<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For transition period from to
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Commission file number 0-9068
Weyco Group, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0702200
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 E. Reservoir Avenue, P.O. Box 1188, Milwaukee, WI 53201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code (414) 263-8800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $1.00 par value per share
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(Title of Class)
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy of information
statements incorporated by reference or in any amendment to this Form 10-K. (X)
As of March 3, 1998, there were outstanding 3,833,931 shares of Common Stock and
965,494 shares of Class B Common Stock. At the same date, the aggregate market
value (based upon the average of the high and low trades for that day) of all
common stock held by non-affiliates was approximately $69,883,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1997, are incorporated by reference in Parts I, II and IV of this
report.
Portions of the Corporation's Proxy Statement, dated March 30, 1998, prepared
for the Annual Meeting of Shareholders scheduled for April 28, 1998, are
incorporated by reference in Part III of this report.
Exhibit Index Pages 9-10
<PAGE> 2
PART I
Item 1. Business
The Company is a Wisconsin corporation incorporated in the year
1906 as Weyenberg Shoe Manufacturing Company. Effective April 25, 1990, the name
of the corporation was changed to Weyco Group, Inc.
The Company and its subsidiaries engage in one line of
business, the manufacture, purchase and distribution of men's footwear. The
Company does not sell women's or children's shoes because these markets differ
significantly from the men's market. The principal brands of shoes sold are
"Nunn Bush," "Brass Boot," "Stacy Adams," and "Weyenberg" and trademarks
maintained by the Company on these names are important to the business. The
Company's products consist of both mid-priced quality leather dress shoes which
would be worn as a part of more formal and traditional attire and lower priced
quality casual footwear of man-made materials or leather which would be
appropriate for leisure or less formal occasions. The Company's footwear, and
that of the industry in general, is available in a broad range of sizes and
widths, primarily produced or purchased to meet the needs and desires of the
American male population.
The Company assembles footwear at one manufacturing plant in
Wisconsin. Shoe components, referred to as "uppers," are purchased from outside
sources, generally foreign, and turned into complete shoes by attaching the
sole, either leather or man-made, applying appropriate "finishes" and packing
the shoes into individual cartons, ready for sale. The Company purchases raw
materials and shoe components from many suppliers and is not dependent on any
one of them. The supply of these items is generally plentiful and there are no
long-term purchase commitments. Over the past five years, production at the
Company's plant has accounted for approximately 15% of the value of the
Company's wholesale footwear sales.
In addition to the production of footwear at the Company's own
manufacturing plant, complete shoes are purchased from many sources worldwide,
generally in U.S. dollars. These purchases account for the balance of the
Company's wholesale footwear sales. In recent years, domestic production of
men's shoes by the Company and the industry has declined, while imports to the
United States have increased.
The Company's business is separated into two divisions -
wholesale and retail. Wholesale sales constituted approximately 93% of total
sales in 1997, 92% in 1996, and 87% in 1995. At wholesale, shoes are marketed
nationwide through more than 8,000 shoe, clothing and department stores. All
sales are to unaffiliated customers in North America. Sales to the Company's
largest customer, J C Penney, were 13%, 13% and 15% of total sales for 1997,
1996 and 1995, respectively. Sales to another customer, Brown Shoe Group, were
10% of total sales for 1996. There are no other individually significant
customers. The Company employs traveling salesmen who sell the Company's
products to the retail outlets. Shoes are shipped to these retailers primarily
from warehouses maintained in Milwaukee and Beaver Dam, Wisconsin. Although
there is no clearly identifiable seasonality in the men's footwear business, new
styles are historically developed and shown twice each year, in spring and fall.
In accordance with the industry practices, the Company is required to carry
significant amounts of inventory to meet customer delivery requirements and
periodically provides extended payment terms to customers.
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<PAGE> 3
Retail sales constituted approximately 7% of total sales in
1997, 8% in 1996 and 13% in 1995. In the retail division, there are currently 13
company-operated stores in principal cities of the United States. The decrease
in retail sales in recent years is a result of the termination of leased
departments and company-operated stores. In 1997, 4 company-operated stores were
closed. In 1996, 1 company-operated store and 13 leased departments were closed.
In 1995, 10 company-operated stores were closed. These stores were closed
primarily due to unprofitable operations or unattractive lease renewal terms.
Management intends to continue to closely monitor retail operations and may
close other retail units in the future if they are deemed unprofitable. Sales in
retail outlets are made directly to the consumer by Company employees. In
addition to the sale of the Company's brands of footwear in these retail
outlets, other branded footwear and accessories are also sold in order to
provide the consumer with as complete a selection as practically possible.
In dollar sales, management estimates that the Company is about
eighth largest among approximately 900 domestic men's shoe distributors. During
1997 it sold approximately 3% of the total men's non-rubber dress and casual
shoes sold in the United States.
As of December 31, 1997, the Company employed approximately 410
persons. Of those 410 employees, approximately 180 were members of the United
Food and Commercial Works Local 651 Union. The Company ratified a new contract
with the Union during 1997, which will expire in March 2003. Future wage and
benefit increases under the new contract are not expected to have a significant
impact on the future operations or financial position of the Company.
Price, quality and service are all important competitive
factors in the shoe industry and the Company has been recognized as a leader in
all of them. Although the Company engages in no specific research and
development activities, new products and new processes are continually being
tested by the Company and used where appropriate, in order to produce the best
value for the consumer, consistent with reasonable price. Compliance with
environmental regulations historically has not had, and is not expected to have,
a material adverse effect on the Company's results of operations or cash flows.
Item 2. Properties
The following facilities are operated by the Company and its
subsidiaries:
<TABLE>
<CAPTION>
Location Character Owned/Leased
<S> <C> <C> <C>
Milwaukee, Wisconsin Multistory office Owned
and warehouse
Milwaukee, Wisconsin Multistory warehouse Owned
Beaver Dam, Wisconsin Multistory warehouse Owned
Beaver Dam, Wisconsin Multistory factory Leased (1)
</TABLE>
(1) Not a material lease.
The manufacturing facilities noted above are adequately
equipped, well maintained and suitable for foreseeable needs. If all available
manufacturing space were utilized and significant additional shoe making
equipment were acquired, production could be increased about 25%.
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In December 1997 the Company broke ground on a new 346,000
square foot office and distribution center. Management estimates that the
building will be completed in the fall of 1998 with installation of equipment
and systems to follow. Operations are expected to begin in the new facility in
the second quarter of 1999. Management believes that this facility, coupled with
system improvements, will greatly enhance the distribution process enabling the
Company to better serve customers and continue to grow. The entire project is
expected to cost $12 million.
In addition to the above-described manufacturing and warehouse
facilities, the Company operates 13 retail stores throughout the United States
under various rental agreements. See Note 10 to Consolidated Financial
Statements and Item 1. Business above.
Item 3. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
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<PAGE> 5
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Served
Officer Age Office(s) Since Business Experience
------- --- -------- ------ -------------------
<S> <C> <C> <C> <C>
Thomas W. Florsheim 67 Chairman of the Board and 1968 Chairman of the Company --
Chief Executive Officer 1968 to present
Thomas W. Florsheim, Jr. 40 President and Chief 1995 President of the Company --
Operating Officer & Director 1995 to present; Vice President
of the Company -- 1988 to 1995
John W. Florsheim 34 Executive Vice President & 1995 Executive Vice President of the
Director Company --1995 to present;
Vice President of the Company --
1994 to 1995; Brand Manager,
M & M/Mars, Inc. 1990 to 1994
David N. Couper 49 Vice President 1981 Vice President of the Company --
1981 to present
James F. Gorman 54 Vice President 1975 Vice President of the Company --
1975 to present
Peter S. Grossman 54 Vice President 1971 Vice President of the Company --
1971 to present
John F. Wittkowske 38 Vice President-Finance & 1993 Vice President-Finance of the Company
Secretary 1995 to present; Secretary/Treasurer of
the company --1993 to 1995; Audit Manager,
Arthur Andersen LLP, Independent
Public Accountants -- 1986 to 1993
</TABLE>
Thomas W. Florsheim is the father of John W. Florsheim and Thomas W. Florsheim,
Jr.
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<PAGE> 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters
Information required by this Item is set forth on pages 2 and
17 of the Annual Report to Shareholders for the year ended
December 31, 1997, and is incorporated herein by
reference.
Item 6. Selected Financial Data
Information required by this Item is set forth on page 2 of the
Annual Report to Shareholders for the year ended December
31, 1997, and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Information required by this Item is set forth on pages 3 and 4
of the Annual Report to Shareholders for the year ended
December 31, 1997, and is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
Information required by this Item is set forth on pages 5
through 15 of the Annual Report to Shareholders for the
year ended December 31, 1997, and is incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
Not applicable.
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<PAGE> 7
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item is set forth on pages 1
through 3 of the Company's proxy statement for the
Annual Meeting of Shareholders to be held on April 28,
1998, and is incorporated herein by reference.
Item 11. Executive Compensation
Information required by this Item is set forth on pages 4
through 7 of the Company's proxy statement for the
Annual Meeting of Shareholders to be held on April 28,
1998, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial
Owners of Management
Information required by this Item is set forth on pages 1 and
2 of the Company's proxy statement for the Annual
Meeting of Shareholders to be held on April 28, 1998, and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information required by this Item is set forth on pages 6
through 7 of the Company's proxy statement for the
Annual Meeting of Shareholders to be held on April 28,
1998, and is incorporated herein by reference.
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<PAGE> 8
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
Page Reference
to
Annual Report
<S> <C> <C>
1. Financial Statements -
Consolidated Statements of Earnings
for the years ended December 31,
1997, 1996 and 1995 5
Consolidated Balance Sheets -
December 31, 1997 and 1996 6-7
Consolidated Statements of Shareholders'
Investment for the years ended
December 31, 1997, 1996 and 1995 8
Consolidated Statements of Cash Flows
for the years ended December 31,
1997, 1996 and 1995 9
Notes to Consolidated Financial
Statements - December 31, 1997, 1996
and 1995 10-15
Report of Independent Public Accountants 16
</TABLE>
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<PAGE> 9
Item 14. Exhibits, Financial Statement Schedules,
and Report on Form 8-K (Continued)
<TABLE>
<CAPTION>
Page Reference
to
Form 10-K
<S> <C> <C>
2. Financial Statement Schedules for the years ended
December 31, 1997, 1996 and 1995 -
Schedule II - Valuation and Qualifying 11
Accounts
All other schedules have been omitted because of the
absence of the conditions under which they are
required.
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Weyco Group, Inc.'s
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 13, 1998. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index at item 14(a)(2) is the responsibility of the
company's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 13, 1998.
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<PAGE> 10
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K (Continued)
3. Exhibits
<TABLE>
<CAPTION>
Incorporated Herein
Exhibit Description By Reference To
- ------- ----------- -------------------
<S> <C> <C>
3.1 Articles of Incorporation as Restated Exhibit 3.1 to Form
August 29, 1961, and Last Amended 10-K for Year Ended
April 25, 1990 December 31, 1990
3.2 Bylaws as Revised January 21, 1991 Exhibit 3.2 to Form
and Amended November 3, 1992 10-K for Year Ended
December 31, 1992
10.1* Employment Agreement - Thomas W. Exhibit 10.1 to Form
Florsheim, dated January 1, 1997 10-K for Year Ended
December 31, 1996
10.2* Employment Agreement - Thomas W. Exhibit 10.2 to Form
Florsheim, Jr., dated January 1, 1997 10-K for Year Ended
December 31, 1996
10.3* Employment Agreement - John W. Exhibit 10.3 to Form
Florsheim, dated January 1, 1997 10-K for Year Ended
December 31, 1996
10.4* Restated and Amended Deferred Exhibit 10.3 to Form
Compensation Agreement - Thomas W. 10-K for Year Ended
Florsheim, dated December 1, 1995 December 31, 1995
10.5* Restated and Amended Deferred Exhibit 10.4 to Form
Compensation Agreement - Robert 10-K for Year Ended
Feitler, dated December 1, 1995 December 31, 1995
10.6* Excess Benefits Plan - Restated Effective Exhibit 10.6 to Form
as of January 1, 1989 10-K for Year Ended
December 31, 1991
10.7* Pension Plan - Amended and Restated Exhibit 10.7 to Form
Effective January 1, 1989 10-K for Year Ended
December 31, 1991
10.8* Deferred Compensation Plan - Effective Exhibit 10.8 to Form
as of January 1, 1989 10-K for Year Ended
December 31, 1991
10.9* 1992 Nonqualified Stock Option Plan Exhibit 10.9 to Form
10-K for Year Ended
December 31, 1991
</TABLE>
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<PAGE> 11
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K (Continued)
3. Exhibits (Continued)
<TABLE>
<CAPTION>
Incorporated Herein
Exhibit Description By Reference To
- ------- ----------- -------------------
<S> <C> <C>
10.10* Death Benefit Plan Agreement - Exhibit 10.10 to Form
Thomas W. Florsheim, dated 10-K for Year Ended
November 8, 1993 December 31, 1993
10.12* 1996 Nonqualified Stock Option Plan Exhibit 10.12 to Form
10-K for Year Ended
December 31, 1995
10.13* 1997 Stock Option Plan
10.14* Change of Control Agreement
John Wittkowske, dated
January 26, 1998
10.15* Change of Control Agreement
Peter S. Grossman, dated
January 26, 1998
10.16* Change of Control Agreement
James F. Gorman, dated
January 26, 1998
10.17* Change of Control Agreement
David N. Couper, dated
January 26, 1998
21 Subsidiaries of the Registrant
23.1 Consent of Independent Public
Accountants Dated March 27, 1998
*Management contract or compensatory plan
or arrangement
(b) Reports on Form 8-K
None
</TABLE>
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<PAGE> 12
SCHEDULE II
WEYCO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Deducted from Assets
----------------------------------------------------------
Doubtful Cash Returns and
Accounts Discounts Allowances Total
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 898,180 55,000 720,000 1,673,180
Add - Additions charged to
earnings 486,549 275,694 4,692,992 5,455,235
Deduct - Charges for purposes for
which reserves were
established (361,549) (264,694) (4,452,992) (5,079,235)
----------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1995 1,023,180 66,000 960,000 2,049,180
Add - Additions charged to
earnings 438,938 454,241 4,314,617 5,207,796
Deduct - Charges for purposes for
which reserves were
established (313,938) (456,241) (4,194,617) (4,964,796)
----------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1996 1,148,180 64,000 1,080,000 2,292,180
Add - Additions charged to
earnings 434,599 491,925 4,086,561 5,013,085
Deduct - Charges for purposes for
which reserves were
established (234,599) (513,925) (4,086,561) (4,835,085)
----------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1997 $ 1,348,180 $ 42,000 $1,080,000 $2,470,180
=========== ========= ========== ==========
</TABLE>
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
WEYCO GROUP, INC.
(Registrant)
By /s/ John Wittkowske March 30, 1998
---------------------------------
John Wittkowske, Vice President-Finance
-----------------
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Thomas W. Florsheim, Sr.,
Thomas W. Florsheim, Jr., and John Wittkowske, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitutes, may lawfully do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signatures and Titles Date
--------------------- ----
/s/ Thomas W.Florsheim March 30, 1998
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Thomas W. Florsheim, Chairman of the Board
and Chief Executive Officer (Principal
Executive Officer)
/s/ Thomas W. Florsheim, Jr. March 30, 1998
- -------------------------------------------
Thomas W. Florsheim, Jr., President and Chief
Operating Officer and Director
/s/ John W. Florsheim March 30, 1998
- -------------------------------------------
John W. Florsheim, Executive Vice President
and Director
/s/ John Wittkowske March 30, 1998
- -------------------------------------------
John Wittkowske, Vice President-Finance
(Principal Accounting Officer)
/s/ Robert Feitler March 30, 1998
- -------------------------------------------
Robert Feitler, Director
/s/ Leonard J. Goldstein March 30, 1998
- -------------------------------------------
Leonard J. Goldstein, Director
/s/ Frank W. Norris March 30, 1998
- -------------------------------------------
Frank W. Norris, Director
/s/ Frederick P. Stratton, Jr. March 30, 1998
- -------------------------------------------
Frederick P. Stratton, Jr., Director
-12-
<PAGE> 1
EXHIBIT 10.13
WEYCO GROUP, INC.
1997 STOCK OPTION PLAN
1. Introduction.
(a) Purposes. The purpose of the 1997 Weyco Group, Inc. Stock
Option Plan (the "1997 Plan" or "Plan") is to promote the
growth and development of Weyco Group, Inc. and to increase
shareholder value by providing incentives for salaried
employees of Weyco Group, Inc. and of any present or future
Subsidiary and by facilitating the efforts of Weyco Group,
Inc. and its Subsidiaries to obtain and retain employees of
outstanding ability.
(b) Effect on Prior Plan. No further grants will be made under the
Weyco Group, Inc. 1996 Nonqualified Stock Option Plan (the
"1996 Plan"). Options granted previously under the 1996 Plan
will remain in effect until they have been exercised or have
expired. The options shall be administered in accordance with
their terms and in accordance with the 1996 Plan.
2. Definitions.
(a) "1934 Act" means the Securities Exchange Act of 1934, as it
may be amended from time to time.
(b) "Board" means the Board of Directors of Weyco Group, Inc.
(c) "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
(d) "Committee" means the Stock Option Committee of the Board, or
any other committee the Board may subsequently appoint to
administer the Plan, as herein described.
(e) "Common Stock" or "Stock" means the common stock of the
Corporation having a par value of $1.00 per share.
(f) "Corporation" means Weyco Group, Inc.
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<PAGE> 2
(g) "Fair Market Value" means for purposes of the Plan on any date
the average of the highest and lowest sale prices of the stock
on such date as reported by NASDAQ (the National Association
of Securities Dealers, Inc. Automatic Quotation System) or, in
the absence of reported sales on NASDAQ on said date, the
average of the closing bid and asked prices for the stock on
NASDAQ on said date. However, if at any time the Common Stock
is listed on any exchange, the "Fair Market Value" shall be
the average of the reported highest and lowest prices at which
shares are sold on such exchange on the date the option is
granted or, in the absence of reported sales on the exchange
on the date the option is granted, the "Fair Market Value"
shall be the average of the closing bid and asked prices for
the shares on such exchange on the date the option is granted.
(h) "Grant Date" means the date on which any Option shall be duly
granted by the Committee.
(i) "Grantee" means an individual who has been granted an option.
(j) "Incentive Stock Option" means an option that is intended to
meet the requirements of Section 422 of the Code and
regulations thereunder.
(k) "Non-Qualified Stock Option" means an option other than an
Incentive Stock Option.
(l) "Option" means an Incentive Stock Option or a Non-Qualified
Stock Option, as appropriate.
(m) "Option Agreement" means the agreement between the Corporation
and the Grantee specifying the terms and conditions as
described thereunder.
(n) "Plan" means the Weyco Group, Inc. 1997 Stock Option Plan as
set forth herein, as it may be amended from time to time.
(o) "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act,
and any future regulation amending or superseding such
regulation.
(p) "Subsidiary" means any corporation more than 50 percent of
whose total combined voting stock of all classes is held by
the Corporation or by another corporation qualifying as a
Subsidiary within this definition.
3. Shares Subject to Option.
The number of shares of Common Stock of the Corporation which may be
sold upon the exercise of Options granted under the Plan, and accordingly the
number of shares for which
A-2
<PAGE> 3
Options may be granted, shall not exceed 600,000 shares. Such number of
authorized but unissued shares shall be reserved for this purpose. The aggregate
number of shares of Common Stock available under the Plan shall be subject to
adjustment as set forth in Article 15 hereunder. Shares sold upon the exercise
of Options granted under the Plan may come from authorized but unissued shares,
from treasury shares held by the Corporation, from shares purchased by the
Corporation on an open market for such purpose, or from any combination of the
foregoing. If treasury shares or shares purchased on the open market are sold
upon the exercise of any Option, the number of authorized but unissued shares
reserved for the Plan shall be reduced correspondingly. If any unexercised
Option for any reason is cancelled, terminates or expires in whole or in part
prior to the termination of the Plan, the unpurchased shares subject thereto
shall become available for the granting of other Options under the Plan.
4. Administration of the Plan.
The Plan shall be administered by the Committee. The Committee at all
times shall be constituted to permit the Plan to comply with the provisions of
Rule 16b-3 and IRS Regulation Section 1.162-27(e)(3) (or its successor). The
Committee shall have full and final authority, in its discretion, but subject to
the express provisions of the Plan to:
(a) grant Options and to determine the purchase price of the stock
covered by each Option, the individuals to whom, the number of
shares subject to, and the time or times at which, Options
shall be granted, and the time or times at and the manner in
which Options can be exercised;
(b) interpret the Plan;
(c) prescribe, amend and rescind rules and regulations relating to
the Plan;
(d) determine the terms and provisions of the respective
agreements (which need not be identical) by which Options
shall be evidenced;
(e) cancel with the consent of the holder outstanding Options and
to grant new Options, as appropriate, in substitution
therefore;
(f) make all other determinations deemed necessary or advisable
for the administration of the Plan;
(g) require withholding from or payment by a Grantee of any
federal, state or local taxes; and
(h) impose, on any Grantee, such additional conditions,
restrictions and limitations upon exercise and retention of
Options as the Committee shall deem appropriate.
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<PAGE> 4
(i) modify, extend or renew any Option previously granted.
Any action of the Committee with respect to the administration of the
Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of its members. The Committee's determinations and interpretations shall
be final and conclusive.
5. Participation.
Options may be granted to salaried employees of the Corporation and any
of its Subsidiaries; provided, however that no employee can be granted an Option
or Options covering, in the aggregate, more than 45,000 shares of Stock in any
calendar year. If an Option is cancelled, such cancelled Option shall continue
to be counted against the maximum number of shares for which Options may be
granted to the employee. In selecting the individuals to whom Options shall be
granted, as well as in determining the number of Options granted, the Committee
shall take into consideration such factors as it deems relevant to accomplishing
the purposes of the Plan.
6. Granting of Options.
For purposes of the Plan, an Option shall be considered as having been
granted on the date on which the Committee authorized the grant of the Option,
except where the Committee has designated a later date, in which event the later
date shall constitute the date of grant of the option; provided, however, that
in either case notice of the grant of the option shall be given to the employee
within a reasonable time. The officers of the Corporation are authorized and
directed, upon receipt of notice from the Committee of the granting of an
Option, to sign and deliver on behalf of the Corporation, by mail or otherwise,
to the Grantee an Option upon the terms and conditions specified under the Plan
and in the form of the Option Agreement. The Option Agreement shall be dated and
signed by an officer of the Corporation as of the Grant Date. If the Grantee
fails to sign and return the Option Agreement, by delivery or by mailing, within
30 days after the date of its delivery or mailing to him, the Option grant shall
be deemed withdrawn.
7. Option Price.
The purchase price of the Common Stock covered by each Option shall be
not less than the Fair Market Value of such Stock on the Grant Date. Such price
shall be subject to adjustment as provided in Article 15 hereof.
8. Option Designation.
At the time of the grant of each Option, the Committee shall designate
the Option as (a) an Incentive Stock Option or (b) a Non-Qualified Stock Option,
as described in Sections (a) and (b) below, respectively.
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(a) Incentive Stock Options: Any Option designated as an Incentive
Stock Option shall comply with the requirements of Section
422 of the Code. If an Option is so designated, the Fair
Market Value (determined as of the Grant Date) of the shares
of Stock with respect to which that and any other Incentive
Stock Option first becomes exercisable during any calendar
year under this Plan or any other stock option plan of the
Corporation or its affiliates shall not exceed $100,000;
provided, however, that the time or times of exercise of an
Incentive Stock Option may be accelerated pursuant to Article
11, 14 or 15 hereof, and, in the event of such acceleration,
such Incentive Stock Option shall be treated as a
Non-Qualified Option to the extent that the aggregate Fair
Market Value (determined as of the Grant Date) of the shares
of stock with respect to which such Option first becomes
exercisable in the calendar year (including Options under
this Plan and any other Plan of the Corporation or its
affiliates) exceeds $100,000, the extent of such excess to be
determined by the Committee taking into account the order in
which the Options were granted, or such other factors as may
be consistent with the requirements of Section 422 of the
Code and rules promulgated thereunder. Furthermore, no
Incentive Stock Option shall be granted to any individual
who, immediately before the Option is granted, directly or
indirectly owns (within the meaning of Section 424(d) of the
Code, as amended) shares representing more than 10% of the
total combined voting power of all classes of stock of the
Corporation or its subsidiaries, unless, at the time the
option is granted, and in accordance with the provisions of
Section 422, the option exercise price is 110% of the Fair
Market Value of shares of Stock subject to the Option and the
Option must be exercised within 5 years of the Grant Date.
(b) Non-Qualified Stock Options: All Options not subject to or in
conformance with the additional restrictions required to
satisfy Section 422 shall be designated Non-Qualified Stock
Options.
9. Non-transferability of Options.
An Option granted under the Plan may be exercised during the lifetime
of an employee (to the extent exercisable) only by him and may not be
transferred except by will or the laws of descent and distribution. Subject to
the above, the Option and any rights and privileges pertaining thereto shall not
be transferred, assigned, pledged or hypothecated by him in any way whether by
operation of law or otherwise and shall not be subject to execution, attachment
or similar process.
10. Substituted Options.
In the event the Committee cancels any Option granted under this Plan,
and a new Option is substituted therefor, the Grant Date of the cancelled Option
(except to the extent inconsistent with the restrictions described in Article
8(a), if applicable) shall be the date used to determine the earliest date for
exercising the new substituted Option under Article 11 hereunder so that the
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Grantee may exercise the substituted Option at the same time as if the Grantee
had held the substituted Option since the Grant Date of the cancelled Option.
11. Exercise and Term of Option.
The Committee shall have the power to set the time or times within
which each Option shall be exercisable, and to accelerate the time or times of
exercise, provided that no Option granted under this Plan may be exercised until
at least six months have elapsed from the Grant Date or prior to shareholder
approval of the Plan. No Option may be exercised if in the opinion of counsel
for the Corporation the issuance or sale of Stock pursuant to such exercise
shall be unlawful for any reason, nor after the expiration of 10 years from the
Grant Date. In no event shall the Corporation be required to issue fractional
shares upon the exercise of an Option. Although the Corporation intends to exert
its best efforts so that the Stock purchasable upon the exercise of an Option,
when it first comes exercisable, will be registered under, or exempt from the
registration requirements of, the federal Securities Act of 1933 (the "Act") and
any applicable state securities laws, if the exercise of an Option would
otherwise result in the violation by the Company of any provision of the Act or
of any state securities law, the Company may require that such exercise be
deferred until the Company has taken appropriate action to avoid any such
violation.
12. Withholding.
Shares of Stock shall not be issued upon the exercise of any Option
under the Plan unless and until withholding tax, if any, or other withholding
obligation, if any, imposed by any governmental entity has, in the opinion of
the Committee, been satisfied or provision for satisfaction of such tax has been
made. A Grantee shall satisfy such withholding obligation by depositing with the
Corporation cash (or, at the request of Grantee but in the discretion of the
Committee and subject to such rules and regulations as the Committee may adopt
from time to time, in shares of Delivered Stock, as defined in Article 13) in
the amount thereof at the time of any exercise of the Option. The Committee may
provide that, if and to the extent withholding of any federal, state or local
tax is required in connection with the exercise of an Option, the Grantee may
elect, at such time and in such manner as the Committee may prescribe, to have
the Corporation hold back from the shares to be issued, the number of shares of
Common Stock calculated to have a Fair Market Value equal to such withholding
obligation. Notwithstanding the foregoing, in the case of a Grantee subject to
the reporting requirements of Section 16(a) of the 1934 Act, no such election
shall be effective unless made in compliance with any applicable requirements of
Rule 16b-3.
13. Method of Exercise.
To the extent that the right to purchase shares pursuant to an Option
has occurred hereunder and if the Grantee has been continuously employed by the
Corporation or a Subsidiary since the Grant Date, such Option may be exercised
from time to time by written notice to the
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Corporation stating the number of shares of Stock being purchased and
accompanied by the payment in full of the Option price for such shares.
Such payment shall be made in cash or, with the approval of the
Committee, by delivering shares of the Common Stock which have been
beneficially owned by the Grantee, the Grantee's spouse, or both of them
for a period of at least six months prior to the time of exercise ("Delivered
Stock") or in combinations thereof. If shares of Common Stock are used in part
or full payment for the shares to be acquired upon exercise of the Option, such
shares shall be valued for the purpose of such exchange as of the date of
exercise of the Option at the Fair Market Value of the shares.
14. Effect of Termination of Employment, Disability or Death.
Unless otherwise provided herein or in a specific Option Agreement
which may provide longer or shorter periods of exercisability, no Option shall
be exercisable after the expiration of the earliest of:
(i) in the case of an Incentive Stock Option:
(1) 10 years from the date the option is granted, or
five years from the date the option is granted to an
individual owning (after the application of the family and
other attribution rules of Section 424(d) of the Code) at the
time such option was granted more than 10% of the total
combined voting power of all classes of stock of the
Corporation.
(2) three months after the date the Grantee ceases to
perform services for the Corporation or its Subsidiaries, if
such cessation is for any reason other than death, disability
(within the meaning of Code Section 22(e)(3)), or cause,
(3) one year after the date the Grantee ceases to
perform services for the Corporation or its Subsidiaries, if
such cessation is by reason of death or disability (within the
meaning of Code Section 22(e)(3)), or
(4) the date the Grantee ceases to perform services
for the Corporation or its Subsidiaries, if such cessation is
for cause, as determined by the Board or the Committee in its
sole discretion;
(ii) in the case of a Nonqualified Stock Option:
(1) 10 years from the date of grant,
(2) ninety days after the date the Grantee ceases to
perform services for the Corporation or its Subsidiaries, if
such cessation is for any reason other than death, permanent
disability or cause,
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(3) one year after the date the Grantee ceases to
perform services for the Corporation or its Subsidiaries, if
such cessation is by reason of death, permanent disability, or
(4) the date the Grantee ceases to perform services
for the Corporation or its Subsidiaries, if such cessation is
for cause, as determined by the Board or the Committee in its
sole discretion;
provided, that, unless otherwise provided in a specific grant agreement, an
Option shall only be exercisable for the periods above following the date a
Grantee ceases to perform services to the extent the Option was exercisable on
the date of such cessation. For purposes of this Section, termination shall be
deemed to have been for cause if such termination shall have been for misconduct
or negligence by Grantee in the performance of his duties. Notwithstanding the
foregoing, no Option shall be exercisable after the date of expiration of its
term. In the event of Grantee's death, the person or persons to whom the option
is transferred by will or the laws of descent and distribution shall be the
person or persons who may exercise the option to the extent the Grantee was
entitled to do so.
15. Effect of Change in Stock Subject to Plan.
In the event of a reorganization, recapitalization, stock split, stock
dividend, merger, consolidation, rights offering or like transaction, the
Committee shall make or provide for such adjustment in the exercise price of any
Option or in the number or kinds of stock covered by Options or reserved for
issuance under the Plan as it may, in its discretion, deem to be equitable to
prevent any diminution or enlargement of the right of Grantees; provided,
however, upon the dissolution or liquidation of the Corporation or upon any
merger in which the Corporation is not the surviving corporation and which is
approved by the Corporation's non-insider shareholders (a "triggering event"),
the Corporation shall settle all outstanding Options exercisable by their terms
for cash. The amount of cash to be paid to the employee for any such Option
shall be equal to the difference between the Option exercise price and the Fair
Market Value of the Corporation's Common Stock on the effective date of the
triggering event.
16. Employment Rights.
Neither the establishment of nor the awarding of Options under this
Plan shall be construed to create a contract of employment between any Grantee
and the Corporation or its Subsidiaries; nor does it give any Grantee the right
to continue in the employment of the Corporation or its Subsidiaries or limit in
any way the right of the Corporation or its Subsidiaries to discharge any
Grantee at any time and without notice, with or without cause, or to any
benefits not specifically provided by this Plan, or in any manner modify the
Corporation's right to establish, modify, amend or terminate any profit sharing
or retirement plans. Transfer of an employee from the Corporation to a
Subsidiary or from a Subsidiary to the Corporation or another Subsidiary
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shall not be a termination of employment or an interruption of continuous
employment for the purposes of the Plan.
17. Shareholder Rights.
Grantee shall not, by reason of any Options granted hereunder, have any
right of a shareholder of the Corporation with respect to the shares covered by
his Options until shares of Stock have been issued to him.
18. Controlling Law.
The law of the State of Wisconsin, except its law with respect to
choice of law, shall be controlling in all matters relating to the Plan.
19. Indemnification.
In addition to such other rights of indemnification as they may have as
members of the Committee or as directors generally, the members of the Committee
administering the Plan and other members of the Board shall be indemnified by
the Corporation against the reasonable expenses, including attorneys' fees
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such member acted in bad faith in the performance of his duties;
provided that within 20 days after institution of any such action, suit or
proceeding, the member shall in writing offer the Corporation the opportunity,
at its own expense, to handle and defend the same.
20. Use of Proceeds.
The proceeds from the sale of shares of Common Stock pursuant to
Options granted under the Plan shall constitute general funds of the
Corporation.
21. Amendment of the Plan.
The Board may from time to time amend, modify, suspend or terminate the
Plan; provided, however, that no such action shall be made without shareholder
approval where such change would be required in order to comply with Rule 16b-3
or the Code.
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22. Effective Date of Plan.
The Plan shall become effective on the date of the resolutions of the
Board of Directors of the Corporation adopting the Plan, subject to approval by
the shareholders of the Corporation within 12 months thereof. Options may be
granted under the Plan on or after the effective date but shall in no
circumstances be exercisable prior to such shareholder approval. If such
shareholder approval is not obtained within 12 months, the grant of such Options
and this Plan shall be of no force and effect, but the 1996 Plan would then
continue in effect in accordance with its terms.
23. Termination of the Plan.
The Plan shall terminate after the expiration of ten years from its
effective date and no grants shall be made after such date under the Plan;
provided, however, that the Plan shall terminate at such earlier time as the
Board may determine. Any such termination, either partially or wholly, shall not
affect any Options then outstanding under the Plan.
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EXHIBIT 10.14
WEYCO GROUP, INC.
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made as of the 26th day of January, 1998, between
Weyco Group, Inc., a Wisconsin corporation, ("Company") and John Wittkowske
("Executive").
WHEREAS, the Executive is now serving as an executive of the
Company in a position of importance and responsibility; and
WHEREAS, the Company wishes to continue to receive the benefit
of the Executive's knowledge and experience and, as an inducement for continued
service, is willing to offer the Executive certain payments due to Change of
Control as set forth herein;
NOW, THEREFORE, the Executive and Company agree as follows:
Section 1. Definitions.
(a) Change of Control. For purposes of this Agreement, a
"Change of Control" shall occur:
(1) if any person or group of persons (as defined in
Section 13(d)(3) of the Securities and Exchange Act of 1934 and regulations
thereunder), other than the group consisting of members of the family of Thomas
W. Florsheim and their descendants or trusts for their benefit (the "Florsheim
Group"), directly or indirectly controls in excess of 25% of the voting power of
the outstanding common stock of the Company;
(2) in the event of the consolidation or merger of
the Company with or into another corporation or entity which is not a wholly
owned subsidiary of the Company unless such consolidation or merger has been
approved by the Board of Directors at a time when the majority of the Directors
are persons who have been nominated by the Board of Directors or the Florsheim
Group;
(3) in the event of the sale of all or substantially
all of the operating assets of the Company;
(4) in the event of the replacement of a majority of
the existing members of the Company's Board of Directors by persons not
nominated by the Board of Directors or the Florsheim Group, or
<PAGE> 2
(5) in the event of any amendment to Section 2 of
Article III of the Company's bylaws to enlarge the number of the directors of
the Company if the change was not supported by the existing Board of Directors
or the Florsheim Group,
(b) "Beneficiary" means any one or more primary or
secondary beneficiaries designated in writing by the Executive on a form
provided by the Company to receive any benefits which may become payable under
this Agreement on or after the Executive's death. The Executive shall have the
right to name, change or revoke the Executive's designation of a Beneficiary on
a form provided by the Company. The designation on file with the Company at the
time of the Executive's death shall be controlling. Should the Executive fail
to make a valid Beneficiary designation or leave no named Beneficiary
surviving, any benefits due shall be paid to the Executive's spouse, if living
or, if not living, then to the Executive's estate.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
Section 2. Payments Upon Change of Control.
(a) Within 30 days following a Change of Control, a cash
payment shall be made to the Executive in an amount equal to 299% of the "base
amount" as that term is defined in Code Section 280G. The determination of the
base amount shall be made by the Company's independent auditors. For this
purpose, the "base amount" shall be calculated with respect to the 3 taxable
year period ending before the date on which the Change of Control as defined
herein occurs, regardless of whether such Change of Control is an event
described in Code Section 280G (b)(2)(A).
(b) If the payment under paragraph (a) above would
result in disallowance of any portion of the Company's deduction therefor under
Section 162(m) of the Code, the payment called for under paragraph (a) shall be
limited to the amount which is deductible, with the balance to be paid as soon
as deductible by the Company. Any amounts which are so deferred shall earn
interest until paid at an annual rate equal to the prime rate. For interest
accruing during any calendar year the "prime rate" shall be the rate reported
as the prime rate in the Wall Street Journal on the first business day of that
year.
Section 3. Limitation on Payments. If the payments under
Section 2 in combination with any other payments which the Executive has the
right to receive from the Company (the "Total Payments") would not be
deductible (in whole or in part) as a result of Section 280G of the Code, the
payments under Section 2 shall be reduced until (i) no portion of the Total
Payments is nondeductible as a result of Section 280G of the Code or (ii)
the payments under Section 2 are reduced to zero. For purposes of this
limitation (i) no portion of the Total Payments, the receipt or enjoyment of
which the Executive shall have effectively waived in writing prior to the date
payments commence under Section 2, shall be taken into account, (ii) no portion
of the Total Payments shall be taken into account which, in the opinion of tax
counsel selected by the Company's independent auditors and acceptable to the
Executive, does not constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code, (iii) the payments
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<PAGE> 3
under Section 2 shall be reduced only to the extent necessary so that
the Total Payments (other than those referred to in clause (i) or (ii)) in
their entirety constitute reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code, in the opinion of the tax
counsel referred to in clause (ii), and (iv) the value of any non-cash benefit
or any deferred payment or benefit included in the Total Payments shall be
determined by the Company's independent auditors, in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
Section 4. Death After the Executive has Begun Receiving
Payments. Should the Executive die after a Change of Control, but before
receiving all payments due the Executive hereunder, any remaining payments due
shall be made to the Executive's Beneficiary.
Section 5. Miscellaneous.
(a) Non-Assignability. This Agreement is personal to
the Executive and shall not be assignable by the Executive. This Agreement
shall inure to the benefit of and be binding upon the Company and its
successors and assigns and shall also be enforceable by the Executive's legal
representatives.
(b) Successors. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
(c) Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Wisconsin,
without reference to principles of conflict of laws, to the extent not
preempted by federal law. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(d) Notices. All notices and other communications under
this Agreement shall be in writing and shall be given by hand delivery to
the other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: John Wittkowske
2519 E. Shorewood Blvd.
Shorewood, WI 53211
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<PAGE> 4
If to the Company: Weyco Group, Inc.
P. O. Box 1188
Milwaukee, WI 53201
Attention: Corporate Secretary
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph. Notices and communications shall be effective
when actually received by the addressee.
(e) Construction. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement. If any provision of this
Agreement shall be held invalid or unenforceable in part, the remaining portion
of such provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(f) No Guarantee of Employment. Nothing contained in this
Agreement shall give the Executive the right to be retained in the employment of
the Company or affect the right of the Company to dismiss the Executive.
(g) Amendment; Entire Agreement. This Agreement may not
be amended or modified except by a written agreement executed by the
parties hereto or their respective successors and legal representatives. This
Agreement contains the entire agreement between the parties on the subjects
covered and replaces all prior writings, proposals, specifications or other
oral or written materials relating thereto.
(h) Impact on Other Plans. No amounts paid to the
Executive under this Agreement will be taken into account as "wages",
"salary", "base pay" or any other type of compensation when determining the
amount of any payment or allocation, or for any other purpose, under any other
qualified or nonqualified plan or agreement of the Company, except as otherwise
may be specifically provided by such plan or agreement by making specific
reference to payments under this Agreement.
(i) Other Agreements. This Agreement supersedes any other
severance arrangement between the Company and the Executive. This Agreement does
not confer any payments or benefits other than the payments described in Section
2 hereof.
(j) Withholding. To the extent required by law, the
Company shall withhold any taxes required to be withheld with respect to this
Agreement by the federal, state or local government from payments made
hereunder or from other amounts paid to the Executive by the Company.
(k) Facility of Payment. If the Executive or, if
applicable, the Executive's Beneficiary, is under legal disability, the Company
may direct that payments be made to a relative of such person for the
benefit of such person, without the intervention of any legal guardian or
conservator, or to any legal guardian or
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<PAGE> 5
conservator of such person. Any such distribution shall constitute a
full discharge with respect to the Company and the Company shall not be
required to see to the application of any distribution so made.
Section 6. Claims Procedure.
(a) Claim Review. If the Executive or the Executive's
Beneficiary (a "Claimant") believes that he or she has been denied all or a
portion of a benefit under this Agreement, he or she may file a written claim
for benefits with the Company. The Company shall review the claim and notify the
Claimant of the Company's decision within 60 days of receipt of such claim,
unless the Claimant receives written notice prior to the end of the 60 day
period stating that special circumstances require an extension of the time for
decision. The Company's decision shall be in writing, sent by mail to the
Claimant's last known address, and if a denial of the claim, must contain the
specific reasons for the denial, reference to pertinent provisions of this
Agreement on which the denial is based, a designation of any additional material
necessary to perfect the claim, and an explanation of the claim review
procedure.
(b) Appeal Procedure to the Board. A Claimant is
entitled to request a review of any denial by the full Board by written request
to the Chair of the Board within 60 days of receipt of the denial. Absent a
request for review within the 60-day period, the claim will be deemed to be
conclusively denied. The Board shall afford the Claimant the opportunity to
review all pertinent documents and submit issues and comments in writing and
shall render a review decision in writing, all within 60 days after receipt of
a request for review (provided that, in special circumstances the Board may
extend the time for decision by not more than 60 days upon written notice to
the Claimant.) The Board's review decision shall contain specific reasons for
the decision and reference to the pertinent provisions of this Agreement.
Section 7. No Mitigation.
The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
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<PAGE> 6
Section 8. Expense Reimbursement.
In the event that any dispute arises between the Executive and
the Company as to the terms or interpretation of this Agreement, whether
instituted by formal legal proceedings or otherwise, including any action that
the Executive takes to enforce the terms of this Agreement or to defend against
any action taken by the Company, the Executive shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Executive shall obtain a final
judgment by a court of competent jurisdiction in favor of the Executive. Such
reimbursement shall be paid within thirty (30) days after the Executive
furnishes to the Company written evidence, which may be in the form, among other
things, of a canceled check or receipt, of any costs or expenses incurred by
Executive.
IN WITNESS WHEREOF, the Executive has signed this Agreement
and, pursuant to the authorization of the Board, the Company has caused this
Agreement to be signed, all as of the date first set forth above.
/s/ John Wittkowske
---------------------------------------------------
Executive - John Wittkowske
WEYCO GROUP, INC.
By: /s/ Thomas W. Florsheim, Jr.
------------------------------------------------
Thomas W. Florsheim, Jr. President
Attest: /s/ John W. Florsheim
--------------------------------------------
John W. Florsheim, Executive Vice President
<PAGE> 1
EXHIBIT 10.15
WEYCO GROUP, INC.
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made as of the 26th day of January, 1998, between
Weyco Group, Inc., a Wisconsin corporation, ("Company") and Peter S. Grossman
("Executive").
WHEREAS, the Executive is now serving as an executive of the
Company in a position of importance and responsibility; and
WHEREAS, the Company wishes to continue to receive the benefit
of the Executive's knowledge and experience and, as an inducement for continued
service, is willing to offer the Executive certain payments due to Change of
Control as set forth herein;
NOW, THEREFORE, the Executive and Company agree as follows:
Section 1. Definitions.
(a) Change of Control. For purposes of this Agreement, a
"Change of Control" shall occur:
(1) if any person or group of persons (as defined in
Section 13(d)(3) of the Securities and Exchange Act of 1934 and regulations
thereunder), other than the group consisting of members of the family of Thomas
W. Florsheim and their descendants or trusts for their benefit (the "Florsheim
Group"), directly or indirectly controls in excess of 25% of the voting power of
the outstanding common stock of the Company;
(2) in the event of the consolidation or merger of
the Company with or into another corporation or entity which is not a wholly
owned subsidiary of the Company unless such consolidation or merger has been
approved by the Board of Directors at a time when the majority of the Directors
are persons who have been nominated by the Board of Directors or the Florsheim
Group;
(3) in the event of the sale of all or substantially
all of the operating assets of the Company;
<PAGE> 2
(4) in the event of the replacement of a majority of
the existing members of the Company's Board of Directors by persons not
nominated by the Board of Directors or the Florsheim Group, or
(5) in the event of any amendment to Section 2 of
Article III of the Company's bylaws to enlarge the number of the directors of
the Company if the change was not supported by the existing Board of Directors
or the Florsheim Group,
(b) "Beneficiary" means any one or more primary or
secondary beneficiaries designated in writing by the Executive on a form
provided by the Company to receive any benefits which may become payable under
this Agreement on or after the Executive's death. The Executive shall have the
right to name, change or revoke the Executive's designation of a Beneficiary on
a form provided by the Company. The designation on file with the Company at the
time of the Executive's death shall be controlling. Should the Executive fail
to make a valid Beneficiary designation or leave no named Beneficiary
surviving, any benefits due shall be paid to the Executive's spouse, if living
or, if not living, then to the Executive's estate.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
Section 2. Payments Upon Change of Control.
(a) Within 30 days following a Change of Control, a cash
payment shall be made to the Executive in an amount equal to 299% of the "base
amount" as that term is defined in Code Section 280G. The determination of the
base amount shall be made by the Company's independent auditors. For this
purpose, the "base amount" shall be calculated with respect to the 3 taxable
year period ending before the date on which the Change of Control as defined
herein occurs, regardless of whether such Change of Control is an event
described in Code Section 280G (b)(2)(A).
(b) If the payment under paragraph (a) above would
result in disallowance of any portion of the Company's deduction therefor under
Section 162(m) of the Code, the payment called for under paragraph (a) shall be
limited to the amount which is deductible, with the balance to be paid as soon
as deductible by the Company. Any amounts which are so deferred shall earn
interest until paid at an annual rate equal to the prime rate. For interest
accruing during any calendar year the "prime rate" shall be the rate reported
as the prime rate in the Wall Street Journal on the first business day of that
year.
Section 3. Limitation on Payments. If the payments under
Section 2 in combination with any other payments which the Executive has the
right to receive from the Company (the "Total Payments") would not be
deductible (in whole or in part) as a result of Section 280G of the Code, the
payments under Section 2 shall be reduced until (i) no portion of the Total
Payments is nondeductible as a result of Section 280G of the Code or (ii) the
payments under Section 2 are reduced to zero. For purposes of this limitation
(i) no portion of the Total Payments, the receipt or enjoyment of which the
Executive shall have effectively waived in writing prior to the date
<PAGE> 3
payments commence under Section 2, shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the
opinion of tax counsel selected by the Company's independent auditors
and acceptable to the Executive, does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code, (iii) the
payments under Section 2 shall be reduced only to the extent necessary so
that the Total Payments (other than those referred to in clause (i) or (ii)) in
their entirety constitute reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code, in the opinion of the tax
counsel referred to in clause (ii), and (iv) the value of any non-cash benefit
or any deferred payment or benefit included in the Total Payments shall be
determined by the Company's independent auditors, in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
Section 4. Death After the Executive has Begun Receiving
Payments. Should the Executive die after a Change of Control, but before
receiving all payments due the Executive hereunder, any remaining payments
due shall be made to the Executive's Beneficiary.
Section 5. Miscellaneous.
(a) Non-Assignability. This Agreement is personal to the
Executive and shall not be assignable by the Executive. This Agreement shall
inure to the benefit of and be binding upon the Company and its successors and
assigns and shall also be enforceable by the Executive's legal representatives.
(b) Successors. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
(c) Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Wisconsin,
without reference to principles of conflict of laws, to the extent not
preempted by federal law. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(d) Notices. All notices and other communications under
this Agreement shall be in writing and shall be given by hand delivery to
the other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: Peter S. Grossman
1453 E.Goodrich Lane
Milwaukee, WI 53217
-9-
<PAGE> 4
If to the Company: Weyco Group, Inc.
P. O. Box 1188
Milwaukee, WI 53201
Attention: Corporate Secretary
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph. Notices and communications shall be effective
when actually received by the addressee.
(e) Construction. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement. If any provision of
this Agreement shall be held invalid or unenforceable in part, the remaining
portion of such provision, together with all other provisions of this
Agreement, shall remain valid and enforceable and continue in full force and
effect to the fullest extent consistent with law.
(f) No Guarantee of Employment. Nothing contained in
this Agreement shall give the Executive the right to be retained in the
employment of the Company or affect the right of the Company to dismiss the
Executive.
(g) Amendment; Entire Agreement. This Agreement may not
be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives. This Agreement
contains the entire agreement between the parties on the subjects covered and
replaces all prior writings, proposals, specifications or other oral or written
materials relating thereto.
(h) Impact on Other Plans. No amounts paid to the
Executive under this Agreement will be taken into account as "wages", "salary",
"base pay" or any other type of compensation when determining the amount of any
payment or allocation, or for any other purpose, under any other qualified
or nonqualified plan or agreement of the Company, except as otherwise may be
specifically provided by such plan or agreement by making specific reference to
payments under this Agreement.
(i) Other Agreements. This Agreement supersedes any other
severance arrangement between the Company and the Executive. This Agreement does
not confer any payments or benefits other than the payments described in Section
2 hereof.
(j) Withholding. To the extent required by law, the
Company shall withhold any taxes required to be withheld with respect to this
Agreement by the federal, state or local government from payments made
hereunder or from other amounts paid to the Executive by the Company.
-10-
<PAGE> 5
(k) Facility of Payment. If the Executive or, if
applicable, the Executive's Beneficiary, is under legal disability, the Company
may direct that payments be made to a relative of such person for the
benefit of such person, without the intervention of any legal guardian or
conservator, or to any legal guardian or conservator of such person. Any such
distribution shall constitute a full discharge with respect to the Company and
the Company shall not be required to see to the application of any distribution
so made.
Section 6. Claims Procedure.
(a) Claim Review. If the Executive or the Executive's
Beneficiary (a "Claimant") believes that he or she has been denied all or a
portion of a benefit under this Agreement, he or she may file a written claim
for benefits with the Company. The Company shall review the claim and notify the
Claimant of the Company's decision within 60 days of receipt of such claim,
unless the Claimant receives written notice prior to the end of the 60 day
period stating that special circumstances require an extension of the time for
decision. The Company's decision shall be in writing, sent by mail to the
Claimant's last known address, and if a denial of the claim, must contain the
specific reasons for the denial, reference to pertinent provisions of this
Agreement on which the denial is based, a designation of any additional material
necessary to perfect the claim, and an explanation of the claim review
procedure.
(b) Appeal Procedure to the Board. A Claimant is
entitled to request a review of any denial by the full Board by written request
to the Chair of the Board within 60 days of receipt of the denial. Absent a
request for review within the 60-day period, the claim will be deemed to be
conclusively denied. The Board shall afford the Claimant the opportunity to
review all pertinent documents and submit issues and comments in writing and
shall render a review decision in writing, all within 60 days after receipt of
a request for review (provided that, in special circumstances the Board may
extend the time for decision by not more than 60 days upon written notice to
the Claimant.) The Board's review decision shall contain specific reasons for
the decision and reference to the pertinent provisions of this Agreement.
Section 7. No Mitigation.
The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in any
subsequent employment.
-11-
<PAGE> 6
Section 8. Expense Reimbursement.
In the event that any dispute arises between the Executive and
the Company as to the terms or interpretation of this Agreement, whether
instituted by formal legal proceedings or otherwise, including any action that
the Executive takes to enforce the terms of this Agreement or to defend against
any action taken by the Company, the Executive shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Executive shall obtain a final
judgment by a court of competent jurisdiction in favor of the Executive. Such
reimbursement shall be paid within thirty (30) days after the Executive
furnishes to the Company written evidence, which may be in the form, among other
things, of a canceled check or receipt, of any costs or expenses incurred by
Executive.
IN WITNESS WHEREOF, the Executive has signed this Agreement
and, pursuant to the authorization of the Board, the Company has caused this
Agreement to be signed, all as of the date first set forth above.
/s/ Peter S. Grossman
----------------------------------------------------
Executive - Peter S.Grossman
WEYCO GROUP, INC.
By: /s/ Thomas W. Florsheim, Jr.
------------------------------------------------
Thomas W. Florsheim, Jr. President
Attest: /s/ John Wittkowske
-----------------------------------------
John Wittkowske - Vice President-Finance
<PAGE> 1
EXHIBIT 10.16
WEYCO GROUP, INC.
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made as of the 26th day of January, 1998, between
Weyco Group, Inc., a Wisconsin corporation, ("Company") and James F. Gorman
("Executive").
WHEREAS, the Executive is now serving as an executive of the
Company in a position of importance and responsibility; and
WHEREAS, the Company wishes to continue to receive the benefit
of the Executive's knowledge and experience and, as an inducement for continued
service, is willing to offer the Executive certain payments due to Change of
Control as set forth herein;
NOW, THEREFORE, the Executive and Company agree as follows:
Section 1. Definitions.
(a) Change of Control. For purposes of this Agreement, a
"Change of Control" shall occur:
(1) if any person or group of persons (as defined in
Section 13(d)(3) of the Securities and Exchange Act of 1934 and regulations
thereunder), other than the group consisting of members of the family of Thomas
W. Florsheim and their descendants or trusts for their benefit (the "Florsheim
Group"), directly or indirectly controls in excess of 25% of the voting power of
the outstanding common stock of the Company;
(2) in the event of the consolidation or merger of
the Company with or into another corporation or entity which is not a wholly
owned subsidiary of the Company unless such consolidation or merger has been
approved by the Board of Directors at a time when the majority of the Directors
are persons who have been nominated by the Board of Directors or the Florsheim
Group;
(3) in the event of the sale of all or substantially
all of the operating assets of the Company;
<PAGE> 2
(4) in the event of the replacement of a majority of
the existing members of the Company's Board of Directors by persons not
nominated by the Board of Directors or the Florsheim Group, or
(5) in the event of any amendment to Section 2 of
Article III of the Company's bylaws to enlarge the number of the directors of
the Company if the change was not supported by the existing Board of Directors
or the Florsheim Group,
(b) "Beneficiary" means any one or more primary or
secondary beneficiaries designated in writing by the Executive on a form
provided by the Company to receive any benefits which may become payable under
this Agreement on or after the Executive's death. The Executive shall have the
right to name, change or revoke the Executive's designation of a Beneficiary on
a form provided by the Company. The designation on file with the Company at the
time of the Executive's death shall be controlling. Should the Executive fail
to make a valid Beneficiary designation or leave no named Beneficiary
surviving, any benefits due shall be paid to the Executive's spouse, if living
or, if not living, then to the Executive's estate.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
Section 2. Payments Upon Change of Control.
(a) Within 30 days following a Change of Control, a cash
payment shall be made to the Executive in an amount equal to 299% of the "base
amount" as that term is defined in Code Section 280G. The determination of the
base amount shall be made by the Company's independent auditors. For this
purpose, the "base amount" shall be calculated with respect to the 3 taxable
year period ending before the date on which the Change of Control as defined
herein occurs, regardless of whether such Change of Control is an event
described in Code Section 280G (b)(2)(A).
(b) If the payment under paragraph (a) above would
result in disallowance of any portion of the Company's deduction
therefor under Section 162(m) of the Code, the payment called for under
paragraph (a) shall be limited to the amount which is deductible, with the
balance to be paid as soon as deductible by the Company. Any amounts which are
so deferred shall earn interest until paid at an annual rate equal to the prime
rate. For interest accruing during any calendar year the "prime rate" shall be
the rate reported as the prime rate in the Wall Street Journal on the first
business day of that year.
Section 3. Limitation on Payments. If the payments under
Section 2 in combination with any other payments which the Executive has the
right to receive from the Company (the "Total Payments") would not be
deductible (in whole or in part) as a result of Section 280G of the Code, the
payments under Section 2 shall be reduced until (i) no portion of the Total
Payments is nondeductible as a result of Section 280G of the Code or (ii) the
payments under Section 2 are reduced to zero. For purposes of this limitation
(i) no portion of the Total Payments, the receipt or enjoyment of which the
Executive shall have effectively waived in writing prior to the date
<PAGE> 3
payments commence under Section 2, shall be taken into account, (ii)
no portion of the Total Payments shall be taken into account which,
in the opinion of tax counsel selected by the Company's independent
auditors and acceptable to the Executive, does not constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code, (iii)
the payments under Section 2 shall be reduced only to the extent necessary so
that the Total Payments (other than those referred to in clause (i) or (ii)) in
their entirety constitute reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code, in the opinion of the tax
counsel referred to in clause (ii), and (iv) the value of any non-cash benefit
or any deferred payment or benefit included in the Total Payments shall be
determined by the Company's independent auditors, in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
Section 4. Death After the Executive has Begun Receiving Payments.
Should the Executive die after a Change of Control, but before receiving all
payments due the Executive hereunder, any remaining payments due shall be made
to the Executive's Beneficiary.
Section 5. Miscellaneous.
(a) Non-Assignability. This Agreement is personal to the
Executive and shall not be assignable by the Executive. This Agreement shall
inure to the benefit of and be binding upon the Company and its successors and
assigns and shall also be enforceable by the Executive's legal representatives.
(b) Successors. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
(c) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Wisconsin, without
reference to principles of conflict of laws, to the extent not preempted by
federal law. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(d) Notices. All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive: James F. Gorman
1230 Overhill Road
Elm Grove, WI 53122
-15-
<PAGE> 4
If to the Company: Weyco Group, Inc.
P. O. Box 1188
Milwaukee, WI 53201
Attention: Corporate Secretary
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph. Notices and communications shall be effective
when actually received by the addressee.
(e) Construction. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of this Agreement shall
be held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
(f) No Guarantee of Employment. Nothing contained in this
Agreement shall give the Executive the right to be retained in the employment of
the Company or affect the right of the Company to dismiss the Executive.
(g) Amendment; Entire Agreement. This Agreement may not be
amended or modified except by a written agreement executed by the parties hereto
or their respective successors and legal representatives. This Agreement
contains the entire agreement between the parties on the subjects covered and
replaces all prior writings, proposals, specifications or other oral or written
materials relating thereto.
(h) Impact on Other Plans. No amounts paid to the Executive
under this Agreement will be taken into account as "wages", "salary", "base pay"
or any other type of compensation when determining the amount of any payment or
allocation, or for any other purpose, under any other qualified or nonqualified
plan or agreement of the Company, except as otherwise may be specifically
provided by such plan or agreement by making specific reference to payments
under this Agreement.
(i) Other Agreements. This Agreement supersedes any other
severance arrangement between the Company and the Executive. This Agreement does
not confer any payments or benefits other than the payments described in Section
2 hereof.
(j) Withholding. To the extent required by law, the Company
shall withhold any taxes required to be withheld with respect to this Agreement
by the federal, state or local government from payments made hereunder or from
other amounts paid to the Executive by the Company.
-16-
<PAGE> 5
(k) Facility of Payment. If the Executive or, if applicable,
the Executive's Beneficiary, is under legal disability, the Company may direct
that payments be made to a relative of such person for the benefit of such
person, without the intervention of any legal guardian or conservator, or to any
legal guardian or conservator of such person. Any such distribution shall
constitute a full discharge with respect to the Company and the Company shall
not be required to see to the application of any distribution so made.
Section 6. Claims Procedure.
(a) Claim Review. If the Executive or the Executive's
Beneficiary (a "Claimant") believes that he or she has been denied all or a
portion of a benefit under this Agreement, he or she may file a written claim
for benefits with the Company. The Company shall review the claim and notify the
Claimant of the Company's decision within 60 days of receipt of such claim,
unless the Claimant receives written notice prior to the end of the 60 day
period stating that special circumstances require an extension of the time for
decision. The Company's decision shall be in writing, sent by mail to the
Claimant's last known address, and if a denial of the claim, must contain the
specific reasons for the denial, reference to pertinent provisions of this
Agreement on which the denial is based, a designation of any additional material
necessary to perfect the claim, and an explanation of the claim review
procedure.
(b) Appeal Procedure to the Board. A Claimant is entitled to
request a review of any denial by the full Board by written request to the Chair
of the Board within 60 days of receipt of the denial. Absent a request for
review within the 60-day period, the claim will be deemed to be conclusively
denied. The Board shall afford the Claimant the opportunity to review all
pertinent documents and submit issues and comments in writing and shall render a
review decision in writing, all within 60 days after receipt of a request for
review (provided that, in special circumstances the Board may extend the time
for decision by not more than 60 days upon written notice to the Claimant.) The
Board's review decision shall contain specific reasons for the decision and
reference to the pertinent provisions of this Agreement.
Section 7. No Mitigation.
The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
-17-
<PAGE> 6
Section 8. Expense Reimbursement.
In the event that any dispute arises between the Executive and
the Company as to the terms or interpretation of this Agreement, whether
instituted by formal legal proceedings or otherwise, including any action that
the Executive takes to enforce the terms of this Agreement or to defend against
any action taken by the Company, the Executive shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Executive shall obtain a final
judgment by a court of competent jurisdiction in favor of the Executive. Such
reimbursement shall be paid within thirty (30) days after the Executive
furnishes to the Company written evidence, which may be in the form, among other
things, of a canceled check or receipt, of any costs or expenses incurred by
Executive.
IN WITNESS WHEREOF, the Executive has signed this Agreement
and, pursuant to the authorization of the Board, the Company has caused this
Agreement to be signed, all as of the date first set forth above.
/s/ James F.Gorman
--------------------------------------------------
Executive - James F. Gorman
WEYCO GROUP, INC.
By: /s/ Thomas W. Florsheim, Jr.
----------------------------------------------
Thomas W. Florsheim, Jr. President
Attest: /s/ John Wittkowske
-----------------------------------------
John Wittkowske - Vice President-Finance
<PAGE> 1
EXHIBIT 10.17
WEYCO GROUP, INC.
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made as of the 26th day of January, 1998, between Weyco
Group, Inc., a Wisconsin corporation, ("Company") and David N. Couper
("Executive").
WHEREAS, the Executive is now serving as an executive of the Company
in a position of importance and responsibility; and
WHEREAS, the Company wishes to continue to receive the benefit of the
Executive's knowledge and experience and, as an inducement for continued
service, is willing to offer the Executive certain payments due to Change of
Control as set forth herein;
NOW, THEREFORE, the Executive and Company agree as follows:
Section 1. Definitions.
(a) Change of Control. For purposes of this Agreement, a "Change of
Control" shall occur:
(1) if any person or group of persons (as defined in Section
13(d) (3) of the Securities and Exchange Act of 1934 and regulations
thereunder), other than the group consisting of members of the family of Thomas
W. Florsheim and their descendants or trusts for their benefit (the "Florsheim
Group"), directly or indirectly controls in excess of 25% of the voting power
of the outstanding common stock of the Company;
(2) in the event of the consolidation or merger of the Company
with or into another corporation or entity which is not a wholly owned
subsidiary of the Company unless such consolidation or merger has been approved
by the Board of Directors at a time when the majority of the Directors are
persons who have been nominated by the Board of Directors or the Florsheim
Group;
(3) in the event of the sale of all or substantially all of the
operating assets of the Company;
<PAGE> 2
(4) in the event of the replacement of a majority of the
existing members of the Company's Board of Directors by persons not nominated
by the Board of Directors or the Florsheim Group, or
(5) in the event of any amendment to Section 2 of Article III
of the Company's bylaws to enlarge the number of the directors of the Company
if the change was not supported by the existing Board of Directors or the
Florsheim Group,
(b) "Beneficiary" means any one or more primary or secondary
beneficiaries designated in writing by the Executive on a form provided by the
Company to receive any benefits which may become payable under this Agreement
on or after the Executive's death. The Executive shall have the right to name,
change or revoke the Executive's designation of a Beneficiary on a form
provided by the Company. The designation on file with the Company at the time
of the Executive's death shall be controlling. Should the Executive fail to
make a valid Beneficiary designation or leave no named Beneficiary surviving,
any benefits due shall be paid to the Executive's spouse, if living or, if not
living, then to the Executive's estate.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
Section 2. Payments Upon Change of Control.
(a) Within 30 days following a Change of Control, a cash payment
shall be made to the Executive in an amount equal to 299% of the "base
amount" as that term is defined in Code Section 280G. The determination of the
base amount shall be made by the Company's independent auditors. For this
purpose, the "base amount" shall be calculated with respect to the 3 taxable
year period ending before the date on which the Change of Control as defined
herein occurs, regardless of whether such Change of Control is an event
described in Code Section 280G (b)(2)(A).
(b) If the payment under paragraph (a) above would result in
disallowance of any portion of the Company's deduction therefor under Section
162(m) of the Code, the payment called for under paragraph (a) shall be limited
to the amount which is deductible, with the balance to be paid as soon as
deductible by the Company. Any amounts which are so deferred shall earn
interest until paid at an annual rate equal to the prime rate. For interest
accruing during any calendar year the "prime rate" shall be the rate reported
as the prime rate in the Wall Street Journal on the first business day of that
year.
Section 3. Limitation on Payments. If the payments under Section 2 in
combination with any other payments which the Executive has the right to
receive from the Company (the "Total Payments") would not be deductible (in
whole or in part) as a result of Section 280G of the Code, the payments under
Section 2 shall be reduced until (i) no portion of the Total Payments is
nondeductible as a result of Section 280G of the Code or (ii) the payments
under Section 2 are reduced to zero. For purposes of this limitation (i) no
portion of the Total Payments, the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the date
<PAGE> 3
payments commence under Section 2, shall be taken into account, (ii) no portion
of the Total Payments shall be taken into account which, in the opinion of tax
counsel selected by the Company's independent auditors and acceptable to the
Executive, does not constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code, (iii) the payments under Section 2 shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clause (i) or (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code, in the opinion of the tax counsel referred to
in clause (ii), and (iv) the value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Company's independent auditors, in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
Section 4. Death After the Executive has Begun Receiving Payments. Should
the Executive die after a Change of Control, but before receiving all payments
due the Executive hereunder, any remaining payments due shall be made to the
Executive's Beneficiary.
Section 5. Miscellaneous.
(a) Non-Assignability. This Agreement is personal to the Executive and
shall not be assignable by the Executive. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns and
shall also be enforceable by the Executive's legal representatives.
(b) Successors. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and
agrees to perform this Agreement, by operation of law or otherwise.
(c) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Wisconsin, without reference to
principles of conflict of laws, to the extent not preempted by federal law.
The captions of this Agreement are not part of the provisions hereof and shall
have no force or effect.
(d) Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: David N. Couper
W8180 Quarry Road
Watertown, WI 53094
-21-
<PAGE> 4
If to the Company: Weyco Group, Inc.
P. O. Box 1188
Milwaukee, WI 53201
Attention: Corporate Secretary
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph. Notices and communications shall be effective
when actually received by the addressee.
(e) Construction. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of this Agreement
shall be held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
(f) No Guarantee of Employment. Nothing contained in this Agreement
shall give the Executive the right to be retained in the employment of the
Company or affect the right of the Company to dismiss the Executive.
(g) Amendment; Entire Agreement. This Agreement may not be amended or
modified except by a written agreement executed by the parties hereto or their
respective successors and legal representatives. This Agreement contains the
entire agreement between the parties on the subjects covered and replaces all
prior writings, proposals, specifications or other oral or written materials
relating thereto.
(h) Impact on Other Plans. No amounts paid to the Executive under this
Agreement will be taken into account as "wages", "salary", "base pay" or any
other type of compensation when determining the amount of any payment or
allocation, or for any other purpose, under any other qualified or nonqualified
plan or agreement of the Company, except as otherwise may be specifically
provided by such plan or agreement by making specific reference to payments
under this Agreement.
(i) Other Agreements. This Agreement supersedes any other severance
arrangement between the Company and the Executive. This Agreement does not
confer any payments or benefits other than the payments described in Section 2
hereof.
(j) Withholding. To the extent required by law, the Company shall
withhold any taxes required to be withheld with respect to this Agreement by
the federal, state or local government from payments made hereunder or from
other amounts paid to the Executive by the Company.
-22-
<PAGE> 5
(k) Facility of Payment. If the Executive or, if applicable, the
Executive's Beneficiary, is under legal disability, the Company may direct that
payments be made to a relative of such person for the benefit of such person,
without the intervention of any legal guardian or conservator, or to any legal
guardian or conservator of such person. Any such distribution shall constitute
a full discharge with respect to the Company and the Company shall not be
required to see to the application of any distribution so made.
Section 6. Claims Procedure.
(a) Claim Review. If the Executive or the Executive's Beneficiary (a
"Claimant") believes that he or she has been denied all or a portion of a
benefit under this Agreement, he or she may file a written claim for benefits
with the Company. The Company shall review the claim and notify the Claimant
of the Company's decision within 60 days of receipt of such claim, unless the
Claimant receives written notice prior to the end of the 60 day period stating
that special circumstances require an extension of the time for decision. The
Company's decision shall be in writing, sent by mail to the Claimant's last
known address, and if a denial of the claim, must contain the specific reasons
for the denial, reference to pertinent provisions of this Agreement on which
the denial is based, a designation of any additional material necessary to
perfect the claim, and an explanation of the claim review procedure.
(b) Appeal Procedure to the Board. A Claimant is entitled to
request a review of any denial by the full Board by written request to
the Chair of the Board within 60 days of receipt of the denial. Absent a
request for review within the 60-day period, the claim will be deemed to be
conclusively denied. The Board shall afford the Claimant the opportunity to
review all pertinent documents and submit issues and comments in writing and
shall render a review decision in writing, all within 60 days after receipt of
a request for review (provided that, in special circumstances the Board may
extend the time for decision by not more than 60 days upon written notice to
the Claimant.) The Board's review decision shall contain specific reasons for
the decision and reference to the pertinent provisions of this Agreement.
Section 7. No Mitigation.
The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
-23-
<PAGE> 6
Section 8. Expense Reimbursement.
In the event that any dispute arises between the Executive and the
Company as to the terms or interpretation of this Agreement, whether instituted
by formal legal proceedings or otherwise, including any action that the
Executive takes to enforce the terms of this Agreement or to defend against any
action taken by the Company, the Executive shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Executive shall obtain a final
judgment by a court of competent jurisdiction in favor of the Executive. Such
reimbursement shall be paid within thirty (30) days after the Executive
furnishes to the Company written evidence, which may be in the form, among
other tings, of a canceled check or receipt, of any costs or expenses incurred
by Executive.
IN WITNESS WHEREOF, the Executive has signed this Agreement and,
pursuant to the authorization of the Board, the Company has caused this
Agreement to be signed, all as of the date first set forth above.
/s/ David N.Couper
------------------------------------------------
Executive - David N. Couper
------------------------------------------------
WEYCO GROUP, INC.
By: /s Thomas W. Florsheim, Jr.
--------------------------------------------
Thomas W. Florsheim, Jr. President
Attest: /s/ John Wittkowske
----------------------------------------
John Wittkowske - Vice President-Finance
-24-
<PAGE> 1
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
1997 was another record year for our company. Net earnings grew to $9.1 million,
an increase of 12% over 1996. Our earnings per share were $1.88 per share, an
increase of over 13%. This now marks the third straight year we have achieved
record earnings.
Our continuing mission is to provide the best value across the various footwear
categories in which we compete. Our commitment to this end has enabled us to
strengthen our position as a key player in the men's branded footwear market.
During 1997, our wholesale sales were essentially flat, registering a slight
increase over 1996. While all three of our brands - Nunn Bush, Stacy Adams, and
Brass Boot continue to perform strongly at retail, the overall market for
footwear sales was slow in the fourth quarter, which impacted the shipment flow
to our customers. As we look toward 1998, we believe all of our brands are well
positioned for continued growth.
In 1997, our retail division was reduced from 17 units to 13 units. This
resulted in overall retail sales declining by $2.5 million, which also resulted
in our overall sales being down from 1996. While our retail division now
accounts for a relatively small percentage of our business, sales at existing
stores have steadily improved and we are pleased to announce that our retail
division was profitable in 1997. We will continue to evaluate our retail
division as store leases expire, in an effort to continue to maintain our
profitability in this division. Same-store sales in our retail division
increased 8% in 1997.
In December 1997, we broke ground on our new 346,000 square foot
office/distribution complex. This facility will combine our two individual
warehouses and, coupled with our system improvements, will greatly enhance our
distribution process. This will enable us to better serve our customers and
continue to grow. The building is scheduled to be completed in the fall of 1998,
with the installation of equipment and systems to follow. We anticipate starting
operations in the new facility in the second quarter of 1999. With the
continuing consolidation of retailers, the current environment presents unique
challenges. We believe that we are taking the necessary steps to keep our brands
relevant and profitable. We look forward to a successful 1998.
/s/ Thomas W. Florsheim
Thomas W. Florsheim
Chairman of the Board and
Chief Executive Officer
/s/ Thomas W. Florsheim, Jr.
Thomas W. Florsheim, Jr.
President and
Chief Operating Officer
1
<PAGE> 2
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................... $127,029,000 $129,314,000 $120,643,000 $114,719,000 $122,144,000
Net earnings before
cumulative effect of
accounting change......... 9,068,000 8,072,000 6,807,000 6,179,000 4,908,000
Cumulative effect of
accounting change......... -- -- -- -- 880,000
------------ ------------ ------------ ------------ ------------
Net earnings................ $ 9,068,000 $ 8,072,000 $ 6,807,000 $ 6,179,000 $ 5,788,000
============ ============ ============ ============ ============
Diluted earnings per share
before cumulative effect
of accounting change...... $1.88 $1.65 $1.21 $.99 $.77
Cumulative effect of
accounting change......... -- -- -- -- .14
------------ ------------ ------------ ------------ ------------
Diluted earnings per
share..................... $1.88 $1.65 $1.21 $.99 $.91
============ ============ ============ ============ ============
Weighted average diluted
shares outstanding........ 4,825,050 4,886,188 5,647,360 6,250,480 6,367,962
Cash dividends per share.... $.31 $.29 $.28 $.27 $.26
Working capital............. $ 28,269,000 $ 33,840,000 $ 45,997,000 $ 52,968,000 $ 55,864,000
Total assets................ $ 82,204,000 $ 73,077,000 $ 79,328,000 $ 72,827,000 $ 74,915,000
</TABLE>
Note: Earnings per share and weighted average shares shown above for past years
have been restated to reflect dilution in accordance with Statement of
Accounting Standards No. 128. See Notes 1 and 12 to the Consolidated
Financial Statements. They have also been retroactively restated for a
200% stock dividend declared in 1997.
COMMON STOCK DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------
Price Range Cash Price Range Cash
----------- Dividends ----------- Dividends
High Low Declared High Low Declared
Quarter: ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First................................. $16.50 $13.42 $.07 $13.67 $12.50 $.07
Second................................ 23.08 15.33 .08 14.00 12.67 .07
Third................................. 34.00 21.17 .08 14.17 13.17 .07
Fourth................................ 33.00 20.00 .08 14.33 13.17 .08
---- ----
$.31 $.29
==== ====
</TABLE>
Note: All share, per share, stock price and dividend information has been
adjusted to reflect the September 2, 1997 200% stock dividend.
There are approximately 500 holders of record of the Company's common stock as
of March 3, 1998.
The stock prices shown above are the high and low actual trades for the calendar
periods indicated.
The Class B Common Stock is not listed nor does it trade publicly because of its
limited transferability. See Note 11 to the Consolidated Financial Statements
for additional information.
2
<PAGE> 3
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY
The Company's primary source of liquidity is its cash and marketable securities
which aggregated approximately $40,789,000 at December 31, 1997, and $31,457,000
at December 31, 1996. In addition, the Company maintains a $7,500,000 bank line
of credit and has banker acceptance loan facilities to provide funds on a
short-term basis when necessary. There were no draws on the line of credit
during 1997.
During 1995, 1996 and 1997, the Company repurchased shares of its Common and
Class B Common Stock. Management intends to continue to repurchase stock,
provided that it represents an attractive investment opportunity to the Company
when it becomes available.
The Company's capital expenditures were $554,000, $251,000 and $195,000 in 1997,
1996 and 1995, respectively. In December 1997, the Company broke ground on a new
346,000 square foot office and distribution center. Management estimates that
the building will be completed in the fall of 1998 with installation of
equipment and systems to follow. Operations are expected to begin in the new
facility in the second quarter of 1999. Management believes that this facility,
coupled with system improvements, will greatly enhance the distribution process
enabling the Company to better serve customers and continue to grow. The entire
project is expected to cost $12 million.
The Company believes that available cash and marketable securities, cash
provided from operations and available borrowing facilities will provide
adequate support for the cash needs of the business.
RESULTS OF OPERATIONS
1997 VS. 1996
Sales in 1997 were $127,029,000 compared with $129,314,000 in 1996. The decrease
in overall net sales is the result of a decline in retail sales from $10,952,000
in 1996 to $8,423,000 in 1997. This decline was caused by the closing of 13
leased departments in July 1996 and the closing of 4 additional retail units in
1997. Same store retail sales increased 7.6% in 1997. Sales in the wholesale
division were up slightly from $118,362,000 in 1996 to $118,606,000 in 1997.
Overall gross earnings as a percent of net sales were 28% for 1997 and 27% for
1996. Wholesale gross earnings as a percent of wholesale net sales were 26% for
1997 and 25% for 1996. Retail gross earnings as a percent of retail net sales
increased from 47% for 1996 to 50% for 1997, primarily due to a $600,000 charge
made to retail cost of sales during the first quarter of 1996 for the closing of
retail units.
Overall selling and administrative expenses as a percent of net sales were
consistent at 18% for the years ended December 31, 1997 and 1996. Wholesale
selling and administrative expenses as a percent of wholesale net sales
increased from 15% in 1996 to 16% in 1997, primarily due to fees incurred in
1997 relating to enhancements of our information systems. Retail selling and
administrative expenses as a percent of retail net sales decreased from 49% in
1996 to 46% in 1997. The decreases noted in the retail figures resulted from the
closing of less profitable retail units during 1996 and 1997. Sales at the
remaining retail stores have increased in relation to occupancy and employee
expenses.
Interest income increased from $1,144,000 in 1996 to $1,475,000 in 1997,
primarily due to higher marketable securities balances during the year.
1996 VS. 1995
Total net sales of the Company increased approximately 7% from $120,643,000 in
1995 to $129,314,000 in 1996. Net sales in the wholesale division increased 13%
from $105,149,000 in 1995 to $118,362,000 in 1996. The increase in sales
resulted from an increase of 7% in the number of pairs of shoes shipped, as well
as an increase in the average selling price per pair of 5% from 1995 to 1996.
The increase in the selling price per pair was principally caused by a change in
product mix. Retail net sales decreased 29% in 1996 from $15,494,000 in 1995 to
$10,952,000 in 1996. Retail sales declined due to the closing of 13 leased shoe
departments and 1 retail store
3
<PAGE> 4
- --------------------------------------------------------------------------------
during 1996. Same store net sales increased 1% in 1996. Gross earnings as a
percent of net sales were flat between 1995 and 1996 at 27%.
Selling and administrative expenses decreased from $23,947,000 in 1995 to
$23,176,000 in 1996. The decrease can be principally attributed to the retail
store closings in 1995 and 1996. Consequently, retail selling and administrative
expenses decreased 31% from $7,754,000 in 1995 to $5,362,000 in 1996. Wholesale
selling and administrative expenses increased 9% from $16,365,000 in 1995 to
$17,814,000 in 1996. As a percentage of wholesale sales, these expenses
decreased from 15.5% in 1995 to 15.0% in 1996.
Interest income decreased from $1,420,000 in 1995 to $1,144,000 in 1996 due to
lower marketable securities balances during the year. Other income and expense
decreased from $788,000 in 1995 to ($17,000) in 1996, primarily because 1995
included $850,000 of income realized from a lease assignment.
OVERALL ANALYSIS
The Company continues to purchase finished shoes and components from outside
suppliers around the world. The majority of these foreign sourced purchases are
denominated in U. S. dollars. The Company presently operates one shoe
manufacturing plant in Wisconsin. Production in this factory has changed little
during the past three years. There have been few inflationary pressures in the
shoe industry in recent years and leather and other component prices have been
stable. It is anticipated that, when necessary, selling price increases could be
initiated to offset periodic increases in costs of purchased shoes, components,
materials, labor and other expenses.
In recent years, management has focused on the wholesale portion of the
business, and has closed the less profitable retail units upon the expiration of
their leases. Management intends to continue to evaluate the remaining 13 retail
units from a profitability standpoint, and may close more retail stores in the
future if they are deemed unprofitable.
OTHER
YEAR 2000 COMPUTER COMPLIANCE
In response to the "Year 2000 Problem" relating to the inability of certain
computer software programs to process 2-digit year-date codes after December 31,
1999, management has conducted a comprehensive review of its systems and has
developed a plan to modify or replace programs as considered necessary. The
total cost of implementing this Year 2000 Plan is not expected to be significant
to the Company's financial results.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to the
Company's new office and distribution center, Year 2000 issues, and its outlook
for 1998. These statements represent the Company's reasonable judgement with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially. These factors could include the
effects of delays in construction of the distribution center or significant
adverse changes in the economic conditions affecting the men's footwear markets
served by the Company.
4
<PAGE> 5
CONSOLIDATED
STATEMENTS OF EARNINGS
For the years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................................ $127,028,749 $129,314,045 $120,642,617
COST OF SALES........................................ 91,708,986 94,474,268 88,093,991
------------ ------------ ------------
Gross earnings..................................... 35,319,763 34,839,777 32,548,626
SELLING AND ADMINISTRATIVE EXPENSES.................. 22,673,557 23,175,555 23,946,940
------------ ------------ ------------
Earnings from operations........................... 12,646,206 11,664,222 8,601,686
INTEREST INCOME...................................... 1,475,230 1,143,523 1,420,080
OTHER INCOME AND EXPENSE, net........................ 12,032 (17,324) 788,225
------------ ------------ ------------
Earnings before provision for income taxes......... 14,133,468 12,790,421 10,809,991
PROVISION FOR INCOME TAXES........................... 5,065,000 4,718,000 4,003,000
------------ ------------ ------------
Net earnings....................................... $ 9,068,468 $ 8,072,421 $ 6,806,991
============ ============ ============
BASIC EARNINGS PER SHARE*............................ $1.90 $1.66 $1.21
============ ============ ============
DILUTED EARNINGS PER SHARE*.......................... $1.88 $1.65 $1.21
============ ============ ============
</TABLE>
- -------------------------
*Earnings per share figures have been adjusted to reflect the September 2, 1997
200% stock dividend.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,323,035 $ 6,837,765
Marketable securities, at amortized cost.................. 7,360,953 8,179,263
Accounts receivable, less reserves of $2,470,180 and
$2,292,180, respectively............................... 17,672,176 18,235,404
Inventories............................................... 11,161,453 12,399,444
Deferred income tax benefits.............................. 3,357,000 2,161,000
Prepaid expenses and other current assets................. 37,447 --
----------- -----------
Total current assets................................. 42,912,064 47,812,876
----------- -----------
MARKETABLE SECURITIES, AT AMORTIZED COST.................... 30,105,090 16,440,201
DEFERRED INCOME TAX BENEFITS................................ -- 33,000
OTHER ASSETS................................................ 6,874,191 6,138,205
PLANT AND EQUIPMENT, NET.................................... 2,312,770 2,652,873
----------- -----------
$82,204,115 $73,077,155
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
6
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 6,275,563 $ 6,793,555
Dividend payable.......................................... 381,954 349,354
Accrued liabilities -
Wages, salaries and commissions........................ 2,785,932 2,689,200
Taxes other than income taxes.......................... 134,958 122,788
Other.................................................. 4,085,278 3,025,765
Accrued income taxes...................................... 979,024 992,241
----------- -----------
Total current liabilities............................ 14,642,709 13,972,903
----------- -----------
DEFERRED INCOME TAX LIABILITIES............................. 884,000 --
SHAREHOLDERS' INVESTMENT:
Common Stock, $1.00 par value, authorized 4,000,000
shares, issued and outstanding 3,809,171 shares in 1997
and 1,259,053 shares in 1996........................... 3,809,171 1,259,053
Class B Common Stock, $1.00 par value, authorized
2,000,000 shares, issued and outstanding 965,754 shares
in 1997 and 328,422 shares in 1996..................... 965,754 328,422
Capital in excess of par value............................ 2,086,054 1,666,065
Reinvested earnings....................................... 59,816,427 55,850,712
----------- -----------
Total shareholders' investment....................... 66,677,406 59,104,252
----------- -----------
$82,204,115 $73,077,155
=========== ===========
</TABLE>
7
<PAGE> 8
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' INVESTMENT
For the years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Capital in
Common Common Excess of Reinvested
Stock Stock Par Value Earnings
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.................... $1,441,802 $ 452,211 $ 1,669,737 $55,863,713
Add (Deduct) -
Net earnings............................. -- -- -- 6,806,991
Cash dividends declared ($.28 per
share*)................................ -- -- -- (1,562,808)
Conversions of Class B Common Stock to
Common Stock........................... 5,733 (5,733) -- --
Stock options exercised.................. 41,500 -- 1,081,500 --
Income tax benefit from stock options
exercised.............................. -- -- 156,293 --
Shares purchased and retired............. (46,248) (5,250) (135,000) (1,681,444)
---------- --------- ----------- -----------
Balance, December 31, 1995.................... 1,442,787 441,228 2,772,530 59,426,452
Add (Deduct) -
Net earnings............................. -- -- -- 8,072,421
Cash dividends declared ($.29 per
share*)................................ -- -- -- (1,394,930)
Conversions of Class B Common Stock to
Common Stock........................... 6,446 (6,446) -- --
Stock options exercised.................. 2,500 -- 77,031 --
Shares purchased and retired............. (192,680) (106,360) (1,183,496) (10,253,231)
---------- --------- ----------- -----------
Balance, December 31, 1996.................... 1,259,053 328,422 1,666,065 55,850,712
Add (Deduct) -
Net earnings............................. -- -- -- 9,068,468
Cash dividends declared ($.31 per
share*)................................ -- -- -- (1,476,832)
Common Stock Dividend.................... 2,522,898 648,052 -- (3,170,950)
Conversions of Class B Common Stock to
Common Stock........................... 8,720 (8,720) -- --
Stock options exercised.................. 35,700 -- 389,151 --
Income tax benefit from stock options
exercised.............................. -- -- 207,656 --
Shares purchased and retired............. (17,200) (2,000) (176,818) (454,971)
---------- --------- ----------- -----------
Balance, December 31, 1997.................... $3,809,171 $ 965,754 $ 2,086,054 $59,816,427
========== ========= =========== ===========
</TABLE>
- ---------------
* Adjusted to reflect the September 2, 1997 200% stock dividend, as well as
dilution from outstanding stock options.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
8
<PAGE> 9
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................................ $ 9,068,468 $ 8,072,421 $ 6,806,991
Adjustments to reconcile net earnings to net cash
provided by operating activities -
Depreciation..................................... 821,317 1,044,559 1,133,921
Deferred income taxes............................ (176,000) 71,000 177,000
Deferred compensation............................ 131,460 130,185 183,760
Pension income................................... (364,173) (361,173) (77,241)
Loss on retirement of assets..................... 22,696 62,468 121,789
Investment in officers' life insurance........... (479,113) (445,718) (410,695)
Changes in operating assets and liabilities -
Accounts receivable............................. 563,228 632,102 (1,316,160)
Inventories..................................... 1,237,991 2,546,263 (4,208,240)
Prepaids and other current assets............... (37,441) 10,211 54,378
Accounts payable................................ (517,992) (2,388,378) 3,935,179
Accrued liabilities............................. 1,254,831 1,306,691 139,556
Accrued income taxes............................ (116,217) 901,875 (1,098,704)
------------ ------------ ------------
Net cash provided by operating activities...... 11,409,055 11,582,506 5,441,534
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities................... (26,018,202) (15,192,006) (33,521,343)
Proceeds from sales of marketable securities........ 13,268,698 13,720,516 39,339,872
Purchase of plant and equipment..................... (553,911) (250,893) (195,427)
Proceeds from sales of plant and equipment.......... 50,000 4,430 --
------------ ------------ ------------
Net cash provided by (used for) investing
activities.................................. (13,253,415) (1,717,953) 5,623,102
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred compensation.................... -- (1,175,000) (1,175,000)
Cash dividends paid................................. (1,444,232) (1,442,689) (1,545,918)
Shares purchased and retired........................ (650,989) (11,735,767) (1,867,942)
Proceeds from stock options exercised............... 424,851 79,531 1,123,000
------------ ------------ ------------
Net cash used for financing activities......... (1,670,370) (14,273,925) (3,465,860)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents...................................... (3,514,730) (4,409,372) 7,598,776
CASH AND CASH EQUIVALENTS, at beginning of year....... 6,837,765 11,247,137 3,648,361
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of year............. $ 3,323,035 $ 6,837,765 $ 11,247,137
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid................................... $ 5,145,963 $ 3,744,349 $ 4,942,309
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
9
<PAGE> 10
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of Weyco Group, Inc. and all subsidiaries ("The Company"). All
significant intercompany items are eliminated in the consolidated financial
statements.
Revenue Recognition - Sales to independent dealers are recorded at the time of
shipment to those dealers. Sales through company-owned retail outlets are
recorded at the time of delivery to retail customers.
Inventories - Inventories are valued at cost, which is not in excess of market,
determined on a last-in, first-out (LIFO) basis. Inventory costs include
material, labor and factory overhead.
Plant and Equipment and Depreciation - Plant and equipment are stated at cost
and depreciated over their estimated useful lives using primarily the
straight-line method. Fully depreciated machinery and equipment are eliminated
from the accounts. Expenditures for lasts, dies and patterns are charged to
earnings as incurred.
Income Taxes - Deferred income taxes are provided on temporary differences
arising from differences in the basis of assets and liabilities for tax and
financial reporting purposes. See Note 8.
Earnings Per Share - In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been restated to conform
to the Statement 128 requirements.
Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash
Flows, the Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Financial Instruments - The Company has entered into forward exchange contracts
for the purpose of hedging firmly committed inventory purchases with outside
vendors. The Company accounts for these contracts under the deferral method.
Accordingly, gains and losses are recorded in inventory when the inventory is
purchased. At December 31, 1997 the Company has financial contracts outstanding
to purchase 2.5 billion lira at a total price of $1.4 million. Based upon
current exchange rates, the deferred gain/loss on these contracts is not
significant.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs were $3,058,000, $2,951,000 and $2,757,000 in 1997, 1996 and 1995,
respectively.
Reporting Comprehensive Income - In June 1997, the Financial Accounting
Standards Board issued Statement No. 130, "Reporting Comprehensive Income"
("SFAS 130") which is effective for periods beginning after December 15, 1997,
including interim periods. SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements, either in the statement of earnings or a
separate statement. Additionally, SFAS 130 requires the display of the
accumulated balance of other comprehensive income. Adoption of this standard
will not impact the financial statements of the Company.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments, except marketable securities,
approximate fair value due to the short-term nature of those instruments. The
fair value of marketable securities is estimated based upon quoted market rates.
See Note 4.
10
<PAGE> 11
- --------------------------------------------------------------------------------
3. INVENTORIES
At December 31, 1997 and 1996, inventories consist of:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Finished shoes........................................... $10,713,099 $11,984,639
Shoes in Process......................................... 347,189 331,718
Raw materials............................................ 101,165 83,087
----------- -----------
Total inventories..................................... $11,161,453 $12,399,444
</TABLE>
The excess of current cost over LIFO cost of inventories as of December 31, 1997
and 1996 was $16,769,000 and $16,597,000, respectively.
4. INVESTMENTS
All of the Company's investments are classified as held-to-maturity securities
and reported at amortized cost pursuant to SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as the Company has the intent and
ability to hold all security investments to maturity.
A summary of the amortized cost and estimated market values of investment
securities at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Amortized Amortized
Cost Market Value Cost Market Value
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Municipality and revenue bonds:
Current................................ $ 7,360,953 $ 7,383,257 $ 8,179,263 $ 8,184,516
Due from one through five years........ 26,397,247 26,599,729 16,016,319 16,104,956
Due from five through ten years........ 3,707,843 3,801,006 423,882 423,882
----------- ----------- ----------- -----------
Total.............................. $37,466,043 $37,783,992 $24,619,464 $24,713,354
=========== =========== =========== ===========
</TABLE>
The unrealized gains and losses on investment securities at December 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Municipality and revenue bonds...... $337,496 $19,547 $127,490 $33,600 $98,574 $11,577
</TABLE>
5. PLANT AND EQUIPMENT
At December 31, 1997 and 1996, plant and equipment consists of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land........................................................ $ 678,395 $ 210,821
Buildings................................................... 1,858,423 1,858,423
Machinery and equipment..................................... 4,036,486 3,956,620
Retail fixtures and leasehold improvements.................. 2,034,745 2,653,653
---------- ----------
Plant and equipment...................................... $8,608,049 $8,679,517
Less: Accumulated depreciation.............................. 6,295,279 6,026,644
---------- ----------
Plant and equipment, net................................. $2,312,770 $2,652,873
</TABLE>
6. BANK LINES OF CREDIT
The Company has a short-term line of credit of $7,500,000 with a domestic bank
and has banker acceptance loan facilities. There were no borrowings outstanding
at December 31, 1997 and 1996 and no bank balances are required in support of
these lines of credit.
11
<PAGE> 12
- --------------------------------------------------------------------------------
7. EMPLOYEE RETIREMENT PLANS
The Company has defined benefit retirement plans covering substantially all
employees. Retirement benefits are provided based on employees' years of
credited service and average earnings or stated amounts for years of service.
Normal retirement age is 65 with provisions for earlier retirement. The plans
also have provisions for disability and death benefits. The Company's funding
policy is to make contributions to the plans such that all employees' benefits
will be fully provided by the time they retire. Plan assets are stated at market
value and consist primarily of U.S. government securities, corporate obligations
and corporate equities.
The following summarizes the Company's pension income under the defined benefit
plans:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Benefits earned during the period.......................... $ 345,000 $ 349,000 $ 327,000
Interest cost on projected benefit obligation.............. 1,071,000 1,025,000 1,031,000
Actual return on plan assets............................... (2,538,000) (1,663,000) (3,202,000)
Net amortization and deferral.............................. 758,000 (72,000) 1,767,000
----------- ----------- -----------
Net pension income...................................... $ (364,000) $ (361,000) $ (77,000)
=========== =========== ===========
</TABLE>
The funded status of the Company's defined benefit retirement plans at December
31, is as follows:
<TABLE>
<CAPTION>
Plans for Which Assets Exceed Plan for Which Accumulated
Accumulated Benefits Benefits Exceed Assets
------------------------------ --------------------------
1997 1996 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested.................................... $12,193,000 $10,966,000 $ 1,807,000 $ 2,105,000
Nonvested................................. 178,000 203,000 15,000 6,000
----------- ----------- ----------- -----------
Accumulated benefit obligation............. 12,371,000 11,169,000 1,822,000 2,111,000
Effect of projected future salary
increases.................................. 1,296,000 1,588,000 471,000 427,000
----------- ----------- ----------- -----------
Projected benefit obligation.............. 13,667,000 12,757,000 2,293,000 2,538,000
Plan assets at market value.................. 20,554,000 18,805,000 -- --
----------- ----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation........... 6,887,000 6,048,000 (2,293,000) (2,538,000)
Unrecognized prior service cost (benefit).... (221,000) (530,000) 453,000 552,000
Unrecognized net (gain) loss................. (1,054,000) (331,000) (230,000) 195,000
Unrecognized net transition asset............ (820,000) (1,039,000) -- --
Additional minimum liability................. -- -- -- (320,000)
----------- ----------- ----------- -----------
Net recorded pension asset (liability)
included in other assets............... $ 4,792,000 $ 4,148,000 $(2,070,000) $(2,111,000)
=========== =========== =========== ===========
</TABLE>
The actuarial assumptions used as of December 31, 1997 and 1996 for determining
the present value of the projected benefit obligation were as follows:
<TABLE>
<S> <C>
Discount rate............................................... 7%
Rate of compensation increase............................... 5%
Long-term rate of return on plan assets..................... 8.5%
</TABLE>
The Company has a defined contribution plan covering substantially all employees
not covered by a collective bargaining agreement. During 1997, 1996 and 1995 the
Company contributed $96,000, $85,000 and $85,000, respectively, to the Plan.
12
<PAGE> 13
- --------------------------------------------------------------------------------
8. INCOME TAXES
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current -
Federal................................................... $4,225,000 $3,854,000 $2,939,000
State..................................................... 907,000 793,000 887,000
Foreign................................................... 109,000 -- --
---------- ---------- ----------
Total.................................................. 5,241,000 4,647,000 3,826,000
Deferred.................................................... (176,000) 71,000 177,000
---------- ---------- ----------
Total provision........................................ $5,065,000 $4,718,000 $4,003,000
========== ========== ==========
Effective tax rate.......................................... 35.8% 36.9% 37.0%
========== ========== ==========
</TABLE>
The difference between the effective tax rate and the Federal income tax rate of
34% is due to state income taxes, net of the Federal tax benefit of 4.1% in
1997, 4.2% in 1996 and 4.3% in 1995, the effect of municipal bond interest of
(3.3%) in 1997, (2.8%) in 1996 and (4.3%) in 1995, and other miscellaneous
items.
The components of the net deferred tax asset as of December 31, 1997 and 1996,
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory reserves................ $ 1,171,000 $ 1,104,000
Deferred compensation..................................... 784,000 732,000
Depreciation.............................................. 689,000 572,000
Other..................................................... 1,402,000 1,088,000
----------- -----------
4,046,000 3,496,000
----------- -----------
Deferred tax liabilities:
Prepaid pension........................................... (1,101,000) (930,000)
Cash value of life insurance.............................. (472,000) (372,000)
----------- -----------
(1,573,000) (1,302,000)
----------- -----------
Net deferred tax asset................................. $ 2,473,000 $ 2,194,000
=========== ===========
</TABLE>
The net deferred tax asset is classified in the Consolidated Balance Sheets as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current deferred income tax benefits........................ $3,357,000 $2,161,000
Noncurrent deferred income tax benefits (liabilities)....... (884,000) 33,000
---------- ----------
$2,473,000 $2,194,000
========== ==========
</TABLE>
9. DEFERRED COMPENSATION
The Company has deferred compensation agreements with one current and one former
executive. The Company expensed $131,000 in 1997, $130,000 in 1996, and $184,000
in 1995 in connection with these agreements. On December 1, 1995, the Company
amended each of these agreements to allow for the acceleration of payments under
such agreements, regardless of whether the executive has retired, remains in the
Company's employ or otherwise terminates his employment. Accordingly, the
Company paid $1,175,000 under these amended agreements in 1995 and in 1996. The
remaining amounts owed under the agreements as of December 31, 1997 are
available to be paid in 1998 and are included in accrued wages, salaries and
commissions on the Consolidated Balance Sheets.
10. OPERATING LEASES
The Company operates retail shoe stores and departments under both short-term
and long-term leases. Some leases provide for a minimum rental plus percentage
rentals based upon sales in
13
<PAGE> 14
- --------------------------------------------------------------------------------
excess of a specified amount, and other leases provide for rentals based solely
on a percentage of sales. Total minimum rents were $999,000 in 1997, $1,160,000
in 1996 and $1,181,000 in 1995. Percentage rentals were $87,000 in 1997,
$401,000 in 1996 and $865,000 in 1995.
Future fixed and minimum rental commitments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1997, are shown below. Renewal options exist for many long-term
leases.
<TABLE>
<S> <C>
1998........................................................ $ 864,000
1999........................................................ 583,000
2000........................................................ 404,000
2001........................................................ 259,000
2002 and thereafter......................................... 225,000
----------
Total....................................................... $2,335,000
==========
</TABLE>
11. SHAREHOLDERS' INVESTMENT
The Class B Common Stock has 10 votes per share, may only be transferred to
certain permitted transferees, is convertible to Common Stock and shares equally
with the Common Stock in cash dividends and liquidation rights.
On July 21, 1997, the Company's Board of Directors declared a 200% stock
dividend on the Company's Common Stock, $1.00 par value, and on the Company's
Class B Common Stock, $1.00 par value, so as to effect a three-for-one stock
split without a change in par value. The additional shares were mailed October
1, 1997, to shareholders of record on September 2, 1997. All per share and share
data has been retroactively adjusted to reflect this dividend.
12. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share and diluted
earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net earnings.......................... $9,068,468 $8,072,421 $6,806,991
========== ========== ==========
Denominator:
Basic weighted average shares......... 4,763,387 4,870,563 5,640,573
Effective of dilutive securities:
Employee stock options............. 61,663 15,625 6,787
---------- ---------- ----------
Diluted weighted average shares....... 4,825,050 4,886,188 5,647,360
========== ========== ==========
Basic earnings per share................ $1.90 $1.66 $1.21
========== ========== ==========
Diluted earnings per share.............. $1.88 $1.65 $1.21
========== ========== ==========
</TABLE>
13. STOCK BASED COMPENSATION PLANS
The Company has three stock option plans, the 1992 Nonqualified Stock Option
Plan, the 1996 Nonqualified Stock Option Plan, and the 1997 Stock Option Plan.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been
14
<PAGE> 15
- --------------------------------------------------------------------------------
determined consistent with FASB Statement No. 123, the Company's net earnings
and net earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Earnings
As Reported........................... $9,068,468 $8,072,421 $6,806,991
Pro Forma............................. $8,706,923 $7,845,795 $6,663,729
Basic Earnings Per Share
As Reported........................... $1.90 $1.66 $1.21
Pro Forma............................. $1.83 $1.61 $1.18
</TABLE>
Because the Statement No. 123 method of accounting has not been applied to
options prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The following table summarizes the stock option activity under the Company's
plans for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- --------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year..... 302,700 $12.26 220,200 $11.65 257,700 $ 9.89
Granted.............................. 68,000 22.40 90,000 13.58 88,500 13.08
Exercised............................ (41,700) 10.19 (7,500) 10.42 (124,500) 9.02
Forfeited............................ -- -- -- -- -- --
Expired.............................. -- -- -- -- (1,500) 11.54
------- ------ ------- ------ -------- ------
Outstanding at end of year........... 329,000 $14.62 302,700 $12.26 220,200 $11.65
Exercisable at end of year........... 261,000 $12.59 212,700 $11.70 131,700 $10.69
Weighted average fair market value of
options granted.................... $8.28 $4.13 $2.80
</TABLE>
The fair market value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate............................ 5.7% 6.1% 5.3%
Expected dividend yields........................... 1.4% 2.2% 2.2%
Expected remaining life............................ 9.0 yrs. 9.0 yrs. 4.5 yrs.
Expected volatility................................ 28% 20% 20%
</TABLE>
The range of exercise prices for the 329,000 options outstanding at December 31,
1997 is $9.67 to $24.20. The weighted average remaining contractual life for
these shares is 5 years as of December 31, 1997.
At December 31, 1997, 532,000 shares of stock have been reserved for future
issuance under the plans.
14. INDUSTRY SEGMENT INFORMATION
The Company engages in one line of business - the manufacture, purchase and
distribution of men's footwear. All sales are to unaffiliated customers from
North America. Sales to the Company's largest customer were 13%, 13% and 15% of
total sales for 1997, 1996, and 1995, respectively. Sales to another customer
were 10% of total sales in 1996. There are no other individually significant
customers.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") which is effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes standards for the reporting of segment information. The
Company is currently evaluating the impact this standard will have on future
reporting.
15
<PAGE> 16
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Weyco Group, Inc.:
We have audited the accompanying consolidated balance sheets of Weyco Group,
Inc. (a Wisconsin corporation) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of earnings, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Weyco Group, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 13, 1998
MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING
The management of Weyco Group, Inc. is responsible for the preparation and
integrity of all financial statements and other information contained in this
Annual Report. The financial statements have been prepared in conformity with
generally accepted accounting principles and necessarily include amounts based
on judgments and estimates by management giving due consideration to
materiality. The Company maintains internal control systems designed to provide
reasonable assurance that the Company's financial records reflect the
transactions of the Company and that its assets are protected from loss or
unauthorized use.
The Company's financial statements have been audited by Arthur Andersen LLP,
independent public accountants, whose report thereon appears above. Management
has made available to Arthur Andersen LLP the Company's financial records and
related data to allow them to evaluate the Company's system of accounting
controls and provide an independent assessment as to the financial statements.
The Audit Committee of the Board of Directors is responsible for reviewing and
evaluating the overall performance of the Company's financial reporting and
accounting practices. To ensure independence, Arthur Andersen LLP has full and
free access to the Audit Committee to discuss the results of their audits, their
opinions on the adequacy of internal controls, and the quality of financial
reporting.
16
<PAGE> 17
- --------------------------------------------------------------------------------
DIRECTORS
Robert Feitler
Chairman, Executive Committee
John W. Florsheim
Executive Vice President
Thomas W. Florsheim
Chairman and Chief Executive Officer
Thomas W. Florsheim, Jr.
President and Chief Operating Officer
Leonard J. Goldstein
Retired,
Former Chairman, President and Chief Executive Officer,
Miller Brewing Company
Frank W. Norris
Director
Associated Bank Milwaukee
Frederick P. Stratton, Jr.
Chairman and Chief Executive Officer,
Briggs & Stratton Corporation,
Manufacturer of Gasoline Engines
OFFICERS
Thomas W. Florsheim
Chairman and Chief Executive Officer
Thomas W. Florsheim, Jr.
President and Chief Operating Officer
John W. Florsheim
Executive Vice President
David N. Couper
Vice President
James F. Gorman
Vice President
Peter S. Grossman
Vice President
John F. Wittkowske
Vice President - Finance and Secretary
SUPPLEMENTAL INFORMATION
STOCK EXCHANGE
The Company's Common Stock (symbol WEYS) is listed on the NASDAQ Market System
(NMS).
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
OTHER INFORMATION
A copy of the Company's Annual Report to the Securities and Exchange Commission
(Form 10-K) will be furnished without charge to any stockholder upon written
request.
A copy of the Company's Quarterly Reports will be furnished without charge to
any stockholder upon written or telephone request.
All written requests should be sent to Investor Relations, Weyco Group, Inc.,
P.O. Box 1188, Milwaukee, Wisconsin 53201. Telephone requests should be made to
(414) 263-8800.
17
<PAGE> 1
EXHIBIT 21
WEYCO GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT
Incorporated
Name of Company In Subsidiary Of
-------------- ------------ -------------
House of Advertising, Inc. Wisconsin Weyco Group, Inc.
Weyco Investments, Inc. Nevada Weyco Group, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included or incorporated by reference in this Form 10-K into the
Company's previously filed Registration Statement File Nos. 33-48549 and
333-03025.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 27, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,323
<SECURITIES> 7,361
<RECEIVABLES> 20,142
<ALLOWANCES> 2,470
<INVENTORY> 11,161
<CURRENT-ASSETS> 42,912
<PP&E> 8,608
<DEPRECIATION> 6,295
<TOTAL-ASSETS> 82,204
<CURRENT-LIABILITIES> 14,643
<BONDS> 0
0
0
<COMMON> 4,775
<OTHER-SE> 61,902
<TOTAL-LIABILITY-AND-EQUITY> 82,204
<SALES> 127,029
<TOTAL-REVENUES> 127,029
<CGS> 91,709
<TOTAL-COSTS> 114,383
<OTHER-EXPENSES> 1,487
<LOSS-PROVISION> 435
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,133
<INCOME-TAX> 5,065
<INCOME-CONTINUING> 9,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,068
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.88
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,838
<SECURITIES> 8,179
<RECEIVABLES> 20,528
<ALLOWANCES> 2,292
<INVENTORY> 12,399
<CURRENT-ASSETS> 47,813
<PP&E> 8,680
<DEPRECIATION> 6,027
<TOTAL-ASSETS> 73,077
<CURRENT-LIABILITIES> 13,973
<BONDS> 0
0
0
<COMMON> 1,587
<OTHER-SE> 57,517
<TOTAL-LIABILITY-AND-EQUITY> 73,077
<SALES> 129,314
<TOTAL-REVENUES> 129,314
<CGS> 94,474
<TOTAL-COSTS> 117,650
<OTHER-EXPENSES> (1,126)
<LOSS-PROVISION> 439
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,790
<INCOME-TAX> 4,718
<INCOME-CONTINUING> 8,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,072
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,247
<SECURITIES> 12,678
<RECEIVABLES> 20,917
<ALLOWANCES> 2,049
<INVENTORY> 14,946
<CURRENT-ASSETS> 59,494
<PP&E> 8,783
<DEPRECIATION> 5,269
<TOTAL-ASSETS> 79,328
<CURRENT-LIABILITIES> 13,498
<BONDS> 0
0
0
<COMMON> 1,884
<OTHER-SE> 62,199
<TOTAL-LIABILITY-AND-EQUITY> 79,328
<SALES> 120,643
<TOTAL-REVENUES> 120,643
<CGS> 88,094
<TOTAL-COSTS> 112,041
<OTHER-EXPENSES> 2,208
<LOSS-PROVISION> 487
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,810
<INCOME-TAX> 4,003
<INCOME-CONTINUING> 6,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,807
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
