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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Sam & Libby, Inc.
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SAM & LIBBY, INC.
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 15, 1996
---------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of SAM &
LIBBY, INC., a California corporation (the "Company"), will be held on August
15, 1996 at 9:30 a.m., local time, at the offices of the Company located at 58
West 40th Street, New York, New York 10018 for the following purposes:
1. To consider and approve the sale of the trademarks, trade names and
intellectual property rights of the Company to Maxwell Shoe Company Inc.,
including approval of an amendment to the Company's Articles of
Incorporation in order to change the Company's name to "Utopia Marketing,
Inc."
2. To elect directors to serve for the ensuing year and until their
successors are elected.
3. To ratify the appointment of Deloitte & Touche, LLP as independent
public accountants of the Company for the 1996 fiscal year.
4. To transact such other business as may properly come before the
meeting and any continuation(s) or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on July 31, 1996, are
entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose.
Any shareholder attending the meeting may vote in person even if he or she
has returned a proxy.
THE BOARD OF DIRECTORS
New York, New York
August , 1996
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SAM & LIBBY, INC.
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT
SAM & LIBBY, INC.
58 WEST 40TH STREET
NEW YORK, NEW YORK 10018
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of SAM & LIBBY, INC., a California
corporation (the "Company" or "Sam & Libby"), for use at the 1996 Annual Meeting
of Shareholders to be held Thursday, August 15, 1996 at 9:30 a.m., local time,
and at any continuation(s) or adjournment(s) thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Shareholders. The
Annual Meeting will be held at the offices of the Company located at 58 West
40th Street, New York, New York 10018. The Company's telephone number is (212)
944-4830.
These proxy solicitation materials and the Company's 1995 Annual Report to
Shareholders (consisting of a letter from the Chief Executive Officer, the
Company's Amendment No. 1 to its Annual Report on Form 10-K/A for the fiscal
year ended December 30, 1995 and the Company's Quarterly Report on Form 10-Q for
the period ended March 30, 1996) were mailed on or about August , 1996, to all
shareholders entitled to vote at the meeting. See also "INFORMATION INCORPORATED
BY REFERENCE".
PURPOSES OF THE ANNUAL MEETING
The purposes of the Annual Meeting are to: (1) consider and approve the sale
of certain assets of the Company relating to trademarks, trade names and
intellectual, property to Maxwell Shoe Company Inc., including an amendment to
the Company's Articles of Incorporation in order to change the Company's name to
"Utopia Marketing, Inc.", (2) elect four directors to serve for the ensuing year
and until their successors are duly elected and qualified, (3) ratify the
appointment of Deloitte & Touche, LLP as the Company's independent accountants
for the fiscal year 1996 and (4) transact such other business as may properly
come before the meeting and at any and all continuation(s) or adjournment(s)
thereof.
RECORD DATE AND SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
Only shareholders of record at the close of business on July 31, 1996 (the
"Record Date"), are entitled to receive notice of and to vote at the Annual
Meeting. As of the Record Date, the Company had outstanding 13,741,367 shares of
Common Stock.
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The following table sets forth the beneficial ownership of Common Stock of
the Company as of July 12, 1996, as to (a) each person known to the Company who
beneficially owns more than 5% of the outstanding shares of its Common Stock;
(b) each current director and nominee for director; (c) each executive officer
named in the Summary Compensation Table; and (d) all directors and executive
officers as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS OWNED (1) TOTAL
- - ------------------------------------------------ ----------- -------------
<S> <C> <C>
Samuel L. Edelman (2) .......................... 6,260,822 45.6%
58 West 40th Street
New York, New York 10018
Louise B. Edelman (3) .......................... 5,102,822 37.1%
58 West 40th Street
New York, New York 10018
Braha Industries Inc. .......................... 1,369,260 9.9%
1 East 33rd Street
New York, New York 10016
Lane International Trading, Inc. ............... 1,369,261 9.9%
31284 San Antonio Street, Suite 7
Hayward, California 94544
Stuart L. Kreisler (4) ......................... 1,158,000 8.4%
58 West 40th Street
New York, New York 10018
I. Jay Goldfarb (5)............................. 12,500 *
Howard Platt.................................... -- --
Kenneth M. Sitomer (6).......................... 400,000 2.9%
Michael H. Wasserman (7)........................ -- --
All directors and officers as a group (5 6,673,322 47.5%
persons) (8)..................................
</TABLE>
- - ------------------------
* Less than 1.0%.
(1) The table is based upon information supplied by directors, executive
officers and principal shareholders. Unless otherwise indicated, each of the
shareholders named in the table has sole voting and investment power with
respect to all securities shown as beneficially owned, subject to community
property laws where applicable and to the information contained in the
footnotes to the table.
(2) Includes 5,102,822 shares owned directly by Mr. and Ms. Edelman as community
property and 1,158,000 shares owned by Mr. Kreisler, which Mr. Edelman may
be deemed to beneficially own as a result of his voting rights pursuant to a
shareholders agreement among the Company, Mr. Edelman, Ms. Edelman and Mr.
Kreisler (the "Shareholders Agreement"). See "EXECUTIVE COMPENSATION --
Compensation Committee Interlocks and Insider Participation -- Shareholders
Agreement".
(3) Includes 5,102,822 shares owned directly by Mr. and Ms. Edelman as community
property.
(4) Includes 1,158,000 shares owned by Mr. Kreisler with respect to which Mr.
Edelman has certain voting rights pursuant to the Shareholders Agreement.
(5) Includes 12,500 shares subject to outstanding options that are exercisable
within sixty days of July 31, 1996.
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(6) Includes 300,000 shares subject to outstanding options that are exercisable
within sixty days of July 31, 1996.
(7) Mr. Wasserman resigned from his position as Vice President of Finance and
left the Company in March 1996.
(8) Includes 312,500 shares subject to outstanding options that are exercisable
within sixty days of July 31, 1996.
REVOCABILITY OF PROXIES
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before it is voted by delivering to the
Secretary of the Company at the Company's principal executive office, 58 West
40th Street, New York, New York 10018, a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
Each shareholder voting for the election of directors may cumulate his or
her votes, giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares which the shareholder
is entitled to vote, or distributing the shareholder's votes under the same
principle among as many candidates as the shareholder chooses, provided that
votes may not be cast for more than four candidates. However, no shareholder
shall be entitled to cumulate votes for any candidate unless the candidate's
name has been placed in nomination prior to the voting and the shareholder, or
any other shareholder, has given notice at the meeting prior to the voting of
the intention to cumulate the shareholder's votes. See "Election of Directors --
Nominees." On all other matters, each share has one vote.
The cost of soliciting proxies will be borne by the Company. The Company may
also reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation materials to such
beneficial owners. In addition, the Company's directors, officers and employees,
without receiving any additional compensation, may solicit proxies personally or
by telephone, telegraph or facsimile copy.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "For" or "Against" a matter are treated as being
present at the meeting for purposes of establishing a quorum and are also
treated as shares "represented and voting" at the Annual Meeting (the "Votes
Cast") with respect to such matter.
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions or broker non-votes, the Company
believes that both abstentions and broker non-votes should be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. The Company further believes that neither abstentions nor broker
non-votes should be counted as shares "represented and voting" with respect to a
particular matter for purposes of determining the total number of Votes Cast
with respect to such matter. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions and broker non-votes in this
manner. Accordingly, they will not affect the determination as to whether the
requisite majority of Votes Cast has been obtained with respect to a particular
matter.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1997 Annual Meeting of Shareholders must
be received by the Company no later than February 28, 1997, in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
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PROPOSAL ONE
SALE OF CERTAIN ASSETS TO MAXWELL SHOE COMPANY INC.
On July 2, 1996, the Company entered into an agreement (the "Agreement")
with Maxwell Shoe Company Inc. ("Maxwell") to sell all right, title, benefit and
interest in and to all of the Company's trademarks, trade names, service marks,
logos and common law and similar rights used and/or registered in the United
States and worldwide (collectively, the "Trademarks"). Pursuant to the
Agreement, the Company has until April 30, 1997 to sell its existing inventory
(the "Inventory") and fill any customer orders (the "Customer Orders")
outstanding as of the Closing (as defined below) of the sale of the Trademarks.
Thereafter, the Company shall cease to import, manufacture domestically, market,
sell or distribute any goods or other products which bear, mention or note any
of the Trademarks on such goods or products.
The Company currently intends to use the proceeds from the sale of the
Trademarks to repay its existing indebtedness. Following the consummation of the
proposed sale of its Trademarks, the sale of the Inventory and filling of the
Customer Orders, and subject to the provisions of the Non-Competition Agreement
(as defined below under the caption "-- Summary of Terms of Proposed Agreement
- - -- Additional Covenants of the Agreement") the Company will evaluate potential
acquisitions of businesses and/or products in the men's, women's and children's
footwear and apparel industries. In the event that the Company is unable to
identify an appropriate acquisition, the Company intends to distribute the
balance, if any, of the proceeds from the sale of the Trademarks, Inventory and
filling of the Customer Orders to its shareholders.
DESCRIPTION OF THE COMPANY'S BUSINESS
The Company designs, develops and markets women's and children's footwear,
and other products primarily under its Sam and Libby-Registered Trademark- brand
name. The Company markets its products to consumers who desire contemporary,
fashionable products at affordable prices. These products are sold nationwide
through major department stores, specialty retail stores, Company retail and
outlet stores and other major retailers. The Company's products are manufactured
to its specifications by independent contractors located primarily in South
America, the Far East and Europe.
INFORMATION ABOUT THE PURCHASER
Maxwell designs, develops and markets moderately priced and upper moderately
priced casual and dress women's and children's footwear under its brand names.
In addition, Maxwell designs and develops private label footwear for selected
retailers under the retailers' own brand names. Maxwell also sells footwear
close-outs that it purchases at volume discounts from other manufacturers.
Maxwell sells its footwear primarily to department stores and specialty stores
in the United States as well as through national catalog retailers and cable
television consumer shopping channels. Maxwell's products are manufactured to
its specifications by independent contractors located in the People's Republic
of China, Brazil and Italy.
Maxwell's principal executive offices are located at 101 Sprague Street,
P.O. Box 37, Hyde Park, Massachusetts 02137, and its telephone number at that
location is (617) 364-5090.
SUMMARY OF TERMS OF PROPOSED AGREEMENT
The following summary of certain information contained in this Proxy
Statement does not purport to be complete and is qualified in its entirety by
the more detailed information contained elsewhere herein, and, in the case of
the description of the Trademark and Intellectual Property Rights Sale and
Purchase Agreement between the Company and Maxwell, a copy of which is attached
hereto as Exhibit A (the "Agreement"), by reference to Exhibit A hereto.
ASSETS TO BE SOLD
The Company proposes to sell to Maxwell: (i) all right, title, benefit and
interest in and to the Trademarks, together with the goodwill symbolized by and
associated with the Trademarks; and (ii) all advertising, in-store
point-of-purchase and promotional materials and displays ("Advertising
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Material") located in all retail customer locations and the Company's retail
locations. In addition, at the closing Maxwell may, at its option, purchase any
Advertising Material located in the Company's warehouse in Harrisburg,
Pennsylvania, on which any of the Trademarks appear, for a purchase price
equivalent to 50% of the Company's cost of such items.
The closing (the "Closing") of the transactions contemplated under the
Agreement is presently scheduled to be held no later than two business days
after the 1996 Annual Meeting of Shareholders.
CONSIDERATION FROM MAXWELL
In exchange for these assets, pursuant to the terms of the Agreement,
Maxwell will pay $5,500,000 (the "Purchase Price") to the Company as follows. On
July 2, 1996 Maxwell delivered $200,000 of the Purchase Price (the "Initial
Payment") to Bank of Boston, as escrow agent, to be held in escrow until the
Closing, whereupon the Initial Payment will be delivered to the Company. At the
Closing, Maxwell will pay an additional $5,100,000 of the Purchase Price (the
"Closing Payment") to the Company. Maxwell will pay the Company the remaining
$200,000 of the Purchase Price (the "Balance Payment") on April 30, 1997, if all
of the obligations of the Company, Samuel L. Edelman (Chairman of the Board,
President and Chief Executive Officer of the Company), Louise B. Edelman
(Director and Vice President of Corporate Development of the Company) and Stuart
L. Kreisler (Vice Chairman of the Board of the Company) (Mr. Edelman, Ms.
Edelman and Mr. Kreisler are herein referred to collectively as the
"Executives") pursuant to the Agreement have been satisfied.
ADDITIONAL COVENANTS OF THE AGREEMENT
In exchange for the payment by the Company of a license fee of $1.00,
Maxwell has agreed to license (the "License") certain of the Trademarks to the
Company in order for the Company to be able to sell the Inventory and fill the
remaining Customer Orders. The License shall be effective upon the Closing and
terminate on April 30, 1997.
Other than the sale of the Inventory and the filling of the Customer Orders,
the Company has agreed that after the Closing the Company will not import,
manufacture domestically, market, sell or distribute any goods or other products
which bear any of the Trademarks. In addition, pursuant to the Agreement, the
Company is required to change its name as well as the names of each of its
subsidiaries, such that they no longer resemble their current names or contain
in any way any of the Trademarks. Accordingly, simultaneously with the Closing,
the Company intends to amend its Articles of Incorporation in order to change
its name to "Utopia Marketing, Inc." A copy of the proposed Certificate of
Amendment of the Company's Articles of Incorporation is attached hereto as
Exhibit B.
Maxwell has agreed that, at the Closing, Maxwell will reimburse the Company
the amount of $11,500, which is the amount paid by the Company as a deposit for
reservation of show space at the Western Shoe Association show to be held in Las
Vegas, Nevada, in August 1996. Maxwell has also agreed that, at the Closing,
Maxwell will reimburse the Company an amount up to $17,000, for the Company's
Spring 1997 prototype samples expenses which have been invoiced and paid by the
Company. In addition, Maxwell has agreed that, at the Closing, Maxwell will
reimburse the Company $35,000, for sales commissions which the Company has paid
to its independent sales representatives during the month of June 1996.
The Company, Mr. Edelman and Ms. Edelman (Mr. Edelman and Ms. Edelman are
referred to collectively as the "Edelmans") have also agreed with Maxwell that,
at the Closing, each of the Edelmans will enter into a Non-Competition Agreement
(the Non-Competition Agreement") with Maxwell. Pursuant to the Non-Competition
Agreement, except as necessary to sell the Inventory and fill the Customer
Orders, the Edelmans (i) will be prohibited from participating in any branded
footwear business that is competitive with Maxwell's business for the period
beginning as of the Closing and ending on December 31, 1996, and (ii) will be
prohibited from using or displaying the names "Sam Edelman" or "Libby Edelman",
or any names similar to such names, in or on any footwear or apparel product for
the period of three years after July 25, 1996.
5
<PAGE>
REASONS FOR TRANSACTION; BOARD RECOMMENDATION
The Board of Directors believes that the sale of the Trademarks pursuant to
the Agreement and the cessation of the Company's branded footwear and apparel
businesses are in the best interests of the shareholders. The Board believes
that, given the present circumstances, these actions will generate to the
shareholders of the Company the maximum return on their investment through a
combination of repayment of existing indebtedness, termination of loss
generating operations, and either the commencement of a new men's, women's or
children's footwear and/or apparel business or distribution to shareholders of
the net proceeds from the transaction with Maxwell. The Company has experienced
significant financial difficulties over the past three years, and the Board of
Directors believes that these actions are necessary in order to avoid the
possibility of a liquidation or bankruptcy. The Company has spent a considerable
amount of time seeking alternative transactions. Several potential strategic
investors in, or acquirors of, the Company's business or assets were contacted
by the Company, and by Berenson Minella & Company ("Berenson Minella") during
the course of its first engagement by the Company (as described below under the
caption "-- Opinion of Investment Banker"). However, these efforts did not
generate any interest in any potential transactions, and the few companies that
did show an interest proposed transactions that the Board of Directors believes
were less credible from a financial standpoint than the proposed transaction
with Maxwell. The Board also believes that the Company's branded footwear
business is no longer viable as a stand-alone operation. See "-- Description of
Terms of Proposed Transaction -- Background and Reasons for the Proposed
Transaction".
Based on the foregoing, the Board of Directors believes that the proposed
transaction with Maxwell is the best opportunity available to the Company.
Approval of the transaction with Maxwell, which will also constitute
approval of an amendment to the Company's Articles of Incorporation in order to
change the Company's name to "Utopia Marketing, Inc." at the Closing, will
require the affirmative vote of a majority of the outstanding shares of Common
Stock of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
TRANSACTION WITH MAXWELL PURSUANT TO THE AGREEMENT, AND RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY VOTE FOR APPROVAL OF THIS TRANSACTION.
Pursuant to the Agreement, each of the Executives have agreed to vote the
Common Stock of the Company held by them or by entities controlled by them,
representing an aggregate of 6,260,822 shares, or 45.6%, of the Company's Common
Stock, in favor of the transaction with Maxwell. In addition, pursuant to the
Agreement, the Company must request that, to the extent that votes are necessary
in order to assure that the shareholders approve the transaction with Maxwell,
Braha Industries Inc. ("Braha") and Lane International Trading, Inc. ("Lane")
agree to vote the Common Stock of the Company held by them in favor of the
transaction with Maxwell. Braha owns 1,369,260 shares, or 9.9%, of the Company's
Common Stock, and Lane owns 1,369,261 shares, or 9.9%, of the Company's Common
Stock. To date, the Company has asked Lane, and Lane has agreed, to vote in
favor of the transaction. See "INFORMATION CONCERNING SOLICITATION AND VOTING --
Record Date and Share Ownership by Principal Shareholders and Management".
OPINION OF INVESTMENT BANKER
The Company engaged Berenson Minella in November 1994 to advise and assist
the Company with respect to its consideration and implementation of certain
financial and strategic alternatives, including any business combination, merger
or sale of stock or assets and the obtaining of additional financing. Berenson
Minella was selected by the Company's management based upon, among other things,
Berenson Minella's experience and reputation. Berenson Minella is a nationally
recognized investment banking firm whose principals have substantial experience
in corporate finance, restructuring, mergers and acquisition and divestiture
transactions. Pursuant to its engagement, Berenson Minella, at the request of
the Company, participated in discussions with several potential strategic
investors in, or acquirors of, the Company's business or assets, as described
above under "-- Reasons
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for Transaction; Board Recommendation". Berenson Minella's activities under such
engagement ceased in early 1995. In May 1996, the Company engaged Berenson
Minella to render an opinion to the Company's Board of Directors as to the
fairness of the transaction with Maxwell, from a financial point of view, to the
Company's shareholders.
A copy of Berenson Minella's written opinion, dated the date of this Proxy
Statement, is attached hereto as Exhibit C. SHAREHOLDERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY FOR A DISCUSSION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND SCOPE OF THE REVIEW UNDERTAKEN IN RENDERING SUCH OPINION. The
summary of the opinion set forth below is qualified in its entirety by reference
to the full text of such opinion in Exhibit C.
In arriving at its opinion, Berenson Minella, among other things: (i)
reviewed the Agreement and the Proxy Statement; (ii) reviewed certain
publicly-available business and financial information relating to the Company,
(iii) reviewed monthly financial forecasts for the Company for the year ending
December 1996 prepared by the Company's management and dated as of May 5, 1996
(the "Forecasts"); (iv) discussed with management of the Company the business of
the Company, its prospects, issues relating to its senior management, its
relationships with vendors and customers, orders and backlog and other factors
relating to its business; (v) discussed with senior management of the Company
its efforts to obtain financing to support the Company's existing business, and
to solicit extraordinary transactions involving the Company's assets or
operations, prior to entering into the Agreement, (vi) discussed with senior
management of the Company its views that the Company's branded footwear business
is no longer viable as a stand-alone operation, as well as its views as to the
Company's present alternatives to the transaction with Maxwell (and the
possibility of a liquidation or bankruptcy of the Company should the transaction
not be consummated), including its views as to the values the Company might
expect to receive upon voluntary or involuntary liquidation of the Company;
(vii) discussed with management the terms of the restructuring negotiated with
certain creditors of the Company regarding an exchange of certain payables for
equity securities of the Company, (viii) reviewed historical stock prices and
trading volumes of the Company; and (ix) reviewed such other information and
taken into account such other factors as Berenson Minella deemed relevant.
For purposes of rendering its opinion, Berenson Minella assumed and relied
upon the accuracy and completeness of the foregoing information and did not
assume any responsibility for independent verification of such information or
for any independent valuation or appraisal of any of the assets or liabilities
of the Company, including without limitation the Trademarks, nor was Berenson
Minella furnished with any such valuations or appraisals. Berenson Minella
relied, with the Company's consent, solely on the management of the Company for
estimates of realizable values for certain assets of the Company and the
treatment of certain of its liabilities upon a voluntary or involuntary
liquidation of the Company. With respect to the Forecasts, Berenson Minella
assumed that they were reasonably prepared on bases reflecting the best
estimates and good faith judgment of the Company's management as of their date
and that management has informed Berenson Minella of all circumstances occurring
since such date that could make the Forecasts incomplete or misleading. Berenson
Minella has also assumed, with the Company's consent, that, as of the date of
its opinion, the Company has no viable strategic or financing alternatives to
the transaction with Maxwell, and that it is probable that the Company will be
unable to continue as a going concern in the absence of the consummation of the
transaction with Maxwell. Since early 1995, Berenson Minella has not been
requested to, and did not, solicit (or participate in discussions regarding)
proposals (i) from any other parties with respect to the sale of all or any part
of the Company or its assets or any alternative transaction or business strategy
or (ii) from potential financing sources, nor did Berenson Minella participate
in negotiations with respect to the terms of the transaction or the
restructuring negotiated by the Company with certain of its creditors. Berenson
Minella's opinion is necessarily based on economic, market and other conditions,
and information made available to it as of the date hereof.
The opinion was provided at the request and for the information of the Board
of Directors of the Company in connection with the transaction with Maxwell, and
shall not be reproduced, summarized, described or referred to, or furnished to
any other person, without Berenson Minella's prior written
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consent, provided, however, that the opinion may be reproduced in full in this
Proxy Statement. The opinion does not constitute a recommendation to any
shareholder of the Company as to how any such shareholder should vote with
respect to the transaction with Maxwell.
The Company has agreed to pay or cause to be paid to Berenson Minella a fee
of $125,000 for its services, of which $62,500 became payable upon signing of
the engagement letter and the remainder upon delivery of the opinion. The
Company has also agreed to reimburse Berenson Minella for its reasonable
out-of-pocket expenses (including the reasonable fees and expenses of its
counsel) and to indemnify Berenson Minella and certain related persons against
certain liabilities and expenses in connection with its services, including
liabilities under the federal securities laws.
CONDITIONS TO CLOSING
The proposed transaction with Maxwell is subject to a number of conditions
including: (i) no litigation, investigation or other proceeding pending or
threatened which presents substantial risk of the restraint or prohibition of
the transaction or obtaining of material damages in connection therewith; (ii)
obtaining all permits, approvals and consents of all governmental bodies or
agencies which are deemed necessary or appropriate by counsel to the parties in
order for the consummation of the transaction to be in compliance with
applicable laws; (iii) written consent of the Bank of New York ("BNY"); (iv)
removal of all liens filed or recorded against the Company; (v) approval of the
transaction by shareholders of the Company; (vi) completion of all required
documents by each of the Company and its subsidiaries necessary to change their
names effective as of the Closing such that they no longer resemble the
Trademarks; (vii) receipt of agreements not to compete from each of the
Edelmans; (viii) receipt of legal opinions from the Company's trademark counsel
and corporate counsels; and (ix) receipt of agreements by Braha and Lane, to the
extent necessary in order to assure that the transaction will be approved at the
shareholders' meeting contemplated by this Proxy Statement, to vote the shares
of Common Stock of the Company held by them in favor of the transaction. Either
party may waive conditions provided for its benefit.
VOTE REQUIRED FOR APPROVAL
Section 1001 of the California Corporations Code requires approval of a
majority of the outstanding shares of a corporation in order for the corporation
to sell or transfer all or substantially all of its assets if the transaction is
not in the ordinary course of business. While the Company intends to sell all of
the Trademarks and certain Advertising Material to Maxwell, it does not believe
that such assets constitute "substantially all" of the assets of the Company. As
discussed above, the Company intends to continue to operate its branded footwear
business to the extent necessary to dispose of the Inventory, and thereafter the
Company intends to embark on a new line of business in the men's, women's and/or
children's footwear and/or apparel industries. However, there is no precise
definition of "substantially all" and it is possible that a court could hold
that the proposed transaction with Maxwell does constitute a sale of
substantially all of the assets of the Company. For this reason, and because the
Board of Directors believes that the shareholders should be given the
opportunity to consider the proposed transaction and formally indicate their
approval or disapproval thereof, the Board of Directors has determined to submit
the transaction to the shareholders for a vote.
In the event that a majority of the shares of the Company's Common Stock
outstanding on the Record Date are voted in favor of the transaction, the Board
of Directors currently intends to proceed with the closing of the transaction.
However, it should be noted that Section 1001 permits the Board of Directors to
abandon the sale even after shareholder approval has been obtained. Any such
abandonment would be subject to potential remedies of Maxwell against the
Company for breach of contract or other potential courses of action.
If the shareholders fail to approve the proposed transaction and the Board
of Directors determines, in consultation with counsel, that shareholder approval
is not required in order to proceed, it is possible that the Board will decide
to consummate the transaction without shareholder approval. However, in order to
do so, the condition to closing under the Agreement relating to shareholder
approval would have to be waived by the parties.
8
<PAGE>
See "SALE OF CERTAIN ASSETS TO MAXWELL SHOE COMPANY INC. -- Summary of Terms
of Proposed Agreement -- Reasons for the Transaction; Board Recommendation" and
"-- Description of Terms of Proposed Transaction -- Background and Reasons for
the Proposed Transaction" for information regarding an agreement of certain
shareholders, holding an aggregate of 7,630,083 shares, or 55.5% of the
Company's Common Stock, regarding their agreement to vote in favor of the
Agreement.
NO DISSENTERS RIGHTS
There will be no dissenters' rights of appraisal with respect to the
transaction with Maxwell.
DESCRIPTION OF TERMS OF PROPOSED TRANSACTION
BACKGROUND AND REASONS FOR THE PROPOSED TRANSACTION
The Company has experienced significant financial difficulties over the past
three years, primarily due to the difficulties inherent in operating a
stand-alone branded footwear business, a difficult retail environment in general
and a particularly difficult retail market for women's and children's footwear.
The Board of Directors does not believe that the Company could survive for any
substantial period of time as a stand-alone entity and further believes that
continuation of the Company's business in its present form would result in
significant continuing losses that would deplete the assets of the Company and
perhaps necessitate the complete liquidation of the Company at a reduced value,
and perhaps even a liquidating bankruptcy.
Since the fall of 1994, the Company, independently and, in certain
instances, with the assistance of Berenson Minella solely during the term of its
first engagement by the Company (as described above under the caption "--
Summary of Terms of Proposed Agreement -- Opinion of Investment Banker"), has
been actively exploring all possible alternatives, including obtaining strategic
investments, the acquisition of the Company as an ongoing business by a third
party, sales of various assets, and liquidation. A list of potential strategic
investors and companies, based on their participation in or relationship to the
branded footwear or apparel businesses, might be interested in a transaction
with the Company was compiled and each such strategic investor and company was
contacted in order to determine if there was any interest in a possible
transaction. After various stages of inquiry, substantially all of the companies
on the list determined that they were not interested in a transaction with the
Company. The few companies that did show an interest proposed transactions that
were substantially less favorable to the Company than the transaction with
Maxwell. In addition, individual Board members sought out through personal
contacts other potential interested individuals who presented several proposals,
none of which were as favorable as Maxwell's proposal. Based on this extensive
review, combined with the knowledge of the Board of Directors of this industry,
the Board of Directors believes that the transaction with Maxwell and related
actions proposed by the Company represent the best opportunity available to the
Company and its shareholders.
In October 1994, discussions concerning a possible sale of certain assets of
the Company commenced between representatives of the Company and Maxwell. A
non-disclosure agreement was executed by Maxwell at that time, after which the
Company provided information to Maxwell for purposes of evaluating a possible
transaction with the Company. Those discussions were terminated after several
weeks because the parties were unable to reach agreement as to a transaction. In
April 1996, discussions between representatives of the Company and Maxwell began
again. Since that date, numerous meetings and telephone conversations have taken
place at which the proposed terms of a transaction were negotiated. On June 1,
1996, the parties entered into a Letter of Intent, and then on June 4, 1996, the
Company publicly disclosed the anticipated terms of the proposed transaction in
a press release. Then on July 2, 1996, the Company and Maxwell executed the
Agreement.
During this process, the Board of Directors of the Company met numerous
times to consider alternatives and to direct management to pursue those
potential transactions that it believed showed the greatest promise for the
maximum return to the shareholders.
9
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
TRANSACTION WITH MAXWELL PURSUANT TO THE AGREEMENT, AND RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY VOTE FOR APPROVAL OF THIS TRANSACTION.
Pursuant to the Agreement, each of the Executives have agreed to vote the
Common Stock of the Company held by them or by entities controlled by them,
representing an aggregate of 6,260,822 shares, or 45.6%, of the Company's Common
Stock, in favor of the transaction with Maxwell. In addition, pursuant to the
Agreement, the Company must request that, to the extent that votes are necessary
in order to assure that the shareholders approve the transaction with Maxwell,
Braha and Lane agree to vote the Common Stock of the Company held by them in
favor of the transaction with Maxwell. Braha owns 1,369,260 shares, or 9.9%, of
the Company's Common Stock, and Lane owns 1,369,261 shares, or 9.9%, of the
Company's Common Stock. To date, the Company has asked Lane, and Lane has
agreed, to vote in favor of the transaction. See "INFORMATION CONCERNING
SOLICITATION AND VOTING -- Record Date and Share Ownership by Principal
Shareholders and Management".
SUMMARY OF THE AGREEMENT
The following is a description of certain terms of the Agreement and does
not purport to be complete. Certain other provisions of the Agreement are
summarized elsewhere herein. The summaries of the Agreement set forth hereunder
and elsewhere herein are qualified in their entirety by reference to the full
text of the Agreement, a copy of which is attached hereto as Exhibit A.
Parenthetical section numbers hereunder refer to specific sections of the
Agreement.
Under the terms of the Agreement, the Company will sell to Maxwell the
Trademarks and the Advertising Material located in all retail customer locations
and the Company's retail locations. (SectionSection 1 and 9.5) The Purchase
Price to be paid by Maxwell in exchange for these assets is $5,500,000. (Section
2) Maxwell also has the option, at the Closing, to purchase any additional
Advertising Material located in the Company's warehouse in Harrisburg,
Pennsylvania for a purchase price equivalent to 50% of the Company's cost of
such items. (Section 9.5)
The Agreement provides that Maxwell will, on or before July 8, 1996, deliver
the Initial Payment to a third person mutually acceptable to the Company and
Maxwell to hold in escrow until the Closing. In the event that Maxwell does not
deliver the Initial Payment into an escrow account on or before July 8, 1996,
then Maxwell must deliver the Initial Payment to the Company on or before July
10, 1996. At the Closing, Maxwell must deliver the Closing Payment to the
Company. Maxwell must then pay the Balance Payment to the Company on April 30,
1997 only if all of the Company's and the Executives' material obligations under
the Agreement have been satisfied in full. (Section 2)
The Agreement expressly states that Maxwell will not assume any liabilities
or obligations of the Company, or any related or affiliated party, whether
express, implied, fixed, accrued, contingent, liquidated, known or unknown.
(Section 3)
Pursuant to the Agreement, the Closing must be held no later than two
business days after the shareholder meeting contemplated by this Proxy
Statement, but in no event later than September 4, 1996, if all of the
conditions to closing have been fulfilled or waived. (Section 4) The Company
must hold the shareholder meeting contemplated by this Proxy Statement no later
than August 30, 1996. (Section 10.1) Each of the Executives has agreed that, at
the shareholder meeting contemplated by this Proxy Statement, they will vote all
of the shares of Common Stock of the Company held by them in favor of the
transaction with Maxwell. (Section 10.5) The Executives have also agreed not to
transfer any of their shares of Common Stock prior to the Closing, unless any
transferee agrees in writing to vote in favor of the transaction with Maxwell.
(Section 10.7) The Agreement also provides that the Company will obtain the
consent of Braha and Lane, to the extent necessary in order to obtain the vote
of the majority of the shares of Common Stock, to vote in favor of the
transaction with Maxwell. (Section 10.9)
10
<PAGE>
As part of the Agreement, the Company made a series of representations and
warranties to Maxwell regarding, among other matters, its organization, its
authorization to enter into the Agreement and to consummate the transactions
contemplated by the Agreement, title to the Trademarks, the status of the
Company's material contracts and other agreements, third party consents, the
description of the Trademarks, the validity and enforceability of the
Trademarks, and accuracy of disclosure. (Section 6)
As part of the Agreement, the Executives made a series of representations
and warranties to Maxwell regarding, among other matters, the right of each of
them to vote the shares of Common Stock of the Company held by them in favor of
the transaction with Maxwell, title to such shares and voting agreements and
arrangements. (Section 7)
As part of the Agreement, Maxwell made a series of representations and
warranties to the Company regarding, among other matters, its organization and
its authorization to enter into the Agreement and to consummate the transactions
contemplated by the Agreement. (Section 8)
The Agreement provides that, in order for the Company to sell the Inventory
and fill the Customer Orders, Maxwell will license certain of the Trademarks to
the Company in exchange for a license fee of $1.00. This license only applies to
the Inventory and the Customer Orders and terminates on April 30, 1997, at which
time the Company must remove the Trademarks from any remaining Inventory. The
Company must ensure that the quality of any products manufactured in order to
fill the Customer Orders must be of the same or better quality of similar
products manufactured by the Company prior to entering into the Agreement.
(Section 9.1(a))
Other than the sale of the Inventory and filling the Customer Orders, the
Company has agreed that, (i) commencing on the Closing, the Company will not
import or manufacture domestically, or market, sell or distribute any goods or
other products which bear, mention or note any of the Trademarks (Section 9.2);
and (ii) within one week of the Closing, the Company will remove any of the
Trademarks which appear on any of the Company's showrooms or retail stores, and
business cards, letterhead and other documents. (Section 9.11) Maxwell and the
Company also agreed that, beginning on July 25, 1996, neither of them will make
any use of either of the names "Sam Edelman" or "Libby Edelman", and the
Edelmans have agreed not to use such names on any footwear or apparel product
for a period of three years beginning July 25, 1996. (Section 9.10) In addition,
at the Closing, the Company and each of its subsidiaries must deliver to Maxwell
all of the documents necessary to change their names effective as of the Closing
such that they no longer resemble the Trademarks. (Section 11.2(f))
Pursuant to the Agreement, at the Closing Maxwell will reimburse the Company
the amount of $11,500, which is the amount paid by the Company as a deposit for
reservation of show space (the "Show Space") at the Western Shoe Association
show (the "Show") to be held in Las Vegas, Nevada, in August 1996. In the event
that Maxwell is unable to rent the Show Space then the Company will act as
Maxwell's agent for purposes of helping Maxwell obtain space at the Show.
(Section 9.3)
At the Closing, Maxwell must also reimburse the Company up to $17,000 for
the Company's Spring 1997 prototype samples expenses which have been invoiced
and paid by the Company. (Section 9.4) In addition, at the Closing, Maxwell must
reimburse the Company $35,000 for sales commissions which the Company has paid
to its independent sales representatives during the month of June 1996. (Section
9.13)
It is a condition to the obligations of the Company and Maxwell to
consummate the transactions contemplated by the Agreement that (i) there is no
litigation, investigation or other proceeding pending or threatened which
presents substantial risk of the restraint or prohibition of the transaction,
and (ii) there shall have been obtained all permits, approvals and consents of
all governmental bodies or agencies which are deemed necessary or appropriate by
counsel to the parties in order for the consummation of the transaction to be in
compliance with applicable laws. (Section 11.1)
It is a condition to Maxwell's obligation to consummate the transactions
contemplated by the Agreement that (i) BNY shall have consented to the
transaction; (ii) all liens filed or recorded against
11
<PAGE>
the Company or the Trademarks shall have been terminated; (iii) the Board of
Directors and shareholders of the Company shall have approved the transaction;
(iv) each of the Company and its subsidiaries shall have delivered to Maxwell
all required documents necessary to change their names effective as of the
Closing such that they no longer resemble the Trademarks; (v) each of the
Edelmans shall have executed the Non-Competition Agreement; (vi) each of the
Company's trademark and corporate counsels shall have delivered their required
legal opinions; and (vii) the representations and warranties of the Company and
the Executives referenced above are true and correct in all material respects at
the Closing; and (viii) Maxwell received, no later than July 9, 1996, the
agreements by Braha and Lane, to the extent necessary in order to assure that
the transaction will be approved at the shareholder meeting contemplated by this
Proxy Statement, to vote the shares of Common Stock of the Company held by them
in favor of the transaction. (Section 11.2)
It is a condition to the Company's obligation to consummate the transactions
contemplated by the Agreement that Maxwell's representations and warranties
referenced above are true and correct in all material respects at the Closing.
(Section 11.3)
The Company has agreed, for a period of two years from the date of the
Agreement, to indemnify and hold harmless Maxwell for any claims, damages,
declines in value, costs and expenses incurred by Maxwell as a result of (i) any
breach of any representation or warranty made by the Company which relates to
the Trademarks, (ii) any misrepresentation contained in any written statement
furnished by the Company, or (iii) any breach of any covenant, agreement or
obligation of the Company contained in the Agreement which relates to the
Trademarks. (Section 12.1(a)) The Company has also agreed, for a period of two
years from the date of the Agreement, to indemnify and hold harmless Maxwell for
any costs and expenses actually expended by Maxwell in connection with any
claims, losses, damages, liabilities, penalties or interest, as a result of (i)
any breach of any representation or warranty made by the Company, (ii) any
misrepresentation contained in any written statement furnished by the Company,
or (iii) any breach of any covenant, agreement or obligation of the Company
contained in the Agreement. (Section 12.1(b)) Each of the Executives has also
agreed, for a period of two years from the date of the Agreement, to indemnify
and hold harmless Maxwell for any costs and expenses actually expended by
Maxwell in connection with any claims, losses, damages, liabilities, penalties
or interest, as a result of (i) any breach of any representation or warranty
made by the Executives, or (iii) any breach of certain covenants or obligations
of the Executives contained in the Agreement. (Section 12.2) In addition,
Maxwell has agreed, for a period of two years from the date of the Agreement, to
indemnify and hold harmless the Company for any costs and expenses actually
expended by the Company in connection with any claims, losses, damages,
liabilities, penalties or interest, as a result of (i) any breach of any
representation or warranty made by Maxwell, (ii) any misrepresentation contained
in any written statement furnished by Maxwell, or (iii) any breach of any
covenant, agreement or obligation of Maxwell contained in the Agreement.
(Section 12.3) The obligations of the Company, the Executives and Maxwell
pursuant to the indemnification provisions are limited, in the aggregate, to
$5,500,000. (Section 12.4)
The Non-Competition Agreement, to be executed by each of the Edelmans as a
condition to the Closing, provides that, except as is necessary to sell the
Inventory and fill the Customer Orders, the Edelmans will not, directly or
indirectly, actively participate in any branded footwear business that is
competitive with Maxwell's business (including any business of the type
conducted by the Company during the two years prior to the Closing or under
development by the Company on the Closing) for a period of time commencing on
the Closing and terminating on December 31, 1996. (Section 1.1(a) of the
Non-Competition Agreement)
STRUCTURE OF TRANSACTION AND FINANCIAL TERMS
The proposed transaction between the Company and Maxwell is intended to be a
sale of certain assets for cash at the Closing. The consideration to be received
from Maxwell by the Company is described in "-- Summary of Terms of Proposed
Agreement -- Consideration from Maxwell" and
"-- Description of Terms of Proposed Transaction -- Summary of Agreement".
12
<PAGE>
It is currently anticipated that the proceeds of the transaction with
Maxwell will be used to repay the Company's outstanding obligation to BNY, which
as of July 12, 1996 was approximately $5,986,000. The Company intends to pay its
remaining liabilities with the proceeds from the collection of its existing
receivables (which as of July 12, 1996, were approximately $6,500,000), as well
as from the sale of the Inventory and filled Customer Orders. The Company also
intends, to the extent that it is possible, to renegotiate its Credit Facility
(as defined below under the caption "-- Interests of Certain Persons in the
Transaction") with BNY in order to obtain liquidity sufficient to enable the
Company to promptly pay its vendors and trade creditors. Subject to the
provisions of the Non-Competition Agreement, the remaining proceeds, if any,
will be used by the Company to either acquire or commence a new men's, women's
or children's footwear or apparel business.
CONDITIONS; RIGHT TO TERMINATE
It is a condition to the obligation of Maxwell to consummate the transaction
that the representations and warranties described above under the caption "--
Description of Terms of Proposed Transaction -- Summary of the Agreement" are
true and correct in all material respects at the Closing. Any breaches of the
representations and warranties included in the Agreement are waivable, in whole
or in part, by the party entitled to the benefits thereof, to the extent
permitted under applicable law. Certain representations, warranties, agreements,
covenants and obligations undertaken by the Company and Maxwell in the Agreement
will survive the Closing.
Other conditions to Maxwell's obligations to consummate the transaction
include receipt of all necessary or appropriate permits, approvals and consents
of all governmental bodies or agencies; performance by the Company and the
Executives of all their respective obligations under the Agreement; no
litigation challenging the transaction or adversely affecting the Trademarks;
receipt of the consent of BNY to the Agreement; termination of any liens or
security interests in the Trademarks or any other assets of the Company;
approval of the transaction by the Board of Directors and shareholders of the
Company; receipt of appropriate documents necessary to change the name of the
Company and each of its subsidiaries such that they no longer resemble the
Trademarks; receipt of agreements not to compete from each of the Edelmans;
receipt of legal opinions from the Company's trademark counsel and corporate
counsels; and receipt on or before July 9, 1996 of agreements by Braha and Lane,
to the extent necessary in order to assure that the transaction will be approved
at the shareholder meeting contemplated by this Proxy Statement, to vote the
shares of Common Stock of the Company held by them in favor of the transaction.
Either party may waive conditions provided for its benefit.
The Agreement may be terminated prior to the Closing (i) by mutual consent
of the Boards of Directors of the Company and Maxwell; (ii) by Maxwell if any of
the closing conditions described above shall not have been met on or prior to
two business days following the shareholder meeting contemplated by this Proxy
Statement, but in any event no later than September 4, 1996; and (iii) by the
Company if any of the conditions to its obligations shall not have been met on
or prior to two business days following the shareholder meeting contemplated by
this Proxy Statement, but in any event no later than September 4, 1996.
OPERATIONS OF THE COMPANY FOLLOWING THE TRANSACTION
At the Closing, the Company will transfer the Trademarks to Maxwell.
Thereafter, the Company will change its name, as well as the names of each of
its subsidiaries, such that they no longer resemble their current names or
contain in any way any of the Trademarks. Maxwell will then grant a license,
which will then terminate on April 30, 1997, to the Company so that the Company
may sell the Inventory and fill the Customer Orders. Other than the sale of the
Inventory and the filling of the Customer Orders, the Company has agreed that
after the Closing the Company will not import, manufacture domestically, market,
sell or distribute any goods or other products which bear any of the Trademarks.
13
<PAGE>
After the Closing, the Company will evaluate potential acquisitions of
businesses and/or products in the men's, women's and children's footwear and
apparel industries. In the event that the Company is unable to identify an
appropriate acquisition or a new line of business to embark upon, then the
Company intends to liquidate.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
No officer or director of the Company serves as an officer or director of
Maxwell or owns any capital stock of Maxwell. However, certain members of the
management of the Company may be deemed to have an interest in the Agreement to
the extent that they own shares of the Common Stock of the Company and will
therefore receive a pro rata share of any distribution that may be made to
shareholders out of the proceeds of the sale of the Trademarks.
In addition, in March 1994 the Company entered into a factoring and
financing arrangement (the "Credit Facility") with BNY, pursuant to which BNY
provides factoring services, advances and letters of credit to support the
Company's operations. On April 26, 1996, BNY notified the Company that it was in
default under the Credit Facility, and the Company is now operating under a
discretionary overadvance facility provided by BNY. As of July 12, 1996, the
Company had outstanding obligations of approximately $5,986,000 to BNY, secured
by accounts receivable of approximately $6,500,000. Pursuant to a Guaranty dated
effective as of March 7, 1994 between Samuel L. Edelman (Chairman of the Board,
President and Chief Executive Officer of the Company) and BNY, Mr. Edelman
personally guaranteed all obligations of the Company to BNY, up to a maximum
amount of $600,000. The Company intends to use a portion of the proceeds from
the sale of the Trademarks to Maxwell to repay its obligations to BNY.
Therefore, Mr. Edelman may be deemed to have an interest in the Agreement.
Pursuant to an Employment Agreement between Kenneth H. Sitomer (Chief
Operating Officer and Chief Financial Officer of the Company) and the Company,
upon the occurrence of certain events, including the sale of all or
substantially all of the Company's assets, Mr. Sitomer will be entitled to (i)
receive bi-weekly payments of his salary at $300,000 per annum through April 30,
1997, subject to 50% mitigation, (ii) the immediate 100% vesting and
exercisability of the New Option (defined below) that have not previously vested
and become exercisable and (iii) the immediate vesting of the 100,000 Restricted
Shares (defined below) and the removal of all restrictions pertaining thereto.
In addition, if Mr. Sitomer would have been entitled to a cash bonus for the
fiscal year in which such transaction occurs, had his employment continued
through the end of such fiscal year, then Mr. Sitomer will receive a bonus for
such fiscal year equal to the amount due for the fiscal year multiplied by a
fraction, the numerator of which is the number of days from the beginning of
that fiscal year to the date on which the transaction occurred, and the
denominator of which is 365. In addition, Mr. Sitomer will receive that portion
of any bonus, if any, attributable to any completed fiscal year which has
accrued but has not yet been paid. To date, no bonuses have been paid to Mr.
Sitomer under his employment agreement. The proposed sale of the Trademarks may
be deemed to constitute the sale of all or substantially all of the Company's
assets. See "EXECUTIVE COMPENSATION -- Employment Contracts and
Change-in-Control Arrangements".
MATERIAL CONTRACTS BETWEEN THE COMPANY AND MAXWELL
Other than the negotiations and agreements relating to the sale of the
Trademarks to Maxwell pursuant to the Agreement, there are no material
contracts, arrangements, understandings, relationships, negotiations or
transactions between the Company and Maxwell.
FINANCIAL INFORMATION REGARDING THE COMPANY
Financial information regarding the Company is hereby incorporated by
reference to Item 6, Item 7, Item 8 and Item 14(a)(1) and (2) of the Company's
Annual Report on Form 10-K for the fiscal year ended December 30, 1995.
STOCK PRICE DATA
Information regarding the market price of the Company's Common Stock and
related shareholder matters is hereby incorporated by reference to Item 5 of the
Company's Annual Report on
14
<PAGE>
From 10-K for the fiscal year ended December 30, 1995. On June 3, 1996, the last
trading day prior to public announcement of the transaction with Maxwell, the
high and low sale prices for the Company's Common Stock, as reported by the
Nasdaq National Market, were $1.25 and $0.6875, respectively.
OTHER INFORMATION REGARDING THE COMPANY
Information regarding the Company is hereby incorporated by reference to
Item 1 and Item 2 of the Company's Annual Report on From 10-K for the fiscal
year ended December 30, 1995.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CERTAIN FEDERAL INCOME TAX CONSEQUENCES FOR THE COMPANY
The following summary is a brief description of the anticipated material
federal income tax consequences to the Company of the proposed transaction. For
a discussion of federal income tax considerations for the Company's
shareholders, see "-- Certain Federal Income Tax Consequences for the
Shareholders".
This summary does not address state or local tax considerations and is not
intended to be a complete description of the federal income tax consequences of
the proposed transaction. This summary is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), as presently in effect, the rules and
regulations promulgated thereunder, current administrative interpretations and
court decisions. No assurance can be given that future legislation, regulations,
administrative interpretations or court decisions will not significantly change
such authorities. Any such change may or may not apply retroactively to
transactions consummated before such change occurs.
No rulings have been requested or received from the Internal Revenue Service
as to matters discussed herein and the Company has no intention to seek any such
ruling. Accordingly, no assurance can be given that the Internal Revenue Service
will not challenge the tax treatment of certain matters discussed herein or, if
it does challenge such tax treatment, that it will not be successful.
The Company will recognize taxable gain or loss on the transaction with
Maxwell pursuant to the Agreement. Such gain or loss will generally be measured
by the difference between the purchase price paid by Maxwell for such assets and
the Company's adjusted basis in them.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES FOR THE SHAREHOLDERS
The shareholders of the Company will not recognize any gain or loss when the
Company sells assets to Maxwell pursuant to the Agreement.
ACCOUNTING TREATMENT
The sale of assets by the Company to Maxwell will be accounted for as a sale
of certain assets. The Company will record a gain based upon the excess of (i)
the sales proceeds received over (ii) the cost of the underlying assets disposed
of and the costs associated with the transaction.
REGULATORY REQUIREMENTS
It is a condition to the obligations of the parties to consummate the
transaction that all consents, approvals, orders and authorizations of, and
registrations, declarations and filings with, any governmental entity or any
other person necessary for such consummation shall have been obtained or filed
or have occurred.
The Company and Maxwell are not aware of any governmental approvals or
actions that are required for consummation of the proposed transaction except as
described above.
15
<PAGE>
PROPOSAL TWO
ELECTION OF DIRECTORS
NOMINEES
The number of directors authorized by the Company's Bylaws is a range from
four to seven, with the exact number currently fixed by the Board at five. The
Board intends to fix the number of directors at four immediately prior to to the
shareholder meeting contremplated by this Proxy Statement. Because Director
Howard Platt is not seeking reelection to the Board of Directors, a Board of
four directors is proposed to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for
management's four nominees named below, all of whom are presently directors of
the Company. In the event that any nominee of the Company is unable or declines
to serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will assure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. The term of office of each person elected as a director will continue
until the next Annual Meeting of Shareholders or until his successor has been
elected and qualified.
The Board of Directors recommends that the shareholders vote "FOR" the
nominees listed below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- - ----------------------- --- ---------------------------------------------------------- -----------
<S> <C> <C> <C>
Samuel L. Edelman 44 Chairman of the Board, President and Chief Executive 1987
Officer of the Company
Louise B. Edelman 42 Executive Vice President, Corporate Development 1987
Stuart L. Kreisler 49 Vice Chairman of the Board 1991
I. Jay Goldfarb 62 Managing Partner of Goldfarb, Whitman & Cohen, an 1993
accounting firm
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There is no
family relationship between any director or executive officer of the Company,
except that Mr. Edelman and Ms. Edelman are married to each other.
Samuel L. (Sam) Edelman co-founded the Company with his wife Louise B.
Edelman in October 1987. Since the Company's inception, Mr. Edelman has served
as the Chairman of the Board, President and Chief Executive Officer. From April
1983 to July 1987, Mr. Edelman served as the President of the Esprit Footwear
Division of Esprit De Corp. ("Esprit"), an apparel and footwear company. Prior
to April 1983, Mr. Edelman occupied various executive positions, including
Executive Vice President of Kenneth Cole Productions, a footwear company.
Louise B. (Libby) Edelman, a co-founder of the Company, served as Senior
Vice President, Image from the Company's founding until April 1992. In April
1992, Ms. Edelman was promoted to Executive Vice President, Corporate
Development. Prior to October 1987, Ms. Edelman held various positions,
including National Sales Manager for Esprit Kids Shoes, Director of Public
Relations for Calvin Klein Ltd., a fashion company, and Senior Fashion Editor of
SEVENTEEN, MADEMOISELLE and HARPER'S BAZAAR magazines. Ms. Edelman has served as
a Director of the Company since its founding.
Stuart L. Kreisler has been the Vice Chairman of the Board since May 1991.
Since September 1988, Mr. Kreisler has been a private investor in, consultant to
and a director of the Company. Mr.
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Kreisler was the owner of Ralph Lauren Womenswear, a fashion company, from
October 1973 until its acquisition by Bidermann Industries, Inc. in August 1980,
following which he served as its President and Chief Executive Officer until
August 1988.
I. Jay Goldfarb is the Managing Partner of Goldfarb, Whitman & Cohen, an
accounting firm. Mr. Goldfarb has been a partner of Goldfarb, Whitman & Cohen
since 1978.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held three meetings during the fiscal
year ended December 30, 1995.
The Audit Committee of the Board of Directors currently consists of
directors Goldfarb, Kreisler and Platt and held one meeting during the last
fiscal year. The Audit Committee reviews the Company's annual audit and meets
with the Company's independent accountants to review the Company's internal
controls and financial management practices.
The Compensation Committee of the Board of Directors currently consists of
directors Goldfarb, Kreisler and Platt and held one meeting during the last
fiscal year. The Compensation Committee recommends compensation for the
Company's key employees and administers the 1991 Stock Option Plan and the 1991
Employee Stock Purchase Plan.
There is no nominating committee or any committee performing those
functions.
During the fiscal year ended December 30, 1995, each director attended all
meetings of the Board and the committees upon which such director served, except
former director Phillip White, who only attended one meeting.
COMPENSATION OF DIRECTORS
Each director who is not an employee of or a consultant to the Company (an
"Outside Director") receives $10,000 per year, in addition to $500 for each
meeting of the Board of Directors attended. All directors receive reimbursement
of reasonable out-of-pocket expenses incurred in connection with meetings of the
Board of Directors.
Outside Directors also participate in the Company's 1991 Stock Option Plan.
The 1991 Stock Option Plan was originally approved by the Board of Directors and
shareholders of the Company in September 1991. An amendment to the 1991 Stock
Option Plan to increase the total number of shares reserved for issuance
thereunder from 500,000 to 1,500,000 was approved by the Board of Directors in
February 1993 and by the shareholders in May 1993. The 1991 Stock Option Plan
provides that each Outside Director automatically is granted an option to
purchase 5,000 shares of Common Stock upon first becoming a director and is
granted another option to purchase 5,000 shares of Common stock annually
thereafter so long as he or she remains an Outside Director. The options granted
to Outside Directors are for five year terms and vest at the rate of 25% per
year. The exercise price of options granted to Outside Directors must equal 100%
of the fair market value of the Company's Common Stock on the date of grant.
Outside Directors may not be granted any option pursuant to the 1991 Stock
Option Plan other than those options granted automatically as described herein.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF SAMUEL L. EDELMAN, LOUISE B. EDELMAN, STUART L. KREISLER AND I. JAY
GOLDFARB AS DIRECTORS.
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PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche, LLP independent
certified public accountants, to audit the financial statements of the Company
for the fiscal year ending December 31, 1996. Deloitte & Touche, LLP has audited
the Company's financial statements since the fiscal year ended December 31,
1989. Representatives of Deloitte & Touche, LLP are expected to be present at
the meeting with the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPOINTMENT OF DELOITTE & TOUCHE, LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR THE FISCAL YEAR ENDING DECEMBER 28, 1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the compensation paid to the Company's Chief
Executive Officer and the three other most highly paid executive officers
(determined as of December 30, 1995) (the "Named Executive Officers") for the
fiscal years ended December 30, 1995 (FY1995), December 31, 1994 (FY1994),
January 1, 1994 (FY1993).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
------------------------------------------ RESTRICTED SECURITIES ALL OTHER
NAME AND OTHER ANNUAL STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($) AWARDS ($) OPTIONS (#) ($)(2)
- - ---------------------------------- ----------- ----------- ----------- ---------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Samuel L. Edelman ................ 1995 $ 250,000 -- -- -- -- --
Chairman of the Board, President 1994 250,000 -- -- -- -- --
and Chief Executive Officer 1993 275,828 -- -- -- -- --
Louise B. Edelman ................ 1995 $ 100,000 -- -- -- -- 9,000
Senior Vice President, Corporate 1994 100,000 -- -- -- -- --
Development 1993 112,288 -- -- -- -- $ 8,250
Stuart L. Kreisler ............... 1995 -- -- -- -- -- --
Vice Chairman of the Board 1994 -- -- -- -- -- --
1993 -- -- $ 100,000(3) -- -- --
Kenneth M. Sitomer ............... 1995 $ 316,755 -- -- 91,666 -- $ 18,000
Chief Operating Officer and Chief 1994 313,755 -- -- -- -- --
Financial Officer 1993 203,423 -- -- $ 299,900(4) 500,000 $ 18,000
Michael H. Wasserman (5) ......... 1995 $ 138,654 -- -- -- -- --
Vice President of Finance 1994 103,462 $ 20,000 -- -- -- --
1993 80,000 -- -- -- 50,000 --
</TABLE>
- - ------------------------------
(1) The Company pays bonuses to executive officers based on the officer's base
salary, other compensation and an evaluation of the Company's financial
performance and the individual's performance during the fiscal year.
(2) Includes the allocated amount of personal use of company automobiles,
relocation allowances pursuant to the move of the Company's corporate
offices from San Bruno, California to New York, New York in the 1993 fiscal
year and premium payments paid by the Company for life insurance for the
named executive officer and health insurance for dependents of the named
executive officer.
(3) Represents consulting fees paid to Mr. Kreisler.
(4) Pursuant to the terms of his Employment Agreement, Mr. Sitomer purchased
100,000 shares of Common Stock (the "Restricted Shares") for an aggregate
purchase price of $100 in May 1993. The market value of the Restricted
Shares on the date of grant was $3.00 per share. The restrictions on the
Restricted Shares lapse as follows: 33,333 shares on April 30, 1994, 33,333
shares on April 30, 1995, and 33,334 shares on April 30, 1996.
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(5) Mr. Wasserman resigned as Vice President of Finance in March 1996.
OPTION GRANTS IN FISCAL 1995
There were no stock options granted during the fiscal year ended December
30, 1995, to the Named Executive Officers.
OPTION EXERCISES AND FISCAL YEAR-END HOLDINGS
There were no option exercises in fiscal 1995 by any Named Executive
Officer. The following table sets forth information concerning stock options
held by each of the Named Executive Officers on December 30, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISEABLE,
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS HELD
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Samuel L. Edelman............................... -- -- --
Louise B. Edelman............................... -- -- -- --
Stuart L. Kreisler.............................. -- -- -- --
Kenneth H. Sitomer.............................. 200,000 300,000 150,000 225,000
Michael H. Wasserman............................ 33,333 16,667 -- --
</TABLE>
- - ------------------------
(1) Value of unexercised options is based on the last reported sale price of the
Company's Common Stock on the Nasdaq National Market of $1.00 per share on
December 29, 1995 (the last trading day for the fiscal year ended December
30, 1995) minus the exercise price.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In May 1993, the Company entered into an Employment Agreement (the
"Employment Agreement") with Mr. Sitomer pursuant to which Mr. Sitomer will
serve as the Company's Chief Operating Officer through April 30, 1997. Pursuant
to the Employment Agreement, Mr. Sitomer's base salary is $300,000 per year,
subject to certain cost of living adjustments. Incentive compensation is both
cash-based and equity-based. Upon execution of the Employment Agreement, Mr.
Sitomer purchased 100,000 Restricted Shares for an aggregate purchase price of
$100. The market value of the Restricted Shares on the date of grant was $3.00
per share. The restrictions on such shares have lapsed as to all of the
Restricted Shares. See "Summary Compensation." In addition, under the terms of
the Employment Agreement, Mr. Sitomer was granted a non-statutory stock option
(the "Old Option") to purchase 500,000 shares at an exercise price based on a
formula set forth in the Employment Agreement. The option had a term of ten
years and vested 20% on each of April 30, 1994, April 30, 1995, and April 30,
1996, and 40% on April 30, 1997, as long as Mr. Sitomer remained an employee. On
November 9, 1994, the Board approved an amendment to the Employment Agreement,
including the grant of a new non-statutory stock option (the "New Option") for
500,000 shares at an exercise price of $0.25 per share upon cancellation of the
Old Option. The New Option has the same term as the Old Option and vests 40% on
May 9, 1995, 20% on April 30, 1996 and 40% on April 30, 1997, as long as Mr.
Sitomer remains an employee.
Under the Employment Agreement, Mr. Sitomer may earn a bonus for the 1995,
1996 and 1997 fiscal years based on the performance of the Common Stock and the
Company's operating performance according to the following formulas. For the
1995 fiscal year, if the average of the last sale prices of the Company's Common
Stock (the "Post Announcement Average Stock Price") for the five trading days
commencing on the date that is the seventh calendar day after the date that the
Company first releases to the public its earnings for the fiscal year ending
December 30, 1995, is not at least $2.00 higher than the Post Announcement
Average Stock Price for the 1994 fiscal year (which was $2.925 per share), then
Mr. Sitomer will earn a bonus for fiscal 1995 equal to 5.0% of pre-tax profits
of the
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<PAGE>
Company and its subsidiaries for fiscal 1995, provided that Mr. Sitomer remains
in the employ of the Company throughout fiscal 1995. For the 1996 fiscal year,
if the Post Announcement Average Stock Price following the Company's earnings
release for the 1996 fiscal year is not at least $2.00 higher than the Post
Announcement Average Stock Price for the 1995 fiscal year, then Mr. Sitomer will
earn a bonus for fiscal 1996 equal to 4.5% of pre-tax profits of the Company and
its subsidiaries for fiscal 1996, provided that Mr. Sitomer remains in the
employ of the Company throughout fiscal 1996. For the 1997 fiscal year, if the
Post Announcement Average Stock Price following the Company's earnings release
for the 1997 fiscal year is not at least $2.00 higher than the Post Announcement
Average Stock Price for the 1996 fiscal year, then Mr. Sitomer will earn a bonus
for fiscal 1997 equal to 4.5% of pre-tax profits of the Company and its
subsidiaries for fiscal 1997 multiplied by a fraction, the numerator of which is
the number of days from January 1, 1997, to the date Mr. Sitomer's employment
terminates and the denominator of which is 365.
The Employment Agreement also contains certain provisions regarding
compensation to be paid to Mr. Sitomer in the event that his employment is
terminated, a Change of Control (as defined) occurs or a merger or sale of the
Company takes place. In the event that prior to April 30, 1997, Mr. Sitomer's
employment is terminated either (i) by the Company other than for Cause (as
defined) or (ii) by Mr. Sitomer for Good Reason (as defined), then Mr. Sitomer
shall be entitled to (a) receive bi-weekly payments of his salary at $300,000
per annum through April 30, 1997, subject to 50% mitigation, (b) the immediate
100% vesting and exercisability of the 500,000 non-statutory stock options
(pursuant to the New Option) that have not previously vested or become
exercisable and (c) the immediate vesting of the 100,000 Restricted Shares and
the removal of all restrictions pertaining thereto. In addition, Mr. Sitomer
will receive that portion of any cash bonus earned, if any, attributable to any
completed fiscal year which has accrued but has not yet been paid.
In the event that a Change of Control of the Company occurs while Mr.
Sitomer remains employed by the Company, Mr. Sitomer will be entitled to (i)
receive bi-weekly payments of his salary at $300,000 per annum through April 30,
1997, subject to 50% mitigation, (ii) the immediate 100% vesting and
exercisability of the 500,000 non-statutory stock options (pursuant to the New
Option) that have not previously vested and become exercisable and (iii) the
immediate vesting of the 100,000 Restricted Shares and the removal of all
restrictions pertaining thereto. In addition, if Mr. Sitomer would have been
entitled to a cash bonus for the fiscal year in which such Change of Control
occurs, had his employment continued through the end of such fiscal year, then
Mr. Sitomer will receive a bonus for such fiscal year equal to the amount due
for the fiscal year multiplied by a fraction, the numerator of which is the
number of days from the beginning of that fiscal year to the date on which the
Change of Control occurred, and the denominator of which is 365. In addition,
Mr. Sitomer will receive that portion of any bonus, if any, attributable to any
completed fiscal year which has accrued but has not yet been paid.
Under the Employment Agreement, a "Change of Control" occurs when (i) (a)
any person or group of persons (as defined in Rule 13d-5 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), together with its
affiliates, becomes the beneficial owner, directly or indirectly, of 20% or more
of the voting power of the then outstanding securities of the Company entitled
to vote for the election of directors (excluding any person or group of persons
(as defined in Rule 13d-5 under the Exchange Act) that was the beneficial owner
of 20% or more of the voting power of the outstanding securities of the Company
entitled to vote for the election of directors on May 3, 1993) and (b) Samuel L.
Edelman shall no longer be the Chief Executive Officer of the Company; (ii) (a)
the approval by the Company's shareholders of the merger or consolidation of the
Company with any other corporation, the sale of substantially all of the assets
of the Company or the liquidation or dissolution of the Company, unless, in the
case of a merger, consolidation or sale of substantially all assets, the
incumbent directors in office immediately prior to such merger, consolidation or
sale of assets will constitute at least two-thirds of the board of directors of
the surviving corporation of such merger or consolidation or the corporation
acquiring such assets and any parent (as such term is defined in Rule 12b-2
under the Exchange Act) of such corporation and (b) Samuel L. Edelman shall
20
<PAGE>
no longer be the Chief Executive Officer of either the entity or the division of
the entity that continues the business of the Company and is employing Mr.
Sitomer as its Chief Operating Officer; or (iii) (a) at least two-thirds of the
incumbent directors in office immediately prior to any other action proposed to
be taken by the Company's shareholders determine that such proposed action, if
taken, would constitute a Change of Control of the Company and such action is
taken and (b) Samuel L. Edelman shall no longer be the Chief Executive Officer
of either the entity or the division of the entity that continues the business
of the Company and is employing Mr. Sitomer as its Chief Operating Officer.
In the event that (i) the Company merges or consolidates with another entity
or sells all or substantially all of its assets to another entity within two
years after the date of termination of Mr. Sitomer's employment (for any reason
other than for Cause or the expiration of the employment term) and (ii) such
merger, consolidation or sale of assets is made with or to an entity with which
Mr. Sitomer was involved in negotiations pertaining to a merger, consolidation
or sale of substantially all the assets of the Company during the period he was
employed by the Company, then Mr. Sitomer will be entitled to the immediate 100%
vesting and exercisability of the 500,000 non-statutory stock options (pursuant
to the New Option) that have not previously vested or become exercisable,
effective immediately before the consummation of such merger, consolidation or
sale of assets.
There are no other employment contracts between the Company and any of the
named executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The information contained in the following report shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended (the "Securities
Act") or the Exchange Act, except to the extent that the Company specifically
incorporates it by reference into such filing.
INTRODUCTION. Decisions on compensation of the Company's executive officers
are made by the Compensation Committee of the Board of Directors (the
"Committee"). The members of the Committee, Directors Kreisler, Goldfarb and
Platt, are non-employee directors. Decisions by the Committee relating to the
compensation of the Company's executive officers are reviewed by the full Board,
except for decisions about awards under the 1991 Stock Option Plan which must be
made solely by the Committee in order for the grants under such Plan to satisfy
Rule 16b-3 promulgated under the Exchange Act. With respect to the compensation
of the Chief Executive Officer, the Committee reviews and approves the various
elements of the Chief Executive Officer's compensation and makes a
recommendation to the full Board. With respect to executive officers other than
Mr. Edelman and Mr. Sitomer (whose base and bonus compensation are determined by
his Employment Agreement), the Committee reviews the recommendations for such
individuals presented by the Chief Executive Officer and the bases therefore and
approves or modifies the compensation packages for such individuals. Base salary
levels for executive officers are generally established at or near the start of
each fiscal year, and bonuses for executive officers are generally determined at
the end of each fiscal year based upon such individual's performance and the
performance of the Company.
EXECUTIVE COMPENSATION. The Company's Executive Compensation Program is
designed to link corporate performance and returns to shareholders. The overall
objectives of this strategy are to attract and retain the best possible
executive talent, to motivate the executives to achieve the goals in the
Company's business strategy, to link executive and shareholder interests and to
provide a compensation package that recognizes individual contributions as well
as overall business results. The Company's compensation program has two
principal components: cash-based compensation, both fixed and variable, and
equity-based compensation.
21
<PAGE>
The salaries for each of the executive officers for the fiscal year ended
December 30, 1995, were based upon the following factors: the scope of the
executive's responsibilities; prior experience and salary history; salaries for
similar positions at comparable companies; and, in the case of persons other
than the Chief Executive Officer, the recommendation of the Chief Executive
Officer.
Stock options are periodically granted to provide additional incentive to
executives and other key employees to work to maximize long-term total return to
the Company's shareholders. Options generally vest over a five year period to
encourage optionholders to continue in the employ of the Company. The exercise
price of options is generally the market price on the date of grant, ensuring
that the option will acquire value only to the extent that the price of the
Company's Common Stock increases relative to the market price at the time of
grant. Factors considered by the Committee in granting stock options include:
the recipient's position and responsibility within the Company; prior
performance and expected contribution to future performance; the size of
previous stock option grants; the number of options held by the recipient (if
any); and other relevant factors.
The terms of Mr. Sitomer's Employment Agreement (including the November 1994
amendment thereto) were approved by the Committee upon the recommendation of the
Chief Executive Officer. Mr. Sitomer brings extensive operating experience to
the Company. The Chief Executive Officer, the Committee and the full Board
believed it was in the best interests of the Company and the shareholders for
Mr. Sitomer to have an Employment Agreement that included significant cash-based
and equity-based incentives tied to the Company's future stock and operating
performance. The terms of Mr. Sitomer's Employment Agreement are described above
under the caption "Employment Contracts and Change-in-Control Arrangements."
CHIEF EXECUTIVE OFFICER COMPENSATION. The salary of Mr. Edelman was
originally set at $600,000 per year in 1991 based on the unique contribution of
Mr. Edelman to the Company's business not only as Chief Executive Officer, but
also as a principal designer of footwear and apparel and a principal
salesperson. In July 1992 and February 1993, Mr. Edelman voluntarily reduced his
annual salary to $480,000 and $250,000, respectively. Mr. Edelman's annual
salary for the fiscal year ended December 31, 1995 was $250,000.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162 of the Internal
Revenue Code of 1986, as amended (the "Code"), limits the federal income tax
deductibility of compensation paid to the Company's Chief Executive Officer and
to each of the other four most highly compensated executive officers. The
Company may deduct such compensation only to the extent that during any fiscal
year the compensation paid to any such individual does not exceed $1 million or
meets certain specified conditions (including shareholder approval). Based on
the Company's current compensation plans and policies and recently released
regulations interpreting this provision of the Code, the Company and the
Committee believe that, for the near future, there is little risk that the
Company will lose any significant tax deduction for executive compensation.
22
<PAGE>
SUMMARY. The Committee believes that its compensation program to date has
been fair and motivating, and has been successful in attracting and retaining
qualified employees and in linking compensation directly to the Company's
performance. The Committee intends to review this program on an ongoing basis to
evaluate its continued effectiveness.
THE COMPENSATION COMMITTEE
I. Jay Goldfarb
Stuart L. Kreisler
Howard Platt
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Committee consists of Directors Goldfarb, Kreisler and Platt. No
executive officer of the Company served on the compensation committee of another
entity or any other committee of the board of directors of another entity
performing similar functions during the last fiscal year.
S CORPORATION TERMINATION, TAX ALLOCATION AND INDEMNIFICATION
AGREEMENT. The Company and Mr. Edelman, Ms. Edelman and Mr. Kreisler
(collectively, the "Principal Shareholders") are parties to an S Corporation
Termination, Tax Allocation and Indemnification Agreement (the "Tax Agreement")
relating to their respective income tax liabilities. Because the Company has
been fully subject to corporate income taxation since the date of the
termination of its status as an S Corporation on December 3, 1991 (the
"Termination Date"), the reallocation of income and deductions between the
period during which the Company was treated as an S Corporation and the period
during which the Company is subject to corporate income taxation may increase
the taxable income of one party while decreasing that of another party.
Accordingly, the Tax Agreement is intended to assure that taxes are born by the
Company on the one hand and the Principal Shareholders on the other only to the
extent that such parties received the related income. Subject to certain
limitations, the Tax Agreement generally provides that the Principal
Shareholders will be indemnified by the Company with respect to federal and
state income taxes (plus interest and penalties) shifted from a Company taxable
year subsequent to the Termination Date to a taxable year in which the Company
was an S Corporation, and the Company will be indemnified by the Principal
Shareholders with respect to federal and state income taxes (plus interest and
penalties) shifted from an S Corporation taxable year to a Company taxable year
subsequent to the Termination Date. The Tax Agreement also provides that the
Principal Shareholders will indemnify the Company against any claims arising out
of or based upon any material liabilities of the Company that were not reflected
(or subject to adequate reserves) in the Company's financial statements as of
December 4, 1991. Any payment made by the Company to the Principal Shareholders
pursuant to the Tax Agreement may be considered by the Internal Revenue Service
or state taxing authorities to be non-deductible by the Company for income tax
purposes.
SHAREHOLDERS AGREEMENT. The Company and the Principal Shareholders are
parties to the Shareholders Agreement, which contains standstill provisions,
transfer restrictions and voting restrictions applicable to Mr. Kreisler and Ms.
Edelman and transfer restrictions applicable to Mr. Edelman.
The Shareholders Agreement provides that Mr. Kreisler may not, subject to
certain exceptions, acquire additional shares of the Company's voting stock
without Mr. Edelman's prior consent, if after such acquisition Mr. Kreisler
would own more than 20% of the outstanding voting stock of the Company. Mr.
Edelman has a right of first refusal on all proposed transfers of shares by Mr.
Kreisler, except transfers made directly to the Company, sales pursuant to a
registered underwritten public offering, sales pursuant to Rule 144 ("Rule 144")
under the Securities Act of 1933, as amended (the "Securities Act"), sales made
in response to a tender offer which is not opposed by the Board of Directors of
the Company, inter vivos gifts, including charitable donations, and transfers to
and from Mr. Kreisler's estate in the event of his death. Mr. Kreisler has a
parallel right of first refusal on all
23
<PAGE>
proposed transfers of shares by Mr. Edelman. Pursuant to the Shareholders
Agreement, Mr. Kreisler must vote his shares on matters submitted to the
Company's shareholders in the same proportion that Mr. Edelman votes his shares;
provided, however, that with respect to the election of directors only, Mr.
Kreisler is allowed to vote for himself as director any shares owned by him,
except that if he owns more shares than necessary to ensure his own election, he
is allowed to vote for himself as director only the minimum number of shares
necessary to ensure his own election. The Shareholders Agreement provides that
Mr. Kreisler will not solicit proxies or actively participate in any contested
election without the prior consent of Mr. Edelman. Mr. Kreisler and, in the
event of Mr. Kreisler's death, Mr. Kreisler's estate, have certain demand and
piggyback registration rights. Mr. Kreisler's restrictions expire upon the
earliest to occur of (i) such time as Mr. Edelman is no longer an officer or
director of the Company, (ii) such time as Mr. Edelman no longer owns at least
20% of the Company's voting stock and (iii) December 11, 1996. Mr. Kreisler's
right of first refusal on proposed transfers by Mr. Edelman expires upon the
earliest to occur of (i) such time as Mr. Kreisler is no longer a director of
the Company, (ii) such time as Mr. Kreisler owns less than 10% of the Company's
voting stock and (iii) December 11, 1996.
The Shareholders Agreement addresses the voting control and ownership of Ms.
Edelman's shares in the event that the Edelmans are divorced, as follows. First,
Ms. Edelman will be prohibited, subject to certain exceptions, from acquiring
additional shares of the Company's voting stock without Mr. Edelman's prior
consent, if after such acquisition Ms. Edelman would own more than 20% of the
outstanding voting stock of the Company. Second, Mr. Edelman, initially, and
then Mr. Kreisler will have a right of first refusal on all proposed transfers
by Ms. Edelman, subject to the same exceptions as Mr. Kreisler's and Mr.
Edelman's transfer restrictions. Third, Ms. Edelman will have the right during
the two year period after the date the divorce becomes final to require Mr.
Edelman to purchase her shares at the then prevailing market value. Fourth, Ms.
Edelman will agree to vote her shares on all matters submitted to the Company's
shareholders (including the election of directors) in the same proportion that
Mr. Edelman votes his shares. Ms. Edelman's standstill, transfer and voting
restrictions terminate, whether or not the Edelmans are divorced, upon the
earliest to occur of (i) such time as Mr. Edelman is no longer an officer or
director of the Company, (ii) such time as Mr. Edelman owns less that 20% of the
Company's voting stock and (iii) December 11, 1996. Ms. Edelman and her estate
will have registration rights similar to those of Mr. Kreisler.
PERFORMANCE GRAPH
The information contained in the graph below shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or the Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
The following graph illustrates the cumulative total return (based on a $100
investment) among the Company, the NASDAQ Market Index and the Peer Group Index
for the period commencing on the date of the Company's initial public offering
through December 31, 1995:
[To be inserted into final Proxy Statement]
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PRINCIPAL SHAREHOLDERS AND DIRECTORS
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who own more than ten percent of a registered class of the
Company's equity securities to file certain reports of ownership with the
Securities and Exchange Commission (the "SEC") and with the National Association
of Securities Dealers, Inc. Such officers, directors and shareholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms that they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 30, 1995, all Section 16(a) filing
requirements applicable to its officers, directors and 10% Shareholders were
complied with.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995, as amended (the Form "10-K"); and
(ii) the Company's Quarterly Report on Form 10-Q for the period ended
March 30, 1996 (the "Form 10-Q").
A copy of the Form 10-K, the Form 10-Q and the Chief Executive Officer's
Letter to Shareholders dated August , 1996, which together comprise the
Company's 1995 Annual Report to Shareholders, is being delivered together with
this Proxy Statement to holders of the Company's Common Stock as of the Record
Date. The Chief Executive Officer's Letter is not incorporated by reference into
this Proxy Statement and shall not be considered to be a part of this Proxy
Statement, nor shall it be considered to have been filed with the Securities and
Exchange Commission.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: August , 1996
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EXHIBIT A
TRADEMARK AND INTELLECTUAL PROPERTY RIGHTS
PURCHASE AND SALE AGREEMENT
This TRADEMARK AND INTELLECTUAL PROPERTY RIGHTS PURCHASE AND SALE AGREEMENT
(this "Agreement") is made and entered into as of this 2nd day of July, 1996 by
and among SAM & LIBBY, INC., a California corporation ("Seller"), and with
respect to those sections of this Agreement referenced below the signatures of
each of the Shareholders (as defined below) on the signature page of this
Agreement, SAMUEL L. EDELMAN, individually and as trustee of any and all trusts
for which he serves as trustee which may hold shares of Seller's capital stock
and have voting rights of such stock, LOUISE B. EDELMAN, individually and as
trustee of any and all trusts for which she serves as trustee which may hold
shares of Seller's capital stock and have voting rights of such stock, and
STUART L. KREISLER individually (collectively, the "Shareholders"), and MAXWELL
SHOE COMPANY INC., a Delaware corporation ("Buyer").
RECITALS:
A. Seller is the owner of each of those certain trademarks, trade names,
service marks, logos and common law and similar rights used and/or registered in
the United States and worldwide (the "Trademarks"), as identified on Exhibit A
attached hereto.
B. Subject to the terms and conditions set forth herein, Seller desires to
sell to Buyer ownership rights to each of the Trademarks and all rights
associated therewith and Buyer desires to acquire the same.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties hereto covenant and agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. On the terms and subject to the
conditions set forth in this Agreement, on the Closing Date (as defined below)
the Seller shall convey, transfer, assign, sell and deliver to Buyer, and Buyer
shall acquire, accept and purchase, all right, title, benefit and interest in
and to the Trademarks together with the goodwill symbolized by and associated
with the Trademarks.
2. CONSIDERATION TO BE PAID BY BUYER. The purchase price for the
Trademarks shall be $5.5 million cash (the "Purchase Price"). Buyer agrees to
pay: (i) on or before July 8, 1996 the amount of $200,000 (the "Initial
Payment"), to be held in escrow until the Closing (as defined below) by a third
person mutually satisfactory to Buyer and Seller; and (ii) at Closing (as
defined below) the amount of $5.1 million, with the remaining $200,000 of the
Purchase Price (the "Balance Payment") to be paid on April 30, 1997, such
Balance Payment to be made only if all of Seller's and all of the Shareholders'
material obligations under this Agreement have been satisfied in full. In the
event Buyer does not deliver the Initial Payment into an escrow account on or
before July 8, 1996, Buyer shall deliver the Initial Payment to Seller in full
in cash on or before July 10, 1996.
3. NO ASSUMPTION OF LIABILITIES. Buyer and Seller hereby acknowledge and
agree that Buyer shall not assume or be obligated to perform any liabilities or
obligations of Seller, or any related or affiliated party, whether express,
implied, fixed, accrued, contingent, liquidated or unliquidated, known or
unknown, whether presently in existence or arising hereafter.
4. CLOSING. The closing of the transactions herein contemplated shall,
unless another date, time or place is agreed to in writing by the parties
hereto, take place at the offices of Gibson, Dunn & Crutcher LLP, 200 Park
Avenue, New York, New York, no later than two business days after the
shareholder meeting referred to in Section 10.1 below, but in no event later
than September 4, 1996 (the "'Closing" or "Closing Date"), if all conditions to
closing shall have been fulfilled on or before such date.
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5. METHOD OF PAYMENT. All funds to be delivered to Seller at Closing shall
be delivered by wire transfer in immediately available funds to an account of
Bank of New York Financial Corporation, or its applicable affiliate ("Bank of
New York"), for the benefit of Seller, which account shall be designated by
Seller in writing at least two business days prior to the Closing Date. The
Balance Payment to be delivered to Seller on April 30, 1997 shall be delivered
by wire transfer in immediately available funds to an account of Bank of New
York for the benefit of Seller, which account shall be designated by Seller in
writing at least two business day prior to April 30, 1997.
6. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Buyer that:
6.1 ORGANIZATION AND GOOD STANDING. Seller is duly organized, validly
existing and in good standing under the laws of the State of California and
is qualified to do business in all jurisdictions where Seller's operations
require same which would have a material impact on any of the Transactions
(as defined below).
6.2 AUTHORIZATION OF AGREEMENT. Subject to obtaining any required
approval of the holders of the shares of capital stock of Seller, Seller
has, and has obtained, all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
Subject to obtaining any required approval of the holders of capital stock
of Seller, this Agreement and all other agreements and instruments to be
executed by Seller in connection herewith have been (or upon execution will
have been) duly executed and delivered by Seller, have been effectively
authorized by all necessary action, corporate or otherwise, and constitute
(or upon execution will constitute) legal, valid and binding obligations of
Seller, enforceable against Seller in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, arrangement, fraudulent conveyance, moratorium or other laws
relating to or affecting the rights of creditors generally.
6.3 TITLE TO TRADEMARKS. Except as set forth on Schedule 6.3, Seller
has full and unrestricted title in all jurisdictions as set forth on Exhibit
A to each of the Trademarks, free and clear of any liens, mortgages,
encumbrances, security interests or third party claims of any kind ("Liens")
and at Closing Buyer shall own in fee undisputed and unrestricted title to
the Trademarks, free and clear of any and all Liens.
6.4 AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. Subject to the
consent of Bank of New York, the execution and delivery of this Agreement,
the consummation of the transactions contemplated hereby and the fulfillment
of the terms hereof will not result in a breach of any of the terms or
provisions of, or constitute a default under, or conflict with, any material
agreement, indenture or other instrument to which Seller is a party or by
which it is bound, Seller's Articles of Incorporation or bylaws, any
judgment, decree, order or award of any court, governmental body or
arbitrator, or any law, rule or regulation applicable to Seller or the
Trademarks.
6.5 CONSENTS OF THIRD PARTIES AND REGULATORY APPROVAL. Except for the
consent of Bank of New York, and the approval by Seller's shareholders, no
consents of any third parties are required to consummate the transactions
contemplated by this Agreement. No consent, approval, authorization, order,
registration, qualification or filing of or with any court or any regulatory
authority or any other governmental or administrative body is required on
the part of Seller for the consummation by it of the transactions
contemplated by this Agreement.
6.6 THE TRADEMARKS. Exhibit A to this Agreement is a schedule of all
the Trademarks, their registrations owned or utilized by Seller, and pending
applications therefor, or in which Seller has any rights or licenses
worldwide, together with the current status and a brief description of each.
All Trademarks, registrations and applications listed on Exhibit A to this
Agreement are valid, enforceable and subsisting, and have not been abandoned
or canceled and have not expired. Seller has full title and ownership in and
rights to utilize all the Trademarks necessary for or used in its business
as now or previously conducted without any infringement of the rights of
others. Seller has not received any communications nor is it aware of any
entity alleging that
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Seller has infringed upon or, by conducting its business as currently
conducted, would infringe upon, nor is Seller aware that by conducting
Seller's business Seller would infringe upon any intellectual property right
of any other person or entity. Seller is not aware of any infringement of
the Trademarks by third parties and Seller has used and uses its
commercially reasonable best efforts to prevent any infringement of the
Trademarks by third parties. None of the Trademarks is the subject of, or
will be affected by, any existing action, proceeding, claim, demand or
judgment to which Seller is a party or of which it is aware, the outcome of
which could impair Buyer's ability to use the Trademarks in an unrestricted
fashion. Except as set forth in Exhibit A and Schedule 6.3 and except as
contemplated by Section 9.1 of this Agreement, Seller is not a party to any
license, agreement or arrangement, whether as licensor, licensee,
franchisor, franchisee or otherwise, with respect to the Trademarks or
applications for them. Seller owns or holds adequate licenses or other
rights to use all of the Trademarks necessary for its business as now
conducted by Seller, and that use does not, and will not violate any rights
of others. Seller has the power, right and authority to sell to Buyer all of
the Trademarks and all such licenses or other rights.
6.7 DISCLOSURE. The information provided by Seller in this Agreement
does not and will not, to Seller's knowledge, contain an untrue statement of
a material fact or omit to state a material fact required to be stated
herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they are made,
not false or misleading. Copies of all documents heretofore or hereafter
delivered or made available by Seller to Buyer pursuant hereto were or will
be, to Seller's knowledge, complete and accurate records of such documents.
7. REPRESENTATION AND WARRANTY OF THE SHAREHOLDERS. Each of the
Shareholders represents and warrants to Buyer that:
7.1 ABILITY TO VOTE STOCK WITHOUT RESTRICTION. Such Shareholder has
the absolute right or obligation, without any restrictions whatsoever, as of
the date hereof, and will have such right or obligation at the shareholder
meeting referenced in Section 10.1 below, to vote the number of shares of
capital stock of Seller held by such Shareholder, as set forth below such
Shareholder's signature on the signature page of this Agreement, in favor of
the Transactions, as defined below. Each such Shareholder's shares of
capital stock of Seller are not subject to any voting trust agreement or
other contract, agreement, arrangement, commitment or understanding which
prohibits such vote, including any such agreement, arrangement, commitment
or understanding restricting or otherwise relating to the voting of such
Shareholder's shares, except as contemplated by Section 10.5 of this
Agreement.
8. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Seller that:
8.1 ORGANIZATION AND GOOD STANDING. Buyer is duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business in all jurisdictions where Buyer's operations
require same.
8.2 AUTHORIZATION OF AGREEMENT. Buyer has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements
herein contemplated to be executed by Buyer in connection herewith have been
(or upon execution will have been) duly executed and delivered by Buyer,
have been effectively authorized by all necessary action, corporate or
otherwise, and constitute (or upon execution will constitute) legal, valid
and binding obligations of Buyer.
9. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
9.1 LICENSE TO SELLER.
(a) On the Closing Date, Buyer agrees to license to Seller, for the
consideration of $1.00 payable to Buyer at Closing, the Trademarks listed in
Exhibit B to this Agreement (the "License") for the sole purpose to allow
Seller to: (i) sell its existing inventory as listed in Exhibit C to
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this Agreement (the "Inventory"); and (ii) fill its customer orders
outstanding as of the Closing Date and as shown in Exhibit D to this
Agreement from those purchase orders as shown in Exhibit C to this
Agreement. The License shall be effective for the period commencing from the
Closing Date through and including April 30, 1997. In the event Seller has
not sold and shipped the Inventory to independent third parties on or before
April 30, 1997, Seller agrees to remove or cause to be completely illegible
any and all Trademarks from or on the remaining Inventory. Seller agrees
that the quality of any and all goods and products Seller may manufacture
pursuant to this Section 9.1(a) shall be the same or at least as good as the
quality of similar goods and products manufactured by Seller prior and up to
the date hereof.
(b) Buyer and Seller agree that any proceeds derived from Seller's sale
of the Inventory and from the filling of outstanding orders pursuant to
Section 9.1(a) above shall belong to Seller.
(c) Seller shall provide to Buyer within 15 days after the end of each
month a written report containing inventory of footwear held or owned by
Seller containing any Trademarks (by units and cost), inventory received
during the month, shipments made by Seller of any such footwear during the
prior month, to whom such footwear was sold and the prices for which such
footwear was sold.
9.2 MANUFACTURE AND IMPORTATION OF GOODS. Except as set forth in
Section 9.1(a), Seller agrees that after the Closing Date, it will not
import nor manufacture domestically, nor market, sell or distribute, any
goods or other products which bear, mention or note any of the Trademarks on
such goods or products.
9.3 LAS VEGAS SHOE SHOW. Buyer agrees to reimburse Seller, on the
Closing Date, the amount of $11,500, which represents the amount Seller has
paid as a deposit for reservation of show space (the "Show Space") at the
Western Shoe Association show in Las Vegas, Nevada in August 1996 (the "WSA
Show"). In the event the Show Space may not be rented by Buyer, Seller
agrees to act as Buyer's agent for purposes of renting the Show Space at the
WSA Show for Buyer's use. In any event, Buyer and Seller agree that Buyer
shall have use of and entitlement to the Show Space without interference by
Seller at the WSA Show.
9.4 PROTOTYPE SAMPLES EXPENSE. Buyer agrees to reimburse Seller at
Closing for Seller's Spring 1997 prototype samples expense which have been
invoiced and paid by Seller in an amount not to exceed $17,000.
9.5 ADVERTISING AND POINT-OF-PURCHASE MATERIALS. Buyer and Seller
agree that all advertising, in-store point-of-purchase and promotional
materials and displays located in all retail customer locations and
Seller-owned retail locations shall belong solely to Buyer as of the Closing
Date. In addition, Seller agrees to sell to Buyer at the Closing, at Buyer's
option, point of purchase items, if Buyer desires to purchase such items,
located in Seller's warehouse in Harrisburg, Pennsylvania, on which items
any of the Trademarks appear, for a purchase price equivalent to 50% of
Seller's cost of such items.
9.6 PUBLICITY. Buyer, on the one hand, and Seller and the
Shareholders, on the other hand, agree that until Closing, no public release
or announcement concerning the transactions contemplated hereby shall be
issued by either party without the prior consent of the other party (which
consent shall not be unreasonably withheld), except as such release or
announcement may be required by law or the rules or regulations of any
United States or foreign securities exchange, in which case the party
required to make the release or announcement shall allow the other party
reasonable time to comment on such release or announcement in advance of
such issuance.
9.7 CONSENT OF BANK OF NEW YORK. Between the date hereof and the
Closing Date, Seller shall use all reasonable efforts to obtain the written
consent of Bank of New York to all the transactions contemplated by this
Agreement.
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9.8 RECORDING OF BUYER'S OWNERSHIP INTEREST IN TRADEMARKS. Buyer shall
assume all obligations and bear all costs associated with recording its
ownership interest in the Trademarks. Seller shall execute and deliver to
Buyer, at Buyer's expense, such instruments of sale, transfer, conveyance,
assignment and delivery in recordable form, and consents, assurances, powers
of attorney and other instruments as may be reasonably requested by counsel
for Buyer in order to record with any government authority the transfer of
ownership in the Trademarks from Seller to Buyer and to reflect termination
of Seller's interest in the Trademarks, and Seller shall cause to be
executed and delivered to Buyer, at Seller's cost, such releases and third
party consents as may be reasonably necessary to deliver to Buyer all right,
title and interest of Seller in and to the Trademarks free and clear of all
Liens.
9.9 FURTHER ASSURANCES. From time to time after the Closing, Seller
will execute and deliver to Buyer such instruments of sale, transfer,
conveyance, assignment and delivery, consents, assurances, powers of
attorney and other instruments as may be reasonably requested by counsel for
Buyer in order to vest in Buyer all right, title and interest of Seller in
and to the Trademarks free and clear of all Liens and otherwise in order to
carry out the purpose and intent of this Agreement.
9.10 USE OF CERTAIN NAMES. Each of Buyer and Seller agrees that after
July 25, 1996, neither will in any way utilize or display either of the
names "Sam Edelman" or "Libby Edelman," or any names similar to such names,
in or on any product of Buyer or Seller. Each of Samuel L. Edelman and
Louise B. Edelman agree not to use either of the names "Sam Edelman" or
"Libby Edelman," or any names similar to such names, appearing in or on any
footwear product or apparel product for three years from July 25, 1996.
9.11 REMOVAL OF TRADE NAMES AND TRADEMARKS. Except as authorized by
Section 9.1(a), Seller agrees to remove or cease to use, within one week of
the Closing Date, any and all of the Trademarks which appear: (i) on all
showrooms wherever located; (ii) in Seller's retail store located in
Vacaville, California; and (iii) on all letterhead, business cards, billing
statements, invoices and all other documents of any nature (except for stock
certificates outstanding as of the Closing Date). Seller further agrees to
remove on or before December 31, 1996, any and all of the Trademarks which
appear in Seller's retail store located in the Beverly Center shopping
center in Los Angeles, California (the "Beverly Center Store"). Seller also
agrees to refrain from answering telephones with the name of any of the
Trademarks or otherwise holding itself out as in any way associated with the
Trademarks.
9.12 SELLER'S SALES REPRESENTATIVES AND EMPLOYEES. Buyer and Seller
agree that from the date hereof, Buyer shall have the right to communicate
with and solicit Seller's sales representatives and Seller's employees to
discuss the possibility of such persons being employed by or representing
Buyer.
9.13 REIMBURSEMENT FOR SALES COMMISSIONS. Buyer agrees to reimburse
Seller, at the Closing, an aggregate amount of $35,000 for sales commissions
Seller has paid to its independent sales representatives during the month of
June 1996.
9.14 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Buyer, Seller and the
Shareholders agree that the respective representations and warranties
contained in this Agreement shall terminate on the second anniversary of the
Closing Date.
10. COVENANTS.
10.1 SHAREHOLDER MEETING AND BOARD RECOMMENDATION. Seller shall
schedule a meeting of its shareholders to be held no later than August 30,
1996, for the purpose of approving the transactions contemplated by this
Agreement (the "Transactions"), and Seller's Board of Directors shall file
with the Securities and Exchange Commission (the "SEC"), and shall solicit
proxies through, a proxy statement, a preliminary filing of which shall be
filed with the SEC on or before July 19, 1996, and which shall be mailed to
Seller's shareholders as soon as possible after
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completion of SEC review and Seller's responses thereto, if any, of the
preliminary proxy statement, and which proxy statement shall recommend to
Seller's shareholders approval of the Transactions.
10.2 MAINTENANCE OF BUSINESS. During the period from the date hereof
to the Closing Date, Seller will carry on its business in the ordinary
course and in substantially the same manner as it has prior to the date of
this Agreement and agrees not to enter into any material agreements with
respect to the Trademarks or take any other significant actions with respect
to the Trademarks without the prior written consent of Buyer.
10.3 OTHER DISCUSSIONS. From and after the date of this Agreement
until the Closing or this Agreement is terminated in accordance with its
terms, neither Seller nor any of its officers, directors, agents or
representatives (including the Shareholders) will initiate discussions,
solicit or negotiate (including providing any non-public information
concerning its business), or authorize any person or entity to discuss,
solicit or negotiate on its or their behalf, with any other party concerning
the possible sale or disposition of all or substantially all of Seller's
business, assets or capital stock or the Trademarks. Seller will immediately
notify Buyer, however, if any offer is received from a potential purchaser
or of any discussions with a potential purchaser regarding the Trademarks or
the capital stock of Seller or any of its assets outside the ordinary
course.
10.4 BEST EFFORTS. Each party will use its reasonable best efforts to
cause all conditions to the Closing to be satisfied as soon as practicable.
Each party shall use its reasonable best efforts to obtain any consents
necessary or desirable in connection with the consummation of the
transactions contemplated by this Agreement, and in particular Seller shall
use all reasonable efforts to obtain the consent of Bank of New York.
10.5 SHAREHOLDER VOTE. Each of the Shareholders, individually and in
all other capacities, as Trustee or otherwise, agrees to vote all of the
shares of capital stock of Seller held of record or beneficially by them in
favor of the Transactions. Seller will provide to all holders of its capital
stock entitled to vote upon or consent to the Transactions such information
as is necessary to satisfy all requirements of applicable federal and state
securities laws and California corporate law in connection with the
submission of the Transactions to such shareholders for their approval. This
Section 10.5 shall constitute the written instructions by each of the
Shareholders to each of the other Shareholders to vote their respective
shares of capital stock of Seller in favor of the Transactions as required
or contemplated by any agreements by and among or between the Shareholders.
10.6 ADDITIONAL SHARE ISSUANCES. Seller agrees that it shall not issue
any capital stock or securities convertible into capital stock ("Seller's
Securities") between the date hereof and the Closing Date if the issuance of
such Seller's Securities would cause the aggregate number of shares of
capital stock of Seller held by the Shareholders (without including the
affirmative vote of shares of Seller's capital stock not held by the
Shareholders (other than those shareholders of Seller referred to in Section
10.9 below)) to represent less than the requisite number of voting
securities of Seller required to approve the Transactions under applicable
law at the shareholder meeting referred to in Section 10.1 above.
10.7 TRANSFER OF SHARES BY SHAREHOLDERS. Each of the Shareholders
individually and in all other capacities, as trustee or otherwise, agrees
that he or she will not sell or otherwise transfer any of the shares of
Seller's capital stock held by him or her between the date hereof and the
Closing Date unless the purchaser or transferee of such shares agrees in
writing, in a form reasonably satisfactory to Buyer and its counsel, to vote
all of such shares of capital stock of Seller in favor of the Transactions
at the shareholder meeting referred to in Section 10.1 above.
10.8 ACCESS TO INFORMATION. Buyer will have reasonable access to the
facilities, employees and records of Seller; provided, however, in no event
shall such access be permitted to interfere with the day to day operations
of Seller.
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10.9 AGREEMENT TO VOTE SHARES BY SHAREHOLDERS RECEIVING SELLER'S STOCK
IN EXCHANGE FOR DEBT OF SELLER. Seller agrees to provide to Buyer, no later
than July 9, 1996, in a form reasonably satisfactory to Buyer and Buyer's
counsel, a written agreement from those holders of Seller's capital stock
whose shares are necessary, when aggregated with the Shareholders' shares,
to constitute the requisite number of voting securities of Seller required
to approve the Transactions under applicable law, to the effect that such
holders will vote in favor of and will approve the Transactions at the
shareholder meeting referred to in Section 10.1 above. It is contemplated
that the agreement referred to in the previous sentence will be executed and
delivered by persons who have recently or will become shareholders of Seller
by virtue of their exchanging debt obligations owed to them by Seller for
Seller's common stock.
11. CONDITIONS TO CLOSING.
11.1 The obligations of Buyer and Seller to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to the
Closing, of all of the following conditions:
(a) NO ACTION OR PROCEEDING. No claim, action, suit, investigation
or other proceeding shall be pending or threatened before any court
or governmental agency which presents a substantial risk of the restraint
or prohibition of the Transactions or the obtaining of material damages
or other relief in connection therewith.
(b) COMPLIANCE WITH LAW. There shall have been obtained all
permits, approvals and consents of all governmental bodies or
agencies which counsel for Buyer or for Seller may reasonably deem
necessary or appropriate so that consummation of the Transactions will be
in compliance with applicable laws.
11.2 The obligations of Buyer to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to
Closing, of all of the following conditions (any one or more of which
conditions may be waived within the sole and absolute discretion of Buyer,
provided, however, that no such waiver of any condition constitutes a waiver
by Buyer of any of its other rights or remedies, at law or equity, in the
event Seller or any of the Shareholders breaches this Agreement):
(a) BANK OF NEW YORK CONSENT. The consent of Bank of New York shall
have been obtained in written instruments reasonably satisfactory to
Buyer.
(b) REMOVAL OF LIENS FILED OR RECORDED AGAINST SELLER. Any and all
documents recorded or filed against Seller or the Trademarks pursuant
to the terms of the documents of Bank of New York reflecting Seller as
debtor or reflecting Liens placed on or against the Trademarks shall be
terminated or modified to delete any reference to Seller or the
Trademarks, effective as of the Closing Date.
(c) SECRETARY'S CERTIFICATE. Buyer shall have received from the
Secretary of Seller a certificate, dated the Closing Date, to the
effect that resolutions of Seller's Board of Directors authorizing the
Transactions have been duly and validly adopted and remain in full force,
and certifying as to the incumbency of the officer of Seller executing
this Agreement.
(d) SHAREHOLDER APPROVAL. Seller shall have received the valid
approval by Seller's shareholders of the Transactions.
(e) BOARD OF DIRECTORS APPROVAL. Buyer's Board of Directors shall
have approved the Transactions.
(f) CHANGE IN NAMES. Seller shall have prepared and delivered to
Buyer for filing with the appropriate governmental or other
authorities the necessary documents and instruments with instructions
permitting Buyer to file such documents and instruments in order to
change the names of the following corporations or entities: Sam & Libby,
Inc., Sam &
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Libby (HK) Limited, Sam & Libby Brazil and Sam & Libby Outlets, Inc. such
that the new names of such corporations or entities shall not resemble
the current names or contain in any way any of the Trademarks as listed
in Exhibit A to this Agreement.
(g) AGREEMENTS NOT TO COMPETE. Each of Samuel L. Edelman and Louise
B. Edelman shall have entered into non-compete agreements,
substantially in the form of Exhibit E to this Agreement (each a
"Non-Compete Agreement"), with Buyer, which agreements shall provide,
among other things, that each of Samuel L. Edelman and Louise B.
Edelman's ability to participate actively in the branded footwear
business from the date hereof through December 31, 1996 shall be
restricted to certain conditions enumerated therein.
(h) OPINION OF SELLER'S TRADEMARK COUNSEL. Buyer shall receive at
the Closing an opinion of Peter M. Eichler of the law firm Troop
Meisinger Steuber & Pasich, LLP, special trademark counsel to Seller,
that Seller owns all right, title and interest in and to the Trademarks
as described in Exhibit A to this Agreement, that such counsel is not
aware of any claim to the contrary or any challenge by any person or
entity to the rights of Seller with respect to the foregoing and that
upon consummation of the Transactions Buyer shall own and be vested with
all right, title and interest in and to the Trademarks, free and clear of
all Liens.
(i) OPINION OF SELLER'S COUNSEL. Buyer shall receive at the
Closing:
(x) an opinion of Wilson, Sonsini, Goodrich & Rosati, corporate
counsel to Seller, in form and substance satisfactory to counsel for
Buyer, to the effect that: (A) Seller is a corporation duly
incorporated and validly existing in good standing under the laws of
the State of California; (B) Seller has the requisite corporate power
and authority to enter into and carry out the Transactions; (C) the
execution and delivery by Seller of this Agreement, and the
performance by Seller of its obligations under this Agreement, have
been duly authorized by all necessary corporate action on the part of
Seller; and (D) the execution, delivery or performance of this
Agreement by Seller will not (1) conflict with or violate the
Articles of Incorporation or the Bylaws of Seller; (2) conflict with,
result in a material breach of or a material default under any
material agreements of Seller known to such counsel; or (3) violate
or contravene any United States federal or California state law,
statute, rule or regulation applicable to Seller or result in or
require the creation or imposition of any lien on any properties or
revenues of Seller; and
(y) an opinion of Kaufmann, Feiner, Yamin, Gildin & Robbins LLP,
counsel to Seller, in form and substance satisfactory to counsel for
Buyer, to the effect that: (A) this Agreement constitutes a valid and
binding obligation of Seller, enforceable against Seller in
accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, arrangement,
fraudulent conveyance, moratorium or other laws relating to or
affecting the rights of creditors generally or by general principles
of equity, whether considered in a proceeding in equity or at law;
and (B) the execution, delivery or performance of this Agreement by
Seller will not: (1) conflict with, result in a material breach of or
a material default under any material agreements of Seller known to
such counsel; or (2) violate or contravene any United States federal
or New York state law, statute, rule or regulation applicable to
Seller or result in or require the creation or imposition of any lien
on any properties or revenues of Seller.
(j) REPRESENTATIONS AND WARRANTIES OF SELLER TRUE. Each of the
representations and warranties of Seller contained in this Agreement
or in any document delivered pursuant hereto shall be true and correct in
all material respects on the Closing Date with the same effect as if made
on the Closing Date.
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(k) REPRESENTATION AND WARRANTY OF SHAREHOLDERS TRUE. The
representation and warranty of each of the Shareholders contained in
Section 7.1 shall be true and correct in all material respects on the
Closing Date with the same effect as if made on the Closing Date.
(l) DELIVERY OF TRADEMARK ASSIGNMENTS. Seller shall have delivered
to Buyer in recordable form assignments of the Trademarks, which
assignments shall have been executed and acknowledged by Seller, as well
as any and all other documents and instruments reasonably necessary to
transfer title and interest in and to the Trademarks, free and clear of
all Liens, to Buyer and to consummate the transactions contemplated
herein.
(m) AGREEMENT TO VOTE SHARES. Buyer shall have received, no later
than July 9, 1996, the agreements required by Section 10.9 above.
11.3 The obligations of Seller to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to
Closing, of all of the following conditions (any one or more of which
conditions may be waived within the sole and absolute discretion of Seller,
provided, however, that no such waiver of any condition constitutes a waiver
by Seller of any of its other rights or remedies, at law or equity, in the
event Buyer breaches this Agreement):
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the
representations and warranties of Buyer contained in this Agreement
or in any document delivered pursuant hereto shall be true and correct in
all material respects on the Closing Date with the same effect as if made
on the Closing Date.
12. INDEMNIFICATION. For purposes of this Section 12, "Affiliate" of a
party shall mean a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such party.
12.1 INDEMNIFICATION BY SELLER.
(a) Seller shall, for a period of two years from and including the date
hereof, indemnify and hold harmless Buyer and each of its Affiliates,
directors, officers, employees, attorneys, agents and representatives
(collectively, the "Affiliated Parties") in respect of any and all claims,
losses, damages, liabilities, declines in value, penalties, interest, costs
and expenses (including, without limitation, any attorneys', accountants'
and consultants' reasonable fees and other expenses) reasonably incurred by
Buyer or its respective Affiliated Parties, together with interest on cash
disbursements in connection therewith, at an annual rate equal to the prime
rate as reported by the Bank of Boston (the "Prime Rate") then in effect,
from the date such cash disbursements were made by Buyer or any of its
Affiliated Parties until paid by Seller, in connection with each and all of
the following:
(i) Any breach of any representation or warranty made by Seller in
this Agreement or pursuant hereto, which relates to, is associated with
or arises from any matter related to those Trademarks relating to
footwear or apparel (the "Footwear and Apparel Trademarks");
(ii) Any misrepresentation contained in any written statement or
certificate furnished by Seller pursuant to this Agreement, which relates
to, is associated with or arises from any matter related to the Footwear
and Apparel Trademarks; or
(iii) Any breach of any covenant, agreement or obligation of Seller
contained in this Agreement or any other instrument delivered in
connection with this Agreement, which relates to, is associated with or
arises from any matter related to the Footwear and Apparel Trademarks.
(b) Seller shall, for a period of two years from and including the date
hereof, indemnify and hold harmless Buyer and each of its Affiliates,
directors, officers, employees, attorneys, agents and representatives
(collectively, the "Affiliated Parties") in respect of any and all costs and
A-9
<PAGE>
expenses actually expended (including, without limitation, any reasonable
attorneys' fees and such other reasonable and necessary costs and expenses),
excluding any and all incidental and/or consequential damages of any nature,
together with interest on cash disbursements in connection therewith, at an
annual rate equal to the Prime Rate then in effect, from the date such cash
disbursements were made by Buyer or any of its Affiliated Parties until paid
by Seller, incurred by Buyer or its respective Affiliated Parties, arising
out of all claims, losses, damages, liabilities, penalties and interest,
excluding any and all incidental and/or consequential damages of any nature,
in connection with each and all of the following (except to the extent
covered by Section 12.1(a) above):
(i) Any breach of any representation or warranty made by Seller in
this Agreement or pursuant hereto;
(ii) Any misrepresentation contained in any written statement or
certificate furnished by Seller pursuant to this Agreement; or
(iii) Any breach of any covenant, agreement or obligation of Seller
contained in this Agreement or any other instrument delivered in
connection with this Agreement.
(c) No claim, demand, suit or cause of action shall be brought against
Seller under this Section 12.1 unless and until the aggregate amount of
claims against Seller under this Agreement exceeds $50,000, in which event
Buyer shall be entitled to indemnification from Seller for all claims
hereunder relating back to the first dollar, provided further, however, that
Seller's liability shall in no event exceed the Purchase Price.
(d) As used in this Section 12.1, any reference to Trademarks relating
to apparel shall only mean junior sportswear apparel as previously marketed
by Seller.
12.2 INDEMNIFICATION BY SHAREHOLDERS. Each Shareholder shall, for a
period of two years from and including the date hereof, indemnify and hold
harmless Buyer and each of its Affiliates, directors, officers, employees,
attorneys, agents and representatives (collectively, the "Affiliated
Parties") in respect of any and all costs and expenses actually expended
(including, without limitation, any reasonable attorneys' fees and such
other reasonable and necessary costs and expenses), excluding any and all
incidental and/or consequential damages of any nature, together with
interest on cash disbursements in connection therewith, at an annual rate
equal to the Prime Rate then in effect, from the date that such cash
disbursements were made by Buyer or any of its Affiliated Parties, until
paid by such Shareholder, incurred by Buyer or its respective Affiliated
Parties, arising out of all claims, losses, damages, liabilities, penalties
and interest, excluding any and all incidental and/or consequential damages
of any nature, in connection with each and all of the following:
(a) Any breach of Section 7.1 of this Agreement by such Shareholder;
(b) Any breach of Sections 9.6 (in his or her individual capacity),
10.3 (in his or her individual capacity), 10.5 or 10.7 of this Agreement
by such Shareholder; or
(c) As to Samuel L. Edelman and Louise B. Edelman only, any breach of
Section 9.10 of this Agreement.
No claim, demand, suit or cause of action shall be brought against such
Shareholder under this Section 12.2 unless and until the aggregate amount of
claims against all Shareholders under this Agreement and the Non-Compete
Agreements exceeds $50,000, in which event Buyer shall be entitled to
indemnification from such Shareholder for all claims hereunder relating back to
the first dollar, provided, however, that the Shareholders' aggregate liability
with respect to breaches of Sections 7.1, 9.10, 10.5 and 10.7 shall in no event
exceed the Purchase Price, and provided, further, the Shareholders' aggregate
liability with respect to breaches of Sections 9.6 and 10.3 shall in no event
exceed $1,000,000.
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<PAGE>
12.3 INDEMNIFICATION BY BUYER. Buyer shall, for a period of two years
from and including the date hereof, indemnify and hold harmless Seller and
each of its Affiliates, directors, officers, employees, attorneys, agents
and representatives (collectively, the "Affiliated Parties") in respect of
any and all costs and expenses actually expended (including, without
limitation, any reasonable attorneys' fees and such other reasonable and
necessary costs and expenses), excluding any and all incidental and/or
consequential damages of any nature, together with interest on cash
disbursements in connection therewith, at an annual rate equal to the Prime
Rate then in effect, from the date that such cash disbursements were made by
Seller or any of its Affiliated Parties, until paid by Buyer, incurred by
Seller or its respective Affiliated Parties, arising out of all claims,
losses, damages, liabilities, penalties and interest, excluding any and all
incidental and/or consequential damages of any nature, in connection with
each and all of the following:
(a) Any breach of any representation or warranty made by Buyer in
this Agreement or pursuant hereto;
(b) Any breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other instrument contemplated by this
Agreement; or
(c) Any misrepresentation contained in any statement or certificate
furnished by Buyer pursuant to this Agreement or in connection with the
Transactions.
No claim, demand, suit or cause of action shall be brought against Buyer
under this Section 12.3 unless and until the aggregate amount of claims against
Buyer under this Agreement exceeds $50,000, in which event Seller shall be
entitled to indemnification from Buyer for all claims hereunder relating back to
the first dollar, provided further, however, that Buyer's liability shall in no
event exceed the Purchase Price.
12.4 MAXIMUM DAMAGES. Buyer, Shareholders and Seller agree that:
(a) Subject to the provisions of Section 12.2 with respect to lower
maximum amounts of damages, damages in the aggregate to be paid by Seller
and/or any one or more Shareholders in any capacity, as the case may be,
to Buyer under Sections 12.1 and/or 12.2 hereof and under Section 2 of
the Non-Compete Agreement shall in no event exceed Five Million Five
Hundred Thousand Dollars ($5,500,000) for any and all claims under this
Agreement of any and all natures, so that the maximum amount which shall
be paid to Buyer from Seller and all Shareholders under Sections 12.1 and
12.2 in any capacity and pursuant to this Agreement and all Non-Compete
Agreements shall not exceed Five Million Five Hundred Thousand Dollars
($5,500,000).
(b) Any sums paid to Buyer under the provisions of Section 2 of the
Non-Compete Agreement shall be applied to reduce the maximum amount of
liability of Seller and/or any one or more Shareholders in any capacity,
as the case may be, under Sections 12.1 and/or 12.2 hereof, as the case
may be;
(c) Any sums paid by Seller and/or any one or more Shareholders in
any capacity, as the case may be, to Buyer under Section 12.1 and/or 12.2
of this Agreement shall be applied to reduce the maximum liability under
Section 2 of the Non-Compete Agreement; and
(d) Damages to be paid by Buyer to Seller under Section 12.3 hereof
shall, in the aggregate, in no event exceed Five Million Five Hundred
Thousand Dollars ($5,500,000) for any and all claims under this Agreement
of any and all natures.
A-11
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13. MISCELLANEOUS.
13.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given on the next business
day if delivered personally or by telecopier (with a confirming copy sent
via Federal Express or other international courier) to the parties, their
successors in interest or their assignees at the following addresses, or at
such other addresses as the parties may designate by written notice in the
manner aforesaid:
<TABLE>
<S> <C>
IF TO BUYER: Maxwell Shoe Company Inc.
101 Sprague Street
Hyde Park (Boston), Massachusetts 02136
Attention: Mark J. Cocozza, President
Facsimile: (617) 364-9058
Telephone: (617) 333-4028
With a concurrent copy
to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan K. Layne, Esq.
Facsimile: (213) 229-7520
Telephone: (213) 229-7141
IF TO SELLER: Sam & Libby, Inc.
58 West 40th Street
New York, New York 10018
Attention: Kenneth Sitomer,
Chief Operating Officer and Chief Financial
Officer
Facsimile: (212) 944-4837
Telephone: (212) 782-4830
With a concurrent copy
to: Kaufmann, Feiner, Yamin, Gildin & Robbins LLP
777 3rd Avenue, 24th Floor
New York, New York 10017
Attention: Michael Yamin, Esq.
Facsimile: (212) 755-3174
Telephone: (212) 755-3100
and
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven L. Berson, Esq.
Facsimile: (415) 493-6811
Telephone: (415) 493-9300
IF TO SHAREHOLDERS: Sam Edelman
212 Mount Holly Road
Katonah, New York 10536
Facsimile: (914) 232-7901
Telephone: (914) 232-6690
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
With a concurrent copy
to: Kaufmann, Feiner, Yamin, Gildin & Robbins LLP
777 3rd Avenue, 24th Floor
New York, New York 10017
Attention: Michael Yamin, Esq.
Facsimile: (212) 755-3174
Telephone: (212) 755-3100
and
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven L. Berson, Esq.
Facsimile: (415) 493-6811
Telephone: (415) 493-9300
</TABLE>
13.2 ASSIGNABILITY AND PARTIES IN INTEREST.
(a) This Agreement shall not be assignable by either Buyer or Seller
except that Buyer may assign its rights hereunder to, and have its
obligations hereunder assumed by, a wholly-owned subsidiary of Buyer without
releasing Buyer. This Agreement shall inure to the benefit of and be binding
upon Buyer and Seller and their respective permitted successors and assigns.
(b) This Agreement shall inure to the benefit of and be binding upon
each of the Shareholders and their respective permitted successors and
assigns.
13.3 COUNTERPARTS; FAX. This Agreement may be executed by fax and
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
13.4 FINANCING. The transactions contemplated by this Agreement are
not subject to any financing contingency on the part of Buyer.
13.5 CERTAIN TAXES. Except for those costs specifically noted in
Section 9.8, all sales, value added, use, transfer, registration, stamp and
similar taxes imposed in connection with the sale of the Trademarks shall be
borne by Seller.
13.6 COMPLETE AGREEMENT. This Agreement, together with all Schedules
and Exhibits A, B, C, D and E hereto, and any documents delivered or to be
delivered pursuant to this Agreement contain or will contain the entire
agreement among the parties hereto with respect to the transactions
contemplated herein and shall supersede all previous oral and written and
all contemporaneous oral negotiations, commitments and understandings.
13.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. None of the terms or
provisions of this Agreement may be modified, amended or waived, except by a
written instrument executed by the parties.
13.8 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.9 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable in any other jurisdiction.
A-13
<PAGE>
13.10 EXPENSES. Buyer, on the one hand, and Seller and the
Shareholders, on the other hand, will pay their own costs and expenses
related to the negotiation, preparation and execution of this Agreement and
the transactions contemplated thereby, including, but not limited to, any
fairness opinion Seller may receive in connection with the Transactions.
13.11 TERMINATION BY MUTUAL CONSENT. At any time prior to the Closing,
this Agreement may be terminated by the mutual written consent of the
parties.
13.12 INJUNCTIVE RELIEF.
(a) The parties acknowledge and agree that monetary damages are
inadequate and insufficient to fully recompense Buyer for any breaches of
this Agreement by Seller or the Shareholders, and therefore, the parties
stipulate that Buyer shall be entitled to injunctive relief, specific
performance and/or any other appropriate remedy for any breaches by Seller
or the Shareholders of this Agreement, including, but not limited to,
breaches of Sections 9.1, 9.2, 9.5, 9.10, 9.11 and 10.5 of this Agreement.
(b) The parties acknowledge and agree that monetary damages are
inadequate and insufficient to fully recompense Seller for a breach of
Sections 9.1(a) and/or 9.10 of this Agreement by Buyer, and therefore, Buyer
and Seller stipulate that Seller shall be entitled to injunctive relief,
specific performance and/or any other appropriate remedy for a breach by
Buyer of Sections 9.1(a) and/or 9.10 of this Agreement.
13.13 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal law, and not the law
pertaining to conflicts or choice of law, of the State of New York.
13.14 ARBITRATION. Any controversy, dispute or claim based upon,
arising out of, in connection with, or in relation to, the Transactions, or
based upon any interpretation of, this Agreement, shall be settled, at the
written request of any party, by final and binding arbitration conducted in
the city of New York, New York. The arbitration shall be conducted by
JAMS/Endispute, in accordance with its then existing rules for commercial
arbitration. Judgment upon any award rendered by the arbitrator shall be
final and binding with no rights of appeal and may be entered by any State
or Federal court having jurisdiction thereof. The parties further intend
that this arbitration provision shall have the effect of a waiver by all
parties to a jury trial. The arbitration shall be conducted by a single
arbitrator. The arbitrator shall be chosen by mutual consent of the parties
from a list of available arbitrators provided by JAMS/Endispute within ten
(10) days of receipt of the list. If the parties cannot reasonably agree
upon an arbitrator within the ten (10) day period, each party shall select
within ten (10) days an arbitrator from the list provided by JAMS/Endispute.
The two arbitrators selected will then select a third arbitrator within
fifteen (15) days, who will become the sole arbitrator for such controversy,
dispute or claim. The arbitrator shall have the power to award Buyer
injunctive relief against Seller or any of the Shareholders, pursuant to
Section 13.12 of this Agreement or otherwise, in the event this Agreement is
breached by any such entity or person. The arbitrator shall award to the
prevailing party with respect to any matter submitted to arbitration
hereunder all reasonable attorneys fees, all expert fees and expenses and
all costs as may be incurred in connection with either obtaining or
collecting any judgment and/or arbitration award, in addition to any other
relief to which that party may be entitled.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.
BUYER
MAXWELL SHOE COMPANY INC.,
a Delaware corporation
By: /s/ MARK J. COCOZZA
--------------------------------------
Name: Mark J. Cocozza
Title: President and Chief Operating
Officer
SELLER
SAM & LIBBY, INC., a California
corporation
By: /s/ KENNETH SITOMER
--------------------------------------
Name: Kenneth Sitomer
Title: Chief Operating Officer and
Chief Financial Officer
THE SHAREHOLDERS:
/s/ SAMUEL L. EDELMAN
--------------------------------------
Samuel L. Edelman, individually and as
trustee, if applicable (as to Sections
7.1, 9.6, 9.10, 9.14, 10.3, 10.5,
10.7, 11.2(g), 11.2(k), 12.2, 12.4,
13.2(b), 13.10, 13.12(a) and 13.14 of
this Agreement)
(5,102,822 Shares held as community
property with Louise B. Edelman)
/s/ LOUISE B. EDELMAN
--------------------------------------
Louise B. Edelman, individually and as
trustee, if applicable (as to Sections
7.1, 9.6, 9.10, 9.14, 10.3, 10.5,
10.7, 11.2(g), 11.2(k), 12.2, 12.4,
13.2(b), 13.10, 13.12(a) and 13.14 of
this Agreement)
(5,102,822 Shares held as community
property with Samuel L. Edelman)
/s/ STUART L. KREISLER
--------------------------------------
Stuart L. Kreisler individually (as to
Sections 7.1, 9.6, 9.14, 10.3, 10.5,
10.7, 11.2(k), 12.2, 12.4, 13.2(b),
13.10, 13.12(a) and 13.14 of this
Agreement)
(1,158,000 Shares)
A-15
<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION OF
SAM & LIBBY, INC.
The undersigned, Samuel L. Edelman and Steven L. Berson, hereby certify
that:
1. They are the President and the Secretary, respectively, of Sam &
Libby, Inc., a California corporation.
2. Article I of the Articles of Incorporation of this corporation is
amended in its entirety to read as follows:
"I
The name of this corporation is Utopia Marketing, Inc."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors of the corporation.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902
of the California Corporations Code. The total number of outstanding shares
of the corporation is 13,741,367 shares of Common Stock. The number of
shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was a majority of the outstanding
shares of Common Stock voting as a single class.
We further declare under penalty of perjury that the matters set forth in
the foregoing Certificate are true and correct of our own knowledge.
Executed at New York, New York, this day of August, 1996.
--------------------------------------
Samuel L. Edelman, President
--------------------------------------
Steven L. Berson, Secretary
B-1
<PAGE>
EXHIBIT C
OPINION OF BERENSON MINELLA & COMPANY
[The opinion of Berenson Minella & Company will be included with the definitive
Proxy Statement.]
C-1
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SAM & LIBBY, INC.
1996 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of SAM & LIBBY, INC., a California
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Shareholders and Proxy Statement, each dated August __,
1996, and hereby appoints Samuel L. Edelman and Kenneth M. Sitomer, and each
of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the 1996 Annual Meeting of Shareholders of SAM & LIBBY, INC.
to be held on August 15, 1996 at 9:30 a.m., local time, at the offices of the
Company located at 58 West 40th Street, New York, New York 10018 and any
continuation(s) or adjournment(s) thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below:
1. Proposal to sell certain assets to Maxwell Shoe Company Inc.
("Maxwell"), including approval of an amendment to the Company's Articles of
Incorporation in order to change the Company's name to "Utopia Marketing,
Inc." as of the Closing.
/ / FOR / / AGAINST / / ABSTAIN
2. Election of directors:
/ / FOR all nominees listed below (except as indicated)
/ / WITHHOLD authority to vote for all nominees listed below.
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Samuel L. Edelman, Louise B. Edelman, Stuart L. Kreisler, I. Jay Goldfarb
3. Proposal to ratify the appointment of Deloitte & Touche, LLP as the
independent public accountants of the Company for the 1996 fiscal year:
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion upon such other matter or matters which may
properly come before the meeting and any continuation(s) or adjournment(s)
thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, FOR THE SALE OF ASSETS TO MAXWELL, FOR THE ELECTION OF DIRECTORS,
FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE, LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING.
<PAGE>
Either of such attorneys or substitutes shall have and may exercise all
of the powers of said attorneys-in-fact hereunder.
Dated:_________________________________
_______________________________________
(SIGNATURE)
_______________________________________
(SIGNATURE)
(This Proxy should be dated, signed by
the shareholder(s) exactly as his or her
name appears hereon, and returned
promptly in the enclosed envelope.
Persons signing in a fiduciary capacity
should so indicate. If shares are held by
joint tenants or as community property,
both should sign.)
