transaction; provided,
however, that the fee payable in respect of a Transaction involving all or a
significant portion of the Women's Specialty Retailing Group shall not be less
than $3,500,000. In the event that a Transaction involving the sale or
disposition of the Company shall be consummated prior to a Footwear Group
Transaction, the fees payable under the January 16, 1995 Letter Agreement shall
be credited towards or paid in lieu of, as the case may be, any future fees
payable under the September 1, 1994 Letter Agreement. For purposes of this
paragraph and the preceding paragraph, Aggregate Consideration shall mean the
total gross amount of cash and the fair market value on the date of closing of
all other property paid or payable directly or indirectly to the Company or the
Company's securityholders in connection with a Transaction including (i) amounts
paid with respect to contingently issuable shares and (ii) the face amount of
any debt obligations of the Company assumed or extinguished by the purchaser or
otherwise transferred or
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extinguished upon consummation of such Transaction. For purposes of this
paragraph, Spin-Off Value shall mean the aggregate market value, based on the
prices contained in The Wall Street Journal as of the date of the closing of the
related Transaction, of all securities issued or distributed by the Company in
connection with a Spin-Off and the face amount of any debt obligations
transferred with or assumed pursuant thereto.
The Company has also agreed to reimburse Wolfensohn for its reasonable
out-of-pocket expenses, including the fees and disbursements of legal counsel,
and to indemnify Wolfensohn against certain liabilities arising out of any
actual or proposed transaction, or in the course of its work on behalf of the
Company.
The Company will pay D.F. King and Abernathy MacGregor Scanlon their
reasonable and customary compensation for their respective services and will
reimburse D.F. King for its reasonable out-of-pocket expenses incurred in
connection therewith.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) There have been no transactions in the Shares or associated Rights
during the past 60 days by the Company or, to the best of the Company's
knowledge, by any executive officer, director, affiliate or subsidiary of the
Company, except for nominal periodic purchases by Messrs. Mechem, Hudson and
Maloney under the Company's Associates' Discounted Stock Purchase Plan and for
the exercise on March 13, 1995 by Joseph H. Anderer, a Director of the Company,
of options expiring on May 22, 1995 to purchase 6,000 Shares at an exercise
price of $18.344 per Share.
(b) To the best of the Company's knowledge, none of the executive officers,
directors, affiliates or subsidiaries of the Company currently intend to tender,
pursuant to the Offer, any Shares or associated Rights beneficially owned by
them. The foregoing does not include any Shares or associated Rights over which,
or with respect to which, any such executive officer, director or affiliate acts
in a fiduciary or representative capacity or is subject to the instructions of a
third party with respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) The Company is engaged in three lines of business: (i) footwear
manufacturing, wholesaling and retailing; (ii) apparel retailing; and (iii)
optical retailing. During 1994, with the assistance of its financial advisor,
the Company initiated a strategic review of its businesses and corporate
configuration. As a result of that review, the Company has indicated publicly
that it is prepared to consider the relative merits of potential transactions
that might enhance shareholder value.
On July 27, 1994, Nine West Group Inc. ("Nine West") sent a letter to the
Company, proposing to effect a tax-free reorganization and merger transaction in
which Nine West would acquire the Footwear Group for $425 million of Nine West
common stock, subject to the completion of a satisfactory due diligence review.
Subsequently, Nine West and the Company entered into discussions concerning a
potential transaction involving the Footwear Group. In September 1994, the
parties executed a confidentiality agreement to permit disclosure to Nine West
of certain nonpublic information relating to the Company's Footwear Group.
On December 16, 1994, Nine West announced that it and the Company had
reached agreement in principle for the purchase, in a taxable transaction, of
the assets of the Company's Footwear Group for $600 million in cash and warrants
to purchase 1,850,000 shares of Nine West common stock at a price of $35.50 per
share.
Also on December 16, Mr. Claudio Del Vecchio, a Managing Director of
Luxottica, telephoned Mr. Bannus B. Hudson, President and Chief Executive
Officer of the Company, to discuss Luxottica's interest in purchasing the
Company and in particular the Company's Optical Group.
In the following weeks, representatives of Wolfensohn held several meetings
and telephone calls with representatives of Luxottica's financial adviser, CS
First Boston Corporation ("CS First Boston"). In the course of those meetings,
CS First Boston representatives indicated that Luxottica's interest related
primarily to acquiring the Optical Group but that, in order to achieve its goal,
Luxottica was prepared to acquire all of the Company. CS First Boston also
indicated that Luxottica would require a satisfactory due diligence review of
the Company, including access to non-public information.
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After further telephone conversations between representatives of the
parties' financial advisers, Mr. Del Vecchio, at a meeting on January 9, 1995,
attended by representatives of both parties and their financial advisers,
confirmed that Luxottica was interested primarily in the Optical Group but was
prepared to consider a transaction involving a purchase of the entire Company.
Following further discussions between the financial advisers to the Company and
Luxottica, the Company determined to furnish non-public information to
Luxottica, pursuant to the Company's form of confidentiality agreement which had
been entered into by other potentially interested parties. Representatives of
Luxottica objected to the form of confidentiality agreement, including the
standstill provision contained in such form. The Company did not hear from
Luxottica again until the date of the commencement of the Offer.
On February 17, 1995, the Company announced that negotiations with Nine
West for the sale of the Company's Footwear Group had terminated without an
agreement. The Company also announced that its Board of Directors had authorized
the Company's investment banker, Wolfensohn, to explore potential alternative
transaction strategies. The Company stated that it had initiated preliminary
discussions with certain third parties and authorized such discussions with
others.
Later in February, Nine West's advisors approached the Company's advisors
to reopen discussions concerning the purchase by Nine West of the Footwear Group
on improved terms and thereafter the parties held discussions regarding such a
transaction.
At its March 14-15, 1995 meeting, the Board of Directors approved the Nine
West transaction described below and confirmed its previous instruction to the
Company's financial advisers and management to continue to pursue the Board's
objective of enhancing shareholder value.
(b) On March 16, 1995, the Company and Nine West announced that the parties
had entered into a definitive agreement pursuant to which Nine West has agreed
to purchase the Company's Footwear Group for $560 million in cash, plus warrants
to purchase 3.7 million shares of Nine West common stock at a price of $35.50
per share at any time during the next 8.5 years (the "Nine West Agreement"). A
copy of the press release announcing the Nine West Agreement and the Nine West
Agreement are filed as Exhibits 10 and 11, respectively, and incorporated herein
by reference.
The Board of Directors has determined that disclosure of the possible terms
of any transaction regarding strategic alternatives, or of the parties thereto,
would be likely to jeopardize the continuation of any discussions or
negotiations. Accordingly, the Board of Directors has adopted a resolution
instructing management not to disclose the possible terms of any such
transactions or proposals or the parties thereto, unless and until a definitive
agreement or an agreement in principle related thereto has been reached.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
THE RIGHTS AGREEMENT. On March 26, 1986, the Board of Directors declared a
dividend payable April 14, 1986 of one Right for each outstanding Share of the
Company held of record on April 14, 1986. The Rights were issued pursuant to the
Rights Agreement referred to in Item 1 above. As a result of the payment by the
Company of a 100% common share dividend in June 1986, one-half of a Right is now
attached to each outstanding Share of the Company. Each Right entitles its
registered holder to purchase from the Company, after the Distribution Date (as
hereinafter defined), one one-hundredth of a Series A Preference Share, no par
value, of the Company at a purchase price of $200 per one one-hundredth of a
share.
The Rights will not become exercisable or transferable or be distributed
apart from the Shares until the earlier of (i) the first date (the "Shares
Acquisition Date") of a public announcement that an Acquiring Person (as defined
below) has become such and (ii) the tenth day (or such later date as may be
determined by a majority of the Board of Directors) following the commencement
of, or the first public announcement of, the intent to commence a tender or
exchange offer by any person (other than the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of the
Company, or any person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) that would result in such
person becoming the beneficial owner of 30% or more of the Shares (the earlier
of such dates being the "Distribution Date"). An Acquiring Person is any person
who or which, together with all
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affiliates or associates of such person, shall be the beneficial owner of 20% or
more of the Shares then outstanding, but does not include the Company, any
subsidiary of the Company, any employee benefit plan of the Company or of any
subsidiary of the Company or any person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan.
Pursuant to the terms of the Rights Agreement, on March 10, 1995, the Board
of Directors adopted a resolution to delay the occurrence of the Distribution
Date until the earlier of (i) the Shares Acquisition Date and (ii) the close of
business on March 16, 1995, or such later date as may from time to time be
determined by the Board of Directors. Without such action by the Board of
Directors, the Distribution Date would have been March 13, 1995 (which date was
the tenth day following the public announcement of the Offer by Luxottica and
LAC). On March 15, 1995, the Board of Directors adopted a resolution to delay
the occurrence of the Distribution Date until the earlier of (i) the Shares
Acquisition Date and (ii) March 30, 1995 or such later date as may be determined
by the Board of Directors. Accordingly, the Rights will not become exercisable
or transferable or be distributed apart from the Shares until the earlier of (i)
the Shares Acquisition Date and (ii) the close of business on March 30, 1995 or
such later date as may from time to time be determined by the Board of
Directors.
LITIGATION. The Luxottica Action. On March 3, 1995, Luxottica and LAC
(together with Avant-Garde Optics, Inc., the "Luxottica Plaintiffs") commenced
an action in the United States District Court for the Southern District of Ohio,
Eastern Division (the "District Court") by filing a complaint (the "Luxottica
Complaint") against the Company, the Directors of the Company, the Commissioner
of Securities of Ohio, the Director of Commerce of Ohio, and the State of Ohio.
The Luxottica Complaint seeks (i) temporary, preliminary and permanent
injunctive relief against the enforcement of the Ohio Take-Over Act, Ohio Rev.
Code ("ORC") sec.sec. 1707.041, 1707.042, 1707.23 and 1707.26 (the "Take-Over
Act"), and a declaratory judgment declaring that the Take-Over Act is
unconstitutional as it may be applied to the Offer, (ii) preliminary and
permanent injunctive relief prohibiting application of ORC sec. 1701.01(CC)(2)
in connection with the Ohio Control Share Acquisition Act (the "Control Share
Acquisition Act") to the Offer and a declaratory judgment declaring that such
Act is unconstitutional to the extent it is applied to impair the voting rights
of certain holders of the Shares, and (iii) preliminary and permanent injunctive
relief prohibiting the Company and its Directors from enforcing or amending the
Rights Agreement (except to redeem the Rights) and directing the Company and its
Directors to redeem the Rights, and a declaratory judgment declaring that the
Rights Agreement and the Rights are invalid, unlawful, null and void. On March
6, 1995, the Luxottica Plaintiffs filed a First Amended Verified Complaint (the
"Luxottica First Amended Complaint") which adds Avant-Garde Optics, Inc.
("Avant-Garde") as a Luxottica Plaintiff and which, in addition, seeks (i) a
declaratory judgment that Directors of the Company who are not officers of the
Company are in breach of their fiduciary duties under Ohio law for failing to
approve the tender offer and thereby rendering the Rights Agreement
inapplicable, and (ii) preliminary and permanent injunctive relief requiring the
Directors of the Company who are not officers of the Company to approve the
Offer and thereby render the Rights Agreement inapplicable. The foregoing
descriptions of the Luxottica Complaint and of the Luxottica First Amended
Complaint are qualified in their entirety by reference to each complaint.
On March 3, 1995, the Luxottica Plaintiffs filed motions for a temporary
restraining order and preliminary injunction against the enforcement of the Ohio
Take-Over Act and prohibiting the Company and its Directors from classifying or
treating any Shares as "interested shares" pursuant to ORC sec. 1701.01(CC)(2)
for purposes of conducting the shareholder vote on Luxottica's proposed control
share acquisition at the Special Meeting of the Company's shareholders to be
held pursuant to the Control Share Acquisition Act.
On March 15, 1995, the District Court held a hearing on a motion by the
Luxottica Plaintiffs for preliminary and permanent injunctive relief prohibiting
application of certain provisions of the Control Share Acquisition Act. The
District Court also granted Plaintiffs leave to file a Second Amended Verified
Complaint (the "Luxottica Second Amended Complaint") that requests the District
Court (i) preliminarily and permanently to order the Company and the Directors
of the Company to permit Avant-Garde, or its designated representative, to
examine and copy the shareholder records and to provide Avant-Garde the records
on the media requested in a March 7, 1995 letter from Avant-Garde to the
Company, and (ii) to
9
<PAGE> 10
declare and adjudge that the close of business on March 17, 1995, is the valid
and effective record date for the solicitation of agent designations. The
foregoing description of the Luxottica Second Amended Complaint is qualified in
its entirety by reference to such complaint.
A hearing is scheduled for March 16, 1995 in the District Court on a motion
by the Luxottica Plaintiffs requiring the Company to show cause why it should
not be required to produce all shareholder records.
State Court Action. On March 7, 1995, each of Bruce Allen; Frederick
Schwartz and David Holmes; and Glenn Freedman, Feroje Tejahi, David Lazarus,
Blair Hager and Barry Adelman, respectively, filed complaints (each, a "State
Court Complaint") in the Court of Common Pleas, Hamilton County, Ohio naming the
Company and its Directors as defendants (the "Defendants"). (Allen v. The United
States Shoe Corporation, et al., Civil Action No. A9501170, Schwartz, et al. v.
Kronick, et al., Civil Action No. A9501172, and Freedman, et al. v. Kronick, et
al., Civil Action No. A9501171.) The relief sought includes, among other things,
(i) class action certification, (ii) a declaration that the Directors of the
Company have breached their fiduciary duties and an order directing that the
Directors of the Company carry out their fiduciary duties, (iii) an order that
the Defendants consider the Offer in good faith, (iv) an order that the
Defendants rescind any transactions that are unfair, (v) an order enjoining any
action by the Defendants to change the Company's cumulative voting rules, (vi)
an order enjoining the transaction complained of in the complaint or any related
transaction, (vii) an order that the Defendants account for any profits realized
as a result of the transaction complained of in the complaint and (viii) an
award of compensatory damages, attorneys' fees and costs. The foregoing
description of the State Court Complaints is qualified in its entirety by
reference to each State Court Complaint.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 1 -- Pages 6 to 26 of the Proxy Statement.
Exhibit 2 -- Form of Severance Agreement.
Exhibit 3 -- Form of Amended and Restated Trust Agreement.
Exhibit 4 -- Amendment to Hudson Employment Agreement.
Exhibit 5 -- Form of Special Bonus Agreement.
Exhibit 6 -- Economic Bridge Program.
Exhibit 7 -- Form of Letter to Shareholders of the Company, dated March 16,
1995*.
Exhibit 8 -- Form of Press Release, dated March 16, 1995 relating to the
Offer.
Exhibit 9 -- Opinion of James D. Wolfensohn Incorporated.
Exhibit 10 -- Form of Press Release, dated March 16, 1995 relating to the
Nine West Agreement.
Exhibit 11 -- Nine West Agreement.
Exhibit 12 -- Luxottica Complaint (filed as Exhibit (g)(1) to the 14D-1, and
incorporated herein by this reference).
Exhibit 13 -- First Amended Luxottica Complaint (filed as Exhibit (g)(2) to
the 14D-1, and incorporated herein by this reference).
Exhibit 14 -- Second Amended Luxottica Complaint (filed as Exhibit (g)(4) to
the 14D-1, and incorporated herein by this reference).
Exhibit 15 -- State Court Complaints.
</TABLE>
- ---------------
* Included in copies mailed to shareholders.
10
<PAGE> 11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 16, 1995
THE UNITED STATES SHOE CORPORATION
By: /s/ BANNUS B. HUDSON
Name: Bannus B. Hudson
Title: President and Chief Executive
Officer
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------ ------------
<S> <C> <C>
Exhibit 1 -- Pages 6 to 26 of the Proxy Statement.................................
Exhibit 2 -- Form of Severance Agreement..........................................
Exhibit 3 -- Form of Amended and Restated Trust Agreement.........................
Exhibit 4 -- Amendment to Hudson Employment Agreement.............................
Exhibit 5 -- Form of Special Bonus Agreement......................................
Exhibit 6 -- Economic Bridge Program..............................................
Exhibit 7 -- Form of Letter to Shareholders of the Company, dated March 16,
1995*................................................................
Exhibit 8 -- Form of Press Release, dated March 16, 1995 relating to the Offer....
Exhibit 9 -- Opinion of James D. Wolfensohn Incorporated..........................
Exhibit 10 -- Form of Press Release, dated March 16, 1995 relating to the Nine West
Agreement............................................................
Exhibit 11 -- Nine West Agreement..................................................
Exhibit 12 -- Luxottica Complaint (filed as Exhibit (g)(1) to the 14D-1, and
incorporated herein by this reference)...............................
Exhibit 13 -- First Amended Luxottica Complaint (filed as Exhibit (g)(2) to the
14D-1, and incorporated herein by this reference)....................
Exhibit 14 -- Second Amended Luxottica Complaint (filed as Exhibit (g)(4) to the
14D-1, and incorporated herein by this reference)....................
Exhibit 15 -- State Court Complaints...............................................
</TABLE>
- ---------------
* Included in copies mailed to shareholders.
<PAGE> 1
EXHIBIT 1
EXECUTIVE COMPENSATION
The following information relates to the annual and long-term
compensation for services in all capacities to the Corporation for the fiscal
years ended January 29, 1994, January 30, 1993 and February 1, 1992 of those
persons who, at January 29, 1994 were (i) the Chief Executive Officer and (ii)
the other four most highly compensated executive officers of the Corporation
(the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------
Other Restricted Securities
Annual Shares Underlying All Other
Compen- Awards Options/SARs LTIP Compensation
Name and Principal Position Year Salary ($)(a) Bonus ($) sation ($) (b)($) (c)(#) Payouts ($) (d)($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bannus B. Hudson
CEO 1993 $583,492 $0 $0 $0 40,000 $0 $3,492
1992 $571,214 $0 $0 $0 40,000 $0 $3,714
1991 $525,865 $210,000 $0 $123,800 30,000 $0 $3,365
David M. Browne
President, Optical Retailing
Group 1993 $332,922 $300,000 $0 $50,000 30,000 $0 $7,922
1992 $320,717 $200,000 $0 $0 25,000 $0 $9,417
1991 $269,237 $209,000 $0 $0 20,000 $0 $4,237
Noel E. Hord
President, Footwear Group (e) 1993 $549,400 $0 $54,886 (f) $190,000 (g) 50,000 $0 $0
1992 $0 $0 $0 $0 0 $0 $0
1991 $0 $0 $0 $0 0 $0 $0
Michael M. Searles
President, Women's Apparel
Retailing Group (e) 1993 $592,300 $500,000 (h)$40,385 (i) $0 100,000 $0 $0
1992 $0 $0 $0 $0 0 $0 $0
1991 $0 $0 $0 $0 0 $0 $0
Martin S. Sherman
Sr. Vice-President 1993 $356,797 $0 $0 $0 0 $0 $4,497
1992 $374,364 $0 $0 $0 12,000 $0 $4,364
1991 $340,537 $73,000 $0 $0 15,000 $0 $4,237
=============================================================================================================================
</TABLE>
-1-
<PAGE> 2
(a) For Messrs. Hord and Searles, such amounts include $250,000
and $150,000 of guaranteed incentive bonus payments, respectively. For Messrs.
Hudson, Browne and Sherman, such amounts include contributions by the
corporation made to retirement and deferred compensation plans as shown in the
"All Other Compensation" column of this table.
(b) As of January 29, 1994, the Company had granted 85,000
restricted Common Shares with an aggregate value (assuming no restrictions) of
$1,158,125. The Named Officers' restricted shareholdings (as of that date) are
as follows: Mr. Hudson - 45,000 shares/$613,125; Mr. Browne - 5,000
shares/$68,125; and Mr. Hord - 20,000 shares/$272,500. Dividends are paid to
holders of restricted Common Shares.
(c) The Corporation's 1988 Employee Incentive Plan (the "1988
Plan") does not permit grants of stock appreciation rights. The 1988 Plan (as
well as all of the Corporation's other plans under which stock options have
been awarded) provides for acceleration of exercisability of options granted
thereunder upon the occurrence of certain events constituting a change of
control, as described in the 1988 Plan.
(d) Amounts listed hereunder reflect contributions by the
Corporation made to various retirement and deferred compensation plans in which
the Named Officers have participated. The Corporation's Salaried Employees
Deferred Compensation Plan (the "Salaried Employees Plan") covers
approximately 378 salaried employees who are not eligible to fully participate
in The United States Shoe Corporation Salaried Employees Tax Incentive Savings
Plan (the "U.S. Shoe Plan") or the LensCrafters Tax Incentive Savings Plan (the
"LensCrafters Plan"), both of which qualify under Section 401(k) of the
Internal Revenue Code. Such an employee who is age 21 or older is eligible to
participate in the plan upon completion of one year of service (at least 1,000
credited hours) and designation of ineligibility to participate in the U.S.
Shoe Plan or the LensCrafters Plan by the committee that administers the plans.
An eligible employee may elect to participate, effective at the beginning of
any plan year, by designating salary deferral contributions in an amount
between 1% and 10%, inclusive (limited to whole percentages), of his or her
salary. The plan further provides, however, that employee contributions are
subject to a maximum of $8,994 for calendar year 1993 and $9,240 for calendar
year 1994. A participant also may change his or her level of participation or
terminate participation at the beginning of any plan year. The Corporation
makes matching contributions (subject to a maximum of 2-1/2% of the
participant's gross compensation). At present, amounts deferred by
participants under the plan and the Corporation's matching contributions are
not funded; however, participant contributions are assumed to be invested in
mutual funds and Corporation contributions are assumed to be invested in the
Corporation's Common Shares. All contributions under the plan are fully
vested, but may not be paid to participants except upon death, change in
control of the Corporation (as defined in the plan) or termination of
employment. In any such event, a participant will receive the balance credited
to his or her deferred account in a lump sum. During the Corporation's last
fiscal year, amounts contributed by the Corporation for the Named Officers and
all executive officers as a group were as follows: Mr. Hudson: $3,492; Mr.
Browne: $7,922; Mr. Hord: $0; Mr. Searles: $0; Mr. Sherman: $4,497; and all
participating executive officers as a group (15 persons): $45,727.
-2-
<PAGE> 3
The Corporation also maintains the U.S. Specialty Retailing Division
Profit Sharing Plan for qualified employees of participating subdivisions of
the Women's Apparel Retailing Group. Under such plan, if the subdivision's
operating income for the plan year exceeds 20% of the value of the
subdivision's net tangible assets for the plan year, the Corporation
contributes annually the greater of (i) 5% of the total compensation paid
during the plan year to eligible employees of the subdivision; or (ii) the
lesser of (a) 50% of the excess of the subdivision's operating income for the
plan year over 20% of the value of the net tangible assets used in the
subdivision's business during such year, or (b) 10% of the total compensation
paid during the plan year to eligible employees of the subdivision. If the
subdivision's operating income does not exceed 20% of the value of the
subdivision's net tangible assets for the plan year, but the combined operating
income of all participating subdivisions exceeds 20% of the value of the
combined net tangible assets of all participating subdivisions for the plan
year, the Corporation contributes the lesser of (i) the product obtained by
multiplying (a) 50% of the excess of the combined operating income of all
participating divisions for the plan year over an amount equal to 20% of the
value of the combined net tangible assets of all participating divisions for
the plan year times (b) a fraction, the numerator of which is equal to the
total compensation of all eligible employees for the participating subdivision
for the plan year and the denominator of which is equal to total compensation
of all eligible employees for all participating subdivisions for the plan year;
or (ii) 5% of the total compensation paid during the plan year to the
subdivision's eligible employees. No contributions were made to the Named
Officers under such plan for fiscal year 1993.
(e) Messrs. Hord and Searles were first employed by the
Corporation in 1993.
(f) Such amount represents payment of $54,886 for expenses in
connection with Mr. Hord's relocation to Cincinnati, Ohio, including a gross-up
for income taxes.
(g) Such amount represents an award of 20,000 restricted Common
Shares to replace the value of forfeited option shares that had been granted by
Mr. Hord's previous employer.
(h) Such amount represents a payment of $500,000 upon commencement
of employment to replace the value of forfeited option shares granted by Mr.
Searles' previous employer.
(i) Such amount represents payment of $40,385 for expenses in
connection with Mr. Searles' relocation to Enfield, Connecticut, including a
gross-up for income taxes; such amount does not include payment of $706,576 by
the Corporation to a relocation company in connection with the sale of Mr.
Searles' New Jersey residence. See "Certain Transactions." This amount is not
included in the Summary Compensation Table because the Corporation does not
consider such amount to be compensation to Mr. Searles under applicable
Internal Revenue Service regulations.
-3-
<PAGE> 4
The following information relates to grants of options awarded to the
Named Officers in fiscal year 1993 under the Corporation's 1983 Key Personnel
Stock Option Plan (the "1983 Plan") and 1988 Employee Incentive Plan (the "1988
Plan").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Grant Date
Options/SARs Employees in Exercise or Expiration Present Value
Name Granted (#)(a) Fiscal Year Base Price (/Sh) Date ($)(b)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bannus B. Hudson 40,000 5.8% $ 11.625 9/24/03 $ 117,200
David M. Browne 30,000 4.3% $ 11.625 9/24/03 $ 87,900
Noel E. Hord 50,000 7.2% $ 9.50 11/19/03 $ 111,500
Michael M. Searles 100,000 14.5% $ 11.625 9/24/03 $ 293,000
Martin S. Sherman 0 0% $ 0 -- $ 0
</TABLE>
(a) Options granted to Mr. Hord were granted on May 19, 1993 and
first become exercisable on May 19, 1994. Options granted to the remaining
Named Officers were granted on March 24, 1993 and first became exercisable on
March 24, 1994. All options granted are subject to a vesting schedule, with
25% of the total grant exercisable on the first anniversary of the grant, with
the remainder exercisable in 25% increments at each anniversary of the grant.
In the event of death or disability, outstanding options may be exercised by
the optionee or his or her personal representative for a period of one year
following such event. In the event of retirement or any other termination,
outstanding options may be exercised for a period of three months following
such event. All outstanding options automatically vest and become exercisable
in the event of an "Event of Acceleration" as defined in the plans, which
includes the occurrence of certain events constituting a change of control as
described therein. All options were granted at an exercise price equal to the
closing price on the New York Stock Exchange -- Composite Transactions of the
Corporation's Common Shares on the date of grant.
(b) The estimated grant date present value reflected in the above
table is determined using the Black- Scholes model. The material assumptions
and adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected in the above table include the following: (1) an
exercise price on the options of $11.63 and $9.50 respectively, each equal to
the fair market value of the underlying Common Shares on the dates of grant;
(2) option terms of 10.5 years; (3) interest rates representing the interest
rate
-4-
<PAGE> 5
on U.S. Treasury securities with maturity dates corresponding to that of the
option term as of the dates of grant; (4) volatility of 38.45% calculated using
daily stock prices for the one-year period prior to the dates of grant; (5)
dividends at the rate of $0.32 per share representing the annualized dividends
paid with respect to a Common Share at the dates of grant; and (6) a reduction
of approximately 20% to reflect the probability of forfeiture due to
termination prior to vesting, and a reduction of approximately 18% to reflect
the probability of a shortened option term due to termination of employment
prior to the option expiration date.
The ultimate value of the options will depend on the future
market price of the Corporation's Common Shares, which cannot be forecast with
reasonable accuracy. The actual value, if any, an optionee will realize upon
exercise of an option will depend on the excess of the market value of the
Corporation's Common Shares over the exercise price on the date the option is
exercised.
-5-
<PAGE> 6
The following information relates to unexercised options to purchase the
Corporation's Common Shares granted in fiscal 1993 and prior years under the
1988 Plan, the 1987 Key Personnel Stock Option Plan, the 1983 Key Personnel
Stock Option Plan and the 1978 Key Personnel Stock Option Plan to the Named
Officers and held by them at January 29, 1994. During fiscal 1993, none of the
Named Officers exercised any such options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs at
Options/SARs at FY-End(c)
Shares Value FY-End
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(a) Unexercisable (#)(b) Unexercisable ($)(b)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bannus B. Hudson - - 115,750/91,250 $306,563/$749,375
David M. Browne - - 42,750/61,250 $136,250/$545,000
Noel E. Hord - - -0-/50,000 $0/$681,250
Michael M. Searles - - -0-/100,000 $0/$1,362,500
Martin S. Sherman - - 109,100/-0- $204,375/$0
</TABLE>
(a) Aggregate market value of the shares covered by the option,
less the aggregate price paid by the Named Officer.
(b) The Common Shares represented by the "Unexercisable" amounts
could not be acquired by the respective Named Officer as of January 29, 1994,
and future exercisability is subject to continuing employment by the
Corporation and incremental vesting for periods up to four years, depending
upon the individual Named Officer, subject to acceleration for retirement,
death, disability or in the event of a change in control (as defined in the
respective Plans).
(c) Amounts reflecting gains on outstanding options based upon the
closing price of the Corporation's Common Shares on January 28, 1994, the last
trading day of the fiscal year.
-6-
<PAGE> 7
KEY EXECUTIVE INCENTIVE PROGRAM
The Named Officers participate in the Corporation's Key Executive Long
Term Incentive Program, which presently covers members of the Corporation's
Management Committee (including in 1993 all of the Named Officers) and is
designed to attract and retain highly qualified senior executives by rewarding
their contributions to the overall financial results of the Corporation.
Awards under the program are restricted Common Shares and non-qualified stock
options made pursuant to the 1988 Plan. Under the program, beginning February
2, 1992 and for each fiscal year thereafter, a new three-year performance
period is established. Each such performance period has interim goals, set by
the compensation committee of the board of directors, based upon a combination
of factors including cost of capital and return on assets. A target dollar
value for restricted Common Share grants is determined at the start of each
such performance period and is allocated approximately equally over each of the
three years. The aggregate target dollar value for restricted Common Share
grants has been established at $1,332,000 for the three-year performance period
which began January 31, 1993. The target dollar value for restricted Common
Share grants is based upon median competitive levels for long-term incentive
opportunities (including stock option grants) of the comparison framework
companies as described in the Compensation Committee Report. The precise
number of restricted Common Shares awarded, if any, is determined by the
average market value of the Corporation's Common Shares on the date of each
award. Grants of restricted Common Shares are awarded to participants each
year of the applicable performance period only if the yearly goals are
-7-
<PAGE> 8
achieved by the Corporation. No awards are made for performance below the
established minimum, and superior performance will result in awards of up to
200% of the targeted amount. Restricted Common Shares granted under the
program, if any, will vest five years after the start of any applicable
performance period. If restricted Common Shares are so awarded, options to
purchase a similar number of Common Shares also may be granted. The Committee
targets the value of restricted share grants to stock option grants at
approximately a 60% to 40% ratio. The decision to grant such options is based
upon the achievement of the same performance goals as those established for
restricted share awards and the Committee's determination of the executive's
future contribution to the Corporation. No awards or grants were made under
the Key Executive Long Term Incentive Plan for fiscal 1993 because targeted
levels of operating income and return on assets employed were not met.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
The Corporation has entered into Severance Compensation Agreements with
seventeen of its present senior executives, including all of the Named
Officers. All Severance Compensation Agreements as amended to date have
identical terms. The purpose of such Severance Compensation Agreements is to
minimize distraction in circumstances arising from the possibility of a change
in control of the Corporation. In the event of termination of employment
before the expiration of six months following a "change in control", as defined
in the Severance Compensation Agreements, each such executive will be entitled
to certain
-8-
<PAGE> 9
termination payments ("severance compensation") unless the executive's
termination results from death, disability, retirement, cause or a decision by
the executive to terminate employment other than for "Good Reason", which is
defined to include certain potentially abusive tactics intended to force the
executive to terminate employment, such as certain changes in the executive's
duties, titles and/or offices; reduction in base salary; elimination of certain
benefit plans, or change in the executive's eligibility to participate in or
benefit from such plans or any executive bonus arrangement; relocation of the
Corporation's principal executive offices or relocation of the executive;
failure to provide vacation; any material breach of the Severance Compensation
Agreement by the Corporation; failure to assign the Severance Compensation
Agreement to a successor organization; or purported termination of the
executive's employment not in accordance with the terms and provisions of the
Severance Compensation Agreement.
In the event of a compensated termination before the expiration of six
months following a change in control, the Corporation shall pay to such
executive (i) the full base salary to which the executive is entitled through
the date of termination, (ii) credit for unused vacation, (iii) a lump-sum
payment equal to the greater of the executive's annual base salary on the date
on which the most recent amendment to the Severance Compensation Agreement was
entered into or on the date of termination of employment, and (iv) severance
pay in an amount equal to the excess over $100 of three times the average
aggregate annual compensation paid to the executive by the Corporation during
the executive's five taxable years preceding the change in control (or portion
of such period during which the executive
-9-
<PAGE> 10
was so employed), reduced by the amount paid to the executive pursuant to
(iii), immediately above. All amounts due an executive, except for amounts
payable under (iv), above, are payable on the fifth business day following the
date of termination of employment. The remaining unpaid amount of such
severance pay is payable in 52 equal bi-weekly installments following the date
of termination, subject to adjustment to take into account impending retirement
at age 65, avoidance of "parachute payments" under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and compensation from other
employment. In addition, the Corporation has agreed to maintain, on behalf of
each executive who is a party to a Severance Compensation Agreement, certain
employment benefits until the earlier of two years after the date of
termination or commencement of full-time employment by the executive with a new
employer. Under the provisions of such Severance Compensation Agreement, the
executive has no obligation to seek other employment or otherwise to mitigate
damages resulting from termination of employment. The Corporation has agreed
to require any successor organization to assume the Corporation's obligations
under each Severance Compensation Agreement and to pay all legal fees and
expenses incurred by the executive as a result of the Corporation contesting
certain aspects of the Severance Compensation Agreement.
Each Severance Compensation Agreement also provides that if the executive
is employed by the Corporation on the date six months following a change in
control, the Corporation shall pay to the executive a lump-sum payment equal to
the greater of the executive's annual base salary on the date the most recent
amendment to the Severance
-10-
<PAGE> 11
Compensation Agreement was entered into or on the date six months following a
change in control; provided, however, that no severance compensation is payable
to the executive if (i) the executive is assigned to the corporate staff
(rather than assigned to women's apparel retailing, optical retailing or
footwear (the "Company Groups")) at the time of such change in control, and
immediately after a change in control resulting from the sale of one Company
Group, the Corporation continues to own substantially all the assets of two of
the Company Groups, or (ii) the executive is assigned to one of the Company
Groups and a change in control occurs as a result of the sale of one or more of
the Company Groups and after such change in control the Corporation continues
to own substantially all of the assets of the Company Group to which the
executive is assigned. In addition, if the executive's employment is
subsequently terminated and such termination would give rise to a right to
receive severance compensation had the termination occurred within six months
of a change in control, then the executive shall be entitled to receive the
severance compensation described in the immediately preceding paragraph except
that such severance compensation shall be reduced by the amount of any
compensation paid under the circumstances described in this paragraph.
Each Severance Compensation Agreement provides that it is terminable upon
the earliest of (i) June 30 of any year after 1996 (upon 60 days' prior written
notice by either party), or (ii) termination of employment based on death,
disability, retirement, cause, or by the executive other than for Good Reason,
or (iii) two years after the date of a change in control.
-11-
<PAGE> 12
Trusts formed for the purpose of ensuring payment of all amounts due
under the Severance Compensation Agreements have been implemented with PNC Bank,
Ohio, National Association, Cincinnati, Ohio, serving as Trustee. An amount
equal to the aggregate amount payable under each of the Severance Compensation
Agreements would be paid into the corresponding trust upon the occurrence of a
change of control or an event likely or intended to lead to a change of control
of the Corporation.
Mr. Hudson has an employment agreement pursuant to which the Corporation
has agreed to pay him a salary of not less than $500,000 a year. At this time
Mr. Hudson's annual salary is $580,000. The employment agreement has an initial
term ending July 31, 1995, and provides for an automatic five-year extension
thereafter unless terminated by either party by written notice given on or
before the preceding January 1. If either the Corporation or Mr. Hudson so
terminates the employment agreement, the Corporation has agreed to pay Mr.
Hudson a termination payment in an amount equal to twice his then-current annual
salary, such amount to be paid over a two-year period. In addition, if, during
the initial term or extension of the employment agreement, the board of
directors assigns Mr. Hudson to a position of less authority and responsibility
than President and Chief Executive Officer of the Corporation, Mr. Hudson may
terminate the employment agreement within 60 days of such reassignment by
providing 30 days' written notice. In such event the Corporation has agreed to
pay Mr. Hudson the same termination payment. In the event of Mr. Hudson's
disability or death during the term of the employment agreement, the Corporation
has agreed to pay him or his beneficiary an amount equal to twice his annual
salary for the calendar year in which he becomes disabled or dies, as the case
may be, such amount to be paid over a ten-year period. In the event of merger
or consolidation of the Corporation into another corporation, or the sale of all
or substantially all of its assets, Mr. Hudson has the right to terminate the
employment agreement within six months after the effective date of any such
event, by giving 90 days' prior written notice, in which event he will be
entitled to receive a termination payment in an amount equal to either (i) his
then-current annual salary, such amount to be paid over a one-year period, if
such termination occurs during the initial term of the employment agreement, or
(ii) twice his then-current annual salary, such amount to be paid over a
two-year period, if such termination occurs thereafter.
Mr. Browne has an employment agreement with the Corporation the initial
term of which ended on December 31, 1993. Effective January 1, 1994, Mr.
Browne's employment agreement was amended to retain his services as President of
the Optical Retailing Group. Pursuant to Mr. Browne's employment agreement, the
Corporation has agreed to pay him a salary of not less than $325,000 a year
until April 30, 1994, and not less than $425,000 thereafter. At this time Mr.
Browne's annual salary is $325,000. The employment agreement provides for a
one-time restricted stock award of up to $50,000 in value with a three-year
restriction period, the exact amount to be based upon the performance of the
Optical Retailing Group for fiscal 1993. The employment agreement has a term
ending December 31, 1996, and provides for automatic one-year extensions
thereafter unless terminated by either party by written notice given on or
before the preceding July 1. If either the Corporation or Mr. Browne so
terminates the employment agreement, the Corporation has agreed to pay Mr.
Browne a termination payment in an amount equal to his then-current annual
salary, such amount to be paid over a one-year period. In addition, if, during
the term or extension of the amended employment agreement, the board of
directors assigns Mr. Browne to another senior executive position in the Optical
Retailing Group, or to a position anywhere in the Corporation of less authority
and responsibility than President and Chief Executive Officer of the Optical
Retailing Group, Mr. Browne may terminate the employment agreement upon 90 days'
written notice. In such event the Corporation has agreed to pay Mr. Browne the
same termination payment. In the event of Mr. Browne's disability during the
term of the employment agreement, the Corporation has agreed to pay him or his
beneficiary an amount equal to twice his annual salary for the calendar year in
which he becomes disabled,
12
<PAGE> 13
such amount to be paid over a ten-year period. In the event of merger or
consolidation of the Corporation into another corporation, or the sale of all or
substantially all of its assets, Mr. Browne has the right to terminate the
employment agreement within six months after the effective date of any such
event, by giving 90 days' prior written notice, in which event he will be
entitled to receive a termination payment in an amount equal to his then-current
annual salary, such amount to be paid over a one-year period.
Mr. Hord has an employment agreement pursuant to which the Corporation
has agreed to pay him a salary of not less than $450,000 a year. At this time
Mr. Hord's annual salary is $450,000. The employment agreement provides for a
restricted stock award of 20,000 shares, the restrictions on which are to lapse
over a five-year period, and a nonqualified stock option award of 50,000 shares.
The employment agreement provides that Mr. Hord may also earn incentive
compensation in fiscal years 1993 through 1996 in an amount equal to 1.5% of the
annual operating income (after capital costs) of the Footwear Group; such
incentive compensation shall not be less than $250,000 in each of the fiscal
years 1993 through 1995. The employment agreement has an initial term ending
May 31, 1997, and provides for automatic one-year extensions thereafter unless
terminated by either party by written notice given on or before the preceding
November 30. If either the Corporation or Mr. Hord so terminates the
employment agreement, the Corporation has agreed to pay Mr. Hord a termination
payment in an amount equal to his then-current annual salary, such amount to be
paid over a one-year period. In addition, if, during the initial term or
extension of the employment agreement, the board of directors assigns Mr. Hord
to another senior executive position, Mr. Hord may terminate the employment
agreement upon 90 days' prior written notice. In such event the Corporation has
agreed to pay Mr. Hord the same termination payment. In the event of Mr. Hord's
disability during the term of the employment agreement, the Corporation has
agreed to pay him or his beneficiary an amount equal to twice his annual salary
for the calendar year in which he becomes disabled, such amount to be paid over
a ten-year period. In the event of merger or consolidation of the Corporation
into another corporation, or the sale of all or substantially all of its assets,
Mr. Hord has the right to terminate the employment agreement within six months
after the effective date of any such event, by giving 90 days' prior written
notice, in which event he will be entitled to receive a termination payment in
an amount equal to his then-current annual salary, such amount to be paid over a
one-year period.
Mr. Searles has an employment agreement pursuant to which the
Corporation has agreed to pay him an initial sum of $500,000 and a salary of
not less than $500,000 a year. At this time Mr. Searles' annual salary is
$500,000. The employment agreement provides for a nonqualified stock option
award of 100,000 shares. The employment agreement provides that Mr. Searles
may also earn incentive compensation in fiscal years 1993 through 1995 equal to
0.7% of the annual operating income (after capital costs) of the Women's
Apparel Retailing Group; such incentive compensation shall not be less than
$150,000 in each of the fiscal years 1993 and 1994. The employment agreement
has an initial term ending March 31, 1996, and provides for automatic one-year
extensions thereafter unless terminated by either party by written notice given
on or before the preceding September 30. If either the Corporation or Mr.
Searles so terminates the employment agreement, the Corporation has agreed to
pay Mr. Searles a termination payment in an amount equal to his then-current
annual salary, such amount to be paid over a one-year period. In addition, if,
during the initial term or extension of the employment agreement, the board of
directors assigns Mr. Searles to another senior executive position, Mr. Searles
may terminate the employment agreement upon 90 days' prior written notice. In
such event the Corporation has agreed to pay Mr. Searles the same termination
payment. In the event of Mr. Searles' disability during the term of the
employment agreement, the Corporation has agreed to pay him or his beneficiary
an amount equal to twice his annual salary for the calendar year in which he
becomes disabled, such amount to be paid over a ten-year period. In the event
of merger or consolidation of the Corporation into another corporation, or the
sale of all or substantially all of its assets, Mr. Searles has the right to
terminate the employment agreement within six months after the effective date
of any such event, by giving 90 days' prior written notice, in which event he
will be entitled to receive a termination payment in an amount equal to his
then-current annual salary, such amount to be paid over a one-year period.
Mr. Sherman has an employment agreement pursuant to which the Corporation
has agreed to pay him a salary of $308,000 a year. The employment agreement has
a term ending June 30, 1996. In the event of Mr. Sherman's disability or death
during the term of the employment agreement, the Corporation has agreed to pay
him or his beneficiary an amount equal to twice his annual salary in effect (a)
on October 19, 1990 or (b) during the calendar year in which he becomes disabled
or dies, whichever is greater, such amount to be paid over a ten-year period. In
the event of merger or consolidation of the Corporation into another
corporation, or the sale of all or substantially all of its assets, Mr. Sherman
has the right to terminate the employment agreement within six months after the
effective date of any such event, by giving 90 days' prior written
13
<PAGE> 14
notice, in which event he will be entitled to receive a termination payment in
an amount equal to his base salary, such amount to be paid over a one-year
period.
PENSION PLANS
The Corporation maintains the Salaried Employees Pension Plan for
employees of the Corporation (the "Pension Plan"). Employees of the Women's
Apparel Retailing Group are not eligible to participate in the Pension Plan, but
may be eligible to participate in that Group's profit sharing plan. The Pension
Plan provides for fixed benefits in the event of retirement at a specified age
and after a specified number of years of service, based upon each employee's
annualized monthly compensation (salaries, wages, bonuses and commissions) for
the employee's five most highly compensated consecutive years within the
ten-year period preceding retirement ("Average Annual Compensation"). The
Corporation has adopted an unfunded supplemental retirement and death benefit
plan for participants in the Pension Plan to provide benefits in excess of
amounts permitted to be paid from the Pension Plan under the Internal Revenue
Code.
The following table sets forth aggregate annual retirement benefits
payable under the Pension Plans and the supplemental plan at normal retirement
date (age 65):
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE AT RETIREMENT
ANNUAL -----------------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$300,000 $66,618 $88,828 $111,026 $133,236 $133,236
$400,000 $91,118 $121,497 $151,857 $182,236 $182,236
$450,000 $103,368 $137,831 $172,273 $206,736 $206,736
$500,000 $115,618 $154,165 $192,689 $231,236 $231,236
$550,000 $127,868 $170,499 $213,105 $255,736 $255,736
$600,000 $140,118 $186,833 $233,521 $280,236 $280,236
$650,000 $152,368 $203,167 $253,937 $304,736 $304,736
$700,000 $164,618 $219,502 $274,352 $329,236 $329,236
$750,000 $176,868 $235,836 $294,768 $353,736 $353,736
</TABLE>
The plans cover the average of the Named Officers' annual salary (as reported in
the Summary Compensation Table) over the last five years ("Average Annual
Compensation"). Average Annual Compensation for the Named Officers as of
January 29, 1994 is: Mr. Hudson - $551,406; Mr. Browne - $350,886; Mr. Hord -
$450,000; Mr. Searles - $500,000; and Mr. Sherman - $379,823. Credited years of
service at January 29, 1994 under the plans for each of the Named Officers are
as follows: Mr. Hudson - 8 years; Mr. Browne - 7 years; Mr. Hord - 0 years; Mr.
Searles - 0 years; and Mr. Sherman - 30 years. Benefits are computed on a
straight life annuity basis. The amounts presented in the table are not subject
to Social Security or other offset amounts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Corporation
has furnished the following report on executive compensation:
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of four non-employee directors of the Corporation. No member of the
Committee has any insider or interlocking relationship with the Corporation, as
these terms are defined in applicable rules and regulations of the Securities
and Exchange Commission. The Committee is responsible for developing and
recommending the Corporation's executive compensation principles, policies and
programs to the Board of Directors. In addition, the Committee recommends to
the Board of Directors on an annual basis the compensation to be paid to the
Chief Executive Officer and, with advice from the Chief Executive Officer, to
each of the other executive officers of the Corporation, including the officers
named in the Summary Compensation Table of the proxy statement (the "Named
Officers").
The Committee works with an outside compensation consultant and supports
its compensation decisions by analysis of published surveys and special studies
undertaken periodically.
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<PAGE> 15
The Corporation's compensation programs have been designed to provide
its executive officers with market competitive salaries and the opportunity to
earn incentive compensation related to performance expectations identified by
the Board. The objectives of the Corporation's executive compensation program,
as developed by the Committee and subject to periodic review, are to:
- Provide a direct link between executive officer compensation and the
interests of the Corporation's shareholders by making a significant
portion of executive officer compensation dependent upon the financial
performance of the Corporation and its business segments and the price
performance of the Corporation's Common Shares.
- Support the achievement of the Corporation's annual and long-term
goals and objectives, which vary from year to year, as determined by
the Board.
- Establish total compensation targeted at median levels of salary and
incentive opportunities for comparable positions within a comparison
framework of retailing and specialty retailing companies and to be able
to pay top performers at compensation levels equivalent to those in the
top quartile of the industry.
- Significantly vary annual incentive compensation payments based on
performance in relation to the performance expectations identified
annually by the Board.
- Achieve and maintain desired levels of Common Share ownership within
the executive officer group; desired levels of Common Share ownership
are amounts valued at three times the salary level for the Chief
Executive Officer, two times the salary level for Senior Executive
Officers, and at the salary level for other executive officers of the
Corporation. The Corporation's Key Executive Long-Term Incentive Plan
and stock option plans are designed to provide opportunities for
ownership.
- Provide opportunities for equity ownership based on competitive levels,
corporate/segment performance, share price performance, and share
dilution considerations.
- Provide compensation plans and arrangements that create stability of
employment for better- performing executives.
The Committee's executive compensation policies seek to provide an
opportunity for compensation that varies with performance from compensation
levels provided to executives within a comparison framework of retailing and
specialty retailing companies of comparable size, business characteristics and
complexity. These companies are included in the Corporation's "peer" index for
stock price performance. Individual compensation levels recommended by the
Committee vary significantly among the Corporation's executive officers and from
year to year, because such levels also are based in part on annual and long-term
corporate performance, as well as on business segment and individual
performance. The Committee assigns more weight to long-term corporate
performance for higher level executives and more weight to annual
corporate/segment and individual performance for lower level executives in
recommending the compensation level of any individual executive officer.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Corporation includes (i)
base salary, (ii) annual incentive cash bonuses, (iii) long-term incentive
compensation in the form of stock options, and (iv) awards of restricted Common
Shares, historically based on the attainment of financial performance goals
established annually by the Committee. Bonuses, stock options and restricted
share grants (collectively, "Incentive Compensation") may represent between
one-third and two-thirds of an executive officer's potential annual
compensation, depending upon the position. In general, the proportion of an
executive officer's compensation that is Incentive Compensation increases with
the level of responsibility of the officer. Executive officers also receive
various benefits, including medical and pension plans, generally available to
all employees of the Corporation.
BASE SALARIES
The Committee seeks to set base salaries for the Corporation's
executive officers at levels which are competitive with median levels for
executives with comparable roles and responsibilities within comparably sized
companies included in the comparison framework. All of the Named Officers and
certain other execu-
15
<PAGE> 16
tive officers of the Corporation have written employment contracts, with
employment terms of three to five years, subject to extension by agreement of
the parties. See "Employment Contracts, Termination of Employment, and
Change-in-Control Arrangements." Such contracts establish minimum base salaries,
which the Committee may increase based upon individual experience and
performance. In setting annual salaries for individuals, the Committee first
considers the compensation paid for comparable positions within the comparison
framework and the executive's level and scope of responsibility as a benchmark
reference. It then considers individual performance of the executive. The
Committee primarily considers individual performance against expectations in
developing its salary increase recommendations. Because target levels of
operating income and return on assets were not achieved for fiscal year 1992, no
salary increases were granted to Named Officers in 1993.
ANNUAL INCENTIVE CASH BONUSES
Each year the Committee recommends to the Board of Directors an
aggregate target cash bonus amount for incentive-eligible executives. Target
bonus pools are established for each business segment and for certain groups of
corporate executives that reflect approximate median levels of similar bonus
arrangements at comparison framework companies. Actual awards from each bonus
pool vary, primarily based on financial performance of the Corporation or
financial performance of the business segment, as applicable, when compared to
goals established by the Committee and approved by the Board of Directors, as
well as on individual performance. For fiscal 1993, potential incentive bonus
awards for executive officers were based on achieving corporate operating income
levels compared to threshold, target and maximum levels approved by the Board,
adjusted for individual performance. For Mr. Searles, President of the
Corporation's Women's Apparel Retailing Group, a potential fiscal 1993 incentive
bonus award was based on a percentage of applicable segment operating income in
excess of 10 percent of the average asset base for the Women's Apparel Retailing
Group. For Mr. Hord, President of the Corporation's Footwear Group, a potential
fiscal 1993 incentive bonus award was based on a percentage of applicable
segment operating income in excess of four percent of the average asset base for
the Footwear Group. For Mr. Browne, President of the Corporation's Optical
Retailing Group, a potential fiscal 1993 incentive bonus award was based on
achieving segment operating income levels compared to threshold, target, and
maximum levels approved by the Board for the Optical Retailing Group, adjusted
for individual performance.
The only executive officer to receive a cash incentive award for fiscal
1993 based on financial and individual performance was Mr. Browne. The incentive
amount awarded to Mr. Browne was a result of the performance of the segment for
which he is responsible exceeding the target operating income level by more than
20 percent, as well as his strong individual performance. The result was payment
of annual incentive compensation in excess of his target cash bonus. Threshold
levels of performance for incentive bonuses were not achieved by the Corporation
as a whole or by its other business segments. As a result of not achieving
corporate or business segment threshold performance goals, no executive officer
other than Mr. Browne received performance-based incentive compensation for
1993. A guaranteed bonus for 1993 was awarded to Messrs. Hord and Searles based
on employment contract provisions. See "Employment Contracts; Termination of
Employment and Change in Control Arrangements" in the proxy statement.
OPTION GRANTS AND RESTRICTED SHARE AWARDS
The Corporation's 1988 Employee Incentive Plan (the "1988 Plan")
authorizes the Committee to award stock options and restricted Common Shares to
key executives.
Stock option grants are designed to align the long-term interests of
the Corporation's executives with those of its shareholders by directly linking
executive pay to shareholder return, as well as enabling executives to develop
and maintain significant long-term equity ownership positions in the
Corporation. The Committee generally grants non-statutory options early in each
fiscal year at an exercise price equal to the fair market value of the
Corporation's Common Shares on the date of grant. Options generally have
ten-year terms, with vesting over a four-year period. During the vesting period,
options which are then exercisable are forfeited three months after the
recipient leaves the employ of the Corporation. The number of options granted to
an executive is a function of the executive's level of responsibility and grants
for similar positions made by companies within the comparison framework
companies. Deviations from such numbers are based on the Committee's reasoned
expectations of the executive's future contribution to the Corporation.
Following the Board of Directors' recommendation that additional Common Shares
be approved for inclusion in the 1988 Employee Incentive Plan, the Committee
recommended that consideration of stock option grants to executive
16
<PAGE> 17
officers be deferred until the shareholders vote on adding shares to the Plan at
the annual meeting. See "Proposal to Amend The United States Shoe Corporation
1988 Employee Incentive Plan" in the proxy statement.
Effective in fiscal year 1992, the Committee adopted the Key Executive
Long-Term Incentive Program, which ties the grant of restricted shares to the
overall financial results of the Corporation. Members of the Corporation's
Management Committee, which included all of the Named Officers in 1993,
participate in this program. Each year, a new three-year performance period
begins, and a target dollar value for restricted Common Share grants is
determined by the Committee and is allocated approximately equally over the
three-year period. The target dollar value is based upon median competitive
levels for long-term incentive opportunities (including stock option grants) of
the comparison framework companies. The Committee sets annual interim goals for
each performance period, which goals for fiscal performance period 1992-1994 and
1993-1995 were based on achieving operating income levels in excess of a
threshold rate of return on assets. If annual interim goals are met, the target
dollar value is converted into a number of restricted Common Shares, based upon
the then-current market price of Common Shares. Restrictions on any restricted
Common Shares so awarded lapse over a five-year period. If restricted Common
Shares are awarded, options to purchase Common Shares also may be granted. The
decision to grant options is based upon the achievement of annual interim goals
and the Committee's expectations of the executive's future contribution to the
Corporation.
The historical goal of the Key Executive Long-Term Incentive Plan has
been to reward the top levels of management in a meaningful way for significant
improvement in the Corporation's financial results. No awards of restricted
Common Shares were made under this program for fiscal 1993 because threshold
return on asset levels were not met for either the 1992-1994 or the 1993-1995
performance periods.
The Committee has in the past and may in the future grant to the
Corporation's executives restricted Common Shares, the restrictions on which
lapse solely on the basis of continued employment with the Corporation. For
fiscal 1993, Mr. Browne was awarded such restricted Common Shares for having
achieved segment operating income in excess of 120 percent of the target level
approved by the Board. No other executive officer received such an award in
fiscal 1993.
The Committee reviewed and approved Mr. Hord's employment agreement.
Mr. Hord was awarded restricted Common Shares to replace the value of forfeited
option shares that had been granted to Mr. Hord by his previous employer.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of Bannus B. Hudson, President and Chief Executive
Officer of the Corporation, is recommended to the Board of Directors by the
Committee in a manner similar to that utilized for the Corporation's other
executive officers. Mr. Hudson was elected to the position of Chief Executive
Officer in March 1990, at which time he entered into a five-year employment
agreement with the Corporation which sets his annual base salary at a minimum of
$500,000.
Mr. Hudson's base salary was set by the Committee in May 1992 at an
annual rate of $580,000. Since no salary increase was provided in 1993 as a
result of disappointing 1992 financial performance, Mr. Hudson's base salary was
$580,000 for fiscal 1993, compared with $567,500 for fiscal year 1992. Mr.
Hudson received no cash incentive bonus or restricted Common Shares for fiscal
year 1993, because corporate financial goals for fiscal 1993 (based on achieving
a minimum level of operating income and return on assets employed) were not met.
A stock option grant of 40,000 Common Shares was made to Mr. Hudson in 1993.
Such grant was awarded consistent with the Committee's long-term incentive
guidelines and was based on the Committee's expectations of Mr. Hudson's future
contribution to the success of the Corporation. In addition, the Committee
recommended that any 1994 salary increase and/or stock option grant for Mr.
Hudson be deferred until later in the year when the results of the Corporation's
organization restructuring are better known by the Committee.
It is not anticipated that any executive officer will receive
compensation during 1994 that is not deductible by reason of the limitation
contained in section 162(m) of the Internal Revenue Code. During 1994 the
Committee will consider that issue and determine an appropriate policy for the
Corporation.
The Compensation Committee:
Joseph H. Anderer, Chairman Philip E. Beekman Thomas Laco Phyllis S. Sewell
17
<PAGE> 18
SHAREHOLDER RETURN PERFORMANCE INFORMATION
The following graph compares the cumulative total shareholder return on
the Corporation's Common Shares over a five-year period with the cumulative
total return of the Standard & Poor's 500 Stock Index (the "S&P 500") and a
"peer" index comprised of twenty-one companies* for the same period. The graph
assumes an investment of $100 in the Corporation's Common Shares and each index
on January 28, 1989, and reinvestment of all dividends.
[SHAREHOLDER RETURN PERFORMANCE INFORMATION GRAPH]
<TABLE>
<CAPTION>
January January January January January January
Fiscal Year 1989 1990 1991 1992 1993 1994
- ----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
S&P 500 $100 $114 $124 $152 $168 $190
Peer Group $100 $116 $134 $179 $187 $169
U.S. Shoe $100 $77 $44 $55 $52 $57
</TABLE>
The following supplemental information expresses as a percentage the
cumulative total shareholder return of the Corporation's Common Shares and of
each index over the periods indicated.
<TABLE>
<CAPTION>
Cumulative Return
For Period Ended
January 1994 One Year Three Year Five Year
------------ -------- ---------- ---------
<S> <C> <C> <C>
S&P 500 13% 53% 90%
Peer Group (10%) 27% 69%
U.S. Shoe 10% 30% (43%)
</TABLE>
*The companies comprising this group are AnnTaylor Stores Corp.; Baker
(J.), Inc.; Brown Group, Inc.; Burlington Coat Factory Warehouse Corp.; Charming
Shoppes, Inc.; Clothestime, Inc,; Dayton Hudson Corp.; Dress Barn, Inc.; Edison
Brothers Stores, Inc.; Gantos, Inc.; Gap, Inc.; Genesco, Inc.; The Limited,
Inc.; May Department Stores Co.; Melville Corp.; Merry-Go-Round Enterprises,
Inc.; Nordstrom, Inc.; Petrie Stores Corporation; Stride Rite Corp.; TJX
Companies, Inc.; and Woolworth Corporation. None of such companies offers a
range of products and services identical to the Corporation, although each is,
like the Corporation, a major footwear manufacturer and/or clothing retailer.
The returns of each company have been weighted according to their respective
stock market capitalization for purposes of arriving at a group average.
DIRECTOR COMPENSATION
Directors who are not employees of the Corporation ("Outside
Directors") are paid directors' fees for their services at the rate of $25,000
per year each, as well as attendance fees of $750 per meeting for service on
certain committees. Directors who chair such committees receive an additional
annual fee of $3,000. Total payments to such directors for the Corporation's
last fiscal year amounted to $320,500.
In addition to such remuneration, since 1985 Outside Directors of the
Corporation have received stock options under the 1985 Outside Directors Stock
Option Plan (the "1985 Director Plan"), which terminated on May 31, 1990, and
under the 1991 Outside Directors Stock Option Plan (the "1991 Director Plan").
Under the 1991 Director Plan an option is granted automatically on each
annual meeting date, as long as the Plan is in effect, to each Outside Director
who continues in office after such annual meeting to purchase 2,000
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<PAGE> 19
Common Shares (subject to adjustment as described below); such grants are
further subject to the limit on the maximum number of Common Shares that can be
issued or transferred pursuant to the exercise of options under the Plan. In no
event will an Outside Director be granted options to purchase, in the aggregate,
more than 20,000 Common Shares under the Plan (subject to adjustment for changes
in the Corporation's capitalization, such as a stock split, stock dividend,
recapitalization, consolidation or similar change that affects equity interests
in the Corporation).
Each option granted to an Outside Director under the Plan has an
exercise price equal to the fair market value of the shares subject to the
option (determined at the time the option is granted). Options may be exercised
by payment to the Corporation of the exercise price in cash or in Common Shares
already owned by the optionee. No stock option granted under the Plan may be
exercised more than ten years from the date the option is granted. Each option
granted to an Outside Director will be exercisable for one-third of the shares
subject to the option after one year from the date of grant and for an
additional one-third of the shares after each successive one-year period. Such
right to exercise is cumulative. An Outside Director to whom an option is
granted under the Plan may not, during his or her lifetime, transfer the option
to any other person. The 1991 Director Plan also provides that upon the
occurrence of certain events constituting a change in control, as defined in the
Plan, any unexercised or partially exercised options will become immediately
exercisable, and will remain exercisable for as long as they would be otherwise
exercisable. The 1985 Director Plan was substantially similar to the 1991
Director Plan, and options granted under the 1985 Director Plan are subject to
similar terms and conditions as those granted under the 1991 Director Plan.
During the Corporation's last fiscal year, options to purchase 18,000
shares were granted to Outside Directors at an exercise price of $9.50 under the
1991 Director Plan. No options were exercised under either the 1985 Director
Plan or the 1991 Director Plan during fiscal 1993. Options to purchase 104,824
shares currently are exercisable under the 1985 Director Plan and the 1991
Director Plan.
CERTAIN TRANSACTIONS
In connection with the employment of Mr. Searles and his relocation to
Enfield, Connecticut, the Corporation contracted with PHH Homequity, a third
party relocation service, and paid to PHH Homequity $706,576 in connection with
the sale of Mr. Searles' New Jersey residence.
PROPOSAL TO AMEND THE UNITED STATES SHOE CORPORATION
1988 EMPLOYEE INCENTIVE PLAN
BACKGROUND
The Corporation has adopted nine key personnel stock option plans since
1956. These plans were adopted to offer key employees the opportunity to acquire
Common Shares of the Corporation and to advance the interests of the Corporation
by providing a means for attracting and retaining competent persons as key
employees of the Corporation. The only key personnel stock option plan that has
not terminated according to its terms is the 1988 Employee Incentive Plan (the
"1988 Plan"), which, as previously amended, also provides for grants of
restricted shares as well as grants of stock options. In addition, options for
3,727,267 Common Shares remain outstanding pursuant to earlier plans which have
terminated according to their terms. The full text of the 1988 Plan and the
proposed amendment is set forth as Appendix A to this Proxy Statement and the
following discussion is qualified in its entirety by reference to such text.
On May 26, 1988, the shareholders approved the 1988 Plan. As of January
29, 1994, only 79,155 Common Shares remained available for issuance under the
1988 Plan, an amount which the board of directors believes is no longer
sufficient to achieve the purposes of the 1988 Plan.
PROPOSED AMENDMENT
The board of directors continues to believe that the future growth and
profitability of the Corporation depends in large measure on the Corporation's
ability to attract and retain competent persons as key employees of the
Corporation and to encourage those employees to acquire a "stake" in the future
economic performance of the Corporation through ownership of meaningful numbers
of Common Shares. In order for the
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Corporation to have sufficient options and restricted shares available for
future grant under the 1988 Plan, on October 14, 1993, the board of directors
adopted, subject to shareholder approval, an amendment to the 1988 Plan to
increase the number of Common Shares available for issuance thereunder by
2,000,000 shares.
SHARES RESERVED FOR THE PLAN
A total of 2,450,000 Common Shares, in the aggregate, were initially
available for options and grants of restricted shares under the 1988 Plan. Of
this total, grants involving 2,370,845 Common Shares previously have been made
and of that amount, grants for 2,146,220 shares remain outstanding under the
1988 Plan; therefore only 79,155 Common Shares are presently available for
issuance under the 1988 Plan, except that adjustments in such number may be made
to give effect to any relevant change in the Corporation's capitalization, such
as a stock split, a stock dividend, a recapitalization, a consolidation or a
similar change that affects equity interests in the Corporation. The effect of
the proposed amendment to the 1988 Plan is to increase the aggregate number of
Common Shares that may be issued pursuant to the 1988 Plan from 2,450,000 Common
Shares by 2,000,000 shares to 4,450,000 Common Shares. Grants of options or
restricted shares may be made under the 1988 Plan until May 20, 1997.
ELIGIBILITY
The key employees who receive options or grants of restricted shares
under the 1988 Plan are selected by the compensation committee of the
Corporation's board of directors (the "Committee"), subject to approval by the
board of directors. Beginning in fiscal year 1994 the Corporation considers that
approximately 50 of its employees are key employees who are eligible to receive
options or restricted shares under the 1988 Plan. No member of the Committee is
eligible to receive an option or restricted shares under the 1988 Plan while
serving on the Committee.
No specific determinations have been made or can be made in advance as
to future recipients of options or the size or number of grants to recipients
under the 1988 Plan. See "Executive Compensation - Options/SAR Grants in Last
Fiscal Year" for information concerning options actually granted under the 1988
Plan in fiscal 1993. No additional grants or larger grants would have been made
in fiscal 1993 had the proposed amendment been in effect.
TERMS AND EXERCISE OF OPTIONS
Options granted under the 1988 Plan to key employees may be either
"incentive stock options" or "non-statutory stock options" as described below.
Any option granted to a key employee under the 1988 Plan will have an
exercise price established by the Committee that will be not less than 100% of
the fair market value per Common Share (determined at the time the option is
granted). Options are exercised by payment to the Corporation of the exercise
price in cash or in Common Shares already owned by the optionee. No incentive
stock option granted under the 1988 Plan may be exercised after ten years from
the date the option is granted, and no non-qualified stock option granted under
the 1988 Plan may be exercised after ten years and six months from the date the
option is granted, although the Committee may grant options of both types of
shorter duration. In addition, the Committee has the authority to impose
additional restrictions on exercise, including limitations as to the portions of
an option that may be exercised each year. A key employee to whom an option is
granted under the 1988 Plan may not, during such key employee's lifetime,
transfer the option to any other person.
Subject to the limitations described in the immediately preceding
paragraph, the right of a key employee to exercise an option granted under the
1988 Plan upon termination of employment is as follows: (1) if the optionee's
employment is terminated other than by reason of disability (as defined in the
1988 Plan) or death, the optionee may exercise any option, to the extent
exercisable on the date of termination, at any time prior to the expiration date
of such option or within three months after such termination, whichever is
earlier; (2) if the optionee's employment is terminated because of disability,
the optionee may exercise any option at any time prior to the expiration date of
such option or within one year (or such shorter period as may be determined by
the Committee at the time the option is granted) of the date of termination of
the optionee's employment, whichever is earlier; (3) if the optionee dies within
the periods specified in (1) or (2) above during which the optionee is entitled
to exercise any remaining unexpired options, the optionee's personal
representatives, heirs or legatees may exercise such option, to the extent
exercisable on the date of the optionee's death, at any time
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prior to the expiration date of such option or within one year (or such shorter
period as may be determined by the Committee at the time the option is granted)
of the date of termination of the optionee's employment, whichever is earlier;
(3) if the optionee dies within the periods specified in (1) or (2) above during
which the optionee is entitled to exercise any remaining unexpired options, the
optionee's personal representatives, heirs or legatees may exercise such option,
to the extent exercisable on the date of the optionee's death, at any time prior
to the expiration date of such option or within one year (or such shorter period
as may be determined by the Committee at the time the option is granted) of the
date of termination of the optionee's employment, whichever is earlier; and (4)
if the optionee's employment is terminated by death, the optionee's personal
representatives, heirs or legatees may exercise any option at any time prior to
the expiration date of such option or within one year (or such shorter period as
may be determined by the Committee at the time the option is granted) of the
date of the optionee's death, whichever is earlier.
The 1988 Plan does not contain any provision that requires a key
employee who is granted a stock option to wait for any fixed period of time
prior to exercising the option. The Committee may, at the time it grants
options, mandate a waiting period or grant options which are not subject to a
waiting period.
On April 4, 1994, the market value of a Common Share, based on the
closing price per share on the New York Stock Exchange, was $17.13.
TAX ASPECTS OF STOCK OPTIONS
Incentive stock options and non-qualified stock options, upon exercise,
are accorded different tax treatment for federal income tax purposes. Generally,
the receipt of Common Shares by an optionee upon the exercise of an incentive
stock option will not be a taxable event if the optionee does not dispose of
such Common Shares within one year of their receipt by the optionee or within
two years from the date the option was granted to the optionee. The receipt of
Common Shares by an optionee upon the exercise of a non-qualified stock option,
in contrast, generally will require the optionee, for purposes of determining
federal income tax for the taxable year in which the exercise occurs, to include
as compensation the excess of the fair market value of the Common Shares
received (determined at the time of transfer) over the exercise price paid for
such Common Shares. The Corporation will obtain a tax deduction which
corresponds to any compensation reported by an optionee as a result of the
exercise of a non-qualified stock option; the Corporation will not, on the other
hand, be entitled to a deduction as a result of the exercise of an incentive
stock option unless the optionee disposes of the Common Shares transferred to
the optionee within either the one or two-year period discussed above. The
Corporation's deduction may be limited, however, under the provisions of the
1993 Omnibus Budget Reconciliation Act, which became law in August 1993, to the
extent total remuneration for certain executive officers exceeds $1,000,000 in
any one year.
Under the 1988 Plan an incentive stock option may not be granted to an
optionee if the value of the Common Shares with respect to which incentive stock
options are exercisable for the first time by the optionee during any calendar
year under this or any other plan of the Corporation exceeds $100,000.
GRANTS OF RESTRICTED SHARES
The 1988 Plan provides for grants of restricted shares to key employees.
A key employee who receives restricted shares will have Common Shares issued to
him or her, registered in his or her name. However, such shares will be
restricted as to transferability for a period of time as set forth in a
restricted share agreement to be entered into between such employee and the
Corporation. The Corporation will maintain physical custody of the certificates
representing the restricted shares.
Except for restrictions on transfer, an employee who receives restricted
shares will have, with respect to those shares, all of the rights of a
shareholder of the Corporation, including the right to vote the restricted
shares and the right to receive cash dividends, unless the Committee otherwise
determines. Any Common Shares issued with respect to the restricted shares as a
result of a stock split, stock dividend or similar transaction will be
restricted to the same extent as the restricted shares, unless the Committee
otherwise determines.
In the event an employee to whom a grant of restricted shares has been
made ceases with the consent of the Committee to be an employee, or upon such
employee's death, retirement or disability, the restrictions on transfer imposed
by the 1988 Plan will lapse as determined by the Committee, but in no event will
such employee receive unrestricted Common Shares in an amount less than the
product obtained by multiplying the number of Common Shares subject to the grant
by a fraction, the numerator of which is the number of full months from the date
of the grant to the date of termination of employment and the denominator of
which is the total number of months that such restricted shares were to be
restricted. If an employee ceases to be an employee for any reason other than
set forth above, all restricted shares held by that employee will be forfeited
to the Corporation. If an employee who receives restricted shares remains an
employee of the Corporation for the full period that
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such shares are restricted, then at the expiration of the restriction period the
employee will receive a certificate for such shares free and clear of any
restrictions.
TAX ASPECTS OF RESTRICTED SHARES
Key employees who receive restricted shares must recognize ordinary
income equal to the fair market value of the Common Shares at the first time
such shares become transferable or not subject to a substantial risk of
forfeiture, whichever occurs earlier. The Corporation will be entitled to a tax
deduction for the same amount at the time the key employee recognizes such
income. However, the Corporation's deduction may be limited under the provisions
of the 1993 Omnibus Budget Reconciliation Act, which became law in August 1993,
to the extent total remuneration for certain executive officers exceeds
$1,000,000 in any one year.
ACCELERATION
The 1988 Plan provides that upon the occurrence of an "Event of
Acceleration", as defined in the 1988 Plan, all then outstanding options will be
immediately exercisable and the restrictions otherwise applicable to any
restricted shares shall lapse. Generally, an Event of Acceleration will be
deemed to have occurred upon the happening of an event that results in a change
in control, or the potential for a change in control, of the Corporation.
ADMINISTRATION OF THE PLAN
The 1988 Plan is administered by the Committee, which selects the
optionees and grantees of restricted shares, determines the number of Common
Shares to be covered by an option or a grant of restricted shares, the date or
dates at which an option (or any portion thereof) may be exercised, the exercise
price for an option, the form of option agreement, the period during which any
restricted shares shall be restricted and the form of restricted share
agreement, subject in all cases to approval of the board of directors and the
specific terms of the 1988 Plan.
The board of directors has the authority to amend the terms of the 1988
Plan, except that the class of employees eligible for options and restricted
shares (i.e., key employees) may not be changed, the aggregate number of Common
Shares subject to options and grants of restricted shares may not be increased
(except in the case of certain adjustments described in the subsection entitled
"Shares Reserved for the Plan", above), the minimum option price may not be
decreased to less than 100% of the fair market value of the Common Shares on the
date the option is granted, the term within which options and restricted shares
may be granted may not be increased and the periods during which options may be
exercised may not be extended without, in any of such cases, approval of the
shareholders of the Corporation.
REQUIRED VOTE
Approval of this proposal requires the affirmative vote of the holders
of a majority of the Common Shares present in person or represented by proxy and
entitled to vote at the meeting. The board of directors of the Corporation
recommends a vote FOR the adoption of this proposal.
PROPOSAL TO ADOPT THE UNITED STATES SHOE CORPORATION
ASSOCIATES' DISCOUNTED STOCK PURCHASE PLAN
The board of directors has determined that it is in the best interests
of the Corporation to provide its employees with an opportunity to purchase
Common Shares at a favorable price and thereby to provide an additional
incentive to work for the future success of the Corporation. Accordingly, the
board has proposed for shareholder approval The United States Shoe Corporation
Associates' Discounted Stock Purchase Plan (the "Plan"). The full text of the
proposed Plan is set forth as Appendix B to this Proxy Statement and the
following discussion is qualified in its entirety by reference to such text.
PURPOSE
The purpose of the Plan is to encourage employees of the Corporation and
its subsidiaries (which for purposes of the Plan means, in general terms, any
corporation at least 80% of the stock of which is owned by the Corporation) to
acquire a proprietary interest in the growth and performance of the Corporation
by making it possible for such employees to acquire Common Shares at an
advantageous price. If the Plan is approved by shareholders, it will become
effective as of August 1, 1994.
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SHARES RESERVED FOR THE PLAN
A total of 500,000 Common Shares will be available for acquisition
through the exercise of options under the Plan, except that adjustments in that
number may be made to give effect to any relevant change in the Corporation's
capitalization, such as a stock dividend, a stock split, a recapitalization, a
consolidation or a similar change that affects equity interests in the
Corporation. The Common Shares that are to be delivered upon the exercise of
options granted pursuant to the Plan will be authorized and unissued shares.
Upon the expiration or termination of any option that has not been exercised,
the unpurchased Common Shares covered by such option may be made available for
other options to be granted under the Plan. On April 4, 1994, the market value
of a Common Share, based on the closing price per share on the New York Stock
Exchange, was $17.13.
ELIGIBILITY
Subject to the rules noted in "Distribution of Shares" below, an option
will be granted under the Plan on the last business day of each calendar month
(such day being called that option's "Option Date") to each person who is an
eligible employee on that date. An employee is considered an "eligible employee"
on an Option Date if he or she is an employee of the Corporation or one of its
subsidiaries on such Option Date, unless he or she is then a seasonal employee,
or has not completed by that date at least four months of service with the
Corporation or its subsidiaries, or would, immediately after the grant of such
option, directly or indirectly own or have options to own 5% or more of the
Common Shares of the Corporation or any subsidiary. No option will be granted
under the Plan to any person who is not an eligible employee. The Corporation
considers that approximately 30,000 of its employees will be eligible to receive
options under the Plan.
GRANT OF OPTIONS
Any option granted to an eligible employee under the Plan will generally
allow that employee to purchase a number of Common Shares up to the number
produced by dividing 10% of the employee's compensation for the month in which
the option is granted by 85% of the fair market value of a Common Share on the
Option Date. In no event, however, can an employee be granted, during any
calendar year, options for Common Shares having a fair market value at the time
of grant in excess of $25,000.
The price at which Common Shares subject to any option may be purchased
(the "Option Price") will be equal to 85% of the fair market value of such
Common Shares on the Option Date. In practical terms, each option granted under
the Plan gives the employee to whom the option is granted the right to purchase
Common Shares at a 15% discount in price.
PAYROLL DEDUCTIONS
Each employee who may be an eligible employee as of the last business
day of any month will be allowed to elect under the Plan to have any dollar
amount deducted on an after-tax basis by his or her employer on each pay day
during such month, provided that the amount deducted on any pay day may not be
less than $10 or more than 10% of the employee's compensation for such pay day.
Any amounts deducted from an employee's pay pursuant to the Plan will be
allocated to a bookkeeping account (such account being called the employee's
"payroll deduction account"). Such payroll deduction account will not be
credited with interest. The amounts allocated to an employee's payroll deduction
account for a month may be used to purchase Common Shares available under any
option granted to the employee under the Plan for such month, as is discussed in
the following section.
EXERCISE OF OPTIONS
Any option to purchase Common Shares which is granted to an eligible
employee under the Plan will automatically be exercised by the employee on the
Option Date for that number of Common Shares (up to the maximum number of Common
Shares available under the option) which the employee's accumulated payroll
deductions then allocated to his or her payroll deduction account will purchase
at the Option Price, unless the employee files with the Committee prior to such
Option Date a written notice that he or she does not want to exercise such
option.
The number of Common Shares which may be purchased under all options
granted under the Plan as of any Option Date may be reduced on a pro rata basis
to the extent such reduction is necessary to avoid the Plan's limit on the total
number of Common Shares available for purchase under the Plan.
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If any amounts previously allocated to an employee's payroll deduction
account as of the last business day of any month are not used to purchase
Common Shares (whether because the employee is not an eligible employee on such
day, because the employee files a written request not to purchase Common Shares
under the option, or because the maximum number of Common Shares available
under his or her option is less than the amount then allocated to his or her
payroll deduction account could otherwise purchase), such amounts will be paid
to the employee as soon as administratively possible.
DISTRIBUTION OF SHARES
Any Common Shares purchased by an employee under the Plan will be held
for the employee in an account (the employee's "stock account") established by
a bank, a brokerage house or other financial institution employed for that
purpose by the Corporation (such bank, brokerage house or other financial
institution being called the "Custodian") until such stock account is
distributed to the employee (or, in the event of his or her death, to the
employee's estate).
Any dividends paid on Common Shares held in any employee's stock account
will be used to purchase additional Common Shares (generally on the largest
national securities exchange on which the shares are then listed) as soon as
administratively possible following the payment of such dividends. The
Custodian also will issue quarterly statements to each employee who has a stock
account, showing the number of Common Shares credited to his or her account.
An employee (or, in the event of the employee's death, his or her
estate) may request at any time, pursuant to any reasonable administrative
rules established by the Committee and the Custodian for this purpose, that the
Custodian distribute or sell all or any portion of the Common Shares held in
the employee's stock account. As soon as administratively possible following
the receipt of such a request, the Custodian will distribute or sell the
requested portion of such stock account.
In the event of a requested distribution of all or any portion of the
employee's stock account, the Custodian will distribute to the employee (or, if
applicable, to his or her estate) a stock certificate for the requested number
of Common Shares. However, fractional shares will not be distributed but will
be sold by the Custodian on behalf of the employee (or, in the event of his or
her death, on behalf of the employee's estate) and on the largest national
securities exchange on which the Common Shares are then listed, for the then
market price of such fractional share less any commission or other expenses of
such sale. The net proceeds of the sale of the fractional share will be paid
to the employee (or, in the event of his or her death, to the employee's
estate).
In the event of a requested sale of all or a portion of the employee's
stock account, the Custodian shall sell, on behalf of the employee (or, in the
event of his or her death, the employee's estate) and on the largest national
securities exchange on which the Common Shares are then listed, the Common
Shares then held in the portion of the employee's stock account which has been
requested, for the then market price of such shares less any commission or
other expenses of such sale, and the net proceeds of such sale will be paid to
the employee (or his or her estate).
The Committee may, at reasonable intervals, require any participant
whose employment with the Corporation or its subsidiaries has terminated to
file a request for distribution of the former employee's stock account.
Any employee who requests more than one distribution of Common Shares
allocated to his or her stock account in any calendar year will be ineligible
to receive any option under the Plan (and will be ineligible to have deductions
taken from his or her pay pursuant to the Plan) for six consecutive months
following the month in which he or she makes the second or any subsequent
request for such a distribution in a calendar year.
MISCELLANEOUS RULES AS TO COMMON SHARES
For purposes of this Plan, the fair market value of a Common Share on
any date is generally considered to be the average of the highest and lowest
prices on such date of a Common Share on the largest national securities
exchange on which the Common Shares are then listed.
If at any time the Committee determines that the listing of Common
Shares with respect to which any option is granted under the Plan, the
registration or qualification under any state or federal law or the consent
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or approval of any governmental regulatory body is necessary as a condition of,
or in connection with, the granting of an option or the purchase, issue or
transfer of Common Shares with respect to which the option is granted, then
such option may not be granted or the transfer completed, as the case may be,
unless such listing, registration, qualification, consent or approval has been
effected or the applicable employee has agreed that the Common Shares may be
issued or transferred subject to any restrictions that will make it unnecessary
to effect or obtain such listing, registration, qualification, consent or
approval.
ADMINISTRATION OF THE PLAN
The Plan will be administered by a committee comprised of at least three
directors and/or employees who will be appointed by the Corporation's board of
directors (such committee being called the "Committee"). The Committee will
have full authority and discretion to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to prepare forms to use
with respect to the Plan, to prepare material explaining the Plan to employees
and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determination as to any matter
relating to interpretation of the Plan will be conclusive.
Except as is otherwise noted elsewhere in this summary, all expenses of
administering the Plan, including the compensation of the Custodian, will be
paid by the Corporation.
The board of directors will have the right to amend, suspend or
terminate the Plan, except that no such action may affect adversely the rights
of any employee under any option granted prior to such amendment, suspension or
termination. Also, no amendment changing the class of employees or persons
eligible to receive options, changing the aggregate number of shares to be
subject to options or materially increasing the benefits accruing to eligible
persons may be made without, in any of such cases, approval by the favorable
vote of the holders of a majority of the outstanding shares of the Corporation
present in person or represented by proxy and entitled to vote at a meeting of
shareholders. The board of directors does, however, intend to amend the Plan
to the extent any amendments are required for the Plan to meet any tax and
securities laws and regulations applicable to the Plan.
TAX ASPECTS OF OPTIONS
The Plan is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. As such,
the Plan should have, in general terms, the federal income tax consequences
(under current federal income tax rules) described below.
An employee will not recognize compensation income merely because of the
grant or exercise of an option under the Plan, and the Corporation and its
subsidiaries will likewise not be entitled to any compensation deduction at the
time of such option's grant or exercise. However, amounts deducted from an
employee's pay to purchase Common Shares under the Plan will be taxed as
current compensation income to the employee, and the Corporation or its
subsidiaries are entitled to a compensation deduction with respect to such pay
deductions. Moreover, any dividends paid to an employee under the Plan are
taxed as current income to the employee, but the Corporation and its
subsidiaries are not entitled to a deduction for such amounts.
If the employee does not sell or otherwise dispose of the Common Shares
he or she purchases under an option granted under the Plan for at least the two
years after such purchase, then, upon any subsequent sale of such shares, the
employee generally is required to recognize as compensation income the lesser
of (i) the excess of the sales price of the shares over the original Option
Price for such shares or (ii) the excess of the fair market value of the shares
at the time they were purchased under the Plan over such Option Price. If the
sales price is greater than the fair market value of such shares at the time
they were purchased, moreover, that difference will be recognized as long-term
capital gain. The Corporation and its subsidiaries will not, however, be
entitled to any compensation deduction in the event of a sale of such shares
more than two years after the employee purchased the shares under the Plan.
If, on the other hand, the employee sells the Common Shares he or she
purchased under an option granted under the Plan within two years after such
purchase, then the employee will be required to recognize as compensation
income the excess of the fair market value of such shares at the time of their
purchase by the employee under the Plan over the original Option Price for such
shares. Any additional amount by which the sales price
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of the shares exceeds their fair market value at the time they were purchased
by the employee under the Plan will be recognized by the employee as short-term
or long-term capital gain (depending on whether or not the employee sells the
shares more than a year after his or her purchase of such shares under the
Plan). In this situation, the Corporation or its subsidiaries will be entitled
to a compensation deduction equal to the amount recognized as compensation
income by the employee.
The above discussion is a general overview of the federal income tax
consequences of the Plan and is not intended to cover all tax aspects of the
Plan. It is based on current federal tax laws and regulations and is subject
to change if such laws and regulations are amended or modified. Each
participant will be advised to consult with his or her tax advisor for more
specific, detailed information concerning his or her individual tax situation
under federal, state and local tax laws.
REQUIRED VOTE
Approval of this Plan requires the affirmative vote of the holders of a
majority of the Common Shares present in person or represented by proxy and
entitled to vote at the meeting. THE BOARD OF DIRECTORS OF THE CORPORATION
RECOMMENDS A VOTE FOR THE ADOPTION OF THIS PROPOSAL.
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EXHIBIT 2
AMENDED AND RESTATED
SEVERANCE COMPENSATION AGREEMENT
THIS AGREEMENT, dated as of November 14, 1994, is between THE UNITED STATES SHOE
CORPORATION, an Ohio corporation (the "Company"), and __________________ (the
"Executive") and amends and restates the Severance Compensation Agreement
between the Company and the Executive dated ____________________.
The Company's board of directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to his assigned duties
without distraction in potentially disturbing circumstances arising from the
possibility of a Change in Control of the Company. This Agreement sets forth
the severance compensation and other payments that the Company will pay the
Executive in the event of the termination of the Executive's employment within
two years after a Change in Control of the Company.
1. Term. This Agreement shall terminate, except to the extent
that any obligation of the Company hereunder remains unpaid as of such time,
upon the earlier of (i) June 30 of any year after 1995, provided that either
party has given at least 60 days prior written notice to the other party of its
or his intention to terminate this Agreement under this clause (i), and
provided further that if a Change in Control of the Company has occurred, the
Company may not terminate this Agreement under this clause (i) until two years
after the occurrence of such Change in Control; or (ii) the termination of the
Executive's employment with the Company by reason of the Executive's death,
Disability (as defined in Section 3(a)) or Retirement (as defined in Section
3(b)), or by the Company for Cause (as defined in Section 3(c)), or by the
Executive other than for Good Reason (as defined in Section 3(d)).
2. Change in Control.
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have occurred if:
(a) there shall be consummated any consolidation or
merger of the Company and, as a result of such consolidation or merger (i) less
than 50% of the outstanding common shares and 50% of the voting shares of the
surviving or resulting corporation are owned, immediately after such
consolidation or merger, by the owners of the Company's common shares
immediately prior to such consolidation or merger, or (ii) any person (as such
term is used in Section 13(d) and 14(d) (2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of 25% or more of
the surviving or resulting corporation's outstanding common shares; or
(b) there shall be consummated any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company; or
(c) There shall be consummated:
(i) any sale, lease, exchange or other transfer
(other than a transfer to a Subsidiary of the Company) of all, or substantially
all, of the assets of one or more of the Company's Women's Apparel Retailing
Group, the Footwear Group or the Optical Retailing Group (collectively the
"Company Groups") unless immediately thereafter all, or substantially all, of
the assets of two of the Company Groups are owned by the Company and/or a
Subsidiary of the Company and the Executive is, and prior thereto had been,
assigned to one of such Company Groups (as used in this Section 2(c) the term
"Subsidiary of the Company" means any corporation
<PAGE> 2
at least 51% of the outstanding common shares and 51% of the voting shares of
which are owned by the Company, and all references to a "distribution" of any of
such shares by the Company to its shareholders includes distributions that are
pro rata or in exchange for shares of the Company); or
(ii) any consolidation or merger of a Subsidiary
of the Company owning all, or substantially all, of the assets of one or more
of the Company Groups, or any sale, exchange or other transfer of the shares of
any such Subsidiary (other than a distribution of such shares by the Company to
its shareholders) if, as a result thereof, such Subsidiary ceases to be a
Subsidiary of the Company, unless immediately thereafter all, or substantially
all, of the assets of two of the Company Groups are owned by the Company and/or
a Subsidiary of the Company and the Executive is, and prior thereto had been,
assigned to one of such Company Groups; or
(iii) any distribution by the Company to its
shareholders of some or all of the shares of a Subsidiary of the Company owning
all, or substantially all, of the assets of one of the Company Groups if, as a
result of such distribution, such Subsidiary ceases to be a Subsidiary of the
Company, unless immediately thereafter all, or substantially all, of the assets
of two of the Company Groups are owned by the Company and/or a Subsidiary of
the Company and the Executive is, and prior thereto had been, assigned to one
of such Company Groups; or
(iv) Any distribution by the Company to its
shareholders of some or all of the shares of a Subsidiary of the Company owning
all, or substantially all, of the assets of two of the Company Groups if, as a
result of such distribution, such Subsidiary ceases to be a Subsidiary of the
Company, unless immediately thereafter the Executive is, and prior thereto had
been, assigned to one of such Company Groups; or
(d) the shareholders of the Company shall approve any
plan or proposal for the liquidation or dissolution of Company; or
(e) any person (as such term is used in Sections 13(d)
and 14(d) (2) of the Exchange Act) shall become the beneficial owner (within
the meaning of Rule 13d-3 under the Exchange Act) of 25% or more of the
Company's outstanding common shares; or
(f) during any period of two consecutive years,
individuals who at the beginning of such period constitute the entire Board of
Directors of the Company shall cease for any reason to constitute a majority
thereof unless the election or the nomination for election by the Company's
shareholders of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of
the period; or
(g) the Company fails to obtain the agreement required by
Section 6(a).
3. Termination of Employment; Definitions.
(a) Disability. The Company may terminate the
Executive's employment for Disability if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties with the Company on a full-time basis for six months,
and within 30 days after written Notice of Termination is thereafter given by
the Company, the Executive shall not have returned to the full-time performance
of the Executive's duties.
2
<PAGE> 3
(b) Retirement. The Executive may terminate his
employment for Retirement if he reaches age 65 or such other age as shall have
been fixed in any arrangement established with the Executive's consent.
(c) Cause. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement only, the Company shall
have Cause to terminate the Executive's employment hereunder only on the basis
of fraud, misappropriation or embezzlement on the part of the Executive.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the entire membership of the Company's board of
directors at a meeting of the board called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the board) finding
that in the good faith opinion of the board the Executive was guilty of conduct
set forth in the second sentence of this Section 3(c) and specifying the
particulars thereof in detail.
(d) Good Reason. The Executive, after a Change in
Control, may terminate his employment for Good Reason. For purposes of this
Agreement, Good Reason shall mean any of the following unless expressly
consented to in writing by the Executive or unless preceded by the termination
of the Executive's employment by reason of the Executive's death, Disability or
Retirement, or by the Company for Cause, or by the Executive other than for
Good Reason:
(i) the assignment to the Executive by the
Company of duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company immediately prior to a Change in
Control of the Company, or a change in the Executive's titles or offices as in
effect immediately prior to a Change in Control of the Company, or any removal
of the Executive from or any failure to re-elect the Executive to any of such
positions;
(ii) a reduction by the Company in the Executive's
base salary as in effect immediately prior to the Change in Control of the
Company;
(iii) any failure by the Company to continue in
effect any benefit plan or arrangement (including, without limitation, the
Company's retirement plan, group life insurance plan, and medical, dental,
accident and disability plans) in which the Executive is participating at the
time of a Change in Control of the Company (or any other plans providing the
Executive with substantially similar benefits) (hereinafter referred to as
"Benefit Plans"), or the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce the
Executive's benefits under any such Benefit Plan or deprive the Executive of
any material fringe benefit enjoyed by the Executive at the time of a Change in
Control of the Company;
(iv) any failure by the Company to continue the
Executive's eligibility to participate in annual and other executive bonus
arrangements in which the Executive is participating at the time of a Change in
Control of the Company (or any plans or arrangements providing him with
substantially similar benefits) or the taking of any action by the Company
which would significantly reduce the Executive's opportunity to earn incentive
compensation which is related to performance results as compared to performance
expectations periodically determined by the Company;
(v) a relocation of the Company's principal
executive offices to a location that is more than 30 miles from the location of
the Company's present executive offices in Cincinnati, Ohio, or the Executive's
relocation to any place that is more than 30 miles from the location at which
the Executive performed the Executive's duties prior to a Change in Control of
3
<PAGE> 4
the Company, except for required travel by the Executive on the Company's
business to an extent substantially consistent with the Executive's business
travel obligations at the time of a Change in Control of the Company;
(vi) any failure by the Company to provide the
Executive with the number of paid vacation days to which the Executive is
entitled at the time of a Change in Control of the Company;
(vii) any material breach by the Company of any
provisions of this Agreement;
(viii) any failure by the Company to obtain the
assumption of this Agreement by any successor to or assignee of the Company; or
(ix) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 3(e), and for purposes of this Agreement, no such
purported termination shall be effective.
(e) Notice of Termination. Any termination by the
Company or by the Executive shall be communicated by a Notice of Termination.
For purposes of this Agreement, a Notice of Termination shall mean a written
notice indicating those specific termination provisions in this Agreement
relied upon and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(f) Date of Termination. "Date of Termination" shall
mean:
(i) if this Agreement is terminated by the
Company for Disability 30 days after Notice of Termination is given to the
Executive (provided that the Executive shall not have returned to the
performance of the Executive's duties on a full-time basis during such 30-day
period), or
(ii) if the Executive's employment is terminated
by the Company for any other reason or if the Executive terminates his
employment, the date on which a Notice of Termination is given; provided that
if within 30 days after any Notice of Termination is given the party receiving
such notice notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date the dispute is finally
determined, whether by mutual agreement by the parties or upon final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
4. Compensation Under This Agreement.
(a) If within two years after a Change in Control of the
Company a Notice of Termination is given either by the Company to the Executive
or by the Executive to the Company, and if such termination is not by reason of
the Executive's death, Disability or Retirement, or by the Company for Cause,
or by the Executive other than for Good Reason, the Company shall make the
following payments to the Executive:
(i) the full base salary to which the Executive
is entitled through the Date of Termination;
4
<PAGE> 5
(ii) credit for unused vacation;
(iii) an amount equal to the Executive's Annual
Bonus Target under the Company's Annual Incentive Cash Bonus Plan for the
fiscal year in which the Notice of Termination is given, multiplied by the
percentage determined by dividing the number of days in the Company's fiscal
year that have elapsed prior to the date on which the Notice of Termination is
given by the total number of days in such fiscal year (as used in this clause
(iii) the Executive's "Annual Bonus Target" means the dollar amount established
by the Company, for its fiscal year in which the Notice of Termination is given
(or if no such amount has been established by the Company for such fiscal year
at the time such Notice of Termination is given, the dollar amount established
by the Company for its preceding fiscal year) under its Annual Incentive Cash
Bonus Plan as the bonus for an employee at the same grade level as the
Executive, based on applying to such amount a payment multiple of 100%;
(iv) an amount equal to the Executive's TRS Bonus
Target under the Company's Total Return to Shareholder Plan (the "TRS Plan")
multiplied by the percentage determined by dividing the number of days in the
Company's fiscal year that have elapsed prior to the date on which the Notice
of Termination is given by the total number of days in such fiscal year (as
used in this clause (iv) the Executive's "TRS Bonus Target" means a dollar
amount equal to the amount of the bonus (determined without regard to the pro
rata transitional reduction required under the TRS Plan for the Company's 1994
and 1995 fiscal years) that the Executive would have been eligible to receive
under the TRS Plan (as in effect at the time the Notice of Termination is
given) for the Company's fiscal year in which the Notice of Termination is
given if the Executive's employment had not terminated and a payout multiple of
100% had been applied to the Executive's targeted bonus, which amount shall be
immediately vested when received by the Executive without regard to any
restrictions set forth in the TRS Plan);
(v) an amount equal to three times the sum of the
Executive's annualized base salary and Annual Bonus Target (as defined in
clause (iii) above) for the year in which the Notice of Termination is given;
provided, however, that the amounts to be paid to the Executive under this
clause (v) shall be reduced by the amounts payable to the Executive under
clauses (ii), (iii) and (iv) of this Section 4(a).
(b) If it is finally determined under the procedures set
forth in Section 4(c) that the amount of "excess parachute payments," if any,
does not exceed the Executive's "base amount" (as such terms are defined in
Section 280G of the Internal Revenue Code of 1986 [the "Code"]) by more than 3
times, the aggregate amount of the payments required to be made by the Company
under clauses (v), (iv), (iii) and (ii) of Section 4(a) that constitute excess
parachute payments shall be reduced, in that order, to $100 less than the
largest amount that will result in no portion of such payment being subject to
the excise tax imposed by Section 4999 of the Code (the "Excise Tax"). The
purpose of any reduction under this Section 4(b) is to prevent the amount of
any excess parachute payments received by the Executive from being subject to
the Excise Tax where the imposition of such tax would cause the Net After Tax
Amount to be received by the Executive to be less than the Net After Tax Amount
in the absence of such reduction. For the purpose of this Section 4(b) "Net
After Tax Amount" means the amount received by the Executive after payment of
the Excise Tax (at the rate of 20%), if applicable, and applicable federal and
state income taxes (which are assumed for the purposes of this paragraph to be
at a combined rate of 40%). No reduction shall be made under this Section 4(b)
unless it would have the effect of increasing the Net After Tax Amount to be
received by the Executive.
5
<PAGE> 6
(c) The Company shall notify the Executive in writing
within 10 days after a Notice of Termination is given either by the Company or
the Executive, of the amount of the payments to be made by the Company under
this Agreement, together with any other payments made or to be made by the
Company to the Executive, that constitute "parachute payments" (as such terms
are defined in Section 280G of the Code) and excess parachute payments and of
the amount of the reduction, if any, required by Section 4(b). Within 20 days
after the Notice of Termination is given, the Executive shall notify the
Company in writing whether he agrees with the Company's calculation of the
amount of parachute payments and excess parachute payments, and with the amount
of any reduction. If the Executive does not agree with the Company's
calculations, the Executive shall inform the Company of the amounts that he
believes to be the correct amounts. If the Company and the Executive cannot
agree within 30 days after the Notice of Termination is given on the amount of
the parachute payments and excess parachute payments, and on the amount of any
reduction, the calculation of such amounts (and any reduction) shall be made by
independent tax counsel selected by the Company's independent auditors. Such
determination shall be completed within 15 days after it is submitted to such
independent tax counsel and shall be conclusive and binding on the parties.
(d) The amounts required to be paid under Section 4(a),
less the amount of any reduction determined by the Company under Sections 4(b)
and 4(c), shall be paid by the Company to the Executive in cash in a lump sum
on the 10th day after the Date of Termination. If it is later determined,
under the procedure set forth in Section 4(c), that the amount of any reduction
is less than that initially determined by the Company, the Company shall pay
the difference to the Executive in cash within five days after the amount of
any reduction is finally determined. If it is later determined, under the
procedures set forth in Section 4(c), that the amount of any reduction is more
than that initially determined by the Company, the Executive shall repay the
difference to the Company in cash within five days after the amount of any
reduction is finally determined.
(e) Any payments required under this Section 4 shall be
paid net of applicable federal, state and local tax withholding.
(f) If the Company is required to make payments to the
Executive under Section 4(a), the Company, until the earlier of (i) two years
after the Date of Termination or (ii) commencement of full-time employment by
the Executive with a new employer, shall maintain in full force and effect, for
the continued benefit of the Executive, all life insurance, medical, health and
accident, and disability plans, programs or arrangements in which the Executive
was entitled to participate immediately prior to the Date of Termination,
provided that continued participation by the Executive is possible under the
general terms and provisions of such plans and programs. In the event that
participation in any such plan or program is barred, the Company shall arrange
to provide to the Executive benefits substantially similar to those which the
Executive is entitled to receive under such plans and programs.
(g) Except for the payment referred to in clause (i) of
Section 4(a) none of the payments to the Executive under this Section 4 shall
be counted for the purpose of computing the Executive's benefits under any
pension, profit sharing, deferred compensation or other employee benefit plan
maintained by the Company.
5. No Obligation to Mitigate Damages; No Effect on Other
Contractual Rights. The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely
as a result of the passage of time, under the Company's Economic Bridge Policy
or any benefit plan, incentive plan or securities plan, employment agreement or
other contract, plan or arrangement; provided, however, that any payment
hereunder shall be in lieu of,
6
<PAGE> 7
and not in addition to, any payment to which the Executive otherwise would be
entitled under the Company's Economic Bridge Policy in the event of a Change in
Control as defined in such policy.
6. Successor to the Company.
(a) The Company will require any successor to or assignee
(other than a Subsidiary of the Company as defined in Section 2(c)(i)), whether
direct or indirect, by purchase, merger, consolidation or otherwise, of all, or
substantially all, of the business and/or assets of the Company or of any
Company Group, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if such succession or assignment had
not taken place. The Company will require any Subsidiary of the Company to
which the Company has transferred all, or substantially all, of the assets of
one or more of the Company Groups to which the Executive is assigned, prior to
any distribution (as such term is defined in Section 2(c)(i)) by the Company to
its shareholders of the shares of such Subsidiary that would cause it to no
longer be a Subsidiary of the Company, by agreement in form and substance
satisfactory to the Executive, expressly, absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if such distribution
had not taken place. Any failure of the Company to obtain such agreement prior
to the effectiveness of any such succession, assignment or distribution of
shares shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason.
(b) As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to or assignee of its
business and/or assets as aforesaid which executes and delivers the Agreement
provided for in this Section 6 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation
a majority of the voting securities of which is then owned by the Company,
"Company" as used in Sections 3, 4, 11 and 12 hereof shall in addition include
such employer. In such event, the Company agrees that it shall pay or shall
cause such employer to pay any amounts owed to the Executive pursuant to
Section 4 hereof.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are still payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
7. Notices. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
as follows:
If to the Company:
The United States Shoe Corporation
One Eastwood Drive
Cincinnati, Ohio 45227
Attn: President and Chief Executive Officer
7
<PAGE> 8
If to the Executive:
---------------------------
---------------------------
---------------------------
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
8. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representatives, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio.
9. Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Legal Fees and Expenses. The Company shall pay all legal fees
and expenses which the Executive may incur as a result of the Company's
contesting the validity, enforceability or the Executive's interpretation of,
or determinations under, this Agreement.
12. Confidentiality. The Executive shall retain in confidence any
and all confidential information known to the Executive concerning the Company
and its business so long as such information is not otherwise publicly
disclosed.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
THE UNITED STATES SHOE CORPORATION
ATTEST:
By
- -------------------------------------- -----------------------------------------
James J. Crowe K. Brent Somers, Executive Vice President
Secretary and Chief Financial Officer
EXECUTIVE
--------------------------------------------
</TABLE>
8
<PAGE> 1
EXHIBIT 3
AMENDED AND RESTATED
TRUST AGREEMENT
This Agreement is made this 14th day of November, 1994 by and between
THE UNITED STATES SHOE CORPORATION (the "Corporation") and PNC BANK, OHIO,
NATIONAL ASSOCIATION, Cincinnati, Ohio (the "Trustee");
WHEREAS, the Corporation is obligated under a certain Amended and
Restated Severance Compensation Agreement dated as of November 14, 1994 (the
"Severance Agreement"), a copy of which is attached hereto as Exhibit A, to
make severance compensation payments to the person listed on Exhibit B attached
hereto (the "Executive") under certain circumstances following a Change in
Control, as defined in the Severance Agreement, of the Corporation; and
WHEREAS, the Corporation wishes to establish a trust (hereinafter
called the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Corporation's creditors in the event of
the Corporation's Insolvency, as herein defined, until paid to the Executive in
such manner and at such times as specified in the Severance Agreement; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Severance Agreement as an unfunded plan maintained for the purpose of providing
severance compensation as provided in the Severance Agreement for a select
group of management or highly compensated employees for purposes of Title I of
the Employee Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of the Corporation to make contributions
to the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Severance Agreement.
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Corporation has deposited with the Trustee in trust $100,
which shall be the initial principal of the Trust (the "Initial Funding
Amount") to be held, administered and disposed of by the Trustee as provided in
this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the
Corporation is the grantor, within the meaning of subpart E, part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of the Corporation and shall be used
exclusively for the uses and purposes of the Executive and general creditors as
herein set forth. The Executive shall have no
<PAGE> 2
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Severance Agreement and this Trust
Agreement shall be mere unsecured contractual rights of the Executive against
the Corporation. Any assets held by the Trust will be subject to the claims of
the Corporation's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) The Corporation shall deliver to the Trustee to be held in
trust hereunder an amount (in cash or marketable securities or any combination
thereof) equal to the aggregate of the amounts which would be payable to the
Executive pursuant to the Severance Agreement, plus such other amounts as may
be necessary for expenses and costs of maintaining the Trust (collectively, the
"Required Funding Amount") no later than seven days after the first to occur
of: (i) the Shares Acquisition Date, as defined in the Rights Agreement dated
as of March 31, 1986, between the Corporation and the Rights issuing agent (the
"Rights Agreement"), and as such Rights Agreement may be amended from time to
time; (ii) the close of business on the tenth day (or such later date as may be
determined by action of a majority of the Continuing Directors then in office)
after the date of the commencement of, or first public announcement of the
intent to commence, a tender or exchange offer by any Person (other than the
Corporation, any Subsidiary of the Corporation, any employee benefit plan of
the Corporation or of any Subsidiary of the Corporation, or any Person or
entity organized, appointed or established by the Corporation for or pursuant
to the terms of any such plan), if upon consummation thereof, such Person would
be the Beneficial Owner of 30% or more of the Common Shares then outstanding;
or (iii) the Corporation executes an agreement in principle or a definitive
agreement for one or more transactions listed in Section 2 of the Severance
Agreement which, if consummated, would constitute a Change in Control. For the
purposes of this Agreement, the terms "Continuing Directors," "Person,"
"Subsidiary," "Beneficial Owner" and "Common Shares" shall have the definitions
ascribed to those terms in the Rights Agreement and any amendment thereto.
(f) At six-month intervals following delivery of the Required
Funding Amount pursuant to Section 1(e) hereof, the Corporation shall
recalculate the amount which would be payable to the Executive pursuant to
Section 4(a) of the Severance Agreement. If the amount so calculated exceeds
the fair market value of the amount held in trust pursuant to Section 1(e)
hereof, the Corporation shall promptly (and in no event later than seven days
after the six-month interval date) pay to the Trustee an amount, in cash or
marketable securities or any combination thereof, equal to such excess. If the
amount so calculated is less than the fair market value of the amount held in
trust pursuant to Section 1(e) hereof, the Trustee shall promptly (and in no
event later than seven days after the six-month interval date) pay to the
Corporation an amount, in cash or marketable securities or any combination
thereof, equal to the amount by which the amount held in trust pursuant to
Section 1(e) hereof exceeds the amount calculated under this Section 1(e). The
Trustee shall not be responsible for the making of such calculations or their
accuracy.
SECTION 2. PAYMENTS TO THE EXECUTIVE.
(a) The Trustee shall hold the assets of the Trust in its
possession under the provisions of this Trust Agreement until authorized to
distribute such assets or any specified portion thereof as follows:
2
<PAGE> 3
(1) The Corporation shall deliver a written notice to the
Trustee instructing the Trustee to deliver to the Executive from the principal
of the Trust the amounts that are payable to the Executive, in accordance with
the terms of the Severance Agreement.
(2) In the event that the Executive reasonably believes
that he has not received timely payment of any amount payable to such Executive
from the principal of the Trust under the terms of the Severance Agreement, the
Executive shall be entitled to deliver to the Trustee and the Corporation
written notice (the "Executive's Notice") setting forth payment instructions
for the amount the Executive reasonably believes is due under the Severance
Agreement. The Trustee shall make the payment set forth in the Executive's
Notice within ten business days from the receipt thereof. The Trustee shall
make payments to the Executive of the amounts required under the Severance
Agreement (as set forth in the Executive's Notice) notwithstanding any
application of the Corporation or the Trustee to a court for a decision or
instructions concerning the proper amount due the Executive under the Severance
Agreement. Notwithstanding the foregoing provisions of this Section 2(a), if
the Corporation notifies the Trustee in writing of its objection to the payment
instructions outlined in the Executive's Notice within ten business days of the
Corporation's receipt of the Executive's Notice, any amount paid by the Trustee
to the Executive in accordance with the Executive's Notice which exceeds the
amount finally adjudged due the Executive by a court of competent jurisdiction
or the amount mutually agreed upon as due the Executive by the Executive and
the Corporation, plus interest thereon as computed below (the "Excess Amount"),
shall promptly be paid by the Executive to the Corporation. Any amount
actually paid to the Executive in excess of the amount finally determined to be
due the Executive under the Severance Agreement shall bear interest from the
date such amount was received by the Executive to the date such amount is paid
by the Executive at an annual rate equal to 1% plus the annual rate of interest
established from time to time as the Prime Commercial Rate of PNC Bank, Ohio,
National Association, but in no event greater than the maximum rate allowed by
law.
(3) The Trustee shall be permitted to withhold from any
payment due to the Executive hereunder the amount required by law to be so
withheld under federal, state and local wage withholding requirements or
otherwise, and shall pay over to the appropriate governmental authority the
amount so withheld. The Trustee may rely on instructions from the Corporation
as to any required withholding and shall be fully protected in relying upon
such instructions.
(b) The Corporation may make payment of benefits directly to the
Executive as they become due under the terms of the Severance Agreement. The
Corporation shall notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to the Executive. In
addition, if the principal of the Trust is not sufficient to make payments of
benefits in accordance with the terms of the Severance Agreement, the
Corporation shall make the balance of each such payment as it falls due. The
Trustee shall notify the Corporation where principal is not sufficient.
3
<PAGE> 4
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO
EXECUTIVE WHEN THE CORPORATION IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to the Executive
if the Corporation is Insolvent. The Corporation shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Corporation is
unable to pay its debts as they become due, or (ii) the Corporation is subject
to a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust shall be subject
to claims of general creditors of the Corporation under federal and state law
as set forth below:
(1) The Board of Directors and the Chief Executive
Officer of the Corporation shall have the duty to inform the Trustee in writing
of the Corporation's Insolvency. If a person claiming to be a creditor of the
Corporation alleges in writing to the Trustee that the Corporation has become
Insolvent, the Trustee shall determine whether the Corporation is Insolvent
and, pending such determination, the Trustee shall discontinue payment of
benefits to the Executive;
(2) Unless the Trustee has actual knowledge of the
Corporation's Insolvency, or has received notice from the Corporation or a
person claiming to be a creditor alleging that the Corporation is Insolvent,
the Trustee shall have no duty to inquire whether the Corporation is Insolvent.
The Trustee may in all events rely on such evidence concerning the
Corporation's solvency as may be furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a determination concerning the
Corporation's solvency.
(3) If at any time the Trustee has determined that the
Corporation is Insolvent, the Trustee shall discontinue payments to the
Executive and shall hold the principal of the Trust for the benefit of the
Corporation's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of the Executive to pursue his rights as a general
creditor of the Corporation with respect to benefits due under the Severance
Agreement or otherwise.
(4) The Trustee shall resume the payment of benefits to
the Executive in accordance with Section 2 of this Trust Agreement only after
the Trustee has determined that the Corporation is not Insolvent (or is no
longer Insolvent).
SECTION 4. PAYMENTS TO THE CORPORATION.
(a) Except as provided in Section 3 hereof or this Section 4, the
Corporation shall have no right or power to direct the Trustee to return to the
Corporation or to divert to others any of the Trust assets before all payment
of benefits have been made to the Executive pursuant to the terms of the
Severance Agreement.
4
<PAGE> 5
(b) The Trustee shall deliver the assets of the Trust (less the
Initial Funding Amount) to the Corporation on the date which is 180 days after
the date on which the Required Funding Amount is delivered to the Trustee
pursuant to Section 1(e) hereof unless prior to such date (i) a Change in
Control shall have occurred, in which case the Trustee shall dispose of the
assets of the Trust as set forth in Sections 2 and 3 hereof, or (ii) a
Potential Change in Control of the Corporation shall have occurred, in which
case the Trustee shall deliver the assets of the Trust to the Corporation on
the date which is 180 days after the occurrence of such Potential Change in
Control (or any subsequent Potential Change in Control) unless prior to the
completion of such 180-day period a Change in Control shall have occurred, in
which case the assets of the Trust shall be disposed of by the Trustee as set
forth in Sections 2 and 3 hereof. For purposes of this Section, a Potential
Change in Control shall be deemed to have occurred if (i) the Corporation
enters into an agreement the consummation of which would result in the
occurrence of a Change in Control, (ii) any person, including the Corporation,
publicly announces an intention to take actions which, if consummated, would
constitute a Change in Control, (iii) any event or circumstance specified in
Section 1(e) hereof, that would result in delivery by the Corporation of the
Required Funding Amount to the Trustee pursuant thereto, occurs or continues,
as the case may be, notwithstanding any prior delivery by the Corporation of
the Required Funding Amount to the Trustee, or (iv) the Board of Directors of
the Corporation adopts a resolution to the effect that, for purposes of this
Trust, a Potential Change in Control has occurred. No provision of this
Agreement shall be construed to prohibit or prevent the Corporation from
delivering the Required Funding Amount to the Trustee under the provisions of
Section 1(e) hereof on any date or dates following the delivery of the Trust
assets to the Corporation pursuant to this Section.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the Corporation,
other than a de minimis amount held in common investment vehicles in which the
Trustee invests. All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with the Executive.
(b) The Trustee shall use its good faith efforts to invest or
reinvest from time to time all or such part of the assets of the Trust as it
believes prudent under the circumstances (taking into account, among other
things, anticipated cash requirements for the payment of severance compensation
under the Severance Agreement) in either one or a combination of the following
investments:
(1) Investments in direct obligations of the United
States of America or agencies of the United States of America or obligations
unconditionally and fully guaranteed as to principal and interest by the United
States of America, in each case maturing within one year or less from the date
of acquisition; or
(2) Investments in negotiable certificates of deposit (in
each case maturing within one year or less from the date of acquisition) issued
by a commercial bank organized and
5
<PAGE> 6
existing under the laws of the United States of America or any state thereof
having equity in excess of $1,000,000,000; or
(3) Investments in mutual funds invested solely in
securities issued by the United States of America or agencies of the United
States of America or obligations unconditionally and fully guaranteed as to
principal and interest by the United States of America; provided, however, that
the Trustee shall not be liable for any failure to maximize the income earned
on that portion of the principal of Trust as is from time to time invested or
reinvested as set forth above, nor for any loss of income due to liquidation of
any investment which the Trustee, in its sole discretion, believes necessary to
make payments or to reimburse expenses under the terms of this Agreement.
(c) Solely for the purpose of investment convenience, the Trustee
may commingle the assets of the Trust with any assets held by the Trustee
pursuant to each other trust agreement between the Corporation and the Trustee
which has, in the Trustee's sole opinion, terms substantially the same as the
terms of this Agreement (the "Separate Trusts") and may hold and invest the
assets of the Trust and such other assets as a unit, without physically
dividing them, until actual division becomes necessary in order to make the
distributions provided in Section 3, and in such case the Trustee shall
allocate to this Trust and each Separate Trust its proportionate part of
receipts and expenditures accrued or incurred prior to actual division.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be returned to the Corporation.
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing
between the Corporation and the Trustee. Within 31 days following the close of
each calendar year and within 31 days after the removal or resignation of the
Trustee, the Trustee shall deliver to the Corporation and to the Executive a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such
removal or resignation, setting forth all investments, receipts, disbursements
and other transactions effected by it, including a description of all
securities and investments purchased and sold with the cost or net proceeds of
such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
6
<PAGE> 7
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Corporation which is contemplated
by, and in conformity with, the terms of the Severance Agreement or this Trust
and is given in writing by the Corporation. In the event of a dispute between
the Corporation and a party, the Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Corporation agrees to indemnify the Trustee
against the Trustee's costs, expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be primarily
liable for such payments. If the Corporation does not pay such costs, expenses
and liabilities in a reasonably timely manner, the Trustee may obtain payment
from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Corporation generally) with respect to any of its duties or
obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to assist it
in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided otherwise
herein, provided, however, that if an insurance policy is held as an asset of
the Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor the Trustee, or to loan
to any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Corporation shall pay all administrative and the Trustee's fees
and expenses. If not so paid, the fees and expenses shall be paid from the
Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Corporation, which shall be effective 60 days after receipt of such notice
unless the Corporation and the Trustee agree otherwise.
7
<PAGE> 8
(b) The Trustee may be removed by the Corporation on 60 days
notice or upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 60 days after
receipt of notice of resignation, removal or transfer, unless the Corporation
extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no
such appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed in accordance with
Section 10(a) or (b) hereof, the Corporation may appoint any third party, such
as a bank trust department or other party, that may be granted corporate
trustee powers under state law, as a successor to replace the Trustee upon
resignation or removal. The appointment shall be effective when accepted in
writing by the new Trustee, who shall have all of the rights and powers of the
former Trustee, including ownership rights in the Trust assets. The former
Trustee shall execute any instrument necessary or reasonably requested by the
Corporation or the successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust assets, subject
to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for
and the Corporation shall indemnify and defend the successor Trustee from any
claim or liability resulting from any action or inaction of any prior Trustee
or from any other past event, or any condition existing at the time it becomes
successor Trustee.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Agreement may be amended by an instrument in writing
signed by the parties hereto together with the written consent of the
Executive. The parties hereto, with the consent of the Executive, may at any
time waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto or the Executive to any
such waiver shall be valid if set forth in an instrument in writing signed on
behalf of such party or the Executive, as the case may be. Notwithstanding the
foregoing, any such amendment or waiver shall not affect the irrevocability of
this Agreement.
8
<PAGE> 9
(b) The Trust shall terminate upon the first to occur of the
following: (i) the payment of all amounts payable to the Executive pursuant to
the Severance Agreement; or (ii) the date of termination of the Severance
Agreement pursuant to paragraph 1 thereof, unless there exists a dispute
between the parties to the Severance Agreement as to whether a termination of
the Severance Agreement has occurred. If such a dispute shall exist, the
Severance Agreement shall not be considered terminated until such dispute is
finally determined, whether by mutual agreement of the parties to the Severance
Agreement or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected). Promptly upon termination of this Trust, any remaining
portion of the Trust shall be paid to the Corporation.
(c) Upon written approval of the Executive, the Corporation may
terminate this Trust prior to the time all benefit payments under the Severance
Agreement have been made. All assets in the Trust at termination shall be
returned to the Corporation.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Executive under this Trust Agreement
may not be anticipated, assigned (either by law or in equity), alienated,
pledged, encumbered or subjected to attachment, garnishment, levy, execution or
other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Ohio.
(d) For purposes of this Agreement, the term "Change in Control"
shall have the same definition as ascribed to such term in the Severance
Agreement.
(e) Any notice, report, demand or waiver required or permitted
hereunder shall be in writing and shall be given personally or by prepaid
registered or certified mail, return receipt requested, addressed as follows:
If to the Corporation: The United States Shoe Corporation
One Eastwood Drive
Cincinnati, Ohio 45227
Attention: Secretary and General Counsel
If to the Trustee: PNC Bank, Ohio, National Association
PNC Center
201 E. Fifth Street
Cincinnati, Ohio 45201
Attention: Manager, Trust Department
9
<PAGE> 10
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be __________________,
1994.
THE UNITED STATES SHOE CORPORATION
By__________________________________
PNC BANK, OHIO, NATIONAL ASSOCIATION
By__________________________________
10
<PAGE> 11
EXHIBIT A
Severance Compensation Agreement
<PAGE> 12
EXHIBIT B
[ Name of Executive ]
<PAGE> 1
EXHIBIT 4
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDED AGREEMENT is made as of the 1st day of November, 1994,
between THE UNITED STATES SHOE CORPORATION, an Ohio corporation with principal
offices at One Eastwood Drive, Cincinnati, Ohio 45227 (hereinafter called the
"Company") and BANNUS B. HUDSON, whose address is 1136 Fort View Place,
Cincinnati, Ohio 45202 (hereinafter called the "Employee").
WHEREAS, the Company and Employee entered into an Employment Agreement
dated August 1, 1990 ("Agreement"), the initial term of which expires July 31,
1995; and the parties wish to amend the Agreement.
NOW, THEREFORE
The Agreement is hereby amended by the deletion of paragraphs 2, 3, 4,
7, 8 and 10 and by the insertion of new paragraphs 2, 3, 4, 7, 8 and 10, as
follows:
2. The original term of this Agreement commenced August 1, 1990 and
will end July 31, 1995. Effective August 1, 1995, this Agreement and all of
its terms shall be extended for a period of three years thereafter until July
31, 1998. If either party exercises its or his right to terminate the
employment of Employee on or after July 31, 1998, the Company shall pay
Employee a termination payment equal to twice his then current annual salary;
provided, however, that no such termination payment shall be made when any
death or disability payments are payable by the Company pursuant to paragraph 4
of this Agreement, or if the Agreement is terminated because of Employee's
breach. The termination payment shall be payable in 24 equal monthly
installments on the last day of each month beginning with the month immediately
following such termination of employment, and Employee shall not be required to
seek or accept other employment while receiving such payment nor shall
acceptance of other employment in accordance with paragraph 10 of this
Agreement entitle the Company to terminate or reduce such payment. If Employee
dies after such termination of employment, but prior to the receipt of the full
24 installments of the termination payment, the remaining monthly installments
shall be paid by the Company when due to the person, including trustees, he has
designated as beneficiary thereof or, in the event he has made no such
designation, to his estate. Upon request by Employee, the Company also will
continue to provide health and dental coverage after such termination of
employment, similar to that provided to its salaried employees, in accordance
with
<PAGE> 2
-2-
the requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA).
3. Effective October 1, 1994, the Company agrees to pay Employee an
annual salary of not less than $650,000, payable in equal bi-weekly
installments; provided, however, that if this Agreement is terminated due to
Employee's death, disability or breach, or by mutual agreement or pursuant to
paragraphs 2,7 or 8 hereof, Employee's salary shall be prorated to the date of
such termination. In addition, Employee shall be entitled to participate, on a
basis and to the extent consistent with his position, in corporate executive
incentive plans, restricted stock and stock option plans, deferred compensation
programs, retirement plan, vacations, group insurance and other so-called
fringe benefit programs from time to time in force for the benefit of Company
employees generally and/or for any group of employees of which Employee is a
member, provided that he meets the eligibility requirements of any such program
or plan.
4. (a) If, during the term of this Agreement, Employee shall become
permanently disabled so as to be unable to carry out his duties hereunder for a
period of six consecutive months, this Agreement shall terminate and the Company
shall have no obligation to make the termination payment provided in paragraph 2
of this Agreement, but the Company shall pay Employee a total disability benefit
equal to twice his annual salary for the calendar year during which he becomes
so disabled; provided, however, that the disability benefit payable by the
Company shall be reduced by the amount of any disability payments which Employee
may receive, during the period that such disability benefit is being paid, from
the Company-paid portion of any group insurance program. Such disability
benefit payable by the Company shall be paid in 120 equal monthly installments
on the last day of each month, commencing with the month following such
permanent disability. If Employee dies after such termination of this
Agreement, but prior to his receipt of the full 120 monthly installments of the
disability benefit, the remaining monthly installments shall be paid by the
Company when due to the person or persons, including trustees, he has designated
as beneficiary thereof or, in the event he has made no such designation, to his
estate.
(b) If, during the term of this Agreement, Employee shall die from
any cause without first having been permanently disabled, this Agreement shall
terminate and the Company shall have no obligation to make the termination
payment
<PAGE> 3
-3-
provided in paragraph 2 of this Agreement, but the Company shall pay a total
death benefit equal to twice Employee's annual salary for the calendar year
during which he dies; provided, however, that the death benefits payable by the
Company shall be reduced by the amount of any death benefit which Employee's
beneficiary or estate may receive from the Company-paid portion of any group
insurance program. Such death benefit payable by the Company shall be paid in
120 equal monthly installments on the last day of each month, commencing with
the month following such death, to the person or persons, including trustees,
he has designated as beneficiary thereof or, in the event he has made no such
designation, to his estate.
7. In the event of the merger or consolidation of the Company into
another corporation (hereinafter called the "successor corporation"), or in the
event of the sale of all or substantially all of the Company's assets to
another corporation (hereinafter called the "other corporation"), the Company
shall assign all of its right, title and interest under this Agreement to the
successor or other corporation, and such successor or other corporation shall
assume and agree to perform all of the terms and conditions and provisions
imposed on the Company by this Agreement. After such assignment, all further
rights as well as all further obligations of the Company under this Agreement
shall cease and terminate. The successor or other corporation shall become and
remain liable to Employee to perform all obligations of the Company hereunder
(except the obligation to delegate to him the duties and responsibilities set
forth herein) until the end of the term of this Agreement; provided, that
Employee shall have the right to terminate this Agreement at any time within
six months after the merger or consolidation or the sale of assets becomes
effective, by giving the successor or other corporation 90 days' prior written
notice. If this Agreement is terminated by Employee during such six-month
period, Employee shall be entitled to receive the termination payment provided
in paragraph 2 above, payable in 24 equal monthly installments on the last day
of each month beginning in the month immediately following the month in which
the termination is effective.
8. In the event of a sale, distribution to the shareholders of the
Company, or other disposition of all or substantially all assets of any one or
more of the Company's Women's Apparel Retailing Group, Optical Retailing Group
or Footwear Group, and Employee has given the Board of Directors prior written
notice that he will exercise his right to terminate this Agreement if such
sale, distribution or
<PAGE> 4
-4-
other disposition occurs, this Agreement shall terminate on the earlier of six
months after such sale, distribution or other disposition takes place, or upon
90 days prior written notice to the Company by Employee. If Employee
terminates this Agreement pursuant to this paragraph 8, Employee will receive
the termination payment provided in paragraph 2 above, payable in 24 equal
monthly installments on the last day of each month beginning in the month
immediately following the month in which the termination is effective.
10. For a period ending on the earlier of (i) two years after the
Employee ceases to be employed by the Company (other than termination by
Employee for Good Reason pursuant to the Severance Compensation Agreement) or
(ii) the last day of the month in which the final monthly installment of the
applicable termination payment to which Employee is entitled pursuant to
paragraphs 1(a), 2, 7 or 8 hereof becomes due and payable (the "Restricted
Period"), Employee agrees that he will not without the prior written consent of
the Company, directly or indirectly, as sole proprietor, partner, employee,
officer, director, shareholder, trustee, advisor, consultant or independent
contractor, or in any other manner or capacity whatsoever, engage in any
business in competition with the Company, or any of its subsidiaries, in any
geographical area where the Company or any of its subsidiaries is doing
business as of the date this Agreement terminates, or any geographical area
with respect to which the Company has a documented plan to commence doing
business within the twelve months following termination of this Agreement;
provided, however, that this paragraph 10 shall not be construed to prevent
Employee from accepting a senior executive position with a company with diverse
businesses which predominately do not compete with the Company, but which may
have a division or subsidiary which competes with the Company, so long as (i)
Employee has no direct, as opposed to overall, supervisory or other
responsibilities in connection with the competitive division or subsidiary,
(ii) the revenues of the competitive division or subsidiary did not exceed the
lesser of Two Hundred Fifty Million Dollars ($250,000,000) or twenty percent of
the total revenues of such company in its fiscal year immediately preceding the
termination of this Agreement, and (iii) such company has not taken any action
or formulated any plan, as of the date of acceptance of such position by
Employee, that reasonably would be expected to result in the revenues of such
competitive division or subsidiary exceeding the lesser of Two Hundred Fifty
Million Dollars ($250,000,000) or twenty percent of the total revenue of such
company during any of its three fiscal years immediately following the
termination of this Agreement.
<PAGE> 5
-5-
If Employee shall accept, under the conditions described in the preceding
sentence, such a senior executive position during the Restricted Period (i) any
termination payments payable by the Company pursuant to paragraphs 1(a), 2, 7
or 8 of this Agreement shall be reduced by an amount equal to 50% of
one-twelfth of the annual compensation which Employee expects to earn from his
new employer (for a full year's employment) times the number of months
remaining in the Restricted Period and (ii) Employee shall not take any action
during the Restricted Period which, due to his extensive knowledge of the
Company, would be detrimental to the Company's business, including but not
limited to recruitment of the Company's key personnel. The above
notwithstanding, Employee shall not accept any position or work in any capacity
during the Restricted Period for Grand Metropolitan PLC, or any of its
subsidiaries or affiliates. Employee agrees that the remedy at law for any
breach of the foregoing will be inadequate, and that the Company will be
entitled to injunctive relief (as well as any other form of remedy available to
the Company) for any such breach.
All of the provisions of paragraphs 1, 5, 6, 9, 11, 12, 13 and 14 of
the Employment Agreement dated August 1, 1990 will continue to be applicable in
all respects during the remainder of the term of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to
Employment Agreement as of the date first above mentioned.
THE UNITED STATES SHOE CORPORATION
ATTEST:
- ------------------------------- ----------------------------------
James J. Crowe, Secretary K. Brent Somers, Executive Vice
President-Chief Financial Officer
----------------------------------
Bannus B. Hudson
<PAGE> 1
EXHIBIT 5
SPECIAL BONUS AGREEMENT
THIS AGREEMENT, dated as of February 2, 1995, is between THE UNITED
STATES SHOE CORPORATION, an Ohio Corporation (the "Company") and ___________
________________________ (the "Executive").
The Company's Board of Directors has determined that it is appropriate
to encourage certain key members of management, including the Executive, to
remain with the Company and dedicated to their assigned duties without
distraction under the current difficult and disturbing circumstances. This
Agreement sets forth the special bonus that the Company will pay to the
Executive as additional consideration for the services performed by the
Executive during this period.
1. Amount of Special Bonus. The amount of the special bonus will
be equal to 100% of the Executive's base annual salary, determined at the time
that the bonus becomes payable to the Executive, or the Executive's base annual
salary on the date first set forth above, whichever is greater.
2. Conditions for Payment. The special bonus will be payable to
the Executive only if one of the following conditions is met:
(i) the Executive is employed by the Company in the
Corporate Center Group (or employed in a division or subsidiary of the Company
with the permission of the Executive Vice President-Chief Financial Officer of
the Company) as a full-time, active associate on February 1, 1997, or
(ii) the Executive's employment with the Company is
terminated by the Company other than for Cause on or prior to February 1, 1997.
For the purpose of this Agreement, Cause shall mean theft or embezzlement of
Company assets, fraud, misrepresentation or violation of law by the Executive,
or
(iii) the Company agrees in writing prior to February 1,
1997 that the special bonus is currently payable.
If more than one of the above conditions is met, the Executive
is eligible for only one special bonus under this Agreement, and the special
bonus will become payable upon the occurrence of the earliest event that meets
such conditions.
3. Distribution. Payment of the special bonus to which the
Executive has become entitled will be made in a lump sum paid within 5 days
after the special bonus becomes payable pursuant to paragraph 2 above. The
special bonus payable under this Agreement will be subject to applicable
withholding for federal, state, and local taxes.
4. Other Provisions. This Agreement shall not affect any rights
that the Executive may otherwise have under his or her Severance Agreement or
pursuant to the Company's Economic Bridge Program, except that any special
bonus payable under this Agreement will not be considered as part of the
Executive's compensation payable pursuant to his or her Severance Agreement.
This Agreement shall not affect any rights that the Executive may otherwise
<PAGE> 2
-2-
have to receive other bonus payments, incentive compensation or economic bridge
payments from the Company.
5. Nothing in this Agreement shall be interpreted or deemed to be
a contract of employment or to conflict with the right of the Company to
terminate the employment of the Executive for any reason at the will of the
Company. Termination of the Executive's employment by the Company prior to or
after the occurrence of one or more of the conditions set forth in paragraph 2
above will not diminish any rights of Employee with respect to such
termination.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
THE UNITED STATES SHOE CORPORATION
By:
---------------------------------
K. Brent Somers, Executive Vice
President-Chief Financial Officer
EMPLOYEE
------------------------------------
<PAGE> 1
EXHIBIT 6
THE UNITED STATES SHOE CORPORATION
ECONOMIC BRIDGE PROGRAM
The United States Shoe Corporation hereby adopts The United States Shoe
Corporation Economic Bridge Program, in the form attached hereto, effective as
of February 1, 1995.
IN WITNESS WHEREOF, The United States Shoe Corporation has caused its name to
be subscribed this 16th day of February, 1995.
THE UNITED STATES SHOE CORPORATION
By /s/ Bannus B. Hudson
_______________________________
Title President and Chief Executive Officer
<PAGE> 2
THE UNITED STATES SHOE CORPORATION
ECONOMIC BRIDGE PROGRAM
The Economic Bridge Program is intended to provide a bridge which includes a
salary bridge benefit described in Section E and other specified benefits
described in Section F (together referred to as the "Benefits") for Eligible
Associates of The United States Shoe Corporation and its divisions and
subsidiaries (the "Company") who lose their positions under certain
circumstances due to certain events beyond their control.
The Program is effective as of February 1, 1995. It replaces and supersedes all
prior severance pay policies, programs, plans, and arrangements of the Company,
except for a written agreement between an individual and the Company concerning
severance compensation, including but not limited to an offer letter. This
booklet serves as the official text of the Program.
A. WHICH ASSOCIATES ARE ELIGIBLE ASSOCIATES?
Only "Eligible Associates" are eligible for Benefits under this Program, and
only if they satisfy all of the other terms and conditions of this Program. Only
the following groups of full-time associates of the Company who are either
working in the United States (including Puerto Rico) or are U.S. citizens
working for the Company on assignment in a foreign country are Eligible
Associates:
- All exempt associates, except that assistant retail store managers
employed in the Footwear Group are not Eligible Associates.
- Nonexempt administrative support associates at the offices of the
Company.
- Nonexempt retail store managers, associate managers, and assistant
managers, except that assistant retail store managers employed in
the Footwear Group are not Eligible Associates.
- Distribution center associates who are not members of a collective
bargaining unit.
You are considered a full-time associate for purposes of this Program if you are
classified as a full-time associate by your Business Group.
Associates who are not actively at work when their employment terminates are
Eligible Associates only if they would have been Eligible Associates based on
their status when last actively at work, and their absence is due to vacation,
temporary layoff, or approved absence from work, including leave under the
Family and Medical Leave Act.
Notwithstanding any other provision of this Program, an associate is not an
Eligible Associate under this Program if he or she is eligible for severance
compensation of any type under any written agreement or plan of the Company that
applies to him or her (including, but not limited to, offer letters), unless
that other plan or written agreement specifically indicates that the associate
is eligible for benefits under this Program.
<PAGE> 3
B. WHEN ARE BENEFITS PROVIDED?
Benefits under the Program generally are provided only upon an involuntary
termination of an Eligible Associate's employment with the Company under the
following circumstances or other circumstances approved in writing by the Chief
Executive Officer of the Company or his designee:
- A reduction in the work force that applies to the Eligible Associate
or the elimination of the Eligible Associate's position.
- A modification or reassignment in the Eligible Associate's job duties
by the Business Group, when the Business Group subsequently determines
that the new duties are inconsistent with the associate's knowledge,
skills, and abilities, provided that the Business Group makes such
determination within the first six months after the modification or
reassignment in job duties.
- Transfer of the Eligible Associate's job responsibilities to another
location within the organization requiring relocation of the
associate.
C. WHEN ARE BENEFITS NOT PROVIDED?
Unless otherwise approved in writing by the Chief Executive Officer of the
Company or his designee, but not withstanding any other provision of the
Program, Benefits under the Program are not provided under any of the following
circumstances, even if the Eligible Associate otherwise is entitled to Benefits:
- Voluntary termination of employment by an Eligible Associate.
However, an Eligible Associate is eligible for Benefits after his or
her voluntary termination of employment with the Company if he or
she otherwise is eligible for Benefits, and both of the following
additional requirements are met:
- the Eligible Associate's voluntary termination of employment
occurs at or immediately after a Change in Control of all or
part of the Company that applies to the Eligible Associate; and
- at or immediately after the Change in Control, the Eligible
Associate was not offered or provided with new or continuing
Comparable Employment that includes coverage under a new or
continuing Comparable Program by either the Company or a New
Company or both such employers (regardless of whether he or she
accepted such offer or offers). (See the section called
"Definitions" regarding Comparable Employment and Comparable
Program.)
- Termination of an Eligible Associate's employment for cause, which
means conviction of illegal conduct constituting a felony or gross
misdemeanor which is determined by a Business Group to be materially
injurious to the Company, gross misconduct, or violation of Company
or Business Group policy.
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<PAGE> 4
- Termination of an Eligible Associate's employment for willful or
continued failure to perform duties after written counseling, provided
such duties are within the scope of responsibility for the associate's
position.
- The Eligible Associate does not execute an Agreement for Termination
of Employment.
- Benefits for which an Eligible Associate is otherwise eligible will
not be paid for any period during which the Eligible Associate is
receiving either Workers Compensation benefits related to his or her
employment with the Company, or long-term disability ("LTD")
benefits under an LTD plan of the Company. If the Eligible
Associate's Workers Compensation and LTD benefits end before the end
of the period for which he or she otherwise was eligible for
Benefits, he or she is eligible for the remaining portion of his or
her Benefits, subject to the other provisions of this Program.
Please also see the sections called "When Do Benefits End?" and "What Occurs If
There Is A Change In Control" for other circumstances that can result in
Benefits ending or not being provided.
D. WHAT OCCURS IF THERE IS A CHANGE IN CONTROL?
An Eligible Associate who is otherwise entitled to Benefits under this Program
may be eligible for larger Benefits after a Change in Control that applies to
him or her occurs. Please see the section called "Benefit Schedule."
However, if a Change in Control occurs, the following special rules apply in
addition to the other provisions of this Program, and an Eligible Associate is
not entitled to Benefits under the Program if either of the following rules
applies to him or her:
- If the Eligible Associate is employed by the Company or a New
Company (see the section called "Definitions") in any position
immediately after the Change in Control, his or her employment is
not considered to end for purposes of this Program, and he or she is
not entitled to Benefits under the Program. This rule means that if
an Eligible Associate remains in the same position that he or she
had before the Change in Control, or he or she accepts an offer of
employment in or transfer to any other position offered to him or
her by the Company or a New Company, he or she is not entitled to
Benefits under this Program. (However, if the associate remains
employed by the Company and is later terminated, he or she will
remain eligible for Benefits under this Program, according to its
terms, if he or she is then an eligible associate and if this
Program is then in effect.)
- If an Eligible Associate is offered or provided with new or
continuing Comparable Employment with either the Company or a New
Company or both employers at or immediately after the Change in
Control that includes coverage under a new or continuing Comparable
Program, and he or she does not accept such Comparable Employment
(or one of such positions, if there is more than one), he or she is
not entitled to Benefits under the Program. (See the section called
"Definitions" regarding Comparable Employment and Comparable
Program.)
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<PAGE> 5
E. WHAT IS THE SALARY BRIDGE BENEFIT?
If you are eligible for a benefit under the Program, it includes a periodic
Salary Bridge Benefit that is equal to your periodic base salary rate (without
bonuses, incentive pay, or other special types of compensation) at the time of
your termination of active employment with the Company. The duration of the
Salary Bridge Benefit is based on your salary grade, age, and length of full-
time service with the Company at the time of your termination of active
employment with the Company. The Salary Bridge Benefit is subject to applicable
federal, state, and local income tax withholding. The Salary Bridge Benefit is
not reduced by unemployment benefits, but you may not be able to receive
unemployment benefits (if you are eligible for them) until the Salary Bridge
Benefit ends. The maximum period that the periodic payments of your Salary
Bridge Benefit will continue after your termination of active employment with
the Company depends on the Benefit Schedule. (See the table at the end of this
booklet that is called "Benefit Schedule.")
An Eligible Associate's Salary Bridge Benefit generally is paid on the same time
schedule (weekly, monthly, etc.) that he or she was paid while actively
employed. However, the Salary Bridge Benefit and any other Benefits under the
Program will not begin until the associate executes an Agreement for Termination
of Employment.
F. ARE THERE OTHER BENEFITS?
Any medical, dental, and life insurance plans that applied to you before your
employment terminated will continue during the time you are receiving the Salary
Bridge Benefits under this Program. (Coverage under long and short term
disability programs ends as of your last day of active work with the Company.)
The charge for any medical or dental benefits during this period generally will
be the same charge that applies to similarly situated active associates, and
will be deducted from your Salary Bridge Benefit. The Company may change or end
any of the medical, dental, and life insurance benefits provided under this
Program or the charges for such benefits. All such Benefits under this Program
end at the earliest date that applies to you under the section of this booklet
called "When Do Benefits End?"
You may have the right to continue medical and dental insurance under COBRA when
those benefits are no longer provided under this Program, or to convert your
life insurance. Please see the summary plan descriptions for those other plans
about your rights under those plans. The Economic Bridge Program does not
change or modify any medical, dental, life insurance, accident insurance,
disability benefit, or other pension or welfare plans of the Company in any way.
Retirement benefits generally will continue to accrue during the time you are
receiving Benefits under this Program, but will cease to accrue when accrual
ends under the terms of the applicable retirement plan if those terms provide a
different date. If you are eligible to receive a retirement benefit under a
retirement plan of the Company, you cannot elect to have the payment of that
benefit commence until your Benefits under this Program are exhausted.
Unused accrued vacation pay will be paid to you in accordance with your Business
Group's vacation policy when you terminate active employment. Additional
vacation pay will not accrue while you are receiving Benefits under this
Program.
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<PAGE> 6
The Chief Executive Officer of the Company or his designee, in his discretion,
may approve other benefits under the Program for individuals or groups of
associates.
G. BENEFIT SCHEDULE
The Benefit Schedule that applies to an Eligible Associate describes the maximum
period that he or she will receive salary bridge and other Benefits under this
Program if he or she is eligible for those Benefits after termination of active
employment. Salary bridge and other Benefits under the Program will not be
payable or will end before the maximum period in some cases. See the sections
called "When Are Benefits Not Provided," "What Occurs If There Is A Change In
Control," and "When Do Benefits End."
The duration of Benefits for which you are otherwise eligible under the Program
is determined under either the "Basic Benefit" column or under the "Change in
Control Benefit" column of the Benefit Schedule, but never under both columns.
The "Change in Control" column applies to an Eligible Associate only if there
was a "Change in Control" (see the section called "Definitions") and the
associate's active employment with the Company terminated at or within two years
after the Change in Control for a reason described in the sections called "When
Are Benefits Provided?" or "What Occurs If There Is A Change In Control?"
For purposes of calculating your Benefits, your age and your years of full- time
active service with the Company are rounded up or down to the nearest full year.
Part-time service and service before your most recent date of hire with the
Company are not counted. If an employer becomes a division or subsidiary or
otherwise becomes part of the Company after 1985, service with that employer
before it becomes part of the Company is not counted. Your Benefits are reduced
on a week for week basis if you previously received a Benefit under the Program
and then were rehired by the Company. The terms, "exempt" and "non-exempt,"
have the same meaning that they have for purposes of federal wage and hour laws.
H. WHEN DO BENEFITS END?
If you are an Eligible Associate, all Benefits under this Program end on the
earliest of the following dates:
- The date you reach the end of the maximum period that applies to you
under the Benefit Schedule.
- The date that you die.
- The date you are rehired by the Company or you find New Employment.
(See the section called "Definitions.") However:
-- If you find New Employment during the period you are receiving
Benefits under this Program, and you provide a written notice
of that fact to the Plan Administrator within ten business days
of when the New Employment begins, you will receive a cash
payment equal to one-third of your unused Salary Bridge
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<PAGE> 7
Benefit, not to exceed three months salary. However, you will not
receive this cash payment if you accept New Employment with a
"New Company" (as defined in the section called "Definitions").
-- If your New Employment ends within ninety days after it begins,
and you provide a written notice of that fact to the Plan
Administrator within ten business days of when the New
Employment ends, you will receive the remainder of any Salary
Bridge Benefit that you otherwise are entitled to under this
Program, up to the maximum period that applies to you under the
Benefit Schedule (determined from your original termination of
active employment). This reinstated Salary Bridge Benefit will
be reduced by any cash payment that you received for your
unused Salary Bridge Benefit, and by any amounts that would
have been paid under the Program during the period that you had
New Employment. The reinstated Salary Bridge Benefit will end
if you again find New Employment. The reinstated Salary Bridge
Benefit is not available if you accepted any employment with a
New Company.
- THE DATE YOU BREACH ANY OF THE PROMISES OR CONDITIONS THAT YOU
AGREED TO IN AN AGREEMENT FOR TERMINATION OF EMPLOYMENT, WHICH IS A
RELEASE AND WAIVER THAT YOU SIGN IN CONNECTION WITH YOUR TERMINATION
OF EMPLOYMENT. THIS INCLUDES BUT IS NOT LIMITED TO ANY PROMISE TO
KEEP CERTAIN MATTERS CONFIDENTIAL, AND ANY PROMISE NOT TO SUE THE
COMPANY OR PERSONS ASSOCIATED WITH IT.
- The date as of which the Program is amended or modified to end
Benefits, provided that no amendment will reduce Benefits to which
an Eligible Associate has already become entitled because of his or
her termination of employment.
I. DEFINITIONS
For purposes of this Program, the following terms have the following meanings
when they are used in this booklet, unless this booklet indicates otherwise.
AGREEMENT FOR TERMINATION OF EMPLOYMENT means an agreement that releases the
Company, its divisions and subsidiaries, and persons affiliated with it from
actions, suits, proceedings, claims, and demands related to the associate's
termination of employment. The Agreement for Termination of Employment is
required in consideration for the Benefits under the Program.
BUSINESS GROUP means:
- The Corporate Center Group,
- The Footwear Group,
- The Optical Retailing Group, or
- The Women's Apparel Retailing Group.
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<PAGE> 8
CHANGE IN CONTROL shall be deemed to have occurred and to apply to an Eligible
Associate under this Program only if:
(a) there shall be consummated any consolidation or merger of the Company
and, as a result of such consolidation or merger (i) less than 50% of the
outstanding common shares and 50% of the voting shares of the surviving or
resulting corporation are owned, immediately after such consolidation or merger,
by the owners of the Company's common shares immediately prior to such
consolidation or merger, or (ii) any person (as such term is used in Section
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 25% or more of the surviving or resulting
corporation's outstanding common shares; or
(b) there shall be consummated any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; or
(c) There shall be consummated:
(i) any sale, lease, exchange or other transfer (other than a
transfer to a Subsidiary of the Company) of all, or substantially all, of the
assets of one or more of the Company's Women's Apparel Retailing Group, the
Footwear Group or the Optical Retailing Group (collectively the "Company
Groups") unless immediately thereafter all, or substantially all, of the assets
of two of the Company Groups are owned by the Company and/or a Subsidiary of the
Company and the Eligible Associate is, and prior thereto had been, assigned to
one of such Company Groups (as used in this definition of "Change in Control,"
the term "Subsidiary of the Company" means any corporation at least 51% of the
outstanding common shares and 51% of the voting shares of which are owned by the
Company, and all references to a "distribution" of any of such shares by the
Company to its shareholders includes distributions that are pro rata or in
exchange for shares of the Company); or
(ii) any consolidation or merger of a Subsidiary of the Company
owning all, or substantially all, of the assets of one or more of the Company
Groups, or any sale, exchange or other transfer of the shares of any such
Subsidiary (other than a distribution of such shares by the Company to its
shareholders) if, as a result thereof, such Subsidiary ceases to be a Subsidiary
of the Company, unless immediately thereafter all, or substantially all, of the
assets of two of the Company Groups are owned by the Company and/or a Subsidiary
of the Company and the Eligible Associate is, and prior thereto had been,
assigned to one of such Company Groups; or
(iii) any distribution by the Company to its shareholders of some
or all of the shares of a Subsidiary of the Company owning all, or substantially
all, of the assets of one of the Company Groups if, as a result of such
distribution, such Subsidiary ceases to be a Subsidiary of the Company, unless
immediately thereafter all, or substantially all, of the assets of two of the
Company Groups are owned by the Company and/or a Subsidiary of the Company and
the Eligible Associate is, and prior thereto had been, assigned to one of such
Company Groups; or
(iv) Any distribution by the Company to its shareholders of some or
all of the shares of a Subsidiary of the Company owning all, or substantially
all, of the assets of two of the Company Groups if, as a result of such
distribution, such Subsidiary ceases to be a Subsidiary of the Company,
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<PAGE> 9
unless immediately thereafter the Eligible Associate is, and prior thereto had
been, assigned to one of such Company Groups; or
(d) the shareholders of the Company shall approve any plan or proposal for
the liquidation or dissolution of the Company; or
(e) any person (as such term is used in Sections 13(d) and 14(d) (2) of
the Exchange Act) shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 25% or more of the Company's outstanding common
shares; or
(f) during any period of two consecutive years, individuals who at the
beginning of such period constitute the entire Board of Directors of the Company
shall cease for any reason to constitute a majority thereof unless the election
or the nomination for election by the Company's shareholders of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
COMPANY means The United States Shoe Corporation and its divisions and
subsidiaries.
COMPARABLE EMPLOYMENT means any position (including but not limited to the
Eligible Associate's position immediately before a Change in Control) that
includes a base salary or wage rate which, on an annualized basis, is not less
than the Eligible Associate's most recent base annual salary or wage rate in his
or her position with the Company before the Change in Control, and that does not
require relocation by the associate, even if the duties of the position are not
the same as the associate's duties in his or her most recent position with the
Company before the Change in Control. Fringe benefits, including but not
limited to retirement or group health plan benefits, will be disregarded in
determining if a position is Comparable Employment. The Plan Administrator
shall have full discretion to determine if a position constitutes Comparable
Employment.
COMPARABLE PROGRAM means any severance pay or economic bridge plan or program
maintained by any employer after a Change in Control (including but not limited
to this Program or a successor thereof) under which:
- The associate is eligible for a salary bridge or severance pay
benefit upon his or her involuntary termination of employment due to
a reduction in force, the elimination of the associates' position, a
transfer of job responsibilities to another location requiring the
associate's relocation, and other circumstances specified in that
plan or program, which has a value that is at least as large as the
value of the maximum Salary Bridge Benefit that would have been
offered to the associate under this Program at the time of the
Change in Control that applies to him or her; and
- The employer sponsoring the plan or program has made a written
commitment that within the 24 months immediately following the
Change in Control, it will not end the Comparable Program or amend
it to reduce the dollar amount of the salary bridge benefits for
which the Eligible Associates affected by the Change in Control are
eligible under the Comparable Program. However, this requirement of
a written commitment does not apply if the employer sponsoring the
plan or program is the Company unless
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<PAGE> 10
a Change in Control of a type described in paragraphs (a), (b), (d),
(e), or (f) of the definition of Change in Control has occurred.
To determine if the dollar value of benefits under the Comparable Program is at
least as large as the dollar value of the Salary Bridge Benefit under this
Program, this Program will consider only the amount and duration of the periodic
salary bridge payments under this Program and the Comparable Program, including
any increased duration under this Program due to a Change in Control, if
applicable. Except for the requirement that the sponsor of the Comparable
Program must commit not to end or reduce the dollar amount of benefits for the
first 24 months, a program that provides a salary bridge benefit at least as
great as the Salary Bridge Benefit under this Program is a Comparable Program
even if the employer sponsoring the program has the right to amend or end that
program after such 24 month period. The Plan Administrator shall have full
discretion to determine if a severance pay or economic bridge program
constitutes a Comparable Program.
NEW COMPANY means any entity to which all or a portion of the Company's
business is transferred in a manner described in one or more of paragraphs (a)
through (f) of the definition of "Change in Control."
NEW EMPLOYMENT means employment, other than employment with the Company, of at
least 20 hours per week.
J. HOW IS THE PROGRAM ADMINISTERED?
PLAN SPONSOR AND PLAN ADMINISTRATOR. The United States Shoe Corporation, One
Eastwood Drive, Cincinnati, Ohio, 45227 (513) 527-7000, is the "plan sponsor"
and the "plan administrator" of the program under ERISA. The Plan Administrator
is the named fiduciary which performs a full and fair review of any denial of a
claim upon receipt of a timely request for review.
NOTICES. All notices, whether to the Plan Administrator from you, or to you
from the Plan Administrator, must be written. Notices to the Plan Administrator
should be sent to The United States Shoe Corporation, Attention: Human
Resources, One Eastwood Drive, Cincinnati, Ohio, 45227
TYPE OF PROGRAM. The Program is classified as a welfare plan under provisions
of the Employee Retirement Income Security Act of 1974.
FINANCING OF BENEFITS. Economic Bridge payments are paid from the general
assets of the Company, and contributions by associates are not required.
PROGRAM RECORDS. The Economic Bridge Program and all of its records are
maintained on a calendar year basis, beginning January 1 and ending December 31
of each year.
PROGRAM IDENTIFICATION NUMBER. This Program is identified by the following
number under Internal Revenue Service rules: 510.
EMPLOYER IDENTIFICATION NUMBER. The United States Shoe Corporation is
identified by the following employer identification number under Internal
Revenue Service rules: 31-0474200.
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<PAGE> 11
TERMINATION AND AMENDMENT. The United States Shoe Corporation reserves the
right to change, interpret, modify, withdraw, or add Benefits or terminate this
Program, in its sole discretion, without prior notice to or approval by Program
participants. The legal documents governing the Program consist of only this
booklet and any supplements to this booklet that may be issued. Any change or
amendment to the Program, its Benefits, or its terms and conditions may be made
solely in a written amendment to the Program, executed by the Chief Executive
Officer of the Company or his designee. No person or entity has any authority
to make any oral changes or amendments to the Program.
PROGRAM DOCUMENTS. Economic Bridge Program participants are entitled to
examine, without charge, all documents under which this Program is established
and maintained, including any documents and reports that are maintained by the
Program and/or filed with a federal government agency. These documents are
available for review at the Plan Administrator's office. If participants are
unable to examine these documents there, they should write to the Plan
Administrator, specifying the documents to be examined and at which work
location of U.S Shoe they wish to examine them. Copies of such documents will
be made available for examination at the work location within 10 days of the
date the request was submitted. At any time, participants may request copies of
any Program documents by writing to the Plan Administrator. They will be
charged a reasonable fee for copies of the documents requested.
LEGAL SERVICE. Legal process can be served on the Plan Administrator.
BENEFITS NOT ASSIGNED OR ALIENATED. Assignment or alienation of any Benefits
provided by the Program will not be permitted or recognized except as otherwise
authorized by applicable law. This means that, except as required by applicable
law, Benefits provided under the Program are not subject to sale, assignment,
anticipation, alienation, attachment, garnishment, levy, execution, or any other
form of transfer.
INTERPRETATION. The Plan Administrator has sole and exclusive discretion to
interpret the terms and provisions of the Program as set forth in this booklet,
to make factual determinations related to the Program and its Benefits, and to
construe any disputed or ambiguous terms. All determinations and
interpretations made by the Plan Administrator are conclusive and binding on all
parties. The Plan Administrator may, from time to time, delegate such
discretionary authority to other persons or entities providing services in
regard to the Program and such delegations may include the right to redelegate
such authority.
SERVICE PROVIDERS. The Plan Administrator may, in its sole discretion, arrange
for various persons or entities to provide administrative services in regard to
the Program. The identity of the service providers and the nature of the
services provided may be changed from time to time in the Plan Administrator's
sole discretion and without prior notice to or approval by Program participants.
You must cooperate with those persons or entities in the performance of their
responsibilities.
RELATION TO EMPLOYMENT. Nothing in this Program shall be interpreted or deemed
to be a contract of employment, to conflict with the right of the Company to
terminate an associate for any reason at the will of the Company, or to give any
person any rights in the assets of the Company.
GOVERNING LAW. To the extent not preempted by ERISA, the laws of the state of
Ohio shall govern this Program.
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<PAGE> 12
K. BENEFIT CLAIM AND APPEAL PROCEDURE
Program participants, or any person duly authorized by them, may file a claim in
writing for Benefits under this Program or for review of any other appropriate
matter related to the Program. The written claim should be sent to the Plan
Administrator. The written claim must be sent within 90 days of the date of the
alleged unfair treatment, or occurrence of other facts giving rise to the claim.
If the claim is denied, the claimant will receive written notice of the Plan
Administrator's decision, including the specific reason for the decision, any
Program provisions on which the denial is based, and any further information
that is necessary to perfect the claim, generally within 90 days of the date the
claim was received.
In some cases, more than 90 days may be needed to make a decision. In such
cases the claimant will be notified in writing, within the initial 90-day
period, of the reason more time is needed. An additional 90 days may be taken
to make the decision if the claimant is sent such a notice. The extension
notice will show the date by which the decision will be sent.
The Appeal Procedure which follows gives the rules for appealing a denied claim
when:
- no reply at all is received by the claimant within 90 days after
filing the claim and there was no notice extending that time for an
additional 90 days;
- a notice has extended the time an additional 90 days and no reply is
received within 180 days after filing the claim; or
- written denial of the claim for Benefits or other matters is
received within the proper time limit and the claimant wishes to
appeal the written denial.
When a claim for Benefits or review of any other appropriate matter related to
the Program is denied, if you wish to appeal this denial, such appeal must be
submitted in writing 60 days after it is received. The Program participant or a
person duly authorized to act for him or her may file the appeal. Written
request for review of any denied claim should be sent directly to the Plan
Administrator. Unless the Plan Administrator sends a notice in writing that the
claim is a special case needing more time, the Plan Administrator must conduct a
review and decide on the appeal of the denied claim within 60 days after receipt
of the written request for review. In cases needing more time to make a
decision, the Plan Administrator will send notice in writing that there will be
a delay and give the reasons for the delay. In such cases, the Plan
Administrator may have 60 days more, or a total of 120 days, to make its
decision.
If the claimant sends a written request for review of a denied claim, the person
sending the request has the right to:
- review pertinent Program documents which may be obtained by
following the procedures described in this booklet under "Program
Documents" and
- send to the Plan Administrator a written statement of the issues and
any other documents in support of the claim for Benefits or other
matter under review.
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<PAGE> 13
The Plan Administrator's decision shall be given to the claimant in writing
within 60 days or, if extended, 120 days, and shall include specific reasons for
the decision. If the Plan Administrator does not give its decision on review
within the appropriate time span, the claimant may consider the claim denied.
You must exhaust all of your rights under the claim and appeal procedures
described above before you may file a legal action concerning this Program in
any court.
L. RIGHTS OF A PROGRAM PARTICIPANT
As a participant in the Economic Bridge Program, you are entitled to certain
rights and protection under ERISA. ERISA provides that all plan participants
shall be entitled to:
1. examine, without charge, all Program documents including collective
bargaining agreements and copies of any documents filed by the
Program with the U.S. Department of Labor;
2. obtain copies of all Program documents and other Program information
upon written request to the Plan Administrator. There may be a
reasonable charge for such copies.
In addition to creating rights for Program participants, ERISA imposes duties
upon the people who are responsible for the operation of employee benefit plans.
The people who operate your Program, called "fiduciaries" of the Program, have a
duty to do so prudently and in the interest of you and other Program
participants. No one, including your employer, or any other person, may fire
you or otherwise discriminate against you in any way to prevent you from
obtaining a benefit or exercising your rights under ERISA. If your claim for
Benefits is denied, in whole or in part, you must receive a written explanation
of the reason for denial. You have a right to have the Program review and
reconsider your claim. See the section called "Benefit Claim and Appeal
Procedure."
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Program and do not receive them
within 30 days, you may file suit in a federal court. In such case, the court
may require the Plan Administrator to provide the materials and pay to $100 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the Plan Administrator. If you have a claim
for Benefits which is denied or ignored, in whole or in part, you may file suit
in a state or federal court. If you are discriminated against for asserting
your rights, you may seek assistance from the U.S. Department of Labor or you
may file suit in a federal court. The court will decide who will pay court
costs and legal fees. If you are successful, the court may order the person you
have sued to pay these costs and fees. If you lose, the court may order you to
pay these costs and fees if, for example, it finds your claim is frivolous.
If you have any questions about the Program, you should contact the Plan
Administrator. If you have any questions about this statement of your rights,
or about your rights under ERISA, you should contact your nearest Area Office of
the U.S. Labor-Management Services Administration, Department of Labor.
- 12 -
<PAGE> 14
THE UNITED STATES SHOE CORPORATION
ECONOMIC BRIDGE PROGRAM
BENEFIT SCHEDULE
FOR CORPORATE CENTER GROUP, FOOTWEAR GROUP,
AND OPTICAL RETAILING GROUP ASSOCIATES**
<TABLE>
<CAPTION>
SALARY GRADE BASIC BENEFIT CHANGE IN CONTROL BENEFIT
- ------------------------------------------------------------------------------
<S> <C> <C>
Salary grade 25 or 36 weeks salary 48 weeks salary
above, exempt + 1 week per year of + 2 weeks per year of
service service
associates + 1 week per year + 1 week per year
over age 40 over age 40
NOT TO EXCEED 64 NOT TO EXCEED 78
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
Salary grades 16 weeks salary 24 weeks salary
20-24, exempt + 1 week per year of + 2 weeks per year of
associates service service
+ 1 week per year + 1 week per year
over age 40 over age 40
NOT TO EXCEED 52 NOT TO EXCEED 78
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
Salary grades 6 weeks salary 12 weeks salary
16-19, exempt + 1 week per year of + 2 weeks per year of
associates service service
+ 1 week per year + 1 week per year
over age 40 over age 40
NOT TO EXCEED 36 NOT TO EXCEED 52
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
Salary grades 4 weeks salary 6 weeks salary
15 or under, + 1 week per year of + 2 weeks per year of
exempt service service
associates + 1 week per year + 1 week per year
over age 40 over age 40
NOT LESS THAN 9 WEEKS
NOT TO EXCEED 36 NOT TO EXCEED 52
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
Non-exempt 2 weeks salary 4 weeks salary
associates + 1 week per year of + 2 weeks per year of
service service
+ 1 week per year + 1 week per year
over age 40 over age 40
NOT LESS THAN 9 WEEKS
NOT TO EXCEED 36 NOT TO EXCEED 52
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
</TABLE>
** Your benefit under this Benefit Schedule is whichever is less: The base
number of weeks shown in the box that applies to you plus the number of
additional weeks for years of service and years of age over 40 that applies to
you, OR the number of weeks in the "not to exceed" entry that applies to you.
For associates in salary grades 15 or under, and non-exempt associates, there is
also an adjustment for the "not less than" number, if it results in a greater
benefit after a Change in Control.
For instance, assume you are in salary grade 17, you have 20 years of service,
you are age 48, there has not been a Change in Control, and you are entitled to
benefits. The box that applies to you is the box for salary grades 16-19, Basic
Benefit. Your base number of weeks is 6, plus 20 weeks for 20 years of service,
plus 8 weeks for age over 40, for a total of 34. The "not to exceed" number
that applies to you is 36 weeks. The duration of your benefit is 34 weeks.
- 13 -
<PAGE> 15
THE UNITED STATES SHOE CORPORATION
ECONOMIC BRIDGE PROGRAM
BENEFIT SCHEDULE
FOR WOMEN'S APPAREL RETAILING GROUP ASSOCIATES**
<TABLE>
<CAPTION>
SALARY GRADE BASIC BENEFIT CHANGE IN CONTROL BENEFIT
- ------------------------------------------------------------------------------
<S> <C> <C>
Salary grade 25 36 weeks salary 48 weeks salary
or above, + 1 week per year of + 2 weeks per year of
exempt service service
associates + 1 week per year + 1 week per year
over age 40 over age 40
NOT TO EXCEED 64 NOT TO EXCEED 78
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
Salary grades 16 weeks salary 24 weeks salary
20-24, Bands + 1 week per year of + 2 weeks per year of
M05- M06, and service service
Band S13, + 1 week per year + 1 week per year
exempt over age 40 over age 40
associates NOT TO EXCEED 52 NOT TO EXCEED 78
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
Bands D06, H09- 6 weeks salary 12 weeks salary
H10, M03-M04 + 1 week per year of + 2 weeks per year of
and S12, exempt service service
associates + 1 week per year + 1 week per year
over age 40 over age 40
NOT TO EXCEED 36 NOT TO EXCEED 52
WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
Bands D04-05, 4 weeks salary 6 weeks salary
H04 through + 1 week per year of + 2 weeks per year of
H08, M01-M02, service service
District + 1 week per year + 1 week per year
Managers, Site over age 40 over age 40
Managers, Store
Managers, and NOT LESS THAN 9 WEEKS
Associate Store NOT TO EXCEED 36 NOT TO EXCEED 52
Managers, WEEKS TOTAL WEEKS TOTAL
exempt
associates
- ------------------------------------------------------------------------------
Bands D01 2 weeks salary 4 weeks salary
through D03, + 1 week per year of + 2 weeks per year of
H01 through service service
H05, and + 1 week per year + 1 week per year
Assistant Store over age 40 over age 40
Managers, non- NOT LESS THAN 9 WEEKS
exempt NOT TO EXCEED 36 NOT TO EXCEED 52
associates WEEKS TOTAL WEEKS TOTAL
- ------------------------------------------------------------------------------
</TABLE>
** Your benefit under this Benefit Schedule is whichever is less: The base
number of weeks shown in the box that applies to you plus the number of
additional weeks for years of service and years of age over 40 that applies to
you, OR the number of weeks in the "not to exceed" entry that applies to you.
For associates in the applicable categories, there is also an adjustment for the
"not less than" number, if it results in a greater benefit after a Change in
Control.
For instance, assume you are in band H09, you have 20 years of service, you are
age 48, there has not been a Change in Control, and you are entitled to
benefits. The box that applies to you is the box for Bands D06, H09 and H10,
M04 and M03 and S12, exempt associates, Basic Benefit. Your base number of
weeks is 6, plus 20 weeks for 20 years of service, plus 8 weeks for age over 40,
for a total of 34. The "not to exceed" number that applies to you is 36 weeks.
The duration of your benefit is 34 weeks.
- 14 -
<PAGE> 16
THE UNITED STATES SHOE CORPORATION
SUPPLEMENT TO THE
ECONOMIC BRIDGE PROGRAM
This Supplement to the Economic Bridge Program (the "Supplement")
hereby modifies the terms and conditions of The United States Shoe Corporation
Economic Bridge Program (the "Program") with respect to covered associates of
the Corporate Center Group (the "Associate" or the "Associates") to the extent
set forth below, effective on and after <SU>February 1, 1995<EU>. Any terms or
conditions of the Program that are inconsistent with the modifications set forth
below are superseded by those modifications. Except as specifically set forth in
this Supplement or in other written changes to the Program, all of the terms and
conditions of the Program shall remain in effect with respect to the Associates.
This Supplement shall apply only to the covered associates of the Corporate
Center Group.
MODIFICATIONS:
1. The provisions in the Section, "What Is The Salary Bridge Benefit,"
which provide that any Salary Bridge Benefit for which an Associate has become
eligible shall be paid periodically on the same time schedule that the Associate
was paid while he or she was actively employed, are modified to provide that the
Associate shall be entitled to full payment of the Salary Bridge Benefit for
which he or she has become eligible in one lump sum. The lump sum payment shall
be made as soon as administratively convenient after all requirements that are
necessary under the terms of the Program to qualify for the payment of the
Salary Bridge Benefit are met. The amount of the lump sum payment will be equal
to the periodic amount that would otherwise be payable, multiplied by the
maximum number of periodic payments that would otherwise be made.
2. The benefits other than the Salary Bridge Benefit that are described in
the Section, "Are There Other Benefits?", generally shall be provided as if the
Associate received his or her Salary Bridge Benefit periodically instead of in a
lump sum payment.
a. Accordingly, those other benefits will generally be provided
after the Associate has met all requirements that are necessary for payment of
Benefits under the Program, will be provided for up to the maximum duration that
applies to the Associate under the Benefit Schedule, and will end before the
maximum period for any of the reasons specified in the Program that apply to the
Associate.
b. Notwithstanding the foregoing, the Associate must pay to the
Company a periodic charge for his or her coverage under the Company's group
medical plan. The
<PAGE> 17
amount of such periodic charge shall be the amount paid by similarly situated
active employees of the Company with the same type of coverage. The dates by
which such payments must be made will be established by the Company and
communicated to the Associate. Coverage under the Company's group medical plan
for the Associate and his or her eligible dependents shall end, effective as of
the earliest of the first date for which such premiums are not timely paid
(subject to any right that the Associate and dependents may have to continue
such coverage as required by the federal law known as COBRA) or any other
applicable date specified in the Program or the Company's group medical plan.
3. The provisions in the Section, "When Do Benefits End?", which provide
that an Associate who finds New Employment before exhausting his or her Benefits
under the Program shall receive a cash payment equal to one-third of his or her
unused Salary Bridge Benefit, and that his or her Salary Bridge Benefit may
resume under certain circumstances, are deleted.
This Supplement is hereby executed this 1st day of February, 1995.
THE UNITED STATES SHOE CORPORATION
By: /s/ K. Brent Somers
Title: Executive Vice President and
Chief Financial Officer
- 1 -
<PAGE> 18
AMENDMENT TO
THE UNITED STATES SHOE CORPORATION
ECONOMIC BRIDGE PROGRAM
The United States Shoe Corporation hereby amends The United States Shoe
Corporation Economic Bridge Program (the "Program"), effective as of March 14,
1995, by adding new paragraph (g) at the end of the definition of "Change in
Control," reading in its entirety as follows:
(g) For purposes of determining the amount of Benefits for which
certain Eligible Associates are otherwise eligible under the Program,
if an asset purchase agreement (the "Agreement") is signed between the
Company and the purchaser of all or substantially all of the assets of
one or more of the Company Groups, a Change in Control shall be deemed
to occur with respect to each Eligible Associate who is employed by
that Company Group(s) or by the Corporate Center Group and whose
employment with the Company is involuntarily terminated on, after, or
within five business days before, the date on which the Agreement is
signed but prior to the consummation of the asset purchase transaction
contemplated by such Agreement (the "Closing"). Notwithstanding the
foregoing provisions of this paragraph (g), such Change in Control
shall be deemed to occur only if the Closing occurs, and any Benefits
which are not payable under this Program unless the deemed Change in
Control described in this paragraph (g) has occurred shall not be
payable until the Closing has occurred. If all of these conditions are
met, the date on which the Change in Control will occur for an Eligible
Associate will be the date on which the Eligible Associate terminated
employment with the Company.
IN WITNESS WHEREOF, The United States Shoe Corporation has caused its name to be
subscribed this 15th day of March, 1995.
THE UNITED STATES SHOE CORPORATION
By /S/ K. Brent Somers
-------------------------------
Title Executive Vice President
----------------------------
<PAGE> 1
EXHIBIT 7
March 16, 1995
Dear Shareholder:
After meeting on March 8, 10 and 14-15 to review and consider Luxottica's
unsolicited conditional offer to purchase the common shares (and associated
preference share purchase rights) of U.S. Shoe for $24 per share, your Board of
Directors determined that the Luxottica offer is inadequate and not in the best
interests of U.S. Shoe and its shareholders and voted unanimously to reject the
Luxottica offer.
THE DIRECTORS RECOMMEND THAT THE LUXOTTICA OFFER BE REJECTED. WE URGE YOU
TO REJECT THE OFFER, AND RECOMMEND YOU NOT TENDER YOUR SHARES TO LUXOTTICA.
In reaching our decision to reject the Luxottica offer, your Board of
Directors relied upon, among other things, the opinion of U.S. Shoe's financial
adviser, James D. Wolfensohn Incorporated ("Wolfensohn"), that the offer is
inadequate; the significant conditions of Luxottica's offer, including that it
is subject to financing; and the progress made in discussions with others on
potential transactions.
On February 17, 1995, U.S. Shoe announced that it had retained Wolfensohn
to evaluate alternative strategies, including the possible separation of U.S.
Shoe's businesses, and that the Company had initiated preliminary discussions
with others.
Today, we have announced a definitive agreement to sell the Company's
footwear business to Nine West for total consideration of approximately $600
million in cash and warrants. The after-tax value reflected in the Nine West
agreement strengthens our conviction that U.S. Shoe is worth more than Luxottica
now is offering. We will continue to pursue transactions to realize those higher
values for U.S. Shoe shareholders.
The Board's recommendations with respect to the Luxottica offer are set
forth more fully in the attached Schedule 14D-9.
Your Board of Directors appreciates your support, as we work to enhance
shareholder value.
Sincerely,
Bannus B. Hudson
President and Chief Executive
Officer
<PAGE> 1
EXHIBIT 8
Contact: Robert M. Burton
Director of Corporate Communications
(513) 527-7471
FOR IMMEDIATE RELEASE
U.S. SHOE BOARD OF DIRECTORS URGES SHAREHOLDERS TO REJECT LUXOTTICA TENDER
OFFER
CINCINNATI, OHIO, March 16, 1995 -- The United States Shoe Corporation
(NYSE:USR) announced today that its Board of Directors has unanimously
determined that Luxottica Group S.p.A.'s unsolicited conditional offer to
purchase outstanding common shares of U.S. Shoe is inadequate and recommends
that shareholders not tender their shares.
Luxottica Group S.p.A., and its wholly owned subsidiary, Luxottica Acquisition
Corp., had previously announced a tender offer to acquire all outstanding U.S.
Shoe shares at a price of $24 per share in cash. Luxottica's offer is
conditioned, among other things, on its ability to finance the transaction.
"After careful review of the Luxottica tender offer, and the alternatives
available to enhance value to U.S. Shoe shareholders, our Directors have
determined that the Luxottica offer is not in the best interests of U.S. Shoe
and its shareholders," said Bannus B. Hudson, President and Chief Executive
Officer of U.S. Shoe.
"Before Luxottica made its bid, the Company had announced its intent to
evaluate strategic alternatives and that it had initiated discussions with
other parties. We remain convinced that U.S. Shoe's businesses are worth more
than Luxottica has offered and we will continue to explore alternatives for
enhancing value in the near term."
"As part of our ongoing initiative to maximize shareholder value, we have also
announced today that U.S. Shoe has agreed to sell the Company's footwear
business to Nine West Group Inc. on terms that meet our target of
approximately $600 million for that business. Even after taxes, the value
represented by the Nine West agreement supports our conclusion that U.S. Shoe
is worth more than Luxottica's $24 per share offer."
In reaching its decision to recommend rejection of the Luxottica offer, the
Board considered and relied upon the opinion of its financial adviser, James D.
Wolfensohn Incorporated, that the offer is inadequate; the significant
conditions of Luxottica's offer, including the fact that it is subject to
financing; and the progress made in discussions with other parties regarding
other potential transactions.
<PAGE> 2
The Company also announced that the distribution date under its Rights
Agreement has been further extended, until March 30, 1995, or such later date
as the Board of Directors may determine.
U.S. Shoe is a specialty retailer of women's apparel, optical products and
footwear, operating 2,349 retail outlets and leased departments in the United
States and abroad.
2
<PAGE> 1
EXHIBIT 9
[James D. Wolfensohn Incorporated Letterhead]
March 15, 1995
Board of Directors
The United States Shoe Corporation
One Eastwood Drive
Cincinnati, Ohio 45227
Members of the Board:
We have acted as financial advisor to The United States Shoe Corporation ("U.S.
Shoe") in connection with its consideration of the offer by Luxottica
Acquisition Corp. (the "Bidder"), an indirect wholly-owned subsidiary of
Luxottica Group S.p.A. ("Luxottica"), to purchase all of the outstanding common
shares of U.S. Shoe at a price equal to $24.00 per share in cash upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated March
3, 1995 and the related Letter of Transmittal (the "Offer"). The terms and
conditions of the Offer are more fully set forth in the Schedule 14D-1 filed by
the Bidder and Luxottica with the Securities and Exchange Commission on March
3, 1995 (the "Schedule 14D-1").
You have asked us for our opinion, as investment bankers, as to the adequacy,
from a financial point of view, of the consideration to be paid pursuant to the
Offer to the shareholders of U.S. Shoe.
In connection with rendering our opinion, we have:
(i) reviewed the Schedule 14D-1;
(ii) reviewed certain business, financial and other information
regarding U.S. Shoe, which was publicly available;
(iii) reviewed certain internal information primarily financial in
nature (including projections, forecasts, estimates and
analyses prepared by U.S. Shoe) concerning the business,
assets, liabilities and prospects of U.S. Shoe;
(iv) conducted discussions with various members of senior
management of U.S. Shoe concerning U.S. Shoe's current
business operations, financial condition and results and
prospects, and potential alternatives to the Offer;
(v) reviewed public information with respect to certain other
companies whose businesses we believe to be relevant to an
assessment of the businesses of U.S. Shoe.
<PAGE> 2
Board of Directors
The United States Shoe Corporation
March 15, 1995
Page 2
(vi) reviewed the current and historical trading prices and
activities of the common stock of U.S. Shoe and certain other
companies we believe to be relevant;
(vii) compared the terms of the Offer to the terms of similar
transactions involving certain other companies we believe to
be relevant; and
(viii) conducted such other financial studies, analyses and
investigations as we deemed appropriate and feasible.
We have not assumed responsibilities for independent verification of any
information, whether publicly available or furnished to us, concerning U.S.
Shoe, including, without limitation, any financial information, forecasts or
projections, considered in connection with the rendering of our opinion.
Accordingly, for purposes of our opinion, we have assumed and relied upon the
accuracy and completeness of all such information and have not conducted a
physical inspection of any of the properties or assets, and have not prepared
or obtained any independent evaluation or appraisal of any of the assets or
liabilities, of U.S. Shoe. With respect to the financial forecasts and
projections made available to us and used in our analysis, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of U.S. Shoe as to the
matters covered thereby and in rendering our opinion we express no view as to
the reasonableness of such forecasts and projections or the assumptions on
which they are based. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to U.S. Shoe in connection with the Offer
and will be paid a fee for our services as financial advisor, including fees
that are contingent on the sale of all or of certain segments of U.S. Shoe.
Our firm provides additional financial advisory services to U.S. Shoe and
receives fees for the rendering of these services.
It is understood that our engagement and this letter are solely for the benefit
and information of the Board of Directors of U.S. Shoe in connection with its
consideration of the Offer and are not on behalf of, and are not intended to
confer any rights or remedies on, any holder of any security of U.S. Shoe, or
any other person or entity. In addition, this letter may not be used for any
other purpose than for the sole benefit and information of the Board of
Directors of U.S. Shoe without our prior written consent.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the consideration offered pursuant to the
Offer is inadequate, from a financial point of view, to the shareholders of
U.S. Shoe.
Very truly yours,
JAMES D. WOLFENSOHN INCORPORATED
<PAGE> 1
EXHIBIT 10
Contact: Robert M. Burton
Director of Corporate Communications
(513) 527-7471
FOR IMMEDIATE RELEASE
U.S. SHOE CORPORATION AGREES TO SELL FOOTWEAR OPERATION TO NINE WEST GROUP
CINCINNATI, OHIO - March 16, 1995 - The United States Shoe Corporation
(NYSE:USR) announced today a definitive agreement with Nine West Group, Inc.
(NYSE:NIN) for the acquisition of U.S. Shoe's footwear operations for total
consideration of approximately $600 million, comprised of $560 million cash,
plus warrants to purchase 3.7 million shares of Nine West stock at a price of
$35.50 per share at any time during the next 8-1/2 years.
The transaction is subject to customary conditions, including regulatory
approval.
Bannus B. Hudson, President and Chief Executive Officer of U.S. Shoe, said,
"The value of our footwear business has been confirmed by its performance
during the past year. This transaction recognizes the accomplishment of our
footwear management team's goals: both the restructuring efforts of the past
several years and the turnaround plan we announced a year ago have succeeded.
We are very pleased to be able to announce this important transaction, which
reflects the value of the division and, most importantly, thereby enhances
value for our shareholders.
As previously announced, for fiscal 1994 U.S. Shoe's Footwear Group reported
its best performance in six years with operating income of $36 million. The
wholesale footwear operations of U.S. Shoe reported revenues of $444 million in
fiscal 1994. U.S. Shoe also operates 277 stores under the Easy Spirit and
Banister names, and 129 leased departments in the SteinMart and Burlington Coat
Factory chains. These retailing operations reported sales of $262 million in
fiscal 1994, resulting in total footwear revenues of $706 million for the year.
Nine West Group Inc. is a leading designer, developer and marketer of
fashionable women's footwear.
U.S. Shoe is a specialty retailer of women's apparel, optical products, and
footwear, operating 2,349 retail outlets and leased departments with such
familiar names as Casual Corner, Petite Sophisticate, August Max Woman,
Pappagallo, Capezio, and Easy Spirit. The LensCrafters optical retailing
business is the world's leading optical retailer, with 589 retail units.
<PAGE> 1
EXHIBIT 11
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of March 15, 1995, by and
among Nine West Group Inc., a Delaware corporation ("Parent"), Footwear
Acquisition Corp., a Delaware corporation (the "Purchaser"), and The United
States Shoe Corporation, an Ohio corporation (the "Seller").
WHEREAS, Parent desires to acquire through the Purchaser all
of the assets, properties and rights of every and all types whatsoever, whether
real or personal, tangible or intangible, of the Seller and its Subsidiaries
(as defined in Section 3.1) used primarily in, arising primarily from or
related primarily to the manufacture, import, marketing, designing and
wholesale and retail sale of footwear in the United States and abroad (the
"Footwear Business") (all such assets other than the Retained Assets (as
defined in Section 1.1(b)) being referred to as the "Acquired Assets"), and to
assume the Assumed Liabilities (as defined in Section 1.2); and
WHEREAS, the Boards of Directors of each of the Seller, Parent
and the Purchaser have authorized and approved by all requisite action the
acquisition of the Acquired Assets and the assumption of the Assumed
Liabilities by the Purchaser, subject to the terms, conditions and provisions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein made, and in consideration of the representations,
warranties and agreements herein contained, the parties, intending to be
legally bound hereby, agree as follows:
<PAGE> 2
ARTICLE I
ASSETS TO BE PURCHASED AND SOLD
Section 1.1 Seller's Assets.
(a) Acquired Assets. On the Closing Date (as
defined in Section 2.1(a)) and subject to the terms and conditions of this
Agreement, the Seller shall sell, assign, transfer, convey and deliver, or
cause to be sold, assigned, transferred, conveyed and delivered, to the
Purchaser and the Purchaser shall purchase, pay for and accept from the Seller
and its Subsidiaries all of the right, title and interest of the Seller and its
Subsidiaries in all of the Acquired Assets held by the Seller or its
Subsidiaries as of the Closing Date, including, without limitation, the
following assets, properties and rights, in each case whether or not reflected
or required to be reflected on the Footwear Business Balance Sheet (as defined
in Section 3.5(a)), other than the Retained Assets:
(i) Acquired Facilities. The headquarters
building and related land located at One Eastwood Drive, Cincinnati,
Ohio 45227-1197 and all of the other owned facilities Related to the
Footwear Business (as defined below), whether owned by the Seller or
any of its Subsidiaries, including a Transferred Subsidiary (as
defined in Section 1.1(a)(x)), all of which are identified in Section
1.1(a)(i) of the disclosure schedule delivered by the Seller to Parent
on the date hereof and attached hereto (the "Seller Disclosure
Schedule") (collectively, the "Acquired Facilities"), including,
without limitation, the following:
(A) all real estate upon which the Acquired
Facilities are situated;
(B) any and all presently existing easements
or licenses necessary or desirable in connection with the use
of, or in order to maintain free access to, the Acquired
Facilities, except for those easements or licenses identified
in Section 1.1(a)(i) of the Seller Disclosure Schedule which
cannot be
2
<PAGE> 3
assigned by the Seller or its Subsidiaries;
(C) all improvements constituting a part of
the Acquired Facilities; and
(D) all the fixed plant, machinery and
equipment and all other fixtures and fittings owned by the
Seller or any of its Subsidiaries on the Closing Date and used
in connection with any of the Acquired Facilities primarily
in, arising primarily from or related primarily to the
Footwear Business ("Related to the Footwear Business") (but
not including the Retained Corporate Operations Assets (as
defined in Section 1.1(b)(iv))).
(ii) Tangible Personal Property. All
moveable plant, machinery, equipment, computer hardware, furniture,
fixtures, fittings, automobiles, trucks, tools and supplies, together
with all other tangible personal property Related to the Footwear
Business, other than the Retained Corporate Operations Assets.
(iii) Inventories. All inventories of
finished goods, work in progress, raw materials, service parts and
supplies of the Footwear Business wherever located at the Closing
Date, including, without limitation, such inventories:
(A) located at the Acquired Facilities;
(B) located at facilities or in departments
leased by Seller or any of its Subsidiaries Related to the
Footwear Business;
(C) located on the premises of the Seller's
or any of its Subsidiaries' suppliers;
(D) in transit;
3
<PAGE> 4
(E) located on the premises of the Seller's
or any of its Subsidiaries' warehouses; and
(F) located on the premises of public
warehouses.
(iv) Contracts. All Contracts (as defined
in Section 3.3(a)) and contract rights of the Seller or any of its
Subsidiaries Related to the Footwear Business, including, without
limitation, all Contracts set forth in Section 3.16 of the Seller
Disclosure Schedule.
(v) Accounts and Notes Receivable. All
accounts and notes receivable of the Seller or any of its Subsidiaries
Related to the Footwear Business other than accounts and notes
receivable that are owed by the Seller or any of its Subsidiaries the
capital stock of which will not be transferred to the Purchaser
pursuant to Section 1.1(a)(x) (the "Retained Subsidiaries").
(vi) Intangible Acquired Assets. All
goodwill and other intangible assets of the Seller or any of its
Subsidiaries Related to the Footwear Business, excluding the Capezio
trademark/trade name (the "Capezio Name") and the U.S. Shoe and The
United States Shoe Corporation trademarks/tradenames (the "Corporate
Names"), but including, without limitation, and subject to existing
licenses, the following intangible assets of an intellectual property
nature (collectively, the "Acquired Intellectual Property"):
(A) all know-how, show-how, confidential or
proprietary technical information, trade secrets, designs,
processes, computer software and data bases originating with
the Seller or as a "work for hire" created for the Seller,
research in progress, inventions and invention disclosures
(whether patentable or unpatentable) and drawings, schematics,
blueprints, flow sheets, designs and models, of any nature
whatsoever;
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(B) all copyrights, copyright registrations
and copyright applications (the "Copyrights");
(C) all patents, patent applications,
patents pending, patent disclosures on inventions and all
patents issued upon said patent applications or based upon
such disclosures (the "Patents"); and
(D) all registered and unregistered trade
names, trademarks, service marks, product designations,
corporate names, trade dress, logos, slogans, designs and
general intangibles of like nature, together with all
registrations and recordings and all applications for
registration therefor and all translations, adaptations,
derivatives and combinations thereof, excluding the Capezio
Name and the Corporate Names (the "Trademarks").
(vii) Permits, Licenses, Registrations, Etc.
To the extent assignable, all consents, permits, licenses, orders,
registrations, franchises, certificates, approvals or other similar
rights from any federal, state or local regulatory agencies Related to
the Footwear Business, including, without limitation, the Licenses (as
defined in Section 3.14).
(viii) Books and Records. All books and
records of the Seller and its Subsidiaries Related to the Footwear
Business, including, without limitation, customer lists, sales and
other records, promotional material, oper- ating manuals and
guidelines, software manuals and documentation, files, documents,
papers, data stored in electronic, optical or magnetic form,
agreements, books of account, Contracts, correspondence, plats, plans
and drawings and specifications.
(ix) Security Deposits, Prepaid Expenses and
Third Party Claims. All security deposits and prepaid expenses and
other prepaid items made by the Seller or any of its Subsidiaries
Related to the Footwear Business and all claims,
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causes of action and rights of recovery of the Seller and its
Subsidiaries against third parties Related to the Footwear Business or
arising from the operation of the Acquired Assets.
(x) Subsidiaries. All of (A) the stock of
each of the corporations set forth on Section 1.1(a)(x)(A) of the
Seller Disclosure Schedule (the "Domestic Footwear Subsidiaries") and
(B) the assets of each of the corporations set forth in Section
1.1(a)(x)(B) of the Seller Disclosure Schedule (the "Foreign Footwear
Subsidiaries" and, together with the Domestic Subsidiaries, the
"Footwear Subsidiaries"); provided, however, that the Purchaser shall
have the right, in its sole discretion, to purchase directly all of
such assets of the Foreign Footwear Subsidiaries or to indirectly
acquire such assets through the purchase of all of the issued and
outstanding shares of capital stock of any of the Foreign Footwear
Subsidiaries (all Footwear Subsidiaries whose capital stock is so
purchased by the Purchaser being referred to herein as the
"Transferred Subsidiaries").
(xi) Severance Trusts. All of the Seller's
reversionary and other rights to the trusts (the "Severance Trusts")
established under the Amended and Restated Severance Compensation
Agreements (the "Severance Agreements") identified in Section
1.1(a)(xi) of the Seller Disclosure Schedule.
(xii) Other Acquired Assets. Any and all
other rights, properties, claims, contracts, businesses and assets of
the Seller and its Subsidiaries of every kind, character and
description, whether real, personal or mixed, whether accrued,
contingent or otherwise, whether tangible or intangible, and wherever
located Related to the Footwear Business, excluding the Retained
Assets, but including, without limitation, all investments in
securities reflected on the Footwear Business Balance Sheet or arising
since January 28, 1995, other than marketable securities.
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(b) Retained Assets. Notwithstanding anything
contained herein to the contrary, the Seller shall not sell, transfer, convey
or deliver, or cause to be sold, transferred, conveyed or delivered, to the
Purchaser, and the Purchaser shall not purchase from the Seller the following
assets, properties, interests and rights of the Seller and/or of its
Subsidiaries (the "Retained Assets"):
(i) Capezio Name. The Capezio Name.
(ii) Books and Records. All books and
records of the Seller related to the other Retained Assets or the
Retained Liabilities.
(iii) Tax Refunds. All claims of the Seller
or any of its Subsidiaries for refunds, credits, carrybacks or
carryforwards in connection with any Taxes (as defined in Section
3.12(b)) for tax periods ending on or prior to the Closing Date and
the proceeds thereof.
(iv) Corporate Operations Assets. All
property and equipment located on the Acquired Facilities used for the
purpose of general corporate operations of the Seller as of the
Closing Date described or listed in Section 1.1(b)(iv) of the Seller
Disclosure Schedule (the "Retained Corporate Operations Assets").
(v) Retained License Agreements. The
License Agreements in respect of intellectual property of the Seller
set forth in Section 1.1(b)(v) of the Seller Disclosure Schedule, and
all rights and interests of the Seller in and to the payments and
profits in respect thereof.
(vi) Cash and Cash Equivalents. All cash
and cash equivalents, such as bank deposits and marketable securities,
other than cash on hand in the stores included in the Acquired Assets
at the time of the Closing.
(vii) Accounts and Notes Receivable from
Seller. All accounts and notes receivable of the Seller Related to
the Footwear Business owed by the Seller or any of the Retained
Subsidiaries.
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(viii) Non-Footwear Business Assets. All of
the assets, properties, interests and rights of the Seller and its
Subsidiaries which are not Related to the Footwear Business.
(ix) Corporate Names. The Corporate Names.
Section 1.2 Seller's Liabilities
(a) Assumed Liabilities. On and as of the Closing
Date and subject to the terms and conditions of this Agreement, the Purchaser
shall assume and agree to pay, perform and discharge as and when due all of the
liabilities and obligations of the Seller or the Footwear Subsidiaries Related
to the Footwear Business, whether fixed, absolute or contingent, material or
immaterial, matured or unmatured, as the same exist as of the Closing Date
except for the Retained Liabilities (as defined in Section 1.2(b))
(collectively, the "Assumed Liabilities"), including but not limited to the
following:
(i) current liabilities and obligations of
the Seller and the Footwear Subsidiaries that are reflected or of a
type reserved against on the Footwear Business Balance Sheet, to the
extent such liabilities or obligations have not been paid or
discharged prior to Closing Date, and such categories of current
liabilities and obligations incurred in the ordinary course of the
Footwear Business consistent with past practice since January 28,
1995, including, without limitation, all accounts payable, accrued
expenses, trade obligations and notes payable Related to the Footwear
Business (but excluding any accounts payable, trade obligations or
notes payable which are owed to the Seller or to any of the Retained
Subsidiaries), the self-insured portion of any workers' compensation,
general liability or automobile liability claims, and any other
liabilities or obligations against which reserves are provided on the
Footwear Business Balance Sheet;
(ii) all capital commitments of the Seller
and the Footwear Subsidiaries Relat-
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ed to the Footwear Business either identified in Section 1.2(a)(ii) of
the Seller Disclosure Schedule or made in the ordinary course of
business and not exceeding $25,000 individually or $100,000 for each
month from the date hereof through the Closing Date in the aggregate;
(iii) all liabilities under employee benefit
plans and arrangements of the Seller and the Footwear Subsidiaries set
forth in Section 1.2(a)(iii) of the Seller Disclosure Schedule to the
extent such liabilities relate to Transferred Employees (as defined in
Section 6.6(a)) (except in the case of Section 1.2(a)(iii)(D)),
including, but not limited to, the following:
(A) all liabilities and obligations relating
to the pay, benefits and any perquisites offered to the
Transferred Employees;
(B) all liabilities and obligations arising
upon or after the Closing under the Severance Agreements and
the other severance or termination agreements set forth in
Section 1.2(a)(iii) of the Seller Disclosure Schedule;
(C) all liabilities and obligations under
the Seller's Economic Bridge Program in effect on the date of
this Agreement with respect to the Transferred Employees; and
(D) all liabilities and obligations to
provide to eligible current and former employees of the
Footwear Business the retiree health and life benefits set
forth in Section 3.8(e) of the Seller Disclosure Schedule and
reflected or of a type reserved against on the Footwear
Business Balance Sheet with respect thereto;
(iv) to the extent not otherwise
constituting Retained Liabilities, all
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liabilities and obligations under or related to existing Licenses and
Contracts which constitute Acquired Assets including, but not limited
to, all liabilities and obligations under or related to retail store
leases and other leases of real property by Seller or any of the
Footwear Subsidiaries (as tenant) Related to the Footwear Business
which constitute Acquired Assets;
(v) all liabilities and obligations Related
to the Footwear Business arising from outstanding commitments (in the
form of accepted purchase orders or otherwise) to sell products, or
outstanding quotations, proposals or bids with respect to the sale of
products;
(vi) all liabilities and obligations Related
to the Footwear Business arising from outstanding commitments (in the
form of issued purchase orders or otherwise), or outstanding
quotations, proposals or bids, to purchase or acquire finished goods,
raw materials, components, supplies or services;
(vii) all liabilities and obligations
Related to the Footwear Business arising from any rights or claims of
customers of the Footwear Business to return or exchange merchandise
sold by the Footwear Business;
(viii) all liabilities and obligations of
the Seller and the Footwear Subsidiaries in respect of the foreign
exchange contracts and letters of credit Related to the Footwear
Business set forth in Section 1.2(a)(viii) of the Seller Disclosure
Schedule and those incurred in the ordinary course of the Footwear
Business consistent with past practice from the date hereof to the
Closing Date;
(ix) all other liabilities and obligations
reflected or of a type reserved against on the Footwear Business
Balance Sheet;
(x) all liabilities and obligations arising
from or in connection with any litigation Related to the Footwear
Business or arising from or
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alleged to have arisen from any actual or alleged injury to persons or
property either as a result of the ownership, possession or use of any
product manufactured or sold by the Footwear Business or of any
violation of applicable law in the operation of the Footwear Business
or related to, arising from or connected with Environmental Laws or
Hazardous Materials (each as defined in Section 6.14(g)), including,
without limitation, response costs under 42 U.S.C. Section 7601 et
seq. or any state law or remediation expense; and
(xi) all other liabilities and obligations
Related to the Footwear Business which are not Retained Liabilities.
(b) Liabilities Not Assumed. Notwithstanding
anything to the contrary contained in this Agreement, the Seller and its
Subsidiaries (other than Transferred Subsidiaries) shall retain and neither
Parent nor the Purchaser shall assume or in any manner become liable or
responsible for any liability, obligation, commitment or expense of any kind,
known or unknown, now existing or hereafter arising from the following (the
"Retained Liabilities"): (i) any capital commitments of the Seller or its
Subsidiaries undertaken prior to the Closing Date which have not been assumed
by the Purchaser pursuant to Section 1.2(a)(ii); (ii)(A) any Taxes payable with
respect to the sale of the Acquired Assets to the Purchaser, and (B) any Taxes
payable with respect to the Acquired Assets or to the Seller's or its
Subsidiaries' operations, assets or income for, or properly attributable to,
any periods ending on or prior to the Closing Date (including, with respect to
any taxable period that includes but does not end on the Closing Date, Taxes
with respect to the portion of such period that includes and ends on the
Closing Date calculated as if such taxable period ended at the consummation of
the Closing on the Closing Date); (iii) expenses incurred in connection with
the sale of the Acquired Assets pursuant to this Agreement or the other
transactions contemplated hereby, including without limitation, the fees and
expenses of the Seller's counsel, investment advisors and independent auditors;
(iv) the obligation to pay liquidated damages pursuant to Section 6.3(c); (v)
any liabilities or obligations of the Seller or any of its Subsidiaries arising
from or relating to the agreements listed in Section
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1.2(b)(v) of the Seller Disclosure Schedule; and (vi) any liabilities or
obligations of the Seller or its Subsidiaries not Related to the Footwear
Business.
(c) Releases. At the Closing (as defined in Section
2.1(a)), the Seller shall deliver to the Purchaser releases, duly executed by
all parties to the Contracts listed in Section 1.2(c) of the Seller Disclosure
Schedule (the "Seller Encumbrances"), in form and substance satisfactory to the
Purchaser, releasing Parent, the Purchaser and the Acquired Assets from all
liabilities and obligations related thereto.
ARTICLE II
CLOSING AND CLOSING DATE; PURCHASE PRICE
Section 2.1 The Closing.
(a) Closing Date. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York,
commencing at 9:00 A.M., local time, on May 15, 1995 or, if later, three
business days following the date on which either Parent or the Seller shall
have notified the other that all of the conditions set forth in Article VIII
shall have been satisfied or waived (the "Closing Date"); provided, however,
that, if the notified party can reasonably demonstrate that all of such
conditions have not been satisfied or waived, the Closing shall take place
three business days following the date on which such conditions have been
satisfied or waived; provided, further, the parties may, by agreement in
writing, change the Closing Date or place of the Closing to another date or
place.
(b) Closing Documents.
(i) Seller's Documents. At or prior to the
Closing, the Seller shall deliver or cause to be delivered to the
Purchaser the following documents (the "Seller Documents").
(A) executed and, if appropriate,
acknowledged deeds substantially in
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the forms attached as Exhibit 2.1(b)(i)(A) hereto (the
"Deeds");
(B) executed and, if appropriate,
acknowledged patent, trademark, copyright and other
intellectual property assignments in the forms attached as
Exhibit 2.1(b)(i)(B)(1) (the "Intellectual Property
Assignments") conveying to the Purchaser the Acquired
Intellectual Property, subject to retention by the Seller of
perpetual non-exclusive licenses, each in the form attached
hereto as Exhibit 2.1(b)(i)(B)(2) (collectively, the "Other
Acquired Intellectual Property Licenses"), to continue current
use in its businesses other than the Footwear Business of the
Acquired Intellectual Property listed in Section 2.1(b)(i)(B)
of the Seller Disclosure Schedule;
(C) an executed Bill of Sale, Assignment and
Assumption in the form attached as Exhibit 2.1(b)(i)(C) (the
"Bill of Sale");
(D) such other executed and, if appropriate,
acknowledged sale, conveyance and transfer documents in form
and substance reasonably satisfactory to Parent and its
counsel in order effectively to vest in the Purchaser title to
all of the Acquired Assets (all such documents, together with
the Deeds, the Intellectual Property Assignments and the Bill
of Sale, the "Conveyancing Agreements");
(E) copies of notices to and the consents
obtained from third parties under any Contract Related to the
Footwear Business identified in Section 8.2(c) and Section
8.2(c) of the Seller Disclosure Schedule as a condition to the
consummation of the transactions contemplated by this
Agreement and any other consents obtained by the Seller prior
to the Closing which are identified in Section 3.3(a)
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of the Seller Disclosure Schedule as necessary in connection
with the transactions contemplated by this Agreement;
(F) an executed perpetual non-exclusive
license in the form attached hereto as Exhibit 2.1(b)(i)(F)
(the "Capezio License") for the Purchaser to continue current
use in the Footwear Business of the Capezio Name;
(G) a copy of the guaranty in the form
attached hereto as Exhibit 2.1(b)(i)(G), as executed by
LensCrafters, Inc.;
(H) copies of each of the Purchaser Services
Agreement (as defined in Section 6.12(a)) and the Seller
Services Agreement (as defined in Section 6.12(b)), in each
case as executed by the Seller;
(I) copies of each of the Interim Leases (as
defined in Section 6.12(c)), in each case as executed by the
Seller; and
(J) the various other documents otherwise
required by this Agreement to be delivered by the Seller or
its Subsidiaries at or prior to the Closing.
(ii) Purchaser's Documents. At the Closing,
the Purchaser shall deliver or cause to be delivered to the Seller the
following documents (the "Purchaser Documents"):
(A) the Conveyancing Agreements to which it
will become a party, in each case executed by the Purchaser;
(B) a copy of the Warrant Agreement in the
form attached hereto as Exhibit 2.1(b)(ii)(B) (the "Warrant
Agreement") as executed by Parent and the certificate
evidencing the warrants to be
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issued thereunder as provided for in Section 2.2(b);
(C) the Other Acquired Intellectual Property
Licenses, in each case executed by the Purchaser;
(D) copies of each of the Purchaser Services
Agreement and the Seller Services Agreement, in each case
executed by the Purchaser;
(E) executed copies of each of the Interim
Leases, in each case executed by the Purchaser; and
(F) the various other documents otherwise
required by this Agreement to be delivered by the Purchaser at
or prior to the Closing.
Section 2.2 Payment at the Closing. The consideration to be
paid to the Seller on the Closing Date for the Acquired Assets shall be as
follows:
(a) Cash Purchase Price. Parent shall pay or cause
to be paid to the Seller an amount equal to $560 million by wire transfer of
immediately available funds to an account designated by the Seller (or other
means acceptable to the Seller).
(b) Warrants. Parent shall issue to the Seller
warrants to purchase an aggregate of 3,700,000 shares of common stock, par
value $.01 per share (the "Parent Common Stock"), of Parent (the "Parent
Warrants") pursuant to the Warrant Agreement.
(c) Assumed Liabilities. On the Closing Date, the
Purchaser shall assume the Assumed Liabilities.
(d) Severance Trusts. Parent shall pay or cause to
be paid to the Seller the aggregate amount of cash payments made by the Seller
to fund the Severance Trusts, reduced by the amount of any reversions to the
Seller from the Severance Trusts on or prior to the Closing Date, all as
certified as of the Closing Date by
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the Chief Financial Officer of the Seller and in any event not to exceed
$6,100,000.
Section 2.3 Post-Closing Adjustment.
(a) Within 45 days following the Closing Date, the
Purchaser shall provide to the Seller an unaudited combined balance sheet of
the Footwear Business as of the Closing Date, but without giving effect to the
Closing, prepared in accordance with United States generally accepted
accounting principles and on a basis consistent with the Footwear Business
Balance Sheet (the "Closing Balance Sheet"). The Seller shall cooperate fully
in good faith with the Purchaser in the preparation of the Closing Balance
Sheet, such cooperation to include, without limitation, full access to the
books and records of the Seller Related to the Footwear Business for such
purpose.
(b) The Seller shall have 25 days following receipt
of the Closing Balance Sheet to notify the Purchaser of any dispute with the
Closing Balance Sheet. In order to facilitate the Seller's review of the
Closing Balance Sheet, the Purchaser shall cooperate fully in good faith with
the Seller, such cooperation to include, without limitation, full access to the
Purchaser's work papers relating to the Closing Balance Sheet. If the Seller
fails to notify the Purchaser of any such dispute within such 25-day period,
or, prior to the expiration thereof, notifies the Purchaser in writing that no
such dispute exists, the Closing Balance Sheet shall be deemed to be the "Final
Balance Sheet." In the event that the Seller shall so notify the Purchaser of
any dispute, the Seller and the Purchaser shall cooperate in good faith to
resolve such dispute as promptly as practicable. In the event that the Seller
and the Purchaser are unable to resolve any such dispute within 20 days of the
Seller's delivery of such notice, such dispute shall be resolved by the New
York office of KPMG Peat Marwick or another accounting firm acceptable to the
Seller and the Purchaser (the "Independent Accounting Firm"), with any fees
being paid 50% by the Seller and 50% by the Purchaser. The determination of
the Independent Accounting Firm shall be final and binding. The Closing
Balance Sheet, as it may be modified by resolution of any disputes by the
Seller and the Purchaser or by the Independent Accounting Firm pursuant hereto,
shall be the "Final Bal-
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ance Sheet."
(c) In the event that the Closing Net Worth (as
defined below) as reflected on the Final Balance Sheet is less than $247.8
million (the "Required Net Worth"), then the Seller shall transfer to the
Purchaser a cash amount equal to the amount by which the Closing Net Worth is
less than the Required Net Worth. In the event that the Closing Net Worth is
more than the Required Net Worth, then the Purchaser shall transfer to the
Seller a cash amount equal to the amount by which the Closing Net Worth is more
than the Required Net Worth. Such transfers shall be made to the account
designated in writing for such purpose within two business days after delivery
of the Final Balance Sheet by wire transfer in immediately available funds of
the amount of such differences as determined pursuant to the preceding
sentences, together with interest thereon from the Closing Date to the date of
payment calculated based on the thirty-day AA composite commercial paper rate
(as last published by the Federal Reserve prior to the Closing Date). For
purposes of this Section 2.3, "Closing Net Worth" shall equal the amount,
determined pursuant to this Section 2.3, by which the total Acquired Assets on
the Final Balance Sheet (excluding for such purposes the rights relating to the
Severance Trusts), plus the cash on hand in the stores included in the Acquired
Assets at the time of the Closing, exceed the total Assumed Liabilities on the
Final Balance Sheet.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to Parent and the Purchaser
as follows:
Section 3.1 Organization; Subsidiaries.
(a) Each of the Seller and the Footwear Subsidiaries
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to be so
organized,
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existing and in good standing or to have such power and authority would not
have a "material adverse effect on the Footwear Business" (as defined below).
The Seller and each of the Footwear Subsidiaries is duly qualified or licensed
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not in the aggregate
have a material adverse effect on the Footwear Business. The Seller has
heretofore made available to Parent a complete and correct copy of the charter
and regulations or comparable organizational documents, each as amended to
date, of the Seller and each Footwear Subsidiary. Such charters and
regulations are in full force and effect. Neither the Seller nor any of the
Footwear Subsidiaries is in violation of any provision of its charter,
regulations or comparable organizational documents, except for such violations
that would not, individually or in the aggregate, have a material adverse
effect on the Footwear Business.
(b) Schedule 1.1(a)(x) of the Seller Disclosure
Schedule sets forth for each Footwear Subsidiary (i) the jurisdiction of its
incorporation, (ii) the number of shares of its authorized capital stock, (iii)
the number of shares of its capital stock which are issued and outstanding, and
(iv) the names of all record holders of such issued and outstanding shares
(indicating the number of shares owned). Except for the Footwear Subsidiaries,
neither the Seller nor any of its Subsidiaries has any direct or indirect
equity interest in any corporation, partnership or other entity Related to the
Footwear Business. All of the outstanding shares of capital stock of each
Footwear Subsidiary have been validly issued and are fully paid and
nonassessable, and such shares are owned by the Seller or its nominees free and
clear of any liens, claims, charges, security interests, encumbrances or other
rights of third parties ("Liens"). Upon consummation of the transactions
contemplated hereby, the Purchaser will acquire all of the Seller's and its
nominees' interests in the outstanding shares of capital stock of each
Transferred Subsidiary, free and clear of any adverse claims (within the
meaning of Section 8-302 of the Uniform Commercial Code as in effect in the
State of New York).
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(c) For purposes of this Agreement, (i) the term
"Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (A) such party
or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (B) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries, and (ii) any reference to any event,
change or effect having a "material adverse effect on the Footwear Business"
means such event, change or effect which is materially adverse to (A) the
business, properties, assets, results of operations or financial condition of
the Footwear Business, taken as a whole, or (B) the ability of the Seller or
any of its Subsidiaries to consummate the transactions contemplated hereby.
Section 3.2 Authority. Each of the Seller and each of its
Subsidiaries which will be a party to any of the Seller Documents (each such
Subsidiary, a "Contracting Subsidiary"), has the requisite corporate power and
authority to execute and deliver this Agreement and the Seller Documents (to
the extent it will be a party thereto) and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement and the Seller Documents by the Seller and each Contracting
Subsidiary and the consummation by the Seller and each Contracting Subsidiary
of the transactions contemplated hereby and thereby have been duly authorized
by the respective Boards of Directors of the Seller and each Contracting
Subsidiary (to the extent it will be a party thereto), and no other corporate
proceedings on the part of the Seller and any Contracting Subsidiary are
necessary to authorize this Agreement and the Seller Documents (to the extent
it will be a party thereto), or to consummate the transactions so contemplated.
This Agreement has been and each of the Seller Documents will be duly executed
and delivered by the Seller and each Contracting Subsidiary (to the extent it
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will be a party thereto) and constitutes or (to the extent such agreement is
not being entered into as of the date hereof) will constitute a valid and
binding obligation of each of the Seller and each Contracting Subsidiary (to
the extent it is or will be a party thereto), enforceable against it in
accordance with its terms.
Section 3.3 Consents and Approvals; No Violations.
(a) Except as set forth in Section 3.3(a) of the
Seller Disclosure Schedule, and except for such filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), none of the execution, delivery or
performance of this Agreement or the Seller Documents by the Seller or any
Contracting Subsidiary (to the extent it is or will be a party thereto), or the
consummation by the Seller or any Contracting Subsidiary (to the extent it is
or will be a party thereto) of the transactions contemplated hereby or thereby
and compliance by the Seller or any Contracting Subsidiary (to the extent it is
or will be a party thereto) with any of the provisions hereof or thereof will
(i) conflict with or result in any breach of any provisions of the charter or
regulations or comparable organizational documents of the Seller or of any of
the Contracting Subsidiaries or the Footwear Subsidiaries, (ii) require any
filing by the Seller or any of the Contracting Subsidiaries or the Footwear
Subsidiaries with, or any permit, authorization, consent or approval to be
obtained by the Seller or any of the Contracting Subsidiaries or the Footwear
Subsidiaries of, any court, arbitral tribunal, administrative agency or
commission or other governmental or regulatory authority or administrative
agency or commission whether domestic or foreign (a "Governmental Entity")
(except where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings would not have a material adverse effect on
the Footwear Business), (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation or acceleration) under, or
result in the creation of any Lien on any of the Acquired Assets pursuant to,
any of the terms, conditions or provisions of any note, bond, mortgage,
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indenture, lease, license, contract, agreement, franchise, permit, concession
or other instrument, obligation, understanding, commitment or other arrangement
to which the Seller or any of the Contracting Subsidiaries or the Footwear
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or affected (each, a "Contract"), (iv) result in the
triggering of any right of first refusal or other right under any stockholder,
partnership or joint venture agreement to which the Seller or any of the
Contracting Subsidiaries or the Footwear Subsidiaries is a party and which
relates to any Acquired Assets, or (v) violate any order, writ, injunction,
decree, statute, ordinance, rule or regulation applicable to the Seller or any
of the Contracting Subsidiaries or the Footwear Subsidiaries, except, in the
case of clauses (iii) and (v), for violations, breaches or defaults which would
not, individually or in the aggregate, have a material adverse effect on the
Footwear Business.
(b) Except as set forth in Section 3.3(b) of the
Seller Disclosure Schedule, neither the Seller nor any of its Subsidiaries is
in conflict with, or in default or violation of, any Contract, except for any
such conflicts, defaults or violations which have not had and are not likely
to have a material adverse effect on the Footwear Business.
Section 3.4 SEC Reports and Financial Statements. The Seller
has timely filed with the Securities and Exchange Commission (the "SEC"), and
has heretofore made available to Parent true and complete copies of, all forms,
reports and documents required to be filed by it since January 1, 1992 under
the Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (as such
documents have been amended since the time of their filing, collectively, the
"Seller SEC Documents"). The Seller SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed, in respect of the Footwear Business (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (b)
complied in all material respects with the applicable requirements of the
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Securities Act or the Exchange Act, as the case may be. The consolidated
financial statements of the Seller included in the Seller SEC Documents
(including the notes and schedules thereto, the "Seller Financial Statements"),
in respect of the Footwear Business comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present in all material respects (subject, in the
case of the unaudited statements, to normal audit adjustments) the consolidated
financial position of the Seller and its consolidated Subsidiaries as at the
dates thereof in respect of the Footwear Business and the consolidated results
of their operations and cash flows for the periods then ended in respect of the
Footwear Business.
Section 3.5 Footwear Business Financial Statements.
(a) The unaudited combined balance sheets of the
Footwear Business at January 29, 1994 and at January 28, 1995 and the unaudited
combined statement of operations and cash flows for the one-year period ended
January 28, 1995 included in Section 3.5(a) of the Seller Disclosure Schedule
(the "Footwear Business Financial Statements") have been prepared in accordance
with United States generally accepted accounting principles on a basis
consistent with the Seller Financial Statements referred to in Section 3.4, and
fairly present in all material respects (subject to normal audit adjustments)
the financial position of the Footwear Business at the respective dates thereof
and the combined results of operations and cash flows of the Footwear Business
for the periods then ended. The balance sheet of the Footwear Business at
January 28, 1995 included in Section 3.5(a) of the Seller Disclosure Schedule
(the "Footwear Business Balance Sheet") fairly presents in all material
respects (subject to normal audit adjustments) the combined financial position
of the Footwear Business as of January 28, 1995, except for the exclusion
therefrom of any assets not constituting Acquired Assets and any liabilities
not constituting Assumed Liabilities.
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(b) All notes and accounts receivable constituting
Acquired Assets have arisen from bona fide transactions in the ordinary course
of the Footwear Business consistent with past practice. All notes and accounts
receivable constituting Acquired Assets are properly reflected in accordance
with generally accepted accounting principles on the Footwear Business Balance
Sheet (other than notes and accounts receivable arising in the ordinary course
of the Footwear Business consistent with past practice since January 28, 1995,
which would not, in the aggregate, have a material adverse effect on the
Footwear Business).
(c) There are no outstanding intercompany payables,
receivables, loans, cash overdrafts, advances and other similar accounts
between the Footwear Business, on the one hand, and the Seller and its
Subsidiaries (other than the Transferred Subsidiaries), on the other hand.
Section 3.6 Title to Acquired Assets; Inventories.
(a) Except as set forth in Section 3.6(a) of the
Seller Disclosure Schedule, the Seller directly or indirectly owns or has a
valid leasehold interest in the Acquired Assets, free and clear of any Liens,
except for Permitted Liens (as defined below), the Seller Encumbrances and as
may be reflected in the Footwear Business Balance Sheet. At the Closing, the
Purchaser will, directly or indirectly, acquire good and marketable title to,
or a valid leasehold interest in, the Acquired Assets, free and clear of any
Liens, including, without limitation, the Seller Encumbrances, except for
Permitted Liens. On the Closing Date, the Acquired Assets will include the
assets reflected on the Footwear Business Balance Sheet and the capital stock
interests in any Transferred Subsidiary, as such may have changed since the
date of the Footwear Business Balance Sheet consistent with the provisions of
this Agreement, but in any event shall include all of the Seller's direct and
indirect right, title and interest in, and any assets then used in connection
with the Footwear Business, other than the Retained Assets. All of the
buildings and material tangible personal property owned or leased by the Seller
and its Subsidiaries that are included in the Acquired Assets are in good
working condition (normal wear and tear
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excepted) and are suitable in all material respects for the purposes for which
they were being used.
(b) Section 1.1(a) of the Seller Disclosure Schedule
contains a complete and accurate list of all of the Acquired Facilities. At
the Closing, (i) the Purchaser will acquire good and marketable title in fee
simple to the Acquired Facilities, other than those owned by the Transferred
Subsidiaries, free and clear of all Liens, and (ii) the Transferred
Subsidiaries will have good and marketable title in fee simple to the Acquired
Facilities owned by them free and clear of all Liens.
(c) The inventories included in the Footwear
Business consist, and on the Closing Date will consist, of items of a quantity
and quality historically useable or saleable in the ordinary course of the
Footwear Business consistent with past practice. The inventories included in
the Footwear Business are reflected on the Footwear Business Balance Sheet and
in the books and records of the Seller in accordance with generally accepted
accounting principles applied on a basis consistent with past practice, with
inventory recorded at a lower of cost (determined on a LIFO basis) or market.
(d) Except as set forth in Section 3.6(d) of the
Seller Disclosure Schedule, on the Closing Date neither the Seller nor any of
the Retained Subsidiaries will use in the conduct of its business or own or
have rights to use any assets or property, whether tangible, intangible or
mixed, which are also used in the conduct of the Footwear Business. Except as
contemplated in Section 6.13, immediately following the Closing neither the
Seller nor any of its Subsidiaries will be a party to any material agreement,
arrangement or understanding with the Footwear Business (other than the
Conveyancing Agreements), including, without limitation, any material Contract,
providing for the furnishing of services or rental of real or personal property
to or from, or otherwise relating to the business or operations of, the
Footwear Business or pursuant to which the Footwear Business may have any
obligation or liability.
(e) For the purposes of this Agreement, "Permitted
Liens" means Liens for (i) Taxes not yet due and payable, (ii) workmen's,
repairmen's or other similar Liens imposed by law but not yet asserted arising
or
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incurred in the ordinary course of business in respect of obligations which are
not overdue, (iii) minor title defects, easements, encroachments or
encumbrances which do not materially impair the value or continued use of the
property to which they relate, assuming that the property is used on the same
basis as such property is currently being used, (iv) retention of title
agreements with suppliers entered into in the ordinary course of business
consistent with past practice, and (v) Liens listed in Section 3.6(e) of the
Seller Disclosure Schedule.
Section 3.7 Litigation. Except as set forth in Section
3.7(a) of the Seller Disclosure Schedule, there is no suit, claim, action,
proceeding or, to the Seller's knowledge (as defined below) investigation
pending or threatened, against the Seller or any of its Subsidiaries before any
Governmental Entity Related to the Footwear Business or related to the
transactions contemplated by this Agreement. Except as disclosed in Section
3.7(b) of the Seller Disclosure Schedule, neither the Seller nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree,
domestic or foreign, Related to the Footwear Business or related to the
transactions contemplated by this Agreement. For the purposes of this
Agreement, "Seller's Knowledge" shall mean the actual knowledge, after
reasonable inquiry, of the officers of the Seller listed in Section 3.7(c) of
the Seller Disclosure Schedule.
Section 3.8 Employee Benefits.
(a) Section 3.8(a) of the Seller Disclosure Schedule
contains a list of all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit plans and any applicable "change of
control" or similar provisions in any plan, contract or arrangement which are
or have been maintained by the Seller or any of its Subsidiaries and which
cover active employees or former employees of the Footwear Business (the
"Seller Employees"), including, without limitation, any such individuals who
are employees of any entity which together with the Seller would be considered
a "single" employer within the meaning of Section 4001 of
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Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 414 of the Internal Revenue Code of 1986, as amended (the "Code") (an
"ERISA Affiliate"), and all other benefit plans, contracts or arrangements
(regardless of whether they are funded or unfunded or foreign or domestic)
which are or have been maintained by the Seller or any of its Subsidiaries and
which cover Seller Employees, including, but not limited to, "employee benefit
plans" within the meaning of Section 3(3) of the ERISA, other than government
plans (collectively, the "Compensation and Benefit Plans"). True and complete
copies of all the Compensation and Benefit Plans, including any trust
instruments and/or insurance contracts, if any, forming a part of any such
plans, and all amendments thereto have been made available to Parent.
(b) Except as set forth in Section 3.8(b) of the
Seller Disclosure Schedule, each of the Compensation and Benefit Plans has been
operated and administered in all material respects in compliance with its terms
and applicable law, including but not limited to ERISA. Except as set forth in
Section 3.8(b) of the Seller Disclosure Schedule, each Compensation and Benefit
Plan which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code, has received a favorable determination letter from
the United States Internal Revenue Service (the "Service"), and the Seller is
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. Neither the Seller nor any ERISA Affiliate has
engaged in a transaction with respect to any Compensation and Benefit Plan that
could subject the Seller or any ERISA Affiliate to a tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would have a material adverse effect on the Seller. Neither the Seller nor any
ERISA Affiliate has contributed or been required to contribute to any
Multiemployer Plan (as defined in ERISA).
(c) No liability under Subtitles C or D of Title IV
of ERISA has been or to Seller's Knowledge will be incurred by the Seller or
any ERISA Affiliate with respect to any ongoing, frozen or terminated
Compensation and Benefit Plan, currently or formerly maintained by any of them.
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(d) Full payment has been made, or will be made in
accordance with Section 404(a)(6) of the Code, of all amounts which the Seller
or any ERISA Affiliate is required to pay under the terms of each Compensation
and Benefit Plan as of the last day of the most recent plan year ended prior to
the date of this Agreement, and all such amounts properly accrued through the
Closing Date with respect to the current plan year thereof will be paid by the
Seller prior to the Closing Date. No Pension Plan or any trust established
thereunder has incurred an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither the Seller nor any ERISA Affiliate has provided, or is required to
provide, security to any Pension Plan pursuant to Section 401(a)(29) of the
Code.
(e) Neither the Seller nor any of its Subsidiaries
has any obligations for severance or retiree health and life benefits under any
Compensation and Benefit Plan, except for such benefits and amounts as set
forth in Section 3.8(e) of the Seller Disclosure Schedule.
(f) Except as set forth in Section 3.8(f) of the
Seller Disclosure Schedule, the Seller and its Subsidiaries have no unfunded
liabilities in an amount which would have a material adverse effect on the
Seller with respect to any Compensation and Benefit Plan which covers foreign
Seller Employees.
(g) Except as set forth in Section 3.8(g) of the
Seller Disclosure Schedule, the consummation of the transactions contemplated
by this Agreement or in the Conveyancing Agreements will not (i) entitle any
current or former employee or officer of the Seller or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due or other benefits granted to any such employee or officer.
Except as set forth in Section 3.8(g) of the Seller Disclosure Schedule, no
payment which will or may be made by the Seller or any ERISA Affiliate to any
Seller Employee or any agent of the Footwear Business will constitute an
"excess parachute payment" within the meaning of Section 280G of the Code.
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(h) There are no pending, threatened or anticipated
claims by or on behalf of any Compensation and Benefit Plan, by any employee or
beneficiary covered under any such Compensation and Benefit Plan, or otherwise
involving any such Compensation and Benefit Plan (other than routine claims for
benefits).
(i) Under each Compensation and Benefit Plan which
is a single employer plan, as of the last day of the most recent plan year
ended prior to the date hereof, the actuarially determined present value of all
"benefit liabilities" within the meaning of Section 4001(a)(16) of ERISA, as
determined on the basis of the actuarial assumptions contained in such plan's
most recent actuarial valuation, did not exceed the then current value of the
assets of such plan, and there has been no material change in the financial
condition of such plan since the last day of the most recent plan year.
Section 3.9 Absence of Undisclosed Liabilities. Except as
set forth in Section 3.9 of the Seller Disclosure Schedule or as contemplated
by this Agreement, neither the Seller nor any of its Subsidiaries had at
January 28, 1995, or has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
which would be Assumed Liabilities, except liabilities, obligations or
contingencies (i) which were accrued or reserved against in the Seller
Financial Statements, or as to the Footwear Business on the Footwear Business
Balance Sheet, or (ii) which were incurred after January 28, 1995 in the
ordinary course of the Footwear Business consistent with past practice and
which would not, in the aggregate, have a material adverse effect on the
Footwear Business or which have been discharged or paid in full prior to the
date hereof.
Section 3.10 Absence of Certain Changes or Events; Material
Agreements. Since January 29, 1994, the Seller and its Subsidiaries have
conducted the Footwear Business only in the ordinary course of business
consistent with past practice, except as set forth in Section 3.10 of the
Seller Disclosure Schedule, and there has not been any change or development,
or combination of changes or developments, which individually or in the
aggregate have a material adverse effect on the Footwear Business.
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Section 3.11 No Violation of Law. Except as set forth in
Section 3.11 of the Seller Disclosure Schedule, neither the Seller nor any of
its Subsidiaries is in conflict with, or in default or violation of, or, to the
Seller's Knowledge, is under investigation with respect to or has been given
notice or been charged by any Governmental Entity with any violation of, any
law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable Environmental Law (as defined in Section
6.14) of any Governmental Entity, except for violations which do not relate to
the Footwear Business or which, in the aggregate, do not have a material
adverse effect on the Footwear Business.
Section 3.12 Taxes.
(a) Except as set forth in Section 3.12 of the
Seller Disclosure Schedule and only to the extent Related to the Footwear
Business:
(i) the Seller and the Footwear Subsidiaries
have (x) duly filed (or there has been filed on their behalf) with the
appropriate governmental authorities all Tax Returns (as defined
below) required to be filed by them on or prior to the date hereof,
except where any failure to file such Tax Returns would not have a
material adverse effect on the Footwear Business or the Acquired
Assets, taken as a whole, and such Tax Returns are true, correct and
complete in all material respects, and (y) duly paid in full or made
provision in accordance with generally accepted accounting principles
(or there has been paid or provision has been made on their behalf)
for the payment of (I) all material Taxes shown to be due on such Tax
Returns and (II) all deficiencies and assessments of Taxes of which
written notice has (or by the Closing Date will have) been received by
the Seller or any Footwear Subsidiary that are or may become payable
by the Footwear Subsidiaries or chargeable as a lien upon the Acquired
Assets;
(ii) the Seller and the Footwear
Subsidiaries have established (and until the Closing will establish)
on their books and
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records reserves in compliance with generally accepted accounting
principles for the payment of all Taxes for which they will be
required to file Tax Returns and which are not yet due and payable;
(iii) there are no Liens for Taxes upon any
of the Acquired Assets, except for Liens for Taxes not yet due;
(iv) neither the Seller nor any of the
Footwear Subsidiaries has made any change in accounting methods,
received a ruling from any taxing authority or signed an agreement
with any taxing authority which, in each case, is reasonably likely to
have a material adverse effect on the Footwear Business;
(v) the Seller and the Footwear Subsidiaries
have complied in all respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes
(including, without limita- tion, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any
foreign laws) and have, within the time and the manner prescribed by
law, withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and
paid over under applicable laws;
(vi) no federal, state, local or foreign
audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns of the
Footwear Subsidiaries, and none of the Footwear Subsidiaries has
received a written notice of any pending audits or proceedings;
(vii) the federal income Tax Returns of the
Footwear Subsidiaries have been examined by the Service (or the
applicable statutes of limitation for the assessment of federal income
Taxes for such periods have expired) for all periods through and
including January 31, 1987, and no material deficiencies
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were asserted as a result of such examinations which have not been
resolved and fully paid;
(viii) there are no outstanding requests,
agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies
against the Footwear Subsidiaries, and no power of attorney granted by
either the Seller or any of its Subsidiaries with respect to any Taxes
of any Footwear Subsidiary is currently in force; and
(ix) neither the Seller nor any of the
Footwear Subsidiaries has, with regard to any Acquired Assets, filed a
consent to the application of Section 341(f) of the Code, or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by the Seller or any of the Footwear Subsidiaries.
(b) "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, license, net worth, payroll,
franchise, transfer, gains and recording taxes, fees and charges, imposed by
the Service or any taxing authority (whether domestic or foreign including,
without limitation, any state, county, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest whether paid or received,
fines, penalties or additional amounts attributable to, or imposed upon, or
with respect to, any such taxes, charges, fees, levies or other assessments.
"Tax Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for
the extension of time in which to file any
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such report, return, document, declaration or other information.
(c) The representations and warranties set forth in
Section 3.12(a) are not applicable with respect to matters constituting a
breach of such representations and warranties unless and until, as a result of
such breach:
(i) the Acquired Assets are made subject to Tax
Liens;
(ii) the Purchaser is made liable for Taxes; or
(iii) the payment of Taxes is sought from any of
the Transferred Subsidiaries.
Section 3.13 Labor Controversies. Except as set forth in
Section 3.13 of the Seller Disclosure Schedule, neither the Seller nor any of
its Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other under- standing with a labor union or labor
organization Related to the Footwear Business or related to its employees.
Except as set forth in Section 3.7(a) to the Seller Disclosure Schedule, as of
the date hereof, there are no material controversies pending or, to the
Seller's Knowledge, threatened between the Seller or any of its Subsidiaries
and any of their respective employees, and, to the Seller's Knowledge, as of
the date hereof, there are no organizational efforts presently being made
involving any of the employees of the Seller or any of its Subsidiaries, in
each case Related to the Footwear Business or related to its employees. Except
as set forth in Section 3.13 of the Seller Disclosure Schedule, the Seller and
its Subsidiaries have complied in all material respects with all laws relating
to wages, hours, collective bargaining, and the payment of social security and
similar Taxes with respect to the Footwear Business, and, as of the date
hereof, no person has, to the Seller's Knowledge, asserted that the Seller or
any of its Subsidiaries is liable in any material amount with respect to the
Footwear Business for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing.
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Section 3.14 Licenses. Section 3.14 of the Seller Disclosure
Schedule sets forth a list of all permits, licenses, waivers and authorizations
(collectively, "Licenses") which are necessary for the Footwear Business to
conduct its business in the manner in which it is presently being conducted,
other than any Licenses the failure of which to have would not, individually or
in the aggregate, have a material adverse effect on the Footwear Business.
Except for those Licenses identified in Section 3.14 of the Seller Disclosure
Schedule and, to the extent that in connection with the transfer of any License
the Purchaser is required to execute any documents or take any other actions in
order to secure the transfer and assignment of such License, except where the
Purchaser fails to execute such documents or take such actions, the Seller has,
and as of the Closing Date the Purchaser will acquire, all of the Licenses. To
the Seller's Knowledge, no event has occurred or other fact exists with respect
to the Licenses which permits, or after notice or lapse of time or both would
permit, revocation or termination of any of the Licenses or would result in any
other impairment of the rights of the holder of any of the Licenses. The
Seller and its Subsidiaries have duly performed their respective obligations
under the Licenses in all material respects. There is not pending or, to the
Seller's Knowledge, threatened, any application, petition, objection or other
pleading with any Governmental Entity which challenges or questions the
validity of or any rights of the holder under any License.
Section 3.15 Intellectual Property.
(a) Section 3.15(a) of the Seller Disclosure
Schedule contains a complete and accurate list of all of the Acquired
Intellectual Property, other than Acquired Intellectual Property as described
in Section 1.1(a)(vi)(A). Except as set forth in Section 3.15(a) of the Seller
Disclosure Schedule, the Seller and its Subsidiaries own all right, title and
interest in and to, or hold valid licenses, if any, from third parties for, all
of the Acquired Intellectual Property.
(b) Except as set forth in Section 3.15(b) of the
Seller Disclosure Schedule, the Seller and its Subsidiaries have not, as of and
since the date upon which they acquired any of the Acquired Intellectual
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Property, (i) transferred, conveyed, sold, assigned, pledged, mortgaged or
granted a security interest in any of the Acquired Intellectual Property to any
third party, (ii) entered into any license, franchise or other agreement with
respect to any of the Acquired Intellectual Property with any third person, or
(iii) otherwise encumbered any of the Acquired Intellectual Property. The
Seller and its Subsidiaries have maintained and enforced the Acquired
Intellectual Property in accordance with their customary practices in order to
safeguard the secrecy of all the Acquired Intellectual Property that are
considered to be trade secrets.
(c) The conduct of the Footwear Business by the
Seller and its Subsidiaries as currently conducted does not, to the Seller's
knowledge, conflict or infringe in any way with any intellectual property right
of any third party that, individually or in the aggregate, is reasonably likely
to have a material adverse effect on the Footwear Business, and there is no
claim, suit, action or proceeding pending or to the Seller's Knowledge
threatened against the Seller or any of its Subsidiaries (i) alleging that use
of the Acquired Intellectual Property or any intellectual property licenses
included in the Acquired Assets by the Seller or any of its Subsidiaries
conflicts or infringes in any way with any third party's intellectual property
rights, or (ii) challenging the Seller's or its Subsidiaries' ownership of or
right to use or the validity of any Acquired Intellectual Property. To the
Seller's Knowledge, there are no conflicts or infringements by any third party
of any of the Acquired Intellectual Property owned by or licensed by or to the
Seller or any of its Subsidiaries.
(d) Each Copyright registration, Patent and
Trademark registration and each application therefor listed in Section 3.15(a)
of the Seller Disclosure Schedule is valid, subsisting and in proper form, and
has been duly maintained, including the submission of all necessary filings in
accordance with the legal and administrative requirements of the appropriate
jurisdictions. Except as set forth in Section 3.15(d) of the Seller Disclosure
Schedule, there have been no failures in complying with such requirements and
no Copyright, Patent or Trademark has lapsed and there has been no cancellation
or abandonment thereof.
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(e) Neither the Seller, nor to the Seller's
Knowledge, has any other person granted any release, covenant not to sue, or
non-assertion assurance or entered into any indemnification or settlement
agreement with any person with respect to any part of the Acquired Intellectual
Property or intellectual property licenses included in the Acquired Assets.
Section 3.16 Material Contracts. Except as disclosed in
Section 3.16 of the Seller Disclosure Schedule, as of the date hereof, neither
the Seller nor any of its Subsidiaries is a party to any Contract Related to
the Footwear Business: (a) to undertake capital expenditures or to acquire any
property in an aggregate amount exceeding $100,000; (b) to loan money or to
extend credit in an amount greater than $100,000 to any person or group of
related persons; (c) involving rebates, sales, advertising or other allowances
with customers in an amount of more than $100,000 per year; (d) which would
restrict the Footwear Business from carrying on any business anywhere in the
world or which would restrict the products or services which the Footwear
Business may sell or the customers to whom the Footwear Business may sell; (e)
involving any indebtedness, obligation or liability for borrowed money or the
guaranty of any such indebtedness, obligation or liability in an amount greater
than $100,000; (f) involving the provision of goods or services having annual
aggregate payments in excess of $100,000 and which is not terminable by the
Seller or one of its Subsidiaries without penalty upon notice of ninety days or
less; (g) involving employment, consulting, compensation or severance
obligations; (h) involving any lease of personal property having annual
payments in excess of $100,000 and which is not terminable by the Seller or one
of its Subsidiaries without penalty upon notice of ninety days or less; (i)
involving any lease of real property; (j) involving any license of intellectual
property by or to the Footwear Business; (k) which relates to the sale of
finished goods and which is being performed by the Footwear Business at a loss;
or (l) which is material to the Footwear Business. Except as set forth in
Section 3.16 of the Seller Disclosure Schedule, the consummation of the
transactions contemplated hereby or in the Conveyancing Agreements will not
impair any of the Footwear Business' rights under any such Contract whether
oral or written and, to the Seller's knowledge, all such Contracts constitute
valid and bind-
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ing obligations of the parties thereto. Except as set forth in Section 3.16 of
the Seller Disclosure Schedule, there is no breach or violation of, or default
under any such Contract, and no event has occurred which, with notice or lapse
of time or both, would constitute a breach, violation or default, or give rise
to a right of termination, modification, cancellation, prepayment or
acceleration under any such Contract.
Section 3.17 Insurance. Set forth in Section 3.17 of the
Seller Disclosure Schedule is a list of all policies of liability, fire,
automobile, property, business interruption and other forms of insurance
covering the Footwear Business or the Acquired Assets, all of which are valid
and enforceable and in full force and effect.
Section 3.18 Parent Securities. The Seller acknowledges that
it is acquiring the Parent Warrants without registration under the Securities
Act.
Section 3.19 Disclosure. None of the representations or
warranties of the Seller contained in this Article III and none of the
information contained in the Seller Disclosure Schedule, to the Seller's
Knowledge, is false or misleading in any material respect or omits to state a
fact herein or therein necessary to make the statements herein or therein not
misleading in any material respect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser jointly and severally represent and
warrant to the Seller as follows:
Section 4.1 Organization. Each of Parent and the Purchaser
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted except where the failure to be so organized, existing
and in good standing or to have such power and authority would not have a
"material adverse effect on Parent" (as defined
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below). Parent and each of its Subsidiaries is duly qualified or licensed to
do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not in the aggregate
have a material adverse effect on Parent. Parent has heretofore made available
to the Seller a complete and correct copy of the charter and by-laws, each as
amended to date, of Parent and the Purchaser. Such charters and by-laws are in
full force and effect. Neither Parent nor any of its Subsidiaries is in
violation of any provision of its charter, by-laws or comparable organizational
documents, except for such violations that would not, individually or in the
aggregate, have a material adverse effect on Parent. As used in this
Agreement, any reference to any event, change or effect having a "material
adverse effect on Parent" means such event, change or effect which is
materially adverse to (A) the business, properties, assets, results of
operations or financial condition of Parent and its Subsidiaries, taken as a
whole, or (B) the ability of Parent and the Purchaser to consummate the
transactions contemplated hereby.
Section 4.2 Capitalization. As of the date hereof, the
authorized capital stock of Parent consists of: (i) 100,000,000 shares of
Parent Common Stock of which, as of December 31, 1994, 34,608,545 shares were
issued and outstanding and no shares were held in treasury, and (ii) 25,000,000
shares of preferred stock, par value $.01 per share, of which no shares were
issued and outstanding or held in treasury. Since December 31, 1994 and prior
to the date hereof, no shares of Parent Common Stock have been issued except
issuances of shares upon exercise of employee stock options. All the
outstanding shares of Parent's capital stock are, and all of (i) the Parent
Warrants which are to be issued pursuant to this Agreement and (ii) the shares
of Parent Common Stock which will be issuable upon exercise of the Parent
Warrants will be, when issued in accordance with the terms of this Agreement,
in the case of the Parent Warrants, and the Warrant Agreement or the terms of
the Parent Warrants, in the case of the shares of Parent Common Stock which
will be issuable upon exercise of the Parent Warrants, duly authorized, validly
issued, fully paid and
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non-assessable and free of any Liens (except Permitted Liens) and any
preemptive rights in respect thereto.
Section 4.3 Authority. Each of Parent and the Purchaser has
the requisite corporate power and authority to execute and deliver this
Agreement and the Purchaser Documents (to the extent it will be a party
thereto) and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Purchaser
Documents by Parent and the Purchaser (to the extent it will be a party
thereto) and the consummation by Parent and the Purchaser of the transactions
contemplated hereby and thereby have been duly authorized by the Boards of
Directors of Parent and the Purchaser and no other corporate proceedings on the
part of Parent and the Purchaser are necessary to authorize this Agreement and
the Purchaser Documents (to the extent it will be a party thereto) or for
Parent and the Purchaser to consummate the transactions so contemplated. This
Agreement has been, and each of the Purchaser Documents will be, duly executed
and delivered by Parent and the Purchaser (to the extent it will be a party
thereto) and constitutes or (to the extent such agreement is not being entered
into as of the date hereof) will constitute a valid and binding obligation of
Parent and the Purchaser, enforceable against Parent and the Purchaser in
accordance with its terms.
Section 4.4 Consents and Approvals; No Violations.
(a) Except as set forth in Section 4.4(a) of the
disclosure schedule delivered by Parent to the Seller on or prior to the date
hereof (the "Parent Disclosure Schedule"), and except for such filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the HSR Act, neither the execution, delivery
or performance of this Agreement by Parent or the Purchaser nor the
consummation by either of them of the transactions contemplated hereby or by
the Purchaser Documents nor compliance by Parent or the Purchaser with any of
the provisions hereof or thereof will (i) conflict with or result in any breach
of any provision of the charter or by-laws of Parent or the Purchaser, (ii)
require any filing by Parent or its Subsidiaries with, or any permit,
authorization, consent or approval of, any Governmental Entity to be obtained
by
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Parent or its Subsidiaries (except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not have a
material adverse effect on Parent), (iii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement, franchise, permit, concession
or other instrument, obligation, understanding, commitment or other arrangement
to which Parent or any of its Subsidiaries is a party or by which any of them
or any of their properties or assets may be bound or affected, or (iv) violate
any order, writ, injunction, decree, statute, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries, except, in the case of clauses
(iii) or (iv), for violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on Parent.
(b) Except as set forth in Section 4.4(b) of the
Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is in
conflict with, or in default or violation of, any note, bond, mortgage,
indenture, lease, license, contract, agreement, franchise, permit, concession
or other instrument, obligation, understanding, commitment or other arrangement
to which Parent or any of its Subsidiaries is a party or by which any of them
or any of their properties or assets may be bound or affected, except for any
such conflicts, defaults or violations which have not had and are not likely to
have a material adverse effect on Parent.
Section 4.5 SEC Reports and Financial Statements. Parent has
timely filed with the SEC, and has heretofore made available to the Seller true
and complete copies of, all forms, reports and other documents required to be
filed by it since January 1, 1992 under the Exchange Act and the Securities Act
(as such documents have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). The Parent SEC Documents,
including, without limitation, any financial statements or schedules included
therein, at the time filed, (a) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the
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statements therein, in light of the circumstances under which they were made,
not misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act or the Securities Act, as the case may be.
The consolidated financial statements of Parent included in the Parent SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly
present in all material respects (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments which are not material in
amount) the consolidated financial position of Parent and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
Section 4.6 Litigation. Except as set forth in Section 4.6
of the Parent Disclosure Schedule, there is no suit, claim, action, proceeding
or, to Parent's knowledge (as defined below), investigation pending or
threatened, against Parent or any of its Subsidiaries before any Governmental
Entity which, if adversely determined, individually or in the aggregate, would
have a material adverse effect on Parent. Except as disclosed in Section 4.6
of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries
is subject to any outstanding order, writ, injunction or decree, domestic or
foreign, which, individually or in the aggregate, has had or could reasonably
be expected to have a material adverse effect on Parent or relates to the
transactions contemplated by this Agreement. For the purposes of this
Agreement, "Parent's Knowledge" shall mean the actual knowledge, after
reasonable inquiry, of the officers of Parent listed in Section 4.6 of the
Parent Disclosure Schedule.
Section 4.7 Absence of Certain Changes or Events; Material
Agreements. Since December 31, 1993, there has not been any change or
development, or combination of changes or developments, which individually or
in the aggregate have a material adverse effect on Parent.
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Except as set forth in Section 4.7 of the Parent Disclosure Schedule, the
transactions contemplated by this Agreement or by the Warrant Agreement will
not constitute a change of control under or require the consent from or the
giving of notice to a third party pursuant to the terms, conditions or
provisions of any Contract to which Parent or any of its Subsidiaries is a
party.
Section 4.8 No Violation of Law. Except as set forth in
Section 4.8 of the Parent Disclosure Schedule, neither Parent nor any of its
Subsidiaries is in conflict with, or in default or violation of, or, to
Parent's Knowledge, is under investigation with respect to or has been given
notice or been charged by any Governmental Entity with any violation of, any
law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable environmental law, ordinance or regulation)
of any Governmental Entity, except for violations which, in the aggregate, do
not have a material adverse effect on Parent.
ARTICLE V
COVENANTS
Section 5.1 Conduct of the Seller's Business. During the
period from the date of this Agreement and continuing until the Closing Date,
the Seller agrees as to itself and its Subsidiaries that, except for the
transactions expressly provided for in this Agreement, or to the extent that
Parent shall otherwise consent in writing:
(a) Ordinary Course. The Seller shall, and shall
cause each of its Subsidiaries to, conduct the Footwear Business in the usual,
regular and ordinary course consistent with past practice and shall use its
reasonable efforts, and will cause each of its Subsidiaries to use its
reasonable efforts, to preserve substantially intact the present business
organization of the Footwear Business, keep substantially available the
services of the present officers of the Footwear Business and employees and
preserve substantially intact the business relationships of the Footwear
Business with customers, suppliers and others having business dealings with the
Footwear Business. Notwithstanding the forego-
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ing, except as identified in Section 5.1(a) of the Seller Disclosure Schedule,
neither the Seller nor any of its Subsidiaries shall enter into any retail
store leases or other leases of real property Related to the Footwear Business
unless the Seller shall have informed Parent of such intention sufficiently in
advance of the finalization thereof and shall have provided Parent an
opportunity to assist the Seller in the negotiation thereof.
(b) Governing Documents. The Seller and the
Footwear Subsidiaries shall not amend or propose to amend their respective
articles of incorporation or regulations or comparable organizational documents
in any manner which would require any further authorization or approval by the
Board of Directors or shareholders of the Seller or the Footwear Subsidiaries,
as the case may be, for the consummation of the transactions contemplated by
this Agreement or which would place any material restraints or material
additional requirements on any of the parties hereto in connection with the
consummation of the transactions contemplated by this Agreement.
(c) No Acquisitions; Material Commitments. The
Seller shall not, nor shall it permit any of its Subsidiaries to, (i) acquire
or agree to acquire by merging or consolidating with, or by purchasing an
equity interest in or the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any material assets,
in each case Related to the Footwear Business, other than the purchase of raw
materials and inventory in the ordinary course of the Footwear Business
consistent with past practice, or (ii) otherwise enter into any material
commitment or transaction Related to the Footwear Business outside the ordinary
and usual course of the Footwear Business consistent with past practice.
(d) No Dispositions. The Seller shall not, nor
shall it permit any of its Subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or otherwise
dispose of, any Acquired Assets other than the sale of inventory in the
ordinary course of the Footwear Business consistent with past practice.
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(e) Indebtedness. The Seller shall not, nor shall
it permit any of its Subsidiaries to, incur, assume, pre-pay, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for any indebtedness for borrowed money or other
material obligation Related to the Footwear Business which would become an
Assumed Liability, except in the ordinary course of the Footwear Business
consistent with past practice.
(f) Changes to Benefit Plans. Except as set forth
in Section 5.1(f) of the Seller Disclosure Schedule, the Seller shall not, nor
shall it permit any of its Subsidiaries to, (i) enter into, adopt, amend
(except as may be required by law and except for immaterial amendments) or
terminate any Compensation and Benefit Plan as it relates to any Transferred
Employees (as defined in Section 6.7), or (ii) except for immaterial or normal
increases in the ordinary course of the Footwear Business consistent with past
practice, increase in any manner the compensation or fringe benefits of any
Transferred Employee or pay any benefit to any Transferred Employee not
required by any plan or arrangement as in effect as of the date hereof or enter
into any Contract, agreement, commitment or arrangement to do any of the
foregoing.
(g) Advice of Changes; Filings. The Seller shall
promptly advise Parent in writing of any change or development or combination
of changes or developments that would cause the representation in Section 3.10
to be untrue in any material respect. The Seller shall promptly provide Parent
(or its counsel) copies of all filings made by the Seller with any federal,
state or foreign Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
(h) Accounting Policies and Procedures. Except as
set forth in Section 5.1(h) of the Seller Disclosure Schedule, the Seller will
not and will not permit any of its Subsidiaries to change in any material
respect any of its accounting principles, policies or procedures, except as may
be required by United States generally accepted accounting principles, in
respect of the Footwear Business.
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(i) Lawsuits and Claims. Except as set forth in
Section 5.1(i) of the Seller Disclosure Schedule, the Seller will not, and
shall not permit any of its Subsidiaries to, settle or compromise any material
suit or claim or threatened suit or claim Related to the Footwear Business.
(j) Contracts. The Seller will not, and shall not
permit any of its Subsidiaries to, modify, amend or terminate any Contract
Related to the Footwear Business, waive, release, relinquish or assign any
Contract or other right or claim Related to the Footwear Business or cancel or
forgive any indebtedness owed to the Seller or its Subsidiaries which would be
an Acquired Asset, other than in the ordinary course of the Footwear Business
consistent with past practice.
(k) Intercompany Transactions. The Seller and its
Subsidiaries shall not establish or otherwise incur any intercompany payables,
receivables, loans, cash overdrafts, advances and other similar accounts
between the Footwear Business, on the one hand, and the Seller and its
Subsidiaries (other than the Transferred Subsidiaries), on the other hand.
(l) Other Actions. Notwithstanding the fact that
such action might otherwise be permitted pursuant to this Section 5.1, the
Seller shall not, nor shall it permit any of its Subsidiaries to, take any
action that would or can reasonably be expected to result in any of the
conditions to the obligations of Parent and the Purchaser set forth in Article
VIII not being satisfied or that would materially impair the ability of the
Seller to consummate the transactions contemplated herein in accordance with
the terms hereof or that would materially delay such consummation.
Section 5.2 Covenants of Parent.
(a) During the period from the date of this
Agreement and continuing until the Closing Date, Parent agrees as to itself and
its Subsidiaries that Parent shall not take any action that would or can
reasonably be expected to result in any of the conditions to the obligations of
the Seller set forth in Article VIII not being satisfied or that would
materially impair the ability of Parent to consummate the transactions contem-
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plated herein in accordance with the terms hereof or that would materially
delay such consummation.
(b) Parent shall promptly advise the Seller in
writing of any change or development or combination of changes or developments
that would cause the representation in Section 4.7 to be untrue in any material
respect. Parent shall promptly provide the Seller (or its counsel) copies of
all filings made by Parent with any federal, state or foreign Governmental
Entity in connection with this Agreement and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Reasonable Efforts. Subject to the terms and
conditions of this Agreement, including, without limitation, Section 6.3(b),
each of the parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under this Agreement and under applicable
Contracts, laws and regulations to consummate and make effective the
transactions contemplated by this Agreement (which actions shall include,
without limitation, furnishing all information required under the HSR Act and
in connection with approvals of or filings with any Governmental Entity and
cooperating in Parent's efforts to complete the closing of its financing) and
will promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
respective Subsidiaries in connection therewith. Subject to the terms and
conditions hereof, each of the Seller and Parent will, and will cause its
respective Subsidiaries to, promptly use all reasonable efforts to obtain (and
will cooperate with each other in obtaining) any consent, authorization, order
or approval of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by such party in
connection with the taking of any action contemplated by this Agreement.
Section 6.2 Access to Information. Upon reasonable notice,
the Seller shall (and shall cause its
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Subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of Parent, access, during normal business hours during
the period prior to the Closing Date and for a reasonable period of time
following the Closing Date to the extent necessary for Parent or the Purchaser
to prepare or evaluate any schedules or filings contemplated by this Agreement,
to all its properties, books, Contracts, commitments and records and all other
information Related to the Footwear Business, the Acquired Assets, the Assumed
Liabilities and the Transferred Employees as Parent may reasonably request,
and, during such periods, each of the Seller and Parent shall (and shall cause
each of their respective Subsidiaries to) furnish promptly to the other a copy
of each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal securities laws.
Unless otherwise required by law, the parties will hold any such information
which is non-public in confidence in accordance with the Confidentiality
Agreement, dated September 30, 1994 and as amended on January 9, 1995 (the
"Confidentiality Agreement"), between Parent and the Seller.
Section 6.3 Further Assurances; Subsequent Transfers.
(a) From time to time, each of the parties hereto
will execute and deliver such further instruments and will take such other
actions as Parent or any of its Subsidiaries, on the one hand, or the Seller or
any of its Subsidiaries, on the other hand, may reasonably request in order to
effectuate the purposes of this Agreement and to carry out the terms hereof;
provided, however, that the Seller shall not agree to amend or otherwise modify
any Contract constituting a part of the Acquired Assets in connection with the
obtaining of any such consent in any manner which would place any additional
restraints or requirements on the Purchaser or Parent or which would increase
any of the payments to be made by the Purchaser thereunder without the written
consent of the Purchaser. Without limiting the generality of the foregoing, at
any time and from time to time after the Closing Date, (i) at the request of
Parent or any of its Subsidiaries, the Seller and its Subsidiaries will execute
and deliver such other instruments of transfer, and take such action as Parent
or any of its Subsidiaries may reasonably deem necessary in order to
effectively
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transfer, convey and assign to the Purchaser all of the Acquired Assets, to put
the Purchaser in actual possession and operating control thereof and to permit
the Purchaser to exercise all rights with respect thereto (including, without
limitation, rights under Contracts and other arrangements as to which the
consent of any third party to the transfer thereof shall not have previously
been obtained) and to properly assume and discharge the related Assumed
Liabilities, and (ii) at the request of the Seller or any of its Subsidiaries,
the Purchaser, Parent and their respective Subsidiaries will execute and
deliver such other instruments and agreements, and take such action, as the
Seller or any of its Subsidiaries may reasonably deem necessary in order
effectively to assume from the Seller all of the Assumed Liabilities and to
confirm the Seller's right, title and interest in and to the Retained Assets.
(b) The Seller will use all reasonable efforts and
Parent will reasonably cooperate with the Seller to obtain any consents
required to transfer and assign to the Purchaser all Contracts, Licenses and
other rights of any nature whatsoever relating to or constituting a part of the
Acquired Assets, it being understood that neither the Seller nor Parent shall
be obligated to make payments to third parties in order to obtain consents. In
the event and to the extent that at the Closing the Seller is unable to obtain
any such required consents, (i) the Seller shall continue to be bound thereby,
(ii) the Purchaser shall pay, perform and discharge fully all of the
obligations of such entity thereunder from and after the Closing Date, and
(iii) the Seller shall, for a period continuing through December 31, 1995,
continue to use all reasonable efforts to obtain such consent at the earliest
practicable date following the Closing Date. The Seller shall, without further
consideration therefor, pay, assign and remit to the Purchaser promptly all
monies, rights and other consideration received in respect of such performance.
The Seller shall exercise or exploit the rights and options under all such
Contracts, Licenses and other rights and commitments referred to in this
Sections 6.3(b) only as reasonably directed in writing by the Purchaser and at
the Purchaser's expense and shall indemnify and hold harmless Parent and the
Purchaser against any Third-Party Claims (as defined in Section 7.1(b)) arising
out of, resulting from or relating to any actions taken by the Seller or its
Subsidiaries in con-
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nection with such Contracts, Licenses and other rights and commitments which
the Purchaser did not so direct. Except with respect to the exercise or
exploitation of the rights and options under the non-assignable Contracts,
Licenses and other rights and commitments as contemplated under this Section
6.3(b) and Section 6.3(c), the Seller and its Subsidiaries shall have no
obligation hereunder to pay, perform or discharge any obligations under any
such non-assignable Contract, License or other right relating to the Acquired
Assets after the Closing, and Parent and the Purchaser shall indemnify and hold
harmless the Seller and its Subsidiaries from any Third-Party Claims relating
thereto and from Third-Party Claims arising out of, resulting from or relating
to any actions taken by the Seller or its Subsidiaries in connection with such
Contracts, Licenses and other rights and commitments which the Purchaser
directed the Seller or its Subsidiaries to take or which were reasonably taken
if directions were requested by the Seller in writing and not forthcoming from
Parent or the Purchaser within a reasonable period of time. If and when any
such consent shall be obtained or such Contract, License or other right shall
otherwise become assignable, the Seller or such Subsidiary, as the case may be,
shall promptly assign all its rights and obligations thereunder to the
Purchaser without payment of further consideration and the Purchaser shall,
without the payment of any further consideration therefor, assume such rights
and obligations.
(c) In the event that (i) any landlord under any of
the store leases constituting Contracts takes legal action alleging that the
transactions contemplated by this Agreement constitute a breach of such lease
or (ii) as of December 31, 1995, the Seller shall have failed to obtain and
provide to the Purchaser any required consents to the assignment to the
Purchaser of any of such store leases, the Purchaser may elect by written
notice to the Seller, which in the case of clause (ii) shall be provided not
later than January 15, 1996, to terminate the operating arrangement provided
for in Section 6.2(b) with respect to any or all such leases and vacate any or
all such stores within a commercially reasonable period thereafter. In the
event that the Purchaser makes any such election, such termination and
agreement to vacate shall become effective on the tenth business day following
the receipt by the Seller of such
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notice other than as to any such stores for which the Seller provides a
satisfactory undertaking to Parent and the Purchaser to indemnify and hold
Parent and the Purchaser harmless from any damages or other costs, including
without limitation any litigation costs, relating to claims that the related
lease had been breached. In the event that the Seller shall not provide such
undertaking as to any lease, the Seller shall retain responsibility for, and
indemnify Parent and the Purchaser against, any and all obligations or other
liabilities relating to such lease other than rental payments through the date
of the Purchaser's vacating of the related store and the Seller shall pay to
the Purchaser at the time of such vacating as liquidated damages (the
"Liquidated Damages") for the Seller's failure to deliver such lease as an
Acquired Asset an amount in cash equal to the sum of (i) the net asset value as
reflected on the most recently available balance sheet of the Footwear Business
of the leasehold improvements as in existence on the Closing Date relating to
such store not reasonably removable by the Purchaser when vacating such store
and (ii) the amount indicated as liquidated damages for such store in Section
6.3(c) of the Seller Disclosure Schedule.
Section 6.4 Use of Names. Following the Closing Date and
except as otherwise provided in the Other Acquired Intellectual Property
Licenses and the Capezio License, Parent and its Subsidiaries shall have the
sole and exclusive ownership of and right to use, as between Parent and its
Subsidiaries, on the one hand, and the Seller and its Subsidiaries, on the
other hand, each of the names included in the Acquired Intellectual Property
(the "Footwear Names"). The Footwear Names shall not include the Capezio Name
and the Corporate Names. Following the Closing Date and except as otherwise
provided in the Intellectual Property Assignments or the Other Acquired
Intellectual Property Licenses, the Seller shall, and shall cause its
Subsidiaries and other affiliates to, take all action necessary to cease using,
and change as promptly as practicable (including by amending any charter
documents), any corporate or other names which are the same as or confusingly
similar to any of the Footwear Names. Following the Closing, Parent and the
Purchaser shall take all action necessary to cause the Footwear Business to
cease the use of the Corporate Names.
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Section 6.5 Non-Solicitation.
(a) The Seller agrees that, for a period of two
years following the Closing Date, without the prior written consent of Parent
or the Purchaser, it will not, whether directly or indirectly, and will not
permit any of its Subsidiaries to, solicit the employment of or employ any
employee of the Footwear Business who has merchandising or management decision
making responsibilities who was an employee as of the date of this Agreement or
as of any date during the period of one year prior thereto unless such
employee's employment was terminated by the Purchaser or Parent.
(b) Parent and the Purchaser agree that, for a
period of two years following the Closing Date, without the prior written
consent of the Seller, they will not, whether directly or indirectly, and will
not permit any of their Subsidiaries to, solicit the employment of or employ
any employee of the Seller who has merchandising or management decision making
responsibilities, who is not a Transferred Employee who accepted the
Purchaser's offer of employment and who was an employee as of the date of this
Agreement or as of any date during the period of one year prior thereto unless
such employee's employment was terminated by the Seller.
Section 6.6 Employee Matters; Employee Benefit Plans.
(a)(i) Effective as of the Closing Date, the
Purchaser shall offer employment to each person who is an active employee of
the Footwear Business immediately prior to the Closing Date and (ii) effective
as of the date on which a person who is an inactive employee of the Footwear
Business immediately prior to the Closing Date and who is ready to return in a
timely manner from sick leave, disability leave, furlough, layoff, approved
leave of absence or any other leave covered by the Family and Medical Leave Act
or any comparable applicable law (the "Return Date"), the Purchaser shall offer
employment to such employee (each such person, upon receipt of such offer, a
"Transferred Employee," and all such persons, upon receipt of such offers,
"Transferred Employees"). The foregoing shall not be construed to require the
Purchaser to continue the employment of any Transferred
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Employee for any period following the Closing Date or the applicable Return
Date, as the case may be.
(b) As soon as practicable after the Closing Date,
the Purchaser shall take all steps necessary and appropriate to establish a
defined benefit pension plan and trust intended to qualify under Sections
401(a) and 501(a) of the Code, respectively (the "Purchaser Pension Plan"). As
soon as practicable following receipt by the Seller of written evidence of the
establishment of the Purchaser Pension Plan and the trust thereunder by the
Purchaser (the "Transfer Date"), the Seller shall cause the trustees of the
Salaried Employees Pension Plan (the "Seller Pension Plan") to transfer from
the trust under the Seller Pension Plan to the trust under the Purchaser
Pension Plan an amount equal to the product of (i) the fair market value of all
of the assets held under the Seller Pension Plan as of the Closing Date and
(ii) a fraction, the numerator of which shall equal the present value of all
the accrued benefits under the Seller Pension Plan as of the Closing Date in
respect of all Transferred Employees and the denominator of which shall equal
the present value of all accrued benefits under the Seller Pension Plan as of
the Closing Date; provided, however, that the amount transferred shall be
equitably adjusted to reflect any appreciation or depreciation in the value of
the assets and any benefit distributions that occur between the Closing Date
and the last day of the calendar month which precedes the Transfer Date. The
calculation of the amount to be transferred pursuant to this Section 6.6(b)
shall be determined on an ongoing basis, in accordance with the standards of
Section 414(l) of the Code, jointly by the certified actuary of the Seller
Pension Plan (the "Seller Actuary") and a certified actuary selected by the
Purchaser (the "Purchaser Actuary"). If the Seller Actuary and the Purchaser
Actuary cannot agree on the amount to be transferred hereunder, the dispute
shall be settled by a third-party certified actuarial firm mutually agreed
upon by the Purchaser Actuary and the Seller Actuary, with any fees being paid
50% by the Seller and 50% by the Purchaser. The decision of the third-party
certified actuarial firm shall be final and binding on the parties.
(c) Notwithstanding any other provision of this
Agreement to the contrary, neither the Purchaser nor the Purchaser Pension Plan
shall be deemed to have
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assumed any liability concerning the Seller Pension Plan until the date of
transfer of the amount pursuant to Section 6.6(b), at which time the Purchaser
Pension Plan shall assume all liabilities for the accrued benefits of the
Transferred Employees under the Seller Pension Plan. All remaining liabilities
with respect to the Seller Pension Plan shall remain with the Seller.
(d) The Purchaser and the Seller shall provide each
other with such records and information as may be necessary or appropriate to
carry out their obligations under Section 6.6(b) or for the purpose of
administration of the Purchaser Pension Plan, and shall cooperate in the filing
of documents required by the transfer of assets and liabilities described
therein. Notwithstanding anything contained in this Section 6.6 to the
contrary, no transfer of funds between the Seller Pension Plan and the
Purchaser Pension Plan shall occur until thirty-one days following the filing
of all required Forms 5310-A in connection therewith.
Section 6.7 Exclusivity. Until the termination of this
Agreement pursuant to Section 9.1, the Seller will not, directly or indirectly,
through any officer, director, agent or otherwise, initiate, solicit,
encourage, negotiate or discuss with any third party (including by way of
furnishing non-public information concerning the Seller or its businesses,
assets or properties), or take any other action to facilitate any inquiries
with respect to or the making of, any proposal that constitutes or may
reasonably be expected to lead to a Competing Transaction. For purposes
hereof, the term "Competing Transaction" shall mean any proposal with respect
to the acquisition of any of the Acquired Assets other than as contemplated by
this Agreement.
Section 6.8 Fees and Expenses. Whether or not the
transactions contemplated by this Agreement are consummated, except as
otherwise specifically provided for in this Agreement, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
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Section 6.9 Notification of Certain Matters. The Seller
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Seller, of (a) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be reasonably likely to cause (i) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (ii) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in any
material respect and (b) any failure of the Seller, the Purchaser or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder in any material respect;
provided, however, that the delivery of any notice pursuant to this Section 6.9
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
Section 6.10 Settlements for Cash Collections and
Disbursements. For each calendar month commencing with the month in which the
Closing Date occurs and continuing until reasonably determined by the parties
no longer to be necessary, the Purchaser and the Seller shall cause all cash
collections and cash disbursements received or made by the Purchaser and its
Subsidiaries for the benefit of the Seller and its Subsidiaries or by the
Seller and its Subsidiaries for the benefit of the Purchaser and its
Subsidiaries during the relevant month to be remitted or reimbursed, as the
case may be, to the party entitled to the benefit thereof as promptly as
possible but in any case within 15 days after the receipt thereof or request
for reimbursement thereof, as the case may be.
Section 6.11 Insurance. The Seller will continue to carry
and maintain in full force and effect the insurance policies listed on Section
3.17 of the Seller Disclosure Schedule, or policies with comparable coverage,
to the Closing Date, and will reasonably cooperate with Parent in Parent's
efforts to obtain insurance coverage for the Footwear Business from and after
the Closing.
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Section 6.12 Transition Services; Interim Leases.
(a) Transition Services to Seller. On the Closing Date, upon
the request of the Seller, the Seller and the Purchaser shall enter into a
Services Agreement in the form attached hereto as Exhibit 6.12(a) (the
"Purchaser Services Agreement"), pursuant to which the Purchaser will agree to
provide to the Seller, at the Seller's election, certain data processing,
payroll, financial, tax, accounting, insurance, banking, cash management,
personnel, payables collection, employee benefits, management information
systems, communications and similar services (collectively, the "Purchaser
Services") presently being provided by the Footwear Business to the businesses
of the Seller other than the Footwear Business, in accordance with the terms
and for the time period set forth in the Purchaser Services Agreement.
(b) Transition Services to the Purchaser. On the Closing
Date, upon the request of the Purchaser, the Seller and the Purchaser shall
enter into a Services Agreement in the form attached hereto as Exhibit 6.12(b)
(the "Seller Services Agree- ment"), pursuant to which the Seller will agree to
provide to the Purchaser, at the Purchaser's election, certain data processing,
payroll, financial, tax, accounting, insurance, banking, cash management,
personnel, payables collection, employee benefits, management information
systems, communications and similar services (collectively, the "Seller
Services") presently being provided by the Seller to the Footwear Business, in
accordance with the terms and for the time period set forth in the Seller
Services Agreement.
(c) Interim Leases. On the Closing Date, upon the request of
the Seller, the Seller and the Purchaser shall enter into Interim Lease
Agreements in the forms attached hereto as Exhibit 6.12(c) (the "Interim
Leases") for the lease and occupancy by the Seller of certain executive office
space in the headquarters building of the Footwear Business located at One
Eastwood Drive, Cincinnati, Ohio, and certain additional office space in New
York City in accordance with the terms and for the time periods set forth in
the respective Interim Leases.
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Section 6.13 Purchase Price Allocation for Tax Purposes.
Pursuant to Section 1060 of the Code and the Treasury regulations thereunder
and any analogous provisions of state, local or foreign law, the Seller and the
Purchaser shall prepare and file "asset acquisition statements" with the
Service and other taxing authorities as required by applicable law with respect
to the acquisition of the Acquired Assets and the non-competition agreement
provided for in Section 6.27. The asset acquisition statements shall be filed
in the time and manner set forth in Section 1060 of the Code and the Treasury
regulations thereunder, and any analogous provisions of state, local or foreign
law, and shall allocate the total consideration to be paid by the Purchaser
(including the Assumed Liabilities) to the Acquired Assets and the
non-competition agreement provided for in Section 6.27 in conformance with the
methods prescribed therein. For these purposes, within 60 days following the
Closing Date, the Purchaser shall prepare and deliver to the Seller a tentative
asset acquisition statement that shall be binding on the Seller unless the
Seller notifies the Purchaser within 60 days of its receipt of the tentative
asset acquisition statement that it disputes the allocations contained therein
and such notice sets forth in detail the nature of and basis for its dispute.
Notwithstanding the foregoing, the fair market value of the Parent Warrants to
be reflected in the tentative asset acquisition statement shall be calculated
based upon the average of the closing prices of the Parent Warrants on the
principal stock exchange or quotation system on which the Parent Warrants are
then listed or quoted for trading for the five trading days immediately
following the tenth trading day after the distribution of the Parent Warrants
by the Seller to its stockholders. In the event that the Seller shall so
notify the Purchaser of any dispute, the Seller and the Purchaser shall
cooperate in good faith to resolve such dispute as promptly as practicable. In
the event that the Seller and the Purchaser are unable to resolve any such
dispute within 30 days of the Seller's delivery of such notice, such dispute
shall be resolved by the Independent Accounting Firm, with any fees being paid
50% by the Seller and 50% by the Purchaser. The determination of the
Independent Accounting Firm shall be final and binding. The Purchaser and the
Seller shall be bound to and take positions on their respective Tax Returns
consistent with the final asset acquisition statements determined in compliance
with this Section 6.13.
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6.14 Certain Environmental Matters.
(a) Parent and the Seller will jointly (i) promptly
arrange for "Phase I" investigations of a reasonable scope to be undertaken by
a firm of environmental consultants identified in Section 6.14(a) of the Seller
Disclosure Schedule (the "Environmental Consultant") as to each of the
facilities identified in Section 6.14(a) of the Seller Disclosure Schedule (the
"Facilities"), and (ii) instruct the Environmental Consultant to consult with
both the Seller and Parent and to address its Phase I Report(s) to both the
Seller and Parent. In the event that, in the reasonable judgment of the
Environmental Consultant, any of the Phase I investigations identifies as to
any Facility any condition, including off-site conditions, which requires
further investigation or which may reasonably likely require Remedial
Activities (as defined below) ("Identified Environmental Conditions"), Parent
and the Seller will jointly (i) promptly arrange for further reasonable
investigations, which may include, without limitation, soil and ground water
sampling and testing (provided, however, soil and ground water testing will not
be conducted on off-site properties), review of relevant files held by
Governmental Entities and discussions with representatives of Governmental
Entities, to be undertaken by the Environmental Consultant as to each such
Identified Environmental Condition ("Phase II Investigations"), and (ii)
instruct the Environmental Consultant to consult with both the Seller and
Parent and to address its Phase II Report(s), including laboratory reports, to
both the Seller and the Parent. The Seller agrees to cooperate with and upon
reasonable notice to the Seller provide the Environmental Consultant and
representatives of Parent reasonable access to the Facilities and the Seller's
employees and representatives to conduct such investigations. The parties
agree that the fees and expenses incurred in connection with the retention of
the Environmental Consultant, the environmental investigations and the
preparation of the environmental reports contemplated by this Section 6.14(a)
(exclusive of any legal fees and expenses incurred by Parent) shall be paid by
the Seller. The parties agree to conduct the environmental investigations in a
timely, commercially reasonable and cost-effective manner and to use
reasonable efforts to minimize any interference with or impairment of the
regular conduct of the Footwear Business, and to provide to the Seller and
Parent an opportunity to
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comment on any plans for the sampling and testing of soil and ground water.
(b) If the Phase I investigations or, if applicable,
any further investigations conducted by the Environmental Consultant reveal
Identified Environmental Conditions that would in the reasonable judgment of
the Environmental Consultant require Remedial Activities, the Environmental
Consultant shall develop an estimate of the reasonable aggregate most likely
costs and expenses (i.e., the most likely cost estimate for the Remedial
Activity or part thereof that reasonably may be incurred by a party to this
transaction) of such Remedial Activities (the "Remediation Estimate"). The
Environmental Consultant shall base the Remediation Estimate as appropriate on
requirements of Environmental Laws and what Governmental Entities of the States
within which the Facilities or off-site properties are located reasonably might
require.
(c) With respect to the environmental investigation
contemplated herein, the Seller shall initiate contact with appropriate
Governmental Entities in any matter that involves a legal proceeding to which
the Seller is or expects imminently to become a party before such Governmental
Entity and which concerns or relates to the Seller's obligations or liabilities
arising from or related to Environmental Laws. The Seller shall afford the
Environmental Consultant an opportunity to be present during such contacts with
Governmental Entities for the purpose of performing the environmental
investigation contemplated herein. Except as may be required by law, the
Environmental Consultant and Parent shall not have independent contact or
communications with any such Governmental Entity without the prior consent of
the Seller, which consent shall not be unreasonably withheld or delayed.
(d) In the event that the total Remediation Estimate
exceeds $10,000,000, the Seller shall have the right (the "Environmental
Right") to elect to reimburse Parent for the full amount of such excess
pursuant to Section 6.14(e); provided, however, in the event that the Seller
fails to exercise the Environmental Right, this Agreement may be terminated by
Parent in accordance with Section 9.1(e). The Seller shall have the right to
exercise the Environmental Right during the
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seven business day period following receipt by the Seller of the Remediation
Estimate by sending a notice by personal delivery or telecopy to Parent
pursuant to Section 10.3.
(e) Subject to the terms and conditions of Section
7.8(c), upon receipt by the Seller of invoices for the costs of Remedial
Activities incurred by Parent in respect of Identified Environmental
Conditions, the Seller shall reimburse Parent for such costs; provided,
however, that Parent and the Seller agree that the first $2 million of costs
for such Remedial Activities shall be paid 50% by Parent and 50% by the Seller.
Parent agrees to conduct the Remedial Activities at any Facility in a
commercially reasonable and cost-effective manner. Any contract for such
Remedial Activities in excess of $30,000 shall be put out for competitive
bidding. Parent shall provide the Seller with prior notice and an opportunity
to comment on Parent's plans to implement Remedial Activities.
(f) Subject to the limitations set forth in Sections
7.8 and 7.9, the Seller agrees to indemnify and hold harmless Parent, the
Purchaser and their respective directors, officers, employees, agents and
representatives from and against any and all losses, liabilities, damages and
reasonable expenses of any kind or character (whether or not known or asserted
prior to the date of this Agreement), including, without limitation, any legal
or other expenses reasonably incurred in connection with investigating or
defending any claims or actions, whether or not resulting in any liability
("Environmental Loss") incurred by, imposed or asserted against any of them
arising or resulting from (i) any breach of the agreement to reimburse Parent
for the costs of implementing Remedial Activities as set forth in Section
6.14(e), and (ii) Third-Party Claims arising from or related to Identified
Environmental Conditions but exclusive of such claims arising from or related
to Parent's negligent or reckless or willful misconduct in the course of
implementation of Remedial Activities.
(g) As used in this Section 6.14, the following
terms shall have the meanings set forth below:
(i) "Environmental Law." The term Environmental
Law shall mean any law, statute, order,
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rule, regulation, ordinance or final judgment of any Governmental
Entity and any binding judicial or administrative interpretation
thereof, including any judicial or administrative order, consent
decree or judgment, and any common law, relating to human health,
occupational safety, pollution or the environment, including, without
limitation, laws relating to emissions, discharges, releases, natural
resource damages or otherwise relating to treatment, storage,
disposal, generation, transport or shipment of Hazardous Materials, in
each case as in effect as of the Closing Date, including Environmental
Laws existing as of the Closing Date that impose requirements
effective within one year of the Closing Date.
(ii) "Hazardous Material." The term Hazardous
Material shall mean any substance, chemical or waste that is listed,
defined, designated, or classified as a pollutant or contaminant or as
hazardous, toxic or radioactive, or is otherwise regulated under any
applicable Environmental Laws; as well as any asbestos or
asbestos-containing material, petroleum, petroleum product or
by-product, crude oil or any fraction thereof, natural gas, natural
gas liquids, liquefied natural gas, synthetic gas usable as fuel, and
polychlorinated biphenyls.
(iii) "Remedial Activities." The term Remedial
Activities shall mean any monitoring, investigation, sampling,
treatment, removal or remediation of Hazardous Materials at any
Facility or off-site property after the Closing or any actions,
including, without limitation, the purchase and installation of
pollution control facilities or the modification of existing pollution
control facilities, necessary at any Facility or off-site property to
fully comply with applicable Environmental Laws in effect as of the
Closing Date, including Environmental Laws existing as of the Closing
Date that impose requirements effective within one year of the Closing
Date.
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Section 6.15 Disclosure Schedule Updates. No later than five
business days prior to the scheduled Closing Date, the Seller shall amend or
supplement the Seller Disclosure Schedule and Parent shall amend or supplement
the Parent Disclosure Schedule with respect to any manner coming to their
respective attention or arising which, if known to them or existing prior to
the date of this Agreement, would have been required to be set forth therein or
which is necessary or desirable to complete or correct any information
contained therein or in any representation or warranty rendered inaccurate
thereby. Notwithstanding the foregoing, for the purposes of determining the
satisfaction of the conditions to Closing set forth in Article VIII, neither
the Seller Disclosure Schedule or the Parent Disclosure Schedule shall be
deemed to have been amended or supplemented from the form in which it was
delivered on the date of this Agreement.
Section 6.16 Tax Returns. The Purchaser agrees to prepare
IRS Form 5471 for the taxable year which includes the Closing Date, if
applicable, for any Transferred Subsidiaries on behalf of the Seller and the
Purchaser and to prepare all other required Tax Returns for any Transferred
Subsidiaries for the taxable year which includes but does not end on the
Closing Date in a manner consistent with applicable Tax laws. Such Tax Returns
shall be submitted to the Seller for review at least 30 days prior to the due
date. The Purchaser agrees to provide the Seller with copies of such Tax
Returns as filed. The Seller will prepare all Tax Returns for any Transferred
Subsidiaries for the taxable year ending on the Closing Date on a basis
consistent with past practice. The Purchaser will provide the Seller with
appropriate powers of attorney to enable the Seller to sign and file such
returns. The Seller agrees to provide the Purchaser with copies of such Tax
Returns as filed. Any disputes with respect to such Tax Returns shall be
resolved by the Independent Accounting Firm, or such other independent expert
as may be mutually agreed upon by the parties, whose determination shall be
binding on the parties.
Section 6.17 Section 338 Elections; Procedures. In the event
that the Purchaser, in its sole discretion, elects to purchase the capital
stock of one or more of the Footwear Subsidiaries, each of which shall
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become a Transferred Subsidiary, and to make the elections provided for in
Section 338(h)(10) of the Code with respect to the Acquired Assets and the
Transferred Subsidiaries, then:
(a) With respect to the Purchaser's acquisition of
the capital stock of the Transferred Subsidiaries hereunder and with respect to
the capital stock of any other corporation acquired by the Purchaser hereunder
that is a "target affiliate" of the Transferred Subsidiaries (as such term is
defined in section 338(h)(6) of the Code and the regulations promulgated
thereunder) (a "Target Affiliate"), the Seller and the Purchaser shall jointly
make all available Section 338(h)(10) Elections in accordance with applicable
Tax laws of the United States and any state or other political subdivision
thereof and as set forth herein. The Purchaser and the Seller agree to report
the transfers under this Agreement consistent with the Section 338 Elections,
and shall take no position contrary thereto unless required to do so by
applicable Tax laws pursuant to a Determination.
(b) The Seller shall be responsible for the
preparation and filing of all Section 338 Forms in accordance with applicable
Tax laws of the United States and of any state or other political subdivision
thereof and the terms of this Agreement. The Purchaser shall execute and
deliver to the Seller such documents or forms as are requested by the Seller
and are required by any Tax laws of the United States and of any state or other
political subdivision thereof properly to complete the Section 338 Forms, at
least 20 days prior to the date such Section 338 Forms are required to be
filed.
(c) The Purchaser and the Seller agree that they
shall use all reasonable efforts to enter into an agreement (the "Allocation
Agreement") as soon as practicable after the Closing Date concerning the
computation of the Modified Aggregate Deemed Sale Price (as defined under
applicable Treasury Regulations) of the assets of the Transferred Subsidiaries
and any Target Affiliates and the allocation of such Modified Aggregate Deemed
Sale Price among such assets (including the non-competition covenant provided
for in Section 6.27 hereof), and the allocation of the Purchase Price among the
Acquired Assets other than the Transferred Subsidiaries
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and any Target Affiliates. In furtherance of this effort, the Purchaser and
the Seller agree that they shall use all reasonable efforts to agree on the
formula for allocating the Modified Aggregate Deemed Sale Price among each of
the Transferred Subsidiaries and each group of Acquired Assets before the
Closing (it being agreed and understood that such agreement is not a condition
to the Closing). The Purchaser and the Seller agree that they shall use all
reasonable efforts to revise the Allocation Agreement to the extent necessary
no later than 60 days before the last date on which the Section 338(h)(10)
Election may be filed. If 60 days before the last date on which the Section
338(h)(10) Election may be filed, the Purchaser and the Seller have not adopted
or revised the Allocation Agreement as described above, any disputed aspects of
the Allocation Agreement or such revision shall be resolved by the Independent
Accounting Firm (or such other independent valuation firm as may be mutually
agreed upon by the parties) before the last date on which the Section
338(h)(10) Election may be filed. The costs, expenses and fees of the
Independent Accounting Firm (or any other agreed upon firm) shall be borne
equally by the Purchaser and the Seller. The Purchaser and the Seller agree to
act in accordance with the allocations contained in the Allocation Agreement in
any relevant Tax Returns or similar filings.
(d) The Seller reserves the right, on or prior to
the Closing Date, to cause any or all of the Acquired Assets to be transferred
to The Shops for Pappagallo Inc., an Ohio corporation ("Pappagallo"), or to a
newly-formed subsidiary of Pappagallo, which in such event would be a
Transferred Subsidiary (the "338(h) Subsidiary"). The Seller agrees to give
Parent not less than ten days' prior written notice of the details of any such
transfer and to make a Section 338(h)(10) Election in connection with such
Transferred Subsidiary. Parent and the Purchaser agree to liquidate or merge
out of existence, or cause to be liquidated or merged out of existence, on or
prior to December 31, 1995, the 338(h) Subsidiary.
Section 6.18 Allocation of Certain Taxes.
(a) The Purchaser and the Seller agree that if any
of the Transferred Subsidiaries is permitted but not required under applicable
state, local or foreign
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Tax laws to treat the Closing Date as the last day of a taxable period, the
Purchaser and the Seller shall treat such day as the last day of a taxable
period.
(b) Any Taxes for a taxable period beginning on or
before the Closing Date and ending after the Closing Date with respect to the
Transferred Subsidiaries shall be apportioned for purposes of Section
1.2(b)(ii)(B) based on actual operations of the Transferred Subsidiaries during
the portion of such period ending at the consummation of the Closing on the
Closing Date and the portion of such period beginning on the day following the
Closing Date; provided, however, that any Taxes (such as real estate taxes)
that are measured by the passage of time (rather than by reference to income,
profits or results of operations) shall be apportioned between the Seller and
the Purchaser based on the number of days elapsed in the portion of such period
ending on the Closing Date and the number of days in the portion of such period
beginning on the day following the Closing Date.
(c) Any disputes with respect to the allocation of
Taxes pursuant to this Section 6.18 shall be resolved by the Independent
Accounting Firm (or such other independent valuation firm as may be mutually
agreed upon by the parties) whose determination shall be binding on both
parties.
Section 6.19 Carrybacks. The Purchaser shall be entitled to
all refunds or credits of Taxes resulting from a carryback of any loss or
similar tax benefit of a Transferred Subsidiary from a period beginning after
the Closing Date (a "Carryback Benefit"). The Seller agrees to cooperate with
the Purchaser to enable the Purchaser to receive any such Carryback Benefits.
The Seller shall be entitled to any and all other claims of the Seller, of any
Retained Subsidiary or of any of the Transferred Subsidiaries for refunds or
credits in connection with any Taxes arising in a period before the Closing
Date. The Purchaser agrees to cooperate with the Seller to enable the Seller
to receive any such benefits.
Section 6.20 Cooperation. The Purchaser and the Seller and
their respective affiliates shall cooperate in the preparation of all Tax
Returns relating in whole or in part to taxable periods ending on or before
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or including the Closing Date that are required to be filed after such date.
Such cooperation shall include, but not be limited to, furnishing prior years'
Tax Returns or return preparation packages illustrating previous reporting
practices or containing historical information relevant to the preparation of
such Tax Returns, and furnishing such other information within such party's
possession requested by the party filing such Tax Returns as is relevant to
their preparation. In the case of any state, local or foreign joint,
consolidated, combined, unitary or group relief system Tax Returns, such
cooperation shall also relate to any other taxable periods in which one party
could reasonably require the assistance of the other party in obtaining any
necessary information.
Section 6.21 Definitions. For purposes of this Agreement,
the following terms shall have the meanings ascribed to them below:
(a) "Determination" means a "determination" as
defined by Section 1313(a) of the Code.
(b) "Section 338 Forms" means all returns,
documents, statements, and other forms that are required to be submitted to any
federal, state, county, or other local Taxing Authority in connection with a
Section 338(h)(10) Election. Section 338 Forms shall include, without
limitation, any "statement of section 338 election" and United States Internal
Revenue Service Form 8023 (together with any schedules or attachments thereto)
that are required pursuant to Treas. Reg. Section 1.338-1 or Treas. Reg.
Section 1.338(h)(10)-1 or any successor regulation.
(c) "Section 338 Elections" shall mean a Section
338(h)(10) Election.
(d) "Section 338(h)(10) Election" means an election
described in Section 338(h)(10) of the Code with respect to the Seller's sale
of the stock of the Transferred Subsidiaries or any Target Affiliate to the
Purchaser pursuant to this Agreement. Section 338(h)(10) Election shall
include any corresponding election under any other relevant Tax laws of any
state or other political subdivision of the United States for which a separate
election is permissible with respect to the Purchaser's
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acquisition of the stock of the Transferred Subsidiaries or any Target
Affiliate from the Seller under this Agreement.
Section 6.22 W-2 Preparation. The Seller and Purchaser agree
that the Purchaser has purchased substantially all of the property used in the
Footwear Business and, in connection therewith, the Purchaser may employ
individuals who immediately before the Closing Date were employed in such
business by the Seller. Accordingly, pursuant to Revenue Procedure 84-77, at
the request of the Seller, provided the Seller provides the Purchaser with all
necessary payroll records for the calendar year that includes the Closing Date,
the Purchaser will furnish a Form W-2 to each Transferred Employee that is
employed by the Purchaser disclosing all wages and other compensation paid for
such calendar year, and Taxes withheld therefrom, and Seller will be relieved
of the responsibility to do so.
Section 6.23 Prohibited Transactions by Parent. Parent
covenants and agrees that, for a period of ten years from the Closing Date,
other than in accordance with the provisions of this Agreement, it will not,
and will direct its affiliates not to, and will not assist, solicit or
encourage others to, directly or indirectly, unless the Seller's board of
directors shall have specifically consented thereto in writing in advance, (a)
make any public announcement with respect to, or submit or otherwise disclose
an intent to submit to the Seller or any of its directors, officers or
securityholders, any proposal for a transaction between Parent or Parent's
affiliates, on the one hand, and the Seller, its affiliates or any of its
securityholders, on the other hand, (b) by purchase or otherwise, alone or with
others, acquire, or agree to acquire, offer, seek or propose to acquire, or
otherwise disclose an intent to acquire, ownership (including, without
limitation, beneficial ownership as defined in Rule 13d-3 under the Exchange
Act) of any securities issued by the Seller or any assets or businesses of the
Seller, or any rights or options to acquire such ownership (including from
third parties), (c) seek or propose, or disclose an intent to seek or propose,
alone or in concert with others (including by providing financing for another
person), to influence or control, in any manner, the Seller's directors and
officers or policies, including by making or in any way
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participating in, proposing to make or participate in, or disclosing an intent
to make or participate in, any solicitation of proxies with respect to any
voting securities of the Seller (including by the execution of action by
written consent), becoming, proposing to become or disclosing an intent to
become a participant in any election contest with respect to the Seller,
seeking, proposing to seek or disclosing an intent to seek to influence any
person with respect to any voting securities of the Seller, or demanding,
proposing to demand or disclosing an intent to demand a copy of the Seller's
list of its securityholders or other books and records, (d) participate in or
encourage the formation of any partnership, syndicate, or other group which
owns or seeks or offers to acquire beneficial ownership of any securities of
the Seller or which seeks to affect control of the Seller or for the purpose of
circumventing any provision of this Section 6.23 or (e) otherwise enter into
any discussions, negotiations, arrangements or understandings with any third
party, including any securityholder of the Seller, with respect to any of the
foregoing.
Section 6.24 Audited Financial Statements. Prior to the
Closing Date, the Seller shall prepare or cause to be prepared audited
financial statements of the Footwear Business (the "Audited Footwear Business
Financial Statements"). The Audited Footwear Business Financial Statements
shall be prepared in a manner so as to comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC as will be applicable with respect thereto in
connection with Parent's reporting or other obligations under the Securities
Act or the Exchange Act, shall be prepared in accordance with United States
generally accepted accounting principles on a basis consistent with the Seller
Financial Statements referred to in Section 3.4, and shall fairly present in
all material respects the financial position of the Footwear Business at the
respective dates thereof and the combined results of operations and cash flows
of the Footwear Business for the periods then ended.
Section 6.25 Books and Records; Personnel.
(a) None of Parent, the Purchaser or any of their
respective Subsidiaries shall within ten years
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after the Closing Date or, with respect to Tax records within the later of six
years or the applicable statute of limitations as extended, dispose of or
destroy any business records or files Related to the Footwear Business for
periods prior to the Closing Date, without first offering to turn over
possession thereof to the Seller by written notice at least 30 days prior to
the proposed dates of such disposition or destruction.
(b) From and after the Closing Date, to the extent
reasonably required by in connection with the preparation of Tax Returns or
other legitimate purposes specified in writing, each of the Purchaser and the
Seller shall (subject to applicable contractual and privacy obligations) allow
the other party and its agents access to all business records and files (other
than those containing competitively sensitive or privileged information)
Related to the Footwear Business, which relate to periods prior to the Closing
Date, upon reasonable advance notice during normal working hours, and each
party shall have the right, at its own expense, to make copies of any such
records and files, provided, however, that any such access or copying shall be
had or done in such a manner so as not to interfere with the normal conduct of
business.
(c) From and after the Closing Date, each of the
Seller and the Purchaser shall make available to the other upon written request
(and at the requesting party's expense) (i) personnel to assist in locating and
obtaining records and files for periods prior to the Closing Date and (ii)
personnel whose assistance or participation is reasonably required in anticipa-
tion of, preparation for, or the prosecution or defense of existing or future
claims or actions, Tax Returns or other matters in which the parties do not
have any adverse interest.
(d) Any confidential, proprietary or trade secret
information provided under this Section 6.26 shall be deemed "Confidential
Information" under the terms of the Confidentiality Agreement and shall be held
in accordance with the terms thereof.
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Section 6.26 Registration and Transfer of the Parent Warrants.
(a) Upon the written request of the Seller at or
following the Closing, Parent agrees that it will use all reasonable efforts
(i) to cause to be filed with the SEC as promptly as practicable following its
receipt of such request a registration statement (the "Registration Statement")
under the Securities Act covering the distribution in full of the Parent
Warrants to the Seller's stockholders and any subsequent issuance of Parent
Common Stock upon exercise of Parent Warrants, (ii) to cause the Registration
Statement to be declared effective under the Securities Act at the earliest
practicable date, and to remain effective under the Securities Act (A) with
respect to the distribution of the Parent Warrants, until such time as the
Parent Warrants have been distributed in full to the Seller's stockholders and
(B) with respect to the issuance of Parent Common Stock upon the exercise of
the Parent Warrants, until the earliest of (1) the date on which all of the
Parent Warrants shall have been exercised, (2) the date on which all of the
Parent Warrants shall have been redeemed and cancelled by Parent and (3) the
date on which the Parent Warrants shall have expired, (iii) to qualify the
Parent Warrants and the underlying shares of Parent Common Stock under the
applicable state securities or "blue sky" laws, it being agreed that Parent
shall not be obligated to qualify as a foreign corporation in any jurisdiction
in which it is not so qualified, (iv) to cause the Parent Warrants and the
underlying shares of Parent Common Stock to be authorized for listing on the
principal securities exchange within the United States on which the Parent
Common Stock is listed, (v) to cause to be provided to the Seller such number
of copies of the form of prospectus included in the Registration Statement at
the time it is declared effective by the SEC, together with any amendment or
supplement thereto provided by Parent as contemplated in Section 6.26(c) (the
"Prospectus") as the Seller may reasonably request in order to facilitate the
distribution in full of the Parent Warrants to the Seller's stockholders;
provided, however, that, in the event that counsel to Parent has determined in
good faith and provided to the Seller its written opinion to the effect that
(A) the filing of the Registration Statement or the compliance by Parent with
its disclosure obligations in connection with the Registration Statement would
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require the disclosure of material information which Parent has a bona fide
business purpose for preserving as confidential, or (B) Parent is unable to
comply with its disclosure obligations or SEC requirements in connection with
the Registration Statement, then in either such case Parent may delay (each, a
"Delay Period") the filing of the Registration Statement (if not then filed)
and shall not be required to maintain the effectiveness thereof or amend or
supplement the Registration Statement or the Prospectus until the earlier of
(1) the date on which such material information is disclosed to the public or
ceases to be material or Parent is able to so comply with its disclosure
obligations and SEC requirements and (2) the sixtieth calendar day following
the date of such good faith determination, and (vi) to furnish, at the request
of the Seller, as of the date on which the distribution to the Seller's
stockholders of the Parent Warrants and any Parent Common Stock issued to the
Seller upon exercise of the Parent Warrants is planned be commenced by the
Seller, (A) an opinion dated such date of counsel representing Parent for the
purposes of such registration, addressed to the Seller, stating that the
Registration Statement has become effective under the Securities Act and that
(1) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, and
(2) the Registration Statement, the related form of prospectus and each
amendment or supplement thereof comply as to form with the requirements of the
Securities Act and the applicable rules and regulations of the Commission
thereunder (except that such counsel need not express an opinion as to
financial statements contained therein) and to such other effects as may
reasonably be requested by the Seller, and (B) a letter dated such date from
the independent public accountants retained by Parent, addressed to the Seller,
stating that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of Parent included in the Registration Statement and the Prospectus,
or any amendment or supplement thereof, comply as to form with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters in respect of the Registration
Statement and the Prospectus or any
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amendment or supplement thereof as the Seller may reasonably request.
(b) The Seller agrees that, notwithstanding anything
in the Warrant Agreement to the contrary, (i) it will not dispose of the Parent
Warrants or any shares of Parent Common Stock issuable upon exercise thereof
other than pursuant to a distribution in full to its stockholders following the
Registration Statement having been declared effective, provided that, in the
event that the Registration Statement has not been declared effective prior to
the first anniversary of the written request of the Seller pursuant to Section
6.26(a), or in the event that the effectiveness of the Registration Statement
has not been maintained for a period of 180 consecutive calendar days, the
Seller will be free to dispose of the Parent Warrants or any shares of Parent
Common Stock issuable upon exercise thereof in any lawful manner, and (ii) the
Parent Warrants and any shares of Parent Common Stock issued upon exercise
thereof will contain a legend regarding such transfer restriction, to the
extent such restriction remains in effect, and the unregistered status of such
securities until such time as the Registration Statement has been declared
effective and the Seller has consummated the distribution in full of such
securities to its stockholders. In connection with the foregoing, the Seller
agrees (i) to cooperate fully in Parent's preparation of, and dealings with the
SEC in connection with, the Registration Statement, including without
limitation providing to Parent any information as to the Seller or such
distribution as Parent may reasonably request in connection with the
Registration Statement, (ii) to distribute the Parent Warrants to its
stockholders in accordance with applicable law as promptly as practicable
following the Registration Statement having been declared effective by the SEC,
(iii) to only use the Prospectus in the form provided by Parent pursuant to
Section 6.26(a), and (iv) upon the receipt of written notice from Parent of the
occurrence of a Delay Period or the happening of any event as a result of which
the Prospectus as then in effect includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, to cease using the Prospectus until it is
amended or supplemented by Parent.
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(c) In connection with the distribution of the
Parent Warrants by the Seller to its stockholders, the Parent agrees to
cooperate fully and consult with the Seller in the preparation of, and dealings
with the SEC in connection with, the Registration Statement and, subject to the
proviso contained in Section 6.26(a), to amend or supplement the Prospectus so
that, as thereafter provided by the Seller to its stockholders, the Prospectus
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) Parent will indemnify and hold harmless the
Seller and its directors, officers and "control persons" (within the meaning of
the Securities Act) for any and all liability arising under the Securities Act
or any state securities or "blue sky" laws in connection with the Registration
Statement, other than as to inaccuracies or omissions which relate solely to
information provided to Parent by the Seller in respect of the Seller or the
Footwear Business, as to which the Seller will indemnify and hold harmless
Parent.
(e) Parent shall pay all costs and expenses incurred
by Parent in complying with this Section 6.26, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for Parent, fees and disbursements
of the warrant agent and fees of any securities exchange, but excluding any
Distribution Expenses (as such term is hereinafter defined). The Seller shall
pay all costs and expenses directly incurred by the Seller in connection with
the distribution of the Parent Warrants or of Parent Common Stock to the
Seller's stockholders, including, without limitation, mailing costs, Taxes,
fees and disbursements of transfer agents, costs of insurance and fees and
disbursements of counsel to the Seller in connection with such distribution
(collectively, "Distribution Expenses").
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Section 6.27 Non-Competition.
(a) For a period of two years following the Closing
Date, the Seller hereby covenants and agrees that it will not, and it will not
permit any of its Subsidiaries to, directly or indirectly, through officers,
directors, agents, subsidiaries, joint ventures, other business arrangements or
otherwise, (i) manufacture, import, market, sell, distribute, provide, promote,
develop, license or sublicense, except for the Capezio License, in any manner
whatsoever, any women's footwear on either a wholesale or retail basis (a
"Competitive Business"), or (ii) own an interest in, manage, operate, join,
control, or participate in or be connected with, as a partner, stockholder,
consultant or otherwise, any corporation, partnership, firm, association or
other entity that engages in a Competitive Business; provided, however, that
the Seller shall have the right to own up to 5% of any class of equity
securities of a publicly traded company.
(b) Notwithstanding anything in Section 6.5(a) to
the contrary, the Seller shall not be deemed to have violated the restrictions
contained in Section 6.5(a) in the event that (i) the Seller manufactures,
imports, markets or sells women's footwear as an accessory item in the Seller's
retail clothing stores and less than 25% of the revenues of the Seller from
each store in which such footwear is sold are derived from such footwear sales,
or (ii) as a result of any acquisition, merger or other business combination
with a third party, the Seller or the surviving entity in such transaction
becomes engaged in a Competitive Business as a result of such third party's
business activities.
(c) The invalidity or unenforceability of any
provision of this Section 6.27, in whole or by virtue of the following sentence
in part, shall not affect the validity or enforceability of any other provision
of this Section 6.27 or of any other provision of this Agreement, all of which
shall to the full extent consistent with applicable law continue in full force
and effect. In addition, if any provision of Section 6.27(a) shall be adjudged
to be excessively broad as to duration, geographical scope, activity or
subject, the parties intend that such provision shall be deemed modified to the
minimum degree necessary to make such provision valid and
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enforceable under applicable law and that such modified provision shall
thereafter be enforced to the fullest extent possible.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Certain Definitions. As used in this Agreement,
the following terms shall have the meanings set forth below:
(a) Losses. The term "Losses" shall mean any and
all losses, liabilities, damages, reasonable expenses or diminutions in value
of any kind or character (whether or not known or asserted prior to the date
hereof), including, without limitation, interest on any amount payable to a
third party as a result of the foregoing, liabilities on account of Taxes
(including interest and penalties thereon) and any legal or other expenses
reasonably incurred in connection with investigating or defending any claims or
actions, whether or not resulting in any liability; provided, however, that
Losses shall be net of any insurance proceeds received by an Indemnitee from an
insurance company on account of such Losses (after taking into account any
costs incurred in obtaining such proceeds and any increase in insurance
premiums as a result of a claim with respect to such proceeds).
(b) Third-Party Claims. The term "Third-Party
Claims" shall mean any and all Losses which arise out of or result from (i) any
claims or actions asserted against an Indemnitee by a third party, (ii) any
rights of a third party asserted against an Indemnitee, or (iii) any
liabilities of, or amounts payable by, an Indemnitee to a third party arising
out of subparagraphs (i) or (ii), including, without limitation, claims or
actions asserted against an Indemnitee by any taxing authority on account of
Taxes.
(c) Indemnitee. The term "Indemnitee" shall mean
any person which may be entitled to seek indemnification pursuant to the
provisions of Section 7.2 or 7.3.
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(d) Indemnitor. The term "Indemnitor" shall mean
any person which may be obligated to provide indemnification pursuant to
Section 7.2 or 7.3.
(e) Notice Period. The term "Notice Period," as
applied to any Third-Party Claim for which an Indemnitee seeks to be
indemnified pursuant to this Article VII, shall mean the period ending the
earlier of the following:
(i) 45 days after the time at which the
Indemnitee has either (x) received notice of the facts giving rise to
such Third-Party Claim or (y) commenced an active investigation of
circumstances likely to give rise to such Third-Party Claim and, in
each case, where such Indemnitee believes or should reasonably believe
that such facts or circumstances would give rise to such Third-Party
Claim for which such Indemnitee would be entitled to indemnification
pursuant to this Article VII; and
(ii) 45 days after the time at which any
Third-Party Claim against the Indemnitee has become the subject of
proceedings before any court or tribunal, or such time as would allow
the Indemnitor sufficient time to contest, on the assumption that
there is an arguable defense to such Third-Party Claim, such
proceeding prior to any judgment or decision thereon.
(f) Claim Notice. The term "Claim Notice" shall
have the meaning set forth in Section 7.4(a).
Section 7.2 Indemnity by the Seller. The Seller agrees to
indemnify and hold harmless Parent, the Purchaser and their respective
directors, officers, employees, agents and representatives (each of whom may be
an Indemnitee pursuant to this Section 7.2) from and against the following:
(a) Retained Liabilities. Any and all Losses in
respect of the Retained Liabilities.
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(b) Third-Party Claims. Any and all Third-Party
Claims in respect of the Acquired Assets, other than Third-Party Claims in
respect of Assumed Liabilities, which may be asserted against any such
Indemnitee or the Acquired Assets or which any such Indemnitee shall incur or
suffer to the extent that such Third-Party Claims arise out of, result from or
relate to:
(i) any Retained Liabilities;
(ii) any allegations to the effect that the
negotiation or execution of, or consummation of the transactions
contemplated by, this Agreement (A) constitutes interference with any
other agreement to which the Seller any of or its Subsidiaries is
purportedly bound prior to the Closing Date or (B) constitutes a
misrepresentation or breach of warranty, covenant or agreement made by
the Seller under any other agreement;
(iii) any Liens imposed on the Acquired
Assets, or any of them, resulting from the Seller's or any of its
Subsidiaries' failure to satisfy Retained Liabilities; or
(iv) any liability resulting from the
Seller's or any of its Subsidiaries' failure to comply with the
requirements of any bulk sales or similar legislation applicable to
the transactions contemplated by this Agreement.
(c) Breach of Representation, Warranty, Etc. Any
and all Losses which may be asserted against such Indemnitee or which such
Indemnitee may incur or suffer and which arise out of or result from:
(i) any untrue representation or breach of
warranty of the Seller in this Agreement;
(ii) any default or nonfulfillment or breach
of any covenant or agreement on the part of the Seller under this
Agreement;
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(iii) any untrue representation or breach of
warranty in any of the Seller Documents;
(iv) except as otherwise contemplated by
this Agreement, the failure by the Seller to obtain any consent or
approval necessary to enable it to consummate the transactions
contemplated by this Agreement; or
(v) the failure by the Seller to have
conveyed to the Purchaser on the Closing Date all right, title and
interest in and to the Acquired Assets, including, without limitation,
any Contracts Related to the Footwear Business other than those the
benefits of which are provided to the Purchaser pursuant to Section
6.3(b), free and clear of any Lien of any nature whatsoever (except
for Permitted Liens and as otherwise contemplated by this Agreement
and other than such thereof as are included in or arise in respect of
the Assumed Liabilities).
(d) Environmental Matters. Environmental Losses to
the extent provided in Section 6.14(f).
(e) Beloit Property Agreement. Any Losses not to
exceed $3,225,000 arising from the environmental and hazardous waste indemnity
obligations of the Seller under the Beloit Property Sale and Indemnity Back to
Purchaser, dated July 22, 1994, between the Seller and Reynolds Aluminum, Inc.
Section 7.3 Indemnity by Parent and the Purchaser. Parent
and the Purchaser shall jointly and severally indemnify and hold harmless the
Seller and its directors, officers, employees, agents and representatives (each
of whom may be an Indemnitee pursuant to this Section 7.3) from and against the
following:
(a) Assumed Liabilities. Any and all Losses in
respect of the Assumed Liabilities.
(b) Third-Party Claims. Any and all Third-Party
Claims in respect of the Acquired Assets, other than Third-Party Claims in
respect of Retained
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Liabilities, which may be asserted against any such Indemnitee, or which any
such Indemnitee shall incur or suffer, including, without limitation,
Third-Party Claims in respect of Assumed Liabilities.
(c) Breach of Representation, Warranty, Etc. Any
and all Losses which may be asserted against any such Indemnitee or which any
such Indemnitee shall incur or suffer and which arise out of or result from:
(i) any untrue representation or breach of
warranty of Parent or the Purchaser in this Agreement;
(ii) any default or nonfulfillment or breach
of any covenant or agreement on the part of Parent or the Purchaser
under this Agreement;
(iii) any untrue representation or breach of
warranty in any of the Purchaser Documents; or
(iv) the failure of Parent or the Purchaser
to obtain any consent or approval necessary to enable it to consummate
the transactions contemplated by this Agreement.
Section 7.4 Notification of Third-Party Claims. In no case
shall any Indemnitor under this Agreement be liable with respect to any
Third-Party Claim against any Indemnitee unless the Indemnitee shall have
delivered to the Indemnitor a Claim Notice and the following conditions are
satisfied:
(a) Timely Delivery of Claim Notice. Except as
provided in Section 7.4(b) or 7.4(c), no right to indemnification under this
Article VII shall be available to an Indemnitee with respect to a Third-Party
Claim unless the Indemnitee shall have delivered to the Indemnitor within the
Notice Period a notice (a "Claim Notice") describing in reasonable detail the
facts giving rise to such Third-Party Claim and stating that the Indemnitee
intends to seek indemnification for such Third-Party Claim from the Indemnitor
pursuant to this Article VII.
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(b) Late Delivery of Claim Notice. If, in the case
of a Third-Party Claim, a Claim Notice is not given by the Indemnitee within
the Notice Period as set forth in Section 7.4(a), the Indemnitee shall
nevertheless be entitled to be indemnified under this Article VII:
(i) if the Indemnitee can establish that the
time elapsed between the end of the Notice Period and the giving of
the Claim Notice is reasonable; and
(ii) to the extent that the Indemnitee can
establish that the Indemnitor has not been prejudiced by such time
elapsed.
(c) Paid or Settled Claims. If a Claim Notice is
not given by the Indemnitee prior to the payment or settlement of a Third-Party
Claim, the Indemnitee shall be entitled to be indemnified under this Article
VII only to the extent that the Indemnitee can establish that the Indemnitor
has not been prejudiced by such payment or settlement.
Section 7.5 Defense of Claims. Upon receipt of a Claim
Notice from an Indemnitee with respect to any Third-Party Claim, the Indemnitor
may assume the defense thereof with counsel reasonably satisfactory to such
Indemnitee and the Indemnitee shall cooperate in all reasonable respects in
such defense. The Indemnitee shall have the right to employ separate counsel
in any action or claim and to participate in the defense thereof, provided that
the fees and expenses of counsel employed by the Indemnitee shall be at the
expense of the Indemnitor only if such counsel is retained pursuant to either
of the following two sentences or if the employment of such counsel has been
specifically authorized by the Indemnitor. If the Indemnitor does not notify
the Indemnitee within sixty days after receipt of the Claim Notice that it
elects to undertake the defense thereof, the Indemnitee shall have the right to
defend the claim with counsel of its choosing reasonably satisfactory to the
Indemnitor, subject to the right of the Indemnitor to assume the defense of any
claim at any time prior to settlement or final determination thereof.
Notwithstanding anything to the contrary contained in this Section 7.5, the
Indemnitee shall have the right to employ sepa-
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rate counsel if, under applicable standards of professional conduct (as advised
by counsel to the Indemnitee), a conflict of interest on any issue between the
Indemnitee and the Indemnitor exists in respect of a Third-Party Claim. The
Indemnitee shall send a written notice to the Indemnitor of any proposed
settlement of any claim, which settlement the Indemnitor may reject, in its
reasonable judgment, within thirty days of receipt of such notice. Failure to
reject such notice within such thirty day period shall be deemed an acceptance
of such notice.
Section 7.6 Access and Cooperation. After the Closing Date,
Parent and the Purchaser, on the one hand and the Seller on the other hand,
shall (i) each cooperate fully with the others as to all Third-Party Claims,
shall make available to the others, as reasonably requested, all information,
records and documents relating to all Third-Party Claims and shall preserve all
such information, records and documents until the termination of any
Third-Party Claim and (ii) make available to the others, as reasonably
requested, personnel (including technical and scientific), agents and other
representatives who are responsible for preparing or maintaining information,
records or other documents, or who may have particular knowledge with respect
to any Third-Party Claim.
Section 7.7 Assessment of Claims. In the event that any of
the Losses for which an Indemnitor is responsible or allegedly responsible
pursuant to Section 7.2 or 7.3 are recoverable or potentially recoverable
against any third party at the time when payment is due hereunder, following
payment by the Indemnitor to the Indemnitee for such Losses the Indemnitee
shall assign any and all rights that it may have to recover such Losses to the
Indemnitor, or, if such rights are not assignable under applicable law or
otherwise, the Indemnitee shall attempt in good faith to collect any and all
Losses on account thereof from such third party for the benefit of, and at the
expense and direction of, the Indemnitor.
Section 7.8 Limits on Indemnification.
(a) Small Claims Threshold. The Seller and the
other Indemnitees under Section 7.3 shall not be entitled to seek
indemnification, and Parent and the
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other Indemnitees under Section 7.2 shall not be entitled to seek
indemnification, in respect of Third-Party Claims unless the amount of Losses
incurred by the Indemnitee in respect of such Third-Party Claims exceeds
$10,000, and then the Indemnitee shall be entitled to seek indemnification to
the full extent of such Losses.
(b) Indemnity Basket. Notwithstanding anything to
the contrary contained in Section 7.8(a), the Seller shall only be obligated to
indemnify Parent and the other Indemnitees under Sections 7.2(c) and 7.2(e) to
the extent that the aggregate amount of all Losses under Sections 7.2(c) and
7.2(e) exceeds $2 million, as reduced by any amounts paid by Parent pursuant to
the proviso in Section 6.14(e), and Parent and the Purchaser shall only be
obligated to indemnify the Seller and the other Indemnitees under Section
7.3(c) to the extent that the aggregate amount of all Losses under Section
7.3(c) exceeds $2 million.
(c) Limit of Liability. Notwithstanding anything
contained in this Article VII to the contrary, (i) the Seller shall have no
reimbursement obligation under Section 6.14(e) or indemnification obligation
under Sections 6.14(f), 7.2(c) and 7.2(d) to the extent such costs and Losses
are not indemnifiable under Section 7.2(a) or 7.2(b) and (after giving effect
to the application of Sections 7.8(a) and 7.8(b)) exceed $25 million in the
aggregate (the "Indemnification Cap"), as reduced by (x) any amounts not
reimbursed to the Seller pursuant to Section 7.8(c)(ii) and (y) any Liquidated
Damages paid under Section 6.3(c), and (ii) Parent and the Purchaser shall have
no reimbursement obligation under Section 7.3(a) or 7.3(b) in respect of
Assumed Liabilities or Third Party Claims to the extent that the existence of
such Assumed Liability or Third Party Claim would have constituted a breach of
a representation or warranty of the Seller at the Closing Date, the existence
of such Assumed Liability or Third Party Claim becomes known prior to the end
of the relevant survival period provided for in Section 7.9 and the amount of
such liability so unreimbursed, together with the amount of all such other
liabilities so unreimbursed, does not exceed the difference between $25,000,000
and the aggregate amount of reimbursement and indemnification theretofore
provided by the Seller pursuant to Section 6.14(e), 6.14(f), 7.2(c)
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or 7.2(d) and any Liquidated Damages paid pursuant to Section 6.3(c).
Section 7.9 Survival of Representations and Warranties. All
representations and warranties of the parties contained in this Agreement,
the Seller Documents or the Purchaser Documents, each and every one of which
representations and warranties is strictly relied upon by the parties to whom
they are made, shall survive the Closing hereunder and continue in full force
and effect thereafter, regardless of any investigation made or to be made by or
on behalf of any party hereto, for a period ending on the earlier of (i) the
first anniversary of the Closing Date and (ii) August 31, 1996, except for the
representations and warranties of the Seller provided for in Section 3.12
(which shall survive the Closing hereunder and continue in full force and
effect thereafter, regardless of any investigation made or to be made by or on
behalf of any party hereto, for the relevant statutes of limitations including
any extension or waiver thereof regarding the filing of Tax Returns and the
payment of Taxes). Except as set forth in this Section 7.9, after the end of
such period, an Indemnitor's obligation to an Indemnitee under this Article VII
(i) with respect to such representations and warranties and (ii) with respect
to environmental matters under Section 7.2(d) shall expire except with respect
to a matter set forth in a Claim Notice theretofore delivered to an Indemnitee;
provided, that the expiration of indemnification obligations pursuant to this
Section 7.9 shall in no way constitute an assumption by the Purchaser, Parent
or any of their respective successors or related Indemnitees of any liabilities
of the Seller other than Assumed Liabilities or a waiver by the Purchaser or
Parent or any of their respective successors of any other legal remedies they
may have to seek from the Seller or its successor reimbursement or contribution
for amounts paid or payable in respect of Retained Liabilities. It is further
agreed that Parent's rights to indemnification set forth in Sections 7.2(a) and
7.2(b) and the Seller's rights to indemnification set forth in Sections 7.3(a)
and 7.3(b) shall remain in full force and effect indefinitely.
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ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Close.
The respective obligations of the parties to effect the transactions
contemplated by this Agreement are subject to the satisfaction, on or prior to
the Closing Date, of the following conditions:
(a) HSR Approval. Any applicable waiting period
under the HSR Act shall have expired or been terminated.
(b) Other Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any Governmental Entity, shall have been filed,
occurred or been obtained.
(c) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect (each party agreeing to use all reasonable efforts to have
any such order reversed or injunction lifted).
(d) No Action. No action, suit or proceeding by any
Governmental Entity before any court or governmental or regulatory authority
shall be pending or threatened against the Seller or Parent or any of their
Subsidiaries challenging the validity or legality of the transactions
contemplated by this Agreement, other than actions, suits or proceedings which,
in the reasonable opinion of counsel to the parties hereto, are unlikely to
result in an adverse judgment.
Section 8.2 Conditions of Obligations of Parent and the
Purchaser. The obligations of Parent and the Purchaser to effect the
transactions contemplated by this Agreement are subject to the satisfaction, on
or prior to the Closing Date, of the following conditions unless waived by
Parent:
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(a) Representations and Warranties. (i) The
aggregate effect of all inaccuracies in the representations and warranties of
the Seller set forth in this Agreement (without taking into account any
qualifications as to materiality contained in such representations and
warranties, it being understood, however, that for the purposes of this clause
(i), the accuracy of any representation or warranty which speaks as of the date
of this Agreement or another date prior to the Closing Date shall be determined
solely as of the date of this Agreement or such other date and not as of the
Closing Date) does not and will not have a material adverse effect on the
Footwear Business, and (ii) the representations and warranties of the Seller
contained in Sections 3.1, 3.2, 3.3, 3.6(a), 3.10 and 3.14 shall be true and
correct in all material respects as of the date hereof, and, except to the
extent such representations and warranties speak as of an earlier date, as of
the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement, and Parent shall have received a
certificate signed on behalf of the Seller by the chief executive officer or
the chief financial officer of the Seller to such effect.
(b) Performance of Obligations of the Seller. The
Seller and its Subsidiaries shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and Parent shall have received a certificate signed on behalf
of the Seller by the chief executive officer or the chief financial officer of
the Seller to such effect.
(c) Required Consents. The Seller shall have
provided to Parent satisfactory evidence of the receipt or anticipated receipt
of the required consents contemplated by Section 8.2(c) of the Seller
Disclosure Schedule.
(d) Net Worth. The Seller shall have provided to
Parent a certificate dated as of a date within five days prior to the Closing
Date certifying as to the Footwear Business Net Worth (as defined below), which
amount shall not be less than $230 million. For purposes of this Agreement,
"Footwear Business Net Worth" shall equal the Seller's good faith estimate of
the amount by which the total Acquired Assets (excluding for
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such purposes the rights relating to the Severance Trusts) exceed the total
Assumed Liabilities, calculated as of the date in question on a basis
consistent with the Footwear Business Balance Sheet.
(e) Financial Statements. The Seller shall have
provided to the Purchaser the Audited Footwear Business Financial Statements.
(f) Opinions of Counsel. Parent shall have received
the opinions of Jones, Day, Reavis & Pogue and James J. Crowe, Esq. in the
forms customary for transactions of the type contemplated herein and reasonably
satisfactory to Parent.
(g) Seller Documents. The Seller shall have
executed and delivered to the Purchaser the Seller Documents.
Section 8.3 Conditions of Obligations of the Seller. The
obligation of the Seller to effect the transactions contemplated by this
Agreement is subject to the satisfaction of the following conditions, on or
prior to the Closing Date, unless waived by the Seller:
(a) Representations and Warranties. (i) The
aggregate effect of all inaccuracies in the representations and warranties of
Parent and the Purchaser set forth in this Agreement (without taking into
account any qualifications as to materiality contained in such representations
and warranties, it being understood, however, that for the purposes of this
clause (i), the accuracy of any representation or warranty which speaks as of
the date of this Agreement or another date prior to the Closing Date shall be
determined solely as of the date of this Agreement or such other date and not
as of the Closing Date) does not and will not have a material adverse effect on
the Parent, and (ii) the representations and warranties of Parent and the
Purchaser contained in Sections 4.1, 4.2, 4.3, 4.4 and 4.7 shall be true and
correct in all material respects as of the date hereof, and, except to the
extent such representations and warranties speak as of an earlier date, as of
the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement, and the Seller shall have received a
certificate signed on behalf of Parent by the Chairman of the Board or the
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Co-Chairman of the Board and President of Parent to such effect.
(b) Performance of Obligations of Parent and the
Purchaser. Parent and the Purchaser shall have performed in all material
respects all obligations required to be performed by them under this Agreement
at or prior to the Closing Date, and the Seller shall have received a
certificate signed on behalf of Parent by the chief executive officer or the
chief operating officer of Parent to such effect.
(c) Opinions of Counsel. The Seller shall have
received the opinions of Skadden, Arps, Slate, Meagher & Flom and Joel K.
Bedol, Esq. in the forms customary for transactions of the type contemplated
herein and reasonably satisfactory to the Seller.
(d) Purchaser Documents. The Purchaser shall have
executed and delivered to the Seller the Purchaser Documents.
Section 8.4 If Conditions Not Satisfied. In the event that
any of the foregoing conditions of obligations of a party shall fail to have
been satisfied, such party may elect, in its sole discretion, to consummate the
transactions contemplated by this Agreement despite such failure, in which
event such party shall be deemed to have waived any claim for damages, Losses
or other relief arising from or in connection with such failure, unless
otherwise agreed in a writing executed by both parties and except that any such
waiver by the Purchaser or Parent shall not affect the Seller's obligation to
reimburse Parent for the costs of Remedial Activities pursuant to Section
7.2(d).
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at
any time prior to the Closing Date as follows:
(a) by mutual consent of Parent and the Seller;
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(b) by either Parent or the Seller if the Closing
shall not have occurred before September 30, 1995 (unless the failure to so
consummate the Closing by such date shall be due to the action or failure to
act of the party seeking to terminate this Agreement, which action or failure
to act constitutes a breach of this Agreement);
(c) by Parent if (i) there has been a breach on the
part of the Seller in the representations, warranties or covenants of the
Seller set forth herein, or any failure on the part of the Seller to comply
with its obligations hereunder, such that, in any such case, any of the
conditions to the Closing set forth in Section 8.1 or 8.2 hereof could not be
satisfied on or prior to August 31, 1995, or (ii) the Seller takes any action
that would be prohibited by Section 6.7;
(d) by the Seller if there has been a breach on the
part of Parent or the Purchaser in the representations, warranties or covenants
of Parent or the Purchaser set forth herein, or any failure on the part of
Parent to comply with its obligations hereunder, such that, in any such case,
any of the conditions to the Closing set forth in Section 8.1 or 8.3 hereof
could not be satisfied on or prior to August 31, 1995; or
(e) by Parent if the amount of the Remediation
Estimate exceeds $10,000,000 and the Seller fails to exercise the Environmental
Right pursuant to the terms of Section 6.14(d).
Section 9.2 Effect of Termination. In the event of a
termination of this Agreement by either the Seller or Parent as provided in
Section 9.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Parent, the Purchaser or the Seller or
their affiliates or respective officers or directors, other than the provisions
of Section 6.8; provided, however, that any such termination shall not relieve
any party from liability for any breach of this Agreement.
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ARTICLE X
MISCELLANEOUS
Section 10.1 Amendment. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time by an instrument in writing signed on behalf of each of
the parties hereto.
Section 10.2 Extension; Waiver. At any time prior to the
Closing Date, the parties hereto, by action taken or authorized by the
respective Boards of Directors, may to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto or
(iii) waive compliance with any of the agreements or conditions contained here.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party.
Section 10.3 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given on the date delivered
if delivered personally (including by reputable overnight courier), on the date
transmitted if sent by telecopy (which is confirmed) or on the date received if
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or the Purchaser, to
Nine West Group Inc.
9 West Broad Street
Stamford, Connecticut 06902
Attn: Vincent Camuto and Joel K. Bedol
Telecopy: (203) 978-6020
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with a copy to
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Roger S. Aaron and Randall H. Doud
Telecopy: (212) 735-2000
and
(b) if to the Seller, to
The United States Shoe Corporation
One Eastwood Drive
Cincinnati, Ohio 45227
Attn: James J. Crowe
Telecopy: (513) 527-7880
with a copy to
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attn: William F. Henze II
Telecopy: (212) 755-7306
Section 10.4 Interpretation. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The Table of Contents, Glossary of
Defined Terms and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words
"without limitation." The phrases "the date of this Agreement," "the date
hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to March 15, 1995.
Section 10.5 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when a counterpart has been signed by each of the
parties and delivered to each of the other parties, it being understood that
all parties need not sign the same counterpart.
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Section 10.6 Entire Agreement; No Third Party Beneficiaries.
This Agreement (including the documents and the instruments referred to herein)
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof, and (b) is not intended to confer upon any
person other than the parties hereto and thereto any rights or remedies
hereunder or thereunder.
Section 10.7 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
Section 10.8 Specific Performance. The parties hereto agree
that if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached, irreparable
damage would occur, no adequate remedy at law would exist and damages would be
difficult to determine, and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or
equity.
Section 10.9 Broker's Fees. Each of the Seller and Parent
(a) represents and warrants that it has not taken and will not take any action
that would cause the other party to have any obligation or liability to any
person for a finder's or broker's fee, and (b) agrees to indemnify the other
party for breach of the foregoing representation and warranty, whether or not
the Closing occurs.
Section 10.10 Publicity. Except as otherwise required by law
or the rules of the New York Stock Exchange, for so long as this Agreement is
in effect, neither the Seller nor Parent shall, nor shall they permit any of
their Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to the transactions contemplated by this
Agreement without the consent of the other party, which consent shall not be
unreasonably withheld or delayed.
Section 10.11 Assignment. Neither this Agreement nor any of
the rights, interests or obligations
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hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties;
provided, that the Purchaser may assign its rights to acquire all or any
portion of the Acquired Assets to Parent or one or more direct or indirect
wholly-owned Subsidiaries of Parent. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
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IN WITNESS WHEREOF, Parent, the Purchaser and the Seller have
caused this Asset Purchase Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
THE UNITED STATES SHOE
CORPORATION
By: /s/ Bannus Hudson
--------------------------
Name: Bannus Hudson
Title: President and Chief
Executive Officer
NINE WEST GROUP INC.
By: /s/ Vincent Camuto
----------------------
Name: Vincent Camuto
Title: President
FOOTWEAR ACQUISITION CORP.
By: /s/ Vincent Camuto
----------------------
Name: Vincent Camuto
Title: President
<PAGE> 92
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
Assets To Be Purchased and Sold
Section 1.1 Seller's Assets . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Seller's Liabilities . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II
Closing and Closing Date; Purchase Price
Section 2.1 The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.2 Payment at the Closing . . . . . . . . . . . . . . . . . . . . 15
Section 2.3 Post-Closing Adjustment . . . . . . . . . . . . . . . . . . . 16
ARTICLE III
Representations and Warranties of the Seller
Section 3.1 Organization; Subsidiaries . . . . . . . . . . . . . . . . . . 17
Section 3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.3 Consents and Approvals; No Violations . . . . . . . . . . . . 20
Section 3.4 SEC Reports and Financial Statements . . . . . . . . . . . . . 21
Section 3.5 Footwear Business Financial Statements . . . . . . . . . . . . 22
Section 3.6 Title to Acquired Assets; Inventories . . . . . . . . . . . . 23
Section 3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.8 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.9 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . 28
Section 3.10 Absence of Certain Changes or Events; Material Agreements . . 28
Section 3.11 No Violation of Law . . . . . . . . . . . . . . . . . . . . . 29
Section 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.13 Labor Controversies . . . . . . . . . . . . . . . . . . . . . 32
Section 3.14 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.15 Intellectual Property . . . . . . . . . . . . . . . . . . . . 33
Section 3.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.18 Parent Securities . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.19 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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ARTICLE IV
Representations and Warranties
of Parent and the Purchaser
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.4 Consents and Approvals; No Violations . . . . . . . . . . . . 38
Section 4.5 SEC Reports and Financial Statements . . . . . . . . . . . . . 39
Section 4.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.7 Absence of Certain Changes or Events; Material Agreements . . 41
Section 4.8 No Violation of Law . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE V
Covenants
Section 5.1 Conduct of the Seller's Business . . . . . . . . . . . . . . . 41
Section 5.2 Covenants of Parent . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VI
Additional Agreements
Section 6.1 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.2 Access to Information . . . . . . . . . . . . . . . . . . . . 46
Section 6.3 Further Assurances; Subsequent Transfers . . . . . . . . . . . 46
Section 6.4 Use of Names . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.5 Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . 50
Section 6.6 Employee Matters; Employee Benefit Plans . . . . . . . . . . . 50
Section 6.7 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.8 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.9 Notification of Certain Matters . . . . . . . . . . . . . . . 53
Section 6.10 Settlements for Cash Collections and Disbursements . . . . . . 53
Section 6.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.12 Transition Services; Interim Leases . . . . . . . . . . . . . 54
Section 6.13 Purchase Price Allocation for Tax Purposes . . . . . . . . . . 55
Section 6.14 Certain Environmental Matters . . . . . . . . . . . . . . . . 56
Section 6.15 Disclosure Schedule Updates 60
Section 6.16 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
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<TABLE>
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Section 6.17 Section 338 Elections; Procedures . . . . . . . . . . . . . . 60
Section 6.18 Allocation of Certain Taxes . . . . . . . . . . . . . . . . . 62
Section 6.19 Carrybacks . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.20 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.21 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 6.22 W-2 Preparation . . . . . . . . . . . . . . . . . . . . . . . 65
Section 6.23 Prohibited Transactions by Parent . . . . . . . . . . . . . . 65
Section 6.24 Audited Financial Statements . . . . . . . . . . . . . . . . . 66
Section 6.25 Books and Records; Personnel . . . . . . . . . . . . . . . . . 66
Section 6.26 Registration and Transfer of the Parent Warrants . . . . . . . 68
Section 6.27 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE VII
Indemnification
Section 7.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . 73
Section 7.2 Indemnity by the Seller . . . . . . . . . . . . . . . . . . . 74
Section 7.3 Indemnity by Parent and the Purchaser . . . . . . . . . . . . 76
Section 7.4 Notification of Third-Party Claims . . . . . . . . . . . . . . 77
Section 7.5 Defense of Claims . . . . . . . . . . . . . . . . . . . . . . 78
Section 7.6 Access and Cooperation . . . . . . . . . . . . . . . . . . . . 79
Section 7.7 Assessment of Claims . . . . . . . . . . . . . . . . . . . . . 79
Section 7.8 Limits on Indemnification . . . . . . . . . . . . . . . . . . 79
Section 7.9 Survival of Representations and Warranties . . . . . . . . . . 81
ARTICLE VIII
Conditions
Section 8.1 Conditions to Each Party's Obligation to Close . . . . . . . . 82
Section 8.2 Conditions of Obligations of Parent and the Purchaser . . . . 82
Section 8.3 Conditions of Obligations of the Seller . . . . . . . . . . . 84
Section 8.4 If Conditions Not Satisfied . . . . . . . . . . . . . . . . . 85
ARTICLE IX
Termination and Amendment
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
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ARTICLE X
Miscellaneous
Section 10.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.2 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.6 Entire Agreement; No Third Party Beneficiaries . . . . . . . . 89
Section 10.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.8 Specific Performance . . . . . . . . . . . . . . . . . . . . . 89
Section 10.9 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.10 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
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GLOSSARY OF DEFINED TERMS
<TABLE>
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Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Acquired Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Acquired Intellectual Property . . . . . . . . . . . . . . . . . . . . . 4
Allocation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Audited Footwear Business Financial Statements . . . . . . . . . . . . . 66
Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Capezio License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Capezio Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Carryback Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Claim Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Compensation and Benefit Plans . . . . . . . . . . . . . . . . . . . . . 26
Competing Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Competitive Business . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . 67
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . 46
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Contracting Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 19
Conveyancing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 13
Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Corporate Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Deeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Delay Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Distribution Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Domestic Footwear Subsidiaries . . . . . . . . . . . . . . . . . . . . . 6
Environmental Consultant . . . . . . . . . . . . . . . . . . . . . . . . 56
Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Environmental Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Environmental Right . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Final Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Footwear Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Footwear Business Balance Sheet . . . . . . . . . . . . . . . . . . . . . 22
Footwear Business Financial Statements . . . . . . . . . . . . . . . . . 22
Footwear Business Net Worth . . . . . . . . . . . . . . . . . . . . . . . 83
</TABLE>
v
<PAGE> 97
<TABLE>
<S> <C>
Footwear Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Footwear Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Footwear Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 6
Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Identified Environmental Conditions . . . . . . . . . . . . . . . . . . . 56
Indemnification Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Indemnitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Independent Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . 16
Intellectual Property Assignments . . . . . . . . . . . . . . . . . . . . 13
Interim Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Material Adverse Effect on the Footwear Business . . . . . . . . . . . . 18
Notice Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Other Acquired Intellectual Property Licenses . . . . . . . . . . . . . . 13
Pappagallo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parent Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Parent Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . 38
Parent SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Parent Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Parent's Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Phase I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Phase II Investigations . . . . . . . . . . . . . . . . . . . . . . . . . 56
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purchaser Actuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Purchaser Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Purchaser Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . 51
Purchaser Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Purchaser Services Agreement . . . . . . . . . . . . . . . . . . . . . . 54
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . 68
Related to the Footwear Business . . . . . . . . . . . . . . . . . . . . 3
Remedial Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Remediation Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Required Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Retained Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Retained Corporate Operations Assets . . . . . . . . . . . . . . . . . . 7
Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
vi
<PAGE> 98
<TABLE>
<S> <C>
Retained Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Return Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 338 Elections . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 338(h)(10) Election . . . . . . . . . . . . . . . . . . . . . . . 64
Section 338 Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Seller Actuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Seller Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . 2
Seller Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Seller Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Seller Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Seller Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 22
Seller Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Seller SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Seller Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Seller Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . 54
Seller's Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Severance Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Severance Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Target Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
338(h) Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Transferred Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Transferred Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 6
Warrant Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
vii
<PAGE> 99
EXHIBIT 2.1(b)(i)(G)
FORM OF LENSCRAFTERS GUARANTY
GUARANTY, dated _____________, 1995, by LensCrafters, Inc., an
Ohio corporation (the "Guarantor").
W I T N E S S E T H :
WHEREAS, 100% of the outstanding shares of capital stock of
the Guarantor are directly owned by The United States Shoe Corporation, an Ohio
corporation (the "Seller");
WHEREAS, the Seller, Nine West Group Inc., a Delaware
corporation ("Parent"), and Footwear Acquisition Corp., a Delaware corporation
(the "Purchaser"), are parties to an Asset Purchase Agreement dated as of March
15, 1995 (the "Agreement");
WHEREAS, the Seller will receive substantial direct and
indirect benefits from the transactions contemplated by the Agreement (which
benefits are hereby acknowledged).
NOW, THEREFORE, in order to induce Parent and the Purchaser to
consummate the transactions consummated by the Agreement and in consideration
thereof, and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the Guarantor hereby agrees as follows:
1. Definitions. All terms capitalized herein which are
not otherwise defined shall have the meanings attributed thereto in the
Agreement.
2. Guaranty of Obligations. The Guarantor hereby
irrevocably, absolutely and unconditionally guarantees, as primary obligor and
not merely as a surety, to Parent and the Purchaser and each of their permitted
successors and assigns (each, a "Beneficiary" and, collectively, the
"Beneficiaries"), as their respective interests may appear, the due and
punctual payment by the Seller of any and all amounts (without duplication)
that are or may become due and payable by the Seller to any Beneficiary
pursuant to Sections 6.3(c), 6.14(e), 6.14(f) and 7.2 of the Agreement, whether
such obligations now
<PAGE> 100
exist or arise hereafter, as and when the same shall become due and payable in
accordance with the terms thereof, including money damage claims and collection
costs (such obligations, "Obligations"). The Guarantor hereby further agrees
that if the Seller shall fail to pay or perform when due any of the
Obligations, the Guarantor will promptly pay or perform the same. All payments
by the Guarantor hereunder shall be made in U.S. Dollars. This is a guaranty
of payment and performance, not collection.
This Guaranty and all covenants and agreements of the
Guarantor contained herein shall continue in full force and effect and shall
not be discharged until such time as all of the Obligations shall be paid and
performed in full and all of the agreements of the Guarantor hereunder shall
have been duly performed. The obligations of the Guarantor under this Section
2 shall be automatically reinstated if and to the extent that for any reason
any payment to any Beneficiary by or on behalf of the Seller, in respect of the
Obligations, is rescinded or must otherwise be returned by such Beneficiary,
whether as a result of any proceedings in bankruptcy or reorganization or
otherwise, and the Guarantor agrees that it will indemnify each Beneficiary on
demand for all reasonable costs and expenses (including reasonable fees and
out-of-pocket expenses of counsel) incurred by such Beneficiary in connection
with its compliance with or reasonable resistance (if requested by the
Guarantor) to any such rescission or restoration. Notwithstanding the
generality of the foregoing, if the Agreement shall be terminated as a result
of the rejection or disaffirmance thereof by any trustee, receiver, liquidator,
agent or other representative of the Seller or any of its respective properties
in any assignment for the benefit of creditors or in any bankruptcy,
insolvency, dissolution or similar proceeding, or the exercise of any of the
rights or remedies under the Agreement is stayed, enjoined or prohibited in any
such assignment or proceeding, the obligations of the Guarantor hereunder shall
continue to the same extent as if the Agreement had not been so rejected or
disaffirmed and as if such exercise had not been so stayed, enjoined and
prohibited. The Guarantor shall and does hereby waive all rights and benefits
that might accrue to it by reason of any such assignment or proceeding, and the
Guarantor agrees that it shall be liable for the full amount of the Obliga-
2
<PAGE> 101
tions, irrespective of and without regard to any modification, limitation or
discharge of liability of the Seller that may result from or in connection with
any such assignment or proceeding.
3. Nature of the Guarantor's Obligations. The Guarantor
guarantees that the Obligations will be paid and performed strictly in
accordance with the terms of the Agreement, regardless of any law, regulation
or order now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of the Beneficiaries with respect thereto. The liability
of the Guarantor under this Guaranty shall not be subject to any counterclaim,
setoff, deduction, release, recoupment or defense and shall remain in full
force and effect and shall be irrevocable, absolute and unconditional,
irrespective of any lack of value, genuineness, validity, legality, regularity
or enforceability of the Agreement or any part of the Obligations or any
agreement or instrument relating to the Obligations, or any substitution,
release or exchange of any other guarantee of or security for any of the
Obligations, to the fullest extent permitted by any applicable laws, statutes,
orders, rules, regulations, ordinances or judgments of any Governmental Entity
("Applicable Laws"), irrespective of any other circumstances whatsoever that
might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 3 that the obligations
of the Guarantor hereunder shall be absolute and unconditional under any and
all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence or existence of any one or more of the following
shall not, to the fullest extent permitted by Applicable Laws, affect the
liability of the Guarantor hereunder:
(i) at any time or from time to time, without notice
to the Guarantor, the time, manner or place for any performance of or
compliance with any of the Obligations shall be extended, or such performance
or compliance shall be waived;
(ii) any of the acts mentioned in any of the
provisions of the Agreement shall be done or omitted;
(iii) any of the Obligations shall be modified,
supplemented, amended or compromised in any re-
3
<PAGE> 102
spect, or any right under the Agreement shall be waived in whole or in part or
otherwise dealt with (except in accordance with Section 8.4 of the Agreement);
(iv) the partial payment or performance of the
Obligations, whether as a result of the exercise of any right, remedy, power or
privilege or otherwise, shall be accepted or received (except to the extent of
such partial payment or performance);
(v) all or any part of the Obligations shall be
settled, compromised, released, liquidated or enforced upon such terms and in
such manner as any Beneficiary may determine or as Applicable Laws may dictate;
(vi) any modification, renewal or amendment of the
Agreement;
(vii) any merger or consolidation of, sale of
substantial assets by or other restructuring or termination of the corporate
existence of the Seller into or with any other person, or any consent thereto;
(viii) any change in the ownership of any of the
shares of capital stock in the Seller;
(ix) any regulatory change or other governmental
action;
(x) any legal disability, incapacity or other
similar defense of the Seller with respect to the Obligations (other than
payment and performance);
(xi) the cessation, for any cause whatsoever, of the
liability of the Seller (other than by reason of the full and final payment and
performance of all Obligations);
(xii) the Seller's entering into the Agreement being
invalid or in excess of the powers of the Seller or of any person purporting to
act on the Seller's behalf;
(xiii) any transfer or assignment of the rights of
the Seller pursuant to the Agreement;
4
<PAGE> 103
(xiv) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceeding with
respect to the Seller or any of its properties, or any action taken by any
trustee or receiver or by any court in any such proceeding; or
(xv) any pursuit of or failure by the Beneficiaries
to pursue remedies against the Seller for the Obligations.
4. Waiver. The Guarantor hereby waives expressly and
unconditionally (a) acceptance of this Guaranty and proof of reliance by any
Beneficiary hereon, (b) notice of any of the matters referred to above, (c) all
notices that may be required by statute, rule of law or otherwise, now or
hereinafter in effect, to preserve intact any right against the Guarantor,
including, without limitation, any demand for payment or performance,
diligence, presentment, protest and dishonor, proof of notice of nonpayment
under the Agreement, and notice of default or notice of any failure on the part
of the Seller to perform and comply with any covenant, agreement, term or
condition of the Agreement, (d) any requirement of any Beneficiary to take any
action whatsoever to exhaust any remedies under the Agreement and (e) any other
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge, release or defense of a guarantor or surety, or that might otherwise
limit recourse against the Guarantor.
5. Waiver of Subrogation. The Guarantor irrevocably
waives, disclaims and relinquishes all claims against the Seller which the
Guarantor has or would have by virtue of having executed this Guaranty or
otherwise, whether at law or in equity, and, specifically including, but not
limited to, all rights of indemnity, reimbursement, contribution or
exoneration.
6. Rights to Setoff. In addition to all rights to
setoff against the moneys, securities or other property of the Guarantor given
to Beneficiaries by law, each Beneficiary and each affiliate thereof shall have
a right of setoff on account of amounts due by the Guarantor to such
Beneficiary against all moneys, securities and other property of the Guarantor
and the Seller now or hereafter in the possession of or on deposit with such
5
<PAGE> 104
Beneficiary or affiliate, whether held in a general or special account or
deposit, or for safekeeping or otherwise; and every such right of setoff may be
exercised without demand upon or notice to the Guarantor, except that any
Beneficiary exercising such right of setoff shall promptly after the exercise
thereof give notice thereof to the Guarantor. No right of setoff shall be
deemed to have been waived by any act or conduct on the part of any Beneficiary
or by any neglect to exercise such right of setoff, or by any delay in so
doing; and every right of setoff shall continue in full force and effect until
specifically waived or released by an instrument in writing executed by each
Beneficiary.
7. Covenants. The Guarantor hereby agrees and covenants
as follows:
(i) at its own expense to promptly and duly execute
and deliver to each Beneficiary such further documents and assurances and to
take such further action as any Beneficiary may from time to time reasonably
request in order to more effectively carry out the intent and purpose of this
Guaranty and to establish and protect the rights and remedies created or
intended to be created in favor of the Beneficiaries hereunder;
(ii) this Guaranty shall continue to be effective or
be reinstated, as the case may be, if at any time any payment or discharge of
any of the Obligations is rescinded or must otherwise be returned by the
Beneficiaries upon the insolvency, bankruptcy or reorganization of the Seller
or the Guarantor or otherwise, as though such payment or discharge had not been
made;
(iii) the Guarantor shall pay all expenses incurred
by the Beneficiaries in enforcing this Guaranty and the Obligations (including
reasonable legal fees and expenses); and
(iv) the Guarantor assumes the responsibility for
being and keeping informed of the financial condition of the Seller and of all
other circumstances bearing upon the risk of nonpayment of the Obligations
which diligent inquiry would reveal, and agrees that no Beneficiary shall have
the duty to advise the Guarantor of information known to it regarding such
condition or any such circumstances.
6
<PAGE> 105
8. Representations. The Guarantor hereby represents and
warrants to each Beneficiary as follows:
(i) the Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and
has all requisite corporate power and authority to deliver this Guaranty and to
perform its obligations hereunder;
(ii) the execution, delivery and performance by the
Guarantor of this Guaranty have been duly authorized by all necessary corporate
action on the part of the Guarantor, do not require any stockholder approval,
or approval or consent of any trustee or holders of any indebtedness or
obligations of the Guarantor except such as have been duly obtained, and none
of the execution, delivery or performance hereof contravenes any Applicable
Laws applicable to or binding on the Guarantor or the charter documents of the
Guarantor or contravenes the provisions of, or constitutes a default under, or
results in the creation of any Lien upon the property of the Guarantor under,
any Contract to which the Guarantor is a party or by which it or its properties
may be bound or affected;
(iii) there is no suit, claim, action, proceeding or
investigation pending or, to the Guarantor's knowledge, threatened, against or
affecting the Guarantor before any Governmental Entity which relates to the
Agreement or this Guaranty, or which, if adversely determined, would have a
material adverse effect on the Guarantor;
(iv) the execution, delivery and performance by the
Guarantor of this Guaranty will not require any filing by the Guarantor with,
or any permit, authorization, consent or approval of, or exemption by, or the
giving of notice to, or the registration with or the taking of any other action
in respect of, any Governmental Entity, and no filing, recording or
registration in any public office or any other place is required on behalf of
the Guarantor to authorize the execution, delivery and performance of this
Guaranty, except as has been duly obtained or effected;
(v) the Seller owns directly 100% of the outstanding
shares of capital stock of the Guarantor; and
7
<PAGE> 106
(vi) this Guaranty has been duly executed and
delivered by the Guarantor and constitutes the legal, valid and binding
obligation of the Guarantor, enforceable against the Guarantor in accordance
with its terms except as such enforceability may be limited by bankruptcy,
insolvency and other similar laws of general application affecting the rights
of creditors and by general equitable principles.
9. Assignment. This Guaranty shall be binding upon the
Guarantor and its permitted successors and assigns and shall inure to the
benefit of and be enforceable by the Beneficiaries and their respective
permitted successors and assigns. Each Beneficiary and its permitted
successors and assigns may assign this Guaranty or any of its rights and powers
hereunder (but only to any person to whom its respective rights under the
Agreement are assigned as permitted by the Agreement), and in such event the
assignee shall have the same rights and remedies as if originally named herein
in place of such Beneficiary. The Guarantor may not assign this Guaranty or
any of its obligations, rights or powers hereunder without the prior written
consent of the Beneficiaries and may not transfer its assets substantially as
an entirety to any one or more entities without having first made provisions
for such entity or entities becoming a co-obligor of the Guarantor's obigations
under this Guaranty pursuant to an instrument in form and substance reasonably
acceptable to Parent and the Purchaser.
10. Rights to Deal with the Seller. At any time and from
time to time, without terminating, affecting or impairing the validity of this
Guaranty or the obligations of the Guarantor hereunder, any Beneficiary may
deal with the Seller in the same manner and as fully as if this Guaranty did
not exist and shall be entitled, among other things, to grant the Seller such
extension or extensions of time to perform, or to waive any obligation of the
Seller to perform, any act or acts as may to such Beneficiary be deemed
advisable, and no such waiver or extension shall in any way limit or otherwise
affect any of the Guarantor's obligations hereunder.
11. Addresses for Notices. All notices, demands or other
communications to be given or delivered under or by reason of the provisions of
this Guaranty shall be given (i) if to Parent or the Purchaser, to the
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address specified for them in Section 10.3 of the Agreement, or (ii) if to the
Guarantor, to LensCrafters, Inc., [address], [telephone], [telefax], in either
case in accordance with the terms of the Agreement.
12. No Waiver; Remedies; No Inquiry. No failure on the
part of the Beneficiaries to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law, and
the rights of Beneficiaries herein are supplemental to, and not in lieu of, any
rights of Beneficiaries under the Agreement. It is not and shall not be
necessary for Beneficiaries to inquire into the powers of the Seller or the
officers or agents acting or purporting to act on the Seller's behalf and any
obligations made or created in reliance upon the professed exercise of such
powers shall be governed hereunder.
13. Effectiveness; Continuing Guaranty. The obligations
of the Guarantor hereunder shall become effective (the "Effective Date") upon,
and only upon, the consummation of any transaction which results either in the
Seller no longer owning greater than 80% of the outstanding capital stock of
the Guarantor or in the Guarantor disposing of its assets substantially as an
entirety to one or more entities. This Guaranty is a continuing guaranty and
shall remain in full force and effect commencing on the Effective Date and
continuing until payment and performance in full of the Obligations.
14. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom shall in any event be effective unless the same shall be in writing
and signed by each and all of the Beneficiaries, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
15. Governing Law. This Guaranty shall be governed by
and construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
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16. Headings. Headings of the sections of this Guaranty
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Guaranty.
17. Jurisdiction; Service: Etc. The Guarantor hereby
submits to the non-exclusive jurisdiction of the courts of the State of New
York located in the County of New York and the federal courts of the United
States of America located in such State and County in respect to the
interpretation and enforcement of the provisions hereof, and hereby waives, and
agrees not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof, that it is not subject thereto or that
such action, suit or proceeding may not be brought or is not maintainable in
said courts or that this Guaranty may not be enforced in or by said courts or
that its property is exempt or immune from execution, that the suit, action or
proceeding is brought in an inconvenient forum, or that the venue of the suit,
action or proceeding is improper. The Guarantor agrees that service of process
may be made upon it by service upon (the office of its General Counsel at
[address]) in any action, suit or proceeding against the Guarantor with respect
to this Guaranty or any of the documents referred to herein, and hereby
irrevocably designates and appoints the Seller as its agent upon which process
may be served in any action, suit or proceeding, it being understood that such
appointment and designation shall become effective without any further action
on the part of the Guarantor or the Seller. Final judgment against the
Guarantor in any action, suit or proceeding shall conclusively determine the
fact and amount of indebtedness arising from such judgment, a certified copy of
which shall be conclusive evidence of the fact and amount of indebtedness
arising from such judgment.
18. Severability. Any provision of this Guaranty which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforce-ability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. To the
extent permitted by applicable law, the Guarantor hereby waives any provision
of law which renders any
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provision of this Guaranty prohibited or unenforceable in any respect.
19. Entire Agreement. This Guaranty constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, between the Guarantor and the Beneficiaries with respect to
the subject matter hereof and thereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be signed and delivered by its officers thereunto duly authorized as of the
date first above written.
LENSCRAFTERS, INC.
By:
------------------------------------
Name:
Title:
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Exhibit 2.1(b)(ii)(B)
WARRANT AGREEMENT dated as of ______ __, 1995, between Nine
West Group Inc., a Delaware corporation (the "Company"), and [name of Warrant
Agent], a [New York banking] corporation, as Warrant Agent (the "Warrant
Agent").
WHEREAS, the Company proposes to issue warrants to purchase an
aggregate of 3,700,000 shares of its Common Stock, par value $.01 per share
(such 3,700,000 shares being hereinafter referred to as the "Shares" and where
appropriate such term shall also mean the other securities or property
purchasable upon the exercise of a warrant as provided for herein upon the
happening of certain events; such Common Stock being hereinafter referred to as
the "Common Stock;" and such warrants being hereinafter referred to as the
"Warrants" and the certificates evidencing the Warrants being hereinafter
referred to as the "Warrant Certificates"); and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in
connection with the issuance of Warrant Certificates and other matters as
provided herein;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Form of Warrant Certificates. The Warrant
Certificates to be delivered pursuant to this Agreement shall be in registered
form only and shall be substantially in the form set forth in Exhibit A
attached hereto.
<PAGE> 111
SECTION 3. Execution of Warrant Certificates. The Warrant
Certificates shall be signed on behalf of the Company by its Chairman of the
Board, Co-Chairman of the Board and President or a Vice President and by its
Secretary or an Assistant Secre- tary under its corporate seal. Each such
signature upon the Warrant Certificates may be in the form of a facsimile
signature of the present or any future Chairman of the Board, Co-Chairman of
the Board and President, Vice President, Secretary or Assistant Secretary and
may be imprinted or otherwise reproduced on the Warrant Certificates and for
that purpose the Company may adopt and use the facsimile signature of any
person who shall have been Chairman of the Board, Co-Chairman of the Board and
President, a Vice President, Secretary or an Assistant Secretary
notwithstanding the fact that at the time the Warrant Certificates shall be
countersigned and delivered or disposed of he or she shall have ceased to hold
such office. The seal of the Company may be in the form of a facsimile thereof
and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent
pursuant to Section 4, or disposed of by the Company, such Warrant Certificates
nevertheless may be countersigned and delivered or disposed of as though such
person had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date
of the execution of this Warrant Agreement any such person was not such
officer.
Warrant Certificates shall be dated the date of
countersignature by the Warrant Agent pursuant to Section 4.
SECTION 4. Registration and Countersignature. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. Warrant Certificates
distributed as provided in Section 11 shall be registered in the
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names of the record holders of the Warrant Certificates to whom they are to be
distributed.
The Company and the Warrant Agent may deem and treat the
registered holder of a Warrant Certificate as the absolute owner thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for the purpose of any exercise thereof and any distribution to the
holder thereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. Registration of Transfers and Exchanges. The
Warrant Agent shall from time to time register the transfer of any outstanding
Warrant Certificates upon the records to be maintained by it for that purpose,
upon surrender thereof accompanied by a written instrument of transfer in one
of the forms of assignment appearing at the end of the form of the Warrant
Certificate attached as Exhibit A hereto, duly executed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. Upon any such registration of transfer, a
new Warrant Certificate of like tenor and representing in the aggregate a like
number of Warrants shall be issued to the transferee and the surrendered
Warrant Certificate shall be cancelled by the Warrant Agent.
Warrant Certificates may be exchanged at the option of the
holders thereof, when surrendered to the Warrant Agent at its office maintained
for the purpose of exchanging, transferring or exercising the Warrants in the
Borough of Manhattan, The City of New York, State of New York (the "Warrant
Agent Office"), for another Warrant Certificate or other Warrant Certificates
of like tenor and representing in the aggregate a like number of Warrants.
Warrant Certificates surrendered for exchange, transfer or exercise shall be
cancelled by the Warrant Agent. Warrant Certificates cancelled as provided in
this Section 5 shall then be disposed of by the Warrant Agent in a manner
satisfactory to the Company.
The Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of this Section 5 and of Section 4, the new
Warrant Certificates required pursuant to the provisions of this Section, and
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for the purpose of any distribution of Warrant Certificates contemplated by
Section 11.
SECTION 6. Duration and Exercise of Warrants. (a) The
Warrants shall expire at 5:00 p.m., New York City time, on ____________, 200_
[date to be the date eight and one-half years following the Closing Date] (such
date of termination being herein referred to as the "Termination Date"). On
and after the date of this Agreement, each Warrant may be exercised on any
business day prior to 5:00 p.m., New York City time, on the Termination Date.
(b) Subject to the provisions of this Agreement,
including Section 11, on or after the date of this Agreement the holder of each
Warrant shall have the right to purchase from the Company (and the Company
shall issue and sell to such holder) one fully paid and non-assessable Share at
the initial exercise price of $35.50 (the "Exercise Price") upon the surrender
on any business day prior to 5:00 p.m., New York City time, on the Termination
Date to the Warrant Agent at the Warrant Agent Office of the Warrant
Certificate evidencing such Warrant, with the form of election to purchase on
the reverse thereof duly filled in and signed, and upon payment of the Exercise
Price in lawful money of the United States of America or in the manner provided
in Section 6(c). The Warrants evidenced by a Warrant Certificate shall be
exercisable prior to 5:00 p.m., New York City time, on the Termination Date, at
the election of the registered holder thereof, either as an entirety or from
time to time for part of the number of Warrants specified in the Warrant
Certificate. In the event that less than all of the Warrants evidenced by a
Warrant Certificate surrendered upon the exercise of Warrants are exercised at
any time prior to 5:00 p.m., New York City time, on the Termination Date, a new
Warrant Certificate or Certificates will be issued for the remaining number of
Warrants evidenced by the Warrant Certificate so surrendered. No adjustments
shall be made for any cash dividends on Shares issuable on the exercise of a
Warrant.
(c) Upon any exercise of a Warrant, the holder
thereof may, at its option, instruct the Company, by written notice
accompanying the surrender of the Warrant Certificate evidencing the Warrant at
the time of such exercise, to apply to the payment of the Exercise
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Price such number of the shares of Common Stock otherwise issuable to such
holder upon such exercise as shall be specified in such notice, in which case
an amount equal to the excess of the aggregate current market price (as defined
in Section 11(c)) of such specified number of shares on the date of exercise
over the portion of the aggregate Exercise Price attributable to such shares
shall be deemed to have been paid to the Company and the number of shares
issuable upon such exercise shall be reduced by such specified number.
(d) Subject to Section 7, upon such surrender of a
Warrant Certificate and payment of the Exercise Price, the Warrant Agent shall
cause to be issued and delivered to or upon the written order of the registered
holder of such Warrant Certificate and in such name or names as such registered
holder may designate, a certificate for the Share or Shares issuable upon the
exercise of the Warrant or Warrants evidenced by such Warrant Certificate.
Such certificate shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become the holder of
record of such Share or Shares as of the date of the surrender of such properly
completed and duly executed Warrant Certificate and the payment of the Exercise
Price. The Warrant Agent is hereby authorized to countersign any required new
Warrant Certificate or Certificates pursuant to the provisions of this Section
6 and of Section 5.
SECTION 7. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Shares upon the
exercise of Warrants prior to 5:00 p.m., New York City time, on the Termination
Date; provided, however, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrant Certificates or any certificates for Shares in a name
other than that of the registered holder of a Warrant Certificate surrendered
upon the exercise of a Warrant, and the Company shall not be required to issue
or deliver such Warrant Certificates or certificates for Shares unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
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SECTION 8. Mutilated or Missing Warrant Certificates. In
case any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue, and the Warrant Agent shall countersign,
in exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing
an equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of such mutilation, loss,
theft or destruction of such Warrant Certificate and indemnity or bond, if
requested, also reasonably satisfactory to them. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the Warrant
Agent may prescribe.
SECTION 9. Reservation of Shares. The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock, for the purpose of
enabling it to satisfy any obligation to issue Shares upon exercise of
Warrants, through the Termination Date, the number of Shares deliverable upon
the exercise of all outstanding Warrants, and the Transfer Agent for such
Common Stock is hereby irrevocably authorized and directed at all times to
reserve such number of authorized and unissued shares of Common Stock as shall
be required for such purpose. The Company will keep a copy of this Agreement
on file with such Transfer Agent. The Warrant Agent is hereby irrevocably
authorized to requisition from time to time from such Transfer Agent stock
certificates issuable upon exercise of outstanding Warrants, and the Company
will supply such Transfer Agent with duly executed stock certificates for such
purpose.
Before taking any action which would cause an adjustment
pursuant to Section 11 reducing the Exercise Price below the then par value of
the Shares issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Exercise Price as so adjusted.
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The Company represents, warrants and covenants that all Shares
issued upon exercise of the Warrants will, upon issuance in accordance with the
terms of this Agreement, be fully paid and nonassessable and free and clear
from all liens, claims, charges, security interests, encumbrances or other
rights of third parties created by the Company with respect to the issuance
thereof.
SECTION 10. Obtaining of Governmental Approvals and Stock
Exchange Listings. The Company from time to time will (a) obtain and keep
effective any and all permits, consents and approvals of governmental agencies
and authorities and make any necessary filings under federal or state
securities laws, which may become requisite in connection with the issuance,
sale, transfer and delivery of the Warrant Certificates, the exercise of the
Warrants and the issuance, sale, transfer and delivery of the Shares issued
upon exercise of the Warrants, and (b) cause the Shares, upon their issuance
upon the exercise of Warrants, to be listed on the principal securities
exchange within the United States of America on which the Common Stock is then
listed.
SECTION 11. Adjustment of Exercise Price and Number of
Shares Purchasable or Number of Warrants. The Exercise Price, the number of
Shares purchasable upon the exercise of each Warrant and the number of Warrants
outstanding are subject to adjustment from time to time upon the occurrence of
the events enumerated in this Section 11.
(a) In case the Company shall at any time after
March 15, 1995 (i) declare a dividend on the Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), the Exercise Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and/or the number
and kind of shares of capital stock issuable on such date shall be
proportionately adjusted so that the holder of any Warrant exercised after such
time shall be
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entitled to receive the aggregate number and kind of shares of capital stock
which, if such Warrant had been exercised immediately prior to such date, he or
she would have owned upon such exercise and been entitled to receive by virtue
of such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall at any time after
the date of this Agreement fix a record date for the making of a distribution
to all holders of Common Stock (other than any such distribution made in a
dissolution or liquidation but including any such distribution made in
connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (including
securities, but excluding any distribution referred to in Section 11(a) and
regular periodic cash dividends publicly announced as such by the Board of
Directors of the Company), the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price per share of Common Stock (as defined in
Section 11(c)) on such record date, less the fair market value (as reasonably
determined by the Board of Directors of the Company and described in a
statement filed with the Warrant Agent) of the portion of evidences of
indebtedness or assets to be so distributed applicable to one share of Common
Stock and the denominator of which shall be such current market price per share
of Common Stock; provided, however, that, if such fair market value equals or
exceeds such current market price, in lieu of such adjustment of the Exercise
Price, the Company shall cause to be distributed to each holder of any Warrants
the amount of such indebtedness or assets which would have been distributable
in respect of the Common Stock then issuable upon exercise of such Warrants.
Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Exercise
Price shall again be adjusted to be the Exercise Price which would then be in
effect if such record date had not been fixed.
(c) For the purpose of any computation under
Section 6(c) or Section 11(b), the current market price per share of Common
Stock on any date shall be
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deemed to be the average of the daily closing prices of the Common Stock for
the 30 consecutive trading days on the New York Stock Exchange or, if the
Common Stock is not listed or admitted to trading on such exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or admitted to
trading on any national securities exchange, the average of the highest
reported bid and lowest reported asked prices for such 30 consecutive trading
day period as furnished by the National Association of Securities Dealers (the
"NASD") or similar organization if the NASD is no longer reporting such
information, commencing 45 trading days before such date. The closing price
for each day shall be the last sale price regular way.
(d) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which by reason
of this Section 11(d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one-hundredth of
a share, as the case may be.
(e) In the event that at any time, as a result of
an adjustment made pursuant to Section 11(a), the holder of any Warrant
thereafter exercised shall become entitled to receive any share of capital
stock of the Company other than shares of Common Stock, thereafter the number
of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Shares
contained in Sections 11(a) and (b), and the provisions of Sections 6, 7, 9,
10, 11 and 12 with respect to the Shares shall apply on like terms to any such
other shares.
(f) In any case in which this Section 11 shall
require that an adjustment in the Exercise Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Warrant exercised
after such record date the Shares and other capital stock of the Company, if
any, issuable upon such
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exercise over and above the Shares and other capital stock of the Company, if
any, issuable upon such exercise on the basis of the Exercise Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(g) Unless the Company shall have exercised its
election as provided in Section 11(h), upon each adjustment of the Exercise
Price as a result of the calculations made in Section 11(a) or (b), each
Warrant outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of Shares (calculated to the nearest hundredth) obtained by (A)
multiplying the number of Shares purchasable upon exercise of a Warrant
immediately prior to such adjustment by the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price and (B) dividing the
product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(h) The Company may elect on or after the date of
any adjustment of the Exercise Price to adjust the number of Warrants, in
substitution for an adjustment in the number of Shares purchasable upon the
exercise of a Warrant as provided in Section 11(g). In such event, the Company
will cause to be distributed to registered holders of Warrant Certificates
either Warrant Certificates representing the additional Warrants issuable
pursuant to the adjustment, or substitute Warrant Certificates to replace all
outstanding Warrant Certificates.
(i) In case of any capital reorganization of the
Company, or of any reclassification of the Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of subdivision or combination), or in the case of
consolidation of the Company with or the merger of the Company into any other
corporation (other than a consolidation or merger in which the Company is the
continuing corporation) or of the sale of the properties and assets of the
Company as, or substantially as, an entirety to any other corporation, each
Warrant shall after such reorganization, reclassification, consolida-
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tion, merger or sale be exercisable, upon the terms and conditions specified in
this Agreement, for the number of shares of stock or other securities or
property to which a holder of the number of Shares purchasable (at the time of
such reorganization, reclassification, consolidation, merger or sale) upon
exercise of such Warrant would have been entitled upon such reorganization,
reclassification, consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section 11 with respect to the
rights and interests thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or property thereafter deliverable
on the exercise of the Warrants. The subdivision or combination of shares of
Common Stock at any time outstanding into a greater or lesser number of shares
shall not be deemed to be a reclassification of the Common Stock for the
purposes of this Section 11(i). The Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets or such other appropriate corporation or entity shall assume, by written
instrument executed and delivered to the Warrant Agent, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. If the
holders of Common Stock may elect to choose the kind or amount of stock or
other securities or property receivable upon consummation of such
reorganization, reclassification, consolidation, merger or sale, then for the
purpose of this Section 11(i) the kind and amount of stock or other securities
or property receivable upon such reorganization, reclassification,
consolidation, merger or sale shall be deemed to be whatever choice is made by
a plurality of the holders of Common Stock not affiliated with the Company or
the other party to such reorganization, reclassification, consolidation, merger
or sale or, if no such holders exist, as specified by the Board of Directors of
the Company in good faith. No dividends or other distributions declared or
made or interest amounts paid prior to the exercise of a Warrant with respect
to the stock or other securities or property receivable pursuant to this
Section 11(i) upon exercise
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of a Warrant as a result of the consummation of a reorganization,
reclassification, consolidation, merger or sale shall be made or paid upon
exercise of a Warrant following the consummation of any such reorganization,
reclassification, consolidation, merger or sale.
SECTION 12. Fractional Warrants and Fractional Shares. (a)
Notwithstanding an adjustment pursuant to Section 11(g) in the number of Shares
purchasable upon the exercise of a Warrant, the Company shall not be required
to issue fractions of Shares upon exercise of the Warrants or to distribute
certificates which evidence fractional Shares. In lieu of fractional Shares,
there shall be paid to the registered holders of Warrant Certificates at the
time the Warrants represented thereby are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of a
share of Common Stock. For purposes of this Section 12(a), the current market
value of a share of Common Stock shall be the closing price of a share of
Common Stock (as determined pursuant to Section 11(c)) for the trading day
immediately prior to the date of such exercise.
(b) The Company shall not be required to issue fractions of
Warrants on any distribution of Warrants to holders of Warrant Certificates
pursuant to Section 11(h) or to distribute Warrant Certificates which evidence
fractional Warrants. In lieu of such fractional Warrants there shall be paid
to the registered holders of the Warrant Certificates with regard to which such
fractional Warrants would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a full Warrant. For purposes of
this Section 12(b), the current market value of a Warrant shall be the closing
price of the Warrant (as determined pursuant to Section 11(c)) for the trading
day immediately prior to the date on which such fractional Warrant would have
been otherwise issuable.
SECTION 13. Notice to Warrantholders. (a) Upon any
adjustment of the Exercise Price pursuant to Section 11, the Company within 20
calendar days thereafter shall (i) cause to be filed with the Warrant Agent a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the
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Company) setting forth the Exercise Price after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculations are based and setting forth the number of Shares purchasable
upon exercise of a Warrant after such adjustment in the Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein and (ii) cause to be given to each of the registered holders of
the Warrant Certificates at such holder's address appearing on the Warrant
register written notice of such adjustments by first-class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included
as a part of the notice required to be mailed under the other provisions of
this Section 13.
(b) In the event:
(i) the Company shall fix a record date for the
making of a distribution to all holders of Common Stock (other than any such
distribution made in a dissolution or liquidation but including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness or assets
(including securities, but excluding any distribution referred to in Section
11(a) and cash dividends or cash distributions); or
(ii) of any capital reorganization of the Company,
or of any reclassification of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of subdivision or combination), or in the case of consolidation of
the Company with or the merger of the Company into any other corporation (other
than a consolidation or merger in which the Company is the continuing
corporation) or of the sale of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation; or
(iii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered holders of the Warrant Certificates at
his or her address appearing on the Warrant register, at least 10
13
<PAGE> 123
calendar days prior to the applicable record date hereinafter specified, by
first class mail, postage prepaid, a written notice stating (i) the date as of
which the holders of record of shares of Common Stock to be entitled to receive
any such distribution are to be determined or (ii) the date on which any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up. The failure to give the notice
required by this Section 13 or any defect therein shall not affect the legality
or validity of any reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as shareholders in respect of
the meetings of shareholders or the election of directors of the Company or any
other matter, or any rights whatsoever as shareholders of the Company.
SECTION 14. Merger, Consolidation or Change of Name of
Warrant Agent. Any corporation into which the Warrant Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Warrant Agent shall
be a party, or any corporation succeeding to the corporate trust business of
the Warrant Agent, shall be the successor to the Warrant Agent hereunder
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Warrant Agent under the provisions of Section 17.
In case at the time such successor to the Warrant Agent shall succeed to the
agency created by this Agreement, and in case at that time any of the Warrant
Certificates shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the original
Warrant Agent; and in case at that time any of the Warrant Cer-
14
<PAGE> 124
tificates shall not have been countersigned, any successor to the Warrant Agent
may countersign such Warrant Certificates either in the name of the predecessor
Warrant Agent or in the name of the successor Warrant Agent; and in all such
cases such Warrant Certificates shall have the full force provided in the
Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent whose name has changed may
adopt the countersignature under its prior name; and in case at that time any
of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name; and in all such cases such Warrant Certificates shall have
the full force provided in the Warrant Certificates and in this Agreement.
SECTION 15. Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the
Warrant Certificates shall be taken as statements of the Company and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrant Certificates except as otherwise provided herein.
(b) The Warrant Agent shall not be responsible
for any failure of the Company to comply with any of the covenants contained in
this Agreement or in the Warrant Certificates to be complied with by the
Company.
(c) The Warrant Agent may consult at any time
with counsel satisfactory to it (who may be counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant Certificate in respect of any action taken, suffered
or omitted by it hereunder in good
15
<PAGE> 125
faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument believed by it to be
genuine and to have been signed, sent or presented by the proper party or
parties.
(e) The Company agrees to pay to the Warrant
Agent reasonable compensation for all services rendered by the Warrant Agent in
connection with this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in connection with this Agreement and to
indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and counsel fees, for anything done or
omitted by the Warrant Agent in connection with this Agreement except as a
result of its negligence or bad faith.
(f) The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expense unless the Company or one or more
registered holders of Warrant Certificates shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses which may be
incurred by it, but this provision shall not affect the power of the Warrant
Agent to take such action as it may consider proper, whether with or without
any such security or indemnity. All rights of action under this Agreement or
under any of the Warrants may be enforced by the Warrant Agent without the
possession of any of the Warrant Certificates or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery or judgment shall be for the ratable benefit of
the registered holders of the Warrants, as their respective rights or interests
may appear.
(g) The Warrant Agent, and any stockholder,
director, officer or employee thereof, may buy, sell
16
<PAGE> 126
or deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely
as agent for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence or bad faith.
SECTION 16. Disposition of Proceeds of Exercise of Warrants.
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent on the purchase of Shares through the exercise of Warrants.
SECTION 17. Change of Warrant Agent. If the Warrant Agent
shall become incapable of acting as Warrant Agent, the Company shall appoint a
successor. If the Company shall fail to make such appointment within a period
of 30 days after it has been notified in writing of such incapacity by the
incapacitated Warrant Agent or by the registered holder of a Warrant
Certificate, then the registered holder of any Warrant Certificate may apply to
any court of competent jurisdiction for the appointment of a successor to the
incapacitated Warrant Agent. Pending appointment of a successor to the Warrant
Agent, either by the Company or by such a court, the duties of the Warrant
Agent shall be carried out by the Company. Any successor warrant agent whether
appointed by the Company or by such a court, shall be a bank or trust company,
in good standing, incorporated under the laws of the State of New York or of
the United States of America, and having its principal office in the Borough of
Manhattan, The City of New York, State of New York and must have at the time of
its appointment as warrant agent a combined capital and surplus of at least one
hundred million dollars. After appointment the successor warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it
had been originally
17
<PAGE> 127
named as Warrant Agent without further act or deed; but the former Warrant
Agent shall deliver and transfer to the successor warrant agent any property at
the time held by it hereunder and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section 17, however, or any defect therein, shall not
affect the legality or validity of the removal of the Warrant Agent or the
appointment of a successor warrant agent as the case may be.
SECTION 18. Notices to Company and Warrant Agent. Any notice
or demand authorized by this Agreement to be given or made by the Warrant Agent
or by the registered holder of any Warrant Certificate to or on the Company
shall be sufficiently given or made if sent by mail, first class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent), as follows:
Nine West Group Inc.
9 West Broad Street
Stamford, Connecticut 06902
Attn: General Counsel
In case the Company shall fail to maintain such office or
shall fail to give such notice of any change in the location thereof,
presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the
Company or by the registered holder of any Warrant Certificate to the Warrant
Agent shall be sufficiently given if sent by mail, first class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) to the Warrant Agent as follows:
[Warrant Agent's name and address]
SECTION 19. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any holders of Warrant Certificates in order to cure any
ambiguity or to correct or supplement any provision
18
<PAGE> 128
contained herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Warrant Certificates.
SECTION 20. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 21. Termination. This Agreement shall terminate at
the close of business on ____________, 200_. Notwith- standing the foregoing,
this Agreement will terminate on any earlier date if all Warrants have been
exercised or redeemed. The provisions of Section 15 shall survive such
termination.
SECTION 22. Governing Law. THIS AGREEMENT AND EACH WARRANT
AND WARRANT CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD TO ANY APPLICABLE
CONFLICTS OF LAWS PRINCIPLES.
SECTION 23. Benefits of This Agreement. This Agreement is
not intended to confer upon any person other than the Company, the Warrant
Agent and the registered holders of the Warrant Certificates any rights or
remedies hereunder.
SECTION 24. Counterparts. This Agreement may be executed in
counterparts, all which shall be considered one and the same agreement and
shall become effective when a counterpart has been signed by each of the
parties and delivered to the other party, it being understood that all parties
need not sign the same counterpart.
19
<PAGE> 129
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
NINE WEST GROUP INC.
By:
-------------------------------------
Name:
Title:
[SEAL]
Attest:
- ------------------------------
[WARRANT AGENT]
By:
-------------------------------------
Name:
Title:
[SEAL]
Attest:
- ------------------------------
20
<PAGE> 130
EXHIBIT A
[Form of Warrant Certificate]
[Face]
NINE WEST GROUP INC.
WARRANTS TO PURCHASE COMMON STOCK
Warrant No. _________ ________ Warrants
This Warrant Certificate certifies that ___________________,
or registered assigns, is the registered holder of _________ Warrants expiring
at 5:00 p.m., New York City time, on ________, 200_ (the "Warrants") to
purchase shares (the "Shares") of Common Stock, par value $.01 per share, of
Nine West Group Inc., a Delaware corporation (the "Company"). Each Warrant
entitles the holder to purchase from the Company on or after ____________, 1995
and on or before 5:00 p.m., New York City time, on ____________, 200_ one fully
paid and nonassessable Share at the initial exercise price of $35.50 (the
"Exercise Price"), payable in lawful money of the United States of America upon
surrender of this Warrant Certificate and payment of the Exercise Price at the
office or agency of [name of Warrant Agent], as Warrant Agent (the "Warrant
Agent"), in the Borough of Manhattan, The City of New York, State of New York
(the "Warrant Agent Office"), but only subject to the terms and conditions set
forth herein and in the Warrant Agreement, dated as of _______, 1995 (the
"Warrant Agreement"), between the Company and the Warrant Agent. The Exercise
Price and number of Shares purchasable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events set forth in the
Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York City
time, on _____________, 200_.
Reference is hereby made to the further provisions of this
Warrant Certificate set forth on the reverse hereof and such further provisions
shall for all
21
<PAGE> 131
purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the Warrant
Agent.
WITNESS the facsimile seal of the Company and the facsimile
signatures of its duly authorized officers.
NINE WEST GROUP INC.
Dated: By:
-------------------------------------
Co-Chairman and President
Countersigned:
[Name of Warrant Agent],
as Warrant Agent
By:
-------------------------------------
Secretary
By:
------------------------------
Authorized Signature
22
<PAGE> 132
[Form of Warrant Certificate]
[Reverse]
NINE WEST GROUP INC.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time,
on ___________, 200_ (the "Termination Date"), to purchase ____________ Shares
and are issued or to be issued pursuant to the Warrant Agreement which is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the Company
and the holders (the words "holders" or "holder" meaning the registered holders
or registered holder) of the Warrants.
Warrants may be exercised to purchase Shares from the Company
on or after ____________, 1995 and on or before 5:00 p.m., New York City time,
on the Termination Date, at the Exercise Price set forth on the face hereof,
subject to adjustment, as hereinafter referred to. The holder of Warrants
evidenced by this Warrant Certificate may exercise them by surrendering this
Warrant Certificate, with the form of election to purchase set forth hereon
properly completed and executed, together with payment of the Exercised Price
at the Warrant Agent Office. In the event that upon any exercise of Warrants
evidenced hereby the number of Warrants exercised shall be less than the total
number of Warrants evidenced hereby, there shall be issued to the holder hereof
or his assignee a new Warrant Certificate evidencing the number of Warrants not
exercised. No adjustment shall be made for any cash dividends on any Shares
issuable upon exercise of this Warrant.
The Warrant Agreement provides that, upon the occurrence of
certain events, the Exercise Price set forth on the face hereof may, subject to
certain conditions, be adjusted. If the Exercise Price is adjusted, the
Warrant Agreement provides that, at the election of the Company, either (i) the
number of Shares purchasable upon the exercise of each Warrant shall be
adjusted, or (ii) each outstanding Warrant shall be adjusted to become a
differ-
23
<PAGE> 133
ent number of Warrants. In the latter event, the Company will cause to be
distributed to registered holders of Warrant Certificates either Warrant
Certificates representing the additional Warrants issuable pursuant to the
adjustment, or substitute Warrant Certificates to replace all outstanding
Warrant Certificates.
The Company shall not be required to issue fractions of
Warrants or fractions of Shares or any certificates which evidence fractional
Warrants or fractional Shares. In lieu of such fractional Warrants and
fractional Shares there shall be paid to the registered holders of the Warrant
Certificates with regard to which such fractional Warrants or fractional Shares
would other- wise be issuable an amount in cash equal to the same fraction of
the current market value (as determined pursuant to the Warrant Agreement) of a
full Warrant or a full Share, as the case may be.
Warrant Certificates, when surrendered at the Warrant Agent
Office, by the registered holder thereof in person or by a duly appointed legal
representative or a duly authorized attorney, may be exchanged, in the manner
and subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this
Warrant Certificate at the Warrant Agent Office, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof and for all other purposes, and
neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
24
<PAGE> 134
[Form of Election to Purchase]
(To be executed upon exercise of Warrant prior to
5:00 p.m., New York City time, on the Termination Date)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase __________ Shares
and herewith tenders payments for such Shares in the amount of $_________ in
accordance with the terms hereof. The undersigned requests that a certificate
representing such Shares be registered in the name of
___________________________ whose address is __________________________________
and that such certificate be delivered to ____________________ whose address is
________________________. If said number of Shares is less than all of the
Shares purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the balance of the Shares be registered in the name of
_______________________ whose address is
_______________________________________________________ and that such Warrant
Certificate be delivered to _______________________ whose address is
__________________________________________________. Any cash payments to be
paid in lieu of a fractional Share should be made to
___________________________ whose address is
___________________________________________ and the check representing payment
thereof should be delivered to ___________________ whose address is
___________________________.
Dated:
[Social Security Box]
Name of holder of Warrant Certificate:
......................................
(Please print)
Address: .............................
.............................
25
<PAGE> 135
Signature: .................................................
Note: The above signature must correspond
with the name as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change
whatever and if the certificate
representing the Shares or any
Warrant Certificate representing
Warrants not exercised is to be
registered in a name other than that
in which this Warrant Certificate is
registered, the signature of the
holder hereof must be guaranteed.
Signature Guaranteed: ........................................
26
<PAGE> 136
[Form of Assignment]
For value received _____________________ hereby sells, assigns
and transfers unto _______________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint _______________________ attorney, to
transfer said Warrant Certificate on the books of the within-named Company,
with full power of substitution in the premises.
Dated:
Address: ............................................
............................................
Signature: ............................................
Note: The above signature must correspond with
the name as written upon theface of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature Guaranteed: ..................................
27
<PAGE> 137
[Form of Partial Assignment]
For value received _____________________ hereby sells, assigns
and transfers unto _______________________ the right to purchase __________
Shares evidenced by the within Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
_______________________ attorney, to transfer that part of the said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated:
Address: ...........................................
...........................................
Signature: ...........................................
Note: The above signature must correspond
with the name as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change
whatever.
Signature Guaranteed: .................................
28
<PAGE> 1
EXHIBIT 15
Richard S. Wayne (0022390)
William K. Flynn (0029536)
Allan Jefferson Fossett (0032014)
Trial Attorneys for Plaintiff
COURT OF COMMON PLEAS
HAMILTON COUNTY, OHIO
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
BRUCE ALLEN, individually )
and on behalf of all other ) Case No. A9501170
persons similarly situated, ) (_______________________, J.)
c/o 2100 PNC Center )
201 East Fifth Street )
Cincinnati, Ohio 45202 )
)
Plaintiff, )
)
vs. ) CLASS ACTION COMPLAINT
) FOR DECLARATORY AND
THE UNITED STATE SHOE CORPORATION ) INJUNCTIVE RELIEF
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
ALBERT M. KRONICK )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
CHARLES S. MECHEM, JR. )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
<PAGE> 2
BANNUS B. HUDSON )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
JOHN L. ROY )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
PHILIP E. BEEKMAN )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
GILBERT HAHN, JR. )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
ROGER L. HOWE )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
THOMAS LACO )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
- 2 -
<PAGE> 3
PHYLLIS S. SEWELL )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
JOSEPH H. ANDERER )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
LORRENCE T. KELLAR )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
Defendants. )
- -------------------------------------
Plaintiff, by his attorneys, for his Complaint alleges, upon information
and belief, except as to the allegations contained in paragraph 2, which
plaintiff alleges upon knowledge, as follows:
NATURE OF ACTION
1. Plaintiff brings this class action on behalf of himself and all
other shareholders of defendant The United States Shoe Corporation ("U.S.
Shoe" or the "Company") similarly situated (the "Class") for declaratory and
injunctive relief, and/or compensatory damages arising from defendants' breach
of fiduciary duty to the shareholders of U.S. Shoe. As detailed herein,
defendants have acted contrary to the best interests of U.S. Shoe's public
shareholders by,1
- 3 -
<PAGE> 4
among other things, failing to investigate and consider fully offers by
Luxottica Group SpA ("Luxottica") to purchase all outstanding shares of the
Company and offers by Nine West Group, Inc. ("Nine West") to purchase the
Company's footwear division. Defendants, who own or control less than 2% of
the Company's common stock outstanding, have taken these unlawful actions in
violation of their fiduciary duties, for the purpose of entrenching themselves
in managerial and directorial positions.
PARTIES
2. Plaintiff Bruce Allen owned, at all times relevant herein, 200
shares of U;.S. Shoe common stock.
3. Defendant U.S. Shoe is an Ohio corporation with principal executive
offices located at One Eastwood Drive, Cincinnati, Ohio 45227. U.S. Shoe is
a specialty retailer of optical products, footwear and women's apparel. As of
April 4, 1994, the Company had 45,927,585 shares of common stock outstanding.
4. At all relevant times herein, defendant Bannus B. Hudson ("Hudson")
was President and Chief Executive Officer of the Company, as well as a member
of its Board of Directors (the "Board"). For the fiscal year ended January
31, 1994, Hudson received cash compensation totalling $586,984. As of April
4, 1994, Hudson owned or controlled less than 0.5% of the U.S. Shoe common
stock outstanding.
5. At all relevant times herein, defendant Charles S. Mechem, Jr. was
Chairman of the Board of U.S. Shoe. As of April 4, 1994, Mechem owned or
controlled less than .04% of the U.S. Shoe common stock outstanding.
- 4 -
<PAGE> 5
6. At all relevant times herein, defendant Albert M. Kronick was a
member of the Board, as well as a member of the Board's Audit Committee and
Chairman of its Nominating Committee. As of April 4, 1994, Kronick owned or
controlled less than .1% of the U.S. Shoe common stock outstanding.
7. At all relevant times herein, defendant John L. Roy was a member of
the Board, as well as a member of its Nominating Committee. As of April 4,
1994, Roy owned or controlled less than .08% of the U.S. Shoe common stock
outstanding.
8. At all relevant times herein, defendant Philip E. Beekman was a
member of the Board, as well as the Board's Compensation Committee. As of
April 4, 1994, Beekman owned or controlled less than .007% of the U.S. Shoe
common stock outstanding.
9. At all relevant times herein, defendant Gilbert Hahn, Jr. was a
member of the Board, as well as Chairman of the Board's Audit Committee. As
of April 4, 1994, Hahn owned or controlled less than .06% of the U.S. Shoe
common stock outstanding.
10. At all relevant times herein, defendant Roger L. Howe was a member
of the Board, as well as the Board's Audit Committee. As of April 4, 1994,
Howe owned or controlled less than .04% of the U.S. Shoe common stock
outstanding.
11. At all relevant times herein, defendant Thomas Laco was a member of
the Board, as well as the Board's Compensation Committee. As of April 4,
1994, Laco owned or controlled approximately .1% of the U.S. Shoe common stock
outstanding.
12. At all relevant times herein, defendant Phyllis S. Sewell was a
member of the Board, as well as the Board's Compensation Committee and
Nominating committee. As of April
- 5 -
<PAGE> 6
4, 1994, Sewell owned or controlled approximately .02% of the U.S. Shoe common
stock outstanding.
13. At all relevant times herein, defendant Joseph H. Anderer was a
member of the Board, as well as Chairman of the Board's Compensation Committee
and a member of the Board's Audit Committee. As of April 4, 1994, Anderer
owned or controlled approximately .07% of the U.S. Shoe common stock
outstanding.
14. At all relevant times herein, defendant Lorrence T. Kellar was a
member of the Board. As of April 4, 1994, Kellar owned or controlled
approximately .04% of the U.S. Shoe common stock outstanding.
15. The defendants referred to in paragraphs 4 through 14, above, are
collectively referred to herein as the "Individual Defendants". As of April
4, 1994, the Individual Defendants owned or controlled less than 2% of the
U.S. Shoe common stock outstanding.
CLASS ACTION ALLEGATIONS
16. Plaintiff brings this action pursuant to Rule 23 of the Ohio Rules
of Civil Procedure, for declaratory, injunctive and other relief on his own
behalf and as a class action, on behalf of all common stockholders of U.S.
Shoe (except defendants herein and any person, firm, trust, corporation or
other entity related to or affiliated with any of the defendants ) and their
successors in interest, who are being deprived of the opportunity to maximize
the value of their U.S. Shoe shares by the wrongful acts of the defendants
described herein.
17. This action is properly maintainable as a class action for the
following reasons:
- 6 -
<PAGE> 7
(a) The class of stockholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable. As
of April 4, 1994, U.S. Shoe had 45,927,585 shares of common stock, duly issued
and outstanding, which traded on the New York Stock Exchange and were owned by
thousands of shareholders. Members of the Class are scattered throughout the
United States.
(b) There are questions of law and fact which are common to the
members of the Class and which predominate over any questions affecting any
individual members. The common questions include, inter alia, the following:
(i) whether the defendants, in bad faith and for improper
motives, have prevented members of the Class from receiving the
maximum value achievable for their shares of U.S. Shoe common
stock;
(ii) whether the defendants have failed to consider, in good
faith, the adequacy of unsolicited offers for the Company, including
the adequacy of Luxottica's offer to acquire the Company, including
the adequacy of Luxottica's offer to acquire the Company and Nine
West's offer to purchase the Company's footwear division;
(iii) whether the defendants have engaged in conduct
constituting unfair dealing to the detriment of the public
stockholders of U.S. Shoe; and
(iv) whether the defendants have breached their fiduciary and
common law duties owed by them to plaintiff and the other members of
the Class, including their duties of care and loyalty.
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<PAGE> 8
(c) The claims of plaintiff are typical of the claims of the other
members of the Class, and plaintiff has no interests that are adverse or
antagonistic to the interests of the Class.
(d) Plaintiff is committed to the vigorous prosecution of this
action and has retained competent counsel experienced in litigation of this
nature. Accordingly, plaintiff is an adequate representative of the Class and
will fairly and adequately protect the interests of the Class.
(e) The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish incompatible
standards of conduct for the party opposing the Class.
(f) Defendants have acted and are about to act on grounds generally
applicable to the Class, thereby rendering final injunctive or corresponding
declaratory relief appropriate with respect to the Class as a whole.
(g) Plaintiff anticipates that there will be no difficulty in the
management of this litigation. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy.
CLAIM FOR RELIEF
18. U.S. Shoe is a specialty retailing company that operates
approximately 2,333 retail outlets and leased departments in the United
States, Puerto Rico and Canada. Its business is divided into three divisions
including optical, footwear and women's apparel. The optical
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<PAGE> 9
division includes LensCrafters, which is the largest group of optical
superstores in North America. The footwear and women's apparel divisions
include such familiar names as Casual Corner, Pappagallo, Capezio and Easy
Spirit.
19. While U.S. Shoe's optical division has been highly successful in
recent years, its other divisions have met with only mixed success. For the
fiscal year ended January 31, 1995, the optical division generated
approximately $707 million in revenues, a 13 percent increase from the year
before, and accounted for 34 percent of the Company's total revenue of
approximately $2.09 billion. The Company's footwear division also fared well,
generating approximately $261.7 million in revenues, a 6.7 percent increase
from the prior year. In contrast, the apparel division, which is the
Company's largest, experienced a decline in sales in fiscal 1994, generating
only approximately $1.13 billion in revenues, a 7.5 percent decrease from the
prior year. As a result of the apparel division's poor performance, U.S. Shoe
expects to report disappointing earnings for fiscal 1994 of between 29 and 34
cents per share, far below analysts' recent estimates of 52 cents per share.
As reported in The Wall Street Journal on March 2, 1995, defendant Hudson
acknowledged the apparel division's poor performance and stated that "the
majority of our wounds are self-inflicted. There's no reason why we can't
compete and be very successful and very profitable in that department."
20. As a result of the inconsistent performances among U.S. Shoe's
different divisions, the Company's management has received a number of
overtures from entities who view U.S. Shoe as an attractive takeover candidate
and wish to strategically acquire certain of its divisions or the entire
Company. Each of these offers, while attractive to U.S. Shoe's shareholders,
has been ignored or rejected by the Company's management, whose motivations
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<PAGE> 10
are not to maximize shareholder value (collectively, the Company's Board of
Directors owns less than 2 percent of its common stock) but, rather, to
entrench themselves in their positions or to seek break-up opportunities for
the Company that would provide management with hefty "golden parachutes."
21. U.S. Shoe was first approached with an acquisition proposal in
August, 1994, when Nine West, a leading designer, developer and marketer of
woman's shoes, offered $425 million to purchase the Company's footwear
division. This offer was summarily rebuffed by U.S. Shoe's management after
little or no consideration of its merits.
22. In the wake of this news, angry U.S. Shoe institutional and other
shareholders put pressure on the Company to entertain Nine West's advances.
For example, in early December, 1994, Wyser-Pratte & Co. ("Wyser-Pratte"),
which owns or controls approximately 752,000 shares of U.S. Shoe common stock,
filed a resolution demanding that U.S. Shoe accept Nine West's $425 million
offer and also consider spinning off its apparel and optical divisions.
23. As a result of the shareholder outcry, U.S. Shoe announced on
December 16, 1994 that it was again engaged in confidential discussions
regarding the potential sale of its footwear division to Nine West. Subject
to completion of its due diligence, Nine West was considering a purchase price
of $600 million plus warrants, significantly raising its previous offer of
$425 million. Commenting on the deal, Nine West's president and co-chairman
Vincent Camuto ("Camuto") stated: "it is, in a sense, a no-brainer . . . no
one can deny that there are great synergies between these two shoe companies."
As reported in the Wall Street Journal on December 19, 1994, Todd Slater, an
analyst at U.B.S. Securities, Inc., said, "its an exceptionally attractive
offer for a division that has been in decline for more than 10 years."
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<PAGE> 11
24. At the same time that U.S. Shoe's management was supposedly
negotiating with Nine West, they were also considering various actions to
ensure they would remain entrenched in their directorial and executive
positions. For example, on January 25, 1995, The Cincinnati Post reported
that U.S. Shoe shareholders were fearful that the Company might try to
eliminate cumulative voting in order to keep adversarial directors off the
Board. Cumulative voting permits a shareholder to vote all its shares
multiplied by the number of directors up for re-election for just one
director, thus facilitating the election of an outside director. As reported
in the article, Shareholder Wyser-Pratte stated that an outside director would
help ensure that U.S. Shoe uses the proceeds from the proposed Nine West deal
to declare a special dividend or buy back shares, rather than giving
management "a 625 million golden parachute."
25. On February 17, 1995, in a press release reported on Dow Jones
Business Wire, U.S. Shoe announced that its negotiations with Nine West had
terminated without an agreement due to differences over price. In a statement
issued by Nine West, president and co-chairman Camuto stated:
We are very disappointed that the negotiations have been
terminated. Although we were very hopeful that a
transaction would be completed, the information we
received during the due-diligence process simply does not
justify our previously proposed purchase price of $600
million plus warrants for 1.85 million shares. We remain
interested in acquiring U.S. Shoe's footwear business and
are willing to promptly move forward at the price of $525
million plus warrants for 3.7 million shares. We have
communicated this to U.S. Shoe, but they have rejected us.
26. U.S. Shoe's refusal to consider Nine West's new offer was negatively
received by the investing public. As a result of the news, U.S. Shoe shares
fell $3.25 to close at $17.25
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<PAGE> 12
per share, a drop of more than 15 percent. As reported in the Cincinnati Post
on February 22, 1995, many shareholders were angered over U.S. Shoe's
rejection of Nine West's $525 million plus warrants offer. Shareholder Wyser-
Pratte argued that the difference between Nine West's original offer of $600
million and the new offer, after taxes and when the value of the warrants are
estimated, is not very much: "The spread between the two is so insignificant
that we think it's still doable."
27. U.S. Shoe's refusal to consider the Nine West deal also had a
negative impact on the Company's credit rating. On February 22, 1995,
Standard & Poor's announced that it had lowered its rating of U.S. Shoe's
senior debt to BB+ from BBB-. The rating agency stated that its outlook for
U.S. Shoe was negative, considering the decline in the Company's operating
performance and its inability to complete a deal with Nine West for the sale
of its footwear division.
28. Nine West was not the only company with whom U.S. Shoe has refused
to negotiate in good faith. Beginning in December, 1994, U.S. Shoe began to
receive overtures from Luxottica, an Italian company that designs,
manufactures and markets eyeglass frames and sunglasses world-wide. Luxottica
expressed a strong interest in exploring an acquisition of U.S. Shoe by means
of an all cash merger transaction involving the payment to U.S. Shoe's
shareholders of a price representing a substantial premium above the then
current market value of the Company's common stock. In order to facilitate
that process, Luxottica asked for private information about U.S. Shoe. In
response, the Company refused to negotiate with Luxottica and refused to
provide the requested information unless Luxottica executed a standstill
agreement that would have precluded it from proposing a tender offer to U.S.
Shoe's shareholders for a
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<PAGE> 13
minimum of two years. This request for a standstill agreement was solely
designed as a means of entrenchment, and was completely unnecessary given the
fact that the Company has in place a "Share Purchase Rights Plan," which is a
type of "poison pill" preventing consummation of any hostile takeover attempt.
In a letter sent by Luxottica to U.S. Shoe on March 3, 1995, Luxottica stated
that "we consider this response to be inconsistent with both our objectives
and the best interest of your shareholders."
29. As a result of U.S. Shoe's refusal to negotiate with Luxottica in
good faith regarding a potential acquisition, Luxottica was forced to go
directly to the Company's shareholders with a tender offer. In that regard,
Luxottica announced, on March 3, 1995, that it was launching a tender offer
bid for U.S. Shoe at $24 per share, or at least $1.11 billion. The offer
expires on March 30, 1995 and is contingent on at least two-thirds of U.S.
Shoe's shares being tendered. Luxottica stated that it wants the Company for
its LensCrafters division, adding that it would sell U.S. Shoe's footwear and
women's apparel division. Luxottica sent a letter to U.S. Shoe stating:
We are disappointed by U.S. Shoe's failure to respond
satisfactorily to our proposal to negotiate a merger
transaction and our request for access to non-public
information. While we would have preferred to negotiate a
transaction with you, we feel that we have no choice but
to present a proposal directly to your shareholders.
Luxottica also announced that it had taken "preliminary steps" to call a
special meeting of U.S. Shoe shareholders and plans to propose that all
current directors of the Company be removed and replaced by a slate of
Luxottica nominees.
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<PAGE> 14
30. As a result of this news, U.S. Shoe common stock traded as high as
$24 7/8 per share and closed at $24 1/4 per share, an increase of more than $6
per share from the previous day's close. More than 7.8 million shares were
traded, 24 times the stock's average daily volume for the past three months.
31. In response to Luxottica's tender offer announcement, U.S. Shoe
announced that it would be sending a letter to its shareholders stating that
the Board of Directors is currently "considering" the tender offer and will
advise shareholders of its recommendation on or before March 16, 1995.
32. As described above, U.S. Shoe' management has shown a pattern of
entrenchment and repeated failure to consider in good faith acquisition
proposals which may be in the best interests of U.S. Shoe's public
shareholders. Accordingly, there is a substantial likelihood that, in the
absence of this Court's intervention, the defendants will continue this
pattern and refuse to consider in good faith Luxottica's tender offer and
other acquisition offers that may arise. By virtue of these acts and conduct,
the defendants are carrying out a preconceived plan to prevent the sale of the
Company to any party, including Luxottica, in violation of their fiduciary
duties and to the detriment of U.S. Shoe's public shareholders. As a result,
the public common stockholders of U.S. Shoe will be wrongfully deprived of
their ability to avail themselves of the substantial premium included in
Luxottica's tender offer, and other acquisition offers which may materialize,
thereby depriving them of the maximum value of their shares that can be
achieved.
33. The primary objective of defendants' plan to thwart acquisition
offers for the Company is to entrench themselves in managerial and directorial
positions, to the detriment of U.S. Shoe's shareholders. Indeed, by their
actions, defendants have acted in a manner to
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<PAGE> 15
prevent the shareholders of U.S. Shoe from availing themselves of offers for
their stock which are substantially higher than its current market price.
34. The defendants have committed further breaches of their fiduciary
duty to the public stockholders of U.S. Shoe, by (i) failing to undertake an
adequate evaluation of U.S. Shoe's worth as a potential merger or acquisition
candidate; (ii) failing to give adequate consideration to the offer for U.S.
Shoe submitted by Luxottica; (iii) failing to give adequate consideration to
the offer for U.S. Shoe's footwear division submitted by Nine West; (iv)
considering and/or adopting extreme measures to prevent the sale of the
Company; and/or (v) failing to act so that the interests of the public
stockholders of U.S. Shoe were protected.
35. Unless enjoined by this Court, defendants will continue to breach
fiduciary duties owed to plaintiff and the other members of the Class, and aid
and abet such breaches, and will not only prevent U.S. Shoe shareholders from
selling their shares to Luxottica for a fair and adequate price, but also will
prevent other parties from making offers to acquire U.S. Shoe, all to the
irreparable harm of the Class.
36. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff demands judgment and relief in his favor and in
favor of the Class and against defendants, as follows:
A. Declaring that this action be certified as a proper class
action and certifying plaintiff as Class representative;
B. Declaring that the defendants and each of them have committed a
gross abuse of trust and have breached their fiduciary duties to plaintiff and
other members of the Class;
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<PAGE> 16
C. Ordering that the defendants take appropriate measures to
assure that the Luxottica tender offer and any other offers for the
acquisition of U.S. Shoe or any of its divisions is considered and evaluated
by U. S. Shoe's management adequately and in good faith in order to maximize
shareholder value;
D. Preliminarily and permanently enjoining the defendants from
taking any action to change U.S. Shoe's cumulative voting rules;
E. Awarding compensatory damages in an amount to be determined
upon the proof submitted to the Court;
F. Awarding the costs and disbursements of this action;
G. Awarding plaintiff's counsel fees; and
H. Awarding such other and further relief which the Court may deem
just and proper.
DATED this 6th day of March, 1995.
STRAUSS & TROY
By: _______________________________________
Richard S. Wayne (0022390)
William K. Flynn (0029536)
Allan Jefferson Fossett (0042014)
2100 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202-4186
(513) 621-2120
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<PAGE> 17
OF COUNSEL:
BERNSTEIN LITOWITZ BERGER & GROSSMAN
Vincent R. Cappucci
Henry A. Diamond
1285 Avenue of the Americas
New York, NY 10019
(212) 554-1400
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<PAGE> 18
Richard S. Wayne (0022390)
William K. Flynn (0029536)
Allan Jefferson Fossett (0032014)
Trial Attorneys for Plaintiff
COURT OF COMMON PLEAS
HAMILTON COUNTY, OHIO
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
GLENN FREEDMAN )
c/o 100 Park Avenue ) Civil Action No. A9501171
New York, NY 10017-5563 ) ( ______________________, J.)
)
and )
)
FEROJE TEJAHI )
c/o 275 Madison Avenue, 35th Fl. )
New York, NY 10016 ) CLASS ACTION COMPLAINT
)
and )
)
DAVID LAZARUS )
c/o P. O. Box 8157 )
2690 Madison Road )
Cincinnati, OH 45208 )
)
and )
)
BLAIR HAGER )
1719 Avenue K )
Brooklyn, NY 11230 )
)
and )
)
BARRY ADELMAN )
180 West End Avenue )
New York, NY 10023 )
)
Plaintiffs, )
)
vs. )
)
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<PAGE> 19
ALBERT M. KRONICK )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
CHARLES S. MECHEM, JR. )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
JOHN L. ROY )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
PHILIP E. BEEKMAN )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
GILBERT HAHN, JR. )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
ROGER L. HOWE )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
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<PAGE> 20
THOMAS LACO )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
PHYLLS S. SEWELL )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
JOSEPH H. ANDERER )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
BANNUS B. HUDSON )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
LORRENCE T. KELLAR )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
UNITED STATES SHOE CORP. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
Defendants.
- -------------------------------------
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<PAGE> 21
Plaintiffs, by their attorneys, allege upon information and belief,
except as to paragraph 1 which is alleged upon knowledge, as follows:
THE PARTIES
1. Plaintiffs are the owners of shares of the common stock of
defendant United States Shoe Corp. and have been the owners continuously of
such shares since prior to the wrongs complained of herein.
2. Defendant United States Shoe Corp. ("U.S. Shoe" or the
"Company") is a corporation duly existing and organized under the laws of the
State of Ohio, with its principal offices located at One Eastward Drive,
Cincinnati, Ohio. The Company operates diversified specialty retail stores
selling footwear, optical goods and apparel.
3. As of October 29, 1994 there were over 46 million shares of the
Company's common stock outstanding held by over 11,000 shareholders of record.
4. Defendant Charles S. Mechem, Jr. ("Mechem") is and at all times
relevant hereto has been Chairman of the Board of U.S. Shoe.
5. Defendant Bannus B. Hudson ("Hudson") is and at all times
relevant hereto has been the President, Chief Executive Officer and a director
of U.S. Shoe.
6. Defendants Albert M. Kronick ("Kronick"), John L. Roy ('Roy"),
Philip E. Beekman ("Beekman"), Roger L. Howe ("Howe") Gilbert Hahn, Jr.
("Hahn"), Thomas Laco ("Laco"), Phylls S. Sewell ("Sewell"), Joseph H. Anderer
("Anderer") and Lorrence T. Kellar ("Kellar") have at all times relevant
hereto been directors of U.S. Shoe.
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<PAGE> 22
7. The defendants referred to in paragraphs 4 - 6 above are
collectively referred to herein as the "Individual Defendants."
8. By reason of the above Individual Defendants, positions with
the Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiffs and the other public stockholders of U.S. Shoe
and owe plaintiffs and the other members of the class the highest obligations
of good faith, fair dealing, due care, loyalty and full, candid and adequate
disclosure.
CLASS ACTION ALLEGATIONS
9. Plaintiffs bring this action as a class action pursuant to Ohio
R. Civ. P. 23 on behalf of themselves and all U.S. Shoe securities holders or
their successors in interest, similarly situated (the "Class"). Excluded from
the class are defendants herein and any person, firm, trust, corporation, or
other entity related to or affiliated with any of the defendants.
10. This action is properly maintainable as a class action.
11. The class is so numerous that joinder of all members is
impracticable. As of October 26, 1994 there were approximately 46 million
shares of U.S. Shoe common stock outstanding held by over 11,000 shareholders
of record.
12. There are questions of law and fact which are common to the
class and which predominate over questions affecting any individual class
members. The common questions include, inter alia, the following:
(a) whether defendants have taken all reasonable steps to
enhance the value of U.S. Shoe as an acquisition candidate;
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<PAGE> 23
(b) whether certain defendants have conflicts in seeking to
maximize U.S. Shoe's attractiveness and value as an acquisition candidate;
(c) whether U.S. Shoe has taken all reasonable steps to
neutralize any conflicts of interest among the U.S. Shoe Board.
(d) whether plaintiffs and the other members of the class will
be irreparably damaged if defendants fail to take all necessary steps to
maximize the value of U.S. Shoe; and
(e) whether defendants have breached, or aided and abetted the
breach of fiduciary and other common law duties owed by them to plaintiffs and
the other members of the class.
13. The plaintiffs are committed to prosecuting this action and
have retained competent counsel experienced in litigation of this nature. The
claims of plaintiffs are typical of the claims of the other members of the
class and plaintiffs have the same interests as the other members of the
class. Accordingly, plaintiffs are an adequate representative of the class
and will fairly and adequately protect the interests of the class.
14. Plaintiffs anticipate that there will be no difficulty in the
management of this litigation.
15. Defendants have acted on grounds generally applicable to the
class with respect to the matters complained of herein, thereby making
appropriate the relief sought herein with respect to the class as a whole.
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<PAGE> 24
SUBSTANTIVE ALLEGATIONS
16. U.S. Shoe is made up of three divisions; a shoe manufacturing
division and two retail divisions - LensCrafter and women's apparel sold
through, inter alia, its Casual Corner and Petite Sophisticates stores.
17. From approximately late 1993 to December 1994, U.S. Shoe's
strategy has been to restructure its apparel and footwear quarters. The
restructuring of operations included cutting costs, replacing managers and
consolidating its suppliers. While the shoe business has responded partially
to the restructuring with improved results, the Company's women's apparel
group's operations have continued to generate losses.
18. Following a restructuring in fiscal 1994 and the installation
of a new management team, U.S. Shoe has been banking on a turnaround in its
women's apparel division in fiscal 1995 to increase the Company's earnings.
By late fall 1994, it was apparent that the anticipated turnaround had failed
to arrive.
19. In the third quarter of 1994 ended October 19, 1994, the
Company's women's apparel group, led by the 689-store Casual Corner chain and
the 376-store Petite Sophisticates chain turned in a $12.1 million loss. The
losses in the apparel division more than offset gain in the footwear and
optical segments, thus dragging down the Company's overall results.
20. By November 28, 1994, Standard & Poors Ratings Group had placed
U.S. Shoe on CreditWatch with negative implications. On December 19, 1994,
Standard & Poors warned that if U.S. Shoe did not conclude the sale of its
shoe division to Nine West for $600 million dollars, Standard & Poors had
determined to lower its rating of U.S. Shoe debt.
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<PAGE> 25
Accordingly, to Standard & Poors, the downgrade would be based on weak
performance measures and Standard & Poors growing doubt that the Company would
succeed in turning around its troubled apparel divisions.
21. In December 1994, U.S. Shoe which throughout 1994, had
represented that its plan to revive the apparel and shoe segments depended on
the cash flow generated by healthier operations including its optical segment,
abandoned that strategy and began to dismantle the Company by agreeing to sell
the shoe division to Nine West Group Inc. during December 1994 U.S. Shoe
entered into talks with Nine West Group, Inc. ("Nine West") to buy U.S. Shoe's
footwear operations unit for $600 million pre-tax plus warrants to buy 1.85
million shares of Nine West stock.
22. In December 1994, Luxottica Group S.p.A. ("Luxottica")
approached U.S. Shoe segment regarding a sale of the entire company and
defendants refused to provide confidential information to Luxottica.
23. During December 1994, Luxottica approached U.S. Shoe concerning
a proposed transaction, but was rebuffed. U.S. Shoe urged a "standstill
agreement" to prevent Luxottica from taking its bid directly to shareholders
for two years. Luxottica refused.
24. Having abandoned the failed restructuring strategy, the
individual defendants' fiduciary duties require them to take all reasonable
steps to minimize the value of U.S. Shoe stock by negotiating with parties
interested in the acquisition of all or parts of the entire Company.
25. During February 1995, U.S. Shoe ended talks with Nine West when
Nine West lowered its offer for the Company's shoe division to $525 million.
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<PAGE> 26
26. On March 2, 1995, U. S. Shoe indicated that it expects to
report a fourth-quarter loss of 18 cents to 23 cents a share. The forecasted
loss was much wider than analysts' views of a loss of 2 cents a share for the
fourth quarter ended January 28, 1995. In the year-ago fourth quarter, U.S.
Shoe reported net income of 18 cents a share. U.S. Shoe blamed weak results
from its women's apparel division for the poor fourth quarter.
27. On March 3, 1995 Luxottica made a tender offer to buy U.S. Shoe
for $24 a share. The offer is worth an estimated $1.12 billion. Luxottica
has taken preliminary steps to call a special meeting of U.S. Shoe
shareholders and plans to propose that all current directors of the Company be
removed and replaced by a slate of Luxottica nominees.
28. According to news reports on March 3, 1995, U.S. Shoe has
received expressions of interest from several parties concerning a proposed
transaction with U.S. Shoe.
29. U.S. Shoe's Poison Pill Plan (denominated as the "Preference
Shares Purchase Rights") was initially adopted by U.S. Shoe's Board of
Directors on March 31, 1986, without shareholder approval. On April 14, 1986,
U.S. Shoe implemented the Poison Pill Plan by distributing a dividend of one
preference share purchase right a Right) for each outstanding share of U.S.
Shoe.
30. On March 23, 1988, U.S. Shoe amended its Poison Pill Plan again
acting without shareholder approval.
31. U.S. Shoe's Poison Pill Plan, both as initially adopted and as
amended, is designed to impose substantial economic penalties on any entity,
like Luxottica that attempts to acquire U.S. Shoe in a transaction not
approved by U.S. Shoe's Board of Directors. Thus, the Poison Pill Plan
affords U.S. Shoe's Board the power effectively to prevent U.S. Shoe's
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<PAGE> 27
shareholders from receiving the benefits of plaintiffs' Tender Offer
regardless of its merit or the desires of U.S. Shoe's shareholders to sell
their shares pursuant thereto.
32. U.S. Shoe's Poison Pill Plan, however, empowers U.S. Shoe's
Directors to redeem the Rights and remove the threat of overwhelming dilution
that they carry. U.S. Shoe's Board may at its discretion redeem the Rights at
the nominal price of five cents ($0.05) per Right at any time on or prior to
the time a person together With its affiliates and associates, becomes the
beneficial owner of 20 percent or more of U.S. Shoe's outstanding shares (an
"Acquiring Person").
33. In its Offer to Purchase, Luxottica requested that U.S. Shoe's
Board of Directors redeem the Rights. U.S. Shoe's has not acted to redeem the
Rights.
34. U.S. Shoe uses and maintains the Rights solely in order to
employ the "flipover" and "flip-in" features of these Rights, described
hereinafter, which are designed to deter tender offerors, like Luxottica,
whose offers have not been approved by U.S. Shoe's Board of Directors.
35. The Poison Pill Plan has certain anti-takeover effects in that
the Rights will cause substantial dilution to the ownership rights of any
person who attempts to acquire U. S. Shoe on terms not approved by U.S. Shoe's
Board of Directors. This dilution would impose substantial economic penalties
on any person who attempts to take control of U.S. Shoe in a transaction not
approved by U.S. Shoe's Board of Directors and thus upon the interest of the
shareholder plaintiffs herein.
36. In the face of Luxottica's all cash all shares, premium,
noncoercive Tender Offer, U.S. Shoe's Board of Directors likely will continue
to refuse to redeem the Rights despite
- 10 -
<PAGE> 28
Luxottica's demand that they do so. U.S. Shoe's Board of Directors is
employing the Poison Pill Plan to obstruct Luxottica's offer, to deny to
plaintiffs and the Class any meaningful opportunity to decide for themselves
whether to tender their shares, and to entrench the incumbent Board.
37. U.S. Shoe's Board of Directors has a fiduciary duty to redeem
the rights to allow Luxottica's Tender Offer to proceed. Unless the Poison
Pill is redeemed, plaintiffs and the Class may be denied the opportunity to
exercise their right to decide for themselves whether to accept the benefits
of plaintiffs' Tender Offer.
38. As a result of their ownership and positions at U.S. Shoe,
defendants have interests different from, and in conflict with, U.S. Shoe
stockholders to whom they owe a fiduciary duty.
39. There has been no announcement of the formation of an
independent or special committee of U.S. Shoe to evaluate the alternatives
available to U.S. Shoe. Accordingly, it may be presumed that discussions with
potential acquirors are being handled by the conflicted defendants.
40. Among the potential acquirors who have reportedly expressed
interest in purchasing or entering into a business combination with U.S. Shoe
are: (1) Luxottica; and (2) Nine West.
41. Each of these potential acquirors could present U.S. Shoe with
a broad range of alternatives for U.S. Shoe stockholders which need to be
analyzed by independent
- 11 -
<PAGE> 29
directors and advisors who are unfettered by concerns for the interest of any
affiliated shareholders.
42. The independent director defendants, if any, have thus far
failed to announce their participation in, or oversight of, discussions with
potentially interested acquirors of U.S. Shoe and have failed to announce any
active auction or open bidding procedures best calculated to maximize
shareholder value.
43. The defendants have not, in accordance with their fiduciary
duties:
(a) acted independently so that the interests of U.S. Shoe
public shareholders would be protected;
(b) adequately ensured that no conflicts of interest exist or
if such conflicts exist to ensure that all conflicts would be resolved in the
best interests of U.S. Shoe public shareholders; and
(c) taken all appropriate steps to enhance U.S. Shoe
restructuring or recapitalization candidate.
44. Because the Individual Defendants dominate and control the
business and corporate affairs of U.S. Shoe and are in possession of private
corporate information concerning U.S. Shoe's assets, businesses and future
prospects, there exists an imbalance and disparity of knowledge and economic
power between them and the public stockholders of U.S. Shoe which makes it
inherently unfair for them to pursue any proposed transaction which will
benefit the interests of some large stockholders disproportionately to the
exclusion of other means of maximizing stockholder value.
- 12 -
<PAGE> 30
45. Unless enjoined by this Court, the defendants will continue to
breach their fiduciary duties owed to plaintiffs and the other members of the
Class, and may consummate the proposed transaction which will exclude the
Class from its fair proportionate share of U.S. Shoe's valuable assets and
businesses, and/or benefit them in the unfair manner complained of herein, all
to the irreparable harm of the Class, as aforesaid.
46. Plaintiffs and the Class have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment, as follows:
A. Declaring this to be a proper class action;
B. Ordering defendants to carry out their fiduciary duties to
plaintiffs and the other members of the Class, including those of due care and
candor;
C. Rescinding any transactions effected by the defendants in an
unfair manner and for an unfair price and in the event such transaction is
consummated prior to trial, awarding rescissory damages;
D. Enjoining the complained of transaction or any related
transactions;
E. Ordering defendants, jointly and severally, to pay to
plaintiffs and the Class all damages suffered and to be suffered by them as a
result of the acts and transactions alleged herein;
- 13 -
<PAGE> 31
F. Ordering defendants, jointly and severally, to account to
plaintiffs and the Class for all profits realized and to be realized by them
as a result of the transaction complained of and pending such accounting to
hold such profits in a constructive trust for the benefit of plaintiffs and
the other members of the class;
G. Awarding plaintiffs the costs and disbursements of the action,
including allowance for plaintiffs' reasonable attorneys' and experts' fees;
and
H. Granting such other and further relief as may be just and
proper.
Dated: March 7, 1995 Respectfully submitted,
STRAUSS & TROY
By: _______________________________________
Richard S. Wayne (0022390)
William K. Flynn (0029536)
Allan Jefferson Fossett (0042014)
2100 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202-4186
(513) 621-2120
OF COUNSEL:
SCHIFFRIN & CRAIG, LTD.
Three Bala Plaza East
Suite 500
Bala Cynwyd, PA 19004
(610) 667-7706
GOODKIND LABATON RUDOFF & SUCHAROW
Lawrence Sucharow
100 Park Avenue
New York, NY 10017-5563
(212) 907-0700
WEISS & YOURMAN
Joseph H. Weiss
319 Fifth Avenue
New York, NY 10016
(212) 532-4171
- 14 -
<PAGE> 32
LAW OFFICES OF ZACHARY ALAN STARR
Zachary Alan Starr
275 Madison Avenue, 35th Fl.
New York, NY 10016
(212) 808-5535
BERNSTEIN LIEBHARD & LIFSHITZ
Mel E. Lifshitz
274 Madison Avenue
New York, NY 10016
(212) 779-1414
MICHAEL G. KOHN
P. O. Box 8157
2690 Madison Road
Cincinnati, OH 45208
(513) 631-6159
LAW FIRM OF HARVEY GREENFIELD
Harvey Greenfield
300 Park Avenue, 19th Floor
New York, NY 10022
(212) 832-8880
JURY DEMAND
Plaintiffs demand a trial by jury for all issues included herein.
_____________________________________
Richard S. Wayne (0022390)
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<PAGE> 33
Richard S. Wayne (0022390)
William K. Flynn (0029536)
Allan Jefferson Fossett (0042014)
Trial Attorneys for Plaintiffs
COURT OF COMMON PLEAS
HAMILTON COUNTY, OHIO
FREDERICK R. SCHWARTZ )
4289 Cubbard Bridge ) CIVIL ACTION NO. A9501172
Bloomfield, MI 48302 )
) Judge _________________
and )
)
DAVID HOLMES )
1009 Owl Place )
Cherry Hill, NJ 08003, ) CLASS ACTION COMPLAINT
)
Plaintiffs, )
)
vs. )
)
ALBERT M. KRONICK )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
CHARLES S. MECHEM, JR. )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
JOHN L. ROY )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
PHILIP E. BEEKMAN )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
GILBERT HAHN, JR. )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
<PAGE> 34
)
and )
)
ROGER L. HOWE )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
THOMAS LACO )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
PHYLLS S. SEWELL )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
JOSEPH H. ANDERER )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
BANNUS B. HUDSON )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
LORRENCE T. KELLAR )
c/o United States Shoe Corp. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
and )
)
UNITED STATES SHOE CORP. )
One Eastwood Drive )
Cincinnati, OH 45227 )
)
Defendants. )
- 2 -
<PAGE> 35
Plaintiffs, by their attorneys, allege upon information and belief,
except as to paragraph 1 which is alleged upon knowledge, as follows:
THE PARTIES
1. Plaintiffs are the owners of shares of the common stock of defendant
United States Shoe Corp. and have been the owners continuously of such shares
since prior to the wrongs complained of herein.
2. Defendant United States Shoe Corp. (U.S. Shoe" or the "Company") is
a corporation duly existing and organized under the laws of the State of Ohio,
with its principal offices located at One Eastward Drive, Cincinnati, Ohio.
The Company operates diversified specialty retail stores selling footwear,
optical goods and apparel.
3. As of October 29, 1994 there were over 46 million shares of the
Company's common stock outstanding held by over 11,000 shareholders of record.
4. Defendant Charles S. Mechem, Jr. ("Mechem") is and at all times
relevant hereto has been Chairman of the Board of U.S. Shoe.
5. Defendant Bannus B. Hudson ("Hudson") is and at all times relevant
hereto has been the President, Chief Executive Officer and a director of U.S.
Shoe.
6. Defendants Albert M. Kronick ("Kronick"), John L. Roy ("Roy"),
Philip E. Beekman ("Beekman"), Roger L. Howe ("Howe"), Gilbert Hahn, Jr.
("Hahn"), Thomas Laco ("Laco"), Phylls S. Sewell ("Sewell"), Joseph H. Anderer
("Anderer") and Lorrence T. Kellar ("Kellar") have at all times relevant
hereto been directors of U.S. Shoe.
7. The defendants referred to in paragraphs 4-6 above are collectively
referred to herein as the "Individual Defendants."
8. By reason of the above Individual Defendants' positions with the
Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiffs and the other public stockholders of U.S. shoe
and owe plaintiffs and the other members of the class the highest obligations
of good faith, fair dealing, due care, loyalty and full, candid and adequate
disclosure.
- 3 -
<PAGE> 36
CLASS ACTION ALLEGATIONS
9. Plaintiffs bring this action as a class action pursuant to Ohio R.
Civ. P. 23 on behalf of themselves and all U.S. Shoe securities holders or
their successors in interest, similarly situated (the "Class"). Excluded from
the class are defendants herein and any person, firm, trust, corporation, or
other entity related to or affiliated with any of the defendants.
10. This action is properly maintainable as a class action.
11. The class is so numerous that joinder of all members is
impracticable. As of October 26, 1994 there were approximately 46 million
shares of U.S. Shoe common stock outstanding held by over 11,000 shareholders
of record.
12. There are questions of law and fact which are common to the class
and which predominate over questions affecting any individual class members.
The common questions include, inter alia, the following:
(a) whether defendants have taken all reasonable steps to enhance
the value of U.S. Shoe as an acquisition candidate;
(b) whether certain defendants have conflicts in seeking to
maximize U.S. Shoe's attractiveness and value as an acquisition candidate;
(c) whether U.S. Shoe has taken all reasonable steps to neutralize
any conflicts of interest among the U.S. Shoe Board.
(d) whether plaintiffs and the other members of the class will be
irreparably damaged if defendants fail to take all necessary steps to maximize
the value of U.S. Shoe; and
(e) whether defendants have breached, or aided and abetted the
breach of fiduciary and other common law duties owed by them to plaintiffs and
the other members of the class.
13. The Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature. The
claims of plaintiffs are typical of the claims of the other members of the
class and plaintiffs have the same interests
- 4 -
<PAGE> 37
as the other members of the class. Accordingly, plaintiffs are an adequate
representative of the class and will fairly and adequately protect the
interests of the class.
14. Plaintiffs anticipate that there will be no difficulty in the
management of this litigation.
15. Defendants have acted on grounds generally applicable to the class
with respect to the matters complained of herein, thereby making appropriate
the relief sought herein with respect to the class as a whole.
SUBSTANTIVE ALLEGATIONS
16. U.S. Shoe is made up of three divisions; a shoe manufacturing
division and two retail divisions-LensCrafter and women's apparel sold
through, inter alia, its Casual Corner and Petite Sophisticates stores.
17. From approximately late 1993 to December 1994, U.S. Shoe's strategy
has been to restructure its apparel and footwear quarters. The restructuring
of operations included cutting costs, replacing managers and consolidating its
suppliers. While the shoe business has responded partially to the
restructuring with improved results, the Company's women's apparel group's
operations have continued to generate losses.
18. Following a restructuring in fiscal 1994 and the installation of a
new management team, U.S. Shoe has been banking on a turnaround in its women's
apparel division in fiscal 1995 to increase the Company's earnings. By late
fall 1994, it was apparent that the anticipated turnaround had failed to
arrive.
19. In the third quarter of 1994 ended October 29, 1994, the Company's
women's apparel group, led by the 689-store Casual Corner chain and the 376-
store Petite Sophisticates chain turned in a $12.million loss. The losses in
the apparel division more than offset gain in the footwear and optical
segments, thus dragging down the Company's overall results.
20. By November 28, 1994, Standard & Poor's Rating Group had placed U.S.
Shoe on CreditWatch with negative implications. On December 19, 1994,
Standard & Poors warned that if U.S. Shoe did not conclude the sale of its
shoe division of Nine West for $600
- 5 -
<PAGE> 38
million dollars, Standard & Poors had determined to lower its rating of U.S.
Shoe debt. Accordingly, to Standard & Poors, the downgrade would be based on
weak performance measures and Standard & Poors growing doubt that the Company
would succeed in turning around its troubled apparel divisions.
21. In December 1994, U.S. Shoe which throughout 1994, had represented
that its plan to revive the apparel and shoe segments depended on the cash
flow generated by healthier operations including its optical segment,
abandoned that strategy and began to dismantle the Company by agreeing to sell
the shoe division to Nine West Group Inc. During December 1994 U.S. Shoe
entered into talks with Nine West Group, Inc. ("Nine West") to buy U.S. Shoe's
footwear operations unit for $600 million pre-tax plus warrants to buy 1.85
million shares of Nine West stock.
22. In December 1994, Luxottica Group S.p.A. ("Luxottica") approached
U.S. Shoe segment regarding a sale of the entire Company and defendants
refused to provide confidential information to Luxottica.
23. During December 1994, Luxottica approached U.S. Shoe concerning a
proposed transaction, but was rebuffed. U.S. Shoe urged a "standstill
agreement" to prevent Luxottica from taking its bid directly to shareholders
for two years. Luxottica refused.
24. Having abandoned the failed restructuring strategy, the individual
defendants' fiduciary duties require them to take all reasonable steps to
maximize the value of U.S. Shoe stock by negotiating with parties interested
in the acquisition of all or parts of the entire Company.
25. During February 1995, U.S. Shoe ended talks with Nine West when Nine
West lowered its offer for the Company's shoe division to $525 million.
26. On March 2, 1995, U.S. Shoe indicated that it expects to report a
fourth-quarter loss of 18 cents to 23 cents a share. The forecasted loss was
much wider than analysts' views of a loss of 2 cents a share for the fourth
quarter, U.S. Shoe reported net income of 18 cents a share. U.S. Shoe blamed
weak results from its women's apparel division for the poor fourth quarter.
- 6 -
<PAGE> 39
27. On March 3, 1995 Luxottica made a tender offer to buy U.S. Shoe for
$24 a share. The offer is worth an estimated $1.12 billion. Luxottica has
taken preliminary steps to call a special meeting of U.S. Shoe shareholders
and plans to propose that all current directors of the Company be removed and
replaced by a slate of Luxottica nominees.
28. According to news reports on March 3, 1995, U.S. Shoe has received
expressions of interest from several parties concerning a proposed transaction
with U.S. Shoe.
29. As a result of their ownership and positions at U.S. Shoe,
defendants have interests different from, and in conflict with, U.S. Shoe
stockholders to whom they owe a fiduciary duty.
30. There has been no announcement of the formation of an independent or
special committee of U.S. Shoe to evaluate the alternatives available to U.S.
Shoe. Accordingly, it may be presumed that discussions with potential
acquirors are being handled by the conflicted defendants.
31. Among the potential acquirors who have reportedly expressed interest
in purchasing or entering into a business combination with U.S. Shoe are: (1)
Luxottica; and (2) Nine West.
32. Each of these potential acquirors could present U.S. Shoe with a
broad range of alternatives for U.S. Shoe stockholders which need to be
analyzed by independent directors and advisors who are unfettered by concerns
for the interests of any affiliated shareholders.
33. The independent director defendants, if any, have thus far failed to
announce their participation in, or oversight of, discussions with potentially
interested acquirors of U.S. Shoe and have failed to announce any active
auction or open bidding procedures best calculated to maximize shareholder
value.
34. U.S. Shoe's Poison Pill Plan (denominated as the "Preference Share
Purchase Rights") was initially adopted by U.S. Shoe's Board of Directors on
March 31, 1986, without shareholder approval. On April 14, 1986, U.S. Shoe
implemented the Poison Pill
- 7 -
<PAGE> 40
Plan by distributing a dividend of one preference share purchase right a
Right) for each outstanding share of U.S. Shoe.
35. On March 23, 1988, U.S. Shoe amended its Poison Pill Plan acting
again without shareholder approval.
36. U.S. Shoe's Poison Pill Plan, both as initially adopted and as
amended, is designed to impose substantial economic penalties on any entity,
like Luxottica that attempts to acquire U.S. Shoe in a transaction not
approved by U.S. Shoe's Board of Directors. Thus, the Poison Pill Plan
affords U.S. Shoe's Board the power effectively to prevent U.S. Shoe's
shareholders from receiving the benefits of plaintiffs' Tender Offer
regardless of its merit or the desires of U.S. Shoe's shareholders to sell
their shares pursuant thereto.
37. U.S. Shoe's Poison Pill Plan, however, empowers U.S. Shoe's
Directors to redeem the Rights and remove the threat of overwhelming dilution
that they carry. U.S. Shoe's Board may at its discretion redeem the Rights at
the nominal price of five cents ($0.05) per Right at any time on or prior to
the time a person together with its affiliates and associates, becomes the
beneficial owner of 20 percent or more of U.S. Shoe's outstanding shares (an
"Acquiring Person").
38. In its Offer to Purchase, Luxottica requested that U.S. Shoe's Board
of Directors redeem the Rights. U.S. Shoe's has not acted to redeem the
Rights.
39. U.S. Shoe uses and maintains the Rights solely in order to employ
the "flipover" and "flip-in" features of these Rights, described hereinafter,
which are designed to deter tender offerors, like Luxottica, whose offers have
not been approved by U.S. Shoe's Board of Directors.
40. The Poison Pill Plan has certain anti-takeover effects in that the
Rights will cause substantial dilution to the ownership rights of any person
who attempts to acquire U.S. Shoe on terms not approved by U.S. Shoe's Board
of Directors. This dilution would impose substantial economic penalties on
any person who attempts to take control of U.S. Shoe in a transaction not
approved by U.S. Shoe's Board of Directors and thus upon the interest of the
shareholder plaintiffs herein.
- 8 -
<PAGE> 41
41. In the face of Luxottica's all cash all shares, premium, noncoercive
Tender Offer, U.S. Shoe's Board of Directors likely will continue to refuse to
redeem the Rights despite Luxottica's demand that they do so. U.S. Shoe's
Board of Directors is employing the Poison Pill Plan to obstruct Luxottica's
offer, to deny to plaintiffs and the Class any meaningful opportunity to
decide for themselves whether to tender their shares, and to entrench the
incumbent Board.
42. U.S. Shoe's Board of Directors has a fiduciary duty to redeem the
Rights to allow Luxottica's Tender Offer to proceed. Unless the Poison Pill
is redeemed, plaintiffs and the Class may be denied the opportunity to
exercise their right to decide for themselves whether to accept the benefits
of plaintiffs' Tender Offer.
43. The defendants have not, in accordance with their fiduciary duties:
(a) acted independently so that the interests of U.S. Shoe public
shareholders would be protected;
(b) adequately ensured that no conflicts of interest exist or if
such conflicts exist to ensure that all conflicts would be resolved in the
best interests of U.S. Shoe public shareholders; and
(c) taken all appropriate steps to enhance U.S. Shoe restructuring
or recapitalization candidate.
44. Because the Individual Defendants dominate and control the business
and corporate affairs of U.S. Shoe and are in possession of private corporate
information concerning U.S. Shoe's assets, businesses and future prospects,
there exists an imbalance and disparity of knowledge and economic power
between them and the public stockholders of U.S. Shoe which makes it
inherently unfair for them to pursue any proposed transaction which will
benefit the interests of some large stockholders disproportionately to the
exclusion of other means of maximizing stockholder value.
45. Unless enjoined by this Court, the defendants will continue to
breach their fiduciary duties owed to plaintiffs and the other members of the
Class, and may consummate the proposed transaction which will exclude the
Class from its fair proportionate share of
- 9 -
<PAGE> 42
U.S. Shoe's valuable assets and businesses, and/or benefit them in the unfair
manner complained of herein, all to the irreparable harm of the Class, as
aforesaid.
46. Plaintiffs and the Class have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment, as follows:
A. Declaring this to be a proper class action;
B. Ordering defendants to carry out their fiduciary duties to
plaintiffs and the other members of the Class, including those of due care and
candor;
C. Rescinding any transactions effected by the defendants in an unfair
manner and for an unfair price and in the event such transaction is
consummated prior to trial, awarding rescissory damages;
D. Enjoining the complained of transaction or any related transactions;
E. Ordering defendants, jointly and severally, to pay to plaintiffs and
the Class all damages suffered or to be suffered by them as a result of the
acts and transactions alleged herein;
F. Ordering defendants, jointly and severally, to account to plaintiffs
and the Class for all profits realized and to be realized by them as a result
of the transaction complained of and pending such accounting to hold such
profits in a constructive trust for the benefit of plaintiffs and the other
members of the class;
G. Awarding plaintiffs the costs and disbursements of the action,
including allowance for plaintiffs' reasonable attorneys' and experts' fees;
and
H. Granting such other and further relief as may be just and proper.
- 10 -
<PAGE> 43
Dated: March 7, 1995 Respectfully submitted,
STRAUSS & TROY
By:______________________________________________
Richard S. Wayne (0022390)
William K. Flynn (0029536)
Alan Jefferson Fossett (0042014)
2100 PNC Center
201 East Fifth Street
Cincinnati, OH 45202-4186
(513) 621-2120
OF COUNSEL:
ABBEY & ELLIS
212 East 39th Street
New York, NY 10016
(212) 889-3700
- 11 -
<PAGE> 44
JURY DEMAND
Plaintiffs demand a trial by jury for all issues included herein.
____________________________________
Richard S. Wayne (0022390)
- 12 -
