UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 52 weeks ended January 30, 1999
Commission File No. 1-11161
Nine West Group Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1093855
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Nine West Plaza
1129 Westchester Avenue
White Plains, New York 10604
(Address of Principal Executive Offices) (Zip Code)
(314) 579-8812
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class: on Which Registered:
- -------------------------------------- -----------------------
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on April 16, 1999: $708,418,777.
Total number of shares of Common Stock, $.01 par value per share,
outstanding as of the close of business on April 16, 1999: 34,003,431.
TABLE OF CONTENTS
Page
PART I
Item 1 Business 3
Item 2 Properties 14
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 7A Quantitative and Qualitative Disclosures About
Market Risk 28
Item 8 Financial Statements and Supplementary Data 30
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 65
PART III
Item 10 Directors and Executive Officers of the Registrant 66
Item 11 Executive Compensation 67
Item 12 Security Ownership of Certain Beneficial Owners and
Management 74
Item 13 Certain Relationships and Related Transactions 76
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 78
PART I
ITEM 1. BUSINESS.
GENERAL
Nine West Group Inc. (together with its subsidiaries, the "Company") is
a leading designer, developer and marketer of quality, fashionable women's
footwear and accessories. The Company markets a full collection of casual,
career and dress footwear and accessories under multiple brand names, each of
which is targeted to a distinct segment of the women's footwear and
accessories markets, from "fashion" to "comfort" styles and from "moderate" to
"bridge" price points. The Company's footwear and accessories are sold to
more than 7,000 department, specialty and independent retail stores and
through 1,499 of its own retail locations operating as of January 30, 1999.
In addition to its flagship Nine West label, the Company's internationally
recognized brands include Amalfi, Bandolino, Calico, cK/Calvin Klein (under
license), Easy Spirit, Enzo Angiolini, Evan-Picone (under license), 9 & Co.,
Pappagallo, Pied a Terre, Selby and Westies. The Company's Jervin private
label division also arranges for the purchase of footwear by major retailers
and other wholesalers for sale under the customers' own labels. The Company
believes that its primary strengths are: (1) its widely-recognized brand
names, (2) the high quality, value and styling of its products, (3) its
ability to respond quickly to changing fashion trends, (4) its established
sourcing relationships with efficient manufacturers in Brazil, China and other
locations, (5) the broad distribution of its products through both wholesale
and retail channels and (6) its ability to provide timely and reliable
delivery to its customers. The Company believes that it is one of the few
established footwear companies that offer a number of complete lines of
well-known women's leather footwear in a wide variety of colors, styles and
retail price points and that, as a result, it is able to capitalize on what
the Company believes is a continuing trend among major wholesale accounts to
consolidate footwear purchasing from among a narrowing group of vendors. In
addition, the Company believes that the sale of footwear and accessories
through its retail stores increases consumers' awareness of the Company's
brands.
On May 23, 1995, the Company consummated its acquisition (the
"Acquisition") of the footwear business of The United States Shoe Corporation
(the "Footwear Group"). Financial information for 1998, 1997 and 1996 is not
comparable to 1995 and 1994, as Footwear Group results are included in the
entire 1998, 1997 and 1996 periods and are included in 1995 for the 37-week
period from May 23, 1995 through February 3, 1996.
The Company, Jones Apparel Group, Inc. ("Jones") and Jill Acquisition
Sub Inc. ("Merger Sub") have entered into an Agreement and Plan of Merger
dated as of March 1, 1999 (the "Merger Agreement"), pursuant to which the
Company will be merged with Merger Sub (the "Merger") and all outstanding
shares of the Company's Common Stock, other than shares held by parties to the
Merger Agreement or by dissenting shareholders who perfect their statutory
appraisal rights under Delaware law, will be converted into the right to
receive $13.00 in cash and a number of shares of common stock of Jones (the
"Jones Common Stock") equal to the Exchange Ratio, subject to the terms and
conditions of the Merger Agreement. The "Exchange Ratio" will be (i) .5011 if
the average price of the Jones Common Stock for a 15-day period prior to the
Closing (the "Jones Stock Price") is greater than or equal to $24.00 and less
than or equal to $34.00; (ii) equal to $12.00 divided by the Jones Stock Price
if the Jones Stock Price is greater than or equal to $21.00 and less than
$24.00; (iii) .5714 if the Jones Stock Price is less than $21.00; (iv) equal
to $17.00 divided by the Jones Stock Price if the Jones Stock Price is greater
than $34.00 but less than or equal to $36.00; and (v) .4722 if the Jones Stock
Price is greater than $36.00. Based on a value of Jones Common Stock of $29-
5/8 per share as of April 16, 1999, and including assumed debt, the
transaction has a total value of approximately $1.5 billion. Jones is a
designer and marketer of a broad array of products, including sportswear,
jeanswear, suits and dresses. The Merger will be accounted for as a purchase
for financial accounting purposes. The transaction is expected to close by
the end of June 1999 and is subject to customary conditions, including
approval by Company stockholders.
OPERATING SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS, AND EXPORT SALES.
The Company's operations are comprised of domestic wholesale, domestic
retail and international segments. The Company identifies operating segments
based on, among other things, the way that the Company's management organizes
the components of the Company's business for purposes of allocating resources
and assessing performance. Segment revenues are generated from the sale of
footwear and accessories through wholesale channels and the Company's own
retail locations and are recorded on the basis of customer location. See
"Business Segment and Geographic Area Information" in the Notes to
Consolidated Financial Statements.
DOMESTIC WHOLESALE SEGMENT
The Company's domestic wholesale operations include the sale of both
brand name and private label footwear and/or accessories through 11 branded
divisions, as well as the Jervin private label division and the Accessories
division. The Jervin private label division earns commissions on an agency
basis for arranging with manufacturers the production of footwear for sale
under its customers' private labels. The Jervin division provides design
expertise, selects the manufacturer, oversees the manufacturing process and
arranges the sale of footwear to the customer. The Accessories division
produces and sells handbags and small leather goods under the names "Nine
West," "Easy Spirit" and "Enzo Angiolini" through the Company's retail stores
and primarily under the name "Nine West" through wholesale channels.
Additionally, the Company's licensees sell products, including belts,
children's shoes, eyewear, jewelry, legwear, outerwear, slippers and watches,
to wholesale customers primarily under the name "Nine West," with respect to
which the Company earns licensing revenues.
The following table summarizes selected aspects of the products sold by
the domestic wholesale segment:
<TABLE>
<S> <C> <C> <C> <C>
Product Market
Classification Segments Retail Price Range
-------------- -------- -------------------
Footwear
--------
Shoes Boots
----- -----
Nine West Contemporary Upper Moderate $49 to $75 $79 to $160
Amalfi Refined Classics Salon $110 to $140 $150 to $185
Bandolino Modern Classics Better $60 to $75 $80 to $160
Calico Value/Affordable Moderate $30 to $50 $60 to $65
Fashion
cK/Calvin Dress Tailored Bridge $65 to $195 $115 to $295
Klein Casual
Seasonal Sport
Easy Spirit Comfort/Fit Upper Moderate $40 to $85 $70 to $125
Active
Sport/Casuals
Enzo Sophisticated Better $60 to $88 $100 to $165
Angiolini Classics
Evan-Picone Contemporary Bridge $80 to $110 $120 to $150
9 & Co. Junior/Trend Moderate $30 to $60 $55 to $100
Selby Lifestyle Classics/ Upper Moderate $60 to $85 $95 to $150
Comfort
Specialty Traditional/ Moderate/Lower $25 to $40 $40 to $50
Marketing/ Contemporary Moderate
Westies
Jervin All Moderate/Lower $20 to $50 $30 to $70
Private Label Moderate
Accessories
-----------
Accessories Handbags and Moderate/Better $30 to $100
small leather goods
cK/Calvin Handbags and Bridge $35 to $200
Klein small leather goods
</TABLE>
DOMESTIC RETAIL SEGMENT
DOMESTIC SPECIALTY RETAIL OPERATIONS
The Company's Nine West, Easy Spirit, Enzo Angiolini, 9 & Co. and
cK/Calvin Klein Shoes and Bags divisions market footwear and accessories
directly to consumers through the Company's domestic specialty retail stores
operating in mall and urban retail center locations. Each of these stores
sells footwear and accessories primarily under its respective brand name. The
Company's Nine West, Easy Spirit and Enzo Angiolini retail stores offer a
selection of exclusive products not marketed to the Company's wholesale
customers. Certain of the Company's retail stores also sell products licensed
by the Company, including belts, jewelry, legwear, outerwear and sunglasses.
The Company plans to close up to 65 domestic specialty retail locations (net
of openings) in 1999. Of these closings, approximately 50 are related to the
Company's decision to close all 63 of its 9 & Co. stores in operation at
January 30, 1999. The Company intends to close the remaining 9 & Co. stores
in 2000.
The following table summarizes selected aspects of the Company's
domestic specialty retail stores:
<TABLE>
<S> <C> <C> <C> <C> <C>
Enzo cK/Calvin
Nine West Easy Spirit Angiolini 9 & Co. Klein
--------- ----------- --------- ------- ----------
Number of 281 224 81 63 6
locations
Brands offered Nine West Easy Spirit Enzo 9 & Co. cK/Calvin
and, in Angiolini Klein
selected and, in
locations, selected
Bandolino locations,
Evan-Picone
and Nine West
Retail price $59 to $170 $45 to $125 $60 to $165 $30 to $89 $65 to $295
range of shoes
and boots
Retail price $18 to $79 $22 to $99 $15 to $200 $12 to $35 $20 to $200
range of handbags
and small leather
goods
Type of Upscale and Upscale and Upscale malls Regional Upscale malls
locations regional regional and urban malls and
malls and malls and retail centers urban retail
urban retail urban retail centers
centers centers
Average store
size (in square 1,563 1,380 1,344 1,539 1,824
feet)
Revenues per
square foot $455 $422 $470 $306 $408
during 1998(a)
(a) Revenues per square foot are determined by dividing total retail net
revenues by the annual average gross retail square footage.
</TABLE>
DOMESTIC VALUE-BASED RETAIL OPERATIONS
The Company's domestic value-based retail stores are operated by the
Company's Value-Based Retail Stores division under the following names: Nine
West Outlet, Easy Spirit Outlet and Banister. This division also operates
leased departments in Stein Mart stores. The outlet concept was implemented
by the Company in order to target more value-oriented retail customers and to
offer a distribution channel for its residual inventories. In 1998, 25% to
30% of the Nine West Outlet stores' merchandise consisted of discontinued
styles from the Company's specialty retail stores and the Company's wholesale
operations, with the remainder of the merchandise consisting of new production
of current and proven prior season's styles. Banister and Stein Mart stores
carry the Company's brands of women's footwear and a limited selection of
other suppliers' women's and men's dress, casual and athletic footwear. The
Easy Spirit Outlet stores sell primarily the Easy Spirit brand and focus on
the size, width and comfort business with a selection of Selby styles in
selected stores. The Company plans to close up to 10 domestic value-based
retail locations (net of openings) in 1999. This division also operates the
Company's temporary clearance centers.
The following table summarizes selected aspects of the Company's
domestic value-based retail stores:
<TABLE>
<S> <C> <C> <C> <C>
Nine Easy
West Spirit
Outlet(a) Outlet Banister Stein Mart
------ ------ -------- ----------
Number of 164 35 129 86
locations
Brands offered Primarily Easy Spirit All Company All Company
Nine West and Selby brands brands
Retail price range $25 to $100 $25 to $80 $25 to $90 $25 to $90
of shoes and boots
Type of locations Mfr's outlet Mfr's outlet Mfr's outlet Strip centers
centers centers centers
Average store size 2,645 2,432 4,553 2,794
(in square feet)
Revenues per square $322 $259 $181 $174
foot during 1998 (b)
(a) Includes 10 Enzo Angiolini Outlet stores in operation at January 30,
1999, which carry primarily the Enzo Angiolini brand at retail prices
ranging from $25 to $100 and are located in manufacturers' outlet
centers. The Company does not currently plan to expand the number of
Enzo Angiolini Outlet stores.
(b) Revenues per square foot are determined by dividing total retail net
revenues by the annual average gross retail square footage.
</TABLE>
DOMESTIC RETAIL OPENINGS
The Company's ongoing evaluation of its retail operations has led to a
decision to grow its retail network at a slower pace by applying rigorous
standards to all retail location opening and closing decisions. As a result,
the Company plans to open 25 to 30 domestic specialty and value-based retail
locations in 1999 (excluding closings). Proposed sites for the Company's
retail stores are selected based on location, including the area's population
density and level of traffic, average sales per square foot of the shopping
mall, urban retail center or manufacturers' outlet center locations, average
household income and other local demographics. Outlet stores generally are
located outside the shopping radius of the Company's wholesale customers and
its specialty retail stores. The types of stores opened by the Company and
the results generated by such stores depend on various factors, including,
among others, general economic and business conditions affecting consumer
spending, the performance of the Company's wholesale and retail operations,
the acceptance by consumers of the Company's retail concepts, the availability
of desirable locations and the ability of the Company to negotiate acceptable
lease terms for new locations, hire and train personnel and otherwise manage
such expansion. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources" for additional information regarding planned store openings and
capital expenditures.
INTERNATIONAL SEGMENT
In 1995, the Company organized an international division for the purpose
of promoting sales growth of the Company's products. The Company's
international division derives its revenues primarily from the operation of
retail locations, and sells footwear and, in some cases, accessories, under
certain of the Company's brand names. Certain of the Company's Pied a Terre
locations offer clothing. The Company currently markets its products to
customers in more than 55 countries, including Australia, Canada, Chile,
China, France, Hong Kong, Japan, Malaysia, Mexico, Singapore, Taiwan, Thailand
and the United Kingdom. The Company operated 430 specialty retail locations
internationally (146 specialty retail stores and 284 specialty retail
concessions) at the end of 1998, including 228 in the United Kingdom, 25 in
Canada and 8 in France. Of those 430 specialty retail locations, the Company
operated 169 specialty retail locations through joint ventures in Australia
(28), Japan (43), Hong Kong (25), Malaysia (3), Singapore (5), Taiwan (51) and
Thailand (14). During 1998, the Company acquired 25 specialty retail stores
in the United Kingdom and opened (net of closings) 57 specialty retail
locations in Asia, Australia, Canada and Europe.
As a result of the Company's decision to grow its retail network at a
slower pace, the Company plans to open up to 15 additional international
retail locations (net of closings) in 1999. Consistent with this policy, the
Company intends to expand its international retail presence through both
retail location openings and, subject to the Company's ability to find
acceptable partners, various cooperative arrangements with established
retailers. However, the Company presently has no commitments to expand into
any country other than those in which it currently operates. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional information
regarding planned store openings and capital expenditures.
The following table summarizes selected aspects of the Company's
international retail locations:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Easy Enzo cK/Calvin Pied a
Nine West Spirit Angiolini Klein Terre Shoe Studio
--------- ------ --------- --------- ------ -----------
Number of 189 3 17 16 36 169
locations
Brands Primarily Easy Primarily cK/Calvin Pied a Bertie, Roland
offered Nine West Spirit Enzo Klein Terre and Cartier, Roberto
and Selby Angiolini a selection Vianni, Vivaldi,
of cK/Calvin Nine West and
Klein a selection of
other brands
Retail price
range of shoes $40 to $155 $80 to $130 $65 to $160 $90 to $240 $100 to $280 $35 to $92
and boots
(in U. S.
dollars)
Type of Upscale and Regional Department Department Urban retail Department
locations regional malls store store locations, store concessions
malls, urban concession concessions regional malls
retail and upscale and upscale and department
locations and malls malls store concessions
department store
concessions
Average store
size (in 964 1,337 524 691 1,015 1,582
square feet)
Revenues per
square foot $517 $186 $474 $577 $777 $477
during
1998 (a)
(a) Revenues per square foot are determined by dividing total retail net
revenues by the annual average gross retail square footage.
</TABLE>
DESIGN
Separate design teams for each branded division (which are staffed with
a line builder, one or two designers and, in some cases, a fashion director)
develop the Company's brands by independently interpreting global lifestyle,
clothing, footwear and accessories trends. To research and confirm such
trends, the teams: (1) travel extensively in Asia, Europe and major American
markets; (2) conduct extensive market research on retailer and consumer
preferences; and (3) subscribe to fashion and color information services.
Each team separately develops between 60 and 300 initial designs for each
season and, working closely with senior management, selects 20 to 110 styles
that maintain each brand's distinct personality. Samples are refined and then
produced. After the samples are evaluated, lines are modified further for
presentation at each season's shoe shows.
MANUFACTURING
The Company relies on its long-standing relationships with its Brazilian
and Chinese manufacturers working through its independent buying agents, its
own factories, and other third party manufacturers in other countries, to
provide a steady source of inventory. Allocation of production among the
Company's footwear manufacturing resources is determined based upon a number
of factors, including manufacturing capabilities, delivery requirements and
pricing.
During 1998, approximately 50% of the Company's footwear products were
manufactured by more than 15 independently owned footwear manufacturers in
Brazil. As a result of the number of entrepreneurial factory owners, the
highly skilled labor force, the modern, efficient vertically-integrated
factories and the availability of high-quality raw materials, the Brazilian
manufacturers are able to produce significant quantities of moderately priced,
high-quality leather footwear. The largest of these Brazilian factories
operate tanneries for processing leather and produce lasts, heels and other
footwear components as well as finished goods, and source raw materials
worldwide based on input from the Company. The Company believes that its
relationships with its Brazilian manufacturers provide it with a responsive
and active source of supply of its products and, accordingly, give the Company
a significant competitive advantage. The Company also believes that
purchasing a significant percentage of its products in Brazil allows it to
maximize production flexibility while limiting its capital expenditures,
work-in-process inventory and costs of managing a larger production work
force. Because of the sophisticated manufacturing techniques and vertical
integration of these manufacturers, individual production lines can be quickly
changed from one style to another, and production of certain styles can be
completed in as few as four hours, from uncut leather to boxed footwear.
Historically, instability in Brazil's political and economic environment
has not had a material adverse effect on the Company's financial condition or
results of operations. The Company cannot predict, however, the effect that
future changes in economic or political conditions in Brazil could have on the
economics of doing business with its Brazilian manufacturers. Although the
Company believes that it could find alternative manufacturing sources for
those products which it currently sources in Brazil, the establishment of new
manufacturing relationships would involve various uncertainties, and the loss
of a substantial portion of its Brazilian manufacturing capacity before the
alternative sourcing relationships were fully developed could have a material
adverse effect on the Company's financial condition or results of operations.
However, the Company has manufacturing operations in the United States and
the Dominican Republic and additional relationships in China and other
countries as potential alternative sources for its products.
The Company currently owns and operates two domestic footwear
manufacturing factories and one component factory which, during 1998,
manufactured collectively approximately 8% of all footwear products sold by
the Company. During 1998, as part of its continuing program of consolidating
operations and optimizing its global sourcing activities in order to reduce
overall product cost, the Company closed one domestic manufacturing factory
and substantially completed the reconfiguration and integration of certain
operations at its three remaining domestic factories, which reduced annual
domestic footwear production capacity from approximately 5.0 million pairs to
approximately 3.0 million pairs. See "Item 2 - Properties" and "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations." The Company's footwear manufacturing
factories can produce different styles on the same line to increase
flexibility and respond to various demands. The domestic factories source raw
materials worldwide, including from the Company's vendors in Brazil. These
factories typically operate with two shifts but can expand to three when
demand is high. The Company also leases and operates two factories in the
Dominican Republic which produce primarily the upper components used by the
Company's domestic factories. The Company discontinued use of a leased
component factory in Honduras in February 1999.
The Company's footwear is also manufactured by independent third parties
located in China (approximately 26%) and, to a lesser extent, Korea and other
countries in the Far East, and in Italy, Spain and Uruguay. The Company's
accessories are sourced through the Company's own buying offices in Korea and
Hong Kong, which utilize independent third party manufacturers in China and
Indonesia.
The price paid by the Company for any style of footwear is determined
after a physical sample of the style is produced, and is dependent on, among
other things, the materials used and the quantity ordered for such style of
footwear. Once a price list by style has been prepared and agreed to with a
manufacturer, changes in prices generally occur only as a result of
substitution of materials at the request of the Company. During the past
year, there have been moderate increases in the general price of leather,
which have generally been reflected in the selling price of the Company's
products. Products have historically been purchased from the Brazilian and
Asian manufacturers in pre-set United States dollar prices, and therefore, the
Company generally has not been adversely affected by fluctuations in exchange
rates. However the Company anticipates that in 1999, it will benefit from the
devaluation of the Brazilian real that began in January 1999.
The Company places its projected orders for each season's styles with
its manufacturers prior to the time the Company has received all of its
customers' orders. Because of the Company's close working relationships with
its third party manufacturers (which allow for flexible production schedules
and production of large quantities of footwear within a short period of time),
most of the Company's orders are finalized only after it has received orders
from a majority of its customers. As a result, the Company believes that, in
comparison to its competitors, it is better able to meet sudden demands for
particular designs, more quickly exploit market trends as they occur, reduce
inventory risk and more efficiently fill reorders booked during a particular
season.
The Company does not have any contracts with any of its manufacturers
but, with respect to footwear imported from Brazil, relies on its
long-standing relationships with its Brazilian manufacturers directly and
through its independent buying agent, Bentley Services Inc. (the "Agent").
The Agent and its affiliates have overseen the activities of the Brazilian
manufacturers for more than 15 years. In consultation with the Company, the
Agent selects the proper manufacturer for the style being produced, monitors
the manufacturing process, inspects finished goods and coordinates shipments
of finished goods to the United States. The Company entered into a five-year
contract with the Agent effective January 1, 1992, which has been extended for
an additional five years, which provides that the Agent, its owners,
employees, directors and affiliates will not act as a buying agent for, or
sell leather footwear manufactured in Brazil to, other importers, distributors
or retailers for resale in the United States, Canada or the United Kingdom.
As compensation for services rendered, the Agent receives a percentage of the
sales price of the merchandise shipped to the Company. Paramont Trading S.A.,
an affiliate of the Agent, serves as the Company's agent in China. In
addition to the Agent and Paramont Trading S.A., the Company utilizes its own
buying offices in Hong Kong, Italy, Korea and Spain. Neither the Agent or
Paramont Trading S.A. nor any of their principals are affiliates of the
Company.
MARKETING
The Company introduces new collections of footwear at industry-wide shoe
shows, held four times yearly in New York City and twice yearly in Las Vegas,
and at regional shoe shows throughout the year. The Company also introduces
new accessory collections at market shows that occur four times each year in
New York City. After each show, members of the Company's 127-person direct
sales force visit customers to review the lines and take orders. The Company
presently has footwear showrooms in New York City and Dallas, an accessories
showroom in New York City, and a cK/Calvin Klein Shoes and Bags showroom in
New York City, where buyers view and place orders for the Company's products.
In addition, licensees show the licensed products within their own showrooms.
The Company promotes its business with certain department and specialty
retail stores through "concept marketing teams," enabling the Company to bring
its retail and sales planning expertise to individual retailers. Concept
marketing teams are comprised of members of branded division management who
have extensive retail backgrounds and include field merchandising associates
who monitor sales of the Company's products. Under this program, the concept
marketing teams work with the retailer to create a "focus area" or "concept
shop" within the store that displays the full collection of an entire brand in
one area. The concept marketing team assists the department and specialty
retail stores by: (1) recommending how to display the Company's products; (2)
educating the store personnel about the Company and its products; (3)
selecting the appropriate product assortment; (4) recommending when a product
should be re-ordered or its retail price marked-down; (5) providing sales
guidance, including the training of store personnel; and (6) developing
advertising programs for the retailers to promote sales of the Company's
products. The goal of the concept marketing teams is to promote high retail
sell-throughs of the Company's products at attractive profit margins for its
retail customers. Through this approach, customers are encouraged to devote
greater selling space to the Company's products and the Company is better able
to assess consumer preferences, the future ordering needs of its customers and
inventory requirements.
ADVERTISING AND PROMOTION
The Company's brands are positioned and marketed through consistent,
integrated communication programs, including national advertising, special
events, product packaging and in-store visual support. The Easy Spirit brand
is advertised on television and in lifestyle, health and fitness magazines.
The Company's in-house creative services department works closely with senior
management and oversees the conception, production and execution of virtually
all aspects of these activities. The Company also participates in cooperative
advertising programs in newspapers and magazines with its major wholesale
customers and shares the cost of its wholesale customers' advertising based on
total purchases. The Company produces national advertising campaigns for its
Nine West, Enzo Angiolini, Easy Spirit, 9 & Co. and Pied a Terre brands in
major fashion magazines, including Vogue, In Style, Marie Claire, Teen People,
Vanity Fair and Elle. In 1998, 1997 and 1996, the Company incurred $42.2
million, $57.7 million and $45.2 million, respectively, of national,
cooperative and other advertising expenses. The decrease in advertising
expenses in 1998 is attributable primarily to decreased national advertising.
Under the Company's license agreement with Calvin Klein, Inc. (the "License
Agreement"), the Company has agreed to meet certain thresholds based on
Revenues (as defined in the License Agreement) for cooperative, trade and
local advertising for the cK/Calvin Klein retail locations, and consumer
advertising and promotion of licensed products and the licensed trademark.
The Company also believes that its retail network promotes brand name
recognition and supports the merchandising of complete lines by, and the
marketing efforts of, its wholesale customers.
RESTRICTIONS ON IMPORTS
Imports into the United States are affected by, among other things, the
cost of transportation and the imposition of import duties. The United
States, Brazil and other countries in which the Company's products might be
manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adjust presently prevailing quotas, duty or tariff
levels, which could affect the Company's operations and its ability to import
products at current or increased levels. The Company cannot predict the
likelihood or frequency of any such events occurring. While the Company is
subject to certain duties, it has not been subject to quotas or other import
restrictions.
The Company's imported products are subject to United States customs
duties and, in the ordinary course of its business, the Company may from time
to time be subject to claims for duties and other charges. United States
customs duties currently incurred by the Company with respect to footwear are
10% of factory cost on footwear made principally of leather and between 6% and
37.5% of factory cost on synthetic footwear. United States customs duties
currently incurred by the Company with respect to accessories are between 8%
and 10% of factory cost on items made of leather, 19% and 20% of factory cost
on items made of synthetic fibers and 7% and 19% of factory cost on items made
of natural fibers. During 1998, approximately 86% of the Company's net
revenues were derived from the sale of footwear and accessories principally
made of leather.
DISTRIBUTION
The Company utilizes fully integrated information systems to facilitate
the receipt, processing and distribution of its merchandise through its
domestic distribution centers, which consist of two leased facilities located
in West Deptford, New Jersey and one leased facility located in Cincinnati,
Ohio. Upon completion of manufacturing, the Company's products are inspected,
bar coded, packed and shipped from the manufacturing facilities to the
distribution centers. In 1998, ocean freight of imported products
manufactured overseas accounted for approximately 92% of the Company's
shipments. Warehouse personnel log in shipments utilizing bar codes, which
enable easy identification of products and allow the Company's wholesale
customers to participate in its "open stock" and "quick response" inventory
management programs. The Company's open stock inventory management program
allows its wholesale customers to fill their smaller, single or multiple pair
reorders in basic sizes and colors, rather than purchasing larger case good
quantities. The quick response program generally allows for a 48-hour
replenishment with open-stock inventories from the time the order is placed
until it is shipped from one of the distribution centers, which utilize
inventory sortation systems which enhance the quick response program. Orders
for quick response shipments are typically received via electronic data
interchange ("EDI"). Although the open stock and quick response programs
require the Company to maintain more sizes and widths of footwear than are
normally carried in the pre-packaged cases and, therefore, increased inventory
levels, these programs give the customer the advantage of carrying smaller
inventories and improving inventory turns and customer order fill rates. The
Company believes its ability to offer this flexibility to its customers gives
it a significant competitive advantage and reduces the incidence of mark-down
allowances and returns.
The Company utilizes various arrangements for the receipt, processing
and distribution of its merchandise internationally. The Company's joint
venture companies lease distribution facilities in Hong Kong, Taiwan,
Thailand, Singapore and Australia. The Company also utilizes third party
warehousing services in the Netherlands, the United Kingdom, Japan and Canada.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems provide, among other
things, comprehensive order entry/tracking, production, financial, EDI,
distribution, and decision support information for the Company's marketing,
manufacturing, importing, accounting and distribution functions.
Additionally, the Company's retail information systems provide
merchandising/planning, automated replenishment, inventory control, point-of-
sale, store performance/tracking, and sales audit functions.
The Company has undertaken a comprehensive analysis and remediation
program with respect to its information technology systems and other systems
and facilities in order to identify the systems that could be affected by the
technical problems associated with the year 2000 and to ensure that they will
function properly with respect to dates in the year 2000 and thereafter. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Year 2000 Compliance."
COMPETITION
Competition is intense in the women's footwear and accessories business.
The principal elements of competition in the footwear and accessories markets
include style, quality, price, comfort, brand loyalty and customer service.
The location and atmosphere of retail stores are additional competitive
factors affecting the Company's retail operations. The Company's competitors
include numerous domestic and foreign manufacturers, importers and
distributors of women's footwear and accessories. The Company's primary
retail competitors are large national chains, department stores, specialty
footwear stores and other outlet stores.
The Company believes that its brand recognition, ability to respond
quickly to fashion trends, expertise in style and color and understanding of
consumer preferences are significant factors in its business. The Company
also believes that its ability to deliver quality merchandise in a timely
manner is a major competitive advantage.
BACKLOG
At January 30, 1999, the Company had unfilled wholesale customer orders
of approximately $253.8 million compared to $298.8 million at January 31,
1998. The backlog at any particular time is affected by a number of factors,
including the scheduling of product shipments and the mix of product and style
(open stock or seasonal inventory) orders, as well as customer demand.
Backlog is also affected by a continuing trend among customers to reduce the
lead time on their orders. Accordingly, a comparison of backlog from period
to period is not necessarily meaningful and may not be indicative of eventual
actual shipments.
CREDIT AND COLLECTION
The Company, through its credit department, manages all of its customer
credit functions, including extensions of credit, collections and
investigations of accounts receivable and chargebacks, and the application of
cash and credits. The Company's bad debt expense was 0.3% of net revenues for
1998.
PRINCIPAL CUSTOMERS
The Company's ten largest wholesale customers represented 37% of gross
revenues for 1998. Certain of the Company's wholesale customers are under
common ownership. When considered as a group under common ownership, sales to
the department store divisions owned by Federated Department Stores, Inc.
represented 11%, 12% and 13% of the Company's consolidated net revenues in
1998, 1997 and 1996, respectively. While the Company believes that purchasing
decisions have generally been made independently by each department store
customer, there is a trend among department stores toward more centralized
purchasing decisions.
TRADEMARKS AND PATENTS
The Company owns federal registrations and/or pending federal
applications in the United States Patent and Trademark Office for most of the
trademarks and variations thereof that it uses, including Amalfi, Bandolino,
Banister, Calico, Cloud 9 Nine West, Cobbie Cuddlers, Easy Spirit, Enzo
Angiolini, Joyce, 9 & Co., Nine West, Nine West Kids, NW, Pappagallo, Pied a
Terre, Red Cross, Selby, Westies and others. In addition, the Company has
entered into worldwide license agreements granting it the exclusive right to
produce and sell footwear under the Evan-Picone name (except in Japan),
footwear and accessories under the cK/Calvin Klein name and women's footwear
under the Capezio name and has been assigned rights under license agreements
for the production of various other products under the Capezio name. In
addition, the Company owns and/or has pending applications for certain of its
trademarks in other countries, including, but not limited to, Australia,
Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan,
Korea, Mexico and the United Kingdom. In the United Kingdom, the Company,
through its subsidiary, The Shoe Studio Group Limited, owns registrations for
certain trademarks, including Bertie, Roland Cartier, Roberto Vianni and
Vivaldi, for use on footwear and/or accessories.
The Company regards the trademarks and other proprietary rights that it
owns and uses as valuable assets and intends to defend them vigorously against
infringement. Most of the registrations for the Company's trademarks are
currently scheduled to expire or be canceled at various times between 1999 and
2009; however, trademark registrations can be renewed and maintained if the
marks are still in use for the goods and services covered by such
registrations.
The Company has granted licenses of certain of its trademarks to other
companies with respect to the manufacture and marketing of footwear and non-
footwear products, including legwear, eyewear, jewelry, children's shoes,
outerwear, belts, slippers and watches.
The Company also holds numerous patents and has several patent
applications pending in the United States Patent and Trademark Office and in
certain other countries.
EMPLOYEES
The Company employs approximately 8,900 full-time and 6,700 part-time
employees, 11,800 of whom are employed in the Company's retail stores.
Approximately 140 of the Company's 450 distribution employees are represented
by labor unions. The Company considers its relationships with its employees
and labor unions to be good.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in a 366,460
square foot facility in White Plains, New York. The White Plains facility is
leased pursuant to a 25-year operating lease which expires in February 2022.
The Company is actively seeking to assign or sublet approximately 25% of the
space in the White Plains facility. The Company is a party to a lease with
respect to 101,179 square feet of office space in Stamford, Connecticut, which
served previously as the Company's principal executive offices. The initial
term of this lease expires on December 31, 2002. The Company has sublet
45,080 square feet of this space pursuant to a sublease expiring on December
30, 2002 and is actively seeking to assign or sublet the remaining space.
Certain of the Company's administrative functions are conducted in a 38,000
square foot facility in St. Louis, Missouri which is owned by the Company.
The Company currently leases two distribution facilities in West
Deptford, New Jersey comprising 719,466 square feet pursuant to leases having
initial terms expiring in 2002 and 2016, and a distribution facility in
Cincinnati, Ohio comprising 489,000 square feet pursuant to a lease with an
initial term which expires in 2003. The West Deptford facility leases
expiring in 2002 and 2016 and the Cincinnati facility lease are each subject
to renewal options of one five-year term, six five-year terms and two five-
year terms, respectively. The Company's joint venture companies lease
distribution facilities in Hong Kong, Taiwan, Thailand, Singapore and
Australia. The Company also utilizes third party warehousing services in the
Netherlands, the United Kingdom, Japan and Canada for the receipt, processing
and distribution of merchandise internationally. The Company believes that
these facilities are suitable for its domestic and international distribution
needs.
The Company currently owns and operates two footwear manufacturing
plants and one component plant, with an aggregate of approximately 170,000
square feet of space in Kentucky and Indiana. The Company also leases one
machinery parts warehouse with approximately 20,000 square feet of space in
Kentucky, an 88,000 square foot raw materials warehouse and product
development center in Kentucky and two component plants with a total of
approximately 102,000 square feet of space in the Dominican Republic. During
1998, the Company's manufacturing plants operated at approximately 88.0% of
optimum production capacity. The Company believes that its manufacturing and
component plants are suitable for its domestic production needs.
The Company also owns three closed factories in Kentucky and Indiana
with an aggregate of approximately 219,000 square feet of space, which the
Company intends to sell.
The Company operates two showrooms in New York, New York and one in
Dallas, Texas with an aggregate of approximately 61,000 square feet of space
under leases that expire in 2002, 2003 and 2005.
The Company's domestic retail stores are leased pursuant to leases that
extend for terms which average ten years. Certain leases allow the Company to
terminate its obligations after three years in the event that a particular
location does not achieve specified sales volume. Many leases include clauses
that provide for contingent payments based on sales volumes, and many leases
contain escalation clauses for increases in operating costs and real estate
taxes.
The Company's international retail locations consist of specialty retail
stores and concessions. The retail stores are leased pursuant to leases that
extend for terms which range from five to 25 years. The concessions are
located in Europe and Asia and are operated pursuant to either leases with
certain department stores or other arrangements with third parties which are
generally cancelable upon between one to six months' notice by either party.
Rental payments for certain specialty retail concessions are based solely on
percentage of sales volume.
ITEM 3. LEGAL PROCEEDINGS.
The Federal Trade Commission is currently conducting an inquiry with
respect to the Company's resale pricing policies to determine whether the
Company violated the federal antitrust laws by agreeing with others to
restrain the prices at which retailers sell footwear and other products
marketed by the Company. In addition, Attorneys General from the States of
Florida, New York, Ohio and Texas are conducting similar inquiries.
Since January 13, 1999, more than 25 putative class actions have been
filed on behalf of purchasers of the Company's footwear in three separate
federal courts alleging that the Company violated Section 1 of the Sherman Act
by engaging in a conspiracy with its retail distributors to fix the minimum
prices at which the footwear marketed by the Company was sold to the public.
All of these class action complaints have been consolidated into a single
action in the United States District Court for the Southern District of New
York and seek injunctive relief, unspecified compensatory and treble damages,
and attorneys' fees. In addition, five putative class actions based on the
same alleged conduct have been filed in state courts in New York, the District
of Columbia, Wisconsin, California and Minnesota alleging violations of those
states' respective antitrust laws. The five state actions likewise seek
injunctive relief, unspecified compensatory and treble damages, and attorneys'
fees.
Based on the short period of time that has elapsed since the inception
of the inquiries and the filing of the lawsuits, the Company's existing
policies relating to resale pricing and the limited information available to
the Company with respect to compliance with those policies, the Company does
not anticipate that the inquiries or lawsuits will result in a material
adverse financial effect on the Company.
On March 3, 4 and 5, 1999, four purported stockholder class action suits
were filed against the Company, the members of the Company's Board of
Directors and Jones in the Delaware Court of Chancery. These complaints
allege, among other things, that the defendants have breached their fiduciary
duties to Company stockholders by failing to maximize stockholder value in
connection with entering into the Merger Agreement. The complaints seek, among
other things, an order enjoining completion of the merger. The Company and
Jones believe that the complaints are without merit and plan to defend
vigorously against the complaints.
On May 1, 1997, the Company learned that on April 10, 1997, the United
States Securities and Exchange Commission (the "SEC") entered a formal order
of investigation of the Company. Based on conversations with the staff of the
SEC, the Company believes that this investigation was primarily focused on the
revenue recognition policies and practices of certain of the Company's
divisions that were acquired from U.S. Shoe in 1995. On October 29, 1997, the
Company received a subpoena issued by the SEC in connection with its
investigation requesting the Company to produce certain documents relating to
the purchase by the Company of products manufactured in Brazil from 1994 to
date, including documents concerning the prices paid for such products and the
customs duties paid in connection with their importation into the United
States. On February 1, 1999, the SEC informed the Company that its
investigation had been terminated with no enforcement action being recommended
against the Company.
In addition, on October 29, 1997, the Company learned that the United
States Customs Service had commenced an investigation of the Company relating
to the Company's importation of Brazilian footwear from 1995 to date. On
April 14, 1998, the United States Customs Service informed the Company that
such investigation had been terminated with no action taken against the
Company.
The Company has been named as a defendant in various actions and
proceedings, including actions brought by certain terminated employees,
arising from its ordinary business activities. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse financial effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
The common stock of the Company ( the "Common Stock") is listed and
trades on the New York Stock Exchange ("NYSE"). The following table sets
forth the high and low closing sales prices per share for the Common Stock, as
reported on the NYSE Composite Tape, for the end of each quarter of the last
two years.
HIGH LOW
---- ---
FIFTY-TWO WEEKS ENDED JANUARY 31, 1998
Thirteen weeks ended May 3, 1997................ $52-3/8 $39-1/4
Thirteen weeks ended August 2, 1997 .......... 41-3/4 32-1/2
Thirteen weeks ended November 1, 1997 ......... 43-5/16 34-5/16
Thirteen weeks ended January 31, 1998 ......... 35-3/4 25-5/8
FIFTY-TWO WEEKS ENDED JANUARY 30, 1999
Thirteen weeks ended May 2, 1998................ $29-7/16 $23-1/2
Thirteen weeks ended August 1, 1998 ......... 29 22-5/16
Thirteen weeks ended October 31, 1998 ......... 22-1/4 7-7/16
Thirteen weeks ended January 30, 1999 ......... 16 11-1/4
As of April 16, 1999, there were 225 holders of record of the Common
Stock.
The Company has not paid (since its initial public offering in February
1993 (the "Offering")), and does not currently intend to pay in the immediate
future, cash dividends on its Common Stock. Subject to compliance with
certain financial covenants set forth in the Company's credit agreement and
the indentures with respect to the Company's outstanding debt securities (See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources") and restrictions
contained in any future financing agreements, the payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected balance sheet and income statement information
for the last two and three years, respectively, has been derived from the
Consolidated Financial Statements of the Company audited by Deloitte & Touche
LLP, independent auditors, whose report thereon appears elsewhere in this
report. The balance sheet information for 1996 and the selected financial
data for 1995, for the transition period from January 1, 1995 through January
28, 1995 and for 1994 have been derived from the audited (unless noted
otherwise) financial statements of the Company, not presented herein. This
information should be read in conjunction with and is qualified by reference
to the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included elsewhere
in this report.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Transition
52 Weeks 52 Weeks 52 Weeks 53 Weeks Period
Ended Ended Ended Ended January 1 to Year Ended
January 30 January 31 February 1 February 3 January 28 December 31
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
INCOME STATEMENT DATA (a) (in thousands except retail operating data and per share data)
Net revenues..................................... $1,916,707 $1,865,318 $1,603,115 $1,258,630 $ 42,539 $652,457
Cost of goods sold............................... 1,126,860 1,063,581 913,946 720,963 24,582 364,533
Purchase accounting adjustments to cost of goods
sold (b)....................................... - - - 34,864 - -
---------- ---------- ---------- --------- -------- --------
Gross profit................................... 789,847 801,737 689,169 502,803 17,957 287,924
Selling, general and administrative expenses (c). 651,601 609,991 479,284 381,021 16,402 178,916
Business restructuring expenses (d).............. 12,619 - 18,970 51,900 - -
Amortization of acquisition goodwill and other
intangibles.................................... 10,778 9,648 9,562 6,637 - -
---------- ---------- ---------- -------- -------- --------
Operating income from continuing operations.... 114,849 182,098 181,353 63,245 1,555 109,008
Interest expense................................. 53,467 54,014 41,947 29,611 - 2,199
---------- ---------- ---------- -------- -------- --------
Income from continuing operations before
income taxes................................. 61,382 128,084 139,406 33,634 1,555 106,809
Income tax expense............................... 23,937 49,953 55,762 14,658 614 42,919
---------- ---------- ---------- -------- -------- --------
Income from continuing operations before
extraordinary item........................... $ 37,445 $ 78,131 $ 83,644 $ 18,976 $ 941 $ 63,890
========== ========== ========== ======== ======== ========
Net income (e)................................. $ 40,368 $ 78,131 $ 81,008 $ 18,976 $ 941 $ 63,890
========== ========== ========== ======== ======== ========
Weighted average common shares:
Basic shares outstanding..................... 35,159 35,836 35,647 35,011 34,655 34,555
Diluted shares outstanding................... 35,163 39,462 38,554 35,707
Earnings per share: (f)
Basic income from continuing operations
before extraordinary item.................. $ 1.07 $ 2.18 $ 2.35 $ 0.54 $ 0.03 $ 1.85
========== ========== ========== ========= ========= ========
Basic net income............................. $ 1.15 $ 2.18 $ 2.27 $ 0.54 $ 0.03 $ 1.85
========== ========== ========== ========= ========= ========
Diluted income from continuing operations
before extraordinary item.................. $ 1.07 $ 2.15 $ 2.27 $ 0.53
========== ========== ========== =========
Diluted net income........................... $ 1.15 $ 2.15 $ 2.21 $ 0.53
========== ========== ========== =========
January 30 January 31 February 1 February 3 December 31
1999 1998 1997 1996 1994
BALANCE SHEET DATA ---- ---- ---- ---- ----
Working capital.................................. $ 450,211 $ 589,377 $ 491,674 $ 297,312 $170,015
Total assets..................................... 1,217,129 1,391,539 1,261,063 1,160,092 302,791
Long-term debt................................... 510,804 687,263 600,407 471,000 2,400
Stockholders' equity............................. $ 458,064 $ 438,848 $ 360,540 $ 328,326 $234,627
RETAIL OPERATING DATA (unaudited)
Retail locations open at end of period:
Nine West...................................... 281 293 285 268 229
Easy Spirit.................................... 224 219 167 131 -
9 & Co......................................... 63 74 79 63 43
Enzo Angiolini................................. 81 79 66 54 34
cK/Calvin Klein................................ 6 3 - - -
----- ----- ----- --- ---
Total mall-based............................. 655 668 597 516 306
----- ----- ----- --- ---
Nine West outlet (g)........................... 164 158 141 123 100
Easy Spirit outlet............................. 35 35 19 11 -
Banister....................................... 129 142 138 142 -
Stein Mart..................................... 86 108 82 67 -
----- ----- ----- --- ---
Total value-based............................ 414 443 380 343 100
----- ----- ----- --- ---
Total domestic............................. 1,069 1,111 977 859 406
International.............................. 430 348 84 29 4
----- ----- ----- --- ---
Total.................................... 1,499 1,459 1,061 888 410
===== ===== ===== === ===
Revenues per square foot: (h)
Nine West...................................... $ 455 $ 497 $ 529 $ 543 $ 581
Easy Spirit.................................... 422 487 538 495 -
9 & Co......................................... 306 319 308 322 293
Enzo Angiolini................................. 470 527 571 552 539
cK/Calvin Klein................................ 408 - - - -
Nine West outlet (g)........................... 322 349 367 359 361
Easy Spirit outlet............................. 259 235 195 210 -
Banister....................................... 181 178 162 166 -
Stein Mart..................................... 174 176 171 179 -
International.................................. $ 507 $ 602 $ 774 $ 842 $ -
Square footage of gross space at end of period... 2,825,976 2,820,169 2,248,988 1,985,270 691,338
(footnotes follow)
</TABLE>
NOTES:
(a) On May 23, 1995, the Company consummated its acquisition (the
"Acquisition") of the footwear business of The United States Shoe Corporation
(the "Footwear Group"). Income statement data for 1998, 1997 and 1996 is not
comparable to the prior years, as such information: (1) reflects 52-week
periods (364 days) ended January 30, 1999, January 31, 1998 and February 1,
1997 while 1995 reflects a 53-week period (371 days) ended February 3, 1996
and 1994 is a 365-day period; and (2) includes the results of operations of
the Footwear Group during the full 52-week period, while such Footwear Group
results are only included in the 1995 period for the 37-week period from May
23, 1995 through February 3, 1996 and are excluded from all periods prior to
the Acquisition. The transition period was created due to the change in the
Company's fiscal year.
(b) Reflects a $34.9 million pre-tax non-recurring increase in cost of goods
sold, attributable to the fair value of inventory over FIFO cost, recorded as
a result of the Acquisition.
(c) The fourth quarters of 1998 and 1997 include pre-tax charges of $3.7
million and $6.3 million, respectively, for severance and other costs related
to the reduction of corporate positions. Additionally, during the fourth
quarter of 1998 the Company recognized a $12.3 million pre-tax curtailment
gain under the provisions of SFAS No. 88, "Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and Termination Benefits." See
"Employee Benefit Plans" in the Notes to Consolidated Financial Statements.
(d) Represents business restructuring and integration expenses associated
primarily with the restructuring of the Company's manufacturing operations and
the decision to close the Company's 9 & Co. retail stores in 1998, the
restructuring of North American manufacturing facilities in 1996 and with the
integration of the Footwear Group into the Company in 1995. See "Business
Restructuring Charges" in the Notes to Consolidated Financial Statements.
(e) 1998 includes a $2.9 million after-tax extraordinary gain on early
extinguishment of debt. See "Extraordinary Item" in the Notes to Consolidated
Financial Statements. 1996 includes a $2.6 million after-tax loss on disposal
of discontinued operation. See "Loss on Disposal of Discontinued Operation"
in the Notes to Consolidated Financial Statements.
(f) Diluted weighted average common shares and common share equivalents
reflect the impact of common stock equivalents, including outstanding stock
options and the convertible notes issued in June 1996. The calculation of
diluted earnings per share excludes the impact of antidilutive common stock
equivalents.
(g) Includes 10 Enzo Angiolini Outlet stores in operation at January 30,
1999, which carry primarily the Enzo Angiolini brand.
(h) Revenues per square foot are determined by dividing total retail net
revenues by the annual average gross retail square footage. Revenues per
square foot for 1995 with respect to those retail concepts operated by the
Footwear Group (i.e., Easy Spirit, Easy Spirit Outlet, Banister and Stein
Mart), are based upon pro forma revenues as though the Acquisition was
consummated at the beginning of 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the notes thereto contained
elsewhere in this report. The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for 1998. The Company's
operations are comprised of domestic wholesale, domestic retail and
international segments. The Company identifies operating segments based on,
among other things, the way that the Company's management organizes the
components of the Company's business for purposes of allocating resources and
assessing performance. As a result, the following discussion and analysis of
net revenues, gross profit and selling, general and administrative expenses is
based on the operating results of those segments, and reclassifications have
been made to certain prior year net revenues amounts to conform to the current
year presentation.
RESULTS OF OPERATIONS
Net income for 1998 was $40.4 million, or $1.15 per share on a diluted
basis, compared to net income of $78.1 million, or $2.15 per share on a
diluted basis, for 1997 and $81.0 million, or $2.21 per share on a diluted
basis, for 1996. Results for 1998 include an extraordinary after-tax gain of
$2.9 million related to the Company's repurchase of $31.0 million face amount
of its 9.0% Series B Senior Subordinated Notes due August 15, 2007 (the
"Senior Subordinated Notes"), and $4.0 million face amount of its 8-3/8%
Series B Senior Notes due August 15, 2005 (the "Senior Notes" and, together
with the Senior Subordinated Notes, the "Notes"), at a discount (the "Note
Repurchase Gain"). Results for 1996 include a $2.6 million after-tax loss on
disposal of discontinued operation related to the Company's former Texas Boot
division. Income from continuing operations before extraordinary gain for
1998 was $37.4 million, or $1.07 per share on a diluted basis and $83.6
million, or $2.27 per share on a diluted basis, for 1996.
Over the past several years, the Company has undertaken a critical
evaluation of all facets of its business and operations. Resulting from this
ongoing evaluation were decisions that led to the following charges: (1) a
pre-tax charge of $18.0 million recorded in the fourth quarter of 1998,
including inventory write-downs of $5.4 million recorded as a component of
cost of goods sold, related to the restructuring of the Company's
manufacturing operations and the Company's decision to close its 9 & Co.
retail stores (the "1998 Restructuring Charge"); and (2) pre-tax charges of
$3.7 million and $6.3 million for severance and other costs related to the
reduction of executive, administrative and staff positions during the fourth
quarters of 1998 (the "1998 Severance Charge") and 1997 (the "1997 Severance
Charge"), respectively. See "-- Liquidity and Capital Resources."
The 1998 Restructuring Charge related to costs associated with: (1) the
closure of one domestic manufacturing facility and one Caribbean-based
component facility, and the reconfiguration and integration of certain
operations at three other domestic manufacturing facilities (the
"Manufacturing Restructuring"); and (2) the Company's decision to close all 63
9 & Co. stores in operation at January 30, 1999. The major components of the
1998 Restructuring Charge were: (1) asset write-downs of $12.9 million; (2)
lease termination and facility closure costs of $3.5 million; and (3)
severance and termination benefit costs of $1.6 million.
During the fourth quarter of 1998, the Company substantially completed
the activities associated with the Manufacturing Restructuring. The Company
anticipates that it will close approximately 50 of the 63 9 & Co. stores
during 1999, and close the remaining 9 & Co. stores during 2000. During the
fourth quarter of 1998, charges against the 1998 Restructuring Charge accrual
related to these actions included $12.9 million in asset write-downs and $0.2
million in severance and termination benefit payments.
The initiatives outlined in the 1998 Restructuring Charge are expected
to affect approximately 1,260 employees, of which 640 are manufacturing
positions, 580 are 9 & Co. retail employees and 40 are managerial employees.
Total severance and termination benefit costs associated with these
initiatives are estimated to be $2.9 million, of which $1.6 million was
included in the 1998 Restructuring Charge and $0.8 million was related to
benefits provided by the Company's existing severance plans. The remaining
$0.5 million is related to the 9 & Co. store closures and will be expensed as
incurred. As of January 30, 1999, approximately 634 manufacturing and 36
managerial position eliminations were completed with $0.4 million in severance
and termination benefit costs being charged against the existing severance
plan liability. The severance and termination benefit payments associated
with the 1998 Restructuring Charge will be substantially completed during
1999.
NET REVENUES
Net revenues were $1.92 billion in 1998, an increase of $51.4 million,
or 2.8%, compared to net revenues of $1.87 billion in 1997. Domestic
wholesale net revenues decreased by $29.7 million, or 3.3%, primarily due to
heavy promotional pricing activity resulting from weakness in consumer demand
in the domestic retail footwear market. This decrease was partially offset by
an increase in net revenues from the Company's domestic wholesale accessories
business of $37.3 million, or 63.0%. Net revenues from domestic retail
operations decreased $0.5 million, or 0.1%, due primarily to a comparable
store sales decrease of $47.1 million, or 6.7%, which reflects decreased net
revenues for stores in operation during both 1998 and 1997, and by decreased
net revenues from 99 and 46 retail locations closed in 1998 ($14.3 million)
and 1997 ($14.5 million), respectively. Domestic comparable store sales
decreased due to the weakness in consumer demand in the domestic retail
footwear market noted above. These decreases were offset by an increase in
net revenues attributable to increased net revenues from 57 and 180 stores
opened in 1998 ($19.0 million) and 1997 ($48.6 million), respectively, and by
additional net revenues from the Company's temporary clearance centers ($7.8
million). International net revenues, derived primarily in Western Europe,
Asia, Canada and Australia, increased $81.6 million, or 37.8%, primarily due
to increased net revenues from 82 retail locations opened or acquired (net of
closings) in 1998 ($98.2 million). This increase was partially offset by a
comparable store sales decrease of 9.2% ($15.1 million), and decreased
international wholesale net revenues ($1.5 million) due to weakness in the
international retail footwear market.
Net revenues were $1.87 billion in 1997, an increase of $262.2 million,
or 16.4%, compared to net revenues of $1.60 billion in 1996. Domestic
wholesale net revenues increased by $22.7 million, or 2.6%, primarily due to
the impact of the Company's cK/Calvin Klein Shoes and Bags division ($33.3
million), which did not have revenues during the comparable 1996 period, and
increased net revenues from the Company's domestic wholesale accessories
business of $16.5 million, or 38.6%. These increases were partially offset by
net revenue decreases in certain of the Company's other domestic wholesale
divisions, primarily due to weakness in consumer demand in the retail
environment, which resulted in heavy promotional pricing activity.
Additionally, during the second half of 1997, the Company's domestic wholesale
net revenues were negatively impacted by untimely introduction of key fashion
footwear styles, and selected styles within certain of the Company's key
brands not being priced competitively. Net revenues from domestic retail
operations increased $62.3 million, or 9.1%, primarily due to the opening (net
of closings) of 134 retail locations in 1997 ($42.8 million) and increased net
revenues from 143 stores opened (net of closings) in 1996 ($38.6 million).
These increases were offset by a decrease in net revenues attributable to the
closing of the Burlington Leased Departments and 25 Banister stores in 1996
($13.7 million) and a 0.9% decrease in comparable store sales ($5.4 million)
due to the same factors adversely affecting domestic wholesale revenues during
the period. International net revenues increased $177.2 million, or 457.4%.
This increase was primarily due to the opening or acquisition (net of
closings) of 264 retail locations ($124.0 million), a comparable store sales
increase of 8.2% ($7.5 million), and increased international wholesale net
revenues ($45.7 million).
During 1998, 1997 and 1996, retail net revenues accounted for 51.8%,
48.8% and 44.6% of the Company's consolidated net revenues, respectively,
while wholesale net revenues accounted for the remaining 48.2%, 51.2% and
55.4%, respectively. International net revenues, which are included in the
wholesale and retail percentages noted above, accounted for 15.5%, 11.6% and
2.4% of the Company's consolidated net revenues during 1998, 1997 and 1996,
respectively.
GROSS PROFIT
1998 gross profit was $789.8 million, a decrease of $11.9 million, or
1.5%, compared to gross profit of $801.7 million in 1997. Gross profit as a
percentage of net revenues was 41.2% for 1998 and 43.0% for 1997. The decrease
in gross profit as a percentage of net revenues was due primarily to decreased
gross margins in the Company's domestic retail and domestic wholesale
businesses resulting from the weakness in consumer demand in the domestic
retail footwear market which resulted in excess inventory and heavy
promotional pricing activity. The negative impact of these factors on gross
profit margin was partially offset by a greater percentage of the Company's
net revenues being derived from its retail operations, which produce greater
gross profit margins than the Company's wholesale operations, due primarily to
growth in the Company's international business, which is primarily retail.
1997 gross profit was $801.7 million, an increase of $112.5 million, or
16.3%, compared to gross profit of $689.2 million in 1996. Gross profit as a
percentage of net revenues was 43.0% for both 1997 and 1996. 1997 gross profit
margins were positively impacted by a greater percentage of the Company's net
revenues being derived from its retail operations, including growth in the
Company's international business. Gross profit margin was impacted negatively
by heavy promotional pricing activity in both the Company's domestic wholesale
and retail businesses as a result of overall softness in the domestic retail
environment and by the downturn of the Asian economy.
During 1998, 1997 and 1996, there were moderate increases in the general
price of leather, which have generally been reflected in the selling price of
the Company's products. While the Company is not in a position to reasonably
anticipate or predict how changes in labor, leather, and other raw material
prices will ultimately impact the Company's gross profit margins in the
future, the Company anticipates that such increases will be reflected in the
selling price of the Company's products, to the extent possible under economic
and competitive conditions prevailing at the time.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses were $651.6 million in 1998, compared to $610.0 million in
1997, an increase of $41.6 million, or 6.8%, and expressed as a percentage of
net revenues, increased to 34.0% for 1998 from 32.7% in 1997. The increase in
SG&A expenses as a percentage of net revenues is due primarily to the
continued shift in the sales mix in both the Company's domestic and
international businesses towards retail operations, which carry overall higher
SG&A margins than wholesale operations, and higher domestic and international
retail SG&A margins due to an increase in fixed costs as a percentage of net
revenues resulting from the decrease in comparable store sales. The negative
impact of these factors on SG&A margins was partially offset by reduced
corporate compensation expense due primarily to a $12.3 million gain
recognized as a result of the curtailment of the Company's pension plan and to
the reduction of corporate staff associated with the 1997 Severance Charge,
and reduced advertising and promotional expenses in both the Company's
domestic wholesale and domestic retail segments.
SG&A expenses were $610.0 million in 1997, compared to $479.3 million in
1996, an increase of $130.7 million, or 27.3%, and expressed as a percentage
of net revenues, increased to 32.7% for 1997 from 29.9% in 1996. The increase
in SG&A expenses as a percentage of net revenues is due primarily to a shift
in the sales mix towards retail operations, which carry overall higher SG&A
margins than wholesale operations. Additionally, during 1997 the Company
incurred higher domestic wholesale SG&A margins due primarily to costs
associated with the expansion of the Company's cK/Calvin Klein Shoes and Bags
division and higher advertising and promotional expenses related to the
Company's expanded marketing plan, partially offset by a reduction in bonus
expense as compared to the prior period, and incurred higher domestic retail
SG&A margins due to an increase in fixed costs as a percentage of net revenues
resulting from the decrease in comparable store sales, and higher expenses
associated with an expansion of the Company's marketing plan. The negative
impact of these factors on SG&A margin was partially offset by reduced
corporate compensation expense due primarily to activities associated with the
1996 Restructuring Charge and the Integration Charge.
INTEREST EXPENSE
Interest expense was $53.5 million in 1998 compared to $54.0 million in
1997, a decrease of $0.5 million, or 1.0%. This decrease relates primarily to
the decrease in weighted average debt outstanding, partially offset by an
increase in weighted average interest rates. Weighted average debt
outstanding was approximately $620.0 million during 1998 and $690.0 million
during 1997. The decrease in weighted average debt in 1998 is attributable
primarily to the increase in cash provided by operating activities and to
additional factors impacting working capital. Weighted average interest rates
were 7.4% and 6.9% in 1998 and 1997, respectively. The increase in the
weighted average interest rate in 1998 is primarily attributable to the
refinancing of the Company's debt at the end of the second quarter of 1997.
Interest expense was $54.0 million in 1997 compared to $41.9 million in
1996, an increase of $12.1 million, or 28.9%. This increase relates primarily
to the increase in capital required to finance the expansion of the Company's
domestic and international businesses, including expansion through
acquisitions and opening of additional retail locations, in addition to higher
interest rates during 1997. Weighted average debt outstanding was
approximately $690.0 million during 1997 and $560.0 million during 1996.
Weighted average interest rates were 6.9% and 6.5% in 1997 and 1996,
respectively. The increase in the weighted average interest rate in 1997 is
primarily attributable to the refinancing of the Company's $312.0 million
quarterly amortizing term loan under the Company's previous credit facility
with the net proceeds from the issuance of the Notes (defined below).
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon cash flow from operating activities
and borrowings under the Company's Credit Agreement (defined below) to finance
operations and expansion. Cash provided by operating activities was $215.4
million in 1998, compared to $70.3 million in 1997 and cash used by operating
activities of $87.9 million in 1996. The $145.1 million increase in 1998 cash
flow from operations as compared to 1997 is due primarily to inventory
management improvements, which resulted in a significant decrease in the
Company's investment in inventory, and enhancements to the Company's accounts
receivable securitization program.
1997 cash flow from operations increased $158.2 million as compared to
1996 due primarily to inventory management improvements, which resulted in a
significant decrease in the Company's investment in inventory as compared to
1996, and decreases in cash used by accounts payable and accrued expenses and
other liabilities.
Working capital was $450.2 million at January 30, 1999, compared to
$589.4 million at January 31, 1998, a decrease of $139.2 million. The
decrease in working capital is due primarily to a $45.4 million decrease in
accounts receivable, including securitized interest in accounts receivable,
due primarily to enhancements to the Company's accounts receivable
securitization program, an $83.1 million decrease in inventory due primarily
to inventory management improvements, and a $32.6 million decrease in prepaid
expenses and other current assets. These factors were partially offset by a
$20.6 million decrease in accounts payable. Working capital may vary from
time to time as a result of seasonal requirements, the timing of factory
shipments and the Company's "open stock" and "quick response" wholesale
programs.
Total cash outlays related to the 1998 Severance Charge are estimated to
be $3.7 million and are expected to be paid during 1999. Total cash outlays
related to the 1997 Severance Charge are estimated to be $6.3 million, of
which $4.9 million was paid during 1998 and $1.4 million will be paid in 1999.
Total cash outlays related to the 1998 Restructuring Charge are estimated to
be $5.1 million and are to be substantially paid through 2000, with certain
lease terminations costs to be paid through 2002. During 1998, $0.2 million
of severance and termination benefit costs were paid and recorded against the
1998 Restructuring Charge accrual. In the fourth quarter of 1996, the Company
recorded a net pre-tax charge of $19.0 million (the "1996 Restructuring
Charge") for costs associated with: (1) the restructuring of North American
manufacturing facilities, which involved the closure of three domestic
manufacturing facilities and discontinuation or reconfiguration of certain
operations at two other domestic manufacturing facilities; (2) the
consolidation and relocation of the Company's offices in Stamford, Connecticut
and Cincinnati, Ohio to a new facility in White Plains, New York; and (3) the
repositioning of the 9 & Co. brand, which involved the evaluation of retail
site locations and the closure of fifteen 9 & Co. stores (the "1996
Restructuring Charge"). Total cash outlays related to the 1996 Restructuring
Charge were estimated to be $7.5 million and are to be paid through 2000. As
of January 30, 1999, total cash outlays recorded against the 1996
Restructuring Charge accrual were $5.6 million, of which $1.8 million and $3.8
million were paid and charged during 1998 and 1997, respectively. Total cash
outlays for severance and termination benefit costs associated with the 1996
Restructuring Charge, which relate to benefits provided by the Company's
severance plans, were $3.2 million and $5.1 million for 1998 and 1997,
respectively.
Cash used by investing activities was $25.9 million for 1998, compared
to $105.3 million for 1997 and $0.9 million for 1996. Cash used by investing
activities during 1998 includes $9.9 million for the purchase of Cable & Co.
(UK) Limited, a United Kingdom-based footwear and accessories company,
involving 25 retail locations situated primarily in the United Kingdom. Cash
used by investing activities during 1997 includes $26.4 million for
acquisitions, including the acquisition of The Shoe Studio Group Limited and
52 retail concessions from British Shoe Corporation. Proceeds from the sale
of property and equipment during 1998 includes $16.4 million for the sale of
certain office and warehouse facilities located in Cincinnati, Ohio, which the
Company had acquired in connection with the Acquisition, and during 1996
includes $19.6 million related to the sale and leaseback of the Company's New
Jersey distribution facility. Capital expenditures totaled $41.9 million in
1998, $76.2 million in 1997 and $42.8 million in 1996. Capital expenditures
related primarily to the Company's retail store expansion and remodeling
programs in 1998 ($26.2 million), 1997 ($39.1 million) and 1996 ($28.5
million), and in 1997 include the Relocation ($25.9 million). The Company
estimates that its capital expenditures for 1999 will be approximately $30.0
million, relating primarily to the ongoing expansion of its domestic and
international retail operations (approximately $15.0 million), and equipment
for its distribution, manufacturing and management information systems
(approximately $4.0 million). The actual amount of the Company's capital
expenditures depends, in part, on the number of new retail locations opened,
the number of retail locations remodeled, the amount of any construction
allowances the Company may receive from the landlords of its new retail
locations and any unexpected costs incurred in connection with year 2000
compliance (See "-- Year 2000 Compliance"). The Company's ongoing evaluation
of its retail operations has led to a decision to grow its retail network at a
slower pace by applying rigorous standards to all retail location opening and
closing decisions. The opening and success of new retail locations will be
dependent upon, among other things, general economic and business conditions
affecting consumer spending, the availability of desirable locations and the
negotiation of acceptable lease terms for new locations.
Cash used by financing activities was $195.2 million for 1998, compared
to cash provided by financing activities of $33.6 million for 1997 and $93.2
million for 1996. Cash used by financing activities during 1998 includes a
$141.1 million reduction in borrowings under the Company's Credit Agreement
(defined below). The decrease in borrowings is primarily attributable to the
factors impacting cash provided by operating activities and to additional
factors impacting working capital noted above. Cash used for repayments of
long-term debt during 1998 includes $29.5 million related to the Note
Repurchase Gain. Cash used for purchases of stock for treasury during 1998
relates to the Company's repurchase of approximately 2.0 million shares of its
outstanding common stock for $20.0 million, which reflects the limitation
currently imposed under the Company's Credit Agreement.
In July 1997, the Company issued $200.0 million of its Senior Notes and
$125.0 million of its Senior Subordinated Notes. The Notes are fully and
unconditionally guaranteed on a senior basis with respect to the Senior Notes
and on a senior subordinated basis with respect to the Senior Subordinated
Notes by certain subsidiaries of Nine West Group Inc. The Senior Notes are
not redeemable at the option of the Company prior to maturity. The Senior
Subordinated Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after August 15, 2002, at declining redemption
prices. Prior to August 15, 2000, the Company may redeem up to 30% of the
Senior Subordinated Notes with the net proceeds of one or more public equity
offerings at a redemption price of 109%, provided that at least $87.5 million
of Senior Subordinated Notes remain outstanding after such redemption. Upon
the occurrence of a change of control, each holder of the Notes may require
the Company to purchase all or any portion of such holder's Notes at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. There are no
contractual restrictions on distributions from each of the guarantor
subsidiaries to Nine West Group Inc. The proceeds from the issuance of the
Notes were approximately $316.6 million (net of initial purchasers' discounts
and offering expenses of $8.4 million) and were used to repay the quarterly
amortizing term loan ($312.0 million) and a portion of revolving debt ($4.6
million) outstanding under the Company's previous credit facility.
Effective December 1998, the Company voluntarily reduced the commitment
under its amended and restated credit agreement (the "Credit Agreement") to
$500.0 million from $600.0 million. Under the terms of the Credit Agreement,
which expires in August 2002, up to $150.0 million may be utilized for letters
of credit and up to $250.0 million may be in the form of multicurrency
borrowings. Amounts outstanding under the Credit Agreement bear interest, at
the Company's option, at rates based on Citibank, N.A.'s base rate or the
Eurodollar rate, and are secured by substantially all assets of the Company
and its domestic subsidiaries (excluding receivables transferred to the Trust
(defined below) under the Receivables Facility). As of January 30, 1999,
$32.0 million of borrowings and $58.3 million of letters of credit were
outstanding on a revolving basis and $409.7 million was available for future
borrowing.
In June 1996, the Company issued $185.7 million of its 5-1/2%
Convertible Subordinated Notes due July 15, 2003 (the "Convertible Notes"),
which are convertible into Common Stock at a price of $60.76 per share,
subject to adjustment in certain circumstances. The Convertible Notes are
redeemable, in whole or in part, at the option of the Company, at any time on
or after July 16, 1999, at declining redemption prices plus any accrued
interest. Upon the occurrence of a change of control, each holder of the
Convertible Notes may require the Company to purchase all or any portion of
such holder's Convertible Notes at a purchase price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any,
to the date of purchase. The Convertible Notes are subordinated in right of
payment to all existing and future senior indebtedness of the Company.
Proceeds from the issuance of the Convertible Notes were approximately $181.3
million (net of underwriters' discounts of $4.4 million) and were used to
repay a portion of the indebtedness outstanding under the Company's previous
credit facility.
Provisions of the Notes, Credit Agreement and Convertible Notes contain
various covenants which, among other things, limit the Company's ability to
incur indebtedness, incur liens, declare or pay dividends or make restricted
payments, consolidate, merge or sell assets.
In December 1995, the Company entered into an agreement to create the
five-year Receivables Facility, under which up to $115.0 million of funding
may be obtained based on the sale, without recourse, of the accounts
receivable of the Company. The principal benefit of the Receivables Facility
is a reduction in the Company's cost of funding related to long-term debt. In
July 1998, the Receivables Facility was amended to increase the funding
availability to $132.0 million. As of January 30, 1999 and January 31, 1998,
the Company had sold $186.0 million and $159.7 million, respectively, of
outstanding trade accounts receivable to Nine West Funding Corporation ("Nine
West Funding"), which were, in turn, transferred by Nine West Funding to a
trust formed to purchase the accounts receivable (the "Trust"). As of January
30, 1999 and January 31, 1998, the Company had received proceeds of $100.0
million and $68.5 million, respectively, from the Trust, which were used to
repay debt.
On June 5, 1996, the Company made a net payment of $42.5 million to The
United States Shoe Corporation, in connection with the settlement of the post-
closing balance sheet dispute relating to the Acquisition and the repurchase
by the Company of warrants issued in connection with the Acquisition, which
was financed under the Company's Credit Agreement.
The Company expects that its current cash balances, cash provided by
operations and borrowings under the Credit Agreement will continue to provide
the capital flexibility necessary to fund future opportunities and expansion
as well as to meet existing obligations. The Company continuously evaluates
potential acquisitions of businesses which complement its existing operations.
Depending on various factors, including, among others, the cash consideration
required in such potential acquisitions and the market value of the Company's
Common Stock, the Company may determine to finance any such transaction with
its existing sources of liquidity.
The Company does not currently intend to pay cash dividends on its
Common Stock in the immediate future. Subject to compliance with certain
financial covenants set forth in the Notes, Credit Agreement, Convertible
Notes and restrictions contained in any future financing agreements, the
payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the
Company and general business conditions.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The
Company's computer equipment, software and devices with imbedded technology
that are time-sensitive may recognize a date using "00" as the year 1900
rather than the year 2000. The Company has undertaken a comprehensive analysis
and remediation program (the "Year 2000 Program") with respect to its
information technology ("IT") systems and other systems and facilities in
order to identify the systems that could be affected by the technical problems
associated with the year 2000 (the "Year 2000 Issue") and to ensure that they
will function properly with respect to dates in the year 2000 and thereafter.
If modifications and replacements are not made in a timely manner, the
Company could experience a temporary inability to process transactions, send
invoices or engage in other important business activities due to system
failures or miscalculations, the impact of which cannot be quantified at this
time.
The Company's Year 2000 Program is divided into the following four
phases with the following estimated time frames:
(1) PLANNING - (fourth quarter of 1996 - second quarter of 1998) -
Establishing a Year 2000 program team and developing a comprehensive
strategy.
(2) ASSESSMENT - (third quarter of 1997 - first quarter of 1999) - Assessing
the Year 2000 impact on the Company through inventory and analysis of systems
supporting the core business areas and processes, prioritizing their
conversion or replacement and identifying and securing necessary resources to
do so. This phase may include developing contingency plans, if necessary.
(3) RENOVATION - (fourth quarter of 1997 - second quarter of 1999) -
Converting, replacing, or eliminating selected platforms, applications,
databases and utilities and modifying interfaces.
(4) VALIDATION AND IMPLEMENTATION - (first quarter of 1998 - third quarter
of 1999) - Testing, verifying and validating converted or replaced platforms,
applications, databases and utilities in an operational environment and
implementing contingency plans, if necessary.
In the third quarter of 1997, the Company commenced the assessment of
its domestic IT software and hardware. The Company expects to substantially
complete the development, programming changes and unit testing including
compatibility testing, with respect to its domestic IT systems in the second
quarter of 1999. In the first quarter of 1998, the Company commenced the
assessment of its international IT software and hardware. The Company expects
to substantially complete the development, programming changes and unit
testing, including compatibility testing with respect to its international IT
systems in the second quarter of 1999. The Company plans to complete the
assessment of its non-computer equipment that could be affected by the
technical problems associated with the Year 2000 Issue by the first quarter of
1999 and to fully test such equipment by the end of the second quarter of
1999. As of March 30, 1999, the Company had completed approximately 75% of
all phases of the Year 2000 Program, consistent with its timetable.
Through January 30, 1999, the Company has expended approximately $4.5
million related to its global Year 2000 Program. The Company currently
expects that the total costs of the Year 2000 Program, including both
incremental spending and redeployed resources, will be approximately $6.0
million. The costs of the Year 2000 Program will be funded through existing
sources of liquidity. Time and cost estimates are based on currently
available information. Developments that could affect estimates include, but
are not limited to, the availability and cost of trained personnel and the
ability to locate and correct all relevant computer code and systems.
The Company has been communicating, and continues to communicate,
directly with selected key vendors, suppliers and customers regarding various
critical systems. Additionally, to date the Company has mailed questionnaires
to other identified significant third parties to determine the extent to which
the Company is vulnerable to the failure of these third parties to become Year
2000 compliant. None of the third parties who have responded have disclosed
Year 2000 issues which would have an adverse affect on the Company. However,
third parties are under no contractual obligation to provide Year 2000
compliance information to the Company, and any failure of such third parties
to become Year 2000 compliant involves risks and uncertainties.
Based upon its assessment and remediation efforts to date, the Company
is not aware of any material issues that would prevent it or its significant
third party vendors, suppliers and customers from completing efforts necessary
to achieve Year 2000 compliance on a timely basis. Accordingly, the Company
has not developed a contingency plan for dealing with the most reasonably
likely worst case scenario at this time.
SEASONALITY
The Company's footwear and accessories are marketed primarily for each
of the four seasons, with the highest volume of products sold during the last
three fiscal quarters. Because the timing of shipment of products for any
season may vary from year to year, the results for any particular quarter may
not be indicative of results for the full year. The Company has not had
significant overhead and other costs generally associated with large seasonal
variations.
INFLATION
The Company believes that the relatively moderate rate of inflation over
the past few years has not had a significant impact on the Company's revenues
or profitability. In the past, the Company has been able to maintain its
profit margins during inflationary periods.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report which are not historical
facts contain forward-looking information with respect to the Company's plans,
projections or future performance, the occurrence of which involve certain
risks and uncertainties that could cause the Company's actual results or plans
to differ materially from those expected by the Company. Certain of such
risks and uncertainties relate to the overall strength of the general domestic
and international retail environments; the continuation of certain trends in
foreign currency exchange rates; the ability of the Company to predict and
respond to changes in consumer demand and preferences in a timely manner;
increased competition in the footwear and accessory industry and the Company's
ability to remain competitive in the areas of style, price and quality;
acceptance by consumers of new product lines; the ability of the Company to
manage general and administrative costs; changes in the costs of leather and
other raw materials, labor and advertising; the ability of the Company to
secure and protect trademarks and other intellectual property rights; retail
store construction delays; the availability of desirable retail locations and
the negotiation of acceptable lease terms for such locations; and the ability
of the Company to place its products in desirable sections of its department
store customers.
NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires an entity to recognize all derivative financial instruments as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15,1999. Management is currently
evaluating the effects of this change on the Company's future operating
results and financial statement disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS
The market risk inherent in the Company's financial instruments
represents the potential loss in fair value, earnings or cash flows arising
from adverse changes in interest rates or foreign currency exchange rates. The
Company manages this exposure through regular operating and financing
activities and, when deemed appropriate, through the use of derivative
financial instruments. Company policy allows the use of derivative financial
instruments for identifiable market risk exposures, including interest rate
and foreign currency fluctuations. The Company does not enter into derivative
financial contracts for trading or other speculative purposes. The following
quantitative disclosures were derived using quoted market prices, yields and
theoretical pricing models obtained through independent pricing sources for
the same or similar types of financial instruments, taking into consideration
the underlying terms, such as the coupon rate, term to maturity and imbedded
call options. Certain items such as lease contracts, insurance contracts, and
obligations for pension and other post-retirement benefits were not included
in the analysis.
INTEREST RATES
The Company's primary interest rate exposures relate to its fixed and
variable rate debt and interest rate swaps. At January 30, 1999, the carrying
value of amounts outstanding under the Company's borrowing arrangements
approximated its fair value. The potential change in fair value resulting
from a hypothetical 10% adverse change in interest rates was approximately
$18.9 million at January 30, 1999.
The Company employs an interest rate hedging strategy utilizing swaps
and collars to effectively fix a portion of its interest rate exposure on its
floating rate financing arrangements. The primary interest rate exposures on
floating rate financing arrangements are with respect to United States, United
Kingdom and Australian short-term local currency rates. The Company had
$138.9 million in variable rate financing arrangements at January 30, 1999.
As of January 30, 1999, a hypothetical immediate 10% adverse change in
interest rates, as they relate to the Company's variable rate financial
instruments, would have had a $0.7 million and $1.2 million unfavorable
impact over a one-year period on the Company's earnings and cash flows,
respectively.
FOREIGN CURRENCY EXCHANGE RATES
The Company's primary foreign currency exposures relate to its foreign
debt and foreign currency exchange contracts. The Company employs a foreign
currency hedging strategy to limit potential losses in earnings or cash flows
from adverse foreign currency exchange rate movements. Foreign currency
exposures arise from transactions, including firm commitments and anticipated
transactions, denominated in a currency other than an entity's functional
currency and from foreign-denominated revenues and profits translated into
United States dollars. The primary currencies as to which the Company is
exposed to exchange rate movements include the Italian Lire, Spanish Peseta,
the Eurodollar and other European currencies, the Canadian dollar and certain
Asian currencies. Exposures are hedged with foreign currency forward
contracts with maturity dates of generally less than one year. The potential
loss in fair value at January 30, 1999 for such net currency positions
resulting from a hypothetical 10% adverse change in all foreign currency
exchange rates is $5.7 million. As of January 30, 1999, a hypothetical
immediate 10% adverse change in foreign currency exchange rates, as they
relate to the Company's foreign debt and foreign currency exchange contracts,
would have had a $2.2 million and $3.6 million unfavorable impact over a one-
year period on earnings and cash flows, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Management's Responsibility for Financial Statements.................. 31
Independent Auditors' Report.......................................... 32
Consolidated Statements of Income - Fifty-two weeks ended January 30,
1999, January 31, 1998 and February 1, 1997........................... 33
Consolidated Balance Sheets - January 30, 1999 and January 31, 1998... 34
Consolidated Statements of Cash Flows - Fifty-two weeks ended
January 30, 1999, January 31, 1998 and February 1, 1997............... 35
Consolidated Statements of Stockholders' Equity - Fifty-two weeks
ended January 30, 1999, January 31, 1998 and February 1, 1997......... 36
Notes to Consolidated Financial Statements (includes certain
supplemental financial information required by Item 8 of Form 10-K)..37-65
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements presented in this report are the
responsibility of the Company's management and have been prepared in
conformity with generally accepted accounting principles. Some of the amounts
included in the consolidated financial information are necessarily based on
estimates and judgments of management.
The Company maintains accounting and related internal control systems
designed to provide, among other things, reasonable assurance that
transactions are executed in accordance with management's authorization and
that they are recorded and reported properly. There are limitations inherent
in all systems of internal control, and the Company weighs the cost of such
systems against the expected benefits.
The consolidated financial statements have been audited by the Company's
independent auditors, Deloitte & Touche LLP. Their primary role is to render
an independent professional opinion on the fairness of the financial
statements taken as a whole. Their audit, which is performed in accordance
with generally accepted auditing standards, includes a study and evaluation of
the Company's accounting systems and internal controls sufficient to express
their opinion on those financial statements.
The Audit Committee of the Board of Directors, which is composed
entirely of directors who are not employees of the Company, meets periodically
with management and the independent auditors to review the results of their
work and to satisfy itself that their responsibilities are being properly
discharged. The independent auditors have full and free access to the Audit
Committee and meet with it (with and without management present) to discuss
appropriate matters.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Nine West Group Inc.:
We have audited the accompanying consolidated balance sheets of Nine
West Group Inc. and subsidiaries (the "Company") as of January 30, 1999 and
January 31, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for the fifty-two weeks ended January 30,
1999, January 31, 1998 and February 1, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company at January 30,
1999 and January 31, 1998, and the results of their operations and their cash
flows for the fifty-two weeks ended January 30, 1999, January 31, 1998 and
February 1, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
March 16, 1999
<TABLE>
<CAPTION>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Net revenues....................... $1,916,707 $1,865,318 $1,603,115
Cost of goods sold................. 1,126,860 1,063,581 913,946
---------- ---------- ----------
Gross profit..................... 789,847 801,737 689,169
Selling, general and
administrative expenses........... 651,601 609,991 479,284
Business restructuring expenses.... 12,619 - 18,970
Amortization of acquisition
goodwill and other intangibles.... 10,778 9,648 9,562
---------- ---------- ----------
Operating income from continuing
operations...................... 114,849 182,098 181,353
Interest expense................... 53,467 54,014 41,947
---------- ---------- ----------
Income from continuing
operations before income taxes.. 61,382 128,084 139,406
Income tax expense................. 23,937 49,953 55,762
---------- ---------- ----------
Income from continuing operations
before extraordinary item....... 37,445 78,131 83,644
Loss on disposal of
discontinued operation (net of
tax benefits of $1,419)........... - - (2,636)
Extraordinary gain (net of income
taxes of $1,869).................. 2,923 - -
---------- ---------- ---------
Net income....................... $ 40,368 $ 78,131 $ 81,008
========== ========== =========
Weighted average shares outstanding:
Basic............................ 35,159 35,836 35,647
Diluted.......................... 35,163 39,462 38,554
Basic earnings per share:
Continuing operations before
extraordinary item.............. $ 1.07 $ 2.18 $ 2.35
Loss on disposal of
discontinued operation.......... - - (0.08)
Extraordinary gain............... 0.08 - -
---------- ---------- ---------
Basic earnings per share....... $ 1.15 $ 2.18 $ 2.27
========== ========== =========
Diluted earnings per share:
Continuing operations before
extraordinary item.............. $ 1.07 $ 2.15 $ 2.27
Loss on disposal of
discontinued operation.......... - - (0.06)
Extraordinary gain............... 0.08 - -
---------- ---------- ---------
Diluted earnings per share..... $ 1.15 $ 2.15 $ 2.21
========== ========== =========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<S> <C> <C>
January 30 January 31
1999 1998
---- ----
ASSETS
Current Assets:
Cash.............................................. $ 17,951 $ 23,674
Accounts receivable including
securitized interest in accounts
receivable - net................................ 86,494 131,923
Inventories....................................... 460,375 543,503
Prepaid expenses and other current assets......... 67,432 100,031
--------- ---------
Total current assets............................ 632,252 799,131
Property and equipment - net...................... 164,006 172,795
Goodwill - net.................................... 230,237 231,130
Trademarks and trade names - net.................. 137,895 139,750
Other assets...................................... 52,739 48,733
---------- ----------
Total assets................................... $1,217,129 $1,391,539
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 79,525 $ 100,075
Accrued expenses and other current liabilities.... 99,067 105,444
Current portion of long-term debt................. 3,449 4,235
---------- ----------
Total current liabilities....................... 182,041 209,754
Long-term debt.................................... 510,804 687,263
Other non-current liabilities..................... 66,220 55,674
---------- ----------
Total liabilities............................... 759,065 952,691
---------- ----------
Stockholders' Equity:
Preferred stock ($0.01 par value, 25,000,000
shares authorized; none issued and
outstanding)..................................... - -
Common stock ($0.01 par value, 100,000,000
shares authorized; 33,985,098 and 35,818,831
shares issued and outstanding, respectively)..... 359 358
Additional paid-in capital......................... 144,203 143,278
Retained earnings.................................. 338,286 297,918
Accumulated other comprehensive income............. (4,793) (2,706)
---------- ----------
478,055 438,848
Less treasury stock, at cost (1,952,900 shares).. (19,991) -
---------- ----------
Total stockholders' equity...................... 458,064 438,848
---------- ----------
Total liabilities and stockholders' equity..... $1,217,129 $1,391,539
========== ==========
The accompanying Notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 40,368 $ 78,131 $ 81,008
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization....................... 49,021 39,952 32,983
Provision for losses on accounts receivable......... 5,080 6,826 6,797
Provision for losses on inventory................... 14,656 (492) 4,536
Extraordinary gain.................................. (4,792) - -
Loss on disposal of discontinued operation.......... - - 2,636
Business restructuring and integration.............. 2,655 (18,966) (9,247)
Deferred income taxes and other..................... 10,377 11,738 14,055
Changes in assets and liabilities excluding effects
of acquisitions:
Accounts receivable including securitized
interest in accounts receivable.................. 41,191 (34,621) (29,165)
Inventory......................................... 71,316 (15,545) (107,388)
Prepaid expenses and other assets................. 8,647 (11,801) (19,893)
Accounts payable.................................. (20,550) 2,534 (48,703)
Accrued expenses and other liabilities............ (2,598) 12,532 (15,524)
-------- --------- --------
Net cash provided (used) by operating activities....... 215,371 70,288 (87,905)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (41,895) (76,232) (42,806)
Proceeds from sale of property and equipment........... 16,351 - 19,617
Business acquisitions - net of cash acquired........... (9,932) (26,394) (11,580)
Acquisition purchase price settlement.................. - - 25,000
Proceeds from sale of discontinued operation........... 2,780 - 2,800
Other investing activities............................. 6,835 (2,714) 6,046
-------- --------- --------
Net cash used by investing activities.................. (25,861) (105,340) (923)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under financing agreements... (141,135) 49,376 128,000
Proceeds from issuance of long-term debt............... - 316,648 232,016
Repayments of long-term debt........................... (32,946) (332,295) (218,000)
Repurchase of warrants................................. - - (67,500)
Purchases of stock for treasury........................ (19,991) - -
Net proceeds from issuance of stock and other.......... (1,161) (179) 18,706
-------- --------- --------
Net cash (used) provided by financing activities....... (195,233) 33,550 93,222
-------- --------- --------
NET (DECREASE) INCREASE IN CASH........................ (5,723) (1,502) 4,394
CASH, BEGINNING OF PERIOD.............................. 23,674 25,176 20,782
-------- --------- --------
CASH, END OF PERIOD.................................... $ 17,951 $ 23,674 $ 25,176
======== ========= ========
The accompanying Notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock
------------------- Accumulated
Number of Additional Other Treasury Total
Outstanding Paid-In Retained Comprehensive Stock Stockholders'
Shares Amount Warrants Capital Earnings Income Amount Equity
----------- ------ -------- ---------- -------- ----------- -------- -------------
Balance at February 3, 1996...... 35,240,052 $352 $ 57,600 $131,595 $138,779 $ 0 $ 0 $328,326
Comprehensive income:
Net income...................... 81,008
Adjustment for foreign currency
translation.................... 7
Total comprehensive income....... 81,015
Shares issued under stock plans,
including tax benefit.......... 552,561 6 18,693 18,699
Repurchase of warrants.......... (57,600) (9,900) (67,500)
---------- ------ -------- -------- -------- ------- -------- --------
Balance at February 1, 1997...... 35,792,613 358 0 140,388 219,787 7 0 360,540
Comprehensive income:
Net income...................... 78,131
Adjustment for foreign currency
translation.................... (2,713)
Total comprehensive income....... 75,418
Shares issued under stock plans,
including tax benefit.......... 26,218 - 2,890 2,890
---------- ------ -------- -------- -------- ------- -------- --------
Balance at January 31, 1998...... 35,818,831 358 0 143,278 297,918 (2,706) 0 438,848
Comprehensive income:
Net income...................... 40,368
Adjustment for foreign currency
translation.................... (2,087)
Total comprehensive income....... 38,281
Treasury stock transactions...... (1,952,900) (19,991) (19,991)
Shares issued under stock plans,
including tax benefit.......... 119,167 1 925 926
---------- ------ -------- -------- -------- ------- -------- --------
Balance at January 30, 1999...... 33,985,098 $359 $ 0 $144,203 $338,286 $(4,793) $(19,991) $458,064
========== ====== ======== ======== ======== ======= ======== ========
The accompanying Notes are an integral part of the Consolidated Financial Statements
</TABLE>.
NINE WEST GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Nine West
Group Inc. (the "Company"), its wholly-owned subsidiaries and its controlled-
interest joint ventures. All intercompany transactions and balances have been
eliminated from the consolidated financial statements for all periods
presented.
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years 1998, 1997 and 1996 consisted of the 52-week periods which ended
on January 30, 1999, January 31, 1998 and February 1, 1997, respectively.
The Company designs, develops, manufactures and markets women's footwear
and accessories. The Company operates in the footwear and accessories
industry, marketing its products through wholesale and retail channels in the
United States as well as other countries. The Company markets footwear under
the Nine West, Amalfi, Bandolino, Calico, cK/Calvin Klein (under license),
Easy Spirit, Enzo Angiolini, Evan-Picone (under license), 9 & Co., Pappagallo,
Pied a Terre, Selby, Westies and The Shoe Studio Group Limited brands, and
under private labels. The Company markets women's accessories under the Nine
West, Easy Spirit, Enzo Angiolini and cK/Calvin Klein (under license) labels.
Approximately 50% of the Company's footwear products are manufactured in
Brazil. The Company's footwear products are also manufactured in China,
Italy, Spain and other countries at independent factories not owned by the
Company. The Company also manufactures footwear products at two domestic shoe
factories and one domestic component factory owned by the Company and two
foreign component factories which are leased and operated by the Company. The
Company has entered into a long-term contract with its buying agent to oversee
its third-party sourcing activities in Brazil. The Company does not have any
contracts with its independent manufacturers, but relies on its long-standing
relationship with the Brazilian factories and its buying agent, in addition to
its own factories, to provide an uninterrupted source of inventory. The
Company's accessories are manufactured by third party manufacturers in the Far
East.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE INCLUDING SECURITIZED INTEREST IN ACCOUNTS RECEIVABLE- NET
The Company provides credit to and performs ongoing credit evaluations
of its wholesale customers, many of which are major retailers. The Company
had a significant customer in its domestic wholesale operating segment which
accounted for approximately 11%, 12% and 13% of consolidated net revenues in
1998, 1997 and 1996, respectively. The Company believes that its broad
customer base will reduce the impact that any financial difficulties of such
retailers or loss of the customer might have on the Company's operating
results. The Company maintains an allowance for potential credit losses and
other allowances as necessary to properly reflect accounts receivable
including securitized interest in accounts receivable at estimated fair value.
INVENTORIES
Inventories are valued at the lower of cost or market. Approximately
57% and 60% of inventories were determined by using the FIFO (first in, first
out) method of valuation as of January 30, 1999 and January 31, 1998,
respectively; the remainder were determined by the weighted average cost
method. The Company makes provisions for obsolete or slow moving inventories
as necessary to properly reflect inventory value.
PROPERTY AND EQUIPMENT - NET
Property and equipment are stated at cost and are depreciated on the
straight-line method over their estimated useful lives which range from 2 to
30 years. Investments in property under lease are depreciated over the
shorter of their useful lives or their related lease terms.
GOODWILL - NET AND TRADEMARKS AND TRADE NAMES - NET
Goodwill is the excess of purchase price over the fair value of net
assets acquired in business combinations accounted for under the purchase
method of accounting. Substantially all intangible assets are amortized on a
straight-line basis over 40 years. Goodwill is presented in the consolidated
balance sheet net of accumulated amortization of $22.4 million and $16.1
million as of January 30, 1999 and January 31, 1998, respectively. Trademarks
and trade names are presented in the consolidated balance sheet net of
accumulated amortization of $14.7 million and $10.0 million as of January 30,
1999 and January 31, 1998, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
Impairment losses are recognized in operating results in the event that the
undiscounted expected future cash flows to be generated by the related asset
are less than the carrying value of the asset.
FOREIGN CURRENCY TRANSLATION
Foreign currency financial statements of the Company's international
subsidiaries are translated into U.S. dollars using period-end rates of
exchange for assets and liabilities and monthly average rates of exchange for
revenues and expenses. The resulting translation adjustments are recorded as
a separate component of stockholders' equity.
NET REVENUES
Wholesale revenues, including commissions received in conjunction with
private label footwear, are recognized upon shipment of products to customers.
Allowances for estimated discounts and returns are recognized when sales are
recorded. Retail revenues are recognized when the payment is received from
customers. Revenues are recorded net of returns and exclude sales tax.
Licensing revenue is recognized on the basis of net sales by the licensee.
ADVERTISING EXPENSE
The Company records national advertising campaign costs as an expense
when the advertising takes place and cooperative advertising costs as
incurred. Advertising expense was $42.2 million, $57.7 million and $45.2
million in 1998, 1997 and 1996, respectively.
INCOME TAXES
Income taxes are based upon income for financial reporting purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
COMPREHENSIVE INCOME
Effective with the first quarter of 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income," which requires the disclosure of
comprehensive income and its components. Comprehensive income is generally
defined as all changes in stockholders' equity exclusive of transactions with
owners.
EMPLOYEE BENEFIT PLANS
The Company's employee benefit plans are presented in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," effective for 1998. SFAS No. 132 revised employers' disclosures
about pension and other postretirement benefit plans. It did not change the
measurement or recognition of those plans.
STOCK-BASED COMPENSATION
Stock-based compensation cost is accounted for under SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits continued application
of the intrinsic value method of Accounting Principles Board ("APB") Opinion
No. 25. Under the intrinsic value method, compensation cost represents the
excess, if any, of the quoted market price of the Company's common stock (the
"Common Stock") at the grant date over the amount the grantee must pay for the
stock. The Company's policy is to grant stock options at option prices not
less than the fair market value on the date of grant.
BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for 1998. SFAS No. 131
requires the Company to report operating segment information based on the way
that the Company's management organizes the components of the Company's
business for purposes of allocating resources and assessing performance.
ACQUISITIONS
During the past three years, the Company has completed several small
acquisitions, each of which has been accounted for in accordance with the
purchase method of accounting. The consolidated financial statements include
the operating results of each business acquired from its date of acquisition.
Pro forma results of operations have not been presented as the effects of
these acquisitions, both individually and in the aggregate, were not material
to the financial statements taken as a whole.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires an entity to recognize all derivative financial instruments as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management is currently
evaluating the effects of this change on the Company's future operating
results and financial statement disclosures.
RECLASSIFICATIONS
Reclassifications have been made to certain prior year amounts to
conform to the current year presentation.
3. BUSINESS RESTRUCTURING CHARGES
In the fourth quarter of 1998, the Company recorded a pre-tax charge of
$18.0 million (the "1998 Restructuring Charge") related to the restructuring
of the Company's manufacturing operations and the Company's decision to close
its 9 & Co. retail stores. Inventory write-downs of $5.4 million associated
with the charge are recorded as a component of costs of goods sold. The 1998
Restructuring Charge related to costs associated with: (1) the closure of one
domestic manufacturing facility and one Caribbean-based component facility,
and the reconfiguration and integration of certain operations at three other
domestic manufacturing facilities (the "Manufacturing Restructuring") which
reduced annual domestic footwear production capacity from approximately 5.0
million pairs to approximately 3.0 million pairs, as the Company pursues
global sourcing opportunities in an effort to reduce overall product cost; and
(2) the Company's decision to close all 63 9 & Co. stores in operation at
January 30, 1999. The 9 & Co. retail stores had net revenues of $32.8
million, $38.0 million and $36.4 million, and operating losses, excluding
restructuring charges, of $8.3 million, $3.8 million and $2.0 million for
1998, 1997 and 1996, respectively. The major components of the 1998
Restructuring Charge were: (1) asset write-downs of $12.9 million; (2) lease
termination and facility closure costs of $3.5 million; and (3) severance and
termination benefit costs of $1.6 million.
During the fourth quarter of 1998, the Company substantially completed
the activities associated with the Manufacturing Restructuring. The Company
anticipates that it will close approximately 50 of the 63 9 & Co. stores
during 1999, and close the remaining 9 & Co. stores during 2000. During the
fourth quarter of 1998, charges against the 1998 Restructuring Charge accrual
related to these actions included $12.9 million in asset write-downs and $0.2
million in severance and termination benefit payments. The remaining balance
of the 1998 Restructuring Charge accrual of $4.9 million is recorded in the
balance sheet within the captions "Accrued expenses and other current
liabilities" ($4.3 million) and "Other non-current liabilities" ($0.6
million). Total cash outlays related to the 1998 Restructuring Charge are
estimated to be $5.1 million and are to be substantially paid through 2000,
with certain lease termination costs to be paid through 2002.
The initiatives outlined in the 1998 Restructuring Charge are expected
to affect approximately 1,260 employees, of which 640 are manufacturing
positions, 580 are 9 & Co. retail employees and 40 are managerial employees.
Total severance and termination benefit costs associated with these
initiatives are estimated to be $2.9 million, of which $1.6 million was
included in the 1998 Restructuring Charge and $0.8 million was related to
benefits provided by the Company's existing severance plans. The remaining
$0.5 million is related to the 9 & Co. store closures and will be expensed as
incurred. As of January 30, 1999, approximately 634 manufacturing and 36
managerial position eliminations were completed with $0.4 million in severance
and termination benefit costs being charged against the existing severance
plan liability. The severance and termination benefit payments associated
with the 1998 Restructuring Charge will be substantially completed during
1999.
In the fourth quarter of 1996, the Company recorded a charge of $21.3
million, offset by the reversal of a $2.3 million excess of the restructuring
and integration cost accrual associated with the acquisition (the
"Acquisition") of the Footwear Division of The United States Shoe Corporation
(the "Footwear Group"), resulting in a net pre-tax charge to earnings of $19.0
million (the "1996 Restructuring Charge"), for costs associated with: (1) the
restructuring of North American manufacturing facilities which involved the
closure of three domestic manufacturing facilities and discontinuation or
reconfiguration of certain operations at two other domestic manufacturing
facilities; (2) the consolidation and relocation of the Company's offices in
Stamford, Connecticut and Cincinnati, Ohio to a new facility in White Plains,
New York (the "Relocation"); and (3) the repositioning of the 9 & Co. brand,
which involved the evaluation of retail site locations and the closure of
fifteen 9 & Co. stores. The major components of the 1996 Restructuring Charge
were: (1) write-down of assets of $13.8 million; (2) lease and other contract
termination costs of $4.9 million; and (3) plant closing costs of $2.6
million. Total cash outlays related to the 1996 Restructuring charge were
estimated to be $7.5 million and are to be paid through 2000.
During 1997, the Company substantially completed the domestic
manufacturing facility closures and reconfigurations, the Relocation and the 9
& Co. store closures. As of January 30, 1999, the charges recorded against
the 1996 Restructuring Charge accrual included $13.8 million in asset write-
downs, $3.4 million in lease and contract termination costs and $2.2 million
in plant closing costs. As of January 30, 1999, total cash outlays recorded
against the 1996 Restructuring Charge accrual were $5.6 million, of which $1.8
million and $3.8 million were paid and charged during 1998 and 1997,
respectively. The remaining balance of the 1996 Restructuring Charge accrual
is recorded in the balance sheet within the caption "Accrued expenses and
other current liabilities" and consists primarily of cash outlays related to
lease and contract termination costs.
The initiatives outlined in the 1996 Restructuring Charge affected the
employment of approximately 1,135 employees. Of these employees, 1,025 held
manufacturing positions and represented approximately 50% of the Company's
domestic manufacturing workforce, and 110 were corporate employees affected by
the Relocation. Total severance and termination benefit costs associated with
these initiatives were originally estimated at $9.6 million, which related to
benefits provided by the Company's severance plans. See Note 16, "Employee
Benefit Plans." As of January 30, 1999, substantially all severance and
termination benefits associated with this action were charged against the
severance plan liability.
4. LOSS ON DISPOSAL OF DISCONTINUED OPERATION
On May 23,1995, the Company consummated the Acquisition. Included in
the assets acquired was the Texas Boot division ("Texas Boot"). Upon
acquisition, the Company determined that Texas Boot did not meet its long-term
strategic objectives and decided to sell the business. Accordingly, the net
assets of Texas Boot were accounted for as an asset held for sale. The
results of operations related to these assets held for sale, subsequent to
July 29, 1995, and interest expense on the allocated debt, have been excluded
from the 1996 consolidated statement of income. During the second quarter of
1996, the holding period under Emerging Issues Task Force Issue Number 87-11
had expired, and the Company accounted for the expected loss from the disposal
of net assets and anticipated operating losses from the measurement date
through the estimated date of disposal as a discontinued operation, resulting
in a charge of $2.6 million, net of income tax benefits of $1.4 million. The
sale of Texas Boot was consummated on January 24, 1997. The Company received
$2.8 million in cash and $5.2 million in notes and other financial instruments
in connection with this disposition.
5. EXTRAORDINARY ITEM
During the third quarter of 1998, the Company repurchased $31.0 million
face amount of its 9% Series B Senior Subordinated Notes due 2007 (the "Senior
Subordinated Notes") and $4.0 million face amount of its 8-3/8% Series B
Senior Notes due 2005 (the "Senior Notes" and, together with the Senior
Subordinated Notes, the "Notes"), at a discount, resulting in a $4.8 million
extraordinary gain ($2.9 million on an after-tax basis) on early
extinguishment of debt (the "Note Repurchase Gain").
6. EARNINGS PER SHARE
Following is a reconciliation of the earnings and shares used in the
basic and diluted per share computations for income from continuing operations
before extraordinary item (in thousands):
1998 1997 1996
---- ---- ----
Earnings:
Income from continuing operations before
extraordinary item (numerator
for basic calculation)...................... $37,445 $78,131 $83,644
Effect of convertible notes.................. - 6,707 4,063
------- ------- -------
Numerator for diluted calculation............ $37,445 $84,838 $87,707
======= ======= =======
Shares:
Weighted average common shares outstanding
(denominator for basic calculation)......... 35,159 35,836 35,647
Effect of stock options...................... 4 570 1,052
Effect of convertible notes.................. - 3,056 1,855
------- ------- -------
Denominator for diluted calculation.......... 35,163 39,462 38,554
======= ======= =======
Earnings per share - continuing operations
before extraordinary item:
Basic ..................................... $ 1.07 $ 2.18 $ 2.35
======= ======= =======
Diluted ................................... $ 1.07 $ 2.15 $ 2.27
======= ======= =======
The impact of the convertible notes was excluded from the diluted
earnings per share calculation for 1998 as its effect on the reported per
share amounts was anti-dilutive.
For 1998 and 1997, certain outstanding stock options were not included
in the computation of diluted earnings per share because the respective
exercise prices were greater than the average market price of the Common
Stock. For 1998 and 1997, the number of stock options whose impact was not
included in the diluted computation was 5.6 million and 1.3 million,
respectively. These options were outstanding at the end of each of the
respective years.
7. ACCOUNTS RECEIVABLE INCLUDING SECURITIZED INTEREST IN ACCOUNTS RECEIVABLE
- NET
Accounts receivable including securitized interest in accounts
receivable consists of (in thousands):
January 30 January 31
1999 1998
---------- ----------
Securitized interest in accounts receivable...... $85,957 $ 91,208
Accounts receivable.............................. 51,153 91,682
Allowance for doubtful accounts and other
allowances...................................... (50,616) (50,967)
------- -------
Accounts receivable including securitized
interest in accounts receivable - net..... $86,494 $131,923
======= ========
In December 1995, the Company entered into an agreement to create a
five-year revolving accounts receivable securitization facility (the
"Receivables Facility"), under which up to $115.0 million of funding may be
obtained based upon the sale, without recourse, of the accounts receivable of
the Company. The principal benefit of the Receivables Facility is a reduction
in the Company's cost of funding related to long-term debt. In July 1998, the
Receivables Facility was amended to increase funding availability to $132.0
million.
As of January 30, 1999 and January 31, 1998, the Company had sold $186.0
million and $159.7 million, respectively, of outstanding trade accounts
receivable to Nine West Funding Corporation ("Nine West Funding"), which were,
in turn, transferred by Nine West Funding to a trust formed to purchase the
accounts receivable (the "Trust"). As of January 30, 1999 and January 31,
1998, the Company had received proceeds of $100.0 million and $68.5 million,
respectively, from the Trust, which were used to repay debt. Nine West
Funding maintained a subordinated interest in the remaining assets of the
Trust of $86.0 million and $91.2 million, which are recorded under the caption
"Securitized interest in accounts receivable" on the Company's balance sheet
as of January 30, 1999 and January 31, 1998, respectively. The effective
interest rate incurred by the Company on amounts transferred by Nine West
Funding to the Trust under the Receivables Facility was 5.9% as of January 30,
1999.
8. INVENTORIES
Inventories consist of (in thousands):
January 30 January 31
1999 1998
---------- ----------
Raw materials............................ $ 16,967 $ 19,672
Work in process.......................... 1,403 1,987
Finished goods........................... 442,005 521,844
-------- --------
Total inventories..................... $460,375 $543,503
======== ========
9. PROPERTY AND EQUIPMENT - NET
Property and equipment consists of (in thousands):
January 30 January 31
1999 1998
---------- ----------
Land........................................ $ 409 $ 525
Buildings and improvements.................. 6,510 9,438
Machinery, equipment and fixtures........... 126,940 130,351
Leasehold improvements...................... 118,095 109,935
Construction in progress.................... 4,873 8,826
-------- --------
256,827 259,075
Accumulated depreciation and amortization... 92,821 86,280
-------- --------
Property and equipment - net...... $164,006 $172,795
======== ========
10. SALE/LEASEBACK TRANSACTIONS
On April 1, 1998, the Company consummated the sale of certain office and
warehouse facilities located in Cincinnati, Ohio (the "Cincinnati Facilities")
and leaseback of the distribution center portion thereof, and received cash
proceeds of $16.4 million. The lease has been classified as an operating
lease. The net assets related to the Cincinnati Facilities of approximately
$13.6 million were accounted for as an asset held for sale and have been
removed from "Prepaid expenses and other current assets." The approximately
$2.8 million (net of transaction costs ) net gain realized on the sale has
been deferred and is being credited to income as a rent expense adjustment
over the five-year term of the lease. Payments under the lease approximate
$0.7 million annually.
In May 1996, the Company consummated the sale (for $20.3 million) and
leaseback of its distribution facility located in West Deptford, New Jersey.
The lease has been classified as an operating lease. The cost and accumulated
depreciation associated with this facility of approximately $16.4 million and
$2.0 million, respectively, have been removed from the "Property and Equipment
- - net". The approximately $5.3 million (net of transaction costs) net gain
realized on the sale has been deferred and is being credited to income as a
rent expense adjustment over the 20-year initial term of the lease. Payments
under the lease approximate $2.0 million annually.
11. FINANCIAL INSTRUMENTS
The Company, as a result of its global operating and financing
activities, is exposed to changes in interest rates and foreign currency
exchange rates which may adversely affect results of operations and financial
condition. In seeking to minimize the risks and/or costs associated with such
activities, the Company manages exposure to changes in interest rates and
foreign currency exchange rates through its regular operating and financing
activities and, when deemed appropriate, through the use of derivative
financial instruments. The instruments eligible for utilization include
forward, option and swap agreements. The Company does not use financial
instruments for trading or other speculative purposes.
At January 30, 1999, the Company had outstanding an interest rate swap
and collar with an aggregate notional principal amount of $200.0 million to
effectively fix a portion of its interest rate exposure on its floating rate
debt. The Company's 1998 and 1997 weighted average interest rates on long
term debt of 7.4% and 6.9%, respectively, were not significantly impacted by
outstanding financial instruments. Differentials which occur due to changes
in interest rates are recognized in interest expense during the period to
which the payment/receipt relates. The fair value of these instruments was an
unfavorable $2.3 million, based on a commonly accepted pricing methodology
using market prices as of January 30, 1999. The Company's interest rate swap
and collar have expiration dates ranging from June to December 2000.
The following table summarizes, by major currency, the outstanding
contractual amounts of the Company's forward exchange contracts in U.S.
dollars (in thousands). The forward exchange contracts outstanding as of
January 30, 1999 mature on various dates through January 2000.
January 30, 1999 January 31, 1998
---------------- ------------------
BUY SELL BUY SELL
--- ---- --- ----
Spanish Peseta................... $16,774 $ - $25,665 $ -
Italian Lire..................... 20,065 - 19,518 -
U.K. Pound Sterling.............. - - - 24,768
Japanese Yen..................... - 9,060 - -
Eurodollar....................... 15,349 - - -
------- ------ ------- -------
Total................ $52,188 $9,060 $45,183 $24,768
======= ====== ======= =======
Gains and losses arising from foreign currency exchange contracts are
recorded when the related hedged transaction occurs. The fair value of
foreign currency exchange contracts approximated the contract price as of
January 30, 1999 based upon a commonly accepted pricing methodology using
current market prices and forward rates to estimate the amount the Company
would have to pay upon termination of the specific contracts.
Financial instruments expose the Company to counterparty credit risk for
nonperformance and to market risk for changes in interest and currency rates.
The Company manages exposure to counterparty credit risk through specific
minimum credit standards, diversification of counterparties and procedures to
monitor the amount of credit exposure. The Company's financial instrument
counterparties are substantial investment or commercial banks with significant
experience with such instruments. The Company also has procedures to monitor
the impact of market risk on the fair value and costs of its financial
instruments considering reasonably possible changes in interest and currency
rates.
12. INCOME TAXES
The components of pre-tax income from continuing operations before
extraordinary item are as follows (in thousands):
1998 1997 1996
---- ---- ----
Domestic operations........ $54,019 $113,646 $132,063
Foreign operations......... 7,363 14,438 7,343
------- -------- --------
Total.................. $61,382 $128,084 $139,406
======= ======== ========
Income tax expense (benefit) consists of the following (in thousands):
1998 1997 1996
---- ---- ----
Current provision:
Federal.................. $14,043 $32,419 $36,122
State and local.......... 1,130 4,652 5,305
Foreign.................. 2,977 3,473 541
------- ------- -------
Total.................. 18,150 40,544 41,968
------- ------- -------
Deferred provision:
Federal.................. 5,661 9,327 10,579
State and local.......... 1,274 2,099 3,364
Foreign.................. (1,148) (2,017) (149)
------- ------- -------
Total.................. 5,787 9,409 13,794
------- ------- -------
Total provision........ $23,937 $49,953 $55,762
======= ======= =======
The differences between income tax expense shown in the consolidated
statements of income and the computed income tax expense based on the federal
statutory corporate tax rate are (in thousands):
1998 1997 1996
---- ---- ----
Computed income taxes based on
federal statutory corporate
tax rate of 35%............... $21,484 $44,829 $48,792
State and local income taxes,
net of federal benefit........ 1,563 4,388 5,635
Earnings in jurisdictions taxed
at rates different from U.S.
statutory rate............... (748) (3,597) (2,206)
Foreign dividends............... 2,632 3,720 2,288
Other........................... (994) 613 1,253
------- ------- -------
Total income tax expense..... $23,937 $49,953 $55,762
======= ======= =======
Appropriate U.S. and foreign taxes have been provided for earnings of
subsidiary companies that are expected to be remitted to Nine West Group Inc.
The cumulative amount of unremitted earnings from foreign subsidiaries that
are expected to be indefinitely reinvested was $9.3 million on January 30,
1999. The taxes that would be paid upon the remittance of these indefinitely
reinvested earnings are estimated to be $0.4 million based on current tax
laws.
The tax effects of significant items comprising the Company's net
deferred tax asset are (in thousands):
January 30 January 31
1999 1998
---------- ----------
Deferred tax assets:
Inventory allowances and capitalization....... $12,959 $ 6,158
Provision for losses on accounts receivable... 11,690 15,587
Business restructuring expense................ 8,709 5,823
Deferred compensation......................... 6,218 4,365
Deferred rent................................. 5,239 4,716
Employee benefit plans........................ 3,859 10,201
Insurance reserves............................ 2,945 2,326
Net operating loss carry forwards............. 1,550 1,162
Fixed assets.................................. 1,414 5,636
Other accruals not currently deductible....... 1,498 2,425
------- -------
Gross deferred tax assets..................... 56,081 58,399
------- -------
Deferred tax liabilities:
Intangible assets............................. 17,032 12,325
------- -------
Net deferred tax asset..................... $39,049 $46,074
======= =======
Included in:
Prepaid expenses and other current assets..... $38,506 $32,184
Other assets.................................. 543 13,890
------- -------
Net deferred tax asset..................... $39,049 $46,074
======= =======
For tax purposes, the Company had available at January 30, 1999 foreign
net operating loss carry forwards of $6.4 million. Of this amount, $1.3
million will expire in 2003, $0.2 million will expire in 2004 and $4.9 million
will be available indefinitely.
13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consists of (in
thousands):
January 30 January 31
1999 1998
---------- ----------
Salaries, compensation and benefits.............. $26,811 $ 26,733
Interest payable................................. 12,233 17,741
Other accrued expenses and other current
liabilities................................... 60,023 60,970
------- --------
Accrued expenses and other current
liabilities............................... $99,067 $105,444
======= ========
14. LONG-TERM DEBT
Long-term debt includes (in thousands):
January 30 January 31
1999 1998
---------- ----------
Senior notes.................................... $191,999 $195,223
Senior subordinated notes....................... 92,081 122,014
Revolving credit facility....................... 32,000 175,000
Convertible notes............................... 182,665 182,031
Other debt obligations.......................... 15,508 17,230
-------- --------
514,253 691,498
Less portion payable within one year......... 3,449 4,235
-------- --------
Total long-term debt.................. $510,804 $687,263
======== ========
In July 1997, the Company issued $200.0 million of its Senior Notes and
$125.0 million of its Senior Subordinated Notes. See Note 5, "Extraordinary
Item." The Notes are fully and unconditionally guaranteed on a senior basis
with respect to the Senior Notes and on a senior subordinated basis with
respect to the Senior Subordinated Notes by certain subsidiaries of Nine West
Group Inc. The Senior Notes are not redeemable at the option of the Company
prior to maturity. The Senior Subordinated Notes are redeemable, in whole or
in part, at the option of the Company, at any time on or after August 15,
2002, at declining redemption prices. Prior to August 15, 2000, the Company
may redeem up to 30% of the Senior Subordinated Notes with the net proceeds of
one or more public equity offerings at a redemption price of 109%, provided
that at least $87.5 million of Senior Subordinated Notes remain outstanding
after such redemption. Upon the occurrence of a change of control, each
holder of the Notes may require the Company to purchase all or any portion of
such holder's Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. The Notes constitute unsecured obligations of the Company.
In connection with the issuance of the Notes, on August 1, 1997, the
Company amended and restated its credit agreement to permit the Company to
borrow up to $600.0 million under a revolving credit facility which expires in
July 2002. Effective December 15, 1998, the Company voluntarily reduced the
commitment under its Amended and Restated Credit Agreement (the "Credit
Agreement") to $500.0 million from $600.0 million. Under the terms of the
Credit Agreement, up to $150.0 million may be utilized for letters of credit
and up to $250.0 million may be in the form of multicurrency borrowings.
Amounts outstanding under the Credit Agreement bear interest, at the Company's
option, at rates based on Citibank, N.A.'s base rate or the Eurodollar rate,
and are secured by substantially all assets of the Company and its domestic
subsidiaries (excluding receivables transferred to the Trust under the
Receivables Facility). Borrowings under the Credit Agreement will become
unsecured once the Company reaches an "investment grade" rating on its long-
term senior unsecured indebtedness. As of January 30, 1999, $32.0 million of
borrowings and $58.3 million of letters of credit were outstanding on a
revolving basis and $409.7 million was available for future borrowing.
In June 1996, the Company issued $185.7 million of its 5-1/2%
Convertible Subordinated Notes due July 15, 2003 (the "Convertible Notes")
which are convertible into Common Stock at a price of $60.76 per share,
subject to adjustment in certain circumstances. The Convertible Notes are
redeemable, in whole or in part, at the option of the Company, at any time on
or after July 16, 1999, at declining redemption prices plus any accrued
interest. Upon the occurrence of a change of control, each holder of the
Convertible Notes may require the Company to purchase all or any portion of
such holder's Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. The Convertible Notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company.
Provisions of the Notes, Credit Agreement and Convertible Notes contain
various covenants which, among other things, limit the Company's ability to
incur indebtedness, incur liens, declare or pay dividends or make restricted
payments, consolidate, merge or sell assets.
The annual maturities of long-term debt are approximately $3.4 million,
$5.2 million, $0.0 million, $38.9 million and $182.7 million for 1999 through
2003, respectively. The carrying value of the Company's long-term debt
approximates its fair value, which was estimated based upon the current rates
offered to the Company for debt with similar terms and remaining maturities.
15. LEASE COMMITMENTS
The Company leases office, distribution center, factory and retail
locations, and equipment under operating leases expiring at various dates
through 2022 with renewal options for additional periods. Most retail store
leases require both contingent payments based on sales volume and contain
escalation clauses for increases in operating costs and real estate taxes.
Rent expense for operating leases was $151.1 million, $120.7 million and
$80.7 million for 1998, 1997 and 1996, respectively. Included in rent expense
are minimum rent payments of $147.2 million, $114.5 million and $74.3 million
for 1998, 1997 and 1996, respectively.
Future minimum operating lease payments under noncancellable leases with
initial or remaining terms of one year or more at January 30, 1999 consist of
(in thousands):
Fiscal Minimum
Year Payments
------ --------
1999........................... $ 95,551
2000........................... 90,638
2001........................... 82,897
2002........................... 75,440
2003........................... 66,690
2004 and thereafter............ 327,914
--------
Total minimum lease payments.. $739,130
========
16. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans - As of December 31, 1996, the Company amended its
retirement plans to freeze benefits thereunder, and merged three defined
benefit pension plans acquired in connection with the Acquisition into its
previously existing plan (the "Plan"). As of January 1, 1997, the Plan was
further amended to take the form of a cash balance plan (the Plan and
amendments thereto are referred to herein as the "Cash Balance Plan"), which
expressed the retirement benefit as an account balance which increased each
year through a combination of interest and service credits to the account
based on a percentage of compensation. On January 27, 1999, the Cash Balance
Plan was further amended to eliminate future service credits. Primarily as a
result of the latter amendment, during the fourth quarter of 1998, the Company
recognized a $12.3 million curtailment gain (the "Curtailment Gain") under the
provisions of SFAS No. 88, "Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and Termination Benefits." The Company's
funding policy is to make the minimum annual contributions required by
applicable regulations. The assets of the Cash Balance Plan have been
invested in commingled funds which invest primarily in common stock and
investment grade bonds.
The Company provides a Supplemental Executive Retirement Plan ("SERP"
and, together with the Cash Balance Plan, the "Pension Plans") in which
certain key employees and officers are eligible to participate. In connection
with the Acquisition, the Company acquired an additional SERP in which certain
Footwear Group employees participate. The SERPs provide supplemental pension
benefits that are not available under the defined benefit pension plan.
Benefits paid under the SERPs are based on length of service and final
compensation, without regard to the limitations of the Internal Revenue Code
(the "Code"), and are reduced by the full amount of benefits payable under the
Cash Balance Plan. The SERPs are unfunded, and benefits thereunder are paid
from the general assets of the Company. Effective December 31, 1995, the
SERPs were amended to freeze the total benefit payable to participants. As
participants accrue future benefits in the qualified pension plan, the
benefits payable under the SERPs decrease.
Defined Contribution Plans - As of January 1, 1997, the 401(k) savings
plan acquired by the Company in connection with the Acquisition was merged
into the Company's preexisting 401(k) savings plan (the "Savings Plan").
Additionally, a non-qualified compensation plan, the Supplemental Savings Plan
(the "Supplemental Plan" and, together with the Savings Plan, the "Savings
Plans"), was established for employees designated by the Company's retirement
committee (the "Retirement Committee"). The Savings Plan allows each
participant to contribute up to 15.0% (limited to 6.0% for highly compensated
employees) of his or her salary for the year. The Company makes matching
contributions to the Savings Plan equal to 50.0% of the participants
contribution up to 6.0% of his or her salary. The Supplemental Plan allows
each participant to contribute up to 15.0% of his or her salary for the year.
The Company makes matching contributions to the Supplemental Plan equal to
50.0% of the participant's contribution up to 6.0% of his or her salary,
limited to a maximum of $5,000 in 1998. At the end of the plan year,
discrimination testing will determine the amount of Supplemental Plan
contributions, not to exceed 6.0%, that will be transferred into the Savings
Plan. In addition to the Savings Plans, the Company's United Kingdom and
Asian subsidiaries have defined contribution plans with terms similar to those
of the Savings Plan. The cost of the defined contribution plans to the
Company was $1.7 million, $2.0 million and $2.2 million for 1998, 1997 and
1996, respectively.
The Company also maintains a non-qualified deferred compensation plan
(the "Executive Deferred Compensation Plan"). The purpose of the Executive
Deferred Compensation Plan is to provide to certain eligible employees of the
Company the opportunity to: (1) defer elements of their compensation
(including any investment income thereon) which might not otherwise be
deferrable under the Savings Plans; and (2) receive the benefit of additions
to their deferral comparable to those obtainable under the Savings Plans in
the absence of certain restrictions and limitations in the Code. The
Executive Deferred Compensation Plan is unfunded; benefits are paid from the
general assets of the Company. The Company's liability under the Executive
Deferred Compensation Plan as of January 30, 1999 and January 31, 1998 was
$12.6 million and $9.5 million, respectively.
Health Benefit Plans - In connection with the Acquisition, the Company
acquired postretirement benefit plans that partially subsidize healthcare
costs and provide life insurance for certain eligible retirees of the Footwear
Group.
The postretirement medical plan was amended on August 1, 1996 to
eliminate coverage for those active employees who were under age 50 as of
December 31, 1996. This amendment resulted in a curtailment gain of $0.5
million for 1996. The liability associated with the postretirement medical
plan has been significantly reduced as the share of the premiums paid by
participants has increased. Currently, medical benefits for post-age 65
retirees is maintained by the Company, but the full cost of these benefits is
paid by the retiree.
Net periodic pension costs related to the Pension Plans and net other
benefits include the following components (in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pension Benefits Other Benefits
---------------------------- ------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Service cost................. $ 3,861 $4,063 $3,280 $ 22 $ 20 $ 41
Interest cost................ 3,175 3,500 4,377 150 250 389
Actual return on plan
assets...................... (5,299) (5,063) (5,417) - - -
Amortization of unrecognized
net (gain) loss............. (218) - (143) (1,194) (606) (447)
Amortization of prior service
costs....................... (1,120) (1,117) (53) - - -
Amortization of unrecognized
net transition obligation
(asset)..................... (18) (19) (19) - - -
Curtailment gain............. (12,259) - - - - (461)
------- ------ ------ ------ ----- -----
Net periodic benefit cost.. $(11,878) $1,364 $2,025 $(1,022) $(336) $(478)
======== ====== ====== ======= ===== =====
</TABLE>
The assumptions used to develop accrued pension cost and other benefit
costs at the end of the year, as well as costs in the following year, are:
Pension Benefits Other Benefits
------------------------- ------------------------
Jan. 30 Jan. 31 Feb.1 Jan. 30 Jan.31 Feb. 1
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Discount rate.......... 6.75% 7.0% 7.5% 6.5% 6.75% 7.25%
Rate of increase in
compensation levels... 4.5 4.5 4.5 5.5 5.5 5.5
Expected long-term rate
of return on assets... 9.0 9.0 9.0 - - -
The funded status and the related accrued pension costs for the Defined
Benefit Plans and the postretirement benefit obligation are (in thousands):
Pension Benefits Other Benefits
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at
beginning of year.......... $48,568 $ 49,656 $ 2,326 $ 4,812
Service cost................ 3,861 4,063 22 20
Interest cost............... 3,175 3,500 150 250
Actuarial (gain) loss....... 3,479 2,323 43 (2,756)
Curtailments................ (1,105) - - -
Benefits paid............... (9,130) (10,974) (91) -
------- -------- ------ -------
Benefit obligation at
end of year............. $48,848 $ 48,568 $ 2,450 $ 2,326
======= ======== ====== =======
Change in plan assets:
Fair value of plan assets
at beginning of year...... $61,483 $ 58,435 $ - $ -
Actual return on plan
assets.................... 4,554 13,684 - -
Employer contributions..... 105 338 91 -
Benefits paid.............. (15,261) (10,974) (91) -
------- -------- ------- -------
Fair value of plan assets
at end of year............ $50,881 $ 61,483 $ - $ -
======= ======== ======= =======
Funded status.............. $ 2,033 $ 12,915 $(2,450) $(2,326)
Unrecognized transition
(asset) obligation........ (2,247) (1,672) - -
Unrecognized prior service
cost...................... 128 (13,251) - -
Unrecognized net (gain)
loss...................... 2,056 (8,005) (6,378) (7,615)
------- -------- ------ ------
Prepaid (accrued) benefit
cost...................... $ 1,970 $(10,013) $(8,828) $(9,941)
======= ======== ======= =======
For 1998, an 11.5% and 9.0% increase in the cost of covered healthcare
benefits was assumed in the pre- and post-age 65 categories, respectively.
This rate was assumed to decrease gradually to 5.0% by 2006 and remain at that
level thereafter. The healthcare cost trend rate assumption has a significant
effect on the amounts reported. For example, a one-percentage point change in
the assumed healthcare cost trend rate would have the following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
Percentage increase (decrease)
in service and interest
cost........................ 6.7% (5.9%)
Percentage increase (decrease)
in postretirement benefit
obligation.................. 5.9% (5.2%)
The Company funds covered healthcare benefits as claims are incurred.
Severance Plans - The Company provides certain severance benefits for
former employees of the Footwear Group. These plans give severance, health,
placement and certain other benefits to former Footwear Group employees based
on length of service, final compensation, and certain other factors. The
Company's liability under such plans was $0.6 million and $4.5 million at
January 30, 1999 and January 31, 1998, respectively. See Note 3, "Business
Restructuring Charges."
17. STOCK OPTION PLANS
The Company has three stock option plans which provide for the issuance
of options and other stock-based awards to management, employees, directors
and other persons performing significant services for the Company. Under
these plans, the Company is authorized to issue up to an aggregate of 9.7
million shares of Common Stock, with vesting periods of up to five years at
option prices not less than the fair market value on the date of grant.
Outstanding options have terms up to 10 years and are exercisable in
successive annual increments conditional upon active employment or service,
except for periods following retirement, disability, death or change of
control of the Company. The number of shares available for issuance under the
plans and the number of shares issuable pursuant to exercise of the
outstanding stock options is subject to adjustment upon certain changes in the
Company's capitalization.
Activity in the Company's stock option plans was (shares in thousands):
Weighted Average
Shares Exercise Price
------ ----------------
Outstanding at February 3, 1996... 3,788 $27.20
======
Granted............................... 1,271 44.55
Exercised............................. (553) 25.28
Forfeited............................. (86) 29.57
------
Outstanding at February 1, 1997... 4,420 $32.98
======
Granted............................... 1,722 30.67
Exercised............................. (76) 27.10
Forfeited............................. (93) 37.58
------
Outstanding at January 31, 1998... 5,973 $32.32
======
Granted............................... 409 21.85
Exercised............................. (19) 26.16
Forfeited............................. (625) 36.78
------
Outstanding at January 30, 1999... 5,738 $31.10
======
Shares exercisable at February 1, 1997 921 28.20
Shares exercisable at January 31, 1998 2,198 29.96
Shares exercisable at January 30, 1999 3,382 $30.28
The weighted average range of options outstanding at January 30, 1999
are (shares in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
----------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
$10.00 to 16.99 124 10.0 $14.09 0 $ 0.00
17.00 to 26.99 1,741 4.7 24.89 1,386 25.07
27.00 to 36.99 2,823 7.2 29.94 1,514 29.92
$37.00 to 50.00 1,050 7.2 $46.51 482 $46.39
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its three stock-based compensation plans. Had compensation
cost for the Company's three stock-based compensation plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share on a pro forma
basis would have been (in thousands, except per share amounts):
1998 1997 1996
---- ---- ----
Pro forma net income.................... $33,443 $68,435 $73,866
Pro forma basic earnings per share...... 0.95 1.91 2.07
Pro forma diluted earnings per share.... $ 0.95 $ 1.90 $ 2.02
Assumptions:
Risk-free interest rate................ 4.7% 5.5% 6.0%
Volatility............................. 44% 29.0% 33.0%
Expected life.......................... 5 years 5 years 3 years
The weighted average grant date fair value of options granted was $9.39,
$12.37 and $13.98 for 1998, 1997 and 1996, respectively. The fair value of
each option grant was estimated using the Black-Scholes options-pricing model
based on the assumptions noted above and an expected dividend yield of zero.
Results can vary materially depending on the assumptions applied within the
model, and the resulting compensation expense may not be representative of
compensation expense to be incurred on a pro forma basis in future years.
18. SHAREHOLDER RIGHTS PLAN
On February 17, 1998, the Company adopted a shareholder rights plan (the
"Rights Plan") and designated 70,000 shares of its 25,000,000 authorized
shares of preferred stock, par value $.01 per share, as Series A Junior
Participating Preferred Stock (the "Series A Preferred Stock"). Pursuant to
the Rights Plan, on March 4, 1998, the Company paid a dividend of one
preferred share purchase right (a "Right") for each outstanding share of the
Company's Common Stock. Generally, the Rights become exercisable (1) a
specified period after a party acquires beneficial ownership of 20% or more of
the Common Stock (an "Acquiring Person") or (2) following the commencement or
public announcement of an offer for 20% or more of the Company's Common Stock.
Each Right provides that, when exercisable, the holder may purchase one one-
thousandth of a share of Series A Preferred Stock, at a price of $120, subject
to adjustment. For purposes of this calculation, there shall be disregarded
shares of Common Stock which either of two named principal shareholders of the
Company or their respective estates had the right to acquire on February 17,
1998, or acquire or obtain the right to acquire subsequent to February 17,
1998, in either case under employee benefit plans of the Company. After a
party becomes an Acquiring Person, each holder of a Right will have the right
to exercise the Right to purchase the number of Shares of Common Stock or, in
certain situations, common stock of the Acquiring Person, having a market
value of two times the exercise price. Alternatively, the Company has the
option to exchange the Rights for shares of Common Stock or Series A Preferred
Stock, at an exchange ratio of one share of Common Stock, or fractional shares
of Series A Preferred Stock equivalent in value thereto, per Right, at any
time after a party has acquired at least 20% but less than 50% of the Common
Stock. The Company may redeem each Right for $.01 per Right at any time after
an Acquiring Person becomes such. In general, none of the benefits of the
Rights will be available to an Acquiring Person. The Rights will expire on
February 16, 2008, unless earlier exchanged or redeemed.
On March 1, 1999, the Company amended the Rights Plan in connection with
entering into an agreement to merge with Jill Acquisition Sub Inc. ("Merger
Sub"), a Delaware corporation and a wholly owned subsidiary of Jones Apparel
Group, Inc. ("Jones"), a Pennsylvania corporation. The amendment provides
that none of Jerome Fisher, Vincent Camuto, Jones or any affiliate or
associate of any of them will be deemed to be an Acquiring Person solely by
reason of (1) the approval, execution, delivery or performance of the
Agreement and Plan of Merger, dated as of March 1, 1999, among Jones, Merger
Sub and the Company (the "Merger Agreement"), (2) the approval, execution,
delivery or performance of the Stockholder Agreement, dated as of March 1,
1999, between Jones and Messrs. Fisher and Camuto (the "Stockholder
Agreement") or (3) the consummation of the transactions contemplated by the
Merger Agreement or the Stockholder Agreement. See Note 22, "Subsequent
Event."
19. CASH FLOWS
Cash paid for income taxes was $12.4 million, $39.7 million and $46.0
million for 1998, 1997 and 1996, respectively. Cash paid for interest was
$56.3 million, $37.1 million and $39.0 million for 1998, 1997 and 1996,
respectively. Excluded from the consolidated statement of cash flows for 1997
is a $15.4 million non-cash debt obligation incurred by the Company in
conjunction with its acquisition of The Shoe Studio Group Limited.
20. RELATED PARTY TRANSACTIONS
During 1997, the Company's principal executive offices were moved from
Stamford, Connecticut, to White Plains, New York. The Company is a party to a
lease with respect to its former executive offices with a partnership in which
the Company's Chairman of the Board and Chief Executive Officer have a
combined 10.3% limited partnership interest. The lease was renegotiated and
extended at current market rates during 1993 and expires on December 31, 2002.
Rent payments related to the Company's former executive offices for 1998,
1997 and 1996 were $1.6 million, $2.3 million and $2.1 million, respectively,
net of sublease income for 1998 of $0.3 million.
21. STOCKHOLDERS EQUITY
On February 17, 1998, the Company authorized a share buy-back program in
an amount not to exceed $20.0 million, which reflected limits imposed under
the Company's Credit Agreement. During 1998, the Company completed the share
buy-back program by purchasing 1,952,900 outstanding shares of its Common
Stock at an aggregate price of approximately $20.0 million.
In connection with the Acquisition, the Company issued warrants (the
"Warrants") to purchase 3.7 million shares of Common Stock. On June 5, 1996,
the Company made a net payment of $42.5 million to U.S. Shoe, in connection
with the settlement of a post-closing balance sheet dispute relating to the
Acquisition and for the repurchase by the Company of the Warrants.
22. SUBSEQUENT EVENT
The Company, Jones and Merger Sub have entered into the Merger
Agreement, pursuant to which the Company will be merged with Merger Sub (the
"Merger") and all outstanding shares of the Company's Common Stock, other than
shares held by parties to the Merger Agreement or by dissenting shareholders
who perfect their statutory appraisal rights under Delaware law, will be
converted into the right to receive $13.00 in cash and a number of shares of
common stock of Jones (the "Jones Common Stock") equal to the Exchange Ratio,
subject to the terms and conditions of the Merger Agreement. The "Exchange
Ratio" will be (i) .5011 if the average price of the Jones Common Stock for a
15-day period prior to the Closing (the "Jones Stock Price") is greater than
or equal to $24.00 and less than or equal to $34.00; (ii) equal to $12.00
divided by the Jones Stock Price if the Jones Stock Price is greater than or
equal to $21.00 and less than $24.00; (iii) .5714 if the Jones Stock Price is
less than $21.00; (iv) equal to $17.00 divided by the Jones Stock Price if the
Jones Stock Price is greater than $34.00 but less than or equal to $36.00; and
(v) .4722 if the Jones Stock Price is greater than $36.00. Based on a value
of Jones Common Stock of $29-5/8 per share as of April 16, 1999, and including
assumed debt, the transaction has a total value of approximately $1.5 billion.
Jones is a designer and marketer of a broad array of products, including
sportswear, jeanswear, suits and dresses. The Merger will be accounted for as
a purchase for financial accounting purposes. The transaction is expected to
close by the end of June 1999 and is subject to customary conditions,
including approval by Company stockholders.
23. COMMITMENTS AND CONTINGENCIES
The Federal Trade Commission is currently conducting an inquiry with
respect to the Company's resale pricing policies to determine whether the
Company violated the federal antitrust laws by agreeing with others to
restrain the prices at which retailers sell footwear and other products
marketed by the Company. In addition, Attorneys General from the States of
Florida, New York, Ohio and Texas are conducting similar inquiries.
Since January 13, 1999, more than 25 putative class actions have been
filed on behalf of purchasers of the Company's footwear in three separate
federal courts alleging that the Company violated Section 1 of the Sherman Act
by engaging in a conspiracy with its retail distributors to fix the minimum
prices at which the footwear marketed by the Company was sold to the public.
All of these class action complaints have been consolidated into a single
action in the United States District Court for the Southern District of New
York and seek injunctive relief, unspecified compensatory and treble damages,
and attorneys' fees. In addition, five putative class actions based on the
same alleged conduct have been filed in state courts in New York, the District
of Columbia, Wisconsin, California and Minnesota alleging violations of those
states' respective antitrust laws. The five state actions likewise seek
injunctive relief, unspecified compensatory and treble damages, and attorneys'
fees.
Based on the short period of time that has elapsed since the inception
of the inquiries and the filing of the lawsuits, the Company's existing
policies relating to resale pricing and the limited information available to
the Company with respect to compliance with those policies, the Company does
not anticipate that the inquiries or lawsuits will result in a material
adverse financial effect on the Company.
On March 3, 4 and 5, 1999, four purported stockholder class action suits
were filed against the Company, the members of the Company's Board of
Directors and Jones in the Delaware Court of Chancery. These complaints
allege, among other things, that the defendants have breached their fiduciary
duties to Company stockholders by failing to maximize stockholder value in
connection with entering into the Merger Agreement. See Note 22, "Subsequent
Event." The complaints seek, among other things, an order enjoining
completion of the merger. The Company and Jones believe that the complaints
are without merit and plan to defend vigorously against the complaints.
On May 1, 1997, the Company learned that on April 10, 1997, the United
States Securities and Exchange Commission (the "SEC") entered a formal order
of investigation of the Company. Based on conversations with the staff of the
SEC, the Company believes that this investigation was primarily focused on the
revenue recognition policies and practices of certain of the Company's
divisions that were acquired from U.S. Shoe in 1995. On October 29, 1997, the
Company received a subpoena issued by the SEC in connection with its
investigation requesting the Company to produce certain documents relating to
the purchase by the Company of products manufactured in Brazil from 1994 to
date, including documents concerning the prices paid for such products and the
customs duties paid in connection with their importation into the United
States. On February 1, 1999, the SEC informed the Company that its
investigation had been terminated with no enforcement action being recommended
against the Company.
In addition, on October 29, 1997, the Company learned that the United
States Customs Service had commenced an investigation of the Company relating
to the Company's importation of Brazilian footwear from 1995 to date. On
April 14, 1998, the United States Customs Service informed the Company that
such investigation had been terminated with no action taken against the
Company.
The Company has been named as a defendant in various actions and
proceedings, including actions brought by certain terminated employees,
arising from its ordinary business activities. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse financial effect on the Company.
24. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the last two years appears below
(in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998
Net revenues...................... $448,282 $527,958 $485,720 $454,747
Gross profit...................... 191,060 214,376 208,523 175,888
Income (loss) before extraordinary
item............................. 7,283 21,637 15,873 (7,348)
Earnings (loss) per share before
extraordinary item*
Basic.......................... 0.20 0.60 0.46 (0.22)
Diluted........................ $ 0.20 $ 0.60 $ 0.46 $ (0.22)
1997
Net revenues...................... $406,083 $495,684 $496,563 $466,988
Gross profit...................... 181,841 206,639 221,418 191,839
Net income (loss)................. 17,491 28,926 34,602 (2,888)
Earnings (loss) per share*
Basic.......................... 0.49 0.81 0.97 (0.08)
Diluted........................ $ 0.48 $ 0.78 $ 0.92 $ (0.08)
*The total of quarterly earnings per share does not equal the annual
amount, as earnings per share is calculated independently for each quarter.
The calculation of diluted earnings per share excludes the impact of
antidilutive common stock equivalents.
For the first, second and fourth quarters of 1998, net income, basic
earnings per share and diluted earnings per share are equivalent to income
before extraordinary item. Net income, basic earnings per share and diluted
earnings per share for the third quarter of 1998 were $18.8 million, $0.54 and
$0.54, respectively, which includes the Note Repurchase Gain. See Note 5,
"Extraordinary Item."
The fourth quarters of 1998 and 1997 include pre-tax charges of $3.7
million and $6.3 million, respectively, for severance and other costs related
to the reduction of corporate positions. Additionally, the fourth quarter of
1998 includes the 1998 Restructuring Charge (see Note 3, "Business
Restructuring Charges"), the Curtailment Gain (see Note 16, "Employee Benefit
Plans") and a $3.2 million pre-tax charge for the write-down of receivables in
connection with the discontinuation of a Far East distribution operation.
25. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company's operations are comprised of domestic wholesale, domestic
retail and international segments. The Company identifies operating segments
based on, among other things, the way that the Company's management organizes
the components of the Company's business for purposes of allocating resources
and assessing performance. Segment revenues are generated from the sale of
footwear and accessories through wholesale channels and the Company's own
retail locations and are recorded on the basis of customer location. The
domestic wholesale segment includes wholesale operations with third party
department and retail stores within the United States. The domestic retail
segment includes retail operations by Company-owned retail stores located in
the United States. The international segment includes retail and wholesale
operations with third party customers in approximately 55 countries. No
individual country other than the United States accounted for more that 10% of
consolidated net revenues in 1998, 1997 or 1996. The Company defines segment
profit as income from continuing operations before restructuring expenses,
interest expense, income taxes, discontinued operations and extraordinary
items. All inter-segment sales are accounted for at prices that provide a
profit and are in accordance with the rules and regulations of the respective
governing authorities. The Company does not include intercompany activity
between segments in the measurement of segment profitability. Information on
segments and a reconciliation to amounts disclosed within the consolidated
financial statements are as follows (in thousands):
Fiscal year ended January 30, 1999:
<TABLE>
<S> <C> <C> <C> <C> <C>
Domestic Domestic Inter- Corporate
Wholesale Retail national and other Consolidated
--------- -------- -------- --------- ------------
Net revenues............. $874,714 $744,382 $297,611 $ - $1,916,707
Depreciation and
amortization............ 4,323 13,062 7,331 24,305 49,021
Segment profit........... 173,945 46,483 (917) (86,629) 132,882
Business restructuring
expenses................ 18,033
Interest expense......... 53,467
Income from continuing
operations before income
taxes................... 61,382
Capital expenditures..... 7,327 14,177 12,096 8,295 41,895
Total assets............. $508,532 $245,593 $159,059 $303,945 $1,217,129
</TABLE>
Fiscal year ended January 31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
Domestic Domestic Inter- Corporate
Wholesale Retail national and other Consolidated
--------- -------- -------- --------- ------------
Net revenues............. $904,455 $744,904 $215,959 $ - $1,865,318
Depreciation and
amortization............ 3,170 11,961 3,597 21,224 39,952
Segment profit........... 194,382 75,045 7,615 (94,944) 182,098
Interest expense......... 54,014
Income from continuing
operations before income
taxes................... 128,084
Capital expenditures..... 3,501 27,067 12,160 33,504 76,232
Total assets............. $443,061 $214,718 $ 79,077 $654,683 $1,391,539
</TABLE>
Fiscal year ended February 1, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C>
Domestic Domestic Inter- Corporate
Wholesale Retail national and other Consolidated
--------- -------- -------- --------- ------------
Net revenues............. $881,746 $682,626 $38,743 $ - $1,603,115
Depreciation and
amortization............ 2,166 10,833 770 19,214 32,983
Segment profit........... 203,510 82,827 105 (86,119) 200,323
Business restructuring
expenses................ 18,970
Interest expense......... 41,947
Income from continuing
operations before income
taxes................... 139,406
Capital expenditures..... $ 4,474 $ 26,078 $ 2,133 $ 10,121 $ 42,806
</TABLE>
Long-lived assets excluding deferred taxes related to operations in the
United States and foreign countries are as follows:
1998 1997
---- ----
United States.......................... $522,264 $526,575
Foreign countries...................... 62,070 51,943
-------- --------
Total.......................... $584,334 $578,518
======== ========
26. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Notes are fully and unconditionally guaranteed on a joint and
several basis by certain wholly-owned domestic subsidiaries of Nine West Group
Inc. Accordingly, condensed consolidating balance sheets as of January 30,
1999 and January 31, 1998, and condensed consolidating statements of income
and cash flows for the 52-week periods ended January 30, 1999, January 31,
1998 and February 1, 1997, respectively, for such guarantor subsidiaries are
provided. These condensed consolidating financial statements have been
prepared using the equity method of accounting in accordance with the
requirements for presentation of such information. Separate financial
statements and other disclosures concerning the guarantor subsidiaries are not
presented because management has determined that they are not material to
investors. There are no contractual restrictions on distributions from each
of the guarantor subsidiaries to Nine West Group Inc.
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
52 WEEKS ENDED JANUARY 30, 1999
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ----------- ------------
Net revenues......................... $923,219 $2,336,333 $ 329,033 $(1,671,878) $1,916,707
Cost of goods sold................... 506,276 1,973,743 170,485 (1,523,644) 1,126,860
-------- ---------- --------- ----------- ----------
Gross profit....................... 416,943 362,590 158,548 (148,234) 789,847
Selling, general and
administrative expenses............. 402,701 256,375 140,759 (148,234) 651,601
Business restructuring expenses...... 7,573 5,046 0 0 12,619
Amortization of acquisition goodwill
and other intangibles............... 5,647 3,716 1,415 0 10,778
-------- ---------- --------- ----------- ----------
Operating income................... 1,022 97,453 16,374 0 114,849
Interest expense..................... 14,798 30,306 8,363 0 53,467
Equity in net earnings of
subsidiaries........................ 48,624 0 0 (48,624) 0
-------- ---------- --------- ----------- ----------
Income before income taxes......... 34,848 67,147 8,011 (48,624) 61,382
Income tax expense................... (2,597) 24,438 2,096 0 23,937
-------- ---------- --------- ----------- ----------
Income before extraordinary item.. 37,445 42,709 5,915 (48,624) 37,445
Extraordinary gain (net of income
taxes of $1,869)................... 2,923 0 0 0 2,923
-------- ---------- --------- ----------- ----------
Net income......................... $ 40,368 $ 42,709 $ 5,915 $ (48,624) $ 40,368
======== ========== ========= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
52 WEEKS ENDED JANUARY 31, 1998
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ----------- ------------
Net revenues......................... $862,742 $2,259,029 $ 256,111 $(1,512,564) $1,865,318
Cost of goods sold................... 440,133 1,839,367 140,756 (1,356,675) 1,063,581
-------- ---------- --------- ----------- ----------
Gross profit....................... 422,609 419,662 115,355 (155,889) 801,737
Selling, general and
administrative expenses............. 397,619 275,850 92,681 (156,159) 609,991
Amortization of acquisition goodwill
and other intangibles............... 5,510 3,715 423 0 9,648
-------- ---------- -------- ----------- ----------
Operating income................... 19,480 140,097 22,251 270 182,098
Interest expense..................... 12,021 34,422 7,301 270 54,014
Equity in net earnings of
subsidiaries........................ 79,467 (79,467) 0
-------- ---------- -------- ----------- ----------
Income before income taxes......... 86,926 105,675 14,950 (79,467) 128,084
Income tax expense................... 8,795 39,443 1,715 49,953
-------- ---------- -------- ----------- ----------
Net income......................... $ 78,131 $ 66,232 $13,235 $ (79,467) $ 78,131
======== ========== ======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
52 WEEKS ENDED FEBRUARY 1, 1997
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ----------- ------------
Net revenues......................... $739,214 $2,001,125 $ 98,435 $(1,235,659) $1,603,115
Cost of goods sold................... 380,965 1,624,199 57,538 (1,148,756) 913,946
-------- ---------- --------- ----------- ----------
Gross profit....................... 358,249 376,926 40,897 (86,903) 689,169
Selling, general and
administrative expenses............. 298,937 239,844 27,293 (86,790) 479,284
Business restructuring expenses...... 5,466 13,504 - - 18,970
Amortization of acquisition goodwill
and other intangibles............... 7,704 1,858 9,562
-------- ---------- --------- ----------- ----------
Operating income................... 46,142 121,720 13,604 (113) 181,353
Interest expense..................... 11,824 24,466 5,770 (113) 41,947
Equity in net earnings of
subsidiaries........................ 61,815 (61,815) 0
-------- ---------- --------- ----------- ----------
Income before income taxes......... 96,133 97,254 7,834 (61,815) 139,406
Income tax expense................... 15,125 40,035 602 55,762
-------- ---------- --------- ----------- ----------
Income from continuing operations. 81,008 57,219 7,232 (61,815) 83,644
Loss on disposal of discontinued
operation - net..................... 2,636 2,636
-------- ---------- --------- ----------- ----------
Net income......................... $ 81,008 $ 57,219 $ 4,596 $ (61,815) $ 81,008
======== ========== ========= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
JANUARY 30, 1999
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------- ----------- ------------
ASSETS
Current Assets:
Cash............................... $ 9,776 $ 26 $ 8,149 $ 0 $ 17,951
Accounts receivable including
securitized interest in accounts
receivable - net................. 34,363 (50,868) 102,999 0 86,494
Inventories........................ 140,112 246,634 73,629 0 460,375
Prepaid expenses and other
current assets.................... 38,047 23,488 5,897 0 67,432
Due (to) from affiliates........... (285,991) 307,097 (21,106) 0 0
---------- -------- -------- --------- ----------
Total current assets............. (63,693) 526,377 169,568 0 632,252
Property and equipment - net......... 118,345 17,588 28,073 0 164,006
Goodwill - net....................... 202,635 0 27,602 0 230,237
Trademarks and trade names - net..... 1,099 134,906 1,890 0 137,895
Other assets......................... 70,838 4,100 4,601 (26,800) 52,739
Investment in subsidiaries........... 783,782 0 0 (783,782) 0
---------- -------- -------- --------- ----------
Total assets................... $1,113,006 $682,971 $231,734 $(810,582) $1,217,129
========== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 19,027 $ 46,712 $ 13,786 $ 0 $ 79,525
Accrued expenses and other current
liabilities....................... 69,949 14,833 14,285 0 99,067
Current portion of long-term debt.. 0 0 3,449 0 3,449
---------- -------- -------- --------- ----------
Total current liabilities........ 88,976 61,545 31,520 0 182,041
Long-term debt....................... 498,745 0 12,059 0 510,804
Other non-current liabilities........ 62,442 1 29,879 (26,102) 66,220
---------- -------- -------- -------- ----------
Total liabilities.............. 650,163 61,546 73,458 (26,102) 759,065
---------- -------- -------- -------- ----------
Stockholders' equity................. 462,843 621,425 158,276 (784,480) 458,064
---------- -------- -------- -------- ----------
Total liabilities and
stockholders' equity........ $1,113,006 $682,971 $231,734 $(810,582) $1,217,129
========== ======== ======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
JANUARY 31, 1998
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------- ---------- ------------
ASSETS
Current Assets:
Cash............................... $ 10,526 $ 39 $ 13,109 $ 0 $ 23,674
Accounts receivable including
securitized interest in accounts
receivable - net................. 44,723 (18,824) 106,584 (560) 131,923
Inventories........................ 174,674 305,180 63,649 0 543,503
Prepaid expenses and other
current assets.................... 43,628 31,984 10,515 13,904 100,031
Due (to) from affiliates........... (72,262) 156,341 (83,803) (276) 0
---------- -------- -------- --------- ----------
Total current assets............. 201,289 474,720 110,054 13,068 799,131
Property and equipment - net......... 123,945 23,701 38,738 (13,589) 172,795
Goodwill - net....................... 207,417 0 23,713 0 231,130
Trademarks and trade names - net..... 1,128 138,622 0 0 139,750
Other assets......................... 35,688 1,270 11,962 (187) 48,733
Investment in subsidiaries........... 719,273 0 0 (719,273) 0
---------- -------- -------- --------- ----------
Total assets................... $1,288,740 $638,313 $184,467 $(719,981) $1,391,539
========== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 38,554 $ 52,723 $ 8,798 $ 0 $ 100,075
Accrued expenses and other current
liabilities....................... 80,298 7,283 18,423 (560) 105,444
Current portion of long-term debt.. 0 0 4,235 0 4,235
---------- -------- -------- --------- ----------
Total current liabilities........ 118,852 60,006 31,456 (560) 209,754
Long-term debt....................... 674,267 0 12,996 0 687,263
Other non-current liabilities........ 54,107 0 868 699 55,674
---------- -------- -------- --------- ----------
Total liabilities.............. 847,226 60,006 45,320 139 952,691
---------- -------- -------- --------- ----------
Stockholders' equity................. 441,514 578,307 139,147 (720,120) 438,848
---------- -------- -------- --------- ----------
Total liabilities and
stockholders' equity........ $1,288,740 $638,313 $184,467 $(719,981) $1,391,539
========== ======== ======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
JANUARY 30, 1999
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
Net cash provided by operating
activities.......................... $ 210,888 $ 1,240 $ 3,243 $ 0 $ 215,371
--------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.. (24,802) (4,914) (12,179) 0 (41,895)
Proceeds from sale of property and
equipment.......................... 16,351 0 0 0 16,351
Business acquisition - net of cash
acquired............................ 0 0 (9,932) 0 (9,932)
Proceeds from sale of discontinued
operation........................... 0 0 2,780 0 2,780
Other investing activities........... (11,790) 3,252 15,373 0 6,835
--------- -------- -------- -------- ---------
Net cash used by investing
activities.......................... (20,241) (1,662) (3,958) 0 (25,861)
--------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under
financing agreements................ (142,861) 0 1,726 0 (141,135)
Repayments of long-term debt......... (29,497) 0 (3,449) 0 (32,946)
Purchases of stock for treasury...... (19,991) 0 0 0 (19,991)
Net proceeds from issuance of stock
and other........................... 952 409 (2,522) 0 (1,161)
--------- -------- -------- -------- ---------
Net cash (used) provided by financing
activities.......................... (191,397) 409 (4,245) 0 (195,233)
--------- -------- -------- -------- ---------
NET DECREASE IN CASH................. (750) (13) (4,960) 0 (5,723)
CASH, BEGINNING OF PERIOD............ 10,526 39 13,109 0 23,674
--------- -------- -------- -------- ---------
CASH, END OF PERIOD.................. $ 9,776 $ 26 $ 8,149 $ 0 $ 17,951
========= ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
JANUARY 31, 1998
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
Net cash provided by operating
activities.......................... $ 6,688 $ 9,045 $ 54,555 $ 0 $ 70,288
--------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.. (58,379) (5,522) (12,331) 0 (76,232)
Business acquisitions - net of cash
acquired............................ (5,673) 0 (20,721) 0 (26,394)
Other investing activities........... 2,240 (3,511) (1,443) 0 (2,714)
--------- -------- -------- -------- ---------
Net cash used by investing
activities.......................... (61,812) (9,033) (34,495) 0 (105,340)
--------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under
financing agreements................ 45,000 0 4,376 0 49,376
Proceeds from issuance of long-term
debt................................ 316,648 0 0 0 316,648
Repayments of long-term debt......... (322,001) 0 (10,294) 0 (332,295)
Net proceeds from issuance of stock
and other........................... 2,498 1 (2,678) 0 (179)
--------- -------- -------- -------- ---------
Net cash provided (used) by financing
activities.......................... 42,145 1 (8,596) 0 33,550
--------- -------- -------- -------- ---------
NET (DECREASE) INCREASE IN CASH...... (12,979) 13 11,464 0 (1,502)
CASH, BEGINNING OF PERIOD............ 23,505 26 1,645 0 25,176
--------- -------- -------- -------- ---------
CASH, END OF PERIOD.................. $ 10,526 $ 39 $ 13,109 $ 0 $ 23,674
========= ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
NINE WEST GROUP INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FEBRUARY 1, 1997
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
Net cash (used) provided by operating
activities...........................$ (86,244) $(15,197) $ 13,536 $ 0 $ (87,905)
--------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (36,823) (2,626) (3,357) 0 (42,806)
Proceeds from sale of property and
equipment........................... 181 19,424 12 0 19,617
Business acquisitions - net of cash
acquired............................. (2,197) 0 (9,383) 0 (11,580)
Acquisition purchase price settlement. 25,000 0 0 0 25,000
Proceeds from sale of discontinued
operation............................ 2,800 0 0 0 2,800
Other investing activities............ 9,220 (1,596) (1,578) 0 6,046
--------- -------- -------- -------- ---------
Net cash (used) provided by investing
activities........................... (1,819) 15,202 (14,306) 0 (923)
--------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under
financing agreements................. 128,000 0 0 0 128,000
Proceeds from issuance of long-term
debt................................. 232,016 0 0 0 232,016
Repayments of long-term debt.......... (218,000) 0 0 0 (218,000)
Repurchases of warrants............... (67,500) 0 0 0 (67,500)
Net proceeds from issuance of stock
and other............................ 18,695 0 11 0 18,706
--------- -------- -------- -------- ---------
Net cash provided by financing
activities........................... 93,211 0 11 0 93,222
--------- -------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH....... 5,148 5 (759) 0 4,394
CASH, BEGINNING OF PERIOD............. 18,357 21 2,404 0 20,782
--------- -------- -------- -------- ---------
CASH, END OF PERIOD...................$ 23,505 $ 26 $ 1,645 $ 0 $ 25,176
========= ======== ======== ======== =========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The Company's Board of Directors is divided into three classes. The term
of the current Class I directors, Messrs. Goldsmith and Pascarella, expires in
2000; the term of the current Class II directors, Messrs. Fisher and Camuto,
expires in 2001; and the term of the current Class III director, Mr.
Salibello, expires in 1999. Directors hold office until the annual meeting of
stockholders of the Company in the year in which the term of their class
expires and until their successors have been duly elected and qualified. At
each annual meeting of stockholders of the Company, the successors to the
class of directors whose term expires are elected for a three-year term.
The following table sets forth certain information, as of April 16, 1999,
with respect to each director. Unless noted otherwise, the business
experience shown for each individual has been his principal occupation for at
least the past five years.
Name Age Business Director Since
- ---- --- -------- --------------
Jerome Fisher 68 Chairman of the Board and a 1977
director of the Company since
its organization. Mr. Fisher
and Vincent Camuto founded the
Company in 1977. Mr. Fisher is
principally responsible for
long-range corporate strategy,
long-range financial planning,
review and evaluation of
potential mergers and acquisitions,
and the Company's international
expansion.
Vincent Camuto 62 A director and head of product 1977
development of the Company since
its organization. Prior to being
named Chief Executive Officer of
the Company in May 1995, Mr.
Camuto served as President from
February 1993 to May 1995. Mr.
Camuto and Jerome Fisher founded
the Company in 1977. Mr. Camuto
is principally responsible for
the day-to-day management of the
Company, including supervising
the design, manufacture, marketing
and distribution of the Company's
products.
C. Gerald 70 Financial advisor. Mr. Goldsmith 1993
Goldsmith also serves as a director of
American Banknote Corporation,
American Bank Note Holographics, Inc.,
Palm Beach National Bank & Trust
Company, Innkeepers USA Trust, The
Meditrust Companies and Plymouth
Rubber Company, Inc.
Henry W. 65 Attorney; Senior Counsel, Tyler 1995
Pascarella Cooper & Alcorn.
Salvatore M. 53 Managing partner of the accounting 1993
Salibello firm of Salibello & Broder. Mr.
Salibello also serves as a director
of Kasper A.S.L., Ltd.
The Company and each of Messrs. Fisher and Camuto have entered into
agreements with respect to the election of directors of the Company. See
"Item 13 - Certain Relationships and Related Transactions."
EXECUTIVE OFFICERS
Jerome Fisher serves as Chairman of the Board and Vincent Camuto serves
as Chief Executive Officer. See "-- Directors" above.
Robert C. Galvin, age 39, has been Executive Vice President, Chief
Financial Officer and Treasurer since April 30, 1996. From October 1995 to
April 1996, Mr. Galvin served as Senior Vice President - Strategic Planning.
Prior to October 1995, Mr. Galvin was a partner at Deloitte & Touche LLP in
charge of the Connecticut retail and distribution practice of that firm and
specialized in mergers and acquisitions. In that capacity, Mr. Galvin
consulted with the Company beginning in 1987 and advised the Company with
respect to acquisitions.
Executive officers of the Company serve at the discretion of the Board
of Directors, subject to contractual arrangements. There is no family
relationship between any of the directors or executive officers of the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and greater than 10% stockholders of the Company to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of equity securities of the Company. To the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations that no other reports
were required, all Section 16(a) filing requirements were complied with during
fiscal 1998.
ITEM 11. EXECUTIVE COMPENSATION.
DIRECTOR COMPENSATION
Nonemployee directors receive an annual retainer of $36,000 per year as
compensation for their services and $3,000 for each Board or committee meeting
attended. Each committee chairman receives an additional $3,000 per year.
All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with meetings of the Board or committees thereof.
The Company's 1993 Directors' Stock Option Plan, as amended (the
"Directors' Plan"), provides that stock options will be granted through the
year 2003 to "Eligible Directors" (generally, nonemployee directors). An
aggregate of 101,340 shares of Common Stock remains available for issuance
pursuant to options not yet granted under the Directors' Plan, subject to
adjustment upon certain changes in the Company's capitalization. All options
granted under the Directors' Plan are granted as of the first business day
after the annual stockholders' meeting. Each Eligible Director is entitled to
receive an option on the grant date to acquire 5,000 shares of Common Stock at
a price equal to the fair market value of the Common Stock on that date. The
options become exercisable in successive annual increments of 33%, 34% and
33%, beginning on the first anniversary of the date the options were granted.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid to the Company's
Chairman of the Board, its Chief Executive Officer and an additional executive
officer of the Company for the Company's last three fiscal years.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation Awards
--------------------------------- --------------------------------------------
Securities
Name and Underlying Restricted All Other
Principal Position Year Salary ($) Bonus($) (1) Options/SAR (#) Stock Awards ($) Compensations ($)(2)
- ------------------ ---- --------- ------------ -------------- --------------- -------------------
Jerome Fisher 1998 $1,044,688 $300,000 0 $ 0 $ 0
Chairman of the Board 1997 1,035,000 0 125,000 0 0
1996 1,035,000 750,000 50,000 0 2,417
Vincent Camuto 1998 $1,044,688 $500,000 0 $ 0 $5,258
Chief Executive Officer 1997 1,035,000 0 125,000 0 4,750
and Director 1996 1,035,000 750,000 50,000 0 6,006
Robert C. Galvin (3) 1998 $ 440,486 $215,625 0 $255,000(4) $5,101(5)
Executive Vice President, 1997 340,008 70,333 40,000 0 5,073(5)
Chief Financial Officer, 1996 306,668 243,750 20,000 0 5,358
and Treasurer
</TABLE>
(1) Except as otherwise noted, amounts shown represent bonus earned for the
applicable fiscal year but paid during the first quarter of the
subsequent fiscal year.
(2) Except as otherwise noted, amounts shown represent matching contributions
made by the Company under the Company's 401(k) Savings Plan, Executive
Deferred Compensation Plan and/or Supplemental Savings Plan.
(3) Mr. Galvin became the Company's Executive Vice President, Chief Financial
Officer and Treasurer effective as of April 30, 1996; from October 2,
1995 to April 30, 1996, Mr. Galvin was Senior Vice President, Strategic
Planning.
(4) Based on a closing price of $25.50 on February 2, 1998 with respect to a
total of 10,000 shares of restricted Common Stock granted to Mr. Galvin
pursuant to a Restricted Stock Agreement between the Company and Mr.
Galvin dated February 2, 1998. With certain exceptions, such 10,000
shares will vest on the date of the public release by the Company of its
earnings as follows: (i) 1,666 shares will vest on fiscal year ending
January 30,1999 if the Company meets or exceeds its targeted fully
diluted earnings per share set forth in the Company's 1998 Budget; and
(ii) with respect to any subsequent fiscal year, if the Company meets or
exceeds the financial goals established with respect to the accelerated
vesting of the restricted stock for such fiscal year, as determined by
the Compensation Committee no later than 90 days after the commencement
of the applicable fiscal year. For any fiscal year for which the
applicable financial goal is not achieved, the period of restriction
shall not be terminated until 6 years from the date of award. All shares
of restricted stock vest upon a "change of control," as defined in the
Restricted Stock Agreement.
(5) Amount shown includes life insurance premiums of $335 and $323 in 1998
and 1997, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights were granted to the
individuals named in the Summary Compensation Table during fiscal 1998.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises
during fiscal 1998 and options held at January 30, 1999 by the individuals
named in the Summary Compensation Table, and the value of those options at
such date. Only a portion of the options had exercise prices lower than the
fair market value of the Common Stock on such date ("in-the-money" options).
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Shares
Acquired No. of Securities Value of Unexercised
on Value Underlying Unexercised "In-the-Money" Options/SARs
Name Exercise (#) Realized($) Options/SARs at FY-End (#) at FY-End ($) (1)
- ---- ------------- ----------- -------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Jerome Fisher 0 $0 245,000 146,666 $0 $0
Vincent Camuto 0 $0 291,900 146,666 0 0
Robert C. Galvin 0 $0 44,000 36,000 0 0
</TABLE>
(1) Based upon a price of $13.75 per share (the closing price of the Common
Stock on January 30, 1999) less the applicable option exercise price.
PENSION PLAN
Effective January 1, 1997, the Company established a defined benefit
pension plan (the "Pension Plan") covering current employees of the Company
and certain eligible employees who were previously employed by the Footwear
Group. Prior to that time, these participants were covered under the Pension
Plan for Employees of Nine West Group Inc. (the "Prior NWG Pension Plan"), the
Nine West Group Inc. Pension Plan for Former Salaried Employees of U.S. Shoe
Footwear (the "Prior U.S. Shoe Pension Plan") and two other defined benefit
pension plans maintained by the Company. On January 27, 1999, the Company
amended the Pension Plan to eliminate future service credits. Interest
credits will continue to be credited to the account balance.
The normal retirement benefit under the Pension Plan is equal to the
participant's accumulated cash balance account at retirement. Prior to the
Pension Plan amendment noted above and in accordance with the following
schedule, each participant's cash balance account was credited annually with
"service credits" equal to the applicable percentage, based on the
participant's age and applicable years of service, times pensionable
compensation. Pensionable compensation under the Pension Plan is cash
compensation in the form of base pay and commissions paid, if any, including
the amount of any reductions in a participant's compensation used for elective
deferrals under a cash or deferred profit sharing plan or a cafeteria plan.
All other compensation and benefits is excluded for purposes of determining
pensionable compensation. The annual compensation of each employee taken into
account in calculating pensionable compensation under the Pension Plan may not
exceed $160,000, adjusted for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code of 1986, as amended
(the "Code"). Participants only receive "service credits" prior to the
Pension Plan amendment noted above, in years during which they work at least
1,000 hours, in accordance with the following schedule:
Age and Years
of Credited Service Applicable Percentage
------------------- ---------------------
30 and under 1.50%
30-39 2.00
40-49 2.50
50-59 3.25
60-69 4.25
70-79 5.50
80-89 7.00
90 and over 9.25
Cash balance accounts are credited monthly with interest, based on the
monthly equivalent of the 5-year U.S. Treasury Bill rates in effect on
December 1 of the preceding year, plus 0.25%.
Former participants of the four predecessor defined benefit pension
plans received an opening cash balance account equal to the present value of
their December 31, 1996 accrued benefit under the predecessor plan in which
they participated. In addition, participants of the Prior NWG Pension Plan
and the Prior U.S. Shoe Pension Plan who were age 50 or older with at least
five years of credited service on December 31, 1996 received an additional
cash balance service credit of 3% per year of service at ages 50 through 59,
and 4% per year of service at age 60 and older.
The normal form of benefit under the Pension Plan for an unmarried
participant is a single life annuity. The normal form of benefit under the
Pension Plan for a married participant is a joint and 50% survivor annuity
with his or her spouse, which is the actuarial equivalent of the cash balance
account determined by the Pension Plan formula.
In addition, a minimum guaranteed benefit was established for
participants in the Company's supplemental executive retirement plan (the
"SERP") and supplemental executive benefit plan for certain eligible employees
of the Company who were previously employed by the Footwear Group (the "U.S.
Shoe SERP") based on the participant's total accrued benefit as of December
31, 1995. Benefit accrual under these plans ceased effective January 1, 1996.
Generally, the aggregate maximum retirement benefit payable to a participant
in the Pension Plan and either the SERP or the U.S. Shoe SERP is the greater
of (i) the aggregate amount accrued under both the Pension Plan and the SERP
or the U.S. Shoe SERP, as of December 31, 1995, considering such participant's
service and compensation only as of such date, or (ii) the benefit payable to
the participant under the Pension Plan alone, considering all of such
participant's service and pensionable compensation.
The following table sets forth estimated total annual benefits payable
under the Pension Plan and the SERP or the U.S. Shoe SERP, to each of the
individuals named in the Summary Compensation Table upon retirement at normal
retirement age. These estimates are calculated assuming each such individual
will remain employed by the Company until retirement, and that all future
pensionable compensation will be subject to the current limitation on
compensation and certain other limitations under the Code.
Estimated Total Annual
Retirement Benefit at
Normal Retirement Age
----------------------
Jerome Fisher $152,159
Vincent Camuto 93,538
Robert C. Galvin 2,911
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors
during 1998 were Messrs. Pascarella and Goldsmith, both nonemployee directors.
No member of the Compensation Committee has a relationship that would
constitute an interlocking relationship with executive officers or other
directors of the Company.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Effective February 9, 1993, the Company entered into employment
agreements with each of Messrs. Fisher and Camuto. Each agreement has an
initial term of five years, commencing as of February 9, 1993, and provides
for two automatic one-year renewals. The initial term ended on February 8,
1998, and the second automatic one-year renewal term will end on February 8,
2000. Each agreement provides for a base salary of $1.0 million, with annual
cost-of-living increases, bonuses in accordance with the Incentive Bonus Plan
or in such other amount as the Board of Directors determines, and an annual
$35,000 car allowance. The agreements also contain a covenant not to compete
that prohibits Messrs. Fisher and Camuto, during the term of the agreement and
for three years thereafter, from competing with the Company, assisting other
persons or businesses that compete with the Company or inducing any employees
of the Company or its affiliates to engage in any such activities or to
terminate their employment.
As of December 15, 1998, the Company entered into retention agreements
with each of Messrs. Fisher and Camuto. These agreements require the Company
to provide severance benefits to those officers under certain circumstances
after a "change of control" of the Company. A "change of control" occurs
upon: (1) the acquisition of 30% or more of the Company's Common Stock by any
person or group of persons (excluding "non-control" acquisitions); (2) a
change in a majority of members of the Company's Board of Directors unless
each new director was elected by a vote of at least two-thirds of the
incumbent directors; (3) the consummation of a merger, consolidation,
reorganization or other business combination, unless after such transaction
(a) the Company's stockholders continue to own at least 60% of the surviving
entity, (b) the incumbent directions constitute at least two-thirds of the
board of directors of the surviving entity, and (c) no person other than the
Company, its affiliates and certain other stockholders own more than 30% of
the outstanding voting securities of the surviving entity; (4) a liquidation
or dissolution of the Company; or (5) a sale of all or substantially all of
the assets of the Company. The consummation of the proposed merger with
Jones will constitute a "change of control."
Each retention agreement has an initial term which expires on December
31, 2001, which the Company may extend in one-year increments by written
notice on or before January 1, 2000 and each January 1 thereafter. If a change
of control occurs during the initial term or any extensions thereof, the
retention agreements will remain in effect for at least 36 months thereafter.
If either Mr. Fisher's or Mr. Camuto's employment is terminated during the
36-month period following a change of control and the termination is by the
Company for "cause," "disability" or by reason of his death, or by Mr.
Fisher or Mr. Camuto other than for "good reason," he (or his estate) will
receive all accrued compensation due to him through the date of termination.
If either Mr. Fisher's or Mr. Camuto's employment is terminated under any
other circumstances, or if either terminates his employment during the first
30 days after the first anniversary of a change of control, he will receive:
(1) payment of all accrued compensation plus a pro rata bonus based on 50% of
his base salary; (2) payment of an amount equal to three times his then
current base salary; (3) continuation of his employee benefits, including life
insurance and medical and dental plans, for life; (4) payment of an amount
equal to the excess of (A) the retirement benefits that he would have received
if he had been employed at the Company for an additional three years following
the date of termination of employment and had fully participated in all
available retirements plans during that period and been fully vested in those
plans, over (B) the amount of retirement benefits he is actually entitled to
receive at the time of his termination; (5) payment of an amount equal to the
present value of 36 monthly payments of his car allowance; and (6)
continuation of payment of the portion of the premiums paid by the Company for
his split-dollar life insurance policy for 36 months following termination of
employment. Under the retention agreements, the term "cause" means any one
of the following: (i) conviction of a felony; (ii) intentional and continual
failure to perform reasonably assigned duties; and (iii) intentionally
engaging in illegal conduct or willful misconduct that injures the Company.
"Good reason" includes: (i) a material adverse change in the officer's
responsibilities or job description; (ii) a reduction in the officer's base
salary; (iii) a requirement that the officer conduct his duties in a manner
substantially different from the manner in which he presently conducts those
duties, including the location of performance, in the case of Mr. Fisher, and
a relocation of the Company's offices of more than 50 miles from Columbus
Circle in New York City, in the case of Mr. Camuto; and (iv) a reduction or
nonpayment of any material benefit or compensation plan.
The retention agreements further provide that upon a change of control,
each officer's stock options will vest and become immediately exercisable,
unless such accelerated vesting would preclude pooling treatment of a
transaction approved by the Board of Directors. In addition, under certain
circumstances, each officer is entitled to receive a "gross-up" payment to
offset certain taxes that may be imposed on the severance payments and other
benefits he will receive upon a change of control, and payment of legal fees
incurred by him in connection with contesting or defending the basis for his
termination of employment after a change of control or his assertion of his
rights under the agreement. The retention agreements also contain a covenant
not to compete that prohibits Messrs. Fisher and Camuto from competing with
the Company, assisting other persons or businesses that compete with the
Company, inducing employees of the Company or its affiliates to engage in any
such activities or to terminate their employment, or hiring such employees.
This covenant not to compete applies after a change of control if the Company
terminates the officer's employment for cause, the officer terminates his
employment for any reason, or a termination results in severance payments and
other benefits to the officer in excess of accrued compensation.
Each of the retention agreements provides that the respective employment
agreements with Messrs. Fisher and Camuto shall remain effective following a
change of control except that the provisions of the retention agreements
relating to severance compensation and noncompetition following termination of
employment shall supersede the employment agreements.
The Company also entered into consulting agreements with Messrs. Fisher
and Camuto dated as of December 15, 1998. The consulting agreements provide
that if Mr. Fisher's or Mr. Camuto's employment with the Company terminates
following a "change of control" for any reason other than for "cause"
(each as defined in the retention agreements), the Company will engage such
officer as a consultant for two years after the termination of his employment,
for a fee of $1,250,000 for the first year and $750,000 for the second year,
plus fringe benefits. The consulting agreements do not require Messrs. Fisher
and Camuto to perform consulting services to the Company for more than 15 days
each month. During the term of their consulting agreements, Messrs. Fisher
and Camuto may not compete with the Company, assist other persons or
businesses that compete with the Company, induce any employees of the Company
or its affiliates to engage in any such activities or to terminate their
employment with the Company, or hire such employees.
As of December 15, 1998, the Company entered into an employment
agreement with Mr. Galvin. Mr. Galvin's employment agreement has an initial
term ending as of December 31, 2003, which will be renewed automatically for
successive two-year terms unless either party gives 180 days' prior written
notice that the agreement will not be renewed. The agreement provides that
Mr. Galvin will serve as Executive Vice President, Chief Financial Officer and
Treasurer of the Company, will receive a base salary of $450,000, with annual
cost-of-living increases of at least 5% of base salary, four weeks of paid
vacation, a $15,000 car allowance and other benefits that the Company normally
provides to its officers, and will participate in the Incentive Bonus Plan
with a 75% target level.
If Mr. Galvin's employment is terminated by the Company without "cause"
or by him for "good reason," he will receive: (1) payment of all accrued
compensation plus a pro rata bonus based on 50% of his base salary; (2)
payment of an amount equal to two times the sum of his then current base
salary plus a bonus of 75% of his base salary; (3) continuation of his
employee benefits, including life insurance and medical and dental plans, for
24 months following termination of employment; (4) payment of an amount equal
to the excess of (A) the retirement benefits that he would have received if he
had been employed at the Company for an additional two years following the
date of termination of employment and had fully participated in all available
retirements plans during that period and been fully vested in those plans,
over (B) the amount of retirement benefits he is actually entitled to receive
at the time of such termination; (5) payment of an amount equal to the present
value of 24 monthly payments of his car allowance; and (6) continuation of
payment of the portion of the premiums paid by the Company for his split-
dollar life insurance policy for 24 months following termination of
employment. The terms "cause" and "good reason" under Mr. Galvin's
employment agreement have the same meanings ascribed to them under the
retention agreements with Messrs. Fisher and Camuto (except with respect to
the relocation provision of Mr. Galvin's agreement, which specifies a
relocation of the Company's offices of more than 50 miles).
If Mr. Galvin does not renew the agreement before December 31, 2003 or
the expiration of any renewal term, the Company will pay him a non-competition
payment equal to his then current salary plus the preceding year's bonus,
payable in 12 equal monthly installments. If the Company releases Mr. Galvin
from his covenant not to compete (described below), it will not be required to
make the non-competition payment. If the Company does not renew the agreement
as of December 31, 2003 or the expiration of any renewal term, the Company
will pay him the non-competition payment; provided, that Mr. Galvin may elect
to be released from his covenant not to compete, and if he accepts employment
with a competitor, the Company is not required to make any unpaid installments
of the non-competition payment. The employment agreement provides that Mr.
Galvin may not compete with the Company, assist other persons or businesses
that compete with the Company, induce any employees of the Company or its
affiliates to engage in any such activities or to terminate their employment,
or hire such employees. Subject to the exceptions discussed above, these
restrictions apply during the term of the agreement and, if the Company
terminates Mr. Galvin's employment for cause, Mr. Galvin terminates his
employment without good reason or, following a change of control (as defined
in the agreement), if Mr. Galvin's employment is terminated and the
termination results in the termination payments to him described below, for a
one-year period following such termination.
Mr. Galvin's employment agreement also contains "change of control"
provisions that require the Company to provide severance benefits to Mr.
Galvin under certain circumstances after a change of control of the Company.
"Change of control" has the same meaning ascribed to it under the retention
agreements with Messrs. Fisher and Camuto. The change of control provisions
have an initial term which expires on December 31, 2001, which the Company may
extend in one-year increments by written notice on or before January 1, 2000
and each January 1 thereafter. If a change of control occurs during the
initial term or any extension thereof, the change of control provisions will
remain in effect for at least 36 months thereafter. If Mr. Galvin's
employment is terminated during the 36-month period following a change of
control and the termination is by the Company for cause, or by Mr. Galvin
other than for good reason, then he will receive all compensation for services
that is due to him through the date of termination. If the termination is due
to a disability or his death, he (or his estate) will receive one year's base
salary and bonus. If Mr. Galvin's employment is terminated under any other
circumstances, he will receive: (1) payment of all accrued compensation plus
a pro rata bonus based on 75% of his base salary; (2) payment of an amount
equal to three times the sum of his then current base salary plus a bonus
equal to 50% of his base salary; (3) continuation of his employee benefits,
including life insurance and medical and dental plans, for 36 months following
the date of termination of employment; (4) payment of an amount equal to the
excess of (A) the retirement benefits that he would have received if he had
been employed at the Company for an additional three years following the date
of termination of employment and had fully participated in all available
retirements plans during that period and been fully vested in those plans,
over (B) the amount of retirement benefits he is actually entitled to receive
at the time of such termination; (5) payment of an amount equal to the present
value of 36 monthly payments of his car allowance; and (6) continuation of
payment of the portion of the premiums paid by the Company for his split-
dollar life insurance policy for 36 months following the termination of
employment. The agreement further provides that upon a change of control, all
of Mr. Galvin's stock options will vest and become immediately exercisable and
all restrictions on his shares of restricted stock will lapse, unless such
accelerated vesting would preclude pooling treatment of a transaction approved
by the Board of Directors. In addition, under certain circumstances, he is
entitled to receive a "gross-up" payment to offset certain taxes that may be
imposed on the severance payments and other benefits he will receive upon a
change of control, and payment of legal fees incurred by him in connection
with contesting or defending the basis for his termination of employment
before or after a change of control or his assertion of his rights under the
agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of Common Stock,
as of the close of business on April 16, 1999, by each person known to the
Company to be deemed to be the beneficial owner of more than 5% of the issued
and outstanding shares of Common Stock; each director; the named executive
officers; and all persons, as a group, who are currently directors and named
executive officers of the Company. Each person named has sole voting and
investment power over the shares listed opposite his name, except as set forth
in the footnotes hereto.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class(1)
- ------------------------ ---------------------- -------------------
Jerome Fisher (2) 2,632,284 (3) 7.7%
Vincent Camuto (2) 4,634,203 (4) 13.5%
Robert C. Galvin 60,666 (5) *
C. Gerald Goldsmith 20,000 (6) *
Salvatore M. Salibello 29,000 (7) *
Henry W. Pascarella 20,000 (8) *
GSB Investment Management, Inc 2,766,882 (9) 8.1%
301 Commerce Street, Suite 2001
Fort Worth, TX 76102
The Prudential Insurance Company 2,906,588 (10) 8.5%
of America
751 Broad Street
Newark, NJ 07102-3777
All directors and executive 7,396,153 (11) 21.3%
officers as a group (6 persons)
_________________________
* Less than one percent.
(1) Based upon 34,003,431 shares of Common Stock issued and outstanding as of
April 16, 1999 plus, as to the holder thereof only, the number of shares
(i) which underlie options held by the holder that are currently
exercisable or exercisable within 60 days of April 16, 1999, and (ii)
issuable upon conversion of the Convertible Notes.
(2) The business address of such person is Nine West Plaza, 1129 Westchester
Avenue, White Plains, New York 10604-3529. Such person shares voting
power, but not dispositive power, with respect to an aggregate of
7,266,487 shares of Common Stock (including 590,232 shares issuable
pursuant to stock options), pursuant to the Shareholders Agreement
described herein under "Certain Relationships and Related Transactions"
and pursuant to a Stockholder Agreement, dated as of March 1, 1999, among
Jones Apparel Group, Inc., Vincent Camuto and Jerome Fisher. Each of
such persons disclaims beneficial ownership of such shares other than the
shares as to which such person has dispositive power, as set forth in
notes (3) and (4) below.
(3) Jerome Fisher and his wife, Anne Fisher, as joint tenants, beneficially
own 2,359,787 of such shares, as to which they share dispositive power.
Amount shown includes 271,666 shares issuable pursuant to stock options.
(4) Mr. Camuto has sole dispositive power with respect to such shares.
Amount shown includes 318,566 shares issuable pursuant to stock options.
(5) Amount shown includes 50,666 shares issuable pursuant to stock options
and 10,000 unvested shares of restricted stock, as to which Mr. Galvin
has voting power.
(6) Amount shown includes 19,000 shares issuable pursuant to stock options.
(7) Amount shown includes 19,000 shares issuable pursuant to stock options.
(8) Amount shown includes 15,000 shares issuable pursuant to stock options.
(9) Based solely upon information presented in Amendment No. 1 to Schedule
13G, filed with the Securities and Exchange Commission on February 16,
1999, reporting beneficial ownership as of December 31, 1998. GSB
Investment Management, Inc. has sole voting power over 770,575 of such
shares, sole dispositive power over 2,707,957 of such shares, and shared
dispositive power over 58,925 of such shares.
(10) Based solely upon information presented in Schedule 13G, filed with the
Securities and Exchange Commission on February 1, 1999, reporting
beneficial ownership as of December 31, 1998. The Prudential Insurance
Company of America has sole voting power as to 103,400 of such shares,
shared voting power as to 2,796,241 of such shares, sole dispositive
power as to 103,400 of such shares and shared dispositive power as to
2,802,941 of such shares. Includes unspecified number of shares issuable
upon conversion of Convertible Notes.
(11) Amount shown includes 693,898 shares issuable pursuant to stock options.
CHANGES OF CONTROL
The Company, Jones and Merger Sub have entered into the Merger
Agreement, pursuant to which the Company will be merged with Merger Sub. See
"Item 1 - Business - General."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
SHAREHOLDERS AGREEMENT.
Messrs. Fisher and Camuto and the Company have entered into a
Shareholders Agreement (the "Shareholders Agreement") pursuant to which Mr.
Fisher and Mr. Camuto have each agreed to vote all of the respective shares of
Common Stock owned by him for the other's nominee (which nominee may be
himself) as director in one class of directors of the Company in all elections
for such class. If either Mr. Fisher or Mr. Camuto desires a second nominee,
then each will vote all his shares of Common Stock for the other's second
nominee as director in one class of directors of the Company in all elections
for such class.
In addition, Mr. Fisher and Mr. Camuto have granted to the Company and
each other rights of first refusal with respect to any sale of 5% or more of
the Company's outstanding Common Stock, except sales in a registered public
offering or made under Rule 144. Mr. Fisher and Mr. Camuto have agreed that
in the event either of them desires to purchase additional shares of Common
Stock, the other shall have the right to purchase up to 50% of the shares to
be purchased by the other, at the same price, on the same terms and at the
same time.
The Shareholders Agreement also provides that at all meetings of
stockholders of the Company, all of the shares of Common Stock held by Mr.
Fisher and Mr. Camuto will be voted in such a manner that if either Mr. Fisher
or Mr. Camuto is not in favor of the action to be taken, all of their shares
will be voted against the proposed action or, in the case of the election of
directors other than directors nominated by either of them, in a manner to
ensure that an equal number of directors will be persons satisfactory to each
of them. Messrs. Fisher and Camuto agreed to take all actions to increase or
decrease the size of the Board as may be necessary or appropriate to carry out
such intention.
The Shareholders Agreement also provides that if the Company carries
insurance on the life of Mr. Fisher or Mr. Camuto and it is determined that
proceeds of such insurance will be used to redeem shares of Common Stock held
by such person, the Company will carry the same amount of insurance on the
life of the other for the purpose of redeeming shares of Common Stock held by
such other person. In the event that the Company determines to use any such
proceeds to purchase shares of Common Stock held by Mr. Fisher or Mr. Camuto
upon his death, the purchase price per share of such Common Stock will be
equal to the average of the daily closing prices of the Common Stock for the
20 trading days preceding the death of such person. The Company does not
currently intend to procure any such insurance. The Shareholders Agreement
terminates upon the earlier of (i) February 24, 2003 or (ii) the date Mr.
Fisher or Mr. Camuto ceases to own and/or control at least 5% of the
outstanding Common Stock.
STOCKHOLDER AGREEMENT BETWEEN MESSRS. FISHER AND CAMUTO AND JONES.
Concurrently with the execution of the Merger Agreement, Messrs. Fisher
and Camuto entered into a Stockholders Agreement with Jones, whereby Messrs.
Fisher and Camuto have each agreed, among other things, to vote their
respective shares of Common Stock in favor of adoption of the Merger
Agreement, against certain competing acquisition proposals from outside
parties and against any amendment to the Company's certificate of
incorporation or bylaws or other proposal, action or transaction involving the
Company which would reasonably be expected to prevent or materially impede or
delay the completion of the Merger. Messrs. Fisher and Camuto have each
granted an irrevocable proxy and power of attorney to Jones to vote or act by
written consent with respect to the shares of Common Stock held by each of
them.
OTHER TRANSACTIONS.
Marc Fisher (Jerome Fisher's son) serves as the Group President of the
Company's Jervin Private Label and Specialty Marketing divisions. He received
cash compensation (including salary and bonus) from the Company of $957,426
for fiscal 1998. The Company has entered into an employment agreement with
Marc Fisher which has an initial term of five years that expired February 9,
1998, and provides for two automatic one-year renewals, unless he gives prior
notice to the Company that such agreement will not be renewed. The agreement
has been automatically renewed until February 9, 2000. The agreement provides
for a base salary of $500,000 with annual cost-of-living increases and bonuses
in accordance with the Incentive Bonus Plan, which compensation will continue
until the end of the renewal terms or any additional extended term if the
Company terminates Marc Fisher's employment without cause. The agreement also
provides that if Marc Fisher dies or becomes disabled during the initial term,
his right to compensation will continue until the expiration of the initial
term. The agreement also provides that during the term of this employment,
and for a period of two years following termination of his employment if he
had been offered continued employment by the Company, Marc Fisher will not
compete with the Company in the United States or Canada in product planning,
design or coordination with manufacturers with respect to women's shoes
produced in Brazil, assist other persons or businesses in engaging in any such
activities or induce any employees of the Company or its affiliates to engage
in any such activities or to terminate their employment.
Jones has entered into an employment agreement with Marc Fisher, dated as
of March 1, 1999. The agreement provides that Nine West will continue Marc
Fisher's employment after the Merger as Senior Executive Vice President -
Product Development and Manufacturing and Group President of certain of Nine
West's product lines. The agreement further provides Marc Fisher with total
cash and incentive compensation that places him in a position comparable to
that of other senior executives of the combined companies. For
confidentiality reasons, Jones has been unwilling to provide the agreement to
the Company.
Jodi Fisher Horowitz (Jerome Fisher's daughter) serves as the Company's
Director of Public Relations. She received cash compensation (including
salary and bonus) from the Company of $94,008 for fiscal 1998.
Prior to December 1997, the Company's principal executive offices were
located in Stamford, Connecticut. Those offices are leased from a limited
partnership in which Messrs. Fisher and Camuto own, in the aggregate, 10.3% of
the limited partnership interests. The Company is currently seeking to
terminate its rights under the lease by assignment or sublease. The lease
expires on December 31, 2002. Rent payments were $1,859,711 for fiscal 1998.
The Company believes that the terms of the lease are no less favorable than
those that could have been obtained from unrelated parties.
At various times during fiscal 1998, the Company made payments to
American Express on behalf of Jerome Fisher for both business and non-business
charges on his corporate American Express card. The advances for non-business
charges outstanding as of January 30, 1999, and the maximum amount outstanding
at any time during fiscal 1998 was $78,614, which will be repaid by Mr. Fisher
without interest.
Under the Merger Agreement, Jones has agreed that the Jones Board of
Directors will take all action necessary to elect Mr. Camuto as a member of
the Jones Board of Directors effective immediately after the Merger.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following financial statements of Nine West Group Inc. are
included in Item 8 of this report:
Independent Auditors' Report
Consolidated Statements of Income - Fifty-two weeks ended January
30, 1999, January 31, 1998 and February 1, 1997
Consolidated Balance Sheets - January 30, 1999 and January 31,
1998
Consolidated Statements of Cash Flows - Fifty-two weeks ended
January 30, 1999, January 31, 1998 and February 1, 1997
Consolidated Statements of Stockholders' Equity - Fifty-two weeks
ended January 30, 1999, January 31, 1998 and February 1, 1997
Notes to Consolidated Financial Statements (includes certain
supplemental financial information required by Item 8 of Form 10-K)
2. Financial Statement Schedules:
Schedule II - Valuation and qualifying accounts for the fifty-two
weeks ended January 30, 1999, January 31, 1998 and February 1, 1997
All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the
related instructions, are shown in the financial statements or are
inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
See Index to Exhibits
INDEX TO EXHIBITS
Exhibit
Number Exhibit
2.1 Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as
of March 15, 1995, by and among the Registrant, Footwear Acquisition
Corp. and The United States Shoe Corporation (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K dated
March 15, 1995)
2.1.1 Amendment No. 1 to Asset Purchase Agreement, dated May 23, 1995
(incorporated by reference to Exhibit 2.3 to the Current Report on
Form 8-K dated May 23, 1995)
2.1.2 Amendment to Asset Purchase Agreement and Settlement Agreement,
dated as of May 29, 1996, by and among the Registrant, Luxottica
Group S.p.A. and The United States Shoe Corporation (incorporated by
reference to Exhibit 2.1.2 to the Quarterly Report on Form 10-Q for
the quarterly period ended May 4, 1996)
2.2 Form of Warrant Agreement (incorporated by reference to Exhibit 2.2
to the Current Report on Form 8-K dated March 15, 1995)
2.3 Agreement and Plan of Merger, dated as of March 1, 1999, by and
among the Registrant, Jones Apparel Group, Inc. and Jill Acquisition
Sub Inc. (incorporated by reference to Exhibit 2 to the Current
Report on Form 8-K dated March 1, 1999)
3.1 Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Amendment No. 6 to the
Registration Statement of the Registrant on Form S-1 (Registration
No. 33-47556) filed on April 29, 1992 (the "First Registration
Statement"))
3.2 Second Amended and Restated By-laws of the Registrant (incorporated
by reference to Exhibit 3.2 to the Current Report on Form 8-K dated
May 23, 1995)
4.1 Specimen stock certificate for shares of Common Stock, $.01 par
value, of the Registrant (incorporated by reference to Exhibit 4.1
to the Registrant's Annual Report on Form 10-K for the 52 weeks
ended January 31, 1998)
4.2 Form of Definitive 5-1/2% Convertible Subordinated Note of the
Registrant Due 2003 (incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q for the quarterly period ended August
3, 1996)
4.3 Form of Restricted Global 5-1/2% Convertible Subordinated Note of
the Registrant Due 2003 (incorporated by reference to Exhibit 4.3 to
the Quarterly Report on Form 10-Q for the quarterly period ended
August 3, 1996)
4.4 Form of Regulation S Global 5-1/2% Convertible Subordinated Note of
the Registrant Due 2003 (incorporated by reference to Exhibit 4.4 to
the Quarterly Report on Form 10-Q for the quarterly period ended
August 3, 1996)
4.5 Indenture, dated as of June 26, 1996, between the Registrant, as
issuer, and Chemical Bank, as trustee, relating to the Registrant's
5-1/2% Convertible Subordinated Notes Due 2003 (incorporated by
reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q for
the quarterly period ended August 3, 1996)
4.6 Note Resale Registration Rights Agreement, dated as of June 26,
1996, by and among the Registrant and the Purchasers Named Therein
(incorporated by reference to Exhibit 4.6 to the Quarterly Report on
Form 10-Q for the quarterly period ended August 3, 1996)
4.7 Senior Note Indenture dated as of July 9, 1997 among the Registrant
and Nine West Development Corporation, Nine West Distribution
Corporation, Nine West Footwear Corporation and Nine West
Manufacturing Corporation, as Guarantors, and The Bank of New York,
as Trustee (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (Registration No. 333-34085)
filed on August 21, 1997)
4.7.1 Supplemental Indenture, dated as of September 15, 1998, among the
Registrant, Nine West Manufacturing II Corporation, a subsidiary of
the Registrant, Nine West Development Corporation, Nine West
Distribution Corporation, Nine West Footwear Corporation and Nine
West Manufacturing Corporation (collectively, the "Existing
Guarantors") and The Bank of New York, as trustee under the Senior
Note Indenture dated as of July 9, 1997 (incorporated by reference
to Exhibit 4.7.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended October 31, 1998)
4.8 Senior Subordinated Note Indenture dated as of July 9, 1997 among
the Registrant and Nine West Development Corporation, Nine West
Distribution Corporation, Nine West Footwear Corporation and Nine
West Manufacturing Corporation, as Guarantors, and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4 (Registration No. 333-34085)
filed on August 21, 1997)
4.8.1 Supplemental Indenture, dated as of September 15, 1998, among the
Registrant, Nine West Manufacturing II Corporation, the Existing
Guarantors and the Bank of New York, as trustee under the Senior
Subordinated Note Indenture dated as of July 9, 1997 (incorporated
by reference to Exhibit 4.8.1 to the Quarterly Report on Form 10-Q
for the quarterly period ended October 31, 1998)
4.9 Registration Rights Agreement dated July 9, 1997 among the
Registrant and Nine West Development Corporation, Nine West
Distribution Corporation, Nine West Footwear Corporation and Nine
West Manufacturing Corporation, as Guarantors, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc.,
Citicorp Securities, Inc. and NationsBanc Capital Markets, Inc.
(incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-4 (Registration No. 333-34085) filed on August
21, 1997)
4.10 Form of Global 8-3/8% Senior Notes due 2005 (incorporated by
reference to Exhibit 4.4 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.11 Form of Definitive 8-3/8% Senior Notes due 2005 (incorporated by
reference to Exhibit 4.5 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.12 Form of 8-3/8% Series B Senior Notes due 2005 (incorporated by
reference to Exhibit 4.6 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.13 Form of 9% Senior Subordinated Notes due 2007 (incorporated by
reference to Exhibit 4.7 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.14 Form of 9% Series B Senior Subordinated Notes due 2007 (incorporated
by reference to Exhibit 4.8 to the Registration Statement on Form
S-4 (Registration No. 333-34085) filed on August 21, 1997)
4.15 Form of Unrestricted Global 5-1/2% Convertible Subordinated Note Due
2003 (incorporated by reference to Exhibit 4.6 to Amendment No. 1 to
the Registration Statement on Form S-3 (Registration No. 333-12545)
filed on August 21, 1997)
4.16 Rights Agreement, dated as of February 17, 1998, between the
Registrant and The Bank of New York which includes the form of
Certificate of Designation for the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Shares of Preferred
Stock of the Registrant as Exhibit C (incorporated by reference to
Exhibit 1 to the Registrant's Registration Statement on Form 8-A
filed on February 20, 1998)
4.16.1 Amendment No. 1 to Rights Agreement, dated as of March 1, 1999,
between the Registrant and The Bank of New York (incorporated by
reference to Exhibit 2 to Amendment No. 1 to the Registrant's
Registration Statement on Form 8-A filed on March 5, 1999)
10.1 Registration Rights Agreement (the "Registration Rights Agreement")
by and among the Registrant, Jerome Fisher, Vincent Camuto, and J.
Wayne Weaver (incorporated by reference to Exhibit 10.1 to Amendment
No. 2 to the First Registration Statement)
10.1.1 Amendment No. 1 to Registration Rights Agreement (incorporated by
reference to Exhibit 10.1.1 to Amendment No. 6 to the First
Registration Statement)
10.1.2 Amendment No. 2 to Registration Rights Agreement (incorporated by
reference to Exhibit 10.1.2 to Amendment No. 2 to the Registration
Statement of the Registrant on Form S-1 (Registration No. 33-65584)
as filed on July 28, 1993 (the "Second Registration Statement"))
10.1.3 Amendment No. 3 to Registration Rights Agreement (incorporated by
reference to Exhibit 4 to Amendment No. 2 to Schedule 13D filed by
Jerome Fisher, Anne Fisher, Vincent Camuto and J. Wayne Weaver on
January 4, 1994 ("Amendment No. 2 to Schedule 13D"))
10.1.4 Amendment No. 4 to Registration Rights Agreement by and among the
Registrant, Jerome Fisher, Vincent Camuto and J. Wayne Weaver
(incorporated by reference to Exhibit 10.1.4 to Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1994)
10.2 Piggyback Registration Rights Agreement (the "Piggyback Registration
Rights Agreement") between the Registrant and Marc Fisher
(incorporated by reference to Exhibit 10.2 to Amendment No. 2 to the
First Registration Statement)
10.2.1 Amendment No. 1 to Piggyback Registration Rights Agreement
(incorporated by reference to Exhibit 10.2.1 to Amendment No. 6 to
the First Registration Statement)
10.3 Agreement by and among J. Wayne Weaver, Jerome Fisher and The Jerome
Fisher Trust, Vincent Camuto and the Registrant (incorporated by
reference to Exhibit 10.3 to Amendment No. 2 to the First
Registration Statement)**
10.3.1 Amendment No. 1 to agreement by and among J. Wayne Weaver, Jerome
Fisher and The Jerome Fisher Trust, Vincent Camuto and the
Registrant (incorporated by reference to Exhibit 10.3.1 to Amendment
No. 6 to the First Registration Statement)**
10.3.2 Amendment No. 2 to agreement by and among J. Wayne Weaver, Jerome
Fisher and The Jerome Fisher Trust, Vincent Camuto and the
Registrant (incorporated by reference to Exhibit 2 to Amendment No.
2 to Schedule 13D)**
10.4 Shareholders Agreement by and among the Registrant, Vincent Camuto
and Jerome Fisher (incorporated by reference to Exhibit 10.4 to
Amendment No. 2 to the First Registration Statement)**
10.4.1 Amendment No. 1 to Shareholders Agreement (incorporated by
reference to Exhibit 10.4.1 to Amendment No. 6 to the First
Registration Statement)**
10.4.2 Amendment No. 2 to Shareholders Agreement (incorporated by
reference to Exhibit 3 to Amendment No. 2 to Schedule 13D)**
10.5 Stockholder Agreement, dated as of March 1, 1999, among Jones
Apparel Group, Inc., Vincent Camuto and Jerome Fisher (incorporated
by reference to Exhibit 99.1 to the Current Report on Form 8-K dated
March 1, 1999)
10.6 Buying Agency Agreement between the Registrant and Bentley Services
Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 (the
"1993 10-K"))***
10.6.1 Agreement Regarding Extension of Term, dated March 3, 1997,
between the Registrant and Bentley Services Inc. (incorporated by
reference to Exhibit 10.5.1 to the Registrant's Annual Report on
Form 10-K for the 52 weeks ended February 1, 1997 (the "1996 10-K"))
10.7 Summary Description of Incentive Bonus Program of the Registrant
(incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the
First Registration Statement)**
10.8 Summary Description of Life Insurance and Medical Reimbursement Plan
for Certain Officers of the Registrant (incorporated by reference to
Exhibit 10.7 to Amendment No. 2 to the First Registration
Statement)**
10.9 Employment Agreement (the "Fisher Employment Agreement") between
Jerome Fisher and the Registrant (incorporated by reference to
Exhibit 10.8 to Amendment No. 2 to the First Registration
Statement)**
10.9.1 Amendment No. 1 to the Fisher Employment Agreement (incorporated
by reference to Exhibit 10.8.1 to Amendment No. 6 to the First
Registration Statement)**
*10.10 Consulting Agreement, dated as of December 15, 1998, between
Jerome Fisher and the Registrant**
*10.11 Retention Agreement, dated as of December 15, 1998, between Jerome
Fisher and the Registrant**
10.12 Employment Agreement (the "Camuto Employment Agreement") between
Vincent Camuto and the Registrant (incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the First Registration
Statement)**
10.12.1 Amendment No. 1 to the Camuto Employment Agreement (incorporated
by reference to Exhibit 10.9.1 to Amendment No. 6 to the First
Registration Statement)**
*10.13 Consulting Agreement, dated as of December 15, 1998, between
Vincent Camuto and the Registrant**
*10.14 Retention Agreement, dated as of December 15, 1998, between
Vincent Camuto and the Registrant**
10.15 Form of S Corporation Termination Agreement among the Registrant,
Jerome Fisher, Vincent Camuto, J. Wayne Weaver, Marc Fisher, Robert
V. Camuto, Andrea M. Camuto and John V. Camuto (incorporated by
reference to Exhibit 10.13 to Amendment No. 7 to the First
Registration Statement)
10.16 Second Amended and Restated Stock Option Plan of the Registrant
(effective as of March 8, 1994) (incorporated by reference to
Exhibit 10.14 to the 1993 10-K)**
10.17 Summary of Supplemental Executive Retirement Plan of the Registrant
(incorporated by reference to Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994 (the
"1994 10-K"))**
10.17.1 Amendment and Restatement of The United States Shoe Corporation
Supplemental Executive Salaried Employee Benefit Plan (incorporated
by reference to Exhibit 10.15.1 to the Registrant's Annual Report on
Form 10-K for the year ended February 3, 1996 (the "1995 10-K"))**
10.18 Deferred Compensation Plan of the Registrant (incorporated by
reference to Exhibit 10.16 to the 1994 10-K)**
10.19 1993 Directors' Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.18 to Amendment No. 1 to the Second
Registration Statement)**
10.20 First Amended and Restated 1994 Long-Term Performance Plan
(incorporated by reference to Exhibit 10.18 to the 1996 10-K)**
10.21 Credit Agreement (the "Credit Agreement"), dated as of May 23, 1995,
among the Registrant, Citibank, N.A. and Merrill Lynch Capital
Corporation, as Agents (incorporated by reference to Exhibit 10.21
to the Quarterly Report on Form 10-Q for the quarterly period ended
July 29, 1995)
10.21.1 Amendment No. 1 to the Credit Agreement (incorporated by reference
to Exhibit 10.19.1 to the 1995 10-K)
10.21.2 Amendment No. 2 to the Credit Agreement, dated as of May 29, 1996,
among the Registrant, Citibank, N.A. and Merrill Lynch Capital
Corporation, as agents (incorporated by reference to Exhibit 10.19.2
to the Quarterly Report on Form 10-Q for the quarterly period ended
May 4, 1996)
10.21.3 Amended and Restated Credit Agreement, dated as of August 2, 1996,
among the Registrant, the financial institutions listed on the
signature pages thereof and Citibank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.19.3 to the Quarterly
Report on Form 10-Q for the quarterly period ended August 3, 1996)
10.21.4 Amended and Restated Credit Agreement, dated as of August 1, 1997,
among the Registrant, the subsidiaries of the Registrant named
therein and from time to time party thereto as guarantors, the
financial institutions listed on the signature pages thereof and
Citibank, N.A., as administrative agent (incorporated by reference
to Exhibit 10.1 to Amendment No. 1 to the Registration Statement on
Form S-3 (Registration No. 333-12545) filed on August 21, 1997)
10.22 Nine West Group Inc. First Amended and Restated Incentive Bonus Plan
(incorporated by reference to Exhibit 10.21 to the 1996 10-K)**
10.23 Receivables Purchase Agreement, dated as of December 28, 1995,
between Nine West Funding Corporation and the Registrant
(incorporated by reference to Exhibit 10.23 to the 1995 10-K)
10.24 Nine West Trade Receivables Master Trust Pooling and Servicing
Agreement (the "Pooling Agreement"), dated as of December 28, 1995,
among Nine West Funding Corporation, The Bank of New York and the
Registrant (incorporated by reference to Exhibit 10.24 to the 1995
10-K)
10.25 Series 1995-1 Supplement to Pooling Agreement, dated as of
December 28, 1995, among Nine West Funding Corporation, The Bank of
New York and the Registrant (incorporated by reference to Exhibit
10.25 to the 1995 10-K)
10.25.1 Amended and Restated Series 1995-1 Supplement to Pooling and
Servicing Agreement, dated as of July 31, 1998, among Nine West
Funding Corporation, The Bank of New York and the Registrant
(incorporated by reference to Exhibit 10.25 to the Quarterly Report
on Form 10-Q for the quarterly period ended October 31, 1998)
10.26 Class A Certificate Purchase Agreement, dated as of December 28,
1995, among Nine West Funding Corporation, Corporate Receivables
Corporation, the Liquidity Providers Named Therein, Citicorp North
America, Inc., and The Bank of New York (incorporated by reference
to Exhibit 10.26 to the 1995 10-K)
10.26.1 Amended and Restated Series 1995-1 Certificate Purchase Agreement,
dated as of July 31, 1998, among Nine West Funding Corporation,
Corporate Receivables Corporation, the Liquidity Providers named
therein, Citicorp North America, Inc. and The Bank of New York
(incorporated by reference to Exhibit 10.26 to the Quarterly Report
on Form 10-Q for the quarterly period ended October 31, 1998)
10.27 Lease, dated February 28, 1997, between Westpark I LLC and the
Registrant (incorporated by reference to Exhibit 10.28 to the 1996
10-K)
*10.28 Employment Agreement, dated as of December 15, 1998, between
Robert C. Galvin and the Registrant**
*21 Subsidiaries of the Registrant
*23 Consent of Deloitte & Touche LLP
24 Power of Attorney (contained herein on signature page)
*27 1998 Financial Data Schedule
*Filed herewith
**Management contract or compensation plan arrangement
***Confidential treatment has been granted for marked portions of this exhibit
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on April 29,
1998.
Nine West Group Inc.
(Registrant)
By: /s/ Robert C. Galvin
------------------------------
Robert C. Galvin
Executive Vice President, Chief
Financial Officer and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
on this page to this Annual Report on Form 10-K for the fiscal year ended
January 30, 1999 (the "Form 10-K") constitutes and appoints Robert C. Galvin,
Jeffrey K. Howald and Joel K. Bedol and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to Form 10-K, and file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, and grants unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might and could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Capacity Date
/s/ Jerome Fisher Chairman of the Board April 29, 1999
- ----------------- and Director (Principal
Jerome Fisher (Executive Officer)
/s/ Vincent Camuto Chief Executive Officer April 29, 1999
- ------------------ and Director (Principal
Vincent Camuto Executive Officer)
/s/ Robert C. Galvin Executive Vice President, Chief April 29, 1999
- -------------------- Financial Officer and Treasurer
Robert C. Galvin (Principal Financial Officer and
Principal Accounting Officer)
/s/ C. Gerald Goldsmith Director April 29, 1999
- -----------------------
C. Gerald Goldsmith
Director
- -----------------------
Henry W. Pascarella
/s/ Salvatore M. Salibello Director April 29, 1999
- --------------------------
Salvatore M. Salibello
SCHEDULE II
<TABLE>
<CAPTION>
NINE WEST GROUP INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the years ended January 30, 1999, January 31, 1998 and February 1, 1997
(in thousands)
<S> <C> <C> <C> <C>
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- --------- -------- ---------- ---------
Year ended January 30, 1999:
Allowance for doubtful accounts.... $ 5,530 $ 5,698 $5,431 (A) $ 5,797
Reserve for returns and allowances. 45,437 (618) - 44,819
------- ------- ------ -------
$50,967 $ 5,080 $5,431 $50,616
======= ======= ====== =======
Year ended January 31, 1998:
Allowance for doubtful accounts.... $ 7,464 $ 1,275 $3,209 (A) $ 5,530
Reserve for returns and allowances. 39,886 5,551 - 45,437
------- ------- ------ -------
$47,350 $ 6,826 $3,209 $50,967
======= ======= ====== =======
Year ended February 1, 1997:
Allowance for doubtful accounts.... $ 9,233 $ 1,830 $3,599 (A) $ 7,464
Reserve for returns and allowances. 33,519 6,367 - 39,886
------- ------- ------ -------
$42,752 $ 8,197 $3,599 $47,350
======= ======= ====== =======
(A) Represents accounts written off, net of recoveries.
</TABLE>
CONSULTING AGREEMENT
BETWEEN
NINE WEST GROUP INC.
AND
JEROME FISHER
THIS CONSULTING AGREEMENT (the "Agreement") made as of the 15th day of
December 1998, by and between Nine West Group Inc. (the "Company") and Jerome
Fisher (the "Consultant").
WHEREAS, the Company and the Consultant have entered into a Retention
Agreement, dated as of even date herewith (the "Retention Agreement"), to
provide the Consultant with certain benefits in the event the Consultant's
employment terminates as a result of, or in connection with, a Change of
Control (as defined in the Retention Agreement);
WHEREAS, the Company desires to continue to benefit from the experience
and ability of the Consultant in the capacity of a consultant to the Company
upon termination of his employment, and further desires to obtain certain
covenants from the Consultant, as set forth in this Agreement;
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, the parties hereby agree as follows:
1. RETENTION AS CONSULTANT. The Company hereby agrees to engage the
Consultant, and the Consultant hereby accepts the engagement with the Company,
upon the terms set forth in this Agreement.
2. TERM. This Agreement shall commence upon the date following the
termination of the Consultant's employment after a Change of Control for any
reason, other than for "Cause" (as defined in the Retention Agreement);
"Disability" (as defined in the Retention Agreement); or death (the "Effective
Date"), and shall expire two (2) years from the Effective Date, unless earlier
terminated by reason of the Consultant's Disability, death, for "Cause" (as
defined in the Retention Agreement) or by the Consultant in accordance with
the immediately following sentence (the "Consulting Period"). The Consultant
may terminate this Agreement, in his sole discretion, at any time upon thirty
(30) days prior written notice to the Company; PROVIDED, HOWEVER, that the
consultant's covenants contained in Section 6 of this Agreement shall continue
to apply until the expiration of a two (2) year period after the Effective
Date.
3. DUTIES. During the Consulting Period, the Consultant shall render
such consulting and advisory services to the Company as the Consultant and the
Company agree upon from time to time, including, but not limited to, providing
advice to the Company on corporate strategy, the design, manufacture,
marketing and distribution of the Company's products and the coordination and
planning between the Company's factories and its divisions (the "Consulting
Services"); PROVIDED, HOWEVER, that the Consultant will not be required to,
but may at his sole discretion and at the Company's request, devote more than
fifteen (15) days per month to the performance of such services during the
Consulting Period. In this regard, the Company shall provide the Consultant
reasonable notice of such consulting obligations and the Consultant shall have
the right to reschedule commitments to the Company to accommodate the
requirements of his other outside interests.
4. PLACE OF PERFORMANCE. The Consultant shall perform his duties
hereunder at such locations as are acceptable to him or by telephone
consultation. To facilitate the Consultant's performance during the
Consulting Period, the Company shall furnish the Consultant, at no more than a
reasonable cost to the Company, an office and secretary reasonably
satisfactory to the Consultant which is located on the premises of the
Company's headquarters. The Consultant shall be allowed full use of
facilities and other clerical assistance at the Company's offices of a
quality, nature and to the extent made available to executive employees of the
Company from time to time.
5. COMPENSATION AND RELATED MATTERS. As compensation for providing
consulting services hereunder and for providing the covenants set forth in
Section 6 hereof, the Company shall make the following payments and provide
the following benefits to the Consultant:
5.1 PAYMENTS. The Company shall pay the Consultant as follows:
(i) during the first year following the Effective Date, $1,250,000; and (ii)
during the second year following the Effective Date, $750,000. Such annual
fees shall be paid in 12 equal installments on the first day of each month.
5.2 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Consultant for reasonable business expenses incurred in the performance of the
Consultant's duties hereunder, including, but not limited to, reasonable
travel, entertainment or similar incidental expenses in connection with the
provision of consulting services; PROVIDED, HOWEVER, that such expenses shall
be incurred and accounted for in accordance with the policies and procedures
established by the Company from time to time for its senior executives.
5.3 FRINGE BENEFITS. During the Consulting Period, the Consultant
shall be entitled to participate in all benefit programs that the Company
establishes and makes generally available to its Consultants.
5.4 AUTOMOBILE. During the Consulting Period, the Company shall
provide the Consultant with the same automobile benefits provided to him by
the Company immediately prior to the Effective Date.
6. COVENANTS OF THE CONSULTANT.
6.1 NON-COMPETITION AND NON-SOLICITATION.
The Consultant acknowledges and recognizes (i) the highly
competitive nature of the business of the Company, (ii) the importance to the
Company of the Confidential Business Information and Trade Secrets (as defined
herein) to which the Consultant will have access, (iii) the importance to the
Company of the knowledge and experience possessed by it relating to sources of
supply of footwear and accessories in Brazil, China, Europe, Hong Kong,
Taiwan, Korea, Mexico and the United States, and its relationships with such
sources of supply, developed by it or its predecessors over many years, and
(iv) the position of responsibility which the Consultant will hold with the
Company. Accordingly, the Consultant agrees that during the Consulting
Period, the Consultant will not, directly or indirectly, (x) engage in the
business activities engaged in by the Company on the date hereof and during
the Consulting Period, such business activities being manufacturing, selling,
producing, marketing, distributing, designing, line building and otherwise
dealing in footwear and accessories, of the types in which the Company does
business during the Consulting Period, and produced in Brazil, China, Europe,
Hong Kong, Taiwan, Korea, Mexico or the United States, in any State of the
United States in which the Company is then doing business, the District of
Columbia, and any other country in which the Company is then doing business,
whether such other engagement is as an officer, director, employee,
proprietor, consultant, independent contractor, partner, advisor, agent or
investor (other than as a passive investor in less than 5% of the outstanding
capital stock of a publicly traded corporation); (y) assist other persons or
businesses in engaging in any business activities prohibited under clause (x);
or (z) induce any employees of the Company to engage in any such activities or
to terminate their employment or hire or attempt to hire any employees of the
Company.
6.2 NON-PUBLICATION.
During the Consulting Period, the Consultant shall not publish any
statement or make any statement (under circumstances reasonably likely to
become public) critical of the Company or in any way adversely affecting or
otherwise maligning the reputation of the Company, customers, suppliers,
agents or subcontractors. In particular and without limitation of the
foregoing, the Consultant shall not, in any circumstance likely to become
public, discourage any person, firm, partnership, corporation, trust or any
other entity or third party from selling any business or assets to the
Company, entering into any joint venture or other business relationship with
the Company, or investing in the Company. Any statements made by the
Consultant in connection with legal, administrative or arbitration
proceedings, or that are required to be made by the Consultant pursuant to
applicable law, shall not be prohibited by this Section 6.2.
6.3 CONFIDENTIALITY.
(a) The Consultant acknowledges that the Company is engaged in the
highly competitive business of designing, developing, manufacturing, marketing
and selling footwear and accessories. The Company's involvement in this
business has required and continues to require the expenditure of substantial
amounts of money and the use of skills developed over considerable time. As a
result of these investments of money, skill and time, the Company has
developed and will continue to develop certain valuable trade secrets and
confidential business information that are peculiar to the Company's business
and the disclosure of which would cause the Company great and irreparable
harm. The Consultant acknowledges that, during the course of rendering
services to the Company, he will receive and/or have access to "Trade Secrets"
and/or "Confidential Business Information" (as defined herein), and that, had
the Consultant not had the opportunity provide services to the Company, he
would not have become privy to such information.
(b) The term "Trade Secrets" means any technical or financial
information, design, process, procedure, formula or improvement that is
valuable and not generally known to the Company's competitors. To the fullest
extent consistent with the foregoing, Trade Secrets shall include, without
limitation, all information and documentation, whether or not subject to
copyright, pertaining to product developments, methods of operation, cost and
pricing structures, and other private, confidential business matters.
(c) The term "Confidential Business Information" means any data or
information and documentation, other than Trade Secrets, which is valuable to
the Company and not generally known to the public, including but not limited
to:
i. Financial information, including but not
limited to earnings, assets, debts, prices, cost
information, sales and profit projections or
other financial data;
ii. Marketing information, including
but not limited to details about ongoing or
proposed marketing programs or agreements by or
on behalf of the Company, marketing forecasts,
results of marketing efforts or information about
impending transactions;
iii. Product information, including but not
limited to development plans, designs, and
product costs; and
iv. Product source and customer information,
including but not limited to any data regarding
actual or potential supply sources, agency
agreements or arrangements and actual or
potential customers.
(d) The Consultant agrees that, except as required to fulfill his
obligations during the course the Consulting Period, he will not, during or
after the Consulting Period, directly or indirectly use, disclose or
disseminate to any other person, organization or entity or otherwise employ
any Trade Secrets or Confidential Business Information. Nothing in this
paragraph shall preclude the Consultant from disclosing or using Trade Secrets
or Confidential Business Information if (i) the Trade Secrets or Confidential
Business Information have become generally known, at the time the Trade
Secrets or Confidential Business Information are used or disclosed, to the
public or to competitors of the Company except through or as a result of the
Consultant's act or omission; or (ii) the disclosure of the Trade Secrets or
Confidential Business Information is required to be made by any law,
regulation, governmental body or authority, or court order, provided that the
Consultant will give the Company prompt written notice of such requirement so
that the Company may seek an appropriate protective order or similar remedy.
The Consultant agrees to deliver to the Company all computer files and tapes,
books, records and documents (whether maintained in paper, electronic or any
other medium) relating to or bearing upon any Trade Secrets or Confidential
Business Information, upon the cessation of the Consulting Period, and the
Consultant agrees not to retain any copies or extracts thereof.
Notwithstanding the foregoing, the Executive shall be entitled to retain such
records as may be reasonably necessary for personal tax or legal compliance or
planning.
(e) It is expressly understood and agreed that, although the
Consultant and the Company consider the restrictions contained in this Section
6 to be reasonable, if a final judicial determination is made by a court
having jurisdiction that the time or territory or any other restriction
contained this Section 6 is an unreasonable or an otherwise unenforceable
restriction, it is the intention of the parties that the provisions of this
Section 6 shall not be rendered void, but such court shall reduce the
duration, area or activity covered by such provision and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
6.4 INJUNCTIVE RELIEF.
The covenants set forth in this Section 6 shall be enforceable by a
court of equity through the granting of a temporary restraining order,
preliminary injunction and/or permanent injunction. In the event of a breach
of Section 6 of this Agreement, the Consultant consents to the entry of an
injunction, and the Consultant shall pay any reasonable fees and expenses
incurred by the Company in enforcing such Sections. Such equitable
enforcement shall be in addition to and shall not prejudice the right of the
Company to an appropriate monetary award.
7. TERMINATION. Termination of this Agreement shall occur as provided
by Section 2 hereof. Any intended termination of this Agreement by the
Company shall be communicated by a Notice of Termination from the Company to
the Consultant, and any intended termination of this Agreement by the
Consultant shall be communicated by a Notice of Termination from the
Consultant to the Company. Any termination for "Cause" shall be subject to
the terms contained in Section 16.4 of the Retention Agreement.
8. EFFECT OF TERMINATION. In the event the Consulting Services are
terminated for any reason whatsoever, the Company shall pay to the Consultant
the compensation and related fees and expenses otherwise payable to him under
this Agreement pro rata through the last day of his actual rendering of
Consulting Services to the Company.
9. MISCELLANEOUS.
9.1 MODIFICATION; WAIVER; NO REPRESENTATIONS. No provision of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the Consultant
and the Company. No waiver by any party hereto at any time of any breach by
any other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by any
party which are not expressly set forth in this Agreement.
9.2 SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company and its Successors and
Assigns (as defined in the Retention Agreement). The Company shall require
its Successors and Assigns, by agreement in form and substance reasonably
satisfactory to the Consultant, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
9.3 ASSIGNMENT. Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Consultant, his
beneficiaries or legal representatives, except by will or by the laws of
descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Consultant's legal personal representative.
9.4 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained in a
court of competent jurisdiction in New York County in the State of New York.
9.5. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
9.6 ENTIRE AGREEMENT. This Agreement, the Retention Agreement, and
the Employment Agreement (as defined in the Retention Agreement) as amended,
supplemented, or modified, from time to time, constitute the entire agreement
between the parties hereto, and supersede all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto,
with respect to the subject matter hereof.
9.7 NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including any notice of
termination) shall be in writing, shall be signed by the Consultant if to the
Company or by a duly authorized officer of the Company if to the Consultant,
and shall be deemed to have been duly given when personally delivered or sent
by certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to the other, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof (whichever is earlier), except that
notice of change of address shall be effective only upon receipt.
9.8 HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
9.9 FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right
which the Company may have against the Consultant or others.
9.10 INDEPENDENT CONTRACTOR STATUS. The parties hereto acknowledge
that the Consultant is at all times acting and performing as an independent
contractor and shall not be considered as an employee of the Company for any
purpose whatsoever. Except for the benefits provided under this Agreement,
the Consultant shall not be entitled to any benefits afforded by the Company
to its employees. Except as expressly authorized by the Company in writing,
the Consultant shall not have any authority, and shall not represent to any
third party that the Consultant has the authority, to bind or commit the
Company with respect to any matter.
9.11 SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions contained in Section 6 of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of Section 6 of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
9.12 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall for all purposes be deemed an original, and all of which
shall constitute the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Consultant has executed this Agreement
as of the day and year first above written.
NINE WEST GROUP INC.
By: /s/ Vincent Camuto
--------------------------
Name: Vincent Camuto
Title: Chief Executive Officer
/s/ Jerome Fisher
-------------------------------
JEROME FISHER
JEROME FISHER
RETENTION AGREEMENT
THIS AGREEMENT made as of the 15th day of December, 1998, by and between
Nine West Group Inc. (the "Company") and Jerome Fisher (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as defined herein) exists and
that the threat or the occurrence of a Change in Control can result in
significant distraction of the Company's key management personnel because of
the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders, for the Company to retain the
services of the Executive in the event of a threat or occurrence of a Change
in Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits in the event his
employment is terminated as a result of, or in connection with, a Change in
Control.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of December 15,
1998, and shall continue in effect until December 31, 2001 (the "Term");
PROVIDED, HOWEVER, that if the Company gives written notice to the Executive
on or before January 1, 2000, and on or before each January 1 thereafter, that
it wishes to extend the Term for one (1) year beyond the date on which it
would otherwise expire, the Term shall be so extended; PROVIDED, FURTHER,
HOWEVER, that following the occurrence of a Change of Control, the Term shall
not expire prior to the expiration of thirty-six (36) months after such
occurrence.
2. TERMINATION OF EMPLOYMENT. If, during the Term, the Executive's
employment with the Company shall be terminated on a date that falls within
the thirty-six (36) month period following a Change of Control, the Executive
shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (1) by the Company for Cause (as defined herein) or Disability (as
defined herein), (2) by reason of his death, or (3) by the Executive other
than for Good Reason (as defined herein) (other than during the 30-day period
following the first anniversary of a Change of Control), the Company shall pay
to the Executive his Accrued Compensation (as defined herein).
(b) If the Executive's employment with the Company shall be
terminated (1) for any reason other than as specified in Section 2(a), or (2)
by the Executive for any reason during the 30-day period following the first
anniversary of a Change of Control, the Executive shall be entitled to the
following:
(1) the Company shall pay the Executive all Accrued
Compensation and a Pro Rata Bonus (as defined herein);
(2) the Company shall pay the Executive as severance pay and
in lieu of any further compensation for periods subsequent to the Termination
Date (as defined herein), an amount equal to three (3) times his Base Amount
(as defined herein);
(3) for the remainder of his lifetime following the
Executive's Termination Date (the "Continuation Period"), the Company shall
continue on behalf of the Executive and his dependents and beneficiaries the
life insurance, disability, medical, dental, prescription drug and
hospitalization coverages and benefits provided to the Executive immediately
prior to the Change of Control or, if greater, the coverages and benefits
provided at any time thereafter. The coverages and benefits (including
deductibles and costs to the Executive) provided in this Section 2(b)(3)
during the Continuation Period shall be no less favorable to the Executive and
his dependents and beneficiaries than the most favorable of such coverages and
benefits referred to above. The Company's obligation hereunder with respect
to the foregoing coverages and benefits shall be reduced to the extent that
the Executive obtains any such coverages and benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce any of the
coverages or benefits it is required to provide the Executive hereunder so
long as the aggregate coverages and benefits (including deductibles and costs
to the Executive) of the combined benefit plans is no less favorable to the
Executive than the coverages and benefits required to be provided hereunder.
This Section 2(b)(3) shall not be interpreted so as to limit any benefits to
which the Executive, his dependents or beneficiaries may be entitled under any
of the Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including but not limited to retiree
medical and life insurance benefits;
(4) the Company shall pay in a single payment an amount in
cash equal to the excess of (A) the Supplemental Retirement Benefit (as
defined herein) had (w) the Executive remained employed by the Company for an
additional three (3) complete years of credited service under each
supplemental and other retirement plan in which the Executive was a
participant on the Termination Date (or until his 65th birthday, if earlier),
(x) his annual compensation during such period been equal to his Base Amount,
(y) the Company made employer contributions to each defined contribution plan
in which the Executive was a participant on the Termination Date (in an amount
equal to the amount of such contribution for the plan year ending immediately
preceding the Termination Date) and (z) the Executive become fully (100%)
vested in his benefit under each supplemental and other retirement plan in
which the Executive was a participant on the Termination Date, over (B) the
lump sum actuarial equivalent of the aggregate retirement benefit the
Executive is actually entitled to receive under such supplemental and other
retirement plans. For purposes of this Section 2(b)(4), "Supplemental
Retirement Benefit" shall mean the lump sum actuarial equivalent of the
aggregate retirement benefit the Executive would have been entitled to receive
under the Company's supplemental and other retirement plans including but not
limited to The Pension Plan for Associates of Nine West Group Inc. (the
"Pension Plan"). For purposes of this Section 2(b)(4), the "actuarial
equivalent" shall be determined in accordance with the actuarial assumptions
used for the calculation of benefits under the Pension Plan as applied prior
to the Termination Date in accordance with the Pension Plan's past practices;
(5) the Company shall pay the Executive a lump sum in cash
equal to the present value (determined using a discount rate equal to one
hundred twenty percent (120%) of the applicable mid-term Federal rate
determined pursuant to Section 1274(d) of the Code (as defined herein),
compounded semiannually) of thirty-six (36) monthly payments, each of which
payments is equal to the monthly automobile allowance payable by the Company
in respect of the Executive immediately prior to the Termination Date; and
(6) for thirty-six (36) months following the Executive's
Termination Date, the Company shall continue to pay the Company portion of
premiums under the split-dollar life insurance policy maintained in respect of
the Executive.
(c) The amounts provided for in Sections 2(a) and 2(b)(1),
(2), (4) and (5) shall be paid in a single lump sum cash payment within ten
(10) days after the Executive's Termination Date (or earlier, if required by
applicable law).
(d) Upon the occurrence of a Change of Control, all options held by
the Executive on the date of the Change of Control shall vest and become
immediately exercisable and all restrictions on shares of restricted stock
shall lapse; provided, however, such accelerated vesting and/or lapse of
restrictions shall not be applicable if its implementation would preclude the
application of pooling-of-interests accounting treatment to a transaction for
which such treatment is to be adopted by the Company and which has been
approved by the Board of Directors, and the holders of options and restricted
stock shall not be entitled to any accelerated vesting in such event.
(e) The severance pay and benefits provided for in this Section 2
shall be in lieu of any other severance pay to which the Executive may be
entitled under any severance or employment agreement with the Company,
PROVIDED HOWEVER, that the Executive shall receive compensation or benefits
other than as provided herein to the extent that the Executive is entitled to
receive such compensation or other benefits at the time of his termination, as
determined in accordance with the employee benefit plans of the Company and
other applicable agreements, programs and practices as in effect from time to
time, including but not limited to the Consulting Agreement, dated as of
even date herewith, between the Executive and the Company (the "Consulting
Agreement"), a copy of which is attached as EXHIBIT A hereto.
(f) If the Executive's employment is terminated by the Company
without Cause prior to the date of a Change of Control but the Executive
reasonably demonstrates that such termination (1) was at the request of a
third party who has indicated an intention or taken steps reasonably
calculated to effect a Change of Control (a "Third Party") and who effectuates
a Change of Control or (2) otherwise arose in connection with, or in
anticipation of, a Change of Control which has been threatened or proposed and
which actually occurs, such termination shall be deemed to have occurred after
a Change of Control, it being agreed that any such action taken following
shareholder approval of a transaction which if consummated would constitute a
Change of Control, shall be deemed to be in anticipation of a Change of
Control provided such transaction is actually consummated.
3. EFFECT OF SECTION 280G OF THE INTERNAL REVENUE CODE.
(a) Notwithstanding any other provision of this Agreement to the
contrary, and except as provided in Section 3(b), to the extent that any
payment or distribution of any type to or for the benefit of the Executive by
the Company, any Person who acquires ownership or effective control of the
Company or ownership of a substantial portion of the Company's assets (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder), or any Affiliate of such
Person, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (the "Total Payments"), is or will be
subject to the excise tax imposed under Section 4999 of the Code (the "Excise
Tax"), then the Total Payments shall be reduced (but not less than zero) if
and to the extent that a reduction in the Total Payments would result in the
Executive retaining a larger amount, on an after-tax basis (taking into
account federal, state and local income taxes and the Excise Tax), than if the
Executive received the entire amount of such Total Payments. Unless the
Executive shall have given prior written notice specifying a different order
to the Company to effectuate the foregoing, the Company shall reduce or
eliminate the Total Payments, by first reducing or eliminating the portion of
the Total Payments which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with
payments or benefits which are to be paid the farthest in time from the
Determination (as defined herein). Any notice given by the Executive pursuant
to the preceding sentence shall take precedence over the provisions of any
other plan, arrangement or agreement governing the Executive's rights and
entitlements to any benefits or compensation.
(b) If the reduction of the Payments as provided in Section 3(a)
would exceed $200,000, Section 3(a) shall not apply and the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including any Excise Tax,
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.
(c) The determination of whether the Payments shall be reduced
pursuant to this Section 3 and the amount of such reduction, and the
determination of whether a Gross-Up Payment is payable, shall be made at the
Company's expense, by an accounting firm selected by the Company which is one
of the five (5) largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that
any of the Payments may be subject to the Excise Tax), and if the Accounting
Firm determines that no Excise Tax is payable by the Executive with respect to
the Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payments. The Determination shall be binding, final and conclusive
upon the Company and the Executive.
(d) If a Gross-Up Payment is determined to be payable, it shall be
paid to the Executive within twenty (20) days after the Determination (and all
accompanying calculations and other material supporting the Determination) is
delivered to the Company by the Accounting Firm. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive, absent
manifest error. As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments not made by the Company
should have been made ("Underpayment"), or that Gross-Up Payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment (including any applicable
interest and penalties) shall be promptly paid by the Company to or for the
benefit of the Executive. In the case of an Overpayment, the Executive shall,
at the direction and expense of the Company, take such steps as are reasonably
necessary (including the filing of returns and claims for refund), follow
reasonable instructions from, and procedures established by, the Company, and
otherwise reasonably cooperate with the Company to correct such Overpayment,
PROVIDED, HOWEVER, that (i) the Executive shall not in any event be obligated
to return to the Company an amount greater than the net after-tax portion of
the Overpayment that he has retained or has recovered as a refund from the
applicable taxing authorities and (ii) if a Gross-Up Payment is determined to
be payable, this provision shall be interpreted in a manner consistent with an
intent to make the Executive whole, on an after-tax basis, from the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Executive repaying to the Company an amount
which is less than the Overpayment. The cost of all such determinations made
pursuant to this Section 3 shall be paid by the Company.
4. NOTICE OF TERMINATION. Following a Change in Control, any intended
termination of the Executive's employment by the Company shall be communicated
by a Notice of Termination from the Company to the Executive, and any intended
termination of his employment by the Executive for Good Reason shall be
communicated by a Notice of Termination from the Executive to the Company.
5. FEES AND EXPENSES. The Company shall pay, as incurred, all legal
fees and related expenses (including the costs of experts, evidence and
counsel) that the Executive may incur following a Change in Control as a
result of or in connection with (a) the Executive's contesting, defending or
disputing the basis for the termination of his employment, (b) the Executive's
hearing before the Board of Directors of the Company as contemplated in
Section 15.5 of this Agreement or (c) the Executive seeking to obtain or
enforce any right or benefit provided by this Agreement or by any other plan
or arrangement maintained by the Company under which the Executive is or
may be entitled to receive benefits; PROVIDED, HOWEVER, that the Company shall
not be required to pay the Executive's legal fees and related expenses if it
is finally determined by the final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been taken) that the Executive's claims are frivolous.
6. COVENANTS OF THE EXECUTIVE
6.1. NON-COMPETITION AND NON-SOLICITATION
The Executive acknowledges and recognizes (i) the highly competitive
nature of the business of the Company, (ii) the importance to the Company of
the Confidential Business Information and Trade Secrets (as defined herein) to
which the Executive will have access, (iii) the importance to the Company of
the knowledge and experience possessed by it relating to sources of supply of
footwear and accessories in Brazil, China, Europe, Hong Kong, Taiwan, Korea,
Mexico and the United States, and its relationships with such sources of
supply, developed by it or its predecessors over many years, and (iv) the
position of responsibility which the Executive will hold with the Company.
Accordingly, the Executive agrees that during the Non-Compete Period (as
defined herein), the Executive will not, directly or indirectly, (x) engage in
the business activities engaged in by the Company on the date hereof and
during the Executive's employment, such business activities being
manufacturing, selling, producing, marketing, distributing, designing, line
building and otherwise dealing in footwear and accessories, of the types in
which the Company does business as of the date of such cessation of
employment, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea,
Mexico or the United States, in any State of the United States in which the
Company is then doing business, the District of Columbia, and any other
country in which the Company is then doing business, whether such other
engagement is as an officer, director, employee, proprietor, consultant,
independent contractor, partner, advisor, agent or investor (other than as a
passive investor in less than 5% of the outstanding capital stock of a
publicly traded corporation); (y) assist other persons or businesses in
engaging in any business activities prohibited under clause (x); or (z) induce
any employees of the Company to engage in any such activities or to terminate
their employment or hire or attempt to hire any employees of the Company.
6.2. APPLICATION AND PERIOD.
(a) Application. Section 6.1 shall apply following a Change of
Control if (i) the Company terminates the Executive's employment for Cause,
(ii) the Executive voluntarily terminates his employment for any reason,
including for Good Reason (as defined herein), or (iii) the employment of the
Executive is terminated and such termination results in payments to the
Executive under Section 2(b) hereof.
(b) Period. The "Non-Compete Period" shall mean a period of two
(2) years following the termination of the Executive's employment with the
Company after a Change of Control.
6.3. NON-PUBLICATION.
During the Non-Compete Period, the Executive shall not publish any
statement or make any statement (under circumstances reasonably likely to
become public) critical of the Company or in any way adversely affecting or
otherwise maligning the reputation of the Company, customers, suppliers,
agents or subcontractors. In particular and without limitation of the
foregoing, the Executive shall not, in any circumstance likely to become
public, discourage any person, firm, partnership, corporation, trust or any
other entity or third party from selling any business or assets to the
Company, entering into any joint venture or other business relationship with
the Company, or investing in the Company. Any statements made by the
Executive in connection with legal, administrative or arbitration proceedings,
or that are required to be made by the Executive pursuant to applicable law,
shall not be prohibited by this Section 6.3.
6.4. CONFIDENTIALITY.
(a) The Executive acknowledges that the Company is engaged in the
highly competitive business of designing, developing, manufacturing, marketing
and selling footwear and accessories. The Company's involvement in this
business has required and continues to require the expenditure of substantial
amounts of money and the use of skills developed over considerable time. As a
result of these investments of money, skill and time, the Company has
developed and will continue to develop certain valuable trade secrets and
confidential business information that are peculiar to the Company's business
and the disclosure of which would cause the Company great and irreparable
harm. The Executive acknowledges that, during the course of his employment by
the Company, he will receive and/or have access to "Trade Secrets" and/or
"Confidential Business Information" (as defined herein), and that, had the
Executive not had the opportunity to work at the Company, he would not have
become privy to such information.
(b) The term "Trade Secrets" means any technical or financial
information, design, process, procedure, formula or improvement that is
valuable and not generally known to the Company's competitors. To the fullest
extent consistent with the foregoing, Trade Secrets shall include, without
limitation, all information and documentation, whether or not subject to
copyright, pertaining to product developments, methods of operation, cost and
pricing structures, and other private, confidential business matters.
(c) The term "Confidential Business Information" means any data or
information and documentation, other than Trade Secrets, which is valuable to
the Company and not generally known to the public, including but not limited
to:
i. Financial information, including but not limited to
earnings, assets, debts, prices, cost information, sales
and profit projections or other financial data;
ii. Marketing information, including but not limited to
details about ongoing or proposed marketing programs or
agreements by or on behalf of the Company, marketing
forecasts, results of marketing efforts or information
about impending transactions;
iii. Product information, including but not limited to
development plans, designs, and product costs; and
iv. Product source and customer information, including
but not limited to any data regarding actual or potential
supply sources, agency agreements or arrangements and
actual or potential customers.
(d) The Executive agrees that, except as required to fulfill his
obligations during the course of his employment, he will not, during his
employment with the Company or after such employment has ceased, directly or
indirectly use, disclose or disseminate to any other person, organization or
entity or otherwise employ any Trade Secrets or Confidential Business
Information. Nothing in this paragraph shall preclude the Executive from
disclosing or using Trade Secrets or Confidential Business Information if (i)
the Trade Secrets or Confidential Business Information have become generally
known, at the time the Trade Secrets or Confidential Business Information are
used or disclosed, to the public or to competitors of the Company except
through or as a result of the Executive's act or omission; or (ii) the
disclosure of the Trade Secrets or Confidential Business Information is
required to be made by any law, regulation, governmental body or authority, or
court order, provided that the Executive will give the Company prompt written
notice of such requirement so that the Company may seek an appropriate
protective order or similar remedy. The Executive agrees to deliver to the
Company all computer files and tapes, books, records and documents (whether
maintained in paper, electronic or any other medium) relating to or bearing
upon any Trade Secrets or Confidential Business Information, upon the
cessation of his employment, and the Executive agrees not to retain any copies
or extracts thereof. Notwithstanding the foregoing, the Executive shall be
entitled to retain such records as may be reasonably necessary for personal
tax or legal compliance or planning.
(e) It is expressly understood and agreed that, although the
Executive and the Company consider the restrictions contained in this Section
6 to be reasonable, if a final judicial determination is made by a court
having jurisdiction that the time or territory or any other restriction
contained this Section 6 is an unreasonable or an otherwise unenforceable
restriction, it is the intention of the parties that the provisions of this
Section 6 shall not be rendered void, but such court shall reduce the
duration, area or activity covered by such provision and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
6.5. INJUNCTIVE RELIEF.
The covenants set forth in this Section 6 are independent and shall
be enforceable by a court of equity through the granting of a temporary
restraining order, preliminary injunction and/or permanent injunction. In the
event of a breach of Section 6 of this Agreement, the Executive consents to
the entry of an injunction, and the Executive shall pay any reasonable fees
and expenses incurred by the Company in enforcing such Sections. Such
equitable enforcement shall be in addition to and shall not prejudice the
right of the Company to an appropriate monetary award.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Company or by a duly authorized officer of the Company if to the Executive,
and shall be deemed to have been duly given when personally delivered or sent
by certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to the other, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof (whichever is earlier), except that
notice of change of address shall be effective only upon receipt.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company and for
which the Executive may qualify, nor shall anything herein limit or reduce
such rights as the Executive may have under any other agreements with the
Company, except as explicitly provided herein. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan or program of the Company shall be payable in accordance with such plan
or program, except as explicitly modified by this Agreement.
9. (a) FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including but not
limited to any set-off, counterclaim, defense, recoupment, or other claim,
right or action which the Company may have against the Executive or others.
(b) NO MITIGATION. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in any
subsequent employment except as provided in Section 2(b)(3).
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are
not expressly set forth in this Agreement.
11. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company and its Successors and Assigns. The Company shall
require its Successors and Assigns, by agreement in form and substance
reasonably satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment
had taken place.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal personal representative.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the conflict of laws principles thereof. Any action brought
by any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in New York County in the State of New York.
13. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
14. ENTIRE AGREEMENT. This Agreement and the Consulting Agreement
constitute the entire agreement between the parties hereto, and supersede all
prior agreements, if any, understandings and arrangements, oral or written,
between the parties hereto, with respect to the subject matter hereof;
PROVIDED, HOWEVER, that the employment agreement between the Company and the
Executive, dated as of May 8, 1992, as amended on December 30, 1992 (the
"Employment Agreement") shall apply, except with respect to Sections 2(e) and
6 of this Agreement, which shall supersede the Employment Agreement.
15. DEFINITIONS.
15.1. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean all amounts of compensation for services
rendered to the Company that have been earned or accrued through the
Termination Date but that have not been paid as of the Termination Date
including, without limitation (a) base salary, (b) reimbursement for
reasonable and necessary business expenses incurred by the Executive on behalf
of the Company during the period ending on the Termination Date and (c)
vacation pay.
15.2. AFFILIATE. For purposes of this Agreement, "Affiliate"
means, with respect to any Person, any other Person directly or indirectly
controlled by, controlling or under common control with such Person.
15.3. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean annual base salary at the rate in effect as of the date of a Change
in Control or, if greater, at any time thereafter, determined without regard
to any salary reduction or deferred compensation elections made by the
Executive.
15.4. CAUSE. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive
(a) has been convicted of a felony (including a plea of nolo
contendere), the time for appeal of which has elapsed;
(b) intentionally and continually failed substantially to
perform the Executive's reasonably assigned duties with the Company (other
than a failure resulting from his incapacity due to physical or mental illness
or from the assignment to the Executive of duties that would constitute Good
Reason) which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance, signed by a duly
authorized officer of the Company, has been delivered to the Executive
specifying the manner in which the Executive has failed substantially to
perform; or
(c) intentionally engaged in illegal conduct or willful
misconduct which is demonstrably and materially injurious to the Company.
For purposes of this Agreement, no act, nor failure to act, on his part, shall
be considered "intentional" unless the Executive has acted, or failed to act,
with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Company.
Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Company's
Chairman of the Board, Chief Executive Officer or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The termination of
employment of the Executive shall not be deemed to be for Cause pursuant to
subparagraph (b) or (c) above unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three-fourths of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described
in subparagraph (b) or (c) above, and specifying the particulars thereof in
detail. Notwithstanding anything contained in this Agreement to the contrary,
no failure to perform by the Executive after a Notice of Termination is given
to the Company by the Executive shall constitute Cause for purposes of this
Agreement. The Company acknowledges that Mr. Fisher resides in Florida and
spends a substantial amount of his time in Florida and other locations during
the course of each year, and further agrees that, notwithstanding the terms of
the Employment Agreement, Mr. Fisher may perform all of his duties from
Florida and/or other remote locations.
15.5. CHANGE IN CONTROL. A "Change in Control" shall
mean the occurrence during the term of the Agreement of:
(a) An acquisition (other than directly from Nine West Group
Inc.) of any common stock of Nine West Group Inc. ("Common Stock") or other
voting securities of Nine West Group Inc. entitled to vote generally for the
election of directors (the "Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), immediately after
which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent (30%) or more of the
then outstanding shares of Common Stock or the combined voting power of Nine
West Group Inc.'s then outstanding Voting Securities; PROVIDED, HOWEVER, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as defined herein) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) Nine West Group
Inc. or (B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by Nine West Group Inc. (a "Subsidiary"), (ii) Nine West Group
Inc. or its Subsidiaries, or (iii) any Person in connection with a Non-Control
Transaction (as defined herein);
(b) The individuals who, as of December 15, 1998, are
members of the Board of Nine West Group Inc. (the "Incumbent Board") cease for
any reason to constitute at least a majority of the members of the Board;
PROVIDED, HOWEVER, that if the election, or nomination for election by Nine
West Group Inc.'s shareholders, of any new director was approved by a vote of
at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent Board;
PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(1) A merger, consolidation, reorganization or other
business combination with or into Nine West Group Inc. or in
which securities of Nine West Group Inc. are issued, unless
such merger, consolidation, reorganization or other business
combination is a "Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger, consolidation,
reorganization or other business combination with or into
Nine West Group Inc. or in which securities of Nine West
Group Inc. are issued where:
(A) the shareholders of Nine West Group Inc.,
immediately before such merger, consolidation,
reorganization or other business combination own
directly or indirectly immediately following such
merger, consolidation, reorganization or other business
combination, at least sixty percent (60%) of the
combined voting power of the outstanding voting
securities of the corporation resulting from such merger
or consolidation, reorganization or other business
combination (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation, reorganization, or other business
combination,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation,
reorganization or other business combination constitute
at least two-thirds (2/3) of the members of the board of
directors of the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a majority of
the combined voting power of the outstanding voting
securities of the Surviving Corporation, and
(C) no Person other than (i) Nine West Group Inc.,
(ii) any Subsidiary, (iii) any employee benefit plan (or
any trust forming a part thereof) that, immediately
prior to such merger, consolidation, reorganization or
other business combination was maintained by Nine West
Group Inc., the Surviving Corporation, or any
Subsidiary, or (iv) any Person who, immediately prior to
such merger, consolidation, reorganization or other
business combination had Beneficial Ownership of thirty
percent (30%) or more of the then outstanding Voting
Securities or common stock of Nine West Group Inc.,
has Beneficial Ownership of thirty percent (30%) or more
of the combined voting power of the Surviving
Corporation's then outstanding voting securities or its
common stock.
(2) A complete liquidation or dissolution of Nine West
Group Inc.; or
(3) The sale or other disposition of all or
substantially all of the assets of Nine West Group Inc. to
any Person (other than (i) any such sale or disposition that
results in at least fifty percent (50%) of Nine West Group
Inc.'s assets being owned by a subsidiary or subsidiaries or
(ii) a distribution to Nine West Group Inc.'s stockholders of
the stock of a subsidiary or any other assets).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding common
stock or Voting Securities as a result of the acquisition of Common Stock or
Voting Securities by Nine West Group Inc. which, by reducing the number of
shares of Common Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of shares of Common Stock or
Voting Securities by Nine West Group Inc., and after such share acquisition by
Nine West Group Inc., the Subject Person becomes the Beneficial Owner of any
additional shares of Common Stock or Voting Securities which increase the
percentage of the then outstanding shares of Common Stock or Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall
occur.
15.6. COMPANY. For purposes of this Agreement, all references to
the Company shall be deemed to include the Company and any Affiliate of the
Company, and any respective Successors and Assigns.
15.7. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs his ability to
substantially perform his duties with the Company for six (6) consecutive
months and, within the time period set forth in a Notice of Termination given
to the Executive (which time period shall not be less than thirty (30) days),
the Executive shall not have returned to full-time performance of his duties;
PROVIDED, HOWEVER, that if the Company's Long Term Disability Plan, or any
successor plan (the "Disability Plan"), is then in effect, the Executive shall
not be deemed disabled for purposes of this Agreement unless the Executive is
also eligible for long-term disability benefits under the Disability Plan (or
similar benefits in the event of a successor plan).
15.8. GOOD REASON. (a) For purposes of this Agreement, "Good
Reason" shall mean the occurrence after a Change in Control of any of the
following events or conditions:
(1) a change in the Executive's responsibilities or
job description (including reporting responsibilities) that represents a
material adverse change from the Executive's responsibilities or job
description as in effect immediately prior thereto;
(2) a reduction in the Executive's annual base salary
below the Base Amount;
(3) the requirement that the Executive conduct his duties
in a manner substantially different from the manner in which he presently
conducts those duties, including, without limitation, the location at which he
performs his duties from time to time, or a requirement that the Executive
report to work at the Company's headquarters or other designated Company
location;
(4) the failure by the Company to pay to the Executive any
portion of his current compensation or to pay to the Executive any portion of
an installment of deferred compensation under any deferred compensation
program of the Company in which the Executive participated, within seven (7)
days of the date such compensation is due;
(5) the failure by the Company to (A) continue in
effect (without reduction in benefit level and/or reward opportunities which
with respect to the Incentive Plan shall include a reduction in the potential
bonus entitlement for comparable corporate performance by the Company and its
subsidiaries) any material compensation or employee benefit plan in which the
Executive was participating immediately prior to the Change in Control unless
a substitute or replacement plan has been implemented which provides
substantially identical compensation or benefits to the Executive or (B)
provide the Executive with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other compensation, employee benefit or fringe benefit
plan, program or practice in which the Executive was participating immediately
prior to the Change in Control;
(6) the failure of the Company to obtain from its
Successors or Assigns the express assumption and agreement required under
Section 11(a) hereof; or
(7) any purported termination of his employment by
the Company which is not effected pursuant to a Notice of Termination
satisfying the terms set forth in the definition of Notice of Termination
(and, if applicable, the terms set forth in the definition of Cause).
(b) Any event or condition described in Section 15.8(a)(1)
through (8) which occurs prior to a Change in Control but which the Executive
reasonably demonstrates (1) was at the request of a Third Party who
effectuates a Change in Control or (2) otherwise arose in connection with, or
in anticipation of a Change in Control which has been threatened or proposed
and which actually occurs, shall constitute Good Reason for purposes of this
Agreement notwithstanding that it occurred prior to a Change in Control, it
being agreed that any such action taken following shareholder approval of a
transaction which if consummated would constitute a Change in Control, shall
be deemed to be in anticipation of a Change in Control provided such
transaction is actually consummated.
15.9. INCENTIVE PLAN. For purposes of this Agreement, "Incentive
Plan" shall mean the Company's First Amended and Restated Bonus Plan or any
successor annual incentive plan, maintained by the Company.
15.10. NOTICE OF TERMINATION. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination of the Executive's employment, signed by the Executive
if to the Company or by a duly authorized officer of the Company if to the
Executive, which indicates the specific termination provision in this
Agreement, if any, relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of his
employment under the provision so indicated. The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason, Disability or Cause shall not
serve to waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
15.11. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata
Bonus" shall mean an amount equal to fifty percent (50%) of the Base Amount
multiplied by a fraction the numerator of which is the number of days in the
fiscal year in which the Executive's Termination Date occurs that have elapsed
through the Termination Date and the denominator of which is 365.
15.12. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean, with respect to the Company, a
corporation or other entity acquiring all or substantially all the assets and
business of the Company, as the case may be whether by operation of law or
otherwise.
15.13. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his
date of death, (b) if his employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
such thirty (30) day period) and (c) if his employment is terminated for any
other reason, the date specified in the Notice of Termination (which, in the
case of a termination for Cause shall not be less than thirty (30) days, and
in the case of a termination for Good Reason shall not be more than sixty (60)
days, from the date such Notice of Termination is given); PROVIDED, HOWEVER,
that if within thirty (30) days after any Notice of Termination is given the
party receiving such Notice of Termination in good faith notifies the other
party that a dispute exists concerning the basis for the termination, the
Termination Date shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, or by the final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been taken). Notwithstanding
the pendency of any such dispute, the Company shall continue to pay the
Executive his Base Amount and continue the Executive as a participant (at or
above the level provided prior to the date of such dispute) in all
compensation, incentive, bonus, pension, profit sharing, medical,
hospitalization, prescription drug, dental, life insurance and disability
benefit plans in which he was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved (whether or not the
dispute is resolved in favor of the Company); PROVIDED FURTHER, that if the
dispute results in the payment by the Company to the Executive of the amounts
contemplated under Section 2(b) hereof, the amount of such payments shall be
reduced by any Base Amount paid to the Executive during the pendency of the
dispute. Except as provided in the last proviso of the preceding sentence,
notwithstanding the outcome of any dispute, the Executive shall not be
obligated to repay to the Company or an Employing Affiliate any amounts paid
or benefits provided pursuant to this sentence. The Executive's rights to
receive payments under Section 2 of this Agreement shall survive the
expiration of the Term during any dispute contemplated by this Section.
16. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall for all purposes be deemed an original, and all of which
shall constitute the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officers and the Executive has executed this
Agreement as of the day and year first above written.
NINE WEST GROUP INC.
/s/ Vincent Camuto
-----------------------------
By: Vincent Camuto
Its: Chief Financial Officer
JEROME FISHER
/s/ Jerome Fisher
----------------------------
ATTEST:
/s/ Joel K. Bedol
- ------------------------
By: Joel K. Bedol
CONSULTING AGREEMENT
BETWEEN
NINE WEST GROUP INC.
AND
VINCENT CAMUTO
THIS CONSULTING AGREEMENT (the "Agreement") made as of the 15th day of
December 1998, by and between Nine West Group Inc. (the "Company") and Vincent
Camuto (the "Consultant").
WHEREAS, the Company and the Consultant have entered into a Retention
Agreement, dated as of even date herewith (the "Retention Agreement"), to
provide the Consultant with certain benefits in the event the Consultant's
employment terminates as a result of, or in connection with, a Change of
Control (as defined in the Retention Agreement);
WHEREAS, the Company desires to continue to benefit from the experience
and ability of the Consultant in the capacity of a consultant to the Company
upon termination of his employment, and further desires to obtain certain
covenants from the Consultant, as set forth in this Agreement;
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, the parties hereby agree as follows:
1. RETENTION AS CONSULTANT. The Company hereby agrees to engage the
Consultant, and the Consultant hereby accepts the engagement with the Company,
upon the terms set forth in this Agreement.
2. TERM. This Agreement shall commence upon the date following the
termination of the Consultant's employment after a Change of Control for any
reason, other than for "Cause" (as defined in the Retention Agreement);
"Disability" (as defined in the Retention Agreement); or death (the "Effective
Date"), and shall expire two (2) years from the Effective Date, unless earlier
terminated by reason of the Consultant's Disability, death, for "Cause" (as
defined in the Retention Agreement) or by the Consultant in accordance with
the immediately following sentence (the "Consulting Period"). The Consultant
may terminate this Agreement, in his sole discretion, at any time upon thirty
(30) days prior written notice to the Company; PROVIDED, HOWEVER, that the
consultant's covenants contained in Section 6 of this Agreement shall continue
to apply until the expiration of a two (2) year period after the Effective
Date.
3. DUTIES. During the Consulting Period, the Consultant shall render
such consulting and advisory services to the Company as the Consultant and the
Company agree upon from time to time, including, but not limited to, providing
advice to the Company on corporate strategy, the design, manufacture,
marketing and distribution of the Company's products and the coordination and
planning between the Company's factories and its divisions (the "Consulting
Services"); PROVIDED, HOWEVER, that the Consultant will not be required to,
but may at his sole discretion and at the Company's request, devote more than
fifteen (15) days per month to the performance of such services during the
Consulting Period. In this regard, the Company shall provide the Consultant
reasonable notice of such consulting obligations and the Consultant shall have
the right to reschedule commitments to the Company to accommodate the
requirements of his other outside interests.
4. PLACE OF PERFORMANCE. The Consultant shall perform his duties
hereunder at such locations as are acceptable to him or by telephone
consultation. To facilitate the Consultant's performance during the
Consulting Period, the Company shall furnish the Consultant, at no more than a
reasonable cost to the Company, an office and secretary reasonably
satisfactory to the Consultant which is located on the premises of the
Company's headquarters. The Consultant shall be allowed full use of
facilities and other clerical assistance at the Company's offices of a
quality, nature and to the extent made available to executive employees of the
Company from time to time.
5. COMPENSATION AND RELATED MATTERS. As compensation for providing
consulting services hereunder and for providing the covenants set forth in
Section 6 hereof, the Company shall make the following payments and provide
the following benefits to the Consultant:
5.1 PAYMENTS. The Company shall pay the Consultant as follows:
(i) during the first year following the Effective Date, $1,250,000; and (ii)
during the second year following the Effective Date, $750,000. Such annual
fees shall be paid in 12 equal installments on the first day of each month.
5.2 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Consultant for reasonable business expenses incurred in the performance of the
Consultant's duties hereunder, including, but not limited to, reasonable
travel, entertainment or similar incidental expenses in connection with the
provision of consulting services; PROVIDED, HOWEVER, that such expenses shall
be incurred and accounted for in accordance with the policies and procedures
established by the Company from time to time for its senior executives.
5.3 FRINGE BENEFITS. During the Consulting Period, the Consultant
shall be entitled to participate in all benefit programs that the Company
establishes and makes generally available to its Consultants.
5.4 AUTOMOBILE. During the Consulting Period, the Company shall
provide the Consultant with the same automobile benefits provided to him by
the Company immediately prior to the Effective Date.
6. COVENANTS OF THE CONSULTANT.
6.1 NON-COMPETITION AND NON-SOLICITATION.
The Consultant acknowledges and recognizes (i) the highly
competitive nature of the business of the Company, (ii) the importance to the
Company of the Confidential Business Information and Trade Secrets (as defined
herein) to which the Consultant will have access, (iii) the importance to the
Company of the knowledge and experience possessed by it relating to sources of
supply of footwear and accessories in Brazil, China, Europe, Hong Kong,
Taiwan, Korea, Mexico and the United States, and its relationships with such
sources of supply, developed by it or its predecessors over many years, and
(iv) the position of responsibility which the Consultant will hold with the
Company. Accordingly, the Consultant agrees that during the Consulting
Period, the Consultant will not, directly or indirectly, (x) engage in the
business activities engaged in by the Company on the date hereof and during
the Consulting Period, such business activities being manufacturing, selling,
producing, marketing, distributing, designing, line building and otherwise
dealing in footwear and accessories, of the types in which the Company does
business during the Consulting Period, and produced in Brazil, China, Europe,
Hong Kong, Taiwan, Korea, Mexico or the United States, in any State of the
United States in which the Company is then doing business, the District of
Columbia, and any other country in which the Company is then doing business,
whether such other engagement is as an officer, director, employee,
proprietor, consultant, independent contractor, partner, advisor, agent or
investor (other than as a passive investor in less than 5% of the outstanding
capital stock of a publicly traded corporation); (y) assist other persons or
businesses in engaging in any business activities prohibited under clause (x);
or (z) induce any employees of the Company to engage in any such activities or
to terminate their employment or hire or attempt to hire any employees of the
Company.
6.2 NON-PUBLICATION.
During the Consulting Period, the Consultant shall not publish any
statement or make any statement (under circumstances reasonably likely to
become public) critical of the Company or in any way adversely affecting or
otherwise maligning the reputation of the Company, customers, suppliers,
agents or subcontractors. In particular and without limitation of the
foregoing, the Consultant shall not, in any circumstance likely to become
public, discourage any person, firm, partnership, corporation, trust or any
other entity or third party from selling any business or assets to the
Company, entering into any joint venture or other business relationship with
the Company, or investing in the Company. Any statements made by the
Consultant in connection with legal, administrative or arbitration
proceedings, or that are required to be made by the Consultant pursuant to
applicable law, shall not be prohibited by this Section 6.2.
6.3 CONFIDENTIALITY.
(a) The Consultant acknowledges that the Company is engaged in the
highly competitive business of designing, developing, manufacturing, marketing
and selling footwear and accessories. The Company's involvement in this
business has required and continues to require the expenditure of substantial
amounts of money and the use of skills developed over considerable time. As a
result of these investments of money, skill and time, the Company has
developed and will continue to develop certain valuable trade secrets and
confidential business information that are peculiar to the Company's business
and the disclosure of which would cause the Company great and irreparable
harm. The Consultant acknowledges that, during the course of rendering
services to the Company, he will receive and/or have access to "Trade Secrets"
and/or "Confidential Business Information" (as defined herein), and that, had
the Consultant not had the opportunity provide services to the Company, he
would not have become privy to such information.
(b) The term "Trade Secrets" means any technical or financial
information, design, process, procedure, formula or improvement that is
valuable and not generally known to the Company's competitors. To the fullest
extent consistent with the foregoing, Trade Secrets shall include, without
limitation, all information and documentation, whether or not subject to
copyright, pertaining to product developments, methods of operation, cost and
pricing structures, and other private, confidential business matters.
(c) The term "Confidential Business Information" means any data or
information and documentation, other than Trade Secrets, which is valuable to
the Company and not generally known to the public, including but not limited
to:
i. Financial information, including but not
limited to earnings, assets, debts, prices, cost
information, sales and profit projections or
other financial data;
ii. Marketing information, including
but not limited to details about ongoing or
proposed marketing programs or agreements by or
on behalf of the Company, marketing forecasts,
results of marketing efforts or information about
impending transactions;
iii. Product information, including but not
limited to development plans, designs, and
product costs; and
iv. Product source and customer information,
including but not limited to any data regarding
actual or potential supply sources, agency
agreements or arrangements and actual or
potential customers.
(d) The Consultant agrees that, except as required to fulfill his
obligations during the course the Consulting Period, he will not, during or
after the Consulting Period, directly or indirectly use, disclose or
disseminate to any other person, organization or entity or otherwise employ
any Trade Secrets or Confidential Business Information. Nothing in this
paragraph shall preclude the Consultant from disclosing or using Trade Secrets
or Confidential Business Information if (i) the Trade Secrets or Confidential
Business Information have become generally known, at the time the Trade
Secrets or Confidential Business Information are used or disclosed, to the
public or to competitors of the Company except through or as a result of the
Consultant's act or omission; or (ii) the disclosure of the Trade Secrets or
Confidential Business Information is required to be made by any law,
regulation, governmental body or authority, or court order, provided that the
Consultant will give the Company prompt written notice of such requirement so
that the Company may seek an appropriate protective order or similar remedy.
The Consultant agrees to deliver to the Company all computer files and tapes,
books, records and documents (whether maintained in paper, electronic or any
other medium) relating to or bearing upon any Trade Secrets or Confidential
Business Information, upon the cessation of the Consulting Period, and the
Consultant agrees not to retain any copies or extracts thereof.
Notwithstanding the foregoing, the Executive shall be entitled to retain such
records as may be reasonably necessary for personal tax or legal compliance or
planning.
(e) It is expressly understood and agreed that, although the
Consultant and the Company consider the restrictions contained in this Section
6 to be reasonable, if a final judicial determination is made by a court
having jurisdiction that the time or territory or any other restriction
contained this Section 6 is an unreasonable or an otherwise unenforceable
restriction, it is the intention of the parties that the provisions of this
Section 6 shall not be rendered void, but such court shall reduce the
duration, area or activity covered by such provision and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
6.4 INJUNCTIVE RELIEF.
The covenants set forth in this Section 6 shall be enforceable by a
court of equity through the granting of a temporary restraining order,
preliminary injunction and/or permanent injunction. In the event of a breach
of Section 6 of this Agreement, the Consultant consents to the entry of an
injunction, and the Consultant shall pay any reasonable fees and expenses
incurred by the Company in enforcing such Sections. Such equitable
enforcement shall be in addition to and shall not prejudice the right of the
Company to an appropriate monetary award.
7. TERMINATION. Termination of this Agreement shall occur as provided
by Section 2 hereof. Any intended termination of this Agreement by the
Company shall be communicated by a Notice of Termination from the Company to
the Consultant, and any intended termination of this Agreement by the
Consultant shall be communicated by a Notice of Termination from the
Consultant to the Company. Any termination for "Cause" shall be subject to
the terms contained in Section 16.4 of the Retention Agreement.
8. EFFECT OF TERMINATION. In the event the Consulting Services are
terminated for any reason whatsoever, the Company shall pay to the Consultant
the compensation and related fees and expenses otherwise payable to him under
this Agreement pro rata through the last day of his actual rendering of
Consulting Services to the Company.
9. MISCELLANEOUS.
9.1 MODIFICATION; WAIVER; NO REPRESENTATIONS. No provision of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the Consultant
and the Company. No waiver by any party hereto at any time of any breach by
any other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by any
party which are not expressly set forth in this Agreement.
9.2 SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company and its Successors and
Assigns (as defined in the Retention Agreement). The Company shall require
its Successors and Assigns, by agreement in form and substance reasonably
satisfactory to the Consultant, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
9.3 ASSIGNMENT. Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Consultant, his
beneficiaries or legal representatives, except by will or by the laws of
descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Consultant's legal personal representative.
9.4 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained in a
court of competent jurisdiction in New York County in the State of New York.
9.5. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
9.6 ENTIRE AGREEMENT. This Agreement, the Retention Agreement, and
the Employment Agreement (as defined in the Retention Agreement) as amended,
supplemented, or modified, from time to time, constitute the entire agreement
between the parties hereto, and supersede all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto,
with respect to the subject matter hereof.
9.7 NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including any notice of
termination) shall be in writing, shall be signed by the Consultant if to the
Company or by a duly authorized officer of the Company if to the Consultant,
and shall be deemed to have been duly given when personally delivered or sent
by certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to the other, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof (whichever is earlier), except that
notice of change of address shall be effective only upon receipt.
9.8 HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
9.9 FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right
which the Company may have against the Consultant or others.
9.10 INDEPENDENT CONTRACTOR STATUS. The parties hereto acknowledge
that the Consultant is at all times acting and performing as an independent
contractor and shall not be considered as an employee of the Company for any
purpose whatsoever. Except for the benefits provided under this Agreement,
the Consultant shall not be entitled to any benefits afforded by the Company
to its employees. Except as expressly authorized by the Company in writing,
the Consultant shall not have any authority, and shall not represent to any
third party that the Consultant has the authority, to bind or commit the
Company with respect to any matter.
9.11 SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions contained in Section 6 of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of Section 6 of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
9.12. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall for all purposes be deemed an original, and all of which
shall constitute the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Consultant has executed this Agreement
as of the day and year first above written.
NINE WEST GROUP INC.
By: /s/ Joel K. Bedol
-------------------------------
Name: Joel K. Bedol
Title: Executive Vice President
/s/ Vincent Camuto
-----------------------------------
VINCENT CAMUTO
VINCENT CAMUTO
RETENTION AGREEMENT
THIS AGREEMENT made as of the 15th day of December, 1998, by and between
Nine West Group Inc. (the "Company") and Vincent Camuto (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change of Control (as defined herein) exists and
that the threat or the occurrence of a Change of Control can result in
significant distraction of the Company's key management personnel because of
the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders, for the Company to retain the
services of the Executive in the event of a threat or occurrence of a Change
of Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change
of Control, the Company desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits in the event his
employment is terminated as a result of, or in connection with, a Change of
Control.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of December
15, 1998, and shall continue in effect until December 31, 2001 (the "Term");
PROVIDED, HOWEVER, that if the Company gives written notice to the Executive
on or before January 1, 2000, and on or before each January 1 thereafter, that
it wishes to extend the Term for one (1) year beyond the date on which it
would otherwise expire, the Term shall be so extended; PROVIDED, FURTHER,
HOWEVER, that following the occurrence of a Change of Control, the Term shall
not expire prior to the expiration of thirty-six (36) months after such
occurrence.
2. TERMINATION OF EMPLOYMENT. If, during the Term, the Executive's
employment with the Company shall be terminated on a date that falls within
the thirty-six (36) month period following a Change of Control, the Executive
shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (1) by the Company for Cause (as defined herein) or Disability (as
defined herein), (2) by reason of his death, or (3) by the Executive other
than for Good Reason (as defined herein) (other than during the 30-day period
following the first anniversary of a Change of Control), the Company shall pay
to the Executive his Accrued Compensation (as defined herein).
(b) If the Executive's employment with the Company shall be
terminated (1) for any reason other than as specified in Section 2(a), or (2)
by the Executive for any reason during the 30-day period following the first
anniversary of a Change of Control, the Executive shall be entitled to the
following:
(1) the Company shall pay the Executive all Accrued
Compensation and a Pro Rata Bonus (as defined herein);
(2) the Company shall pay the Executive as severance pay
and in lieu of any further compensation for periods subsequent to the
Termination Date (as defined herein), an amount equal to three (3) times his
Base Amount (as defined herein);
(3) For the remainder of his lifetime following the
Executive's Termination Date (the "Continuation Period"), the Company shall
continue on behalf of the Executive and his dependents and beneficiaries the
life insurance, disability, medical, dental, prescription drug and
hospitalization coverages and benefits provided to the Executive immediately
prior to the Change of Control or, if greater, the coverages and benefits
provided at any time thereafter. The coverages and benefits (including
deductibles and costs to the Executive) provided in this Section 2(b)(3)
during the Continuation Period shall be no less favorable to the Executive and
his dependents and beneficiaries than the most favorable of such coverages and
benefits referred to above. The Company's obligation hereunder with respect
to the foregoing coverages and benefits shall be reduced to the extent that
the Executive obtains any such coverages and benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce any of the
coverages or benefits it is required to provide the Executive hereunder so
long as the aggregate coverages and benefits (including deductibles and costs
to the Executive) of the combined benefit plans is no less favorable to the
Executive than the coverages and benefits required to be provided hereunder.
This Section 2(b)(3) shall not be interpreted so as to limit any benefits to
which the Executive, his dependents or beneficiaries may be entitled under any
of the Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including but not limited to retiree
medical and life insurance benefits;
(4) the Company shall pay in a single payment an amount in
cash equal to the excess of (A) the Supplemental Retirement Benefit (as
defined herein) had (w) the Executive remained employed by the Company for an
additional three (3) complete years of credited service under each
supplemental and other retirement plan in which the Executive was a
participant on the Termination Date (or until his 65th birthday, if earlier),
(x) his annual compensation during such period been equal to his Base Amount,
(y) the Company made employer contributions to each defined contribution plan
in which the Executive was a participant on the Termination Date (in an amount
equal to the amount of such contribution for the plan year ending immediately
preceding the Termination Date) and (z) the Executive become fully (100%)
vested in his benefit under each supplemental and other retirement plan in
which the Executive was a participant on the Termination Date, over (B) the
lump sum actuarial equivalent of the aggregate retirement benefit the
Executive is actually entitled to receive under such supplemental and other
retirement plans. For purposes of this Section 2(b)(4), "Supplemental
Retirement Benefit" shall mean the lump sum actuarial equivalent of the
aggregate retirement benefit the Executive would have been entitled to receive
under the Company's supplemental and other retirement plans including but not
limited to The Pension Plan for Associates of Nine West Group Inc. (the
"Pension Plan"). For purposes of this Section 2(b)(4), the "actuarial
equivalent" shall be determined in accordance with the actuarial assumptions
used for the calculation of benefits under the Pension Plan as applied prior
to the Termination Date in accordance with the Pension Plan's past practices;
(5) the Company shall pay the Executive a lump sum in cash
equal to the present value (determined using a discount rate equal to one
hundred twenty percent (120%) of the applicable mid-term Federal rate
determined pursuant to Section 1274(d) of the Code (as defined herein),
compounded semiannually) of thirty-six (36) monthly payments, each of which
payments is equal to the monthly automobile allowance payable by the Company
in respect of the Executive immediately prior to the Termination Date; and
(6) for thirty-six (36) months following the Executive's
Termination Date, the Company shall continue to pay the Company portion of
premiums under the split-dollar life insurance policy maintained in respect of
the Executive.
(c) The amounts provided for in Sections 2(a) and 2(b)(1), (2),
(4) and (5) shall be paid in a single lump sum cash payment within ten (10)
days after the Executive's Termination Date (or earlier, if required by
applicable law).
(d) Upon the occurrence of a Change of Control, all options held
by the Executive on the date of the Change of Control shall vest and become
immediately exercisable and all restrictions on shares of restricted stock
shall lapse; provided, however, such accelerated vesting and/or lapse of
restrictions shall not be applicable if its implementation would preclude the
application of pooling-of-interests accounting treatment to a transaction for
which such treatment is to be adopted by the Company and which has been
approved by the Board of Directors, and the holders of options and restricted
stock shall not be entitled to any accelerated vesting in such event.
(e) The severance pay and benefits provided for in this Section
2 shall be in lieu of any other severance pay to which the Executive may be
entitled under any severance or employment agreement with the Company,
PROVIDED HOWEVER, that the Executive shall receive compensation or benefits
other than as provided herein to the extent that the Executive is entitled to
receive such compensation or other benefits at the time of his termination, as
determined in accordance with the employee benefit plans of the Company and
other applicable agreements, programs and practices as in effect from time to
time, including but not limited to the Consulting Agreement, dated as of even
date herewith, between the Executive and the Company (the "Consulting
Agreement"), a copy of which is attached as EXHIBIT A hereto.
(f) If the Executive's employment is terminated by the Company
without Cause prior to the date of a Change of Control but the Executive
reasonably demonstrates that such termination (1) was at the request of a
third party who has indicated an intention or taken steps reasonably
calculated to effect a Change of Control (a "Third Party") and who effectuates
a Change of Control or (2) otherwise arose in connection with, or in
anticipation of, a Change of Control which has been threatened or proposed and
which actually occurs, such termination shall be deemed to have occurred after
a Change of Control, it being agreed that any such action taken following
shareholder approval of a transaction which if consummated would constitute a
Change of Control, shall be deemed to be in anticipation of a Change of
Control provided such transaction is actually consummated.
3. EFFECT OF SECTION 280G OF THE INTERNAL REVENUE CODE.
(a) Notwithstanding any other provision of this Agreement to the
contrary, and except as provided in Section 3(b), to the extent that any
payment or distribution of any type to or for the benefit of the Executive by
the Company, any Person who acquires ownership or effective control of the
Company or ownership of a substantial portion of the Company's assets (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder), or any Affiliate of such
Person, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (the "Total Payments"), is or will be
subject to the excise tax imposed under Section 4999 of the Code (the "Excise
Tax"), then the Total Payments shall be reduced (but not less than zero) if
and to the extent that a reduction in the Total Payments would result in the
Executive retaining a larger amount, on an after-tax basis (taking into
account federal, state and local income taxes and the Excise Tax), than if the
Executive received the entire amount of such Total Payments. Unless the
Executive shall have given prior written notice specifying a different order
to the Company to effectuate the foregoing, the Company shall reduce or
eliminate the Total Payments, by first reducing or eliminating the portion of
the Total Payments which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with
payments or benefits which are to be paid the farthest in time from the
Determination (as defined herein). Any notice given by the Executive pursuant
to the preceding sentence shall take precedence over the provisions of any
other plan, arrangement or agreement governing the Executive's rights and
entitlements to any benefits or compensation.
(b) If the reduction of the Payments as provided in Section 3(a)
would exceed $200,000, Section 3(a) shall not apply and the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including any Excise Tax,
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.
(c) The determination of whether the Payments shall be reduced
pursuant to this Section 3 and the amount of such reduction, and the
determination of whether a Gross-Up Payment is payable, shall be made at the
Company's expense, by an accounting firm selected by the Company which is one
of the five (5) largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that
any of the Payments may be subject to the Excise Tax), and if the Accounting
Firm determines that no Excise Tax is payable by the Executive with respect to
the Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payments. The Determination shall be binding, final and conclusive
upon the Company and the Executive.
(d) If a Gross-Up Payment is determined to be payable, it shall
be paid to the Executive within twenty (20) days after the Determination (and
all accompanying calculations and other material supporting the Determination)
is delivered to the Company by the Accounting Firm. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive, absent
manifest error. As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments not made by the Company
should have been made ("Underpayment"), or that Gross-Up Payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment (including any applicable
interest and penalties) shall be promptly paid by the Company to or for the
benefit of the Executive. In the case of an Overpayment, the Executive shall,
at the direction and expense of the Company, take such steps as are reasonably
necessary (including the filing of returns and claims for refund), follow
reasonable instructions from, and procedures established by, the Company, and
otherwise reasonably cooperate with the Company to correct such Overpayment,
PROVIDED, HOWEVER, that (i) the Executive shall not in any event be obligated
to return to the Company an amount greater than the net after-tax portion of
the Overpayment that he has retained or has recovered as a refund from the
applicable taxing authorities and (ii) if a Gross-Up Payment is determined to
be payable, this provision shall be interpreted in a manner consistent with an
intent to make the Executive whole, on an after-tax basis, from the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Executive repaying to the Company an amount
which is less than the Overpayment. The cost of all such determinations made
pursuant to this Section 3 shall be paid by the Company.
4. NOTICE OF TERMINATION. Following a Change of Control, any
intended termination of the Executive's employment by the Company shall be
communicated by a Notice of Termination from the Company to the Executive, and
any intended termination of his employment by the Executive for Good Reason
shall be communicated by a Notice of Termination from the Executive to the
Company.
5. FEES AND EXPENSES. The Company shall pay, as incurred, all legal
fees and related expenses (including the costs of experts, evidence and
counsel) that the Executive may incur following a Change of Control as a
result of or in connection with (a) the Executive's contesting, defending or
disputing the basis for the termination of his employment, (b) the Executive's
hearing before the Board of Directors of the Company as contemplated in
Section 15.5 of this Agreement or (c) the Executive seeking to obtain or
enforce any right or benefit provided by this Agreement or by any other plan
or arrangement maintained by the Company under which the Executive is or may
be entitled to receive benefits; PROVIDED, HOWEVER, that the Company shall not
be required to pay the Executive's legal fees and related expenses if it is
finally determined by the final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been taken) that the Executive's claims are frivolous.
6. COVENANTS OF THE EXECUTIVE.
6.1. NON-COMPETITION AND NON-SOLICITATION.
The Executive acknowledges and recognizes (i) the highly
competitive nature of the business of the Company, (ii) the importance to the
Company of the Confidential Business Information and Trade Secrets (as defined
herein) to which the Executive will have access, (iii) the importance to the
Company of the knowledge and experience possessed by it relating to sources of
supply of footwear and accessories in Brazil, China, Europe, Hong Kong,
Taiwan, Korea, Mexico and the United States, and its relationships with such
sources of supply, developed by it or its predecessors over many years, and
(iv) the position of responsibility which the Executive will hold with the
Company. Accordingly, the Executive agrees that during the Non-Compete Period
(as defined herein), the Executive will not, directly or indirectly, (x)
engage in the business activities engaged in by the Company on the date hereof
and during the Executive's employment, such business activities being
manufacturing, selling, producing, marketing, distributing, designing, line
building and otherwise dealing in footwear and accessories, of the types in
which the Company does business as of the date of such cessation of
employment, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea,
Mexico or the United States, in any State of the United States in which the
Company is then doing business, the District of Columbia, and any other
country in which the Company is then doing business, whether such other
engagement is as an officer, director, employee, proprietor, consultant,
independent contractor, partner, advisor, agent or investor (other than as a
passive investor in less than 5% of the outstanding capital stock of a
publicly traded corporation); (y) assist other persons or businesses in
engaging in any business activities prohibited under clause (x); or (z) induce
any employees of the Company to engage in any such activities or to terminate
their employment or hire or attempt to hire any employees of the Company.
6.2. APPLICATION AND PERIOD.
(a) APPLICATION. Section 6.1 shall apply following a
Change of Control if (i) the Company terminates the Executive's employment for
Cause, (ii) the Executive voluntarily terminates his employment for any
reason, including for Good Reason (as defined herein), or (iii) the employment
of the Executive is terminated and such termination results in payments to the
Executive under Section 2(b) hereof.
(b) PERIOD. The "Non-Compete Period" shall mean a period
of two (2) years following the termination of the Executive's employment with
the Company after a Change of Control.
6.3. NON-PUBLICATION.
During the Non-Compete Period, the Executive shall not publish any
statement or make any statement (under circumstances reasonably likely to
become public) critical of the Company or in any way adversely affecting or
otherwise maligning the reputation of the Company, customers, suppliers,
agents or subcontractors. In particular and without limitation of the
foregoing, the Executive shall not, in any circumstance likely to become
public, discourage any person, firm, partnership, corporation, trust or any
other entity or third party from selling any business or assets to the
Company, entering into any joint venture or other business relationship with
the Company, or investing in the Company. Any statements made by the
Executive in connection with legal, administrative or arbitration proceedings,
or that are required to be made by the Executive pursuant to applicable law,
shall not be prohibited by this Section 6.3.
6.4. CONFIDENTIALITY.
(a) The Executive acknowledges that the Company is engaged in
the highly competitive business of designing, developing, manufacturing,
marketing and selling footwear and accessories. The Company's involvement in
this business has required and continues to require the expenditure of
substantial amounts of money and the use of skills developed over considerable
time. As a result of these investments of money, skill and time, the Company
has developed and will continue to develop certain valuable trade secrets and
confidential business information that are peculiar to the Company's business
and the disclosure of which would cause the Company great and irreparable
harm. The Executive acknowledges that, during the course of his employment by
the Company, he will receive and/or have access to "Trade Secrets" and/or
"Confidential Business Information" (as defined herein), and that, had the
Executive not had the opportunity to work at the Company, he would not have
become privy to such information.
(b) The term "Trade Secrets" means any technical or financial
information, design, process, procedure, formula or improvement that is
valuable and not generally known to the Company's competitors. To the fullest
extent consistent with the foregoing, Trade Secrets shall include, without
limitation, all information and documentation, whether or not subject to
copyright, pertaining to product developments, methods of operation, cost and
pricing structures, and other private, confidential business matters.
(c) The term "Confidential Business Information" means any data
or information and documentation, other than Trade Secrets, which is valuable
to the Company and not generally known to the public, including but not
limited to:
i. Financial information, including but not limited to
earnings, assets, debts, prices, cost information, sales and
profit projections or other financial data;
ii. Marketing information, including but not limited to
details about ongoing or proposed marketing programs or
agreements by or on behalf of the Company, marketing forecasts,
results of marketing efforts or information about impending
transactions;
iii. Product information, including but not limited to
development plans, designs, and product costs; and
iv. Product source and customer information, including but
not limited to any data regarding actual or potential supply
sources, agency agreements or arrangements and actual or
potential customers.
(d) The Executive agrees that, except as required to fulfill his
obligations during the course of his employment, he will not, during his
employment with the Company or after such employment has ceased, directly or
indirectly use, disclose or disseminate to any other person, organization or
entity or otherwise employ any Trade Secrets or Confidential Business
Information. Nothing in this paragraph shall preclude the Executive from
disclosing or using Trade Secrets or Confidential Business Information if (i)
the Trade Secrets or Confidential Business Information have become generally
known, at the time the Trade Secrets or Confidential Business Information are
used or disclosed, to the public or to competitors of the Company except
through or as a result of the Executive's act or omission; or (ii) the
disclosure of the Trade Secrets or Confidential Business Information is
required to be made by any law, regulation, governmental body or authority, or
court order, provided that the Executive will give the Company prompt written
notice of such requirement so that the Company may seek an appropriate
protective order or similar remedy. The Executive agrees to deliver to the
Company all computer files and tapes, books, records and documents (whether
maintained in paper, electronic or any other medium) relating to or bearing
upon any Trade Secrets or Confidential Business Information, upon the
cessation of his employment, and the Executive agrees not to retain any copies
or extracts thereof.
(e) It is expressly understood and agreed that, although the
Executive and the Company consider the restrictions contained in this Section
6 to be reasonable, if a final judicial determination is made by a court
having jurisdiction that the time or territory or any other restriction
contained this Section 6 is an unreasonable or an otherwise unenforceable
restriction, it is the intention of the parties that the provisions of this
Section 6 shall not be rendered void, but such court shall reduce the
duration, area or activity covered by such provision and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
Notwithstanding the foregoing, the Executive shall be entitled to retain such
records as may be reasonably necessary for personal tax or legal compliance or
planning.
6.5. INJUNCTIVE RELIEF.
The covenants set forth in this Section 6 are independent and
shall be enforceable by a court of equity through the granting of a temporary
restraining order, preliminary injunction and/or permanent injunction. In the
event of a breach of Section 6 of this Agreement, the Executive consents to
the entry of an injunction, and the Executive shall pay any reasonable fees
and expenses incurred by the Company in enforcing such Sections. Such
equitable enforcement shall be in addition to and shall not prejudice the
right of the Company to an appropriate monetary award.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Company or by a duly authorized officer of the Company if to the Executive,
and shall be deemed to have been duly given when personally delivered or sent
by certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to the other, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof (whichever is earlier), except that
notice of change of address shall be effective only upon receipt.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company and
for which the Executive may qualify, nor shall anything herein limit or reduce
such rights as the Executive may have under any other agreements with the
Company, except as explicitly provided herein. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan or program of the Company shall be payable in accordance with such plan
or program, except as explicitly modified by this Agreement.
9. (a) FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including
but not limited to any set-off, counterclaim, defense, recoupment, or other
claim, right or action which the Company may have against the Executive or
others.
(b) NO MITIGATION. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced
by the amount of any compensation or benefits provided to the Executive in any
subsequent employment except as provided in Section 2(b)(3).
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
expressly set forth in this Agreement.
11. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company and its Successors and Assigns. The Company shall
require its Successors and Assigns, by agreement in form and substance
reasonably satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment
had taken place.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal personal representative.
12. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the conflict of laws principles thereof. Any action brought
by any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in New York County in the State of New York.
13. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
14. ENTIRE AGREEMENT. This Agreement and the Consulting Agreement
constitute the entire agreement between the parties hereto, and supersede all
prior agreements, if any, understandings and arrangements, oral or written,
between the parties hereto, with respect to the subject matter hereof;
PROVIDED, HOWEVER, that the employment agreement between the Company and the
Executive, dated as of May 8, 1992, as amended on December 30, 1992 (the
"Employment Agreement") shall apply, except with respect to Sections 2(e) and
6 of this Agreement, which shall supersede the Employment Agreement.
15. DEFINITIONS.
15.1. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean all amounts of compensation for services
rendered to the Company that have been earned or accrued through the
Termination Date but that have not been paid as of the Termination Date
including, without limitation (a) base salary, (b) reimbursement for
reasonable and necessary business expenses incurred by the Executive on behalf
of the Company during the period ending on the Termination Date and (c)
vacation pay.
15.2. AFFILIATE. For purposes of this Agreement, "Affiliate"
means, with respect to any Person, any other Person directly or indirectly
controlled by, controlling or under common control with such Person.
15.3. BASE AMOUNT. For purposes of this Agreement, "Base
Amount" shall mean annual base salary at the rate in effect as of the date of
a Change of Control or, if greater, at any time thereafter, determined without
regard to any salary reduction or deferred compensation elections made by the
Executive.
15.4. CAUSE. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive
(a) has been convicted of a felony (including a plea of
nolo contendere), the time for appeal of which has elapsed;
(b) intentionally and continually failed substantially to
perform the Executive's reasonably assigned duties with the Company (other
than a failure resulting from his incapacity due to physical or mental illness
or from the assignment to the Executive of duties that would constitute Good
Reason) which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance, signed by a duly
authorized officer of the Company, has been delivered to the Executive
specifying the manner in which the Executive has failed substantially to
perform; or
(c) intentionally engaged in illegal conduct or willful
misconduct which is demonstrably and materially injurious to the Company.
For purposes of this Agreement, no act, nor failure to act, on his part, shall
be considered "intentional" unless the Executive has acted, or failed to act,
with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Company.
Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Company's
Chairman of the Board, Chief Executive Officer or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The termination of
employment of the Executive shall not be deemed to be for Cause pursuant to
subparagraph (b) or (c) above unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three-fourths of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described
in subparagraph (b) or (c) above, and specifying the particulars thereof in
detail. Notwithstanding anything contained in this Agreement to the contrary,
no failure to perform by the Executive after a Notice of Termination is given
to the Company by the Executive shall constitute Cause for purposes of this
Agreement.
15.5. CHANGE OF CONTROL. A "Change of Control" shall mean the
occurrence during the term of the Agreement of:
(a) An acquisition (other than directly from Nine West
Group Inc.) of any common stock of Nine West Group Inc. ("Common Stock") or
other voting securities of Nine West Group Inc. entitled to vote generally for
the election of directors (the "Voting Securities") by any "Person" (as the
term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), immediately after
which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent (30%) or more of the
then outstanding shares of Common Stock or the combined voting power of Nine
West Group Inc.'s then outstanding Voting Securities; PROVIDED, HOWEVER, in
determining whether a Change of Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as defined herein) shall not
constitute an acquisition which would cause a Change of Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) Nine West Group
Inc. or (B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by Nine West Group Inc. (a "Subsidiary"), (ii) Nine West Group
Inc. or its Subsidiaries, or (iii) any Person in connection with a Non-Control
Transaction (as defined herein);
(b) The individuals who, as of December 15, 1998, are
members of the Board of Nine West Group Inc. (the "Incumbent Board") cease for
any reason to constitute at least a majority of the members of the Board;
PROVIDED, HOWEVER, that if the election, or nomination for election by Nine
West Group Inc.'s shareholders, of any new director was approved by a vote of
at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent Board;
PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(1) A merger, consolidation, reorganization or other
business combination with or into Nine West Group Inc. or in
which securities of Nine West Group Inc. are issued, unless
such merger, consolidation, reorganization or other business
combination is a "Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger, consolidation,
reorganization or other business combination with or into Nine
West Group Inc. or in which securities of Nine West Group Inc.
are issued where:
(A) the shareholders of Nine West Group Inc.,
immediately before such merger, consolidation,
reorganization or other business combination own directly
or indirectly immediately following such merger,
consolidation, reorganization or other business
combination, at least sixty percent (60%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation,
reorganization or other business combination (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before such merger, consolidation,
reorganization, or other business combination,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation,
reorganization or other business combination constitute
at least two-thirds (2/3) of the members of the board of
directors of the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a majority of
the combined voting power of the outstanding voting
securities of the Surviving Corporation, and
(C) no Person other than (i) Nine West Group
Inc., (ii) any Subsidiary, (iii) any employee benefit
plan (or any trust forming a part thereof) that,
immediately prior to such merger, consolidation,
reorganization or other business combination was
maintained by Nine West Group Inc., the Surviving
Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation,
reorganization or other business combination had
Beneficial Ownership of thirty percent (30%) or more
of the then outstanding Voting Securities or common stock
of Nine West Group Inc., has Beneficial Ownership of
thirty percent (30%) or more of the combined voting power
of the Surviving Corporation's then outstanding voting
securities or its common stock.
(2) A complete liquidation or dissolution of Nine West
Group Inc.; or
(3) The sale or other disposition of all or
substantially all of the assets of Nine West Group Inc. to any
Person (other than (i) any such sale or disposition that
results in at least fifty percent (50%) of Nine West Group
Inc.'s assets being owned by a subsidiary or subsidiaries or
(ii) a distribution to Nine West Group Inc.'s stockholders of
the stock of a subsidiary or any other assets).
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding common
stock or Voting Securities as a result of the acquisition of Common Stock or
Voting Securities by Nine West Group Inc. which, by reducing the number of
shares of Common Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change of Control would occur (but for the operation of
this sentence) as a result of the acquisition of shares of Common Stock or
Voting Securities by Nine West Group Inc., and after such share acquisition by
Nine West Group Inc., the Subject Person becomes the Beneficial Owner of any
additional shares of Common Stock or Voting Securities which increase the
percentage of the then outstanding shares of Common Stock or Voting Securities
Beneficially Owned by the Subject Person, then a Change of Control shall
occur.
15.6. COMPANY. For purposes of this Agreement, all references
to the Company shall be deemed to include the Company and any Affiliate of the
Company, and any respective Successors and Assigns.
15.7. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs his ability to
substantially perform his duties with the Company for six (6) consecutive
months and, within the time period set forth in a Notice of Termination given
to the Executive (which time period shall not be less than thirty (30) days),
the Executive shall not have returned to full-time performance of his duties;
PROVIDED, HOWEVER, that if the Company's Long Term Disability Plan, or any
successor plan (the "Disability Plan"), is then in effect, the Executive shall
not be deemed disabled for purposes of this Agreement unless the Executive is
also eligible for long-term disability benefits under the Disability Plan (or
similar benefits in the event of a successor plan).
15.8. GOOD REASON. (a) For purposes of this Agreement, "Good
Reason" shall mean the occurrence after a Change of Control of any of the
following events or conditions:
(1) a change in the Executive's responsibilities or
job description (including reporting responsibilities) that represents a
material adverse change from the Executive's responsibilities or job
description as in effect immediately prior thereto;
(2) a reduction in the Executive's annual base salary
below the Base Amount;
(3) the relocation of the offices of the Company at
which the Executive is principally employed to a location more than fifty (50)
miles from Columbus Circle in New York City, except for required travel on the
business of the Company to an extent substantially consistent with his
business travel obligations at the time of the Change of Control;
(5) the failure by the Company to pay to the Executive
any portion of his current compensation or to pay to the Executive any portion
of an installment of deferred compensation under any deferred compensation
program of the Company in which the Executive participated, within seven (7)
days of the date such compensation is due;
(6) the failure by the Company to (A) continue in
effect (without reduction in benefit level and/or reward opportunities which
with respect to the Incentive Plan shall include a reduction in the potential
bonus entitlement for comparable corporate performance by the Company and its
subsidiaries) any material compensation or employee benefit plan in which the
Executive was participating immediately prior to the Change of Control unless
a substitute or replacement plan has been implemented which provides
substantially identical compensation or benefits to the Executive or (B)
provide the Executive with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other compensation, employee benefit or fringe benefit
plan, program or practice in which the Executive was participating immediately
prior to the Change of Control;
(7) the failure of the Company to obtain from its
Successors or Assigns the express assumption and agreement required under
Section 11(a) hereof; or
(8) any purported termination of his employment by the
Company which is not effected pursuant to a Notice of Termination satisfying
the terms set forth in the definition of Notice of Termination (and, if
applicable, the terms set forth in the definition of Cause).
(b) Any event or condition described in Section 15.8(a)(1)
through (8) which occurs prior to a Change of Control but which the Executive
reasonably demonstrates (1) was at the request of a Third Party who
effectuates a Change of Control or (2) otherwise arose in connection with, or
in anticipation of a Change of Control which has been threatened or proposed
and which actually occurs, shall constitute Good Reason for purposes of this
Agreement notwithstanding that it occurred prior to a Change of Control, it
being agreed that any such action taken following shareholder approval of a
transaction which if consummated would constitute a Change of Control, shall
be deemed to be in anticipation of a Change of Control provided such
transaction is actually consummated.
15.9. INCENTIVE PLAN. For purposes of this Agreement,
"Incentive Plan" shall mean the Company's First Amended and Restated Bonus
Plan or any successor annual incentive plan, maintained by the Company.
15.10. NOTICE OF TERMINATION. For purposes of this Agreement,
following a Change of Control, "Notice of Termination" shall mean a written
notice of termination of the Executive's employment, signed by the Executive
if to the Company or by a duly authorized officer of the Company if to the
Executive, which indicates the specific termination provision in this
Agreement, if any, relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of his
employment under the provision so indicated. The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason, Disability or Cause shall not
serve to waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
15.11. PRO RATA BONUS. For purposes of this Agreement, "Pro
Rata Bonus" shall mean an amount equal to fifty percent (50%) of the Base
Amount multiplied by a fraction the numerator of which is the number of days
in the fiscal year in which the Executive's Termination Date occurs that have
elapsed through the Termination Date and the denominator of which is 365.
15.12. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean, with respect to the Company, a
corporation or other entity acquiring all or substantially all the assets and
business of the Company, as the case may be whether by operation of law or
otherwise.
15.13. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his
date of death, (b) if his employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
such thirty (30) day period) and (c) if his employment is terminated for any
other reason, the date specified in the Notice of Termination (which, in the
case of a termination for Cause shall not be less than thirty (30) days, and
in the case of a termination for Good Reason shall not be more than sixty (60)
days, from the date such Notice of Termination is given); PROVIDED, HOWEVER,
that if within thirty (30) days after any Notice of Termination is given the
party receiving such Notice of Termination in good faith notifies the other
party that a dispute exists concerning the basis for the termination, the
Termination Date shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, or by the final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been taken). Notwithstanding
the pendency of any such dispute, the Company shall continue to pay the
Executive his Base Amount and continue the Executive as a participant (at or
above the level provided prior to the date of such dispute) in all
compensation, incentive, bonus, pension, profit sharing, medical,
hospitalization, prescription drug, dental, life insurance and disability
benefit plans in which he was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved (whether or not the
dispute is resolved in favor of the Company); PROVIDED FURTHER, that if the
dispute results in the payment by the Company to the Executive of the amounts
contemplated under Section 2(b) hereof, the amount of such payments shall be
reduced by any Base Amount paid to the Executive during the pendency of the
dispute. Except as provided in the last proviso of the preceding sentence,
notwithstanding the outcome of any dispute, the Executive shall not be
obligated to repay to the Company or an Employing Affiliate any amounts paid
or benefits provided pursuant to this sentence. The Executive's rights to
receive payments under Section 2 of this Agreement shall survive the
expiration of the Term during any dispute contemplated by this Section.
16. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall for all purposes be deemed an original, and all of which
shall constitute the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officers and the Executive has executed this
Agreement as of the day and year first above written.
NINE WEST GROUP INC.
/s/ Joel K. Bedol
------------------------------
By: Joel K. Bedol
Its: Executive Vice President
VINCENT CAMUTO
/s/ Vincent Camuto
------------------------------
ATTEST
/s/ Mary Rice
- -------------------------
By: Mary Rice
ROBERT C. GALVIN
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 15th day of December, 1998, by and between
Nine West Group Inc. (the "Company") and Robert C. Galvin (the "Executive").
WHEREAS, the Executive has been employed by the Company as its Executive
Vice President, Chief Financial Officer and Treasurer pursuant to an
employment agreement dated as of October 19, 1998 (the "Prior Agreement");
WHEREAS, the Company desires to provide for the continued employment of
the Executive on terms competitive with those of other corporations, and the
Executive is willing to rededicate himself and continue to serve the Company;
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change of Control (as defined herein) exists and
that the threat or the occurrence of a Change of Control can result in
significant distraction of the Company's key management personnel because of
the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders for the Company to retain the
services of the Executive in the event of a threat or occurrence of a Change
of Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change
of Control, the Company desires to enter into this Agreement with the
Executive.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM.
The Company shall employ the Executive for a period commencing as of
December 15, 1998 and ending as of December 31, 2003, as renewed in accordance
with the following sentence (the "Employment Period"). Thereafter, the
Executive's employment with the Company will continue, and this Agreement will
be automatically renewed, for successive two (2)-year terms, unless either
party to this Agreement advises the other in writing, at least 180 days prior
to the expiration of the initial Employment Period or any renewal term, that
such party does not wish to renew. The Executive's employment may be
terminated by the Company prior to the expiration of the Employment Period
only for Cause (as defined herein) or by reason of the Executive's Disability
(as defined herein), in which event no further payments shall be made to the
Executive following such termination except amounts due and owing as of such
date, and except as otherwise provided in Section 10.2 (a) of this Agreement
in the event of Disability. The Executive's employment under this Agreement
and his rights to compensation hereunder shall be deemed to cease as of the
date of the Executive's death, except amounts due and owing as of such date
and except as otherwise provided in Section 10.2 (a) of this Agreement. In
the event the Executive's employment with the Company terminates prior to a
Change of Control (as defined herein) either because his employment is
terminated by the Company without Cause (as defined herein) or the Executive
terminates his employment with the Company for Good Reason (as defined herein,
except without regard, for purposes of this Section 1, to the fact that
termination occurred prior to a Change of Control), the Executive shall be
entitled to the sum of (A) all Accrued Compensation and a Pro Rata Bonus (as
defined herein) and (B) two times the Executive's Base Amount (as defined
herein, except with annual base salary being determined at the time of the
termination of employment rather than with respect to a Change of Control) and
two times the Executive's target bonus of 75% as contemplated in Section 3 (b)
of this Agreement and shall also be entitled to the benefits referred to in
Section 10.2 (b)(3), (4), (5) and (6) (without regard to the fact that no
Change of Control has occurred) on the following basis: the benefits referred
to in such sections shall continue as though, or be calculated as though, as
the case may be, the period referred to in each such section was twenty four
(24) months rather than thirty six (36) months (or, in the case of Section
10.2 (b)(4), with reference to two (2) complete years of credited service
rather than three (3) complete years of credited service.
2. DUTIES.
(a) The Executive shall render services to the Company on a
full-time basis as its Executive Vice President, Chief Financial Officer and
Treasurer. The Executive's services shall be rendered in accordance with such
rules and instructions as the Company shall establish from time to time.
(b) In the event that the Executive's duties, position or title
undergo changes in the course of his employment with the Company in ways not
expressly provided for in this Agreement, such changes shall not constitute a
rescission of this Agreement, or of any other terms hereof, and the Agreement
shall remain in full force and effect as to all terms not affected by such
changes; PROVIDED, HOWEVER, that any such new duties, position or title shall
be consistent with the Executive's current status and shall further be
consistent with Section 21.9(a)(1).
3. COMPENSATION.
(a) SALARY. The Executive's base salary will be $450,000 per
annum, with such salary increased annually, commencing on or about May 1,
1999, by an amount at least equal to five percent (5%) or, if greater, the
Cost-of-Living Factor multiplied by the Executive's then current salary. The
Cost-of-Living Factor shall be a fraction (i) the numerator of which will be
the Cost-of-Living Index at September 1 of the twelve (12)-month period
immediately preceding the term for which the salary adjustment is being
computed and (ii) the denominator of which will be the Cost-of-Living Index at
September 1 in the twelve (12)-month period immediately preceding such twelve
(12)-month period. The Cost-of-Living Index for purposes of this calculation
will be the Consumer Price Index for all Urban Consumers, New York - Northern
New Jersey - Long Island, NY-NJ-CT (1982-84 = 100), published by the Bureau of
Labor Statistics, or if such Index shall cease to be published, then the
Cost-of-Living Index shall be such fair equivalent index as the Company and
the Executive select.
(b) BONUS. The Executive shall be entitled to an annual bonus
in accordance with the Incentive Plan (as defined herein) with a target level
of 75%.
(c) CAR ALLOWANCE. The Executive shall receive a car allowance
of $15,000 per annum, payable in accordance with the Company's usual practice
for such an allowance.
(d) VACATION. The Executive shall receive four (4) weeks of
paid vacation each year during the term hereof. The Executive shall be paid
an amount in cash equal to the value of any vacation time remaining unused at
the end of a given year during the term of this Agreement.
4. BENEFITS AND EXPENSES.
(a) FRINGE BENEFITS. The Executive shall be eligible to
participate in such medical and dental programs and other fringe benefits as
the Company provides to other similarly situated employees.
(b) EXPENSES. The Company will pay or reimburse all reasonable
business expenses incurred by the Executive with respect to work performed by
the Executive outside or inside the United States on our behalf. The
Executive will promptly submit invoices or vouchers to us for all expenses
incurred by the Executive or paid with Company credit cards.
5. NON-COMPETITION PAYMENT.
(a) NONRENEWAL BY EMPLOYEE. If this Agreement expires pursuant
to Section 1 hereof because the Executive elects not to renew this Agreement
as of or, if applicable, as of the day immediately following the last day of
any renewal term, then, except as provided otherwise in this Section 5, in
consideration of the Executive's covenant not to compete set forth in Section
6 of this Agreement, the Company will pay the Executive a non-competition
payment equal to his then current annual salary plus the amount of bonus paid
to him with respect to the immediately preceding fiscal year (the
"Non-Competition Payment"). The Non-Competition Payment shall be payable in
twelve (12) equal monthly installments on the last day of each month beginning
with the month immediately following nonrenewal of this Agreement, and the
Executive shall not be required to seek or accept other employment while
receiving such payment; PROVIDED, HOWEVER, that the Company may, in connection
with such nonrenewal, elect at such time to release the Executive from the
covenant not to compete, and the Company will thereupon be relieved of the
obligation to make the Non-Competition Payment provided in this Section 5(a).
(b) NONRENEWAL BY THE COMPANY. If this Agreement expires
pursuant to Section 1 hereof because the Company elects not to renew this
Agreement or, if applicable, as of the day immediately following the last day
of any renewal term, then, except as provided otherwise in this Section 5, in
consideration of the Executive's covenant not to compete set forth in Section
6 of this Agreement, the Company will pay the Executive the Non-Competition
Payment. The Non-Competition Payment shall be payable in twelve (12) equal
monthly installments on the last day of each month beginning with the month
immediately following nonrenewal of this Agreement, and the Executive shall
not be required to seek or accept other employment while receiving such
payment; PROVIDED, HOWEVER, that the Executive may elect to be released from
the covenant not to compete, and if the Executive accepts employment with a
competitor (defined with reference to Section 6.1 of this Agreement) of the
Company at any time when Non-Competition Payments are being made under this
Section 5(b), the Company's obligation with respect to any further
Non-Competition Payments shall cease.
6. COVENANTS OF THE EXECUTIVE
6.1. NON-COMPETITION AND NON-SOLICITATION
The Executive acknowledges and recognizes (i) the highly competitive
nature of the business of the Company, (ii) the importance to the Company of
the Confidential Business Information and Trade Secrets (as defined herein) to
which the Executive will have access, (iii) the importance to the Company of
the knowledge and experience possessed by it relating to sources of supply of
footwear and accessories in Brazil, China, Europe, Hong Kong, Taiwan, Korea,
Mexico and the United States, and its relationships with such sources of
supply, developed by it or its predecessors over many years, and (iv) the
position of responsibility which the Executive will hold with the Company.
Accordingly, the Executive agrees that during the Non-Compete Period (as
defined herein), the Executive will not, directly or indirectly, (x) engage in
the business activities engaged in by the Company on the date hereof and
during the Executive's employment, such business activities being
manufacturing, selling, producing, marketing, distributing, designing, line
building and otherwise dealing in women's footwear and accessories, of the
types in which the Company does business as of the date of such cessation of
employment, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea,
Mexico or the United States, in any State of the United States in which the
Company is then doing business, the District of Columbia, and any other
country in which the Company is then doing business, whether such other
engagement is as an officer, director, employee, proprietor, consultant,
independent contractor, partner, advisor, agent or investor (other than as a
passive investor in less than 5% of the outstanding capital stock of a
publicly traded corporation); (y) assist other persons or businesses in
engaging in any business activities prohibited under clause (x); or (z) induce
any employees of the Company to engage in any such activities or to terminate
their employment or hire or attempt to hire any employees of the Company.
Notwithstanding anything in this Section 6.1 to the contrary, nothing shall
prohibit the Executive from engaging in the business activities otherwise
herein proscribed to the extent that the business activities are performed for
an organization that derives forty percent (40%) or less of its consolidated
gross revenues from the manufacture, sale, production, marketing or
distribution of women's footwear. In no event shall the non-competition
provisions of this Section 6.1 be deemed to apply to business activities
relating to accessories produced and sold by licensees of the Company under
prevailing license agreements with the Company unless the Company is itself
also producing such merchandise.
6.2. APPLICATION AND PERIOD.
(a) Before a Change of Control, and except as provided in Section 5
hereof, Section 6.1 shall apply ONLY if (i) the Company terminates the
Executive's employment for Cause or (ii) the Executive voluntarily terminates
his employment without Good Reason, as contemplated by Section 1 of this
Agreement.
(b) Following a Change of Control, Section 6.1 shall apply ONLY if
(i) the Company terminates the Executive's employment for Cause, (ii) the
Executive voluntarily terminates his employment without Good Reason (as
defined herein) or (iii) the employment of the Executive is terminated and
such termination results in payments to the Executive under Section 10.2(b)
hereof.
(c) The "Non-Compete Period" shall mean (i) the Employment Period
plus a one (1) year term following nonrenewal of this Agreement under the
circumstances described in Section 5(a) or 5(b), or (ii) a period of one (1)
year following the termination of the Executive's employment with the Company
under any other circumstances where the covenant not to compete applies under
this Section 6.2.
6.3. NON-PUBLICATION.
During the Non-Compete Period, neither the Executive nor the Company
shall publish any statement or make any statement (under circumstances
reasonably likely to become public) critical of the other or in any way
adversely affecting or otherwise maligning the reputation of the other or its
customers, suppliers, agents or subcontractors. In particular and without
limitation of the foregoing, the Executive shall not, in any circumstance
likely to become public, discourage any person, firm, partnership,
corporation, trust or any other entity or third party from selling any
business or assets to the Company, entering into any joint venture or other
business relationship with the Company, or investing in the Company. Any
statements made by either party in connection with legal, administrative or
arbitration proceedings, or that are required to be made by the Executive
pursuant to applicable law, shall not be prohibited by this Section 6.3.
7. CONFIDENTIALITY.
(a) The Executive acknowledges that the Company is engaged in
the highly competitive business of designing, developing, manufacturing,
marketing and selling footwear and accessories. The Company's involvement in
this business has required and continues to require the expenditure of
substantial amounts of money and the use of skills developed over considerable
time. As a result of these investments of money, skill and time, the Company
has developed and will continue to develop certain valuable trade secrets and
confidential business information that are peculiar to the Company's business
and the disclosure of which would cause the Company great and irreparable
harm. The Executive acknowledges that, during the course of his employment by
the Company, he will receive and/or have access to "Trade Secrets" and/or
"Confidential Business Information" (as defined herein), and that, had the
Executive not had the opportunity to work at the Company, he would not have
become privy to such information.
(b) The term "Trade Secrets" means any technical or financial
information, design, process, procedure, formula or improvement that is
valuable and not generally known to the Company's competitors. To the fullest
extent consistent with the foregoing, Trade Secrets shall include, without
limitation, all information and documentation, whether or not subject to
copyright, pertaining to product developments, methods of operation, cost and
pricing structures, and other private, confidential business matters.
(c) The term "Confidential Business Information" means any data
or information and documentation, other than Trade Secrets, which is valuable
to the Company and not generally known to the public, including but not
limited to:
i. Financial information, including but not limited to
earnings, assets, debts, prices, cost information, sales
and profit projections or other financial data;
ii. Marketing information, including but not limited to
details about ongoing or proposed marketing programs or
agreements by or on behalf of the Company, marketing
forecasts, results of marketing efforts or information
about impending transactions;
iii. Product information, including but not limited to
development plans, designs, and product costs; and
iv. Product source and customer information, including
but not limited to any data regarding actual or potential
supply sources, agency agreements or arrangements and
actual or potential customers.
(d) The Executive agrees that, except as required to fulfill his
obligations during the course of his employment, he will not, during his
employment with the Company or after such employment has ceased, directly or
indirectly use, disclose or disseminate to any other person, organization or
entity or otherwise employ any Trade Secrets or Confidential Business
Information. Nothing in this paragraph shall preclude the Executive from
disclosing or using Trade Secrets or Confidential Business Information if (i)
the Trade Secrets or Confidential Business Information have become generally
known, at the time the Trade Secrets or Confidential Business Information are
used or disclosed, to the public or to competitors of the Company except
through or as a result of the Executive's act or omission; or (ii) the
disclosure of the Trade Secrets or Confidential Business Information is
required to be made by any law, regulation, governmental body or authority, or
court order, provided that the Executive will give the Company prompt written
notice of such requirement so that the Company may seek an appropriate
protective order or similar remedy. The Executive agrees to deliver to the
Company all computer files and tapes, books, records and documents (whether
maintained in paper, electronic or any other medium) relating to or bearing
upon any Trade Secrets or Confidential Business Information, upon the
cessation of his employment, and the Executive agrees not to retain any copies
or extracts thereof. Notwithstanding the foregoing, the Executive shall be
entitled to retain such records as may be reasonably necessary for personal
tax or legal compliance or planning.
(e) It is expressly understood and agreed that, although the
Executive and the Company consider the restrictions contained in Section 6 and
this Section 7 to be reasonable, if a final judicial determination is made by
a court having jurisdiction that the time or territory or any other
restriction contained in Section 6 or this Section 7 is an unreasonable or an
otherwise unenforceable restriction, it is the intention of the parties that
the provisions of Section 6 and this Section 7 shall not be rendered void, but
such court shall reduce the duration, area or activity covered by such
provision and, in its reduced form, such provision shall then be enforceable
and shall be enforced.
8. INJUNCTIVE RELIEF.
The covenants set forth in Sections 6 and 7 are independent and
shall be enforceable by a court of equity through the granting of a temporary
restraining order, preliminary injunction and/or permanent injunction. In the
event of a breach of Section 6 or Section 7 of this Agreement, the Executive
consents to the entry of an injunction. Such equitable enforcement shall be
in addition to and shall not prejudice the right of the Company to an
appropriate monetary award.
9. REPRESENTATION AND WARRANTY.
The Executive hereby represents and warrants to the Company that his
entering into this Agreement will not result in the breach of, or constitute a
violation of, any agreement, order or decree by which the Executive is bound,
and that the Executive is not subject to any agreement, restriction or
covenant, whether written or oral, which restricts his ability to enter into
this Agreement or to perform his duties as set forth herein.
10. CHANGE OF CONTROL PROVISIONS.
10.1. TERM OF PROVISIONS. The provisions of this Section 10 shall
take effect as of date of this Agreement, and shall continue in effect until
December 31, 2001 (the "Change of Control Term"); PROVIDED, HOWEVER, that if
the Company gives written notice to the Executive on or before January 1,
2000, and on or before each January 1 thereafter, that it wishes to extend the
Change of Control Term for one (1) year beyond the date on which it would
otherwise expire, the Change of Control Term shall be so extended; PROVIDED,
FURTHER, HOWEVER, that following the occurrence of a Change of Control, the
Change of Control Term shall not expire prior to the expiration of thirty-six
(36) months after such occurrence.
10.2. TERMINATION OF EMPLOYMENT. If, during the Change of Control
Term, the Executive's employment with the Company shall be terminated on a
date that falls within the thirty-six (36) month period following a Change of
Control, the Executive shall be entitled to the following compensation and
benefits:
(a) If the Executive's employment with the Company shall be
terminated (1) by the Company for Cause or (2) by the Executive other than for
Good Reason, the Company shall pay to the Executive his Accrued Compensation
(as defined herein). If the Executive's employment with the Company shall be
terminated by the Company by reason of the Executive's Disability or death,
the Company shall pay to the Executive (or, in the event of death, his estate)
an amount equal to the Base Amount plus the amount of bonus paid to him with
respect to the immediately preceding fiscal year.
(b) If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 10.2(a), the
Executive shall be entitled to the following:
(1) the Company shall pay the Executive all Accrued
Compensation and a Pro Rata Bonus (as defined herein); provided, however, that
notwithstanding the definition of Pro Rata Bonus set forth in Section 21.12 of
this Agreement, "Pro Rata Bonus" for purposes of this Section 10.2 (b) (1)
shall be calculated as though the Bonus Amount (as defined herein) was 75% of
the Executive's Base Amount (as defined herein).
(2) the Company shall pay the Executive as severance pay
and in lieu of any further compensation for periods subsequent to the
Termination Date (as defined herein) an amount equal to the sum of (A) three
(3) times the Executive's Base Amount (as defined herein) and (B) three (3)
times the Executive's Bonus Amount (as defined herein);
(3) for thirty-six (36) months following the Executive's
Termination Date (the "Continuation Period"), the Company shall continue on
behalf of the Executive and his dependents and beneficiaries the life
insurance, disability, medical, dental, prescription drug and hospitalization
coverages and benefits provided to the Executive immediately prior to the
Change of Control or, if greater, the coverages and benefits provided at any
time thereafter. The coverages and benefits (including deductibles and costs
to the Executive) provided in this Section 10.2(b)(3) during the Continuation
Period shall be no less favorable to the Executive and his dependents and
beneficiaries than the most favorable of such coverages and benefits referred
to above. The Company's obligation hereunder with respect to the foregoing
coverages and benefits shall be reduced to the extent that the Executive
obtains any such coverages and benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce any of the coverages or
benefits it is required to provide the Executive hereunder so long as the
aggregate coverages and benefits (including deductibles and costs to the
Executive) of the combined benefit plans is no less favorable to the Executive
than the coverages and benefits required to be provided hereunder. This
Section 10.2(b)(3) shall not be interpreted so as to limit any benefits to
which the Executive, his dependents or beneficiaries may be entitled under any
of the Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including but not limited to retiree
medical and life insurance benefits;
(4) the Company shall pay in a single payment an amount in
cash equal to the excess of (A) the Supplemental Retirement Benefit (as
defined herein) had (w) the Executive remained employed by the Company for an
additional three (3) complete years of credited service under each
supplemental and other retirement plan in which the Executive was a
participant on the Termination Date (or until his 65th birthday, if earlier),
(x) his annual compensation during such period been equal to his Base Amount
and the Bonus Amount, (y) the Company made employer contributions to each
defined contribution plan in which the Executive was a participant on the
Termination Date (in an amount equal to the amount of such contribution for
the plan year ending immediately preceding the Termination Date) and (z) the
Executive become fully (100%) vested in his benefit under each supplemental
and other retirement plan in which the Executive was a participant on the
Termination Date, over (B) the lump sum actuarial equivalent of the aggregate
retirement benefit the Executive is actually entitled to receive under such
supplemental and other retirement plans. For purposes of this Section
10.2(b)(4), "Supplemental Retirement Benefit" shall mean the lump sum
actuarial equivalent of the aggregate retirement benefit the Executive would
have been entitled to receive under the Company's supplemental and other
retirement plans including but not limited to The Pension Plan for Associates
of Nine West Group Inc. (the "Pension Plan"). For purposes of this Section
10.2(b)(4), the "actuarial equivalent" shall be determined in accordance with
the actuarial assumptions used for the calculation of benefits under the
Pension Plan as applied prior to the Termination Date in accordance with the
Pension Plan's past practices;
(5) the Company shall pay the Executive a lump sum in cash
equal to the present value (determined using a discount rate equal to one
hundred twenty percent (120%) of the applicable mid-term Federal rate
determined pursuant to Section 1274(d) of the Code (as defined herein),
compounded semiannually) of thirty-six (36) monthly payments, each of which
payments is equal to the monthly automobile allowance payable by the Company
in respect of the Executive immediately prior to the Termination Date; and
(6) for thirty-six (36) months following the Executive's
Termination Date, the Company shall continue to pay the Company portion of
premiums under the split-dollar life insurance policy maintained in respect of
the Executive.
(c) The amounts provided for in Sections 10.2(a) and 10.2(b)(1),
(2), (4) and (5) shall be paid in a single lump sum cash payment within ten
(10) days after the Executive's Termination Date (or earlier, if required by
applicable law).
(d) Upon the occurrence of a Change of Control, all options held
by the Executive on the date of the Change of Control shall vest and become
immediately exercisable and all restrictions on shares of restricted stock
shall lapse; PROVIDED, HOWEVER, such accelerated vesting and/or lapse of
restrictions shall not be applicable if its implementation would preclude the
application of pooling-of-interests accounting treatment to a transaction for
which such treatment is to be adopted by the Company and which has been
approved by the Board of Directors, and the holders of options and restricted
stock shall not be entitled to any accelerated vesting in such event.
(e) The severance pay and benefits provided for in this Section
10.2 shall be in lieu of any other pay to which the Executive may be entitled
under this Agreement or any other severance or employment agreement with the
Company; PROVIDED, HOWEVER, that the Executive shall receive compensation or
benefits other than as provided herein to the extent that the Executive is
entitled to receive such compensation or other benefits at the time of his
termination, determined in accordance with the employee benefit plans of the
Company and other applicable agreements, programs and practices as in effect
from time to time.
(f) If the Executive's employment is terminated by the Company
without Cause prior to the date of a Change of Control but the Executive
reasonably demonstrates that such termination (1) was at the request of a
third party who has indicated an intention or taken steps reasonably
calculated to effect a Change of Control (a "Third Party") and who effectuates
a Change of Control or (2) otherwise arose in connection with, or in
anticipation of, a Change of Control which has been threatened or proposed and
which actually occurs, such termination shall be deemed to have occurred after
a Change of Control, it being agreed that any such action taken following
shareholder approval of a transaction which if consummated would constitute a
Change of Control, shall be deemed to be in anticipation of a Change of
Control provided such transaction is actually consummated.
10.3 EFFECT OF SECTION 280G OF THE INTERNAL REVENUE CODE.
(a) Notwithstanding any other provision of this Agreement to the
contrary, and except as provided in Section 10.3(b), to the extent that any
payment or distribution of any type to or for the benefit of the Executive by
the Company, any Person who acquires ownership or effective control of the
Company or ownership of a substantial portion of the Company's assets (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder), or any Affiliate of such
Person, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (the "Total Payments"), is or will be
subject to the excise tax imposed under Section 4999 of the Code (the "Excise
Tax"), then the Total Payments shall be reduced (but not less than zero) if
and to the extent that a reduction in the Total Payments would result in the
Executive retaining a larger amount, on an after-tax basis (taking into
account federal, state and local income taxes and the Excise Tax), than if the
Executive received the entire amount of such Total Payments. Unless the
Executive shall have given prior written notice specifying a different order
to the Company to effectuate the foregoing, the Company shall reduce or
eliminate the Total Payments, by first reducing or eliminating the portion of
the Total Payments which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with
payments or benefits which are to be paid the farthest in time from the
Determination (as defined herein). Any notice given by the Executive pursuant
to the preceding sentence shall take precedence over the provisions of any
other plan, arrangement or agreement governing the Executive's rights and
entitlements to any benefits or compensation.
(b) If the reduction of the Payments as provided in Section
10.3(a) would exceed $25,000, Section 10.3(a) shall not apply and the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Total Payments.
(c) The determination of whether the Payments shall be reduced
pursuant to this Section 10.3 and the amount of such reduction, and the
determination of whether a Gross-Up Payment is payable, shall be made at the
Company's expense, by an accounting firm selected by the Company which is one
of the five (5) largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that
any of the Payments may be subject to the Excise Tax), and if the Accounting
Firm determines that no Excise Tax is payable by the Executive with respect to
the Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payments. The Determination shall be binding, final and conclusive
upon the Company and the Executive.
(d) If a Gross-Up Payment is determined to be payable, it shall
be paid to the Executive within twenty (20) days after the Determination (and
all accompanying calculations and other material supporting the Determination)
is delivered to the Company by the Accounting Firm. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive, absent
manifest error. As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments not made by the Company
should have been made ("Underpayment"), or that Gross-Up Payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment (including any applicable
interest and penalties) shall be promptly paid by the Company to or for the
benefit of the Executive. In the case of an Overpayment, the Executive shall,
at the direction and expense of the Company, take such steps as are reasonably
necessary (including the filing of returns and claims for refund), follow
reasonable instructions from, and procedures established by, the Company, and
otherwise reasonably cooperate with the Company to correct such Overpayment,
PROVIDED, HOWEVER, that (i) the Executive shall not in any event be obligated
to return to the Company an amount greater than the net after-tax portion of
the Overpayment that he has retained or has recovered as a refund from the
applicable taxing authorities and (ii) if a Gross-Up Payment is determined to
be payable, this provision shall be interpreted in a manner consistent with an
intent to make the Executive whole, on an after-tax basis, from the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Executive repaying to the Company an amount
which is less than the Overpayment. The cost of all such determinations made
pursuant to this Section 10.3 shall be paid by the Company.
11. NOTICE OF TERMINATION. Any intended termination of the
Executive's employment by the Company shall be communicated by a Notice of
Termination from the Company to the Executive, and any intended termination of
the Executive's employment following a Change of Control by the Executive for
Good Reason shall be communicated by a Notice of Termination from the
Executive to the Company.
12. FEES AND EXPENSES. The Company shall pay, as incurred, all legal
fees and related expenses (including the costs of experts, evidence and
counsel) that the Executive may incur as a result of or in connection with (a)
the Executive's contesting, defending or disputing the basis for the
termination of the Executive's employment, (b) the Executive's hearing before
the Board of Directors of the Company as contemplated in Section 21.5 of this
Agreement or (c) the Executive seeking to obtain or enforce any right or
benefit provided by Section 10 of this Agreement or by any other plan or
arrangement maintained by the Company under which the Executive is or may be
entitled to receive benefits; PROVIDED THAT, with respect to (a), (b) and (c),
the legal fees and expenses relate to the Executive's assertion of his rights
under Section 10 of this Agreement; PROVIDED FURTHER, that, in the case of
(a), (b) and (c), the Company shall not be required to pay the Executive's
legal fees and related expenses if it is finally determined by the final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been taken) that the
Executive's claims are frivolous.
13. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Company or by a duly authorized officer of the Company if to the Executive,
and shall be deemed to have been duly given when personally delivered or sent
by certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to the other, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof (whichever is earlier), except that
notice of change of address shall be effective only upon receipt.
14. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company and
for which the Executive may qualify, nor shall anything herein limit or reduce
such rights as the Executive may have under any other agreements with the
Company, except as explicitly provided herein. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan or program of the Company shall be payable in accordance with such plan
or program, except as explicitly modified by this Agreement.
15. (a) FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including
but not limited to any set-off, counterclaim, defense, recoupment, or other
claim, right or action which the Company may have against the Executive or
others.
(b) NO MITIGATION. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced
by the amount of any compensation or benefits provided to the Executive in any
subsequent employment except as provided in Sections 5(c) and 10.2(b)(3).
16. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
expressly set forth in this Agreement.
17. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company. The Company shall require its Successors and Assigns,
by agreement in form and substance reasonably satisfactory to the Executive,
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal personal representative.
18. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the conflict of laws principles thereof. Any action brought
by any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in New York County in the State of New York.
19. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto, and supersedes all prior agreements,
including but not limited to the Prior Agreement, understandings and
arrangements, oral or written, between the parties hereto, with respect to the
subject matter hereof.
21. DEFINITIONS.
21.1. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean all amounts of compensation for services
rendered to the Company that have been earned or accrued through the
Termination Date but that have not been paid as of the Termination Date
including, without limitation (a) base salary, (b) reimbursement for
reasonable and necessary business expenses incurred by the Executive on behalf
of the Company during the period ending on the Termination Date and (c)
vacation pay.
21.2. AFFILIATE. For purposes of this Agreement, "Affiliate"
means, with respect to any Person, any other Person directly or indirectly
controlled by, controlling or under common control with such Person.
21.3. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the Executive's annual base salary at the rate in effect as of the
date of a Change of Control or, if greater, at any time thereafter, determined
without regard to any salary reduction or deferred compensation elections made
by the Executive.
21.4. BONUS AMOUNT. For purposes of this Agreement, "Bonus
Amount" shall mean 50% of the Executive's Base Amount.
21.5. CAUSE. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive
(a) has been convicted of a felony (including a plea of
nolo contendere), the time for appeal of which has elapsed;
(b) intentionally and continually failed substantially to
perform his reasonably assigned duties with the Company (other than a failure
resulting from the Executive's incapacity due to physical or mental illness or
from the assignment to the Executive of duties that would constitute Good
Reason) which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance, signed by a duly
authorized officer of the Company, has been delivered to the Executive
specifying the manner in which the Executive has failed substantially to
perform; or
(c) intentionally engaged in illegal conduct or willful
misconduct which is demonstrably and materially injurious to the Company.
For purposes of this Agreement, no act, nor failure to act, on the Executive's
part, shall be considered "intentional" unless the Executive has acted, or
failed to act, with a lack of good faith and with a lack of reasonable belief
that the Executive's action or failure to act was in the best interest of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Company's
Chairman of the Board, Chief Executive Officer or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The termination of
employment of the Executive shall not be deemed to be for Cause pursuant to
subparagraph (b) or (c) above unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three-fourths of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described
in subparagraph (b) or (c) above, and specifying the particulars thereof in
detail. Notwithstanding anything contained in this Agreement to the contrary,
no failure to perform by the Executive after a Notice of Termination is given
to the Company by the Executive shall constitute Cause for purposes of this
Agreement.
21.6. CHANGE OF CONTROL. A "Change of Control" shall mean the
occurrence during the term of the Agreement of:
(a) An acquisition (other than directly from Nine West
Group Inc.) of any common stock of Nine West Group Inc. ("Common Stock") or
other voting securities of Nine West Group Inc. entitled to vote generally for
the election of directors (the "Voting Securities") by any "Person" (as the
term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), immediately after
which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent (30%) or more of the
then outstanding shares of Common Stock or the combined voting power of Nine
West Group Inc.'s then outstanding Voting Securities; PROVIDED, HOWEVER, in
determining whether a Change of Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as defined herein) shall not
constitute an acquisition which would cause a Change of Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) Nine West Group
Inc. or (B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by Nine West Group Inc. (a "Subsidiary"), (ii) Nine West Group
Inc. or its Subsidiaries, or (iii) any Person in connection with a Non-Control
Transaction (as defined herein);
(b) The individuals who, as of December 15, 1998, are
members of the Board of Nine West Group Inc. (the "Incumbent Board"), cease
for any reason to constitute at least a majority of the members of the Board;
PROVIDED, HOWEVER, that if the election, or nomination for election by Nine
West Group Inc.'s shareholders, of any new director was approved by a vote of
at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent Board;
PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(1) A merger, consolidation, reorganization or other
business combination with or into Nine West Group Inc. or in
which securities of Nine West Group Inc. are issued, unless
such merger, consolidation, reorganization or other business
combination is a "Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger, consolidation, reorganization
or other business combination with or into Nine West Group Inc.
or in which securities of Nine West Group Inc. are issued
where:
(A) the shareholders of Nine West Group Inc.,
immediately before such merger, consolidation,
reorganization or other business combination own directly
or indirectly immediately following such merger,
consolidation, reorganization or other business
combination, at least sixty percent (60%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation,
reorganization or other business combination (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before such merger, consolidation,
reorganization, or other business combination,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation,
reorganization or other business combination constitute at
least two-thirds (2/3) of the members of the board of
directors of the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a majority of
the combined voting power of the outstanding voting
securities of the Surviving Corporation, and
(C) no Person other than (i) Nine West Group
Inc., (ii) any Subsidiary, (iii) any employee benefit plan
(or any trust forming a part thereof) that, immediately
prior to such merger, consolidation, reorganization or
other business combination was maintained by Nine West
Group Inc., the Surviving Corporation, or any Subsidiary,
or (iv) any Person who, immediately prior to such merger,
consolidation, reorganization or other business
combination had Beneficial Ownership of thirty percent
(30%) or more of the then outstanding Voting Securities or
common stock of Nine West Group Inc., has Beneficial
Ownership of thirty percent (30%) or more of the combined
voting power of the Surviving Corporation's then
outstanding voting securities or its common stock.
(2) A complete liquidation or dissolution of Nine West
Group Inc.; or
(3) The sale or other disposition of all or
substantially all of the assets of Nine West Group Inc. to any
Person (other than (i) any such sale or disposition that
results in at least fifty percent (50%) of Nine West Group
Inc.'s assets being owned by a subsidiary or subsidiaries or
(ii) a distribution to Nine West Group Inc.'s stockholders of
the stock of a subsidiary or any other assets).
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding common
stock or Voting Securities as a result of the acquisition of Common Stock or
Voting Securities by Nine West Group Inc. which, by reducing the number of
shares of Common Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change of Control would occur (but for the operation of
this sentence) as a result of the acquisition of shares of Common Stock or
Voting Securities by Nine West Group Inc., and after such share acquisition by
Nine West Group Inc., the Subject Person becomes the Beneficial Owner of any
additional shares of Common Stock or Voting Securities which increase the
percentage of the then outstanding shares of Common Stock or Voting Securities
Beneficially Owned by the Subject Person, then a Change of Control shall
occur.
21.7. COMPANY. For purposes of this Agreement, all references
to the Company shall be deemed to include the Company and any Affiliate of the
Company, and any respective Successors and Assigns.
21.8. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's
ability to substantially perform his duties with the Company for six (6)
consecutive months and, within the time period set forth in a Notice of
Termination given to the Executive (which time period shall not be less than
thirty (30) days), the Executive shall not have returned to full-time
performance of his duties; PROVIDED, HOWEVER, that if the Company's Long Term
Disability Plan, or any successor plan (the "Disability Plan"), is then in
effect, the Executive shall not be deemed disabled for purposes of this
Agreement unless the Executive is also eligible for long-term disability
benefits under the Disability Plan (or similar benefits in the event of a
successor plan).
21.9. GOOD REASON. (a) For purposes of this Agreement, "Good
Reason" shall mean the occurrence after a Change of Control of any of the
following events or conditions:
(1) a change in the Executive's responsibilities or
job description (including reporting responsibilities) that represents a
material adverse change from the Executive's responsibilities or job
description as in effect immediately prior thereto;
(2) a reduction in the Executive's annual base salary
below the Base Amount;
(3) the relocation of the offices of the Company at
which the Executive is principally employed to a location more than fifty (50)
miles from the location of such offices prior to the Change of Control, except
required travel on the business of the Company to an extent substantially
consistent with the Executive's business travel obligations at the time of the
Change of Control;
(4) the failure by the Company to pay to the Executive
any portion of the Executive's current compensation or to pay to the Executive
any portion of an installment of deferred compensation under any deferred
compensation program of the Company in which the Executive participated,
within seven (7) days of the date such compensation is due;
(5) the failure by the Company to (A) continue in
effect (without reduction in benefit level and/or reward opportunities which
with respect to the Incentive Plan shall include a reduction in the potential
bonus entitlement for comparable corporate performance by the Company and its
subsidiaries) any material compensation or employee benefit plan in which the
Executive was participating immediately prior to the Change of Control, unless
a substitute or replacement plan has been implemented which provides
substantially identical compensation or benefits to the Executive or (B)
provide the Executive with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other compensation, employee benefit or fringe benefit
plan, program or practice in which the Executive was participating immediately
prior to the Change of Control;
(6) the failure of the Company to obtain from its
Successors or Assigns the express assumption and agreement required under
Section 17(a) hereof; or
(7) any purported termination of the Executive's
employment by the Company which is not effected pursuant to a Notice of
Termination satisfying the terms set forth in the definition of Notice of
Termination (and, if applicable, the terms set forth in the definition of
Cause).
(b) Any event or condition described in Section 21.9(a)(1)
through (7) which occurs prior to a Change of Control but which the Executive
reasonably demonstrates (1) was at the request of a Third Party who
effectuates a Change of Control or (2) otherwise arose in connection with, or
in anticipation of a Change of Control which has been threatened or proposed
and which actually occurs, shall constitute Good Reason for purposes of this
Agreement notwithstanding that it occurred prior to a Change of Control, it
being agreed that any such action taken following shareholder approval of a
transaction which if consummated would constitute a Change of Control, shall
be deemed to be in anticipation of a Change of Control provided such
transaction is actually consummated.
21.10. INCENTIVE PLAN. For purposes of this Agreement,
"Incentive Plan" shall mean the Company's First Amended and Restated Bonus
Plan or any successor annual incentive plan, maintained by the Company.
21.11. NOTICE OF TERMINATION. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment, signed by the Executive if to the Company or by a duly
authorized officer of the Company if to the Executive, which indicates the
specific termination provision in this Agreement, if any, relied upon and
which sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason, Disability or Cause shall not serve to waive any
right of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
21.12. PRO RATA BONUS. For purposes of this Agreement, "Pro
Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied by a
fraction the numerator of which is the number of days in the fiscal year in
which the Executive's Termination Date occurs that have elapsed through the
Termination Date and the denominator of which is 365.
21.13. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean, with respect to the Company, a
corporation, individual, person or other entity acquiring all or substantially
all the assets and business of the Company, as the case may be, whether by
operation of law or otherwise.
21.14. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his
date of death, (b) if the Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty (30) day period) and (c) if the Executive's
employment is terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a termination for Cause shall not
be less than thirty (30) days, and in the case of a termination for Good
Reason following a Change of Control shall not be more than sixty (60) days,
from the date such Notice of Termination is given); PROVIDED, HOWEVER, that if
within thirty (30) days after any Notice of Termination is given the party
receiving such Notice of Termination in good faith notifies the other party
that a dispute exists concerning the basis for the termination, the
Termination Date shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, or by the final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been taken). Notwithstanding the
pendency of any such dispute, the Company shall continue to pay the Executive
his Base Amount and continue the Executive as a participant (at or above the
level provided prior to the date of such dispute) in all compensation,
incentive, bonus, pension, profit sharing, medical, hospitalization,
prescription drug, dental, life insurance and disability benefit plans in
which he was participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved (whether or not the dispute is
resolved in favor of the Company); PROVIDED FURTHER, that if the dispute
results in the payment by the Company to the Executive of the amounts
contemplated under Section 10.2(b) hereof, the amount of such payments shall
be reduced by any Base Amount paid to the Executive during the pendency of the
dispute. Except as provided in the last proviso of the preceding sentence,
notwithstanding the outcome of any dispute, the Executive shall not be
obligated to repay to the Company any amounts paid or benefits provided
pursuant to this sentence.
22. SURVIVAL. The Executive's rights to receive payments under
Sections 5 and 10.2 of this Agreement shall survive any termination of this
Agreement and termination of the Change of Control Term that may occur during
the pendency of a dispute as contemplated by Section 21.14.
23. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall for all purposes be deemed an original, and all of which
shall constitute the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officers and the Executive has executed this Agreement
as of the day and year first above written.
NINE WEST GROUP INC.
/s/Vincent Camuto
-------------------------------
By: Vincent Camuto
Its: Chief Executive Officer
ROBERT C. GALVIN
/s/Robert C. Galvin
-------------------------------
ATTEST
/s/Joel K. Bedol
- ----------------------------
By: Joel K. Bedol
EXHIBIT 21
JURISDICTION OF
SUBSIDIARIES INCORPORATION
_________________________________________________________________
Cable & Co (UK) Limited United Kingdom
Compania de Calzados de Exportacion, S.L. Spain
Conca Del Sol International Cayman Islands
Nine West Accessories (HK) Limited Hong Kong
Nine West Asia Ltd. Bermuda
Nine West Boot Corporation Delaware
Nine West Canada Corporation Ontario
Nine West Development Corporation Delaware
Nine West Distribution Corporation Delaware
Nine West Footwear Corporation Delaware
Nine West France S.A.R.L. France
Nine West Funding Corporation Delaware
Nine West Group Italy S.r.l. Italy
Nine West - Honduras Cayman Islands
Nine West Hong Kong Limited Hong Kong
Nine West Japan Co., Ltd. Japan
Nine West (Malaysia) Sdn Bhd Malaysia
Nine West Manufacturing Corporation Delaware
Nine West Manufacturing II Corporation Delaware
Nine West Melbourne Pty Ltd Australia
Nine West Servicos de Assessoria de Compras Ltda. Brazil
Nine West Singapore Pte Ltd Singapore
Nine West UK Holdings Limited United Kingdom
Nine West UK Limited United Kingdom
Pied a Terre Group Limited United Kingdom
Rayne Shoes (1994) Limited United Kingdom
The Shoe Studio Group Limited United Kingdom
The Shops for Pappagallo, Inc. Ohio
Vivaldi Shoes Limited United Kingdom
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-72746 and 333-2262) of Nine West Group Inc. of our reports
dated March 16, 1999, appearing in the Annual Report on Form 10-K of Nine West
Group Inc. and subsidiaries for the fiscal year ended January 30, 1999.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
April 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE
WEST GROUP INC. CONSOLIDATED BALANCE SHEET AS OF JANUARY 30, 1999 AND THE
CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS FOR
THE FIFTY-TWO WEEKS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 17,951
<SECURITIES> 0
<RECEIVABLES> 137,110
<ALLOWANCES> 50,616
<INVENTORY> 460,375
<CURRENT-ASSETS> 632,252
<PP&E> 256,827
<DEPRECIATION> 92,821
<TOTAL-ASSETS> 1,217,129
<CURRENT-LIABILITIES> 182,041
<BONDS> 510,804
0
0
<COMMON> 359
<OTHER-SE> 457,705
<TOTAL-LIABILITY-AND-EQUITY> 1,217,129
<SALES> 1,916,707
<TOTAL-REVENUES> 1,916,707
<CGS> 1,126,860
<TOTAL-COSTS> 1,126,860
<OTHER-EXPENSES> 669,300
<LOSS-PROVISION> 5,698
<INTEREST-EXPENSE> 53,467
<INCOME-PRETAX> 61,382
<INCOME-TAX> 23,937
<INCOME-CONTINUING> 37,445
<DISCONTINUED> 0
<EXTRAORDINARY> 2,923
<CHANGES> 0
<NET-INCOME> 40,368
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
