<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1999
Commission file no. 1-10299
VENATOR GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 13-3513936
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
233 Broadway, New York, New York 10279-0003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 553-2000
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 [ ]
Number of shares of Common Stock outstanding at December 1, 1999: 137,502,104
<PAGE> 2
VENATOR GROUP, INC.
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets....................1
Condensed Consolidated Statements
of Operations.......................................2
Condensed Consolidated Statements
of Comprehensive Income (Loss)......................3
Condensed Consolidated Statements
of Cash Flows.......................................4
Notes to Condensed Consolidated
Financial Statements................................5-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......9-14
Part II. Other Information
Item 1. Legal Proceedings........................................15
Item 6. Exhibits and Reports on Form 8-K.........................15
Signature................................................16
Index to Exhibits........................................17-19
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
Oct. 30, Oct. 31, Jan. 30,
1999 1998 1999
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ........................................................ $ 63 $ 147 $ 193
Merchandise inventories .......................................................... 863 1,112 837
Net assets of discontinued operations ............................................ 85 220 97
Assets held for disposal ......................................................... 179 -- --
Other current assets ............................................................. 174 136 148
------- ------- -------
1,364 1,615 1,275
Property and equipment, net ......................................................... 882 916 974
Deferred taxes ...................................................................... 354 332 358
Intangible assets, net .............................................................. 164 188 183
Other assets ........................................................................ 87 94 86
------- ------- -------
$ 2,851 $ 3,145 $ 2,876
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt .................................................................. $ 300 $ 371 $ 250
Accounts payable ................................................................. 354 386 245
Accrued liabilities .............................................................. 237 266 296
Current portion of reserve for discontinued operations ........................... 87 217 167
Current portion of long-term debt and obligations
under capital leases ........................................................... 208 20 6
------- ------- -------
1,186 1,260 964
Long-term debt and obligations
under capital leases ............................................................. 313 508 511
Other liabilities ................................................................... 341 375 363
Shareholders' equity
Common stock and paid-in capital ................................................. 335 327 328
Retained earnings ................................................................ 862 860 897
Accumulated other comprehensive loss ............................................. (186) (185) (187)
------- ------- -------
Total shareholders' equity .......................................................... 1,011 1,002 1,038
------- ------- -------
$ 2,851 $ 3,145 $ 2,876
======= ======= =======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
-1-
<PAGE> 4
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
---------------------- -----------------------
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales .................................................. $ 1,178 $ 1,122 $ 3,320 $ 3,223
Costs and expenses
Cost of sales ........................................ 848 840 2,430 2,324
Selling, general and administrative expenses ......... 256 302 762 827
Depreciation and amortization ........................ 47 38 138 108
Restructuring charge ................................. 3 -- 55 --
Interest expense, net ................................ 17 18 45 35
Other income ......................................... (5) -- (36) (19)
------- ------- ------- -------
1,166 1,198 3,394 3,275
------- ------- ------- -------
Income (loss) from continuing operations
before income taxes ............................... 12 (76) (74) (52)
Income tax expense (benefit) ........................... 5 (36) (29) (26)
------- ------- ------- -------
Income (loss) from continuing operations ............... 7 (40) (45) (26)
Income (loss) from discontinued operations, net
of income tax expense (benefit) of $6, $7,
and $(14) respectively ............................ -- 6 10 (26)
Loss on disposal of discontinued operations, net of tax
expense of $52 .................................... -- (121) -- (121)
------- ------- ------- -------
Net income (loss) ...................................... $ 7 $ (155) $ (35) $ (173)
======= ======= ======= =======
Basic earnings per share:
Income (loss) from continuing operations .......... $ 0.05 $ (0.29) $ (0.33) $ (0.19)
Income (loss) from discontinued operations ........ -- (0.85) 0.07 (1.08)
------- ------- ------- -------
Net income (loss) ................................. $ 0.05 $ (1.14) $ (0.26) $ (1.27)
======= ======= ======= =======
Weighted-average common shares outstanding ............. 137.4 135.6 137.1 135.4
Diluted earnings per share:
Income (loss) from continuing operations .......... $ 0.05 $ (0.29) $ (0.33) $ (0.19)
Income (loss) from discontinued operations ........ -- (0.85) 0.07 (1.08)
------- ------- ------- -------
Net income (loss) ................................. $ 0.05 $ (1.14) $ (0.26) $ (1.27)
======= ======= ======= =======
Weighted-average common shares assuming dilution ....... 138.4 135.6 137.1 135.4
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE> 5
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
--------------------------- ------------------------------
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Net income (loss)........................................... $ 7 $ (155) $ (35) $ (173)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment:
Translation adjustment arising during the period, net
of deferred tax expense of $2, $37, $1 and $41,
respectively............................................ 3 41 1 41
Less: reclassification adjustment for gains included in
net income (loss), net of deferred tax expense of $149... -- (149) - (149)
------- -------- ------ ---------
Net foreign currency translation adjustment................. 3 (108) 1 (108)
Minimum pension liability adjustments, net of
deferred tax expense of $2............................... - 2 - 2
------- -------- ------ ---------
Comprehensive income (loss)................................. $ 10 $ (261) $ (34) $ (279)
======= ======== ====== =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 6
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
--------------------------
Oct. 30, Oct. 31,
1999 1998
---------- -----------
<S> <C> <C>
From Operating Activities:
Net loss..................................................................... $ (35) $ (173)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities of continuing operations:
Restructuring charge....................................................... 55 -
(Income) loss from discontinued operations, net of tax .................... (10) 26
Loss on disposal of discontinued operations, net of tax.................... - 121
Depreciation and amortization.............................................. 138 108
Gains on sales of assets and investments................................... (36) (19)
Deferred income taxes...................................................... (28) (38)
Change in assets and liabilities, net of acquisition:
Merchandise inventories.................................................. (130) (356)
Accounts payable and other accruals...................................... 45 146
Other, net............................................................... (58) 57
------ -------
Net cash used in operating activities of continuing operations............... (59) (128)
------ -------
From Investing Activities:
Proceeds from sales of assets and investments ............................... 29 22
Capital expenditures......................................................... (122) (395)
Payments for business acquired, net of cash acquired......................... - (29)
------ -------
Net cash used in investing activities of continuing operations............... (93) (402)
------ -------
From Financing Activities:
Increase in short-term debt.................................................. 50 371
Reduction in long-term debt and capital lease obligations.................... - (2)
Issuance of common stock..................................................... 6 10
------ -------
Net cash provided by financing activities of continuing operations........... 56 379
------ -------
Net Cash provided by (used in) Discontinued Operations.......................... (30) 214
Effect of exchange rate fluctuations
on Cash and Cash Equivalents................................................. (4) 3
------- -------
Net change in Cash and Cash Equivalents......................................... (130) 66
Cash and Cash Equivalents at beginning of year.................................. 193 81
------ -------
Cash and Cash Equivalents at end of interim period.............................. $ 63 $ 147
====== =======
Cash paid during the period:
Interest..................................................................... $ 41 $ 32
Income taxes................................................................. $ 19 $ 14
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 7
VENATOR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the Registrant's Form 10-K for the year ended January
30, 1999, as filed with the Securities and Exchange Commission (the "SEC") on
April 30, 1999. Certain items included in these statements are based on
management's estimates. In the opinion of management, all material adjustments,
which are of a normal recurring nature, necessary for a fair presentation of the
results for the interim periods have been included. The results for the
thirty-nine weeks ended October 30, 1999 are not necessarily indicative of the
results expected for the year.
1999 Restructuring
During the second quarter of 1999, the Registrant approved a
restructuring plan to sell or liquidate eight non-core businesses: The San
Francisco Music Box Company, Randy River Canada, Foot Locker Outlets, Colorado,
Team Edition, Going To The Game, Weekend Edition and Burger King franchises.
Restructuring charges of $64 million pre-tax ($39 million after-tax) were
recorded in the second quarter. Major components of the charge included
leasehold and real estate disposition costs ($24 million), fixed asset and other
asset impairments ($19 million), inventory markdowns ($12 million) and other
exit costs ($9 million). The inventory markdowns of $12 million were included in
cost of sales while the remaining $52 million restructuring charge was included
in operating expenses. In the third quarter of 1999, the Registrant recorded an
additional charge in connection with the restructuring of approximately $3
million before-tax ($2 million after-tax) related to fixed assets and real
estate disposition costs.
The Registrant entered into an agreement during the second quarter to
sell up to 51 of the 87 Weekend Edition stores, and also expects to sell a
substantial portion of the other businesses to be exited. The remaining
businesses will be liquidated and all dispositions are expected to be complete
by the end of the second quarter of 2000. The current portion of the $37 million
reserve balance at October 30, 1999 is included in accrued liabilities ($25
million), and the balance in other liabilities ($12 million).
On November 2, 1999, the Registrant announced that it had signed a
definitive agreement to sell the assets of its Afterthoughts retail chain for
approximately $250 million. On November 8, 1999, the Registrant announced that
it had registered with the Australian Securities and Investments Commission a
public offering of 100 percent of its holding in Colorado Group, Ltd., its
Australian athletic and specialty footwear format for gross proceeds of
approximately $75 million.
The inventory, fixed assets and other long-lived assets of all
businesses to be exited of $179 million at the lower of cost or net realizable
value have been reclassified as assets held for disposal in the Condensed
Consolidated Balance Sheet as of October 30, 1999.
Sales and net loss for all businesses held for disposal for the
thirteen and thirty-nine weeks ended October 30, 1999 and October 31, 1998,
respectively are presented below.
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
----------------------- -------------------------
(in millions) Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales................................................... $ 110 $ 94 $ 320 $ 269
====== ====== ======= ======
Net loss................................................ $ (3) $ (1) $ (13) $ (11)
====== ====== ======= ======
</TABLE>
-5-
<PAGE> 8
Segment Information
Sales and operating results for the Registrant's reportable segments
for the thirteen and thirty-nine weeks ended October 30, 1999 and October 31,
1998, respectively, are presented below. Operating results reflect income (loss)
from continuing operations before income taxes, excluding corporate expense
(income) and net interest expense.
<TABLE>
<CAPTION>
Sales:
(in millions) Thirteen weeks ended Thirty-nine weeks ended
----------------------------- -------------------------------
Oct. 30, 1999 Oct. 31, 1998 Oct. 30, 1999 Oct. 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Global Athletic Group................................... $ 1,001 $ 945 $ 2,825 $ 2,730
Northern Group.......................................... 97 97 252 256
All Other............................................... 80 80 243 237
-------- -------- --------- ---------
$ 1,178 $ 1,122 $ 3,320 $ 3,223
======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Operating Results:
(in millions) Thirteen weeks ended Thirty-nine weeks ended
-------------------------------- -----------------------------
Oct. 30, 1999 Oct. 31, 1998 Oct. 30, 1999 Oct. 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Global Athletic Group................................... $ 35 $ (16) $ (4) $ 66
Northern Group.......................................... 1 (10) (21) (26)
All Other............................................... (4) (4) (2) 3
----- ------- ------ ---------
Operating profit (loss)........................... 32 (30) (27) 43
Corporate expense (income)........................ 3 28 2 60
Interest expense, net............................. 17 18 45 35
----- ------- ------ ---------
Income (loss) from continuing operations
before income taxes.................................. $ 12 $ (76) $ (74) $ (52)
===== ======= ====== =========
</TABLE>
Operating results for the Global Athletic Group for the thirty-nine
weeks ended October 30, 1999 include a restructuring charge of $64 million
related to the businesses to be exited. Operating results for the All Other
category for the thirteen and thirty-nine weeks ended October 30, 1999 include a
restructuring charge of $3 million.
Short-Term Debt
Outstanding borrowings under the Registrant's revolving credit
agreement amounted to $300 million at October 30, 1999. The facility available
at that date of $373 million was reduced to $366 million on November 5, 1999 as
a result of the sale of certain assets. If additional assets are sold or debt or
equity is issued, the revolving credit agreement may be reduced to $350 million,
and will, in any event, be reduced to $300 million by February 15, 2000. Under
the terms of the agreement, the Registrant is required to satisfy certain
financial and operating covenants, which include: maximum ratio of total debt to
earnings before interest, taxes, depreciation and amortization; minimum fixed
charge coverage ratio; minimum tangible net worth, and limits on capital
expenditures. In addition, the Registrant is required to fund the repayment of
the $200 million 7.0 percent debentures, which are due in June 2000, by February
15, 2000. This facility is unsecured relating to the Registrant's inventory;
however, it does include collateralization of certain properties as defined in
the agreement. The agreement also restricts consolidations or mergers with third
parties, investments and acquisitions, payment of dividends and stock
repurchases, and requires borrowings under the agreement to be reduced to not
more than $50 million for a period of at least 15 consecutive days during the
fourth quarter of each year.
-6-
<PAGE> 9
Discontinued Operations
In the third quarter of 1998, the Registrant announced that it was
exiting its International General Merchandise segment and completed the sale of
its 357 store German general merchandise business for $563 million. The
Registrant recorded a net gain of $174 million before-tax, or $39 million
after-tax. The reserve balance of $41 million at October 30, 1999 represents the
costs associated with the disposal of the remaining business of the
International General Merchandise segment, which is expected to be completed in
the fourth quarter of 1999.
The Registrant also announced in the third quarter of 1998 that it was
exiting its Specialty Footwear segment and recorded a net charge to earnings of
$234 million before-tax, or $155 million after-tax for the loss on disposal of
the segment. In the second quarter of 1999, the Registrant recorded a reduction
to the reserve of $17 million before-tax, or $10 million after-tax, reflecting
favorable results from real estate disposition compared to original estimates.
Net disposition activity of approximately $42 million charged to the reserve for
the period from January 30, 1999 to October 30, 1999 represented the payments
for leasehold and real estate disposition expenses, severance and benefit costs
and other related expenses, offset by gains from disposals of real estate. The
reserve balance of $62 million at October 30, 1999 primarily reflects leasehold
obligations, $37 million of which is expected to be utilized within twelve
months and the remaining $25 million thereafter.
In 1997, the Registrant announced that it was exiting its Domestic
General Merchandise segment. Net disposition activity for the thirty-nine weeks
ended October 30, 1999 was approximately $26 million, which included payments
for leasehold and real estate disposition expenses, offset by gains from planned
disposals of real estate. The remaining reserve balance of $9 million at October
30, 1999 consists principally of real estate disposition costs.
The following is a summary of the net assets of discontinued operations:
<TABLE>
<CAPTION>
(in millions) Oct. 30, Oct. 31, Jan. 30,
1999 1998 1999
------- -------- --------
<S> <C> <C> <C>
International General Merchandise
Assets .................................... $ 45 $ 57 $ 47
Liabilities ............................... 9 13 11
---- ---- ----
Net assets of discontinued operations ..... $ 36 $ 44 $ 36
---- ---- ----
Specialty Footwear
Assets .................................... $ 52 $190 $ 63
Liabilities ............................... 11 26 17
---- ---- ----
Net assets of discontinued operations ..... $ 41 $164 $ 46
---- ---- ----
Domestic General Merchandise
Assets .................................... $ 16 $ 46 $ 23
Liabilities ............................... 8 34 8
---- ---- ----
Net assets of discontinued operations ..... $ 8 $ 12 $ 15
---- ---- ----
Total net assets of discontinued operations $ 85 $220 $ 97
==== ==== ====
</TABLE>
The assets of the International General Merchandise and Specialty
Footwear segments consist primarily of inventory and fixed assets. The assets of
the Domestic General Merchandise segment primarily include fixed assets and
deferred tax assets. Liabilities primarily reflect accounts payable and other
accrued liabilities.
-7-
<PAGE> 10
1991 Restructuring and 1993 Repositioning Reserves
In connection with the 1991 restructuring and 1993 repositioning
programs, the Registrant recorded adjustments of $4 million and $10 million,
respectively, in selling, general and administrative expenses for the thirteen
and thirty-nine weeks ended October 30, 1999. The adjustments primarily
reflect sublease and other income relating to owned and leased properties. The
remaining reserve balance of $11 million at October 30, 1999 will be required
to satisfy future lease obligations and cancellations.
Earnings Per Share
Basic earnings per share is computed as net income (loss) divided by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur from common
shares issuable through stock-based compensation including stock options,
restricted stock awards and other convertible securities. A reconciliation of
weighted-average common shares outstanding to weighted-average common shares
assuming dilution follows:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
--------------------------- ----------------------------
(in millions) Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Weighted-average common shares outstanding.................... 137.4 135.6 137.1 135.4
Incremental common shares issuable............................ 1.0 - - -
----------- ----------- ------------ -----------
Weighted-average common shares assuming dilution.............. 138.4 135.6 137.1 135.4
=========== =========== ============ ===========
</TABLE>
Incremental common shares were not included in the computation for the
year-to-date period ended October 30, 1999 or the quarter and year-to-date
periods ended October 31, 1998, since their inclusion in periods when the
Registrant reported a loss from continuing operations would be antidilutive.
Antidilutive options were not included in the computation of diluted earnings
per share and would not have a material impact on diluted earnings per share.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of foreign currency
translation adjustments of $143 million, $142 million, and $144 million, at
October 30, 1999, October 31, 1998, and January 30, 1999, respectively, and
minimum pension liability adjustments of $43 million at each balance sheet date
presented.
Reclassifications
Certain balances in prior periods have been reclassified to conform
with the presentation adopted in the current period. As discussed above, the
inventory, fixed assets and other long-lived assets of all businesses to be
exited have been reclassified as assets held for disposal in the Condensed
Consolidated Balance Sheet as of October 30, 1999.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which was
effective for fiscal quarters of fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB No. 133, an
Amendment of FASB Statement No. 133," which defers the implementation of SFAS
No. 133 by one year. The statement will now be effective for the Registrant in
2001. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Registrant is in the
process of evaluating SFAS No. 133 to determine its impact on the consolidated
financial statements.
-8-
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
References included herein to businesses disposed and held for disposal
relate to The San Francisco Music Box Company, Randy River Canada, Foot Locker
Outlets, Colorado, Team Edition, Going To The Game, Weekend Edition, Burger King
franchises, Afterthoughts and Garden Centers.
RESULTS OF OPERATIONS
Sales of $1,178 million for the third quarter of 1999 increased 5.0
percent from sales of $1,122 million for the third quarter of 1998, reflecting
an increase of 4.3 percent in comparable-store sales. Sales for the thirty-nine
weeks ended October 30, 1999 increased 3.0 percent to $3,320 million as compared
with $3,223 million for the thirty-nine weeks ended October 31, 1998, reflecting
an increase of 1.4 percent in comparable-store sales. Excluding the effect of
foreign currency fluctuations and sales from businesses disposed and held for
disposal, sales increased 4.2 percent and 2.0 percent for the third quarter and
year-to-date periods of 1999, respectively, as compared with the corresponding
prior-year periods.
Gross margin, as a percentage of sales, increased by approximately 290
basis points to 28.0 percent in the third quarter of 1999 and declined from 27.9
percent to 26.8 percent for the thirty-nine weeks ended October 30, 1999, as
compared with the corresponding prior-year periods. The increase in the third
quarter reflects reduced markdown activity in 1999 as compared to the 1998 third
quarter when the Registrant embarked on an aggressive inventory reduction
program, offset by increased occupancy costs. The decline for the thirty-nine
weeks principally reflects increased occupancy costs of the Global Athletic
Group and inventory markdowns of $12 million in the second quarter of 1999
associated with the Registrant's restructuring plan to exit non-core businesses.
Excluding the inventory markdowns of $12 million, gross margin declined by
approximately 70 basis points on a year-to-date basis.
Selling, general and administrative expenses ("SG&A") of $256 million
improved by approximately 520 basis points to 21.7 percent of sales in the third
quarter of 1999 as compared with the corresponding prior-year period. SG&A of
$762 million for the thirty-nine weeks ended October 30, 1999, improved by
approximately 270 basis points to 23.0 percent of sales. These improvements
reflect the Registrant's successful cost cutting initiatives at both the
corporate and divisional levels. The Registrant expects to reduce its full-year
1999 corporate and divisional operating expenses by $100 million, compared to
1998. The Registrant expects to further cut corporate expenses to one percent of
sales by 2001.
In connection with its 1999 restructuring plan to exit non-core
businesses, the Registrant recorded restructuring charges of $64 million pre-tax
($39 million after-tax) in the second quarter and an additional charge of $3
million pre-tax ($2 million after-tax) in the third quarter. Inventory markdowns
of $12 million were included in cost of sales while the remaining $52 million
restructuring charge was included in operating expenses.
Depreciation and amortization of $47 million and $138 million for the
thirteen and thirty-nine weeks ended October 30, 1999 increased by 23.7 percent
and 27.8 percent, respectively, as compared with the corresponding prior-year
periods. The increase reflects depreciation and amortization of assets included
in the 1998 capital expenditure program, which concentrated on new store
openings and remodeling of existing facilities, and also included management
information systems.
Interest expense, net of interest income, increased $10 million for the
thirty-nine weeks ended October 30, 1999, as compared with the corresponding
prior-year period. The increase reflects $7 million incremental interest expense
attributable to higher interest rates and fees, and increased levels of average
short-term borrowing during the first half of 1999. Interest expense, net of
interest income, of $17 million for the third quarter of 1999 declined from the
corresponding period a year earlier as a result of higher short-term borrowings
in the third quarter of 1998. Interest income of $6 million for the thirty-nine
weeks ended October 30, 1999 primarily related to income tax refunds in the
first quarter of 1999, whereas the corresponding prior-year period included
interest income of $9 million, $7 million of which related to a franchise tax
settlement in the second quarter of 1998.
-9-
<PAGE> 12
Corporate income, included in other income, of $36 million for the
thirty-nine weeks ended October 30, 1999, reflects real estate gains of $28
million related to the sale of eleven properties, and the recognition of $8
million of the deferred gain recorded on the 1998 sale of the corporate
headquarters. This compares with other income of $19 million recorded in the
comparable period last year relating to the sale of the Registrant's Garden
Centers nursery business.
The Registrant reported net income for the 1999 third quarter of $7
million or $0.05 per diluted share. Excluding net income for businesses disposed
and held for disposal and related restructuring charges, net income was $12
million, or $0.09 per diluted share for the quarter. For the 1999 year-to-date
period, the Registrant reported a net loss of $35 million or $0.26 per diluted
share, which includes income from discontinued operations of $10 million
after-tax, or $0.07 per diluted share, reflecting favorable results from
Specialty Footwear real estate dispositions compared to original estimates.
Excluding income from discontinued operations and net income for businesses
disposed and held for disposal and related restructuring charges, net income was
$9 million, or $0.07 per diluted share for the 1999 year-to-date period. The
Registrant reported a net loss for the thirteen and thirty-nine weeks ended
October 31, 1998 of $155 million and $173 million, respectively, or $1.14 and
$1.27 per diluted share, which includes a $115 million and $147 million loss
from discontinued operations, respectively.
STORE COUNT
The following table summarizes store count by segment, after
reclassification for businesses disposed and held for disposal. During the
thirty-nine weeks ended October 30, 1999, the Registrant remodeled or relocated
238 stores, 51 of which related to the businesses held for disposal.
<TABLE>
<CAPTION>
Jan. 30, Oct. 30, Oct. 31,
1999 Opened Closed 1999 1998
-------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Global Athletic Group ................. 3,835 97 224 3,708 3,776
Northern Group ........................ 940 16 24 932 914
Disposed and held for disposal ........ 1,227 111 75 1,263 1,274
----- ----- ----- ----- -----
Total .............................. 6,002 224 323 5,903 5,964
----- ----- ----- ----- -----
</TABLE>
SALES
The following table summarizes sales by segment, after reclassification
for businesses disposed and held for disposal. The disposed and held for
disposal category represents all businesses sold or closed or held for disposal
other than the discontinued segments, and are therefore included in continuing
operations.
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
-------------------------- -------------------------
(in millions) Oct. 30, Oct.31, Oct. 30, Oct. 31,
1999 1998 1999 1998
---------- ------ ------- -------
<S> <C> <C> <C> <C>
Global Athletic Group ................. $ 971 $ 931 $2,748 $2,694
Northern Group ........................ 97 97 252 256
Disposed and held for disposal ........ 110 94 320 273
------ ------ ------ ------
Total sales ........................ $1,178 $1,122 $3,320 $3,223
====== ====== ====== ======
</TABLE>
Global Athletic Group sales increased by 4.3 percent and by 2.0 percent
for the 1999 third quarter and year-to-date periods, as compared with the
corresponding prior-year periods, reflecting comparable-store sales increases of
5.5 percent and 1.6 percent, respectively. These increases were primarily
attributable to improved sales performance at remodeled and relocated stores,
coupled with stronger sales performance of high-end athletic footwear, primarily
running and basketball.
Excluding the impact of foreign currency fluctuations, Northern Group
sales declined by 1.7 percent for the thirty-nine weeks ended October 30, 1999
and were essentially flat for the quarter. Comparable-store sales declined by
3.9 percent and by 5.4 percent for the third quarter and year-to-date periods,
respectively, reflecting an improvement over trends in the first half of 1999.
-10-
<PAGE> 13
OPERATING RESULTS
Operating results reflect income (loss) from continuing operations
before income taxes, excluding corporate expense (income) and net interest
expense. The following table summarizes operating profit (loss) by segment,
after reclassification for businesses disposed and held for disposal.
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
------------------------- ---------------------------
(in millions) Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Global Athletic Group......................... $ 40 $ (15) $ 83 $ 72
Northern Group................................ 1 (10) (21) (26)
Disposed and held for disposal................ (9) (5) (89) (3)
----------- ---------- ---------- ------------
Total operating profit (loss).............. $ 32 $ (30) $ (27) $ 43
=========== ========== ========== ============
</TABLE>
The Global Athletic Group reported an operating profit of $40 million
for the third quarter of 1999, a significant improvement over the operating loss
reported in the corresponding prior-year period. Operating profit for the
thirty-nine weeks ended October 30, 1999 increased by 15.3 percent as compared
with the corresponding prior-year period. These increases reflect improved sales
performance and reduced markdown activity in both the domestic and international
Foot Locker formats, offset, in part, by increased occupancy costs and
additional depreciation and amortization of remodeled stores.
The Northern Group's operating results improved for both the thirteen
and thirty-nine weeks ended October 30, 1999 as compared with the corresponding
prior-year periods, primarily as a result of decreased markdown activity in the
third quarter of 1999.
Operating results for businesses disposed and held for disposal for the
thirteen and thirty-nine weeks ended October 30, 1999 include restructuring
charges of $3 million and $67 million, respectively. Operating results for the
thirty-nine weeks ended October 31, 1998 include the $19 million gain on the
sale of the Garden Centers nursery business.
SEASONALITY
The Registrant's businesses are seasonal in nature. Historically, the
greatest proportion of sales and net income is generated in the fourth quarter
and the lowest proportions of sales and net income are generated in the first
and second quarters, reflecting seasonal buying patterns. As a result of these
seasonal sales patterns, inventory generally increases in the third quarter in
anticipation of strong fourth quarter sales.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's primary sources of cash have been from operations,
borrowings under the revolving credit agreement, financing real estate with
operating leases, and proceeds from the sale of non-strategic assets. The
principal use of cash has been to finance inventory requirements, which are
generally at their peak during the third and fourth quarters; capital
expenditures related to store openings, store remodeling and management
information systems; and to fund other general working capital requirements.
-11-
<PAGE> 14
Operating activities of continuing operations reduced cash by $59
million for the thirty-nine weeks ended October 30, 1999, as compared with a
reduction of $128 million in the corresponding prior-year period. These amounts
reflect the loss from continuing operations reported by the Registrant in those
periods, adjusted for non-cash items and working capital changes. The change in
cash used for merchandise inventories and accounts payable primarily reflects
the additional inventory purchases in 1998 related to the opening of new
larger-size athletic formats, coupled with a 15.5 percent decline in inventories
per square foot in 1999. Merchandise inventories, excluding businesses held for
disposal, of $863 million at October 30, 1999 declined by $157 million from
$1,020 million at October 31, 1998. Management believes inventories are at
appropriate levels for the upcoming holiday selling season.
Net cash used in investing activities of continuing operations was $93
million and $402 million for the thirty-nine weeks of 1999 and 1998,
respectively. Capital expenditures of $122 million for the thirty-nine weeks
ended October 30, 1999 primarily related to store remodelings as compared with
$395 million for the corresponding prior-year period. Planned capital
expenditures of $175 million for 1999 include expenditures for 350 new and
remodeled stores, management information systems, logistics and other support
facilities. Proceeds from real estate disposition activities amounted to $29
million in 1999, which reflected the sale of eleven properties. In the first
quarter of 1998, cash used for the acquisition of Athletic Fitters of $29
million was partially offset by $22 million cash proceeds received from the sale
of the Garden Centers nursery business. On November 2, 1999, the Registrant
announced that it had signed a definitive agreement to sell the assets of its
Afterthoughts retail chain for approximately $250 million. This transaction
closed on December 1, 1999, and a gain of approximately $87 million after-tax
will be recorded in the fourth quarter. On November 8, 1999, the Registrant
announced that it had registered with the Australian Securities and Investments
Commission a public offering of 100 percent of its holding in Colorado Group,
Ltd., its Australian athletic and specialty footwear format for gross proceeds
of approximately $75 million. This transaction closed on December 6, 1999, and
the Registrant received gross proceeds of approximately $75 million in
connection with the offering and will record an after-tax gain of approximately
$8 million in continuing operations related to the Colorado athletic format in
the fourth quarter.
Financing activities for the Registrant's continuing operations
contributed $56 million in cash for the thirty-nine weeks ended October 30, 1999
and $379 million in cash for the corresponding prior-year period. Outstanding
borrowings under the Registrant's revolving credit agreement were $300 million
and $371 million at October 30, 1999 and October 31, 1998, respectively, and
have been classified as short-term debt. The facility available at October 30,
1999 of $373 million was reduced to $366 million on November 5, 1999, and was
further reduced on November 24, 1999 to $358 million, as a result of the sale of
certain assets. As a result of the sale of the Registrant's Afterthoughts
division on December 1, 1999, the revolving credit agreement was reduced to $350
million, and will be reduced to $300 million by February 15, 2000. The
Registrant incurred incremental interest expense for the thirty-nine weeks of
1999 as compared with 1998, due to higher interest rates and fees, and increased
levels of average short-term borrowings during the first half of 1999.
Management believes current domestic and international credit facilities and
cash provided by operations and the sale of its non-core businesses will be
adequate to finance its working capital requirements and support the development
of its short-term and long-term strategies. The Registrant expects to fund the
repayment of its $200 million 7.0 percent debentures due in June 2000 through
asset sales and/or future financing on or before February 15, 2000, as required
by its revolving credit agreement.
Net cash of $30 million used in discontinued operations in 1999
primarily reflects real estate disposition expenses charged to the Specialty
Footwear and Domestic General Merchandise reserves. Net cash provided by
discontinued operations of $214 million in 1998 represents the after-tax net
proceeds from the sale of the German general merchandise operations of $360
million, offset by the discontinuance of the Specialty Footwear segment, as well
as further utilization of the Domestic General Merchandise reserve.
-12-
<PAGE> 15
YEAR 2000 READINESS DISCLOSURE
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits, rather than four, to define the applicable year.
Mistaking "00" for the year 1900 could result in miscalculations and errors and
cause significant business interruptions for the Registrant, as well as for the
government and most other companies. The Registrant has instituted a plan to
assess its state of readiness for Y2K, to remediate those systems that are
non-compliant and to assure that material third parties will be Y2K compliant.
State of Readiness
The Registrant has assessed all operating and application systems
(including point of sale) for Y2K readiness, giving the highest priority to
those information technology applications (IT) systems that are considered
critical to its business operations. Those applications considered most critical
to the Registrant's business operations have been remediated. The necessary
enhancements to the point of sale equipment are complete and all stores have
been upgraded with the Y2K remediated release of store systems software. Code
changes have been made to the merchandising and logistics legacy systems, and
remediation is complete. In July, the Registrant performed a test of its Y2K
compliant (and recently upgraded) operating software on an isolated processor,
and the Registrant considered the results of the test to be satisfactory.
In-house certification testing of all application software using the upgraded
operating system infrastructure was completed in the third quarter.
Apart from the Y2K issue, the Registrant has developed and installed
throughout its businesses beginning in 1997 an information computer system
("ECLIPSE"), which has been installed in most divisions for the finance and
human resources functions. The ECLIPSE project was undertaken for business
reasons unrelated to Y2K. However, the installation of ECLIPSE eliminates the
need to reprogram or replace certain existing software for Y2K compliance.
The Registrant has compiled a comprehensive inventory of its non-IT
systems, which include those systems containing embedded chip technology
commonly found in buildings and equipment connected with a building's
infrastructure. Management has established the priority of systems identified as
non-compliant and any changes required to the non-IT systems have been
implemented. Investigations of the embedded chip systems indicate that Y2K will
not affect systems such as heating, ventilation and security in most store
locations.
Material Third Parties
The Registrant purchased approximately 44 percent of its 1998
merchandise from one major vendor. As a result, the Registrant's ability to
operate could be materially affected by the non-compliance of this key supplier.
Management has determined through several meetings and interviews that this
vendor's Y2K readiness program is substantially complete. Electronic Data
Interchange software was successfully tested with this vendor, as well as other
key vendors, and joint contingency plans have been developed for distribution
and order entry. Management does not expect the state of readiness of other
vendors to have a material adverse impact on the Registrant's ability to
operate. The level of compliance of the Registrant's major providers of banking
services and transportation has been assessed and management believes the
related risks to be minimal. The Registrant is subject to general Y2K risk
relating to telecommunications and utilities.
Y2K Costs
The Registrant is utilizing both internal and external resources to
address the Y2K issue. Internal resources reflect the reallocation of IT
personnel to the Y2K project from other IT projects. In the opinion of
management, the deferral of such other projects will not have a significant
adverse effect on continuing operations. The total direct cost, excluding
ECLIPSE, to remediate the Y2K issue is estimated to be approximately $5.2
million, of which $3.0 million was spent in 1998 and a further $1.8 million
through the end of the third quarter of 1999. All costs, excluding ECLIPSE, are
being expensed as incurred and are funded through operating cash flows. The
Registrant's Y2K costs are based on management's best estimates and may be
updated, as additional information becomes available. Management does not expect
the total Y2K remediation costs to be significant to its results of operations
or financial condition.
-13-
<PAGE> 16
Contingency Plan/Risks
The Registrant's contingency plans for those areas that might be
affected by Y2K are substantially complete. Contingency store operating
procedures have been distributed to store managers to be used in the event of
foreseeable business interruptions. Joint contingency plans have been developed
with the Registrant's key vendor to provide for a smooth flow of inventory from
this vendor. Certain IT and other personnel will be available throughout the
millennium date change to correct any issues that may arise. Although the full
consequences are unknown, the failure of either the Registrant's critical
systems or those of its material third party suppliers to be Y2K compliant would
result in the interruption of the Registrant's business, which could have a
significant adverse effect on its results of operations or financial condition.
However, if any business interruptions occur in January 2000, and they are
promptly corrected, management expects it would not significantly impact the
Registrant's results of operations or financial position. Typically, at that
time of year, after the holiday season, there is lower customer demand and
borrowing requirements are not at their peak. In addition, successful inventory
and working capital management, along with the contingency plans for store
operations, will help mitigate the risks associated with the Y2K issue. However,
some business disruptions may occur even with defensive contingency plans.
IMPACT OF EUROPEAN MONETARY UNION
The European Union is comprised of fifteen member states, eleven of
which adopted a common currency, the "euro," effective January 1, 1999. From
that date until January 1, 2002, the transition period, the national currencies
will remain legal tender in the participating countries as denominations of the
euro. Monetary, capital, foreign exchange and interbank markets have converted
to the euro and non-cash transactions will be possible in euros. On January 1,
2002, euro bank notes and coins will be issued and the former national
currencies will be withdrawn from circulation no later than July 1, 2002.
The Registrant has reviewed the impact of the euro conversion on its
information systems, accounting systems, vendor payments and human resources.
Modifications required to be made to the point of sale hardware and software
will be facilitated by the Y2K remediation.
The adoption of a single European currency will lead to greater product
pricing transparency and a more competitive environment. The Registrant will
display the euro equivalent price of merchandise as a customer service during
the transition period, as will many retailers, until the official euro
conversion in 2002. The euro conversion is not expected to have a significant
effect on the Registrant's results of operations or financial condition.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements within the meaning of the
federal securities laws. All statements, other than statements of historical
facts, which address activities, events or developments that the Registrant
expects or anticipates will or may occur in the future, including such things as
future capital expenditures, expansion, strategic plans, growth of the
Registrant's business and operations, Y2K and euro related actions and other
such matters are forward-looking statements. These forward-looking statements
are based on many assumptions and factors including effects of currency
fluctuations, consumer preferences and economic conditions worldwide and the
ability of the Registrant to implement, in a timely manner, the programs and
actions related to the Y2K and euro issues. Any changes in such assumptions or
factors could produce significantly different results.
-14-
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The only legal proceedings pending against the Registrant or its
consolidated subsidiaries consist of ordinary, routine litigation,
including administrative proceedings, incident to the businesses of the
Registrant, as well as litigation incident to the sale and disposition
of businesses that have occurred in the past several years. Management
does not believe that the outcome of such proceedings will have a
material effect on the Registrant's consolidated financial position or
results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An index of the exhibits that are required by this item, and which are
furnished in accordance with Item 601 of Regulation S-K, appears on
pages 17 through 19. The exhibits which are in this report immediately
follow the index.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated August 18, 1999 (date
of earliest event reported) reporting sales and earnings for the second
quarter ended July 31, 1999.
-15-
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENATOR GROUP, INC.
(Registrant)
Date: December 14, 1999 /s/ Bruce Hartman
----------------------------
BRUCE HARTMAN
Senior Vice President
and Chief Financial Officer
-16-
<PAGE> 19
VENATOR GROUP, INC.
INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601
of Regulation S-K Description
- ----------------------- -----------
1 *
2 *
3(i)(a) Certificate of Incorporation of the
Registrant, as filed by the Department of
State of the State of New York on April 7,
1989 (incorporated herein by reference to
Exhibit 3(i)(a) to the Quarterly Report on
Form 10-Q for the quarterly period ended
July 26, 1997, filed by the Registrant with
the SEC on September 4, 1997 (the "July 26,
1997 Form 10-Q")).
3(i)(b) Certificates of Amendment of the Certificate
of Incorporation of the Registrant, as filed
by the Department of State of the State of
New York on (a) July 20, 1989 (b) July 24,
1990 (c) July 9, 1997 (incorporated herein
by reference to Exhibit 3(i)(b) to the July
26, 1997 Form 10-Q) and (d) June 11, 1998
(incorporated herein by reference to Exhibit
4.2(a) of the Registration Statement on Form
S-8 (Registration No. 333-62425) previously
filed with the SEC).
3(ii) By-laws of the Registrant, as amended
(incorporated herein by reference to Exhibit
4.2 of the Registration Statement on Form
S-8 (Registration No. 333-62425) previously
filed with the SEC).
4.1 The rights of holders of the Registrant's
equity securities are defined in the
Registrant's Certificate of Incorporation,
as amended (incorporated herein by reference
to Exhibits 3(i)(a) and 3(i)(b) to the July
26, 1997 Form 10-Q and Exhibit 4.2(a) to the
Registration Statement on Form S-8
(Registration No. 333-62425) previously
filed with the SEC).
4.2 Rights Agreement dated as of March 11, 1998
("Rights Agreement"), between Venator Group,
Inc. and First Chicago Trust Company of New
York, as Rights Agent (incorporated herein
by reference to Exhibit 4 to the Form 8-K
dated March 11, 1998).
4.2(a) Amendment No. 1 to the Rights Agreement,
dated as of May 28, 1999 (incorporated
herein by reference to Exhibit 4.2(a) to the
Quarterly Report on Form 10-Q for the
quarterly period ended May 1, 1999, filed by
the Registrant with the SEC on June 4,
1999).
-17-
<PAGE> 20
Exhibit No. in Item 601
of Regulation S-K Description
- ----------------------- -----------
4.3 Indenture dated as of October 10, 1991
(incorporated herein by reference to Exhibit
4.1 to the Registration Statement on Form
S-3 (Registration No. 33-43334) previously
filed with the SEC).
4.4 Forms of Medium-Term Notes (Fixed Rate and
Floating Rate) (incorporated herein by
reference to Exhibits 4.4 and 4.5 to the
Registration Statement on Form S-3
(Registration No. 33-43334) previously filed
with the SEC).
4.5 Form of 8 % Debentures due 2022
(incorporated herein by reference to Exhibit
4 to the Registrant's Form 8-K dated January
16, 1992).
4.6 Purchase Agreement dated June 1, 1995 and
Form of 7% Notes due 2000 (incorporated
herein by reference to Exhibits 1 and 4,
respectively, to the Registrant's Form 8-K
dated June 7, 1995).
4.7 Distribution Agreement dated July 13, 1995
and Forms of Fixed Rate and Floating Rate
Notes (incorporated herein by reference to
Exhibits 1, 4.1 and 4.2, respectively, to
the Registrant's Form 8-K dated July 13,
1995).
5 *
8 *
9 *
10.1 Employment Agreement with Roger N. Farah
dated as of August 16, 1999
10.2 Employment Agreement with Dale W. Hilpert
dated as of August 16, 1999
11 *
12 Computation of Ratio of Earnings to Fixed
Charges.
13 *
15 Letter re: Unaudited Interim Financial
Statements.
-18-
<PAGE> 21
Exhibit No. in Item 601
of Regulation S-K Description
- ----------------------- -----------
16 *
17 *
18 *
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
27.1 Financial Data Schedule -
October 30, 1999 (which is
submitted electronically to
the SEC for information
only and not filed).
99 Independent Accountants' Review Report.
* Not applicable
-19-
<PAGE> 22
Exhibits filed with this Form 10-Q:
Exhibit No. Description
----------- -----------
10.1 Employment Agreement with Roger N. Farah
dated as of August 16, 1999
10.2 Employment Agreement with Dale W. Hilpert
dated as of August 16, 1999
12 Computation of Ratio of Earnings to Fixed
Charges.
15 Letter re: Unaudited Interim Financial
Statements.
27.1 Financial Data Schedule - October 30, 1999.
99 Independent Accountants' Review Report.
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of August 16, 1999, by and between
Venator Group, Inc., a New York corporation having its principal place of
business at 233 Broadway, New York, New York 10279 (the "COMPANY"), and Roger N.
Farah (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Executive has been employed by the Company as its
Chairman of the Board and Chief Executive Officer pursuant to the provisions of
an employment agreement dated as of April 14, 1999 (the "APRIL AGREEMENT"), and
WHEREAS, effective August 16, 1999, the Company desires the
Executive to serve as its Chairman of the Board, and the Executive is willing to
serve in such capacity; and
WHEREAS, the Company and the Executive desire to set forth the
terms and conditions of such employment; and
WHEREAS, the Executive and the Company desire to terminate the
April Agreement as of August 15, 1999, so that, from and after August 16, 1999,
the terms and conditions of the employment of the Executive with the Company
shall be governed by the provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the Company and the Executive
agree as follows:
1
<PAGE> 2
1. Employment. (a) The Company hereby agrees to employ the
Executive as its Chairman of the Board and the Executive hereby agrees to accept
such employment with the Company, on the terms and conditions herein contained.
(b) Executive's employment under this
Agreement shall commence on August 16, 1999 and shall continue until the date of
the Annual Meeting of Shareholders of the Company in 2001 (the "2001 ANNUAL
Meeting"); provided, however, that on or after the date of the Annual Meeting of
Shareholders of the Company in 2000 (the "2000 ANNUAL MEETING"), either party
may provide 60 days prior written notice to the other of its intention to
terminate this agreement and end the Employment Period, as hereinafter defined,
and such Employment Period shall end on the sixtieth day following the giving of
such notice. (The period during which the Executive is employed pursuant to the
provisions of this agreement is hereinafter referred to as the "EMPLOYMENT
PERIOD").
2. Duties. (a) The Executive shall serve during the Employment
Period as Chairman of the Board of the Company, reporting only to the Board of
Directors (the "BOARD"). The Executive agrees that in such office he shall
perform such duties and functions as are commensurate with his status as
Chairman of the Board of the Company as may from time to time be determined by
the Board. During the Employment Period, the Executive shall devote
substantially all of his business efforts and time to the Company and he shall
not accept other full- or part-time employment. The foregoing, however, shall
not preclude the Executive from engaging in such activities and services as do
not materially conflict with the Executive's duties and responsibilities to the
Company nor, with the prior approval of the Board, which it may grant or deny in
its sole discretion, preclude the Executive from serving on the boards of
directors of other for-profit corporations, if such service does not conflict
with his duties hereunder or his fiduciary duty to the Company. It is further
understood and agreed that nothing herein shall prevent the Executive from
managing his passive personal investments (subject to applicable Company
policies on permissible investments), and (subject to applicable Company
policies) participating in charitable and civic endeavors, so long as such
activities do not interfere in more than a de minimis manner
2
<PAGE> 3
with the Executive's performance of his duties hereunder.
(b) Upon request of the Board, the Executive
shall also serve as an officer and director of subsidiaries and affiliates of
the Company.
3. Compensation and Benefits. As full compensation for his
services hereunder, and subject to all the provisions hereof:
(a) During the Employment Period, the Company
shall pay the Executive, in accordance with its normal payroll practices and
subject to required withholding, a salary calculated at such rate per annum as
may be fixed by the Compensation Committee of the Board from time to time, but
in no event at a rate less than $250,000 per annum ("BASE SALARY").
(b) The Executive shall continue to
participate in the Company's Annual Incentive Compensation Plan (the "ANNUAL
PLAN") for the fiscal years of the Company that end on January 29, 2000 and
February 3, 2001 in accordance with the terms of such plan. The Executive's
bonus under the Annual Plan, at target, for the fiscal years ending January 29,
2000 and February 3, 2001 shall be no less than 100 percent of the base salary
paid to Executive in each such fiscal year. Executive shall continue to
participate in the Long-Term Incentive Compensation Plan (the "LONG-TERM PLAN")
for the performance periods ending January 29, 2000 and February 3, 2001, in
accordance with the terms of his current participation and the terms of such
plan. Notwithstanding anything herein or in the Annual Plan, the Long-Term Plan
or any document or agreement issued under the Annual Plan or the Long-Term Plan
to the contrary, Executive shall not participate in the Annual Plan or the
Long-Term Plan for any plan year or performance period that ends after February
3, 2001. In the event the Employment Period ends prior to February 3, 2001, the
payments under the Annual Plan and the Long-Term Plan provided for herein shall
be prorated as of the last day of Executive's employment hereunder.
3
<PAGE> 4
(c) The portions of the stock option grant
made to Executive on February 10, 1999 that vest on February 10, 2000 and
February 10, 2001 shall vest, in accordance with the terms of such grant, on
February 10, 2000 and February 10, 2001, provided that the Executive continues
to be employed by the Company as Chairman of the Board on the applicable vesting
dates, and the balance of such grant is hereby cancelled as of the earlier of
the date of the 2001 Annual Meeting or the last day of Executive's employment
hereunder. The portions of the stock option grant made to Executive on April 14,
1999 that vest on April 14, 2000 and April 14, 2001 shall vest, in accordance
with the terms of such grant, on April 14, 2000 and April 14, 2001, provided
that the Executive continues to be employed by the Company as Chairman of the
Board on the applicable vesting dates, and the balance of such grant is hereby
cancelled as of the earlier of the date of the 2001 Annual Meeting or the last
day of Executive's employment hereunder. To the extent permitted, or as may by
discretion be granted by the Compensation Committee of the Board under the
Company's 1986 Stock Option Plan, 1995 Stock Option and Award Plan and 1998
Stock Option and Award Plan, the Executive shall have a period of up to two
years following the last day of Executive's employment hereunder to exercise any
stock options that are vested as of such day. In no event, however, shall any
option remain exercisable beyond its original expiration date. That portion of
the grant of restricted stock made to Executive pursuant to the provisions of
the Restricted Stock Agreement dated January 9, 1995 that vests on January 31,
2000 shall vest, in accordance with the terms of such agreement, on January 31,
2000, provided that the Executive continues to be employed by the Company as
Chairman of the Board on such date. The portions of the grant of restricted
stock made to Executive pursuant to the provisions of the Restricted Stock
Agreement dated April 26, 1999 that vest on January 31, 2000 and January 31,
2001 shall vest, in accordance with the terms of such agreement, on January 31,
2000 and January 31, 2001, provided that the Executive continues to be employed
by the Company as Chairman of the Board on the applicable vesting dates, and the
balance of such restricted stock grant is hereby forfeited as of the earlier of
the date of the 2001 Annual Meeting or the last day of Executive's employment
hereunder.
4
<PAGE> 5
(d) During the Employment Period, the
Executive shall be eligible to participate in all pension, welfare and fringe
benefit plans, maintained by the Company from time to time for its senior
executive employees in accordance with their respective terms as in effect from
time to time (other than any special arrangement entered into by contract with
an executive). In addition, during the Employment Period, the Company shall
reimburse the Executive for his net premiums on his current term life insurance
policy for coverage of three million six hundred thousand dollars ($3,600,000)
with Aetna Life Insurance Company.
(e) During the Employment Period, the
Executive shall be reimbursed for his out-of-pocket travel and entertainment
expenses in accordance with the Company's normal policy for senior executive
officers, including appropriate documentation.
(f) The Company shall pay for personal
financial planning services for Executive, up to an amount of $15,000 per year,
for the calendar years 1999 and 2000.
4. Termination. The Employment Period shall terminate upon the
earliest of the following:
(a) the Executive's death;
(b) the Executive's disability in accordance with Section
6;
(c) the Executive's termination for cause in accordance
with Section 7;
(d) the date 60 days following the date of the giving of
the notice specified in Section 1(b) hereof.
5
<PAGE> 6
5. Death. The death of the Executive shall serve to terminate
the Employment Period, in which event the Company shall have no liability or
further obligation except as follows:
(a) The Company shall pay the Executive's estate (or,
if properly designated under an applicable plan or arrangement, his beneficiary)
when otherwise due any unpaid Base Salary for the period prior to such
termination of the Employment Period, any declared but unpaid bonuses, any
declared but unpaid amounts due under any incentive plan and any other unpaid
amounts due the Executive under employee benefit, fringe benefit or incentive
plans ("ENTITLEMENTS").
(b) The Executive's estate or his designated
beneficiary shall have such rights under any employee benefit, fringe benefit or
incentive plan, including any stock option plan, as provided in such plans and
any grants thereunder ("RIGHTS").
(c) The Executive's estate or his designated
beneficiary shall be entitled to receive
those benefits afforded by the Company under
its then existing policies to employees who
die while employed by the Company.
6. Disability. If the Board reasonably shall determine that
the Executive has become physically or mentally incapable of performing his
material duties as provided in Section 2 of this Agreement and such incapacity
is likely to last for a period of at least one hundred eighty (180) days from
the onset of such incapacity, the Company may, at its election at any time
thereafter while the Executive remains incapable of performing his duties,
terminate the Executive's employment hereunder effective immediately by giving
the Executive written notice of such termination. In such event, the Company
shall continue the Executive as an employee on payroll (but not as an officer
hereunder) at his same Base Salary until he qualifies for the Company's long
term disability policy and the Company shall have no other obligation to the
Executive or his dependents other than Entitlements, Rights,
6
<PAGE> 7
amounts due under the Company's long term disability plan, and any benefits
offered by the Company under its then policy to employees who become disabled
while employed by the Company.
7. Cause. (a) If the Board shall determine that there are
grounds for terminating the Employment Period and discharging the Executive for
"cause" (as hereinafter defined), the Company may, at its election at any time
within six months after the Company shall obtain knowledge of the grounds for
termination, give the Executive notice of its intention to terminate the
Executive for cause, stating the grounds for termination and specifying a
reasonable date (the "MEETING DATE") on which the Executive shall be given an
opportunity if he desires to discuss such grounds for termination at a meeting
of the Board.
(b) If the grounds for termination are those specified in
clause (ii)(X), (iv) or (vi) of paragraph (d) hereof, the Executive shall have a
period of ten (10) days from the Meeting Date (the "CURE PERIOD") to cure the
neglect, refusal or breach, as the case may be, provided that if similar grounds
arise again within one (1) year of such cure, no new notice need be given and
the Company, at its option, may immediately terminate the Executive for cause.
(c) If the grounds for termination are those specified in
clauses (i), (ii)(Y), (iii) or (v) of paragraph (d) hereof, it is understood and
agreed that no satisfactory cure is available. If, following discussion with the
Executive of the grounds for his termination at the Board meeting or, if the
Executive does not appear, following the Board meeting, the Company shall
continue intent on discharging the Executive for cause on the grounds specified
in clause (i), (ii)(Y), (iii) or (v) of paragraph (d), the Company shall so
notify the Executive, and such termination shall be effective immediately.
7
<PAGE> 8
(d) For purposes of this Section 7 the term "CAUSE" shall
mean:
(i) the conviction (or plea of guilty or nolo
contendere) of the Executive of any felony, or of any crime involving fraud,
dishonesty or misappropriation, or moral turpitude or, if any of the foregoing
involves the Company or any subsidiary or affiliate (collectively the "CONTROL
GROUP"), the commission of any of the foregoing (other than good faith disputes
involving expense account items);
(ii) the Executive's (X) continued willful neglect of
his duties and responsibilities under this Agreement or (Y) gross negligence;
(iii) the Executive's willful misconduct with regard
to the Control Group;
(iv) the Executive's refusal to follow the written
direction of the Board with regard to the Executive's responsibilities as set
forth herein;
(v) the Executive's willful failure to comply with
the covenants in Section 10 hereof; or
(vi) material breach of any of the provisions of this
Agreement by the Executive.
(e) If the Company shall terminate the Executive's
employment pursuant to this Section 7, it shall have no further liability or
obligation hereunder except as follows:
(i) The Company shall promptly pay the Executive his
then current Base Salary through the effective date of such termination;
8
<PAGE> 9
(ii) The Executive shall receive the benefits, if
any, and have the rights afforded by the Company under its then existing
policies to employees whose employment is terminated for cause or under the
specific terms of any welfare, fringe benefit or incentive plan.
8. Change in Control. In the event of a Change in Control, as
defined in Exhibit B hereto, the Executive shall have the right to terminate the
Employment Period by written notice given within the thirty (30) day period
following three (3) months after such Change in Control. Such Employment Period
shall cease upon the giving of such notice. In such event, the Company shall
have no obligation to the Executive except as follows:
(a) The Executive shall receive his Entitlements and have
his Rights.
(b) Upon a Change in Control, the forfeiture period with
regard to the restricted stock shall terminate and such shares shall become
immediately vested.
(c) In addition to any payments to which the Executive may
be entitled pursuant to the provisions of paragraph (a) of this section, the
Company shall make a lump sum cash payment equal to 3 multiplied by Executive's
Base Salary (at the rate payable immediately prior to such Change in Control)
plus bonus payable under the Annual Plan at target in the year of the
termination of the Employment Period within five business days of the date of
the termination of the Employment Period.
9. Gross-up. (a) In the event that the Executive shall become
entitled to any amounts, whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any person whose actions
result in a change of ownership covered by Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code") or any person affiliated with the
Company or such person (collectively the "Company Payments"), and such Company
Payments will be subject to the tax (the "EXCISE
9
<PAGE> 10
TAX") imposed by Section 4999 of the Code (and any similar tax that may
hereafter be imposed), the Company shall pay to the Executive at the time
specified in paragraph (d) below an additional amount (the "GROSS-UP PAYMENT")
such that the net amount retained by the Executive, after deduction of any
Excise Tax on the Company Payments and any federal, state and local income tax
and Excise Tax upon the Gross-up Payment provided for by this paragraph (a), but
before deduction for any federal, state or local income tax on the Company
Payments, shall be equal to the Company Payments.
(b) For purposes of determining whether any of the
Company Payments and Gross-up Payments (collectively the "TOTAL PAYMENTS") will
be subject to the Excise Tax and the amount of such Excise Tax, (a) the Total
Payments shall be treated as "parachute payments" within the meaning of section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3)) shall be treated as subject
to the Excise Tax, unless and except to the extent that, in the opinion of the
Company's independent certified public accountants appointed prior to any change
in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected
by such accountants (the "ACCOUNTANTS") such Total Payments (in whole or in
part) either do not constitute "parachute payments," represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the "base amount" or are otherwise not
subject to the Excise Tax, and (b) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Accountants in accordance
with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the
Gross-up Payment, the Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence for the calendar year in which the Company Payment is to be made, net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes if paid in such year. In the event that
the Excise
10
<PAGE> 11
Tax is subsequently determined by the Accountants to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the prior Gross-up
Payment attributable to such reduction net of any federal, state, or local
income tax incurred on the original receipt of such portion of the prior
Gross-up Payment (after taking into account the tax benefit, if any, that the
Executive receives on such repayment) (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal and state and local income tax
imposed on the portion of the Gross-up Payment being repaid by the Executive if
such repayment results in a reduction in Excise Tax or a federal and state and
local income tax deduction), plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Gross-up Payment to be refunded to
the Company has been paid to any federal, state or local tax authority,
repayment thereof (and related amounts) shall not be required until actual
refund or credit of such portion has been made to the Executive, and interest
payable to the Company shall not exceed the interest received or credited to the
Executive by such tax authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the course of action to be
pursued (and the method of allocating the expense thereof) if the Executive's
claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional Gross-up Payment
in respect of such excess (plus any interest or penalties payable with respect
to such excess) at the time that the amount of such excess is finally
determined.
(d) The Gross-up Payment or portion thereof provided
for in paragraph (c) above shall be paid not later than the thirtieth day
following an event occurring which subjects the Executive to the Excise Tax;
provided, however, that if the amount of
11
<PAGE> 12
such Gross-up Payment or portion thereof cannot be finally determined on or
before such day, the Company shall pay to the Executive on such day an estimate,
as determined in good faith by the Accountants, of the minimum amount of such
payments and shall pay the remainder of such payments (together with interest at
the rate provided in Code Section 1274(b)(2)(B) of the Code), subject to further
payments pursuant to paragraph (c) hereof, as soon as the amount thereof can
reasonably be determined, but in no event later than the ninetieth day after the
occurrence of the event subjecting the Executive to the Excise Tax. In the event
that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to the Executive, payable on the fifth day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code).
(e) The Company shall be responsible for all charges of the
Accountants.
10. Confidential Information; Nondisparagement;
Noncompetition. (a) In consideration of the covenants by the Company contained
herein, the Executive undertakes and agrees that during the Employment Period
and thereafter he shall hold in a fiduciary capacity for the benefit of the
Control Group all secret or confidential information, knowledge or data relating
to the Control Group or its business (which shall be defined as all such
information, knowledge and data coming to the Executive's attention by virtue of
his employment at the Company except that which is otherwise public knowledge or
known within the Company's industry). During such period, the Executive shall
not, without prior written consent of the Company, unless compelled pursuant to
the order of a court or other body having jurisdiction over such matter or
unless required by lawful process or subpoena, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. The foregoing shall not limit the disclosure by the Executive
of such information in the course of the performance of his duties as Chairman
of the Board so long as such disclosure is in good faith.
12
<PAGE> 13
(b) During the Employment Period and for two years thereafter,
the Executive shall not make any statements or comments (i) to any form of media
or likely to come to the attention of any form of media of a negative nature
that reasonably could be considered to have an adverse impact on the business or
reputation of the Control Group, the Board or any senior officer of the Control
Group, or (ii) to any employee of the Control Group or to any supplier or
customer of the Control Group of a negative nature that reasonably could be
considered to have an adverse impact on the business or reputation of the
Control Group, or the Board or any senior officer of the Control Group, provided
that in no event shall the foregoing limitation apply to (i) compliance with
legal process or subpoena, (ii) statements in response to inquiry from a court
or regulatory body, (iii) in rebuttal of media stories with regard to the
Executive, (iv) to a possible future employer in connection with employment
discussions, or (v) in response to inquiry from the Board.
(c) During the Employment Period and for two years thereafter,
Executive shall not engage in Competition with the Control Group. For purposes
of this Agreement, "COMPETITION" shall mean the:
(i) participating, directly or indirectly, as an individual
proprietor, stockholder, officer, employee, director, joint venturer, investor,
lender, or in any capacity whatsoever (within the United States of America, or
in any country where the Control Group does business) in any of the entities
listed on Exhibit A hereto or any successor to any such entity, provided,
however, that such participation shall not include (x) the mere ownership of not
more than one percent (1%) of the total outstanding stock of a publicly held
company; or (y) any activity engaged in with the prior written approval of the
Board; or
(ii) intentional recruiting, soliciting or inducing, of any
employee or employees of the Control Group to terminate their employment with,
or otherwise cease their relationship with, the Control Group where such
employee or employees do in fact so terminate their employment.
13
<PAGE> 14
If any restriction set forth with regard to Competition is
found by any court of competent jurisdiction, or an arbitrator, to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be interpreted
to extend over the maximum period of time, range of activities or geographic
area as to which it may be enforceable.
(d) Notwithstanding any other provision of this Agreement,
in the event of a breach or threatened breach by the Executive of any provision
of this Section, the Executive and the Company agree that the Company shall be
entitled to injunctive and declaratory relief from a court of competent
jurisdiction to restrain the Executive from committing such breach of the
Agreement. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedy or remedies including, without
limitation, the recovery of damages.
(e) The provisions of this Section 10 shall survive the
expiration of this Agreement or the termination of this Agreement for any
reason.
11. Indemnification. The Company agrees that the Executive
shall be entitled to the benefits of the indemnity provisions set forth in the
By-laws from time to time in accordance with their terms both during his
employment and thereafter with regard to his actions as an officer or director
of the Company and the indemnification agreement with Executive dated as of
December 11, 1994. In addition, the Company agrees to continue in effect for the
benefit of the Executive during the Employment Period directors' and officers'
liability insurance of the type and in the amount currently maintained by the
Company to the extent such insurance is available at a premium cost which the
Company considers reasonable and, thereafter, with regard to his prior
activities as an officer or director, such insurance as is maintained for active
directors and officers.
14
<PAGE> 15
12. Assignment. This Employment Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, heirs (in the case of the Executive) and permitted assigns. This
Agreement is personal to the Executive and neither this Agreement or any rights
hereunder may be assigned by the Executive. No rights or obligations of the
Company under this Employment Agreement may be assigned or transferred by the
Company except that such rights or obligations may be assigned or transferred
pursuant to a merger or consolidation in which the Company is not the continuing
entity, or pursuant to a sale of all or substantially all of the assets of the
Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Employment Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale as described in the
preceding sentence, it shall use its best efforts to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder.
13. Arbitration. Any controversy or claim arising out of or
relating to this Employment Agreement, or the breach thereof, other than
injunctive relief pursuant to Section 10(d) hereof, shall be settled by
arbitration in the City of New York, in accordance with the rules of the
American Arbitration Association (the "AAA") before three arbitrators. The
decision of the arbitrators shall be final and binding on the parties hereto and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. The costs assessed by the AAA for arbitration shall
be borne equally by both parties.
14. Notice. Any notice to either party hereunder shall be in
writing, and shall be deemed to be sufficiently given to or served on such
party, for all purposes, if the same shall be personally delivered to such
party, or sent to such party by registered mail, postage prepaid, at, in the
case of the Company, the address of such party first given above and, in the
case of the Executive, his principal residence address as shown in the records
of the Company. Notice to the Company shall be addressed to the General Counsel.
Either
15
<PAGE> 16
party hereto may change the address to which notices are to be sent to such
party hereunder by written notice of such new address given to the other party
hereto. Notices shall be deemed given when received if delivered personally or
three days after mailing if mailed as aforesaid.
15. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts to be performed therein.
16. April Agreement. The April Agreement is hereby terminated,
effective as of 12:00 Midnight on August 15, 1999, without further obligation of
either party to the other, and shall thereafter be of no force and effect.
17. Miscellaneous. (a) This Employment Agreement represents
the entire understanding of the parties hereto, supersedes any prior
understandings or agreements between the parties, and the terms and provisions
of this Employment Agreement may not be modified or amended except in a writing
signed by both parties.
(b) No waiver by either party of any breach by the other
party of any condition or provision contained in this Employment Agreement to be
fulfilled or performed by such other party shall be deemed a waiver of a similar
or dissimilar condition or provision at the same or any prior or subsequent
time. Except to the extent otherwise specifically provided herein, any waiver
must be in writing and signed by the Executive or an authorized officer of the
Company, as the case may be.
18. Beneficiary. The Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable under this
Employment Agreement following his death by giving the Company written notice
thereof in accordance with applicable Company policies. In the event of the
Executive's death or a judicial determination of his incompetence,
16
<PAGE> 17
reference in this Employment Agreement to the Executive shall be deemed, where
appropriate, to refer to his beneficiary, estate or other legal representative.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Employment Agreement as of the day and year first above written.
VENATOR GROUP, INC.
By: /s/ Dennis M. Lee
-----------------------
DENNIS M. LEE
/s/ Roger N. Farah
-----------------------
ROGER N. FARAH
17
<PAGE> 18
Exhibit A
List of Competing Companies
- - The Finish Line, Inc.
- - Footstar, Inc.
- - Hibbetts Sporting Goods, Inc.
- - Just For Feet, Inc.
- - The Sports Authority, Inc.
- - Any entity owning, operating, or franchising Athlete's Foot stores (not
including a general merchandise or department store that solely operates
Athlete's Foot departments as an incidental part of its stores)
18
<PAGE> 19
Exhibit B
Change in Control of the Company shall mean any of the following: (i)
(A) the making of a tender or exchange offer by any person or entity or group of
associated persons or entities (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) (a "Person") (other than the
Company or its subsidiaries) for shares of Common Stock pursuant to which
purchases are made of securities representing at least twenty percent (20%) of
the total combined voting power of the Company's then issued and outstanding
voting securities; (B) the merger or consolidation of the Company with, or the
sale or disposition of all or substantially all of the assets of the Company to,
any Person other than (a) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) fifty percent (50%) or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation; or (b) a merger or capitalization effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly (as determined under
Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities
representing more than the amounts set forth in (C) below; (C) the acquisition
of direct or indirect beneficial ownership (as determined under Rule 13d-3
promulgated under the Securities Exchange Act of 1934), in the aggregate, of
securities of the Company representing twenty percent (20%) or more of the total
combined voting power of the Company's then issued and outstanding voting
securities by any Person acting in concert as of the date of this Agreement;
provided, however, that the Board of Directors of the Company (referred to
herein as the "BOARD") may at any time and from time to time and in the sole
discretion of the Board, as the case may be, increase the voting security
ownership percentage threshold of this item (C) to an amount not exceeding forty
percent (40%); or (D) the approval by the shareholders of the Company of any
plan or proposal for the complete liquidation or dissolution of the Company or
for the sale of all or substantially all of the assets of the Company; or (ii)
during any period of not more than two
19
<PAGE> 20
(2) consecutive years, individuals who at the beginning of such period
constitute the Board, and any new director (other than a director designated by
a person who has entered into agreement with the Company to effect a transaction
described in clause (i)) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
20
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of August 16, 1999, by and between Venator
Group, Inc., a New York corporation, having its principal place of business at
233 Broadway, New York, New York 10279 (the "Company"), and Dale W. Hilpert (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Executive is employed by the Company as its President and
Chief Operating Officer pursuant to the provisions of an employment agreement
dated as of April 14, 1999 (the "April Agreement"), the term of which ends on
January 31, 2002; and
WHEREAS, the Company desires the Executive to serve its President and
Chief Executive Officer for a period commencing on the date hereof, and the
Executive is willing to serve in such capacity; and
WHEREAS, the Company and the Executive desire to set forth the terms
and conditions of such employment; and
WHEREAS, the Executive and the Company desire to terminate the April
Agreement as of August 15, 1999, so that, from and after August 16, 1999, the
terms and conditions of the employment of the Executive with the Company shall
be governed by the provisions of this agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the Company and the Executive agree
as follows:
1. Employment. (a) The Company hereby agrees to employ the Executive as
its President and Chief Executive Officer, and the Executive hereby agrees to
accept such continued employment with the Company, on the terms and conditions
herein contained.
1
<PAGE> 2
The Executive shall serve as President and Chief Executive Officer and as a
member of the Board of Directors of the Company (the "Board").
(b) Except for earlier termination as provided pursuant to
this Agreement, the Executive's employment under this Agreement shall be for a
period commencing on August 16, 1999 (the "Commencement Date"), and ending on
August 31, 2004 (the "Employment Period").
2. Duties. (a) The Executive shall serve during the Employment Period
as President and Chief Executive Officer of the Company, reporting only to the
Board. The Executive agrees that in such offices he shall perform such duties
and functions as are commensurate with his status as President and Chief
Executive Officer of the Company as may from time to time be determined or
directed by the Board. The Executive shall devote substantially all of his
working time, attention, skill, and efforts to the performance of his duties
hereunder; provided, however, that the Executive may serve on the boards of
directors of other for-profit corporations, if such service does not conflict
with his duties hereunder or his fiduciary duty to the Company. It is further
understood and agreed that nothing herein shall prevent the Executive from
managing his passive personal investments (subject to applicable Company
policies on permissible investments), and (subject to applicable Company
policies) participating in charitable and civic endeavors, so long as such
activities do not interfere in more than a de minimis manner with the
Executive's performance of his duties hereunder. The services to be performed by
the Executive pursuant to the terms of this Agreement shall be rendered
principally at the Company's principal offices; provided, however, that the
Executive agrees to travel for reasonable periods of time for business purposes
whenever such travel is necessary or appropriate to the performance of his
duties hereunder.
(b) The Executive shall also serve as an officer and director
of subsidiaries and affiliates of the Company without additional compensation.
2
<PAGE> 3
3. Compensation and Benefits. As full compensation for his services
hereunder, and subject to all the provisions hereof:
(a) During the Employment Period, the Company shall pay the
Executive, in accordance with its normal payroll practices and subject to
required withholding, a salary calculated at such rate per annum as may be fixed
by the Compensation Committee of the Board from time to time, but in no event at
a rate of less than $950,000 per annum ("Base Salary").
(b) During the Employment Period, the Executive shall be eligible to
participate in all bonus, incentive and equity plans that are maintained by the
Company from time to time for its senior executive employees in accordance with
the terms of such plans at the time of participation. Executive shall be
eligible to earn a bonus, at target, under the Annual Incentive Compensation
Plan equal to no less than 75 percent of his Base Salary.
(c) During the Employment Period, the Executive shall be eligible to
participate in all pension, welfare and fringe benefit plans, as well as
perquisites, maintained by the Company from time to time for its senior
executive employees in accordance with their respective terms as in effect from
time to time (other than any special arrangement entered into by contract with
an executive). In addition, during the Executive's active employment during the
Employment Period, the Company shall provide the Executive with life insurance,
with its group term life insurance plan or otherwise, on the life of the
Executive for the benefit of his designated beneficiaries in amount of
$5,000,000.
(d) During the Employment Period, the Executive shall be reimbursed
for his out-of-pocket travel and entertainment expenses in accordance with the
Company's normal policy for senior executive officers, including appropriate
documentation.
3
<PAGE> 4
(e) The Executive shall be entitled to four weeks vacation for each
fiscal year during the Employment Period to be taken at such time as mutually
convenient to the Executive and the Company. Unused vacation shall be forfeited.
(f) Within 90 days of the date hereof, the Compensation Committee
shall grant the Executive 60,000 shares of restricted stock under the 1998 Stock
Option and Award Plan (the "Restricted Stock"), such shares to be subject to the
same restrictions as those shares of restricted stock granted to Executive on
February 1, 1999.
(g) The Company shall provide to Executive a transportation
allowance of $10,000 per year.
(h) The Company shall pay for personal financial planning services
for Executive up to an amount of $15,000 per year.
(i) The Company shall reimburse Executive for his legal fees in
connection with the negotiation and review of this agreement in an amount not to
exceed $15,000.
4. Termination. The Employment Period shall terminate upon the earliest
of the following:
(a) the Executive's death;
(b) the Executive's disability in accordance with Section 6;
(c) the Executive's termination for cause in accordance with Section 7;
(d) the termination of the Executive by the Company without cause;
(e) the termination by the Executive in accordance with Section 8; or
(f) the termination of the Executive in accordance with Section 10.
4
<PAGE> 5
5. Death. The death of the Executive shall serve to terminate the
Employment Period, in which event the Company shall have no liability or further
obligation except as follows:
(a) The Company shall pay the Executive's estate (or, if properly
designated under an applicable plan or arrangement, his beneficiary) when
otherwise due any unpaid Base Salary for the period prior to such termination of
the Employment Period, any declared but unpaid bonuses, any declared but unpaid
amounts due under any incentive plan, and any other unpaid amounts due the
Executive under employee benefit, fringe benefit or incentive plans
("Entitlements").
(b) The Executive shall have such rights under any employee benefit,
fringe benefit or incentive plan, including any stock option plan, as provided
in such plans and any grants thereunder ("Rights").
(c) The Executive's estate or his designated beneficiary shall be
entitled to receive those benefits afforded by the Company under its then
existing policies to employees who die while employed by the Company.
6. Disability. If the Company reasonably shall determine that the
Executive has become physically or mentally incapable of performing his material
duties as provided in Section 2 of this Agreement and such incapacity is likely
to last for a period of at least 180 days from the onset of such incapacity, the
Company may, at its election at any time after the date of such onset while the
Executive remains incapable of performing his duties, terminate the Executive's
employment hereunder effective immediately by giving the Executive written
notice of such termination. In such event, the Company shall continue the
Executive as an employee on payroll (but not as an officer hereunder) at his
same Base Salary until he qualifies for the Company's long term disability
policy and the Company shall have no other obligation to the Executive or his
dependents other than Entitlements, Rights, amounts due
5
<PAGE> 6
under the Company's long term disability plan, and any benefits offered by the
Company under its then policy to employees who become disabled while employed by
the Company.
7. Cause. (a) If the Board shall determine that there are
grounds for terminating the Employment Period and discharging the Executive for
"cause" (as hereinafter defined), the Company may, at its election at any time
within six months after the Company shall obtain knowledge of the grounds for
termination, give the Executive notice of its intention to terminate the
Executive for cause, stating the grounds for termination and specifying a
reasonable date (the "Meeting Date") on which the Executive shall be given an
opportunity if he desires to discuss such grounds for termination at a meeting
of the Board. In the event of any arbitration in accordance with Section 17
hereof with regard to the Company's determination of cause, the determination by
the Company shall be reviewed on a de novo basis by the arbitrator(s).
(b) If the grounds for termination are those specified in
clause (ii)(X), (iv) or (vi) of paragraph (d) hereof, the Executive shall have a
period of ten days from giving of the notice to cure the neglect, refusal, or
breach, as the case may be, provided that if similar grounds arise again within
one year of such cure, no new notice need be given and the Company, at its
option, may immediately terminate the Executive for cause.
(c) If the grounds for termination are those specified in
clauses (i), (ii)(Y), (ii)(Z), (iii) or (v) of paragraph (d) hereof, it is
understood and agreed that no satisfactory cure is available and such
termination shall be effective immediately upon notice by the Company.
(d) For purposes of this Section 7 and Section 9 hereof, the
term "cause" shall mean:
(i) the conviction (or plea of guilty or nolo contendere)
of the Executive of any felony, or of any crime involving fraud, dishonesty or
misappropriation, or
6
<PAGE> 7
moral turpitude or, if any of the foregoing involves the Company or any
subsidiary or affiliate (collectively the "Control Group"), the commission of
any of the foregoing (other than good faith disputes involving expense account
items);
(ii) the Executive's (X) continued willful neglect of his
duties and responsibilities under this Agreement; (Y) grossly negligent conduct
in connection with his duties and responsibilities under this Agreement; or (Z)
gross negligence in connection with his handling of the assets of the Company or
any other member of the Control Group;
(iii) the Executive's willful misconduct with regard to
the Control Group;
(iv) the Executive's refusal to follow the written
direction of the Board with regard to the Executive's responsibilities as set
forth herein;
(v) the Executive's willful failure to comply with the
covenants in Section 13 hereof; or
(vi) material breach of any of the provision of this
Agreement by the Executive.
(e) If the Company shall terminate the Executive's employment
pursuant to this Section 7, it shall have no further liability or obligation
hereunder except as follows:
(i) The Company shall promptly pay the Executive his then
current Base Salary through the effective date of such termination;
(ii) The Executive shall receive the benefits, if any, and
have the rights afforded by the Company under its then existing policies to
employees whose
7
<PAGE> 8
employment is terminated for cause or under the specific terms of any welfare,
pension, fringe benefit or incentive plan.
8. Good Reason. In the event that the Company shall (i) fail to
continue the appointment of the Executive as Chief Executive Officer of the
Company, or (ii) reduce the Executive's annual salary below the Base Salary, or
(iii) materially diminish the duties and responsibilities of the Executive as
President and Chief Executive Officer, assign to the Executive duties and
responsibilities inconsistent with his positions, or materially diminish his
authority, or (iv) locate the Executive at other than at the Company's principal
executive office, or (v) relocate the Company's principal executive office
outside the New York metropolitan area, or (vi) breach any payment provision of
this Agreement (to the extent not disputed in good faith) or any other material
provision of this Agreement (each of the foregoing hereinafter referred to as a
"Triggering Event"), then the Executive may give notice to the Company of his
election to terminate the Employment Period pursuant to this Section 8,
effective thirty (30) days from the date of such notice, unless the Company
shall have cured prior thereto the default giving rise to his notice of election
to terminate. Such notice from the Executive shall state the Triggering Event
which provides the grounds for his termination, and such notice must be given,
if at all, within 90 days of the date the Executive obtains knowledge of the
Triggering Event referred to as providing such grounds for termination. Within
the 30 day period specified in the Executive's notice to the Company, the
Company shall have the opportunity to cure the default involved in the
Triggering Event specified by the Executive. If the Employment Period is
terminated pursuant to this Section 8, the Company shall have no liability or
further obligation hereunder except as provided in Section 9 hereof. If the
Executive does not give notice to the Company of his election to terminate
within 90 days following the occurrence of a Triggering Event, then the
Executive shall be deemed to have waived his right to terminate the Employment
Period based on such Triggering Event, but such waiver shall not prejudice his
right to terminate pursuant to this Section 8 based on the occurrence of another
Triggering Event occurring subsequent in time, whether of the same or a
different type.
8
<PAGE> 9
9. Termination. In the event of a termination of the Employment Period
pursuant to Section 8 hereof, or in the event the Company shall terminate the
Employment Period without cause, then, except as provided in Section 10 hereof,
the Company shall have no obligation to the Executive except as follows:
(a) The Executive shall receive his Entitlements and have his
Rights. Thereafter, and during the period until the earliest of (i) the
Severance Period Termination Date, as hereinafter defined, (ii) the Executive's
death, or (iii) the Executive's violation of the post employment requirements of
Section 13 hereof, and subject to paragraph (f) below, following the date of
such termination (hereinafter referred to as the "Severance Period"), the
Company shall make payments to the Executive, either bi-weekly or monthly as the
Company shall elect, calculated at the annual rate of Base Salary which the
Executive was receiving pursuant to Section 3(a) hereof immediately prior to
such termination. As used herein, the "Severance Period Termination Date" shall
mean that date which is the later of August 31, 2004 or the second anniversary
of the date of termination of Executive's employment with the Company.
(b) During the Severance Period the Executive shall not be an
employee and shall not be entitled to receive any fringes, perquisites or
benefits from the Company, except the Company shall pay the premiums for his and
his dependents' health coverage under COBRA until the earliest of (i) such time
as he commences other employment, (ii) such time as he or a dependent, as the
case may be, is no longer entitled to COBRA coverage, or (iii) as provided in
paragraph (f) below.
(c) The Company shall provide the Executive, at no cost to the
Executive, with out-placement at a level commensurate with the Executive's
position.
(d) The Executive shall not be required to mitigate the amount
of any payment provided for in the second sentence of paragraph (a) or in
paragraph (b) by seeking
9
<PAGE> 10
other employment nor shall any amounts to be received by the Executive hereunder
be reduced by any other compensation earned.
(e) The Company shall be entitled to withhold from any
payments made to the Executive under this Section 9 any amounts required to be
withheld by applicable federal, state or local tax law.
(f) Any amounts being paid to or on behalf of the Executive
under this Section 9 (other than vested benefits that are required to be paid
under the Company's tax-qualified pension plans pursuant to the provisions of
the Employee Retirement Income Security Act of 1974, as amended) shall
immediately cease if the Executive enters into Competition with the Control
Group. For purposes of this Agreement, "Competition" shall mean the:
(i) participating, directly or indirectly, as an
individual proprietor, stockholder, officer, employee, director, joint venturer,
investor, lender, or in any capacity whatsoever (within the United States of
America, or in any country where the Control Group does business) in any of the
entities listed on Exhibit A hereto or any successor to any such entity,
provided, however, that such participation shall not include (x) the mere
ownership of not more than one percent (1%) of the total outstanding stock of a
publicly held company; or (y) any activity engaged in with the prior written
approval of the Board; or
(ii) intentionally recruiting, soliciting or inducing, any
employee or employees of the Control Group to terminate their employment with,
or otherwise cease their relationship with, the Control Group where such
employee or employees do in fact so terminate their employment.
If any restriction set forth with regard to Competition is found by any
court of competent jurisdiction, or an arbitrator, to be unenforceable because
it extends for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall
10
<PAGE> 11
be interpreted to extend over the maximum period of time, range of activities,
or geographic area as to which it may be enforceable.
10. Change in Control. In the event of a Change in Control, as
defined in Exhibit B hereto, the Executive shall have the right to terminate the
Employment Period by written notice given within the thirty (30) day period
following three (3) months after such Change in Control. Such Employment Period
shall cease upon the giving of such notice. In such event, or in the event the
Company shall terminate the Executive's employment without cause or the
Executive shall terminate his employment for Good Reason during the two year
period after the Change in Control, the Company shall have no obligation to the
Executive except as follows:
(a) The Executive shall receive all amounts and benefits under
Section 9 hereof as if he had terminated his employment for Good Reason pursuant
to Section 8 hereof, except that subpart (ii) of paragraph (a), subpart (iii) of
paragraph (a), and paragraph (f) of Section 9 shall not apply; provided,
however, that all such amounts shall be payable as a lump sum, without
adjustment for the time value of money, within five business days of the date of
termination of the Employment Period (the "Section 9(a) Payment").
(b) Upon a Change in Control, the forfeiture period with
regard to the Restricted Stock shall terminate and such shares shall become
immediately vested.
(c) In addition to any payments to which the Executive may be
entitled pursuant to the provisions of paragraph (a) of this section, if the
Section 9(a) Payment is less than 3 multiplied by Executive's Base Salary (at
the rate payable immediately prior to such Change in Control) plus bonus payable
under the Annual Incentive Compensation Plan at target in the year of the
termination of the Employment Period (the "Change-in-Control Amount"), then the
Company shall make a lump sum cash payment of the difference between the
Change-in-Control Amount and the Section 9(a) Payments to Executive within five
business days of the date of the termination of the Employment Period.
11
<PAGE> 12
11. Gross-up. (a) In the event that the Executive shall become
entitled to the payments and/or benefits provided by Section 10 or any other
amounts (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a
change of ownership covered by Section 280G(b)(2) of the Internal Revenue Code
of 1986, as amended (the "Code") or any person affiliated with the Company or
such person) (collectively the "Company Payments"), and such Company Payments
will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Code (and any similar tax that may hereafter be imposed), the Company shall pay
to the Executive at the time specified in paragraph (d) below an additional
amount (the "Gross-up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Company Payments and any
federal, state and local income tax and Excise Tax upon the Gross-up Payment
provided for by this paragraph (a), but before deduction for any federal, state
or local income tax on the Company Payments, shall be equal to the Company
Payments.
(b) For purposes of determining whether any of the Company
Payments and Gross-up Payments (collectively the "Total Payments") will be
subject to the Excise Tax and the amount of such Excise Tax, (a) the Total
Payments shall be treated as "parachute payments" within the meaning of section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3)) shall be treated as subject
to the Excise Tax, unless and except to the extent that, in the opinion of the
Company's independent certified public accountants appointed prior to any change
in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected
by such accountants (the "Accountants") such Total Payments (in whole or in
part) either do not constitute "parachute payments", represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the "base amount" or are otherwise not
subject to the Excise Tax, and (b) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Accountants in accordance
with the principles of Section 280G of the Code.
12
<PAGE> 13
(c) For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence for the calendar year in which the Company Payment is to be made, net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes if paid in such year. In the event that
the Excise Tax is subsequently determined by the Accountants to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
the Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the prior Gross-up
Payment attributable to such reduction net of any federal, state, or local
income tax incurred on the original receipt of such portion of the prior
Gross-up Payment (after taking into account the tax benefit, if any, that the
Executive receives on such repayment) (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal and state and local income tax
imposed on the portion of the Gross-up Payment being repaid by the Executive if
such repayment results in a reduction in Excise Tax or a federal and state and
local income tax deduction), plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Gross-up Payment to be refunded to
the Company has been paid to any federal, state or local tax authority,
repayment thereof (and related amounts) shall not be required until actual
refund or credit of such portion has been made to the Executive, and interest
payable to the Company shall not exceed the interest received or credited to the
Executive by such tax authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the course of action to be
pursued (and the method of allocating the expense thereof) if the Executive's
claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made (including by reason
of any payment the existence or amount of
13
<PAGE> 14
which cannot be determined at the time of the Gross-up Payment), the Company
shall make an additional Gross-up Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(d) The Gross-up Payment or portion thereof provided for
in paragraph (c) above shall be paid not later than the thirtieth day following
an event occurring which subjects the Executive to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or portion thereof cannot
be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the
Accountant, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in Code Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to paragraph
(c) hereof, as soon as the amount thereof can reasonably be determined, but in
no event later than the ninetieth day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(e) The Company shall be responsible for all charges of
the Accountant.
12. Supplemental Executive Retirement Plan. During the Employment
Period, Executive shall participate in the Company's Supplemental Executive
Retirement Plan (the "SERP"). If, at the time of a termination of the Employment
Period (a) pursuant to Section 8 hereof, (b) without cause, (c) pursuant to
Section 10 hereof, or (d) on August 31, 2004 (if the Company and Executive have
not entered into an employment agreement extending Executive's employment with
the Company beyond such date) (the "Retirement Events"), the Total Retirement
Benefit, as hereinafter defined, is less than $1,300,000, the Company shall,
14
<PAGE> 15
effective as of the date of such termination of the Employment Period, increase
the amount of Executive's Account in the SERP by the difference between the
Total Retirement Benefit and $1,300,000. Further, if at any time during the
Employment Period the Board freezes or terminates the SERP or terminates the
participation of Executive thereunder, (i) Executive shall, as of the day
preceding such action, if it is not the case, be deemed to be at least 55 years
of age and have at least five "Years of Service" as defined in the SERP and (ii)
the Company shall, if the Total Retirement Benefit to which the Executive would
be entitled, as of the day preceding such action, is less than $1,300,000,
increase the amount of Executive's Account in the SERP by the difference between
the Total Retirement Benefit, calculated as of such date, and $1,300,000. For
purposes of this section, Total Retirement Benefit shall be the sum of (a) the
lump sum benefit to which Executive is entitled under the provisions of Section
4.03 (C) (2) of the Venator Group Retirement Plan plus (b) the amount of the
lump sum Excess Cash Balance Benefit payable under the provisions of the Excess
Cash Balance Plan plus (c) the amount of Executive's Account under the SERP,
prior to any adjustment provided for herein. In the event a Retirement Event
occurs and either (i) such Retirement Event occurs before the Executive reaches
age 55 or (ii) such Retirement Event occurs after the Executive has reached age
55 and the Compensation Committee of the Board does not provide the consent
required by Section 2(v) of the SERP to permit Executive's "Retirement", as
defined therein, to occur before he attains age 65, then the Company shall make
a payment to Executive equal to the amount that would have been in Executive's
Account in the SERP following the adjustment, if any, provided for in this
section, such payment to be made to Executive in the same manner, and subject to
the same restrictions, as provided for in the SERP.
13. Confidential Information, Nondisparagement; Non-competition. (a) In
consideration of the covenants by the Company contained herein, the Executive
undertakes and agrees that during the Employment Period and thereafter he shall
hold in a fiduciary capacity for the benefit of the Control Group all secret or
confidential information, knowledge, or data relating to the Control Group or
its business (which shall be defined as all such information, knowledge, and
data coming to the Executive's attention by virtue of his
15
<PAGE> 16
employment at the Company except that which is otherwise public knowledge or
known within the Company's industry). During such period, the Executive shall
not, without prior written consent of the Company, unless compelled pursuant to
the order of a court or other body having jurisdiction over such matter or
unless required by lawful process or subpoena, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. The foregoing shall not limit the disclosure by the Executive
of such information in the course of the performance of his duties as President
and Chief Operating Officer so long as such disclosure is in good faith.
(b) During the Employment Period and thereafter while the
Executive is receiving any amounts pursuant to Section 9(a), Section 10, or
Section 12 hereof, the Executive shall not make any statements or comments (i)
to any form of media or likely to come to the attention of any form of media of
a negative nature that reasonably could be considered to have an adverse impact
on the business or reputation of the Control Group, the Board or any senior
officer of the Control Group, or (ii) to any employee of the Control Group or to
any supplier or customer of the Control Group of a negative nature that
reasonably could be considered to have an adverse impact on the business or
reputation of the Control Group or the Board or any senior officer of the
Control Group, provided that in no event shall the foregoing limitation apply to
(i) compliance with legal process or subpoena, (ii) statements in response to
inquiry from a court or regulatory body, (iii) in rebuttal of media stories with
regard to the Executive, (iv) to a possible future employer in connection with
employment discussions, or (v) in response to inquiry from the Board.
(c) Furthermore, (i) during the period from the date hereof to
August 31, 2004, and (ii) thereafter while the Executive is receiving any
amounts pursuant to Section 9(a) hereof, the Executive shall not enter into
Competition with the Control Group, as defined in Section 9(f) hereof.
(d) Notwithstanding any other provision of this Agreement, in
the event of a breach or threatened breach by the Executive of any provision of
this Section, the Executive
16
<PAGE> 17
and the Company agree that the Company shall be entitled to injunctive and
declaratory relief from a court of competent jurisdiction to restrain the
Executive from committing such breach of the Agreement. Nothing in this
Agreement shall be construed as prohibiting the Company from pursuing any other
remedy or remedies including, without limitation, the recovery of damages.
(e) The provisions of this section shall survive the
expiration of this Agreement or the termination of the Agreement for any reason.
14. Indemnification. The Company agrees that the Executive shall be
entitled to the benefits of the indemnity provisions set forth in the By-laws
from time to time in accordance with their terms both during his employment and
thereafter with regard to his actions as an officer or director of the Company
and that the Company shall enter into an indemnification agreement with the
Executive in the form of its standard indemnification agreement with executive
officers. In addition, the Company agrees to continue in effect for the benefit
of the Executive during the Employment Period directors' and officers' liability
insurance of the type and in the amount currently maintained by the Company to
the extent such insurance is available at a premium cost which the Company
considers reasonable and, thereafter, with regard to his prior activities as an
officer or director, such insurance as is maintained for active directors and
officers.
15. Assignment. This Employment Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
heirs (in the case of the Executive) and permitted assigns. This Agreement is
personal to the Executive and neither this Agreement nor any rights hereunder
may be assigned by the Executive. No rights or obligations of the Company under
this Employment Agreement may be assigned or transferred by the Company except
that such rights or obligations may be assigned or transferred pursuant to a
merger or consolidation in which the Company is not the continuing entity, or
pursuant to a sale of all or substantially all of the assets of the
17
<PAGE> 18
Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Employment Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale as described in the
preceding sentence, it shall use its best efforts to cause such assignee or
transferee to expressly assume the liabilities, obligations, and duties of the
Company hereunder.
16. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, other than injunctive relief pursuant to
Section 13(d) hereof, shall be settled by arbitration in the City of New York,
in accordance with the rules of the American Arbitration Association (the "AAA")
before three arbitrators. The decision of the arbitrators shall be final and
binding on the parties hereto and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The costs
assessed by the AAA for arbitration shall be borne equally by both parties.
17. Notice. Any notice to either party hereunder shall be in writing,
and shall be deemed to be sufficiently given to or served on such party, for all
purposes, if the same shall be personally delivered to such party, or sent to
such party by registered mail, postage prepaid, at, in the case of the Company,
the address first given above and, in the case of the Executive, his principal
residence address as shown in the records of the Company. Notices to the Company
shall be addressed to the General Counsel. Either party hereto may change the
address to which notices are to be sent to such party hereunder by written
notice of such new address given to the other party hereto. Notices shall be
deemed given when received if delivered personally or three days after mailing
if mailed as aforesaid.
18. Applicable Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York applicable to
contracts to be performed therein.
18
<PAGE> 19
19. April Agreement. The April Agreement is hereby terminated,
effective as of 12:00 Midnight on August 15, 1999, without further obligation of
either party to the other, and shall thereafter be of no force or effect.
20. Miscellaneous. (a) This Agreement represents the entire
understanding of the parties hereto, supersede any prior understandings or
agreements between the parties, and the terms and provisions of this Agreement
may not be modified or amended except in a writing signed by both parties.
(b) No waiver by either party of any breach by the
other party of any condition or provision contained in this Agreement to be
fulfilled or performed by such other party shall be deemed a waiver of a similar
or dissimilar condition or provision at the same or any prior or subsequent
time. Except to the extent otherwise specifically provided herein, any waiver
must be in writing and signed by the Executive or an authorized officer of the
Company, as the case may be.
21. Beneficiary. The Executive shall be entitled to select (and change,
to the extent permitted under any applicable law) a beneficiary or beneficiaries
to receive any compensation or benefit payable under this Agreement following
his death by giving the Company written notice thereof in accordance with
applicable Company policies. In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
VENATOR GROUP, INC.
By: /s/ Dennis M. Lee
----------------------
DENNIS M. LEE
/s/ Dale W. Hilpert
----------------------
DALE W. HILPERT
20
<PAGE> 21
Exhibit A
List of Competitive Companies
- - The Finish Line, Inc.
- - Footstar, Inc.
- - Hibbetts Sporting Goods, Inc.
- - Just For Feet, Inc.
- - The Sports Authority, Inc.
- - Any entity owning, operating, or franchising Athlete's Foot stores (not
including a general merchandise or department store that solely operates
Athlete's Foot departments as an incidental part of its stores)
21
<PAGE> 22
Exhibit B
Change in Control of the Company shall mean any of the following: (i)
(A) the making of a tender or exchange offer by any person or entity or group of
associated persons or entities (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) (a "Person") (other than the
Company or its subsidiaries) for shares of Common Stock pursuant to which
purchases are made of securities representing at least twenty percent (20%) of
the total combined voting power of the Company's then issued and outstanding
voting securities; (B) the merger or consolidation of the Company with, or the
sale or disposition of all or substantially all of the assets of the Company to,
any Person other than (a) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) fifty percent (50%) or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation; or (b) a merger or capitalization effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly (as determined under
Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities
representing more than the amounts set forth in (C) below; (C) the acquisition
of direct or indirect beneficial ownership (as determined under Rule 13d-3
promulgated under the Securities Exchange Act of 1934), in the aggregate, of
securities of the Company representing twenty percent (20%) or more of the total
combined voting power of the Company's then issued and outstanding voting
securities by any Person acting in concert as of the date of this Agreement;
provided, however, that the Board of Directors of the Company (referred to
herein as the "Board") may at any time and from time to time and in the sole
discretion of the Board, as the case may be, increase the voting security
ownership percentage threshold of this item (C) to an amount not exceeding forty
percent (40%); or (D) the approval by the shareholders of the Company of any
plan or proposal for the complete liquidation or dissolution of the Company or
for the sale of all or
22
<PAGE> 23
substantially all of the assets of the Company; or (ii) during any period of not
more than two (2) consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into agreement with the Company to effect
a transaction described in clause (i)) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
23
<PAGE> 1
EXHIBIT 12
VENATOR GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
($ in millions)
<TABLE>
<CAPTION>
39-weeks ended Fiscal Years Ended
------------------- -------------------------------------------------
Oct. 30, Oct. 31, Jan. 30, Jan. 31, Jan. 25, Jan. 27, Jan. 28,
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET EARNINGS
Income (loss) from continuing
operations, after-tax ............... $ (45) (26) 3 213 209 29 23
Income tax expense (benefit) .......... (29) (26) (42) 120 139 34 41
Interest expense, excluding capitalized
interest ............................ 51 44 57 36 53 91 85
Portion of rents deemed representative
of the interest factor (1/3) ........ 135 123 180 163 162 157 150
----- ----- ----- ----- ----- ----- -----
$ 112 115 198 532 563 311 299
===== ===== ===== ===== ===== ===== =====
FIXED CHARGES
Gross interest expense ................ $ 52 49 64 36 53 91 85
Portion of rents deemed representative
of the interest factor (1/3) ........ 135 123 180 163 162 157 150
----- ----- ----- ----- ----- ----- -----
$ 187 172 244 199 215 248 235
===== ===== ===== ===== ===== ===== =====
RATIO OF EARNINGS TO FIXED
CHARGES ............................. 0.6 0.7 0.8 2.7 2.6 1.3 1.3
----- ----- ----- ----- ----- ----- -----
</TABLE>
Earnings were not adequate to cover fixed charges by $75 million and by $57
million for the thirty-nine weeks ended October 30, 1999 and October 31, 1998,
respectively, and by $46 million for the fiscal year ended January 30, 1999.
<PAGE> 1
EXHIBIT 15
Accountants' Acknowledgment
Venator Group, Inc.
New York, New York
Board of Directors:
Re: Registration Statements Numbers 33-10783, 33-91888, 33-91886, 33-97832,
333-07215, 333-21131 and 333-62425 on Form S-8 and Numbers 33-43334 and
33-86300 on Form S-3
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated November 18, 1999 related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
/s/ KPMG LLP
New York, New York
December 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 30, 1999
AND THE CONSOLIDATED BALANCE SHEET AS OF OCTOBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 63
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 863
<CURRENT-ASSETS> 1,364
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,851
<CURRENT-LIABILITIES> 1,186
<BONDS> 313
0
0
<COMMON> 0
<OTHER-SE> 1,011
<TOTAL-LIABILITY-AND-EQUITY> 2,851
<SALES> 3,320
<TOTAL-REVENUES> 3,320
<CGS> 2,430
<TOTAL-COSTS> 2,430
<OTHER-EXPENSES> 138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (74)
<INCOME-TAX> (29)
<INCOME-CONTINUING> (45)
<DISCONTINUED> 10
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
<PAGE> 1
EXHIBIT 99
Independent Accountants' Review Report
The Board of Directors and Shareholders
Venator Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of
Venator Group, Inc. and subsidiaries as of October 30, 1999 and October 31,
1998, and the related condensed consolidated statements of operations,
comprehensive income (loss), and cash flows for the thirteen and thirty-nine
week periods ended October 30, 1999 and October 31, 1998. These condensed
consolidated financial statements are the responsibility of Venator Group, Inc.
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Venator Group, Inc. and
subsidiaries as of January 30, 1999, and the related consolidated statements of
operations, comprehensive loss, shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated March 10, 1999,
except for note 23 which is as of March 19, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of January 30, 1999, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
New York, New York
November 18, 1999
