<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1998
REGISTRATION NO. 333-48199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MAXWELL SHOE COMPANY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
<TABLE>
<S> <C>
DELAWARE 04-2599205
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
101 SPRAGUE STREET
P.O. BOX 37
READVILLE (BOSTON), MA 02137
(617) 364-5090
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MR. MARK J. COCOZZA
PRESIDENT
MAXWELL SHOE COMPANY INC.
101 SPRAGUE STREET
P.O. BOX 37
READVILLE (BOSTON), MA 02137
(617) 364-5090
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
COPIES TO:
<TABLE>
<S> <C>
JONATHAN K. LAYNE ARNOLD B. PEINADO, III
GIBSON, DUNN & CRUTCHER LLP MILBANK, TWEED, HADLEY & MCCLOY
333 SOUTH GRAND AVENUE 1 CHASE MANHATTAN PLAZA
LOS ANGELES, CA 90071 NEW YORK, NY 10005
(213) 229-7000 (212) 530-5000
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated April 20, 1998
PROSPECTUS
5,344,167 SHARES
MAXWELL SHOE COMPANY INC.
CLASS A COMMON STOCK
------------
The shares of Class A Common Stock offered hereby (the "Offering") are being
sold by the Selling Stockholders. See "Principal and Selling Stockholders."
Maxwell Shoe Company Inc. (the "Company") will not receive any proceeds from
the sale of shares by the Selling Stockholders. The Class A Common Stock is
traded on the NASDAQ National Market System under the symbol "MAXS." On April
17, 1998, the last sale price of the Class A Common Stock, as reported by
NASDAQ, was $18.125 per share. See "Price Range of Class A Common Stock."
The Company has two classes of authorized Common Stock, Class A Common Stock,
which is offered hereby, and Class B Common Stock. Holders of Class A Common
Stock are entitled to one vote per share and holders of Class B Common Stock
are entitled to ten votes per share. Class A Common Stock is not convertible
but is freely transferable, while Class B Common Stock is transferable only to
certain transferees and is freely convertible into Class A Common Stock. After
the Offering, there will be no outstanding shares of Class B Common Stock, and
the Company intends to seek stockholder approval to amend its Certificate of
Incorporation to eliminate the authorization for the issuance of Class B Common
Stock as soon as practicable after the consummation of the Offering.
------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREIN FOR CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Proceeds to
Price to Underwriting Discounts Selling
Public and Commissions(1) Stockholders(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- -----------------------------------------------------------------------------------------
Total(3)............................. $ $ $
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
801,625 additional shares of Class A Common Stock, on the same terms and
conditions as set forth above, to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public will be $ ,
the total Underwriting Discounts and Commissions will be $ , and
the total proceeds to the Company will be $ . The Selling Stockholders
will not receive any of the proceeds from the sale of shares by the
Company. See "Underwriting."
------------
The shares of Class A Common Stock offered by this Prospectus are offered by
the Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
the certificates representing Class A Common Stock will be made at the offices
of Lehman Brothers Inc., 3 World Financial Center, New York, NY 10285, on or
about , 1998.
------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
TUCKER ANTHONY
INCORPORATED
, 1998
<PAGE>
[Copy of current Mootsies Tootsies ad.]
Mootsies Tootsies(R), Mootsies Kids(R), Sam & Libby(R) and Just Libby(R) are
registered trademarks of Maxwell Shoe Company Inc. or its subsidiaries in the
United States. Jones New York(R) and Jones New York Sport(R) are registered
trademarks of Jones Investment Co., Inc. in the United States. J.G. Hook(R) and
Hook Sport(R) are registered trademarks of J.G. Hook, Inc. in the United
States.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE SHARES OF THE CLASS A COMMON STOCK IN THE OPEN
MARKET. IN ADDITION, THE UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN
PASSIVE MARKET MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE
"UNDERWRITING."
<PAGE>
[Pictures of Sam & Libby products and Sam & Libby retail stores.]
<PAGE>
[Pictures of Jones New York footwear and Jones New York retail stores.]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the historical and pro forma financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the overallotment option granted to the Underwriters and all
references herein to "Maxwell Shoe Company" or the "Company" mean Maxwell Shoe
Company Inc., a Delaware corporation, and its predecessors and its consolidated
subsidiaries, unless the context otherwise requires. References herein to
"Common Stock" mean the Company's Class A Common Stock and its Class B Common
Stock, collectively. The Company's fiscal year ends on October 31; all
references herein to a fiscal year mean the twelve month period ended on the
October 31 of the particular year.
THE COMPANY
The Company designs, develops and markets casual and dress footwear for women
and children under multiple brand names, each of which is targeted to a
distinct segment of the footwear market. The Company offers casual and dress
footwear for women in the moderately priced market segment under the Mootsies
Tootsies brand name, in the upper moderately priced market segment under the
Sam & Libby brand name and in the better market segment under the Jones New
York and Jones New York Sport brand names. The Company also sells moderately
priced and upper moderately priced children's footwear under both the Mootsies
Tootsies and Sam & Libby brand names. Furthermore, the Company designs and
develops private label footwear for selected retailers under the retailers' own
brand names. The Company has licensed the J.G. Hook tradename to source and
develop private label products for retailers who require brand identification.
In addition, the Company sells footwear closeouts which it has purchased at
discounts from other manufacturers.
Since 1987, when the Company first focused on its branded footwear strategy,
the Company has increased net sales every year and consistently maintained
profitability. In fiscal 1997, the Company's net sales and net income increased
28.7% and 52.5%, respectively, as compared to fiscal 1996. In the first quarter
of fiscal year 1998, the Company's net sales and net income increased 26.3% and
34.2%, respectively, as compared to the same period in fiscal 1997. The
Company's financial success has been largely a result of its ability to design,
develop and market footwear with contemporary styles at affordable prices.
Retail prices for the Company's footwear generally range from $20 to $90.
Substantially all of the Company's products are manufactured overseas by
independent factories selected by the Company and its overseas agents. The
Company sells its footwear primarily to department stores and specialty stores
in the United States as well as through national catalog retailers and cable
television consumer shopping channels.
The Company's strategy is to leverage its existing competitive strengths,
including but not limited to its strong manufacturing relationships and focused
brand management and to increase profitably its share of the women's and
children's footwear markets by further strengthening its existing footwear
brands and its private label business and expanding its brand portfolio through
a combination of acquisition, licensing and development of additional brands in
the future.
Through advertising, promotion and packaging, the Company has built consumer
and retail recognition for the Mootsies Tootsies and Mootsies Kids brand names,
and management believes that Mootsies Tootsies is currently one of the largest
selling brands in the moderately priced segment of the women's casual and dress
footwear industry. In 1994 and 1995, the Company expanded its branded product
portfolio through the introduction of the Jones New York and Jones New York
Sport footwear brands. Both product lines allow the Company to capitalize on
the strong brand name recognition and reputation for style, quality and value
enjoyed by Jones New York in the better segments of the women's apparel
industry. The Company continued its brand expansion through the acquisition of
the Sam & Libby worldwide trademarks and tradenames in
3
<PAGE>
1996. The Company is in the process of re-positioning the Sam & Libby brand
from its prior focus on the junior women's market segment to the late 20's,
career-oriented women market segment, and management believes that sales under
the Sam & Libby lines should increase significantly in the future upon
completion of this brand re-positioning and the introduction of additional
products under such brand name. The Company believes that there is a growing
demand among retailers for footwear to market under their own brand names, and
the Company licensed the J.G. Hook name in 1997 to sell as a first cost product
for retailers who require brand identification.
The Company competes primarily in the women's casual and dress footwear
market, which emphasizes contemporary fashion, quality and value. The Company
believes that there has been a shift in the "moderate" segment of the women's
casual and dress footwear market toward value priced footwear. The Company has
positioned its Mootsies Tootsies line to take advantage of this shift by
offering value priced footwear which reflects current fashion trends. The Sam &
Libby brand is aimed at the fashion-conscious customers in the upper moderate
price range which has been less affected by this shift. The Company believes
that the better segment of this market has also not been as affected by this
shift due to a continuing interest in higher quality and brand name products,
such as the Company's Jones New York and Jones New York Sport brands.
In April 1997, the Company entered into an agreement to operate approximately
130 retail Sam & Libby and Jones New York women's footwear stores through a
joint venture, SLJ Retail LLC ("SLJ Retail"). The Company and the Butler Group
Inc., a wholly owned subsidiary of General Electric Capital Corporation
("Butler"), own 49% and 51% of SLJ Retail, respectively. The Company views SLJ
Retail as a significant opportunity to increase awareness of its brands,
achieve greater purchasing leverage with manufacturers and potentially
recognize a portion of any future profits of the joint venture. A subsidiary of
the Company is the manager of SLJ Retail. Under current generally accepted
accounting principles, the Company is required to account for its interest in
SLJ Retail under the equity method of accounting for so long as the Company
owns less than 50% of the voting equity of SLJ Retail. Under the equity method
of accounting, the Company is required to record its proportionate share of SLJ
Retail's net income or loss; provided, however, net losses of SLJ Retail
recorded by the Company are limited to the Company's investment in and advances
to SLJ Retail. Since the Company made a nominal investment in SLJ Retail,
operating losses of SLJ Retail are not recorded by the Company. The Company
holds an option through February 1, 2000 to purchase additional equity in SLJ
Retail to increase its equity ownership to 55%, subject to achieving certain
operating income levels. In the event the Company exercises such option, it
could be required to consolidate SLJ Retail's and its financial statements.
However, the Company does not intend to exercise such option until SLJ Retail
achieves profitability, if ever.
The Company, originally a closeout footwear business, was founded by Mr.
Maxwell V. Blum in 1949 and was incorporated as Maxwell Shoe Co., Inc. in
Massachusetts in 1976. During the late 1980s, the Company shifted its focus to
designing, developing and marketing full lines of branded women's footwear. In
order to implement this new strategy, the Company hired experienced senior
management to strengthen its organizational infrastructure, developed cost-
efficient product sourcing, implemented an advertising program and improved
internal systems. In March 1994, Maxwell Shoe Co., Inc. became a Delaware
incorporated company.
Mr. Blum, the Chairman of the Board and Chief Executive Officer of the
Company, Mr. Blum's daughters, Ms. Betty Ann Blum and Ms. Marjorie Blum, both
of whom are currently officers and directors of the Company, and a trust for
the benefit of Mr. Blum's wife intend to convert or exercise into shares of
Class A Common Stock all of their shares of Class B Common Stock and Class A
options of the Company and sell all such shares in the Offering. See "Principal
and Selling Stockholders." In addition, upon consummation of the Offering, it
is expected that Mr. Blum will resign as Chairman of the Board and Chief
Executive Officer (but remain as a member of the Board of Directors and a
consultant), Ms. Betty Ann Blum and Ms. Marjorie Blum will resign as executive
officers and directors of the Company (but each will remain as an employee of
the
4
<PAGE>
Company through a transition period), and Mr. Mark Cocozza will become Chairman
of the Board and Chief Executive Officer in addition to his existing
responsibilities as President and Chief Operating Officer of the Company. See
"Management--Management Changes Upon Consummation of the Offering."
The Company's principal executive offices are located at 101 Sprague Street,
P.O. Box 37, Readville (Boston), Massachusetts 02137, and its telephone number
is (617) 364-5090.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Selling Stock-
holders..................................... 5,344,167 shares of Class A Common Stock
Common Stock to be Outstanding after the Of-
fering...................................... 7,986,524 shares of Class A Common
Stock(1)(2); no shares of Class B Common
Stock
Use of Proceeds.............................. The Company will not receive any proceeds
from the sale of shares by Mr. Blum, Ms.
Betty Ann Blum, Ms. Marjorie Blum, a trust
for the benefit of Mr. Blum's wife, and Mr.
Cocozza (collectively, the "Selling
Stockholders"). Any proceeds to the Company
from any exercise of the Underwriters'
overallotment option will be used to fund
increased capital expenditures and
advertising, as well as for working capital
and general corporate purposes.
NASDAQ Symbol................................ MAXS
</TABLE>
- --------
(1) Excludes (i) 588,412 shares of Class A Common Stock issuable upon exercise
of an option that had been granted to Mr. Mark Cocozza, the President of
the Company, which option had been granted in exchange for the termination
of a pre-existing deferred compensation arrangement, (ii) 733,493 shares of
Class A Common Stock issuable upon exercise of options to purchase shares
that have been granted prior to the Offering to employees and non-employee
directors of the Company, (iii) 299,150 shares of Class A Common Stock
reserved for issuance upon exercise of options that have been granted under
the Company's 1994 Stock Incentive Plan and (iv) 100,000 shares of Class A
Common Stock issuable upon exercise of 75,000 and 25,000 options to be
granted to Mr. Cocozza and Mr. James J. Tinagero, respectively, upon
consummation of the Offering but includes 17,357 shares of Class A Common
Stock issued upon exercise of options granted to certain employees of the
Company. In December 1997, the Board of Directors amended the Company's
1994 Stock Incentive Plan to increase by 300,000 the authorized number of
shares of Class A Common Stock issuable under such plan, and the
stockholders of the Company approved such amendment at the April 1998
annual meeting.
(2) Does not give effect to the sale of 801,625 shares of Class A Common Stock
upon any exercise of the Underwriters' overallotment option.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JANUARY
YEAR ENDED OCTOBER 31, 31,
--------------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $79,049 $100,931 $101,870 $104,337 $134,211 $28,764 $36,328
Cost of sales.......... 56,297 72,117 77,912 79,915 98,230 21,503 26,491
------- -------- -------- -------- -------- ------- -------
Gross profit........... 22,752 28,814 23,958 24,422 35,981 7,261 9,837
Selling, general and
administrative ex-
penses(1)(2) ......... 17,690 23,695 13,581 15,413 20,982 4,563 6,180
------- -------- -------- -------- -------- ------- -------
Operating income....... 5,062 5,119 10,377 9,009 14,999 2,698 3,657
Interest expense....... 609 662 255 38 110 7 11
Other expenses (in-
come), net............ 62 (101) 399 (579) 325 11 49
------- -------- -------- -------- -------- ------- -------
Income before income
taxes................. 4,391 4,558 9,723 9,550 14,564 2,680 3,597
Income taxes........... 400 1,709 3,889 3,629 5,534 1,018 1,367
------- -------- -------- -------- -------- ------- -------
Net income............. $ 3,991 $ 2,849 $ 5,834 $ 5,921 $ 9,030 $ 1,662 $ 2,230
======= ======== ======== ======== ======== ======= =======
Earnings per share(3)
Basic ................ $ 0.77 $ 0.78 $ 1.19 $ .22 $ .29
======== ======== ======== ======= =======
Diluted............... $ 0.70 $ 0.72 $ 1.06 $ .20 $ .26
======== ======== ======== ======= =======
Shares used to compute
earnings per share(3)
Basic................. 7,588 7,588 7,588 7,588 7,588
======== ======== ======== ======= =======
Diluted............... 8,311 8,261 8,537 8,358 8,702
======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1997 JANUARY 31, 1998
---------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $44,441 $44,915
Total assets......................................................... 60,179 66,835
Total debt (including current maturities)............................ 469 438
Total stockholders' equity........................................... $50,635 $52,864
</TABLE>
- -------
(1) Operating results for fiscal 1993 and 1994 were significantly affected by
officers' compensation expense, which totaled $8,370 and $12,381,
respectively. Operating income before officers' compensation for fiscal
1993 and 1994 was $13,432 and $17,500, respectively.
(2) Includes a $7,000 one-time compensation expense incurred in the first
quarter of fiscal 1994 in connection with the grant of an option to the
Company's President to purchase 888,412 shares of Class A Common Stock,
which option was granted in exchange for the termination of a pre-existing
deferred compensation arrangement. The shares offered hereby include
300,000 shares of Class A Common Stock to be sold by the Company's
President issuable pursuant to a partial exercise of such option. See
"Certain Transactions."
(3) Earnings per share have not been presented for fiscal years 1993 and 1994
since such amounts are not deemed meaningful due to the significant changes
in the Company's income tax status and compensation arrangements subsequent
to the initial public offering in fiscal 1994. Prior to the initial public
offering, as a Subchapter S corporation the Company was not required to
provide for federal income taxes and incurred significantly greater
officers' compensation expense. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings Per Share" ("FAS 128"),
which has been adopted beginning with the Company's first fiscal quarter of
1998. With respect to such adoption, the Company has changed the method
used to compute the former primary and fully diluted earnings per share to
basic and diluted earnings per share and restated all prior periods.
6
<PAGE>
RISK FACTORS
This Prospectus includes or incorporates by reference forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve risks and uncertainties. These statements appear in a number of
places in this Prospectus, and include statements regarding the intent, belief
or current expectations of the Company, its directors or its officers with
respect to, among other things: (i) the financial prospects of the Company;
(ii) trends affecting the Company's financial condition or results of
operations; (iii) the Company's growth strategy and operating strategy; (iv)
trends in the retail footwear industry; and (v) the declaration and payment of
dividends. Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward looking statements as a result of various factors including, but not
limited to, changing consumer preference, competition from other footwear
manufacturers, loss of key employees, general economic conditions and adverse
factors impacting the retail footwear industry and the inability by the Company
to source its products due to political or economic factors or the imposition
of trade or duty restrictions. The accompanying information contained in this
Prospectus including without limitation the information set forth under the
headings "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," identifies other important
factors that could cause such differences.
An investment in the securities offered hereby involves a high degree of
risk. In analyzing an investment in the securities offered hereby, prospective
investors should carefully consider, along with the other matters referred to
herein, the following risk factors:
CHANGING FASHION TRENDS
The Company believes that its success depends largely on its ability to
identify and interpret fashion trends as well as on its ability to anticipate
and react to changing consumer tastes and preferences in a timely manner. There
is no assurance that the Company will continue to be successful in these
regards. In the past three fiscal years, the Company has not had a single style
of footwear that has represented more than 4% of the Company's annual net
sales. There can be no assurance that the Company will be able to continue to
develop successful styles in the future or that a chosen style will result in
sales of the Company's footwear since the Company normally chooses styles for
its footwear up to 12 months in advance of the arrival of such footwear in
retail stores. The Company attempts to reduce the risks of changing fashion
trends and product acceptance through market research and development and
testing of a broad range of styles. The Company places orders for footwear with
its manufacturers prior to the time the Company has received customers' orders
for such footwear. See "--Risk of Obsolete Inventory." If the Company misjudges
the market for its product lines, the Company could experience poor orders from
its customers, resulting in excess inventories, or its customers could
experience poor sell-through of the Company's products at the retail level,
resulting in customer requests for allowances from the Company. Disposal of
unsold inventories at unfavorable prices or excessive allowances could have a
material adverse effect on the Company's financial condition or results of
operations.
POSSIBLE TERMINATION OF AND RESTRICTIONS UNDER THE JONES NEW YORK LICENSE
AGREEMENT
In fiscal 1996 and fiscal 1997, Jones New York and Jones New York Sport
footwear sales accounted for 23% and 24%, respectively, of the Company's total
net sales. In the first quarter of fiscal 1998 and fiscal 1997, Jones New York
and Jones New York Sport footwear sales accounted for 25.9% and 27.4%,
respectively, of the Company's total net sales. The license agreement under
which the Company has the right to manufacture and market its Jones New York
and Jones New York Sport footwear (the "Jones License Agreement") expires in
December 2002, unless the Company exercises one of its three five-year options
to renew through December 2017. There is no assurance that the Jones License
Agreement would not be terminated prior to its expiration date or that the
Company would meet the necessary pre-conditions contained in such agreement in
order to exercise its option to renew such agreement. A breach by the
7
<PAGE>
Company of its obligations under the Jones License Agreement would permit the
licensor to terminate such agreement. The Jones License Agreement could also be
terminated by the licensor for certain other reasons, including any termination
(including pursuant to resignation) of Mr. Cocozza's employment as Chief
Executive Officer of the Company or the beneficial ownership of any one
stockholder or affiliated group of beneficial stockholders of 15% or more of
the Company's voting stock. Termination of the Jones License Agreement would
require the Company to discontinue its Jones New York and Jones New York Sport
footwear lines, which would have a material adverse effect on the Company's
financial condition or results of operations. The Jones License Agreement
prohibits the Company from manufacturing, selling, distributing or promoting
merchandise that would compete as to style, price or quality with the Jones New
York and Jones New York Sport footwear lines. Hence, the Company is restricted
from expanding its brand portfolio and acquiring new product lines in the Jones
New York and Jones New York Sport women's footwear market segments while this
license is in effect. Because of the 15% beneficial ownership restriction under
the Jones License Agreement, the Company may also be limited in its ability to
use its Common Stock to finance any acquisition of brands in the future. In
addition, use of any materials, designs, styles, packaging or advertising by
the Company in connection with Jones New York and Jones New York Sport footwear
lines is subject to approval by the licensor in its sole discretion based
solely on its subjective standards. There is no assurance that such approval
can be obtained in each instance or, if obtained, maintained for the duration
of the term of the agreement. See "Business--License Agreements--Jones New
York."
COMPETITION
The women's and kids' fashion footwear markets are highly competitive. The
Company's products compete with other branded footwear as well as with private
label footwear sold by many large retailers, including some of the Company's
customers. Many of the Company's competitors have substantially greater
financial, distribution and marketing resources, as well as greater consumer
brand awareness than the Company. In addition, the general availability of
contract manufacturing capacity allows easy access by new market entrants. See
"Business--Competition."
IMPACT OF FOREIGN OPERATIONS; CHINA MANUFACTURING
The Company does not own or operate any manufacturing facilities.
Substantially all of the Company's products are currently manufactured by
independent contractors located in the People's Republic of China ("China"),
Brazil, Italy, and Spain. As a result, the Company's import operations are
subject to compliance with all relevant laws and regulations enforced by the
United States Customs Service, as well as customary risks of doing business
abroad, including fluctuations in the value of currencies, increases in customs
duties and related fees resulting from position changes by the United States
Customs Service, import controls and trade barriers (including the unilateral
imposition of import quotas), restrictions on the transfer of funds, work
stoppages and, in certain parts of the world, political instability causing
disruption of trade from the countries in which the Company's suppliers are
located.
In addition, the Company's ability to cost-effectively produce or obtain
products from manufacturers in China, which currently manufactures
approximately 83% of the Company's products, is subject to retention by China
of its "most favored nation" ("MFN") tariff status and its compliance with
certain other requirements. Pursuant to MFN status, products imported by the
Company from China currently receive the lower tariff rates made available to
most of the United States' major trading partners. In the case of China,
however, this MFN treatment is made possible under the Trade Act of 1974 by
virtue of certain Presidential findings that waive restrictions that would
otherwise render China ineligible for MFN treatment. China's MFN status is
reviewed annually. Although the President has waived these restrictions each
year since 1979, there can be no assurance that China will continue to enjoy
MFN status in the future. If goods manufactured in China enter the United
States without the benefit of MFN treatment, such goods will be subject to
significantly higher duty rates, ranging between 20% and 66% of customs value.
Any such increased duties or tariffs could significantly increase the cost or
reduce the supply of goods from China. In addition, the United States Trade
Representative is monitoring China due to concerns regarding the protection of
intellectual property rights and market barriers to United States exports to
and investments in China. China's
8
<PAGE>
failure to comply with the terms of agreements entered into with the United
States regarding these matters could result in sanctions against China, and the
imposition of new duties on certain imports from China potentially including
shoes made for the Company. Any significant increase in duties or tariffs on
the Company's products could have a material adverse effect on the Company's
financial condition or results of operations. See "Business--Restrictions on
Imports."
Historically, instability in the political and economic environments of the
countries in which the Company obtains its products has not had a material
adverse effect on the Company's operations. The Company cannot predict,
however, the effect that future changes in economic or political conditions in
such countries could have on its relationships with its manufacturers. Although
the Company believes that it could find alternative manufacturing sources,
establishment of new manufacturing relationships would involve various
uncertainties and the loss of a substantial portion of its manufacturing
capacity could have a material adverse effect on the Company's financial
condition or results of operations. The Company continually explores the
availability and feasibility of alternative locations around the world to
manufacture its products.
Although the majority of the goods sold by the Company are not currently
subject to quotas, countries in which the Company's products are manufactured
may, from time to time, impose new or adjust prevailing quotas or other
restrictions on exported products and the United States may impose new duties,
tariffs and other restrictions on imported products, any of which could
adversely affect the Company's operations and its ability to import its
products at the Company's current or increased quantity levels. In accordance
with the Harmonized Tariff Schedule, a fixed duty structure in effect for the
United States, the Company pays import duties on its products ranging from
approximately 10% to 37.5%, depending on the principal component of the
product. Other restrictions on the importation of footwear and the Company's
other products are periodically considered by the United States Congress and no
assurances can be given that tariffs or duties on the Company's goods may not
be raised, resulting in higher costs to the Company, or that import quotas with
respect to such goods may not be imposed or made more restrictive.
RISK OF DEPENDENCE ON BUYING AGENTS AND MANUFACTURERS
While the Company believes it has established strong working relationships
with its buying agents and foreign manufacturers, the Company has not entered
into contracts with any of them. Since the Company relies on its buying agents
for sourcing the manufacturing of most of the products it sells, the loss of
any of its agents, one or more of whom in any fiscal year may coordinate the
manufacturing of a substantial portion of the Company's products, could impair
the Company's ability to obtain quality products, which would have a material
adverse effect on the Company's financial condition and results of operations.
In addition, loss of one or more of its manufacturers could cause the Company
to experience a temporary increase in costs, decline in product quality,
shortage of products or delays in deliveries of its products, any of which
could have an adverse effect on the Company's financial condition or results of
operations. For the fiscal year ended October 31, 1997 and the quarter ended
January 31, 1998, Universal Max Trading, a company based in Taiwan and the
Company's principal buying agent in China, was responsible for approximately
55% and 48%, respectively, of the Company's footwear products. The loss of
Universal Max Trading could have a material adverse effect on the Company and
its business. Although the Company's ability to obtain products has not been
materially affected by competition with other footwear companies for production
facilities and the Company's manufacturers currently are able to meet the
Company's production requirements, no assurance can be given that the Company
will continue to be able to obtain sufficient product quantities in the future.
See "Business--Manufacturing."
RISK OF OBSOLETE INVENTORY
In order to minimize purchasing costs, the Company places approximately a
third of its footwear orders with its manufacturers well in advance of
receiving customers' orders. In addition, an order may be canceled by the
customer up until the time the customer accepts delivery of the merchandise.
Therefore, the Company
9
<PAGE>
has no assurance that it will be able to sell footwear ordered from its
manufacturers or its inventory on hand. As of January 31, 1998, the Company had
$30.0 million of open purchase orders at first cost with its manufacturers and
$25.7 million of inventory at landed cost.
DEPENDENCE ON GENERAL ECONOMIC CONDITIONS AND SLUGGISH RETAIL ENVIRONMENT
The Company's operating results during any given period depend significantly
on the ability and willingness of consumers to spend money on footwear, which
may be adversely affected by downward trends in the economy or the occurrence
of events that adversely affect the economy in general. Although the Company
has not experienced a recent slowdown in retail sell-through of its products,
such a slowdown could occur in the future, and if it were to occur, could have
a material adverse effect on the Company's financial position or results of
operations.
The Company, like many of its competitors, primarily sells to major
retailers, some of whom have experienced financial difficulties, including
bankruptcy. Although to date the financial difficulties of these retailers have
not had a material adverse effect on the Company, the Company cannot predict
what effect the future financial condition of such retailers will have on the
business of the Company. No assurance can be given that the Company's bad debt
expense will not be material in the future.
NO ASSURANCE OF CONTINUED RATE OF GROWTH
The Company has enjoyed rapid growth over the last year. However, the Company
remains vulnerable to a variety of business risks generally associated with
rapidly growing companies as well as risks related to the broadening of product
offerings and marketing of new brands. Therefore, the Company's past growth
cannot be assumed to be indicative of its future operating results. In
addition, failure to upgrade operating and control systems or unexpected
difficulties encountered during expansion could adversely affect the Company's
financial position or results of operations.
As part of its growth strategy, the Company seeks to acquire or license
additional brands in the future. There can be no assurance that the Company
will be able to identify such brands or successfully negotiate or finance the
acquisition or licensing of such brands. Specifically, the Company may be
limited in its ability to use its Common Stock to finance any acquisition of
brands because of the 15% beneficial ownership limitation under the Jones
License Agreement. See "--Possible Termination of and Restrictions Under the
Jones New York License Agreement." In addition, even if the Company can
successfully acquire or license additional brands, there is no assurance that
the Company will be able to generate any revenues or profits from such
acquisition or license. See "Business--Business Strategy."
RELIANCE ON KEY CUSTOMERS
The Company's largest customer, The TJX Companies, Inc. ("TJX"), the
successor entity from the combination of Marshall's and T.J. Maxx, accounted
for 22%, 19%, 30% and 19% of the Company's net sales in fiscal 1996, fiscal
1997, the first quarter of fiscal 1997 and the first quarter of fiscal 1998,
respectively, including revenues from closeouts. The Company's top three
customers accounted for 35%, 32%, 43% and 36% of net sales for fiscal 1996,
fiscal 1997, the first quarter of fiscal 1997 and the first quarter of fiscal
1998, respectively. While the Company seeks to build long-term customer
relationships, revenues from any particular customer can fluctuate from period
to period due to such customer's purchasing patterns. In addition, the Company
believes that although purchasing decisions have generally been made
independently by each department store customer, there is a trend among
department store customers toward more centralized purchasing decisions. The
retail industry has also periodically experienced consolidation, and any future
consolidation may result in loss of customers of the Company and lower profit
margins on the Company's footwear. In the future, the Company's wholesale
customers may consolidate, undergo restructurings or reorganizations, or
realign their affiliations, any of which could decrease the number of stores
that carry the Company's products or increase the ownership concentration
within the retail industry. Any termination or significant disruption of the
Company's relationships with one or more of the Company's major customers could
have a material adverse effect on the Company's financial condition or results
of operations. See Note 1 of "Notes to Consolidated Financial Statements."
10
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The future success of the Company is largely dependent on the talent and
efforts of certain members of the Company's senior management team, including
Mr. Mark Cocozza, 49, President and Chief Operating Officer and prospective
Chairman of the Board and Chief Executive Officer, Mr. James Tinagero, 45,
Executive Vice President, Mr. Richard Bakos, 50, Chief Financial Officer, Mr.
Bradley Finn, 44, Division Executive for Mootsies Tootsies brands, Mr. Richard
Brandt, 36, Division Executive for Jones New York brands and Mr. Stephen Souza,
33, Division Executive for the Sam & Libby brands. The loss of the services of
any of these people could have a material adverse effect on the Company's
financial condition or results of operations. The Jones License Agreement may
be terminated by the licensor if Mr. Cocozza is not the Chief Executive Officer
of the Company at any time after the consummation of the Offering. Any
termination of the Jones License Agreement would have a material adverse effect
on the Company's financial condition and results of operations. See "--Possible
Termination of and Restrictions Under the Jones New York License Agreement."
The Company does not have employment contracts with any of its personnel other
than with Mr. Cocozza and Mr. Tinagero, and none of the Company's personnel
except Mr. Cocozza and Mr. Tinagero, are subject to noncompetition agreements.
Despite such employment agreements with Messrs. Cocozza and Tinagero, there is
no assurance that the Company will be able to retain their services. See
"Management--Employment Agreements." The Company has a $3 million key-man life
insurance policy covering Mr. Cocozza but otherwise does not maintain key-man
life insurance on the lives of any of its personnel.
RISK OF SLJ RETAIL
Any failure by the Company to successfully operate the SLJ Retail women's
footwear stores may result in substantial net losses for SLJ Retail in the
future, although the Company's financial loss is limited to its initial nominal
investment of $4,325 if the Company continues to own less than 50% of the
voting equity of SLJ Retail. Under current generally accepted accounting
principles, the Company is required to account for its interest in SLJ Retail
under the equity method of accounting for so long as the Company owns less than
50% of the voting equity of SLJ Retail. Under the equity method of accounting,
the Company is required to record its proportionate share of SLJ Retail's net
income or loss; provided, however, net losses of SLJ Retail recorded by the
Company are limited to the Company's investment in and advances to SLJ Retail.
Any failure of SLJ Retail to execute its retail strategy may adversely affect
consumer perception of the Company's Sam & Libby brand and the Jones New York
and Jones New York Sport brands and adversely impact the Company's sales of
footwear under these brand names. The Company's ability to successfully operate
the SLJ Retail women's footwear stores in the future will depend on various
factors, including general economic and business conditions affecting consumer
spending, the performance of SLJ Retail's operations, the acceptance by
consumers of SLJ Retail's concepts and the ability of the Company to manage
such operations and hire and train personnel. Although certain members of the
Company's management team have had significant retail experience prior to
joining the Company, the Company itself has no prior experience managing or
operating a national chain of retail women's footwear stores. There is no
assurance that the Company will be able to successfully operate SLJ Retail.
Under the Services Agreement with SLJ Retail, Mr. Cocozza and Mr. Tinagero
are each required to devote 25% of their time to SLJ Retail's business. There
is no assurance that such devotion of Messrs. Cocozza's and Tinagero's time to
SLJ Retail will not adversely affect the Company's financial condition and
results of operations. Under the Option Agreement among the Company, SLJ Retail
and Butler, Butler has certain rights, expiring on the fifth anniversary of the
date of the Option Agreement, to require the Company to purchase all or a
portion of its interest in SLJ Retail for cash or Common Stock of the Company
at a price to be computed using a pre-determined multiple of SLJ Retail's cash
flow. There is no assurance that any exercise by Butler of its rights under
such Option Agreement would not have a material adverse effect on the Company's
financial condition and results of operations.
11
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have fluctuated in the past and may
fluctuate in the future as a result of a variety of factors, including timing
of orders, sensitivity to general economic conditions, the health of the retail
industry, the relative mix of different products with differing margins,
clients' order patterns, changes in the pricing strategies of the Company,
foreign currency fluctuations and other costs relating to the expansion of
brands. Many of these factors are outside of the Company's control. The Company
may not be able to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall, which could have a material adverse effect on the
Company's financial condition or results of operations. For the foregoing
reasons, the Company believes that period-to-period comparisons of its
financial results should not be relied upon as an indication of future
performance. In addition, the results of any quarterly period are not
indicative of results to be expected for a full fiscal year. It is possible
that, in certain future quarters, the Company's operating results may be below
the expectations of public market analysts and investors. In such an event, the
price of the Class A Common Stock would likely be materially adversely
affected.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of this Offering, the Company will have outstanding 7,986,524
shares of Class A Common Stock, all of which will be freely tradable. In
addition, 588,412 shares of Class A Common Stock will be issuable upon exercise
of an option granted to the Company's President, Mr. Mark Cocozza, all of which
shares will be restricted stock for purposes of the Securities Act. The
President's option is currently exercisable until January 6, 2010, and the
Company has agreed to separately register under the Securities Act on Form S-8
(if available) the 588,412 shares of Class A Common Stock issuable upon
exercise of Mr. Cocozza's option. Such shares will thereafter be eligible for
resale. Furthermore, 200,000 shares of Class A Common Stock will be issuable
upon exercise of an option granted to Mr. James Tinagero, the Company's
Executive Vice President, all of which shares have been registered under the
Securities Act. Such option will become exercisable upon a change of control of
the Company, and hence, such option will become exercisable upon the
consummation of this Offering. Upon consummation of the Offering, the Company
will grant to Messrs. Cocozza and Tinagero 75,000 and 25,000 additional stock
options, respectively, subject to certain time and other vesting provisions.
The Company will register under the Securities Act on Form S-8 such 100,000
shares issuable upon exercise of these additional 100,000 options. See
"Description of Capital Stock--Registration Rights;" "Shares Eligible for
Future Sale" and "Underwriting."
No prediction can be made as to the effect that future sales of Class A
Common Stock, or the availability of shares of Class A Common Stock for future
sales, will have on the market prices for the Class A Common Stock prevailing
from time to time. Sales of substantial amounts of Class A Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Class A Common Stock, or the perception that such sales
could occur could impair the Company's ability to raise capital through the
future sale of its equity securities.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and by-laws,
as well as provisions of the Delaware General Corporation Law, may have the
effect of delaying, deterring or preventing transactions involving a change of
control of the Company, including transactions in which stockholders might
otherwise receive a substantial premium for their shares over then current
market prices, and may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests. For example,
under the Certificate of Incorporation, the Board of Directors is authorized to
issue 1,000,000 shares of one or more classes of Preferred Stock having such
designations, rights and preferences as may be determined by the Board of
Directors and which could adversely affect the voting power or other rights of
the holders of Class A Common Stock. Further, certain provisions of Delaware
law may also discourage third party attempts to acquire control of the Company.
See "Description of Capital Stock."
12
<PAGE>
FOREIGN CURRENCY FLUCTUATIONS; FORWARD EXCHANGE CONTRACTS
The Company generally purchases its products in U.S. dollars. However, the
Company sources a significant amount of its products overseas and, as a result,
the cost of these products may be affected by changes in the value of the
relevant currencies. The Company, from time to time, hedges certain exposures
to changes in foreign currency exchange rates arising in the ordinary course of
business. There can be no assurance that foreign currency fluctuations will not
have a material adverse effect on the Company's financial condition or results
of operations. The Company has entered into forward exchange contracts in
anticipation of future purchases of inventory denominated in foreign currency,
principally the Spanish peseta. Maximum risk of loss on these contracts is the
amount of the difference between the spot rate at the date of contract delivery
and the contracted rate. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
ABSENCE OF DIVIDENDS
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and development of its
business and has no current intention to pay cash dividends on its Common Stock
in the foreseeable future. See "Dividend Policy."
13
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders, other than approximately $1,100,000 which the Company
will receive as a result of option exercises prior to the consummation of the
Offering.
If the Underwriters' overallotment option is exercised, the proceeds to the
Company from the sale of 801,625 shares of Class A Common Stock in connection
therewith are estimated to be approximately $14,530,000 (based on the closing
price of the Company's Class A Common Stock on April 17, 1998) excluding
estimated underwriting discounts and commissions and estimated expenses of this
Offering. Based upon the Company's estimates of its cash flow and cash usage
prior to the completion of this Offering, the Company estimates that, of the
net proceeds, the Company will use (i) approximately $4.0 million to fund
capital expenditures, (ii) $1.0 million to fund increased advertising costs and
(iii) the remainder for working capital and general corporate purposes. Pending
such uses, the Company will invest any Offering proceeds in short-term,
interest-bearing securities.
PRICE RANGE OF CLASS A COMMON STOCK
The Class A Common Stock is traded on the NASDAQ National Market System under
the symbol MAXS. The following table sets forth for the periods indicated the
range of high and low sale prices of the Class A Common Stock as reported by
NASDAQ:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1996
First quarter............................................ 7 4 3/4
Second quarter........................................... 6 4 1/2
Third quarter............................................ 7 3/8 5
Fourth quarter........................................... 6 3/4 6 1/8
Fiscal 1997
First quarter............................................ 8 3/8 6 1/2
Second quarter........................................... 8 3/4 7 1/8
Third quarter............................................ 13 7 1/2
Fourth quarter........................................... 15 10 3/4
Fiscal 1998
First quarter ........................................... 16 3/4 10 1/2
Second quarter (through April 17, 1998).................. 19 1/2 13 7/8
</TABLE>
On April 17, 1998, the last sale price of the Class A Common Stock, as
reported by NASDAQ was $18.125 per share. There is currently no established
public trading market for the Company's Class B Common Stock and it is
contemplated that there will be no stockholders of record or otherwise of the
Class B Common Stock after the consummation of the Offering. As of April 17,
1998, there were approximately 1,400 holders of the Class A Common Stock,
including the beneficial owners of shares held in nominee accounts.
DIVIDEND POLICY
The Company has not paid cash dividends on the Common Stock to date since the
payment of certain distributions to the Selling Stockholders in connection with
the termination of the S corporation status of the Company prior to the
consummation of the Company's initial public offering. In addition, because the
Company currently intends to retain any earnings for development of its
business, the Company does not intend to pay cash dividends on its Common Stock
in the foreseeable future. Any determination to pay cash dividends on the
Common Stock in the future will be at the sole 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.
14
<PAGE>
CAPITALIZATION
The following table sets forth the (i) actual short-term indebtedness and
capitalization of the Company at January 31, 1998, and (ii) the short-term
indebtedness and capitalization of the Company as of January 31, 1998 as
adjusted to reflect the conversion of all Class B Common Stock to Class A
Common Stock upon the consummation of the Offering and the exercise of options
to purchase 380,850 shares of Class A Common Stock. This table should be read
in conjunction with the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Short-term debt, including current maturities.............. $ 125 $ 125
======= =======
Long-term debt, excluding current maturities............... $ 313 $ 313
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000
shares authorized; none outstanding...................... -- --
Class A Common Stock, par value $.01 per share, 20,000,000
shares authorized; 2,525,000 outstanding (7,969,167 as
adjusted) (1)............................................ 25 80
Class B Common Stock, par value $.01 per share, 10,000,000
shares authorized; 5,063,317 outstanding (none as
adjusted)(2)............................................. 51 --
Additional paid-in capital................................ 27,312 28,402
Retained earnings......................................... 25,476 25,476
------- -------
Total stockholders' equity ............................ 52,864 53,958
------- -------
Total capitalization................................. $53,177 $54,271
======= =======
</TABLE>
- --------
(1) Excludes (i) 588,412 shares of Class A Common Stock issuable upon exercise
of an option that has been granted to Mr. Mark Cocozza, the President of
the Company, which option had been granted in exchange for the termination
of a pre-existing deferred compensation arrangement, (ii) 733,493 shares of
Class A Common Stock issuable upon exercise of options to purchase shares
that have been granted prior to the Offering to employees and non-employee
directors of the Company, (iii) 299,150 shares of Class A Common Stock
reserved for issuance upon exercise of options that have been granted under
the Company's 1994 Stock Incentive Plan, (iv) 801,625 shares of Class A
Common Stock issuable upon exercise of an over-allotment option granted to
the Underwriters and (v) 100,000 shares of Class A Common Stock issuable
upon exercise of 75,000 and 25,000 options to be granted to Messrs. Cocozza
and Tinagero, respectively, upon consummation of the Offering but includes
17,357 shares of Class A Common Stock issued upon exercise of options that
have been granted to certain employees of the Company. In December 1997,
the Board of Directors amended the Company's 1994 Stock Incentive Plan to
increase by 300,000 the authorized number of shares of Class A Common Stock
issuable under such plan, and the stockholders of the Company approved such
amendment at the April 1998 annual meeting.
(2) As soon as practicable after the consummation of the Offering, the Company
intends to seek stockholder approval to amend its Certificate of
Incorporation to eliminate the authorization for the issuance of Class B
Common Stock. Consequently, assuming the implementation of such amendment,
the Company will have only one class of Common Stock and one class of
Preferred Stock. See "Description of Capital Stock."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company with
respect to the statements of income for the years ended October 31, 1995, 1996
and 1997 and the balance sheets at October 31, 1996 and 1997 are derived from
the consolidated financial statements of the Company that have been audited by
Ernst & Young LLP, independent auditors, and are included elsewhere herein,
and are qualified by reference to such consolidated financial statements and
notes related thereto. The selected consolidated financial data of the Company
with respect to the statements of income for the years ended October 31, 1993
and 1994 and the balance sheets at October 31, 1993, 1994 and 1995 are derived
from the audited consolidated financial statements of the Company which are
not included or incorporated by reference herein. The following selected
consolidated financial data of the Company with respect to the statements of
income for the quarters ended January 31, 1997 and 1998 and the balance sheets
at January 31, 1997 and 1998 are derived from the unaudited consolidated
financial statements of the Company included elsewhere herein, which, in the
opinion of the Company's management, include all adjustments (consisting of
only normal recurring accruals) necessary for a fair presentation of the
financial position and results of operations for such periods. The following
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
--------------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............. $79,049 $100,931 $101,870 $104,337 $134,211 $28,764 $36,328
Cost of sales......... 56,297 72,117 77,912 79,915 98,230 21,503 26,491
------- -------- -------- -------- -------- ------- -------
Gross profit.......... 22,752 28,814 23,958 24,422 35,981 7,261 9,837
Selling, general and
administrative
expenses(1)(2) ...... 17,690 23,695 13,581 15,413 20,982 4,563 6,180
------- -------- -------- -------- -------- ------- -------
Operating income...... 5,062 5,119 10,377 9,009 14,999 2,698 3,657
Interest expense...... 609 662 255 38 110 7 11
Other expense
(income), net........ 62 (101) 399 (579) 325 11 49
------- -------- -------- -------- -------- ------- -------
Income before income
taxes................ 4,391 4,558 9,723 9,550 14,564 2,680 3,597
Income taxes.......... 400 1,709 3,889 3,629 5,534 1,018 1,367
------- -------- -------- -------- -------- ------- -------
Net income ........... $ 3,991 $ 2,849 $ 5,834 $ 5,921 $ 9,030 $ 1,662 $ 2,230
======= ======== ======== ======== ======== ======= =======
Earnings per share(3)
Basic................. $ 0.77 $ 0.78 $ 1.19 $ .22 $ .29
======== ======== ======== ======= =======
Diluted............... $ 0.70 $ 0.72 $ 1.06 $ .20 $ .26
======== ======== ======== ======= =======
Shares used to compute
earnings per share(3)
Basic................. 7,588 7,588 7,588 7,588 7,588
======== ======== ======== ======= =======
Diluted............... 8,311 8,261 8,537 8,358 8,702
======== ======== ======== ======= =======
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
--------------------------------------- -----------
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $15,967 $28,770 $35,097 $35,523 $44,441 $44,915
Total assets............. 27,926 36,621 39,979 46,920 60,179 66,835
Total debt (including
current maturities)..... 8,279 123 787 611 469 438
Total stockholders'
equity.................. $14,623 $29,850 $35,684 $41,605 $50,635 $52,864
</TABLE>
- --------
(1) Operating results for fiscal 1993 and 1994 were significantly affected by
officers' compensation expense, which totaled $8,370 and $12,381,
respectively. Operating income before officers' compensation for fiscal
1993 and 1994 was $13,432 and $17,500, respectively.
(2) Includes a $7,000 one-time compensation expense incurred in the first
quarter of fiscal 1994 in connection with the grant of an option to the
Company's President to purchase 888,412 shares of Class A Common Stock,
which option was granted in exchange for the termination of a pre-existing
deferred compensation arrangement. The shares offered hereby include
300,000 shares of Class A Common Stock to be sold by the Company's
President issuable pursuant to a partial exercise of such option. See
"Certain Transactions."
(3) Earnings per share have not been presented for fiscal years 1993 and 1994
since such amounts are not deemed meaningful due to the significant changes
in the Company's income tax status and compensation arrangements subsequent
to the initial public offering in fiscal 1994. Prior to the initial public
offering, as a Subchapter S corporation the Company was not required to
provide for federal income taxes and incurred significantly greater
officers' compensation expense. In February 1997, the Financial Accounting
Standards Board issued FAS 128, which has been adopted beginning with the
Company's first fiscal quarter of 1998. With respect to such adoption, the
Company has changed the method used to compute the former primary and fully
diluted earnings per share to basic and diluted earnings per share and
restated all prior periods.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's net sales have increased each year since 1987, and in fiscal
1997, the Company's net sales and net income increased 28.7% and 52.5%,
respectively, as compared to fiscal 1996. In the first quarter of fiscal 1998,
the Company's net sales and net income increased 26.3% and 34.2%, respectively,
as compared to the first quarter of fiscal 1997. These increases were primarily
due to significant increases in branded sales of Mootsies Tootsies, Sam &
Libby, Jones New York and Jones New York Sport footwear. Management believes
that (i) the increased consumer demand for Mootsies Tootsies, Jones New York
and Jones New York Sport footwear, (ii) the introduction of the Sam & Libby
footwear lines in 1997 and (iii) the Company's ability to design and develop
contemporary footwear to meet changing consumer demands contributed to this
positive performance.
In April 1997, the Company entered into an agreement to operate approximately
130 retail women's footwear stores through the SLJ Retail joint venture. Under
current generally accepted accounting principles, the Company is required to
account for its interest in SLJ Retail under the equity method of accounting
for so long as the Company owns less than 50% of the voting equity of SLJ
Retail. Under the equity method of accounting, the Company is required to
record its proportionate share of SLJ Retail's net income or loss; provided,
however, net losses of SLJ Retail recorded by the Company are limited to the
Company's investment in and advances to SLJ Retail. Since the Company made a
nominal investment in SLJ Retail, operating losses of SLJ Retail are not
recorded by the Company. The Company holds an option through February 1, 2000
to purchase additional equity in SLJ Retail to increase its equity ownership to
55%, subject to achieving certain operating income levels. In the event the
Company exercises such option, it could be required to consolidate SLJ Retail's
and its financial statements. However, the Company does not intend to exercise
such option until SLJ Retail achieves profitability, if ever. Under the Option
Agreement among the Company, SLJ Retail and Butler, Butler has certain rights,
expiring on the fifth anniversary of the date of the Option Agreement, to
require the Company to purchase all or a portion of its interest in SLJ Retail
for cash or Common Stock of the Company at a price to be computed using a pre-
determined multiple of SLJ Retail's cash flow. There is no assurance that any
exercise by Butler of its rights under such Option Agreement would not have a
material adverse effect on the Company's financial condition and results of
operations.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("FAS 128"), which has been adopted beginning
with the Company's first fiscal quarter of 1998. With respect to such adoption,
the Company has changed the method used to compute the former primary and fully
diluted earnings per share to basic and diluted earnings per share and restated
all prior periods.
The Company's quarterly operating results have fluctuated in the past and may
fluctuate in the future as a result of a variety of factors, including timing
of orders, sensitivity to general economic conditions, the health of the retail
industry, different products with differing margins, clients' order patterns,
changes in the pricing strategies of the Company, foreign currency fluctuations
and other costs relating to the expansion of brands. Many of these factors are
outside of the Company's control, and the Company may not be able to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
which could have a material adverse effect on the Company's financial condition
or results of operations. For the foregoing reasons, the Company believes that
period-to-period comparisons of its financial results should not be relied upon
as an indication of future performance. In addition, the results of any
quarterly period are not indicative of results to be expected for a full fiscal
year.
18
<PAGE>
The following is a summary of unaudited quarterly results for the fiscal
years ended October 31, 1996 and October 31, 1997 and the quarter ended January
31, 1998.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------
APRIL JULY
JANUARY 31, 30, 31, OCTOBER 31,
----------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal 1996
Net sales........................ $23,705 $26,774 $30,222 $23,636
Gross profit..................... 5,821 5,917 7,009 5,675
Net income....................... 1,452 1,530 1,920 1,019
Net income per share
Basic.......................... $ .19 $ .20 $ .25 $ .13
======= ======= ======= =======
Diluted........................ $ .18 $ .19 $ .23 $ .12
======= ======= ======= =======
Fiscal 1997
Net sales........................ $28,764 $31,073 $36,833 $37,541
Gross profit..................... 7,261 9,161 10,173 9,386
Net income....................... 1,662 2,190 2,965 2,213
Net income per share
Basic.......................... $ .22 $ .29 $ .39 $ .29
======= ======= ======= =======
Diluted........................ $ .20 $ .26 $ .35 $ .25
======= ======= ======= =======
Fiscal 1998
Net sales........................ $36,328
Gross profit..................... 9,837
Net income....................... 2,230
Net income per share
Basic.......................... $ .29
=======
Diluted........................ $ .26
=======
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth net sales by product line or category of
business:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
---------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(IN MILLIONS--EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mootsies Tootsies....... $ 65.6 64.4% $ 60.8 58.3% $ 71.0 52.9% $15.4 53.4% $15.9 43.8%
Jones New York Footwear. 17.2 16.9 24.0 23.0 32.2 24.0 7.9 27.4 9.4 25.9
Sam & Libby............. -- -- -- -- 14.6 10.9 2.3 8.0 3.3 9.1
Private Label Footwear.. 12.9 12.7 14.5 13.9 13.6 10.1 2.6 9.0 6.7 18.5
Closeout................ 6.2 6.0 5.0 4.8 2.8 2.1 .6 2.2 1.0 2.7
------ ----- ------ ----- ------ ----- ----- ----- ----- -----
$101.9 100.0% $104.3 100.0% $134.2 100.0% $28.8 100.0% $36.3 100.0%
====== ===== ====== ===== ====== ===== ===== ===== ===== =====
</TABLE>
Three Months Ended January 31, 1998 Compared to Three Months Ended January 31,
1997
Net sales were $36.3 million for the three months ended January 31, 1998
compared to $28.8 million for the same period in the prior year, an increase of
26.3%. The net sales increase was due primarily to a $4.1 million increase in
the net sales of private label footwear and a $3.0 million increase in the net
sales of the Company's branded footwear as compared to the same period in the
prior year.
19
<PAGE>
Gross profit in the first quarter of fiscal 1998 was $9.8 million compared to
$7.3 million in the first quarter of fiscal 1998, or 27.1% of net sales as
compared to 25.2% for the same quarter in 1997. The increase in gross margins
for the first quarter of fiscal 1998 was due to improved gross margins in the
branded lines of footwear.
Selling, general and administrative expenses increased $1.6 million during
the first quarter of fiscal 1998 due to increased selling commissions and
shipping expenses related to the increased net sales volume and start up costs
of new warehouse facilities. Advertising expense increased by $0.3 million due
to increased activity and in store point of sale promotion items.
The Company has accrued an effective income tax rate of 38% for the relevant
periods in fiscal years 1998 and 1997.
At January 31, 1998 and 1997, the Company had unfilled customer orders
(backlog) of $59.4 million and $47.1 million respectively, an increase of
26.1%. The backlog at a particular time is affected by a number of factors,
including seasonality and the scheduling of manufacturing and shipment of
products. Orders generally may be canceled by customers without financial
penalty. Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments
to customers. The Company expects that substantially all of its backlog at
January 31, 1998 will be shipped within six months from such date.
Fiscal 1997 Compared to Fiscal 1996
Net sales were $134.2 million in fiscal 1997 compared to $104.3 million in
fiscal 1996, an increase of 28.7%. This increase was due to a 34.2% and 16.8%
rise in net sales of Jones New York and Mootsies Tootsies footwear,
respectively, over the prior year, and the additional $14.6 million in net
sales generated by the Sam & Libby division, offset by a decrease of 6.2% in
net sales generated by private label footwear.
Gross profit was $36.0 million in fiscal 1997 compared to $24.4 million in
fiscal 1996, an increase of 47.5%. Gross margins also increased in fiscal 1997
from fiscal 1996 due to improved gross margins in the branded lines of footwear
and a decrease in the proportion of net sales derived from lower margin private
label sales.
Selling, general and administrative expenses increased $5.6 million during
fiscal 1997 from fiscal 1996 due to an increase in aggregate compensation and
corresponding fringe benefits expenses resulting from the addition of new
personnel required for the launching of the Company's Sam & Libby division and
administrative charges relating to increased net sales and improved
profitability.
Other expenses were $0.3 million for fiscal 1997 compared to other income of
$0.6 million for fiscal 1996. During fiscal 1997, amortization expense relating
to the acquisition of the Sam & Libby trademark was $0.4 million and losses of
$0.1 million were realized from foreign exchange contracts, offset by $0.1
million in interest income from cash equivalents. During fiscal 1996, the
account was comprised principally of net gains from forward exchange contracts
entered into in anticipation of future purchase of inventory denominated in
foreign currencies and interest income from the investment of cash equivalents.
In fiscal 1997, other expenses included interest expense of $0.1 million
compared to $38,000 for fiscal 1996. Interest expense in fiscal 1997 was
incurred for capital leases and short term borrowings. The Company had no short
term borrowings in fiscal 1996.
Fiscal 1996 Compared to Fiscal 1995
Net sales were $104.3 million in fiscal 1996 compared to $101.9 million in
fiscal 1995, an increase of 2.4%. Net sales for the Jones New York footwear
lines of business in fiscal 1996 increased 39.5% over fiscal 1995 net sales.
Private label net sales in fiscal 1996 increased 12.4% over fiscal 1995 net
sales. These net sales
20
<PAGE>
increases were offset by a 7.3% decrease in Mootsies Tootsies net sales for
fiscal 1996 from fiscal 1995. The average selling price per pair of shoes sold
increased 2.3% in fiscal 1996 over the fiscal 1995 average selling price per
pair.
Gross profit was $24.4 million in fiscal 1996 compared to $24.0 million in
fiscal 1995, an increase of 1.7%. Gross margin was substantially unchanged from
fiscal 1996 to fiscal 1995.
Selling expenses were $5.3 million in fiscal 1996 compared to $4.8 million in
fiscal 1995. As a percentage of net sales, selling expenses increased to 5.1%
in fiscal 1996 from 4.7% in fiscal 1995 due to the expenses associated with
launching the Company's Sam & Libby brand and increased advertising expense.
General and administrative expenses were $8.0 million in fiscal 1996 compared
to $7.0 million in fiscal 1995, an increase of 14.8%. As a percentage of sales,
general and administrative expenses increased to 7.7% in fiscal 1996 from 6.8%
in fiscal 1995. The increase in expense was due to the higher salaries and
corresponding fringe benefit increases resulting from the addition of new
personnel associated with launching the Company's Sam & Libby brand and
administrative charges which are volume related.
Interest expense was less than $0.1 million in fiscal 1996 compared to $0.3
million in fiscal 1995. This decrease was due to the Company being able to rely
on cash provided by operating activities to fund its working capital
requirements throughout the year.
Other income was $0.6 for fiscal 1996 compared to other expense of $0.4 for
the same period in the prior year. In fiscal 1996, this income was comprised
principally of gains and losses from forward exchange contracts entered into in
anticipation of future purchases of inventory denominated in foreign currencies
and interest income. During fiscal 1995, expenses of approximately $0.3 million
were recognized as non-recurring costs arising from terminated discussions
relating to the possible sale of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily upon internally generated cash flows from
operations, borrowings under its revolving credit facility, and borrowings from
stockholders (when the Company was privately held) to finance its operations
and expansion. Cash provided (used) by operating activities totaled
approximately $5.7 million in fiscal 1995, $9.5 million in fiscal 1996, ($6.5)
million in fiscal 1997, ($8.7) million in the first quarter of fiscal 1997 and
$0.4 million in the first quarter of fiscal 1998. At January 31, 1998, working
capital was $44.9 million as compared to $44.4 million at January 31, 1997.
Working capital may vary from time to time as a result of seasonal
requirements, the timing of early factory shipments and the Company's in-stock
position, which requires increased inventories, and the timing of accounts
receivable collections.
In fiscal 1997, cash used by operations was $6.5 million as compared to cash
provided by operations in fiscal 1996 of $9.5 million. The decrease of cash
provided was due to increases in accounts receivable and inventory balances.
This was a result of increased revenues, as well as the establishment of
inventory for the Sam & Libby division. Net cash provided by operating
activities totaled approximately $0.4 million in the three month period ended
January 31, 1998, as compared to net cash used of $8.7 million for the same
period in 1997. The decrease in cash used in operations from the prior year was
due to the absence of significant growth in accounts receivable which occurred
in 1997.
The Company currently has a $25.0 million revolving credit facility bearing
interest at a floating rate equal to Bank Boston's base rate, currently 8.5%.
The facility is renewable annually under certain conditions and is secured by
substantially all of the assets of the Company. A portion of the revolving
credit facility can be utilized to issue letters of credit to guarantee payment
of the Company's purchases of footwear manufactured overseas. Amounts available
under the revolving credit facility are based on eligible accounts receivable,
inventory and a portion of the open letters of credit. As of January 31, 1998,
there were no outstanding borrowings, $10.7 million was outstanding under
letters of credit and $14.3 million was available for future borrowings.
21
<PAGE>
Capital expenditures were $2.0 million for the three months ended January 31,
1998. The Company is in the process of installing a computerized warehouse
management system in its Brockton, Massachusetts, facility, as well as new
hardware and software for the Company's computer needs. The estimated total
cost of capital expenditures for these projects in fiscal 1998 is $6.0 million.
The Company leases substantially all of its management information systems
equipment.
The Company is dependent upon complex computer systems for certain phases of
its operations, including sales, distribution and delivery. Since many of the
Company's older computer software programs recognize only the last two digits
of the year in any date (e.g., "97" for "1997"), some software may fail to
operate properly in 1999 or 2000 if the software is not reprogrammed or
replaced (the "Year 2000 Problem"). The Company believes that many of its
customers also have Year 2000 Problems which could adversely affect the
Company. The Company intends to spend up to $3.0 million in fiscal 1998 (which
is included in the $6.0 million expenditure referred to above) to upgrade its
computer systems, which is intended to, among other things, address the Year
2000 Problem. The Company plans to fund this expenditure through proceeds, if
any, from this Offering, borrowings under its revolving credit facility or
equipment financing arrangements. It is not possible at present to quantify the
financial effect of the Year 2000 Problem if it is not resolved in a timely
manner. However, the Company presently believes that the cost of fixing the
Year 2000 Problem will not have a material effect on the Company's current
financial condition or results of operations.
The Company regularly enters into forward exchange contracts in anticipation
of future purchases of inventory denominated in foreign currency, principally
the Spanish peseta. Maximum risk of loss on these contracts is the amount of
the difference between the spot rate at the date of contract delivery and the
contracted rate.
The Company anticipates that it will be able to satisfy its cash requirements
for fiscal 1998 including its expected growth, primarily with cash flow from
operations, supplemented by borrowings under its revolving credit facility.
EFFECTS OF 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.
22
<PAGE>
BUSINESS
GENERAL OVERVIEW
The Company designs, develops and markets casual and dress footwear for women
and children under multiple brand names, each of which is targeted to a
distinct segment of the footwear market. The Company offers casual and dress
footwear for women in the moderately priced market segment under the Mootsies
Tootsies brand name, in the upper moderately priced market segment under the
Sam & Libby brand name and in the better market segment under the Jones New
York and Jones New York Sport brand names. The Company also sells moderately
priced and upper moderately priced children's footwear under both the Mootsies
Tootsies and Sam & Libby brand names. Furthermore, the Company designs and
develops private label footwear for selected retailers under the retailers' own
brand names. The Company has licensed the J.G. Hook tradename to source and
develop private label products for retailers who require brand identification.
In addition, the Company sells footwear closeouts which it has purchased at
discounts from other manufacturers.
Since 1987, when the Company first focused on its branded footwear strategy,
the Company has increased net sales every year and consistently maintained
profitability. In fiscal 1997, the Company's net sales and net income increased
28.7% and 52.5%, respectively, as compared to fiscal 1996. In the first quarter
of fiscal year 1998, the Company's net sales and net income increased 26.3% and
34.2%, respectively, as compared to the same period in fiscal 1997. The
Company's financial success has been largely a result of its ability to design,
develop and market footwear with contemporary styles at affordable prices.
Retail prices for the Company's footwear generally range from $20 to $90.
Substantially all of the Company's products are manufactured overseas by
independent factories selected by the Company and its overseas agents. The
Company sells its footwear primarily to department stores and specialty stores
in the United States as well as through national catalog retailers and cable
television consumer shopping channels.
Through advertising, promotion and packaging, the Company has built consumer
and retail recognition for the Mootsies Tootsies and Mootsies Kids brand names,
and management believes that Mootsies Tootsies is currently one of the largest
selling brands in the moderately priced segment of the women's casual and dress
footwear industry. In 1994 and 1995, the Company expanded its branded product
portfolio through the introduction of the Jones New York and Jones New York
Sport footwear brands. Both product lines allow the Company to capitalize on
the strong brand name recognition and reputation for style, quality and value
enjoyed by Jones New York in the better segments of the women's apparel
industry. The Company continued its brand expansion through the acquisition of
the Sam & Libby worldwide trademarks and tradenames in 1996. The Company is in
the process of re-positioning the Sam & Libby brand from its prior focus on the
junior women's market segment to the late 20's, career-oriented women market
segment, and management believes that sales under the Sam & Libby lines should
increase significantly in the future upon completion of this brand re-
positioning and the introduction of additional products under such brand name.
The Company believes that there is a growing demand among retailers for
footwear to market under their own brand names, and the Company licensed the
J.G. Hook name in 1997 to sell as a first cost product for retailers who
require brand identification.
The Company competes primarily in the women's casual and dress footwear
market, which emphasizes contemporary fashion, quality and value. The Company
believes that there has been a shift in the "moderate" segment of the women's
casual and dress footwear market toward value priced footwear. The Company has
positioned its Mootsies Tootsies line to take advantage of this shift by
offering value priced footwear which reflects current fashion trends. The Sam &
Libby brand is directed to appeal to the fashion conscious customers in the
upper moderate price range and has been less affected by this shift. The
Company believes that the better segment of this market has also not been as
affected by this shift due to a continuing interest in higher quality and brand
name products, such as the Company's Jones New York and Jones New York Sport
brands.
23
<PAGE>
According to a footwear industry association, in 1996 sales of women's
nonathletic footwear in the United States accounted for retail sales of
approximately $10.7 billion and approximately 380 million pairs. In addition,
in 1996 retail sales of girl's nonathletic footwear in the United States
accounted for retail sales of approximately $604 million and approximately 38
million pairs. Between 1992 and 1996 the market for nonathletic women's
footwear increased by approximately 0.8% in pairs and 3.0% in sales dollars.
Despite this trend, the Company's sales have grown substantially over this
period.
In April 1997, the Company entered into an agreement to operate approximately
130 retail Sam & Libby and Jones New York women's footwear stores through SLJ
Retail. The Company and Butler own 49% and 51% of SLJ Retail, respectively. The
Company views SLJ Retail as a significant opportunity to increase awareness of
its brands, achieve greater purchasing leverage with manufacturers and
potentially recognize a portion of any future profits of the joint venture. A
subsidiary of the Company is the manager of SLJ Retail. Under current generally
accepted accounting principles, the Company is required to account for its
interest in SLJ Retail under the equity method of accounting for so long as the
Company owns less than 50% of the voting equity of SLJ Retail. Under the equity
method of accounting, the Company is required to record its proportionate share
of SLJ Retail's net income or loss; provided, however, net losses of SLJ Retail
recorded by the Company are limited to the Company's investment in and advances
to SLJ Retail. Since the Company made a nominal investment in SLJ Retail,
operating losses of SLJ Retail are not recorded by the Company. The Company
holds an option through February 1, 2000 to purchase additional equity in SLJ
Retail to increase its equity ownership to 55%, subject to achieving certain
operating income levels. In the event the Company exercises such option, it
could be required to consolidate SLJ Retail's and its financial statements.
However, the Company does not intend to exercise such option until SLJ Retail
achieves profitability, if ever.
BUSINESS STRATEGY
The Company's strategy is to leverage its existing competitive strengths to
increase profitably its share of the women's and children's footwear markets by
further developing its existing footwear brands and its private label business
and expanding its brand portfolio through a combination of acquisition,
licensing and development of additional brands in the future.
Competitive Strengths. The Company has developed certain core operating
strengths which have been significant sources of growth to date and which
management believes will help the Company achieve further growth in the future.
Such operating strengths include:
. Portfolio of Established Brands. Through advertising and promotion, the
Company has built consumer and retail recognition for its Mootsies Tootsies
and Mootsies Kids brand names and has established Mootsies Tootsies as one
of the largest selling brands in the moderately priced segment of the
women's casual and dress footwear industry. The Company continued its brand
expansion through the acquisition of the Sam & Libby worldwide trademarks
and tradenames in 1996. The Company offers its Jones New York and Jones New
York Sport footwear lines with the intention of capitalizing on the strong
brand name recognition and reputation for style, quality and value enjoyed
by Jones New York and Jones New York Sport in the better segments of the
women's apparel industry. The Company has also licensed the J.G. Hook name
to sell as a first cost product for retailers who require brand
identification. The Company continues to seek licensing or acquisition
opportunities in order to expand its current portfolio of brands.
. Strong Manufacturing Relationships. The Company believes that one of the
contributing elements of its growth has been its strong relationships with
overseas buying agents and manufacturers capable of meeting the Company's
requirements for quality and price in a timely fashion. The Company's
increased use of China-based manufacturing facilities has resulted in lower
manufacturing costs while continuing to meet the Company's high quality
standards. Universal Max Trading, the Company's principal buying agent in
China, has agreed to exclusively source and monitor product manufacturing
for the Company in China. Universal Max Trading has recently opened a
dedicated manufacturing facility in China which
24
<PAGE>
will further improve the Company's product development capabilities. The
Company continues to seek to develop other exclusive relationships with
buying agents whose access to numerous manufacturing facilities will enable
the Company to maximize its sourcing flexibility.
. Emphasis on High Volume Moderate Through Better Segments of the Footwear
Market. The Company believes that its strategy of focusing on the high
volume moderate through better segments of the women's and children's
footwear markets and of providing value-priced products reduces the risks
associated with changing fashion trends. The Company also attempts to reduce
the risks of changing fashion trends and product acceptance through market
research and development and testing of a broad range of styles prior to
placing orders with its manufacturers. The Company believes that this
approach mitigates the risks of carrying obsolete inventory and poor retail
sell-through.
. Comprehensive Customer Relationships. The Company supports its customers by
maintaining an in-stock inventory position for selected styles in order to
minimize the time necessary to fill customers' orders. In addition, the
Company provides its customers with electronic data interchange (EDI)
capability (see "--Distribution"), co-op advertising, point of sale displays
and assistance in evaluating which products are likely to appeal to their
retail customers. Management believes that it has earned a strong reputation
among customers by consistently providing quality products at attractive
prices. In return, the Company's customers provide certain information to
the Company on current retail selling trends which helps the Company
identify and interpret fashion trends.
Growth Strategy. By leveraging the above competitive strengths, the Company
has pursued and will continue to pursue growth through various initiatives,
including, but not limited to, the following:
. Growing the Company's Existing Brands. Management seeks to increase sales of
the Company's products under each of the Company's existing brands by (i)
offering a broader assortment of products and styles under such brand names,
(ii) further penetrating the Company's existing retail channels through
increased display area and additional stores, (iii) developing new retail
channel relationships appropriate to the Company's product offerings and
(iv) increasing the use of advertising to strengthen brand awareness among
retailers and consumers.
. Increasing the Company's Private Label Business. The Company entered the
private label footwear market in order to leverage its offshore
manufacturing experience and existing infrastructure by providing selected
retailers with private label products for sale under their own house brands.
This business enables the Company to sell products to new customers as well
as strengthening the Company's relationship with certain of its existing
customers. The Company believes that there is a growing demand among
retailers for footwear to market under their own brand names, and the
Company has licensed the J.G. Hook name to sell as a first cost product for
retailers who require brand identification.
. Adding Brands to the Company's Portfolio. Management believes that the
footwear industry segments in which the Company operates remain highly
fragmented, although consolidation has been accelerating recently as fewer
companies control more brands and retailers generally purchase footwear
merchandise from a reduced number of manufacturers. The Company intends to
continue capitalizing on this ongoing consolidation by expanding its
existing brand portfolio which will appeal to different market segments of
the footwear industry. Management believes that creating, acquiring or
licensing additional brands will enable the Company to increase its sales by
satisfying the needs of a broader range of customers. The Company intends to
sell these new brands through the Company's existing customers as well as
new customers which the Company seeks to develop. The acquisition and
licensing of the Sam & Libby and Jones New York brands, respectively,
represent the Company's most recent efforts to expand into new market
segments. The Company intends to continue to explore entering other market
segments through acquisition or licensing of additional brands, subject to
any constraints imposed by the Jones License Agreement. See "Risk Factors--
Possible Termination of and Restrictions Under the Jones New York License
Agreement." The Company believes that it is well positioned to continue
pursuing this strategy due to its relatively strong and unencumbered balance
sheet.
. Benefitting from Retail Joint Venture. The Company provides management
services to SLJ Retail, which plans to operate 130 stores in fiscal 1998. As
of the date hereof the number of stores that are operating
25
<PAGE>
under the Company's management has increased from 120 stores as of December
1997 to 122 stores. Management believes that the presence of SLJ Retail's
stores with the Sam & Libby or Jones New York branded concepts will broaden
acceptance of, and increase the awareness of, these Company brands among
retail consumers, and also has the potential to increase the Company's sales
to its wholesale customers. SLJ Retail also increases the Company's
purchasing leverage with its manufacturers. The Company will also continue
to pursue other available retail opportunities, including establishing
outlets, if such retail ventures present similar minimal financial risks to
the Company as in the case of the Company's investment in SLJ Retail,
subject to SLJ Retail's right of first refusal to add on any such retail
opportunity. See "Risk Factors--Risk of SLJ Retail."
PRODUCT LINES
The Company's products consist of six lines of brand name footwear as well as
private label footwear for selected retailers for sale under their own house
brands. Each of the branded product lines is targeted to appeal to a different
market segment of the footwear industry. The characteristics of the product
lines sold by the Company are summarized in the following table:
<TABLE>
<CAPTION>
GENERAL RETAIL
PRICE RANGE
---------------
INDUSTRY
STYLE SEGMENT SHOES BOOTS
-------------- --------------- ------- -------
<S> <C> <C> <C> <C>
Mootsies Tootsies............. Contemporary Moderate $25-$40 $35-$55
Mootsies Kids................. Contemporary Moderate $20-$25 $30-$40
Sam & Libby................... Updated Upper Moderate $35-$50 $45-$70
Sam & Libby Kids.............. Updated Upper Moderate $25-$45 $35-$55
Jones New York................ Contemporary Better $65-$90 --
Jones New York Sport.......... Classic Casual Better $40-$75 $60-$85
J.G. Hook Private Label....... All Budget-Moderate $12-$20 $25-$30
</TABLE>
Mootsies Tootsies
The Mootsies Tootsies brand line provides consumers with a wide selection of
footwear with contemporary styles and quality at affordable prices primarily
targeted at women ages 18 to 34. The line includes approximately 30 new styles
each spring and fall season, as well as a number of core styles that are
updated periodically based on fashion trends. The line principally consists of
casual shoes, dress shoes, boots and sandals. Styles are available in a wide
variety of colors and materials, including leather, sueded leather and fabric.
All footwear in the line is designed to have soft construction for comfort.
Mootsies Tootsies footwear accounted for a majority of the Company's total
sales during fiscal 1997.
Mootsies Kids
The Mootsies Kids brand line is targeted at girls in the misses market (ages
8 to 12) who desire contemporary footwear. The line consists of approximately
20 new styles each spring and fall that, in many cases, represent a miniature
version of the Mootsies Tootsies line. The children's line is focused on casual
shoes, party shoes, boots and sandals.
Sam & Libby
The Sam & Libby line is updated casual and dress footwear targeted at female
fashion customers, ages 21 to 35, and contains approximately 30 styles per
season, consisting of casual shoes, dress shoes, boots and sandals. The
acquisition of the Sam & Libby brand with its trademarks registered in over 20
countries allows the Company to develop and grow internationally, although the
Company's expansion to overseas markets will be a long-term effort.
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<PAGE>
Sam & Libby Kids
The Sam & Libby Kids line is geared toward girls ages 8 to 14 and is targeted
towards the updated and more fashion-conscious girl. The line will have
approximately 20 styles each season often similar to the Sam & Libby women's
styles. The children's line is focused on dress shoes, casual shoes, casual
athletic shoes, boots and sandals.
Jones New York
The Jones New York footwear line focuses on contemporary, quality footwear
targeted at career oriented women 30 years and older. The line capitalizes on
the name recognition and reputation enjoyed by the Jones New York apparel line
produced by the Company's licensor and is designed to complement Jones New York
apparel. The Company's Jones New York footwear line consists of approximately
25 styles per season with all leather uppers and soles.
Jones New York Sport
The Jones New York Sport line appeals to the Jones New York casual sportswear
customer by providing leisure footwear to career oriented women. The line
contains approximately 20 styles per season.
J. G. Hook and Private Label Products
In response to the growing demand among retailers for footwear to market
under their own brand names, the Company designs and sources private label
women's and children's footwear for selected retailers. The Company's private
label business has minimal overhead and capital requirements primarily because
the Company utilizes its existing branded product styles (thereby incurring no
additional product development costs) and because the Company does not incur
any costs related to purchasing, importing, shipping or warehousing of
inventory, all of which costs are borne by the retailer. The Company has
licensed the J. G. Hook name to sell as a first cost product for retailers who
require brand identification.
The following table sets forth the percentage of the Company's sales
generated by each of its major product categories for the periods indicated:
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
--------------------------------- ------------
CATEGORY 1993 1994 1995 1996 1997 1997 1998
-------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Women's..................... 84.2% 83.8% 83.0% 85.4% 84.9% 84.3% 86.4%
Children's.................. 14.1 15.1 16.3 14.2 14.8 15.5 13.5
Other....................... 1.7 1.1 0.7 0.4 0.3 0.2 0.1
----- ----- ----- ----- ----- ----- -----
Total..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
CLOSEOUT BUSINESS
The Company sells certain product styles that it purchases at volume
discounts from other footwear manufacturers. These products, which are
typically either slow-moving or factory seconds, are sold to discount
retailers. At times the Company holds closeout products in inventory until the
next fashion season.
SLJ RETAIL LLC
In April 1997, the Company entered into an agreement to operate approximately
130 retail Sam & Libby and Jones New York women's footwear stores through SLJ
Retail. The Company and Butler own 49% and 51% of SLJ Retail, respectively. A
subsidiary of the Company is the manager of SLJ Retail. Under current generally
accepted accounting principles, the Company is required to account for its
interest in SLJ Retail under the equity method of accounting for so long as the
Company owns less than 50% of the voting equity
27
<PAGE>
of SLJ Retail. Under the equity method of accounting, the Company is required
to record its proportionate share of SLJ Retail's net income or loss; provided,
however, net losses of SLJ Retail recorded by the Company are limited to the
Company's investment in and advances to SLJ Retail. Since the Company made a
nominal investment in SLJ Retail, operating losses of SLJ Retail are not
recorded by the Company. The Company holds an option through February 1, 2000
to purchase additional equity in SLJ Retail to increase its equity ownership to
55%, subject to achieving certain operating income levels. In the event the
Company exercises such option it would be required to consolidate SLJ Retail's
operating results with its financial statements. However, the Company does not
intend to exercise such option until SLJ Retail achieves profitability, if
ever.
The Company's contribution to SLJ Retail was the provision of exclusive
retail license agreements with respect to the Sam & Libby and Jones New York
brand names, management services for the business of SLJ Retail and access to
the Company's manufacturing resources worldwide. SLJ Retail will purchase
footwear directly at a first cost basis from the same factories as the Company,
as well as factories which the Company does not use. The Butler Group
contributed certain assets consisting of store leases and headquarters' assets,
the purchase of a $12.5 million subordinated note and the provision of a bank
guaranty of a $16.0 million term loan all of which is secured by the assets of
SLJ Retail.
The first retail stores operated by SLJ Retail opened in July 1997. As of
March 8, 1998, 122 stores had been converted from their prior retail concepts
to either Sam & Libby or Jones New York branded concepts. As of March 8, 1998,
there were 94 Sam & Libby and 28 Jones New York footwear retail stores opened,
located primarily in the Midwest, Southeast, Texas and California.
SLJ Retail provides a showcase for the full Jones New York and Sam & Libby
product lines. The Company believes that the SLJ Retail store presence and
independent advertising campaign will increase consumer awareness of the
Company's branded footwear products. Furthermore, because SLJ Retail sources
its products through the Company's buying agents, the additional footwear
sourced by SLJ Retail has had the impact of increasing the Company's purchasing
leverage with its manufacturers. The Company believes that there are
significant financial advantages to the Company of its participation in SLJ
Retail, including modest risk of loss to the Company, an attractive transaction
cost and financing structure, a $500,000 annual management fee payable to the
Company and the potential to recognize a portion of any future profits. See
"Risk Factors--Risk of SLJ Retail."
DESIGN AND PRODUCT DEVELOPMENT
The Company seeks to identify fashion trends and to translate such trends
into contemporary footwear that appeal to its target market segments'
requirements for style, quality, fit and price. Management believes that its
philosophy of marketing contemporary styles rather than "fashion forward"
styles reduces the risks associated with changing fashion trends.
Each branded product line has its own design team, including design staff,
sales staff and a brand manager, in an effort to design footwear that appeals
to the characteristics of that line's market segment. The designers research
and confirm market trends by (i) traveling extensively to fashion markets in
the United States and Europe, (ii) attending trade shows, (iii) subscribing to
fashion and color information services and (iv) commissioning market studies.
In addition, product development efforts benefit from interaction with
retailers, who provide information on current retail selling trends, and the
Company's buying agents, who provide information on industry trends. The
designers for the Jones New York and Jones New York Sport lines also meet
regularly with the Jones New York apparel group to exchange product and fashion
concepts.
28
<PAGE>
See "--License Agreements--Jones New York." Each line initially consists of
between 100 and 200 prototypes each season from which the design team selects
the styles that it believes will satisfy the target market segment's
requirements for style, quality, fit and price. Each line is further refined
following presentations at industry shows.
MARKETING AND CUSTOMER SUPPORT
Each branded product line has its own sales organization, including a
divisional executive who oversees all aspects of selling the line and works
with a network of independent sales representatives located throughout the
United States. Certain of the independent sales representatives sell only the
Company's brands, and the rest of the independent sales representatives sell
brands that do not compete directly with the Company's brands. The Company
develops spring and fall product lines for each of its brands. Each line is
first introduced at industry trade shows prior to on-site sales visits by the
independent sales representatives and the Company's divisional head responsible
for the line. In addition, the Company maintains showrooms in New York and
Boston where buyers view products and place orders. While the Company's
products are distributed primarily in the United States, the Company also sells
to independent wholesale distributors in Canada.
In fiscal 1997, the Company sold products to approximately 1,500 accounts
with over 7,000 retail locations. The Mootsies Tootsies retailers, which market
moderately priced apparel merchandise, include department stores such as the
Mercantile Stores and Kohl's. The Sam & Libby footwear lines are distributed by
retailers focused on the upper moderate market segment, such as Rich's and
Robinson-May. The Jones New York and Jones New York Sport footwear lines are
distributed to those retailers who typically market better footwear, including
Macy's and Lord & Taylor. The Company also markets its branded products through
national catalog retailers such as Spiegel, Nordstrom and Chadwicks of Boston
and through home shopping clubs such as QVC and Home Shopping Network.
The Company believes that its reputation for quality products and
relationships with retailers will also be useful during the introduction of new
brands that it may develop or acquire to fill other niches in the women's
footwear market.
The Company supports its customers through a variety of programs, including
its in-stock inventory position for selected styles, the availability of EDI,
co-op advertising and point of sale displays. In addition, the Company assists
its customers in evaluating which products are more likely to appeal to their
retail customers. Customers may return defective products in quantities of more
than six pairs for full credit. Customer allowances are based on the Company's
ability to meet the particular customer's objectives and specifications.
ADVERTISING AND PROMOTION
The Company works closely with its retailers in promoting its brands through
its own and cooperative national consumer print advertising, in-store
merchandising, point of sale promotions, in-store events, distinctive packaging
and active solicitation of fashion editorial space. The Company anticipates
increasing its advertising and promotional expenditures during fiscal 1998
mostly in the Sam & Libby product lines in order to maximize the growth
potential of such lines. See "Use of Proceeds."
Print advertisements for Mootsies Tootsies are designed to build brand
awareness, rather than market a particular footwear product, by linking the
brand to a consumer's lifestyle. The advertisements run in fashion/lifestyle
publications like Glamour and Cosmopolitan as well as in general interest
publications like People. Utilizing the print media, the Company seeks to reach
a large percentage of its target audience, women ages 18 to 34, with a number
of advertisements each selling season. Print advertisements for Sam & Libby are
also designed to build brand awareness by creating a lifestyle viewpoint that
appeals to a modern consumer. The advertisements will appear in fashion
publications such as Vogue, Glamour and Cosmopolitan.
29
<PAGE>
In addition, SLJ Retail provides additional media focus through a direct
marketing catalog and collaborative in-store promotions. The Company's print
advertising campaign for its Jones New York and Jones New York Sport footwear
is intended to build rapid consumer awareness and acceptance of the footwear by
taking advantage of the recognition of the Jones New York apparel name. In
addition, the Company has gained additional media attention through fashion
editorial publications.
The Company also participates with its retail customers in cooperative
advertising programs intended to take the brand awareness created by the
national print advertising and channel it to local retailers where consumers
can buy the Company's brands. This includes local advertising on radio,
television, and newspaper as well as Company participation in major catalogs
for retailers such as Spiegel. The Company's co-op efforts are intended to
maximize advertising resources by having its retailers share in the cost of
promoting the Company's brands. Also the Company believes that co-op
advertising encourages the retailer to merchandise the brands properly and sell
them aggressively on the sales floor.
The Company uses point-of-sale advertising to further promote its products in
the store. Point-of-sale techniques used by the Company includes packaging,
point-of-sale displays, counter cards, banners and other visual merchandising
displays. These materials mirror the look and feel of the national print
advertising in order to reinforce brand image at the point-of-sale. Management
believes these efforts stimulate impulse sales and repeat purchases.
MANUFACTURING
Mootsies Tootsies, Mootsies Kids, Sam & Libby and Jones New York Sport
footwear are manufactured primarily in China and Brazil because of the ability
of the suppliers in these countries to manufacture quality products at
affordable prices. The Jones New York footwear brand is also manufactured in
Spain and Italy because Spanish and Italian suppliers can meet quality
requirements for this product line, and the Spanish and Italian reputation for
quality footwear is consistent with the Jones New York image.
The Company does not have contracts with any of the factories that produce
its footwear. The Company relies on its relationships with buying agents who
are responsible for securing raw materials, selecting manufacturers, monitoring
the manufacturing process, inspecting finished goods and coordinating shipments
to the Company. These agents work regularly with numerous factories with the
capacity to meet the Company's product specifications for quality, fit, volume
and price. By using buying agents rather than manufacturing products itself,
the Company is able to maximize production flexibility while avoiding
significant capital expenditures, work-in-process inventory and costs of
managing a production work force. To date, the Company has not encountered
significant delivery or quality problems. The Company works with buying agents
with access to numerous manufacturing facilities in order to maximize the
Company's sourcing flexibility. The Company believes it has built strong
relationships with its agents and manufacturing facilities over time and
through volume of business. Management believes that its buying agents do not
represent other direct competitor branded footwear lines, and Universal Max
Trading, the Company's principal buying agent in China, has agreed to act
exclusively for the Company in China. The Company pays its buying agents a
percentage of the order price of products shipped to the Company. The Company
manufactures none of its products and does not own any manufacturing facilities
or equipment. See "Risk Factors--Risk of Dependence on Buying Agents."
Prior to the start of production, the Company submits specifications for
products to the buying agent, who then provides a confirmation sample of each
style for inspection by the Company. During production, the Company makes
periodic reviews of products at the factory in addition to inspections
conducted by the buying agent. The Company also inspects products upon receipt
at its warehouse.
The Company maintains an in-stock position for selected styles of its
footwear in order to minimize purchasing costs and the time necessary to fill
customer orders. In order to maintain an in-stock position, the Company places
orders for selected footwear with its manufacturers prior to the time the
Company has
30
<PAGE>
received customers' orders for such footwear. In order to reduce the risk of
overstocking, the Company seeks to assess demand for its products by soliciting
input from its customers and monitoring retail sell-through throughout the
selling season. See "Risk Factors--Risk of Obsolete Inventory."
The Company believes that its ability to satisfy customer order demands is
enhanced by designing its products to use common elements in raw materials,
lasts and dyes. Whenever possible, the Company seeks to use factories that have
previously produced the Company's footwear because the Company believes that
this enhances continuity and quality while holding down production costs.
The Company protects itself against currency fluctuations by purchasing
products in U.S. dollars from China and Brazil. In order to denominate the
price of products from Spain in U.S. dollars, the Company buys forward exchange
contracts for Spanish pesetas in connection with the placement of orders for
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources;" and "Risk Factors--
Foreign Currency Fluctuations; Forward Exchange Contracts."
DISTRIBUTION
Following manufacture, the Company's products are packaged in retail boxes
bearing bar codes and shipped to the Company's warehouse facilities in Boston
and Brockton, Massachusetts. When an order is received, it is filled in the
warehouse and shipped to the customer by whatever means the customer requests,
which is usually by common carrier.
The Company has an electronic data interchange system to which some of the
Company's larger customers are linked. This system allows these customers to
automatically place orders with the Company, thereby eliminating the time
involved in transmitting and inputting orders. The Company is working to add
more of its customers to the system and to expand system capability to include
direct billing, payment and shipping information.
RESTRICTIONS ON IMPORTS
The Company's operations are subject to compliance with relevant laws and
regulations enforced by the United States Customs Service and to the customary
risks of doing business abroad, including fluctuation in the value of
currencies, increases in customs duties and related fees resulting from
position changes by the United States Customs Service, import controls and
trade barriers (including the unilateral imposition of import quotas),
restrictions on the transfer of funds, work stoppages and, in certain parts of
the world, political instability causing disruption of trade. These factors
have not had a material adverse impact upon the Company's operations to date.
Imports into the United States are also affected by the cost of transportation,
the imposition of import duties and increased competition from greater
production demands abroad. The United States or the countries in which the
Company's products are 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.
The Company's use of common elements in raw materials, lasts and dyes give
the Company the flexibility to duplicate sourcing in various countries in order
to reduce the risk that the Company may not be able to obtain products from a
particular country.
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 range from 10% to 37.5% on the principal products currently
imported by the Company. Because the Company has had no disputes with the
United States Customs Service in the past, the Company is allowed to and does
submit its footwear products to United States customs officials for pre-
classification and customs duties rates determination prior to importation of
such footwear products from abroad.
31
<PAGE>
For the fiscal year ended October 31, 1997 and the quarter ended January 31,
1998, approximately 83% and 84%, respectively, of the Company's footwear was
imported from China. After a serious dispute with the United States Trade
Representative ("USTR") over the protection of intellectual property rights in
China, including the threat by USTR to impose trade sanctions, the Chinese
government agreed to meet its enforcement obligations. That agreement is now
being monitored by USTR, and the failure of China to comply with its
obligations could result in trade sanctions in the future, including the
imposition of retaliatory tariffs that might affect the Company's imports of
footwear from China. From time to time there have been other trade disputes
with China, involving such things as market access, textile quotas, automotive
industry policies and agricultural products. These and other such matters could
also present problems in the future that might lead to trade sanctions
affecting the Company's imports of footwear.
Imports from China continue to enter the United States on a conditional most-
favored nation ("MFN") basis. Pursuant to MFN status, products imported by the
Company from China currently receive the lower tariff rates made available to
most of the United States' major trading partners. In the case of China,
however, this MFN treatment is made possible under the Trade Act of 1974 by
virtue of certain Presidential findings that waive restrictions that would
otherwise render China ineligible for MFN treatment. The President has waived
these restrictions each year since 1979. There can be no assurance that China
will continue to enjoy MFN status in the future. If goods manufactured in China
enter the United States without the benefit of MFN treatment, such goods will
be subject to significantly higher duty rates, ranging between 20% and 66% of
customs value. Any such increased duties or tariffs could significantly
increase the cost or reduce the supply of goods from China.
BACKLOG
At October 31, 1995, 1996, and 1997, the Company had unfilled customer orders
of $38.1 million, $50.0 million and $61.6 million, respectively. This is an
increase of 23.2% for fiscal year end 1997 over fiscal year end 1996. At
January 31, 1997 and 1998, the Company had unfilled customer orders of $47.1
million and $59.4 million, respectively. The backlog at a particular time is
affected by a number of factors, including seasonality and the scheduling of
manufacturing and shipment of products. Orders generally may be canceled by
customers without financial penalty. Accordingly, a comparison of backlog from
period to period is not necessarily meaningful and may not be indicative of
eventual actual shipments to customers. To date, the Company has not
experienced material returns of its products or material cancellations of
orders. The Company expects that substantially all of its backlog at January
31, 1998 will be shipped within six months from such date.
LICENSE AGREEMENTS
Jones New York
In July 1993, the Company entered into a license agreement (the "Jones
License Agreement") with Jones Investment Co., Inc. ("Jones") under which the
Company has the exclusive right to use the Jones New York and Jones New York
Sport names in connection with the development, manufacturing and marketing of
women's footwear (other than performance athletic shoes and bedroom slippers).
The Jones License Agreement covers the United States (including its
territories) and Canada and expires in December 2002. In April 1997 the Company
and Jones amended the Jones License Agreement to, among other things, (i) grant
the Company three, five-year options to extend the Jones License Agreement
through December 2017, subject to the Company meeting certain minimum net sales
amounts, (ii) extend the Jones License Agreement to cover the retail sale of
Jones New York women's footwear by SLJ, (iii) require the Company and SLJ to
pay certain royalties to Jones and (iv) permit Jones to terminate the Jones
License Agreement for SLJ Retail purposes only if the Company is no longer the
managing member of SLJ or if SLJ defaults on any of its royalty payments. The
Jones License Agreement also requires the Company to spend a specified minimum
amount each year on advertising the Jones New York and Jones New York Sport
footwear lines, which obligation may be satisfied through cooperative
advertising. The Jones License Agreement prohibits the Company from
manufacturing, selling, distributing or promoting any merchandise which would
compete as to style, price or quality with the Jones New York and Jones New
York Sport footwear lines. The Jones License
32
<PAGE>
Agreement also requires the Company to (i) employ a person to work exclusively
on a full-time basis to design and develop Jones New York and Jones New York
Sport footwear, (ii) promptly identify to Jones the names of all personnel of
the Company and any and all changes thereof (which personnel shall at all times
be acceptable to Jones) who are responsible for the design, sales,
merchandising and product development of Jones New York and Jones New York
Sport footwear ("Jones Personnel") and (iii) not change, divert or relocate any
Jones Personnel without the prior consent of Jones. A breach by the Company of
its obligations under the Jones License Agreement would permit Jones to
terminate such license agreement. The Jones License Agreement could also be
terminated by the licensor for certain other reasons, including any termination
(including pursuant to resignation) of Mr. Cocozza's employment as Chief
Executive Officer of the Company or the beneficial ownership of any one
stockholder or affiliated group of beneficial stockholders exceeding 15% or
more of the Company's voting stock.
J.G. Hook
In April 1997, the Company entered into a license agreement (the "J.G. Hook
License Agreement") with J.G. Hook, Inc. pursuant to which the Company received
the right to design, develop and market women's and children's shoes under the
J.G. Hook and Hook Sport brand names in exchange for payment of royalties based
on net sales of products marketed under such brand names. The J.G. Hook License
Agreement expires in September 1998, subject to the Company's exercise of two
one-year extension options. The J.G. Hook License Agreement is subject to early
termination for various specified reasons, including any failure by the Company
to meet its royalty obligations thereunder. The Company plans to use the J.G.
Hook label to sell footwear on a first cost basis.
SLJ Retail
In April 1997, the Company entered into a sub-license agreement (the "SLJ
Sub-License Agreement") with SLJ Retail pursuant to which the Company granted
to SLJ Retail a sub-license throughout the United States to use the Jones New
York and Jones New York Sport trademarks in connection with the manufacturing,
promotion and retail sale of women's footwear merchandise bearing such
trademarks. The initial term of the SLJ Sub-License Agreement expires in
December 2002 but is extended automatically for the same period of time as any
extension by the Company of the Jones License Agreement. The SLJ Sub-License
Agreement is subject to early termination for various reasons, including any
termination of the Jones License Agreement.
In April 1997, the Company entered into a retail license agreement (the "SLJ
Sam & Libby License Agreement") with SLJ Retail pursuant to which the Company
granted to SLJ Retail a license, throughout the United States and such other
locations outside the United States in which the Company or its affiliates may
from time to time sell Sam & Libby and Just Libby women's footwear products, to
use the Sam & Libby and Just Libby trademarks in connection with the
manufacturing, advertising, merchandising, promotion and retail sale of women's
footwear merchandise bearing such trademarks; provided however, that such
license does not extend to products to which Inter-Pacific Corporation ("IPC")
has the exclusive rights. IPC is a 40 year old California-based seller and
distributor of men's, women's and children's footwear. Under the SLJ Sam &
Libby License Agreement, SLJ Retail does not have to pay any royalty to the
Company in consideration of the license granted and the services to be
performed by the Company under such agreement. The initial term of the SLJ Sam
& Libby License Agreement expires on January 31, 2047, subject to earlier
termination upon the occurrence of certain specified events.
Inter-Pacific Corporation
In January 1997, the Company entered into a license agreement with IPC. IPC
has the exclusive rights to design, manufacture and distribute Sam & Libby
beachwear type footwear (E.V.A. sandals, jellies, aqua socks and injected
molded slides) for men, women and children for an initial period from January
1997 to May 2000. IPC may also design and manufacture women's slippers bearing
the Sam & Libby trademark. For the use of the Sam & Libby tradename, IPC will
pay the Company royalties at a rate based on sales volume, subject to payment
of minimum royalties of $495,000 over the initial term of the agreement. Upon
satisfaction of certain conditions, IPC may exercise its option to extend the
license agreement until May 2003.
33
<PAGE>
TRADEMARKS
Mootsies Tootsies and Mootsies Kids are registered trademarks of the Company
in the United States. In addition, these trademarks have been registered in
Canada, Japan and Taiwan and trademark registration applications are pending in
several other countries. The Company's United States trademark registration for
Mootsies Tootsies expires in 2000 and the registration for Mootsies Kids
expires in 2003, although both are renewable.
Jones New York and Jones New York Sport are registered trademarks of Jones in
the United States. Under the Jones License Agreement, Jones has the sole right
to defend against any infringement of these trademarks.
Sam & Libby, Just Libby, New Nineties and Jeff & Kristi are registered
trademarks of Sprague. These trademarks were acquired by the Company in August
1996 from Sam & Libby, Inc. and are registered trademarks in the United States
(see Note 1 of "Notes to Consolidated Financial Statements"). In addition, the
Sam & Libby and Just Libby trademarks are registered in over 20 countries
worldwide. Sprague's United States trademark registration of Sam & Libby
expires in 2001 and the registration of Just Libby expires in 2005, although
both are renewable.
COMPETITION
The women's and kids' fashion footwear markets are highly competitive. The
Company's products compete against other branded footwear and, in the case of
Mootsies Tootsies, against private label footwear sold by many large retailers,
including some of the Company's customers. Many of the Company's competitors
have substantially greater financial, distribution and marketing resources, as
well as greater brand awareness than the Company. In addition, the general
availability of offshore manufacturing capacity allows easy access by new
market entrants. The Company believes its ability to compete successfully is
based on its ability to design, develop and market value priced footwear that
reflects current fashion trends.
EMPLOYEES
At January 31, 1998, the Company employed 141 people, including officers,
administrative, selling and warehouse personnel. None of the Company's
employees are represented by a union. The Company considers its relationship
with its employees to be good.
FACILITIES
The Company's headquarters, which includes approximately 10,000 square feet
of office space and 130,000 square feet of warehouse space, is located in
Boston, Massachusetts, approximately 49,000 square feet of which is leased to
an unaffiliated third party. This facility is leased by the Company under a
lease that expires in 2001. The Company also leases a 64,000 square foot
warehouse located near its headquarters in Westwood, Massachusetts. This lease
expires in 1998, subject to a three-year renewal option. The Company also
leases a 215,000 square feet warehouse in Brockton, Massachusetts. This lease
expires in 2007, subject to two five-year options. The Company also holds an
option exercisable in the year 2001 to lease for six years, with two additional
five-year options, an additional 240,000 square feet of space in the same
warehouse facility. The Company also leases a 4,000 square feet showroom in New
York City under a lease that expires in 2001. The Company believes that these
facilities are adequate for its current needs and that it will be able to
obtain additional space at a reasonable cost if required in the future.
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation that arises in the
normal course of its business operations. The Company does not believe it is
presently a party to litigation that will have a material adverse effect on its
business operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------------
<S> <C> <C> <C>
Maxwell V. Blum............ 72 Chairman of the Board and 1976
Chief Executive Officer
Mark J. Cocozza............ 49 President, Chief Operating 1987
Officer and Director
James J. Tinagero.......... 45 Executive Vice President 1996
Betty Ann Blum............. 47 Executive Vice President 1979
and Director
Marjorie W. Blum........... 42 Vice President--Sales, 1981
Secretary and Director
Richard J. Bakos........... 50 Vice President and Chief 1993
Financial Officer
John Kelly................. 45 Vice President--Operations 1998
and Controller
Stephen A. Fine(1)......... 49 Director 1994
Jonathan K. Layne(1)....... 44 Director 1994
Malcolm L. Sherman(1)...... 66 Director 1994
</TABLE>
- --------
(1) Currently a member of the Audit Committee and of the Compensation and Stock
Option Committee.
The Audit Committee recommends appointment of auditors, oversees the
accounting function of the Company and reviews and passes upon all transactions
with affiliates and other persons having a material interest in the Company.
The Compensation and Stock Option Committee determines officers' salaries and
bonuses, and administers the Company's 1994 Stock Incentive Plan.
Each director holds office until the next annual meeting of stockholders or
until his or her successor has been elected and qualified. Officers are
appointed by and serve at the discretion of the Board of Directors.
Mr. Maxwell V. Blum founded the Company's business in 1949 and has served as
the Company's Chairman of the Board and Chief Executive Officer since its
incorporation in 1976. Mr. Blum has more than forty years' experience in the
footwear industry. Mr. Blum is the father of Ms. Betty Ann Blum and
Ms. Marjorie Blum and Mr. Blum's wife is the first cousin of Mr. Malcolm L.
Sherman.
Mr. Mark J. Cocozza has served as President and Chief Operating Officer since
October 1993 and prior to that served as President of the Mootsies Tootsies
Division since joining the Company in 1987. Prior to joining the Company, Mr.
Cocozza served as President of the Sperry Top-Sider division of Stride Rite
Corporation. Mr. Cocozza has more than twenty years' experience in the footwear
industry.
Mr. James J. Tinagero joined the Company as Executive Vice President in April
1996 and has served as chairman of SLJ Retail LLC, an affiliate of the Company,
since April 1997. Mr. Tinagero has served as President and Director of
International Sales & Marketing Corporation, a New York based consulting firm
for consumer products companies, from 1993 to 1996, as Executive Vice President
of Bonaventure Textiles, U.S.A., a women's apparel company, from 1992 to 1993,
as President of Albert Nipon, a women's designer
35
<PAGE>
dress company, from 1991 to 1992, and as President of Anne Klein and Company, a
designer sportswear company, from 1987 to 1991. From 1980 to 1987, he held
various executive positions with Stride Rite Corporation.
Ms. Betty Ann Blum, the daughter of Mr. Blum, joined the Company in 1979. Ms.
Blum has served as Executive Vice President of the Company since October 1993
and prior to that served as President of the Mootsies Tootsies and Jones New
York Footwear Divisions and as President of the Company. Ms. Blum has been a
director since 1980.
Ms. Marjorie W. Blum, the daughter of Mr. Blum, joined the Company in 1981
and since then has served as Vice President--Sales, supervising national
accounts and catalog sales for the Mootsies Tootsies division. Ms. Blum has
been a director and Secretary since January 1994.
Mr. Richard J. Bakos joined the Company in 1987 as Controller and since
October 1993 has served as Vice President of Finance and Chief Financial
Officer. Before joining the Company, Mr. Bakos was Group Vice President of
Finance and Administration for the Bodwell Fashion Group of the Wingspread
Corporation. He has more than twenty years' experience in the apparel and
footwear industry.
Mr. John Kelly joined the Company in November 1993 as Controller and since
April 1998 has served as Vice President of Operations. Prior to joining the
Company, Mr. Kelly served as director of merchandising for the wholesale
division at Stride Rite Corporation from 1989 and prior to that was the
controller of the wholesale division.
Mr. Stephen A. Fine, who has served as a member of the Board of Directors of
the Company since May 1994, has been a Director, President and Chief Operating
Officer of The Biltrite Corporation since 1985, and from 1982 to 1985 he served
as Executive Vice-President of Biltrite. From 1970 to 1982, he held various
executive positions with American Biltrite Inc. Mr. Fine is also a Director of
K-Swiss Inc., a manufacturer of athletic footwear.
Mr. Jonathan K. Layne, who has served as a member of the Board of Directors
of the Company since May 1994, has been a partner in the law firm of Gibson,
Dunn & Crutcher LLP since 1987, where he specializes in corporate and
securities law matters. From 1979 to 1986 he was an associate of the same law
firm. Mr. Layne is also a member of the Board of Directors of Amwest Insurance
Group, Inc., an insurance holding company, The Finish Line, Inc., a retailer of
brand name athletic and leisure footwear, activewear and accessories, and K-
Swiss Inc., a manufacturer of athletic footwear.
Mr. Malcolm L. Sherman, who has served as a member of the Board of Directors
of the Company since May 1994, has served as Chairman of the Board and Chief
Executive Officer of EKCO Group Inc., a manufacturer and distributor of
household goods, since 1996 and as a member of its Board of Directors since
1994. Mr. Sherman is also a member of the Board of Directors of One Price,
Inc., a company engaged in the apparel business, since 1991. Mr. Sherman has
served as Chairman of the Board of Steth Tech Corporation, a developer of
medical devices from 1990 to 1996, as Chairman of the Board of Advisors of
Gordon Brothers, a liquidation and asset based lending firm, from 1993 to 1996,
as Chairman of the Board of K. T. Scott Ltd., a company engaged in the home
decor business, from 1990 to 1995, as President and Chief Executive Officer of
Morse Shoe, Inc., a footwear retailer, from 1992 to 1993, as a member of the
Board of Directors of United States Trust Co. from 1980 to 1993, and as a
member of the Board of Directors of Compu Chem Labs Inc., a company
specializing in drugs of abuse and environmental testing, from 1982 to 1993. In
July 1995, K. T. Scott Ltd. filed a petition for bankruptcy under Chapter 11 of
federal bankruptcy laws (which case was converted to a Chapter 7 proceeding in
November 1995). Mr. Sherman is the first cousin of Mr. Blum's wife.
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<PAGE>
KEY PERSONS
The following persons, although not executive officers of the Company, make
significant contributions to the Company:
Mr. Bradley B. Finn has served as a Divisional Executive and National Sales
Manager for the Mootsies Tootsies Division since joining the Company in 1987.
Prior to joining the Company, Mr. Finn was a Sales Executive for U.S. Shoe
Corp. and Sporto Corp.
Mr. Richard Brandt has served as a Divisional Executive and Product Manager
for Jones New York since joining the Company in 1994. Prior to joining the
Company, Mr. Brandt served as Vice President of Kenneth Cole, New York, and as
Vice President of Jasmine Ltd. Mr. Brandt also has experience as a buyer for
May Department Stores.
Mr. Steven Sousa has served as a Divisional Executive for Sam & Libby Womens
since joining the Company in 1996. Prior to joining the Company, Mr. Sousa
served as Vice President of Kenneth Cole, New York, and in various other
management positions in his 11 years with Kenneth Cole, New York.
Mr. Jorge Domeniconi has served as a Divisional Executive for Sam & Libby
Kids since joining the Company in 1996. Prior to joining the Company, Mr.
Domeniconi served as Vice President of Stride Rite Corporation and in various
other management positions with Stride Rite Corporation.
Mr. Irwin Miller became associated with the Company in 1990 to manage the
Mootsies Kids Division. With the acquisition of the Sam & Libby trademarks and
tradenames in 1996, he is now managing the children's group. Prior to that, Mr.
Miller served as President of the Children's Division of Stride Rite
Corporation, the leading brand of children's shoes in the industry.
Ms. Marilyn M. Faison joined the Company as Product Development Manager in
1988. Prior to joining the Company, Ms. Faison worked for the Bandolino
division of U.S. Shoe Corp. and Jordache shoes in addition to managing her own
independent New York design studio.
MANAGEMENT CHANGES UPON CONSUMMATION OF THE OFFERING
Upon consummation of the Offering, Mr. Cocozza will become Chairman of the
Board and Chief Executive Officer in addition to his existing responsibility as
President of the Company. Mr. Blum will resign as Chairman of the Board and
Chief Executive Officer but will remain a member of the Board of Directors of
the Company and will serve as a consultant to the Company. Ms. Betty Ann Blum
and Ms. Marjorie Blum will resign as executive officers and directors of the
Company upon consummation of the Offering but each will remain as an employee
through a transition period. The Company will seek to add two new directors to
replace Ms. Betty Ann Blum and Ms. Marjorie Blum after the consummation of the
Offering.
EMPLOYMENT AGREEMENTS
Effective upon consummation of the Offering, the Company will enter into new
employment agreements with Messrs. Cocozza and Tinagero. Mr. Cocozza's new
employment agreement will expire five years after consummation of the Offering,
subject to automatic renewal each year thereafter unless either the Company or
Mr. Cocozza gives the other party six months notice of its or his intention not
to renew the agreement. Pursuant to this agreement, Mr. Cocozza will be
compensated for the period from the completion of the Offering through the end
of fiscal 1998 at an annualized base rate of $525,000. Mr. Cocozza's bonus for
the period from the completion of the Offering through the end of fiscal 1998
will be determined pursuant to the Company's Senior Management Incentive Plan
established by the Company's Compensation and Stock Option Committee. The
employment agreement will also provide for customary perquisites and the grant
on the date of the closing of the Offering of an additional 75,000 stock
options, each with an exercise price equal to the fair market value on the date
of grant and subject to certain time and stock price performance vesting
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<PAGE>
provisions. In the event of a termination of Mr. Cocozza's employment without
Cause (as defined in the agreement) following a Change of Control (as defined
in the agreement), Mr. Cocozza will be entitled to receive a cash payment (in
addition to any salary or other amounts then due) based on a formula generally
intended to result in aggregate payments to Mr. Cocozza equal to three times
his average annual compensation (including bonuses and certain other taxable
payments) for the five-year period preceding the Change of Control. The payment
will be reduced by certain amounts that are taken into account in determining
whether Mr. Cocozza would be subject to the excise tax provisions of Section
4999 of the Internal Revenue Code. Mr. Cocozza has agreed that if the
employment agreement is terminated prior to its scheduled expiration (or prior
to the scheduled expiration of the extended term of the agreement, if any), he
will not compete against the Company in the footwear industry for a period of
18 months following the termination of the agreement, subject to certain
exceptions.
Mr. Tinagero's new employment agreement expires three years after
consummation of the Offering, subject to automatic renewal each year thereafter
unless either the Company or Mr. Tinagero gives the other party six months
notice of its or his intention not to renew the agreement. Pursuant to this
agreement, Mr. Tinagero will be compensated for the period from the completion
of the Offering through the end of fiscal 1998 at an annualized base rate of
$325,000. Mr. Tinagero's bonuses for the period from the completion of the
Offering through the end of fiscal 1998 will be determined pursuant to the
Company's Senior Management Incentive Plan established by the Company's
Compensation and Stock Option Committee. The employment agreement will also
provide for customary perquisites and the grant on the date of the closing of
the Offering of an additional 25,000 stock options, each with an exercise price
equal to the fair market value on the date of grant and subject to certain time
vesting provisions. If there is a change of control of the Company and if Mr.
Tinagero is terminated in connection therewith, he will be entitled to a
severance payment equal to his total compensation for the 18-month period
immediately prior to the change of control, in addition to the other payments
that the Company is obligated to make to Mr. Tinagero in the event he is
terminated or deemed to be terminated by the Company without cause (whether or
not in connection with a change of control). Mr. Tinagero has agreed that if
the employment agreement is terminated prior to its scheduled expiration (or
prior to the scheduled expiration of the extended term of the agreement, if
any), he will not compete against the Company in the footwear industry for a
period of 12 months following the termination of the agreement, subject to
certain exceptions.
CONSULTING AGREEMENT
Effective upon consummation of the Offering, the Company will enter into a
new consulting agreement with Mr. Blum. Mr. Blum's new consulting agreement
will be on a year-to-year basis. Pursuant to this agreement, Mr. Blum will
provide the Company certain services relating to strategic planning, customer
relations and marketing issues, all as requested by the Chief Executive Officer
of the Company for up to 240 hours per year (with any additional hours to be
provided at an additional fee of $2,000 per day). In consideration of Mr. Blum
providing such consulting services to the Company, the Company will provide to
Mr. Blum an office, a secretary, reimbursement for business related (including
travel) expenses, an automobile allowance and health insurance benefits
available to senior executives of the Company under the Company's health plans.
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<PAGE>
CERTAIN TRANSACTIONS
The following is a description of certain transactions in which officers and
directors of the Company and its affiliates or families had a direct or
indirect interest.
One of the Company's customers is a chain of six children's footwear stores
which had been owned or controlled by members of the family of Mr. Maxwell V.
Blum, Chairman and Chief Executive Officer of the Company. Mr. Mark J. Cocozza,
President of the Company, had owned a minority interest in three of the six
stores. Their ownership positions in these stores were sold during fiscal 1996.
Total sales (and cost of sales) to these stores in fiscal 1995, and while they
had an ownership position in 1996 were $365,000 ($229,000) and $237,000
($173,000), respectively. Terms offered to these stores were comparable to
terms offered to other customers purchasing similar amounts of comparable
products. In the past, certain of these stores have paid fees to the Company in
exchange for management and accounting services, although neither Mr. Blum nor
Mr. Cocozza was actively involved in the day-to-day business of these stores.
Such fees aggregated $25,000 and $19,000 in fiscal 1995 and fiscal 1996,
respectively.
Mr. Cocozza and the Company agreed to terminate, effective as of the
completion of the Company's May 1994 initial public offering, a Deferred
Incentive Compensation Agreement entered into in 1988 (the "Compensation
Agreement"). In exchange for his consent to terminate the Compensation
Agreement, Mr. Cocozza was granted a nontransferable option to acquire 888,412
shares of Class A Common Stock at an exercise price of $1.50 per share. The
number of shares subject to the option and the option exercise price were
determined through negotiations between Mr. Cocozza and the Company. The option
is exercisable in whole or in part from time to time during a 15-year period
beginning on January 26, 1995 (the "Exercisability Date"). If following the
Exercisability Date Mr. Cocozza ceases to be employed by the Company for any
reason, his option will cease to be exercisable upon the earlier of (i) the
stated expiration of the option and (ii) the first anniversary of the date as
of which Mr. Cocozza ceased to be employed by the Company. The shares offered
hereby include 300,000 shares of Class A Common Stock issuable pursuant to a
partial exercise of this option to be sold by Mr. Cocozza. The Company also
entered into an arrangement in fiscal 1994 with Mr. Cocozza pursuant to which
the Company, under certain circumstances, will be required to register his
shares of Class A Common Stock (including shares issuable upon the exercise of
Mr. Cocozza's option) under the Securities Act. See "Description of Capital
Stock--Registration Rights."
Prior to its initial public offering in May 1994, the Company was treated for
federal and state income tax purposes as a S corporation under Subchapter S of
the Internal Revenue Code and comparable state tax laws. In connection with the
Company's reorganization, reincorporation and initial public offering, the
Company in March and May 1994 made distributions of S corporation earnings in
the aggregate amount of $20,227,000, of which $4,025,082 was distributed to Mr.
Maxwell V. Blum, $6,553,571 was distributed to Ms. Betty Ann Blum, $6,553,571
was distributed to Ms. Marjorie Blum and $3,094,776 was distributed to a trust
for the benefit of the wife of Mr. Maxwell V. Blum.
The Company and each of Mr. Blum, Ms. Betty Ann Blum, Ms. Marjorie Blum and a
trust for the benefit of Mr. Blum's wife have entered into a tax
indemnification agreement (the "Tax Agreement"). Subject to certain
limitations, the Tax Agreement provides for indemnification to the Selling
Stockholders or to the Company in the event of an adjustment by a taxing
authority that shifts federal and certain state income taxes to the Selling
Stockholders or to the Company, respectively, between periods before and after
the date of termination of the Company's status as a S corporation. The Tax
Agreement also provides for certain adjustments to the S corporation dividends
that were paid in connection with the Company's initial public offering in
certain circumstances if the Company determines that such amounts differed in
the aggregate from the previously undistributed S corporation earnings.
In fiscal 1994, the Company entered into separate but identical indemnity
agreements (the "Indemnity Agreements") with each director and executive
officer of the Company. The Indemnity Agreements provide that the Company will
indemnify the director or officer (the "Indemnitee") against any amounts that
he or
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<PAGE>
she becomes legally obligated to pay in connection with any claim against him
or her based upon any act, omission, neglect or breach of duty that he or she
may commit, omit or suffer while acting in his or her capacity as a director
and/or officer of the Company; provided that such claim: (i) is not based upon
the Indemnitee's gaining any personal profit or advantage to which he or she is
not legally entitled; (ii) is not for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Exchange Act or similar provisions of any state
law; and (iii) is not based upon the Indemnitee's knowingly fraudulent,
deliberately dishonest or willful misconduct. The Indemnity Agreements also
provide that all costs and expenses incurred by the Indemnitee in defending or
investigating such claim shall be paid by the Company in advance of the final
disposition thereof unless the Company, independent legal counsel, the
stockholders of the Company or court of competent jurisdiction determines that:
(i) the Indemnitee did not act in good faith and in a manner that he or she
reasonably believed to be in or not opposed to the best interests of the
Company; (ii) in the case of any criminal action or proceeding, the Indemnitee
had reasonable cause to believe his or her conduct was unlawful; or (iii) the
Indemnitee intentionally breached his or her duty to the Company or its
stockholders. Each Indemnitee has undertaken to repay the Company for any costs
or expenses so advanced if it shall ultimately be determined by a court of
competent jurisdiction in a final, nonappealable adjudication that he or she is
not entitled to indemnification under the Indemnity Agreements.
In April 1997, the Company completed a transaction to jointly own and operate
approximately 130 retail women's footwear stores through the SLJ Retail joint
venture. The Company and the Butler Group Inc., a wholly owned subsidiary of
General Electric Capital Corporation, own 49% and 51% of SLJ Retail,
respectively. A subsidiary of the Company is the manager of SLJ Retail. The
Company holds an option through February 1, 2000 to purchase additional equity
in SLJ Retail to increase its equity ownership to 55%, subject to achieving
certain operating income levels.
The Company's contribution to SLJ Retail was the provision of exclusive
retail license agreements with respect to the Sam & Libby and Jones New York
brand names, management services for the business of SLJ Retail and access to
the Company's manufacturing resources worldwide. SLJ Retail will purchase
footwear directly at a first cost basis from the same factories as the Company,
as well as factories which the Company does not use. The Butler Group
contributed certain assets consisting of store leases and headquarter assets,
the purchase of a $12.5 million subordinated note and the provision of a bank
guaranty of a $16.0 million term loan all of which is secured by the assets of
SLJ Retail.
The first retail stores operated by SLJ Retail opened in July 1997. As of
March 8, 1998, 122 stores had been converted from their prior retail concepts
to either Sam & Libby or Jones New York branded concepts. As of March 8, 1998,
there were 94 Sam & Libby and 28 Jones New York footwear retail stores opened.
Upon consummation of the Offering, the Company will enter into a new
consulting agreement with Mr. Blum for certain specified services for up to 20
hours per month in consideration of certain benefits. See "Management--
Consulting Agreement."
Gibson, Dunn & Crutcher LLP has provided legal services to the Company in
connection with this offering and to the Company and certain affiliates of the
Company regarding certain other matters. The Company expects that such law firm
will render legal services to the Company and its affiliates in the future.
Jonathan K. Layne, a partner of Gibson, Dunn & Crutcher LLP, serves as a member
of the Company's Board of Directors. See "Management--Directors and Executive
Officers" and "Legal Matters."
The Company believes that the terms of all transactions between the Company
and the Selling Stockholders, the officers and directors of the Company and
Gibson, Dunn & Crutcher LLP, or any of their affiliates, described above are no
less favorable to the Company than terms that could have been obtained from
unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the Principal and
Selling Stockholders as of April 20, 1998 and the shares of Common Stock
beneficially owned by each Principal or Selling Stockholder that may be offered
pursuant to this Prospectus. Except as otherwise indicated, to the knowledge of
the Company, all persons listed below have sole voting and investment power
with respect to their securities. Such information has been obtained from the
Principal or Selling Stockholders. The Selling Stockholders are all directors,
officers or five percent stockholders of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING(1) OWNED AFTER OFFERING(1)(2)(3)(4)
----------------------------------------- ------------------------------------
CLASS A CLASS B CLASS A
-------------------- -------------------- ----------------------- PERCENT OF
PERCENT OF PERCENT OF PERCENT OF COMMON STOCK
NAME AND ADDRESS NUMBER CLASS NUMBER CLASS NUMBER CLASS VOTING POWER
- ------------------------ --------- ---------- --------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maxwell V. Blum(5)(6)... 16,850 0.45% 871,940 17.22% 100,000(7) 1.11% 1.11%
Mark J. Cocozza(5)...... 935,612 24.72% -- -- 635,612 7.06% 7.06%
Betty Ann Blum(5)....... 32,000 0.85% 1,696,387 33.50% -- -- --
Marjorie W. Blum(5)..... 32,000 0.85% 1,696,387 33.50% -- -- --
David Andelman(5)(8).... -- -- 798,603 15.77% -- -- --
James J. Tinagero....... 51,000 1.35% -- -- 200,000(9) 2.22% 2.22%
Stephen A. Fine......... 25,000 0.66% -- -- 25,000 0.28% 0.28%
Jonathan K. Layne....... 25,000 0.66% -- -- 25,000 0.28% 0.28%
Malcolm L. Sherman...... 25,000 0.66% -- -- 25,000 0.28% 0.28%
FMR Corp.(10)........... 758,800 20.05% -- -- 758,800 8.43% 8.43%
Wynnefield Partners
Small Cap Value, L.P.
(11)................... 126,100 3.33% -- -- 126,100 1.40% 1.40%
All officers and
directors as a group
(ten persons).......... 1,163,712 30.74% 4,264,714 84.23% 1,031,862 11.47% 11.47%
</TABLE>
- --------
(1) The shares of Class A Common Stock underlying options that are exercisable
as of April 20, 1998 or that will become exercisable within 60 days
thereafter are deemed to be outstanding for the purpose of calculating the
beneficial ownership of the holder of such options, but are not deemed to
be outstanding for the purpose of computing the beneficial ownership of
any other person.
(2) Gives effect to the issuance of 588,412 shares of Class A Common Stock
upon exercise of an option that had been granted to Mr. Cocozza, which
option is currently exercisable, provided that Mr. Cocozza (i) is still
employed by the Company on that date or (ii) has ceased to be employed by
the Company on or before such date due only to either (x) Mr. Cocozza's
death or (y) termination of his employment by the Company for other than
cause.
(3) No Class B Common Stock will be outstanding after the consummation of the
Offering.
(4) Does not give effect to the issuance of 801,625 shares of Class A Common
Stock by the Company and the sale of such shares upon exercise of the
Underwriters' overallotment option.
(5) The address of each of the above is 101 Sprague Street, P.O. Box 37,
Readville (Boston), Massachusetts 02137.
(6) Excludes 798,603 shares held in trust for the benefit of Mr. Blum's wife,
as to which Mr. Blum disclaims beneficial ownership.
(7) Mr. Blum intends to donate 100,000 shares to the Maxwell V. Blum Family
Foundation, a private charitable foundation, concurrently with the
consummation of this Offering.
(8) Holds shares as trustee for the benefit of Mr. Blum's wife.
(9) Includes 149,000 shares of Class A Common Stock underlying options that
will become exercisable upon a change of control of the Company. The
consummation of the Offering will result in a change of control of the
Company for purposes of such option.
(10) This information is based solely on a Schedule 13G dated February 10, 1998
filed with the Securities and Exchange Commission. The address of FMR
Corp. is 82 Devonshire Street, Boston, Massachusetts 02109.
(11) This information is based solely on a joint Schedule 13D dated March 5,
1998 filed with the Securities and Exchange Commission by Wynnefield
Partners Small Cap Value, L.P. (with respect to 101,000 shares) and
Wynnefield Small Cap Value Offshore Fund Ltd. (with respect to 25,100
shares). The address of Wynnefield Partners Small Cap Value, L.P. is One
Penn Plaza, Suite 4720, New York, New York 10119.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 1,000,000 shares of
Preferred Stock, par value $.01 per share, and 30,000,000 shares of Common
Stock, par value $.01 per share.
COMMON STOCK
Each share of Common Stock is designated as either Class A Common Stock or
Class B Common Stock. The Company is authorized to issue 20,000,000 shares of
Class A Common Stock and 10,000,000 shares of Class B Common Stock. As of the
date hereof, there are 2,542,357 shares of Class A Common Stock outstanding and
5,063,317 shares of Class B Common Stock outstanding. Upon consummation of the
Offering, there will be 7,986,524 shares of Class A Common Stock (8,574,936
shares of Class A Common Stock after giving effect to the issuance of 588,412
shares of Class A Common Stock upon the exercise of an option that had been
granted to Mr. Cocozza, the Company's President (see "Management")) and no
shares of Class B Common Stock outstanding. Authorized shares of Class A Common
Stock will be increased by an amount equal to any corresponding decrease
determined by the Board of Directors in the number of authorized shares of
Class B Common Stock. The issued and outstanding shares of Class A Common Stock
and Class B Common Stock have been, and the shares of Class A Common Stock
offered hereby will be, duly authorized, validly issued, fully paid and
nonassessable.
The Board of Directors has determined not to issue additional shares of Class
B Common Stock, except in conjunction with stock splits, reverse stock splits,
stock dividends, reclassifications and similar transactions and events
regarding the Class A Common Stock that would otherwise have the effect of
changing the conversion rights of the Class B Common Stock relative to the
Class A Common Stock (the "Adjustments"). In addition, as soon as practicable
after the consummation of the Offering, the Company intends to seek stockholder
approval to amend its Certificate of Incorporation to eliminate the
authorization for the issuance of Class B Common Stock. Consequently, assuming
the implementation of such amendment, the Company will have only one class of
Common Stock and one class of Preferred Stock. See Footnote 2 to
"Capitalization."
Holders of Common Stock do not have any preemptive rights or rights to
subscribe for additional securities of the Company. Shares of Common Stock are
not redeemable and there are no sinking fund provisions.
While the shares of Class A Common Stock are not convertible into any other
series or class of the Company's securities, each share of Class B Common Stock
is freely convertible into one share (subject to the Adjustments) of Class A
Common Stock at the option of the Class B stockholder. All shares of Class B
Common Stock shall automatically convert to shares of Class A Common Stock (on
a share-for-share basis, subject to the Adjustments) on the earliest record
date for an annual meeting of the Company's stockholders on which the number of
shares of Class B Common Stock outstanding is less than 5% of the total number
of shares of Common Stock outstanding. Shares of Class B Common Stock may not
be transferred to third parties (except for transfers to certain family members
and in other limited circumstances). Any impermissible transfer of Class B
Common Stock will result in the automatic conversion of such shares into shares
of Class A Common Stock.
Subject to the preferences applicable to Preferred Stock outstanding at the
time, holders of shares of Common Stock are entitled to dividends if, when and
as declared by the Board of Directors from funds legally available therefor,
and are entitled, in the event of liquidation, to share ratably in all assets
remaining after payment of liabilities and Preferred Stock preferences, if any.
In the case of dividends or other distributions payable in Common Stock, shares
of Class B Common Stock shall be distributed with respect to Class B Common
Stock unless the Board of Directors determines to distribute shares of Class A
Common Stock with respect to Class B Common Stock. In all other respects each
share of Class A Common Stock and Class B Common Stock will be treated equally
with respect to dividends and distributions.
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<PAGE>
Holders of Class A Common Stock are entitled to one vote for each share held
of record, and holders of Class B Common Stock are entitled to ten votes for
each share held of record. The Class A Common Stock and the Class B Common
Stock vote together as a single class on all matters submitted to a vote of
stockholders (including the election of directors), except that, in the case of
a proposed amendment to the Company's Certificate of Incorporation that would
alter the powers, preferences or special rights of either the Class A Common
Stock or the Class B Common Stock, the class of Common Stock to be altered
shall vote on the amendment as a separate class. Shares of Common Stock do not
have cumulative voting rights with respect to the election of directors.
The Company's Board of Directors has seven members. Either the directors or
the stockholders may amend the Bylaws to change the size of the Board, subject
to the requirement in the Certificate of Incorporation that the entire Board
must consist of at least three and no more than twelve directors. The directors
stand for reelection at each annual meeting of the stockholders and vacancies
on the Board, including a vacancy caused by an increase in the size of the
Board, may be filled by the remaining directors. Any stockholder entitled to
vote at a meeting regarding the election of directors may nominate a person for
election as a director, provided that the stockholder gives the Company written
notice of the nomination at least 90 days before the meeting (or if later, the
seventh day after the first public announcement of the date of such meeting),
which notice must contain specified information about the stockholder and the
nominee.
The Company's Certificate of Incorporation provides that any action that can
be taken at a meeting of the stockholders may be taken by written consent in
lieu of the meeting if the Company receives consents signed by stockholders
having the minimum number of votes that would be necessary to approve the
action at a meeting at which all shares entitled to vote on the matter were
present. However, the Company does not presently expect the written consent
procedure to be utilized in the future.
The Company's Transfer Agent and Registrar for the Common Stock is
BankBoston, N.A.
The Class A Common Stock is traded on the National Market System of NASDAQ
under the symbol "MAXS."
PREFERRED STOCK
The Company's Board of Directors is authorized without further action by the
stockholders, to issue, from time to time, shares of Preferred Stock in one or
more class or series, and to fix or alter the designations, powers and
preferences, and relative, participating, optional or other rights, if any, and
qualifications, limitations or restrictions thereof, including, without
limitation, dividend rights (and whether dividends are cumulative), conversion
rights, if any, voting rights (including the number of votes, if any, per
share), rights and terms of redemption (including sinking fund provisions, if
any), redemption price and liquidation preferences of any unissued shares or
wholly unissued series of Preferred Stock, and the number of shares
constituting any such class or series and the designation thereof, and to
increase or decrease the number of shares of any such class or series and the
designation thereof, and to increase or decrease the number of shares of any
such class or series subsequent to the issuance of shares of such class or
series, but not below the amount then outstanding. In the future, the Board of
Directors could authorize and issue preferred stock with terms and conditions
that could discourage offers to acquire the Company.
REGISTRATION RIGHTS
Mr. Cocozza (the "Holder") is entitled to certain rights with respect to the
registration under the Securities Act of his shares of Common Stock (the
"Registrable Shares") under the terms of certain agreements to which the
Company is a party. The agreements provide that in the event the Company
proposes to register any of its securities under the Securities Act for its own
account at any time or times, subject to certain exceptions, the Holder shall
be entitled to include Registrable Shares in any such registration, subject
43
<PAGE>
to the right of the managing underwriter of any such offering to exclude for
marketing reasons some or all of such Registrable Shares from such
registration. The Holder, if holding 50,000 or more Registrable Shares, may
also require the Company to register all or part of his shares on Form S-3 up
to one time each year (up to a maximum amount not to exceed 175,000 shares per
year) if the Company then qualifies for use of such form, subject to certain
conditions and limitations. The Company has agreed to separately register under
the Securities Act on Form S-8 (if available) the 588,412 shares of Class A
Common Stock issuable upon exercise of Mr. Cocozza's option, which was granted
in the first quarter of fiscal 1994 in exchange for the termination of a pre-
existing deferred compensation arrangement. The Company is generally required
to bear the expenses of all such registrations (except underwriting discounts
and commissions relating to the Registrable Shares) and the fees of one special
counsel to the Holder. The Holder will be required to indemnify the Company,
and the Company will be required to indemnify the Holder, against liabilities
incurred by the indemnified party under certain circumstances. See "Shares
Eligible for Future Sale."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Class A Common Stock by existing stockholders pursuant to
Rule 144 ("Rule 144") promulgated under the Securities Act, pursuant to
registration rights granted to certain holders of options to purchase the
Company's Class A Common Stock, or pursuant to other registrations or
exemptions from registration under the Securities Act, could have an adverse
effect on the price of the shares of Class A Common Stock. Upon consummation of
the Offering, the Company will have outstanding 7,986,524 shares of Class A
Common Stock, all of which will be freely tradable, and no shares of Class B
Common Stock. In addition, the Company has reserved for issuance (i) 733,493
shares of Class A Common Stock upon exercise of options granted under the
Company's 1994 Stock Option Plan, (ii) 299,150 shares upon the exercise of
options available for grant under the 1994 Plan, and (iii) 588,412 shares of
Class A Common Stock issuable upon exercise of an option granted to Mr.
Cocozza, the Company's President. Mr. Cocozza's option is currently exercisable
until January 6, 2010, and Mr. Cocozza may require the Company to register his
shares of Class A Common Stock under the Securities Act, which would permit Mr.
Cocozza to resell a certain amount of his shares without complying with Rule
144. See "Description of Capital Stock--Registration Rights." If such
registration statement is filed and becomes effective, then Mr. Cocozza
generally would be able to sell a certain amount of his shares in the open
market.
Furthermore, of the 733,493 shares of Class A Common Stock reserved for
issuance upon exercise of options granted under the Company's 1994 Stock Option
Plan, 200,000 of such shares will be issuable upon exercise of an option
granted to Mr. James Tinagero, the Company's Executive Vice President, all of
which shares have been registered under the Securities Act. Such option will
become exercisable upon a change of control of the Company, and hence, such
option will become exercisable upon the consummation of the Offering. If
Mr. Tinagero exercises such option, he would be able to sell such shares
issuable under such option in the open market.
Upon consummation of the Offering, the Company will grant to Messrs. Cocozza
and Tinagero 75,000 and 25,000 additional stock options, respectively, subject
to certain time and other vesting provisions. The Company will register under
the Securities Act on Form S-8 such 100,000 shares issuable upon exercise of
these additional 100,000 options.
Of the 2,542,357 shares of Class A Common Stock issued and outstanding,
2,375,000 were sold publicly in the Company's initial public offering and
150,000 shares were sold to the public subsequent to the conversion of 150,000
shares of Class B Common Stock by Mr. Blum. The remaining 17,357 outstanding
shares of Class A Common Stock are "restricted securities," as that term is
defined in Rule 144, and may only be sold pursuant to a registration statement
under the Securities Act or an applicable exemption from registration
thereunder, including exemptions provided by Rule 144. All of such shares are
presently eligible for resale under Rule 144.
44
<PAGE>
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has beneficially owned his shares for at least one year, including persons
who may be deemed "affiliates" of the Company as defined under the Act, may
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Company's Class A Common
Stock or the average weekly trading volume during the four calendar weeks prior
to such sale. Rule 144 also permits the sale of an unlimited number of shares
by a person who is not an "affiliate" of the Company and who has not been an
"affiliate" of the Company at any time during the three months preceding the
sale and who has beneficially owned his shares for at least two years.
The Company and each of its officers and directors and each of the Selling
Stockholders have agreed that, for a period of 90 days after the effective date
of the Offering, they will not offer, sell or otherwise dispose of any shares
of Class A Common Stock without the prior written consent of Lehman Brothers
Inc. No prediction can be made as to the effect that future sales of Class A
Common Stock, or the availability of shares of Class A Common Stock for future
sales, will have on the market prices for the Class A Common Stock prevailing
from time to time. Sales of substantial amounts of Class A Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Class A Common Stock, or the perception that such sales
could occur could impair the Company's ability to raise capital through the
future sale of its equity securities. See "Principal and Selling Stockholders"
and "Risk Factors--Shares Eligible for Future Sale; Registration Rights."
45
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF CLASS A COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Class A Common
Stock by a holder that is not a "U.S. person" (a "non-U.S. holder"). A "U.S.
person" is a person or entity that, for U.S. federal income tax purposes, is a
citizen or resident of the United States, a corporation or partnership created
or organized in the United States or under the laws of the United States or of
any political subdivision thereof, an estate whose income is includible in
gross income for U.S. federal income tax purposes regardless of its source or a
trust subject to the supervision of a court within the United States and the
control of a United States person as described in Section 7701 (a) (30) of the
Internal Revenue Code of 1986, as amended (the "Code"). An individual will be
deemed to be a resident of the United States for U.S. federal income tax
purposes if: (1) such individual is a lawful permanent resident of the United
States at any time during the taxable year, (2) such individual makes an
election to be treated as a resident pursuant to the provisions of the Code; or
(3) such individual is present in the United States for an aggregate of 183
days or more during the calendar year. In addition, an individual will be
presumed to be a resident of the United States for U.S. federal income tax
purposes if such individual is present in the United States on at least 31 days
in the current calendar year and for an aggregate of 183 days during the three-
year period ending with the current calendar year (counting, for such purposes
all of the days present in the United States during the current year, one-third
of the days present during the immediately preceding year and one-sixth of the
days present during the second preceding year). This presumption of residence
may be rebutted if an individual is present in the United States for fewer than
183 days during the current year and it is established that such individual has
a "tax home" in a foreign country and a "closer connection" to such foreign
country than to the United States, with such terms being defined in the Code.
Furthermore, the determination of residence under the Code may be rebutted by
application of an applicable tax treaty or convention between the United States
and an appropriate foreign country that may also treat such individual as a tax
resident of such country. A special definition of U.S. resident applies for
U.S. federal estate tax purposes. Resident aliens are subject to U.S. federal
tax as if they were U.S. citizens.
This discussion is based on Code and administrative and judicial
interpretations as of the date hereof, all of which may be changed either
retroactively or prospectively. This discussion does not address all the
aspects of U.S. federal income and estate taxation that may be relevant to non-
U.S. holders in light of their particular circumstances, nor does it address
tax consequences under the laws of any state, local or foreign taxing
jurisdiction.
Prospective holders should consult their own tax advisors about the
particular U.S. federal tax consequences to them of holding and disposing of
Class A Common Stock, as well as any tax consequences that may arise under the
laws of any state, local or foreign taxing jurisdiction.
DIVIDENDS
Distributions by the Company to a non-U.S. holder will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions ordinarily
will be subject to withholding of United States federal income tax on a gross
basis (that is, without allowance of deductions) at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are treated as effectively connected with the conduct by the non-U.S.
holder of a United States trade or business or, if an income tax treaty
applies, as attributable to a United States permanent establishment of the non-
U.S. holder. Dividends that are effectively connected with such a trade or
business (or, if an income tax treaty applies, that are attributable to a
United States permanent establishment of the non-U.S. holder) will be subject
to tax on a net basis (that is, after allowance of deductions) at graduated
rates, in the same manner as domestic stockholders are taxed with respect to
such dividends and are generally not subject to withholding. Any such dividends
received by a non-U.S. holder that is a corporation may also be subject to an
additional branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
46
<PAGE>
Under current U.S. Treasury regulations, dividends paid to an address outside
the United States are presumed to be paid to a resident of the country of
address (unless the payor has knowledge to the contrary), including for
purposes of determining the applicability of a tax treaty rate (the "address
rule"). Thus, non-U.S. holders who receive dividends at addresses outside the
United States generally are not yet required to file tax forms to obtain the
benefit of an applicable treaty rate. Under recently issued Treasury
Regulations scheduled to take effect January 1, 1999 (the "Final Regulations"),
the address rule will no longer apply, and a non-U.S. holder who seeks to claim
the benefit of an applicable treaty rate would be required to satisfy certain
certification and other requirements. The Final Regulations also provide
special rules regarding whether, for purposes of determining the applicability
of an income tax treaty, dividends paid to a non-U.S. holder that is an entity
should be treated as being paid to the entity itself or to the persons holding
an interest in that entity.
A non-U.S. holder must file a properly completed and executed Internal
Revenue Service ("IRS") Form 4224 (or, under the Final Regulations, for
distributions after December 31, 1998, an IRS Form W-8) with the Company's
withholding agent certifying that the investment to which the distribution
relates is effectively connected with the conduct of a United States trade or
business or is attributable to a permanent establishment of such non-U.S.
holder in order to qualify for the exemption from withholding under the
effectively connected income and permanent establishment exemptions discussed
above.
Distributions in excess of current or accumulated earnings and profits of the
Company will not be taxable to a non-U.S. holder to the extent that they do not
exceed the adjusted basis of the stockholder's Class A Common Stock, but rather
will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a non-U.S. holder's Class A Common
Stock, they will give rise to gain from the sale or exchange of his stock, the
tax treatment of which is described below. Under current regulations, if it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current or accumulated earnings and profits,
the distribution will generally be treated as a dividend for withholding
purposes. Under the Final Regulations, the Company will generally be permitted
to make a reasonable estimate of the amount of such distribution that should be
treated as a dividend and therefore subject to withholding.
A non-U.S. holder of Class A Common Stock who is eligible for a reduced rate
of United States withholding tax pursuant to a tax treaty or whose dividends
have otherwise been subjected to withholding in an amount that exceeds such
holder's United States federal income tax liability, may obtain a refund by
filing an appropriate claim for a refund with the IRS.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax in
respect of gain recognized on a disposition of Class A Common Stock unless (i)
the Gain is effectively connected with the conduct of a trade or business of
the non-U.S. holder (or of a partnership that holds the Class A Common Stock in
which the non-U.S. holder is a member) in the United States, (ii) in the case
of a non-U.S. holder who is an individual and holds the Class A Common Stock as
a capital asset (or is a member in a partnership that holds the Class A Common
Stock as a capital asset), such holder is present in the United States for 183
or more days in the taxable year of the disposition and either (x) has a "tax
home" in the United States (as specially defined for U.S. federal income tax
purposes) or (y) maintains an office or other fixed place of business in the
United States and the income from the sale of the stock is attributable to such
office or other fixed place of business, (iii) the non-U.S. holder is subject
to tax pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates or (iv) under certain circumstances the Company is or has been a
"U.S. real property holding corporation" for federal income tax purposes. The
Company is not currently, has not been and does not anticipate becoming a "U.S.
real property holding corporation" for U.S. federal income tax purposes.
47
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each non-U.S. holder the
amount of dividends paid to, and the tax withheld with respect to such holder,
regardless of whether tax was actually withheld. That information may also be
made available to the tax authorities of the country in which the non-U.S.
holder resides.
United States federal backup withholding (which generally is withholding
imposed at the rate of 31% on certain payments to persons not otherwise exempt
who fail to furnish certain identifying information to the IRS) will generally
not apply to dividends paid to a non-U.S. holder that are subject to
withholding at the 30% rate (or would be so subject but for a reduced rate
under an applicable treaty). In addition, the payor of dividends may rely on
the payee's foreign address in determining that the payee is exempt from backup
withholding, unless the payor has knowledge that the payee is a U.S. person,
except that with regard to payments made after December 31, 1998, a non-U.S.
holder will be entitled to such an exemption only if it provides an IRS Form W-
8 (or satisfies certain documentary evidence requirements for establishing that
it is a non-United States person).
The backup withholding and information reporting requirements also apply to
the gross proceeds paid to a non-U.S. holder upon the disposition of Class A
Common Stock by or through a U.S. office of a U.S. or foreign broker, unless
the holder certifies to the broker under penalty of perjury as to its name,
address and status as a non-U.S. holder or the holder otherwise establishes an
exemption. Information reporting requirements (but not backup withholding) will
apply to a payment of the proceeds of a disposition of Class A Common Stock by
or through a foreign office of (i) a U.S. person, (ii) a foreign person 50% or
more of whose gross income for certain periods is effectively connected with
the conduct of a trade or business in the United States or (iii) a foreign
person that is a "controlled foreign corporation" for U.S. federal income tax
purposes, unless the broker has documentary evidence in its records that the
holder is a non-U.S. holder (and the broker has no actual knowledge to the
contrary) and certain other conditions are met, or the holder otherwise
establishes an exemption. Neither backup withholding nor information reporting
will generally apply to a payment of the proceeds of a disposition of Class A
Common Stock by or through a foreign office of a foreign broker not subject to
the preceding sentence.
Any amounts withheld under the backup withholding rules will be refunded or
credited against the non-U.S. holder's United States federal income tax
liability, provided that required information is furnished to the IRS.
FEDERAL ESTATE TAXES
Class A Common Stock owned or treated as owned by an individual who is
neither a citizen nor a resident of the United States for federal estate tax
purposes at the date of death will be included in such individual's estate for
U.S. federal estate tax purposes and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise. Estates of
nonresident aliens are generally allowed a statutory credit for U.S. estate tax
purposes. Estate tax treaties may permit a larger credit. A special definition
of U.S. resident applies for U.S. federal estate purposes.
48
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions in, the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc., Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated and Tucker Anthony Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Selling
Stockholders, and the Selling Stockholders have agreed to sell to each
Underwriter. the aggregate number of shares of Class A Common Stock set forth
opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc. ..............................................
Bear, Stearns & Co. Inc. ..........................................
BT Alex. Brown Incorporated........................................
Tucker Anthony Incorporated........................................
---------
Total.......................................................... 5,344,167
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Class A Common Stock are subject to certain conditions,
and that if any of the foregoing shares of Class A Common Stock are purchased
by the Underwriters pursuant to the Underwriting Agreement, all the shares of
Class A Common Stock agreed to be purchased by the Underwriters must be so
purchased.
The Company and the Selling Stockholders have been advised that the
Underwriters propose to offer the shares of Class A Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain selected dealers (who may include the Underwriters)
at such public offering price less a selling concession not in excess of $
per share. The selected dealers may re-allow a concession not in excess of
$ per share to certain brokers and dealers. After the Offering, the public
offering price, the concession to selected dealers and the reallowance may be
changed by the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute to payments that the Underwriters
may be required to make in respect thereof.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 801,625 shares of Class A Common Stock, exercisable solely to
cover over-allotments, at the offering price to the public less the
underwriting discounts and commissions shown on the cover page of this
Prospectus. Such option may be exercised at any time until 30 days after the
date of the Underwriting Agreement. To the extent that the option is exercised,
each Underwriter will be committed, subject to certain conditions, to purchase
a number of the additional shares of Class A Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company and the Selling Stockholders of the Company have agreed pursuant
to the Underwriting Agreement that they will not, subject to certain limited
exceptions, directly or indirectly, offer, sell or otherwise dispose of any
shares of Class A Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares for a period of 90 days after
the effective date of the Offering without the prior written consent of Lehman
Brothers Inc. In addition, all officers and directors of the Company have
agreed pursuant to lock-up agreements that they will not, subject to certain
limited exceptions, directly or indirectly, offer, sell or otherwise dispose of
any shares of Class A Common Stock or any securities convertible into or
exchangeable for such shares without the prior written consent of Lehman
Brothers Inc. for 90 days after the effective date of the Offering.
Until the distribution of the Class A Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members
49
<PAGE>
to bid for and purchase shares of Class A Common Stock. As an exception to
these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Class A Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Class A Common Stock.
In addition, if the Representatives over-allot (i.e., if they sell more
shares of Class A Common Stock than are set forth on the cover page of this
Prospectus), and thereby create a short position in the Class A Common Stock in
connection with the Offering, the Representatives may reduce that short
position by purchasing Class A Common Stock in the open market. The
Representatives also may elect to reduce any short position by exercising all
or part of the over-allotment option described herein.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
50
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LEGAL MATTERS
Certain legal matters with respect to the shares of Class A Common Stock
offered hereby will be passed upon for the Company by Gibson, Dunn & Crutcher
LLP, Los Angeles, California. Jonathan K. Layne, a member of the Company's
Board of Directors, is a partner of Gibson, Dunn & Crutcher LLP. Milbank,
Tweed, Hadley & McCloy, New York, New York will act as counsel to the
Underwriters.
EXPERTS
The financial statements and schedule of the Company as of October 31, 1996
and 1997, and for each of the years in the three-year period ended October 31,
1997, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material may be obtained
by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Material filed by the Company can also be inspected at the offices
of The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form S-
2 (the "Registration Statement") under the Securities Act with respect to the
Class A Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are omitted as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any agreement or other document referred
to herein are not necessarily complete, and reference is made to the copy of
such agreement or other document filed as an exhibit or schedule to the
Registration Statement and each such statement shall be deemed qualified in its
entirety by such reference. For further information, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, which
are available for inspection without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the material containing this information may be obtained
from the Commission upon payment of the prescribed fees.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
(File No. 0-24026) pursuant to the Exchange Act and are hereby incorporated by
reference:
1. Annual Report on Form 10-K for the fiscal year ended October 31, 1997;
and
2. Quarterly Report on Form 10-Q for the quarterly period ended January
31, 1998.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering of the Class A Common
Stock shall be deemed to be incorporated by reference herein. Any statement
contained herein or in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
subsequently filed document that is incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to Investor
Relations, Maxwell Shoe Company Inc., 101 Sprague Street, Readville (Boston),
MA 02137 Attn: Director of Investor Relations. Telephone inquiries may be
directed to the Director of Investor Relations at (617) 364-5090.
52
<PAGE>
MAXWELL SHOE COMPANY INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of October 31, 1996 and 1997 and January
31, 1998 (unaudited).................................................... F-3
Consolidated Statements of Income for the years ended October 31, 1995,
1996 and 1997 and for the three months ended January 31, 1997
(unaudited) and 1998 (unaudited)........................................ F-4
Consolidated Statements of Cash Flows for the years ended October 31,
1995, 1996 and 1997 and for the three months ended January 31, 1997
(unaudited) and 1998 (unaudited)........................................ F-5
Consolidated Statement of Changes in Stockholders' Equity for the years
ended October 31, 1995, 1996 and 1997 and for the three months ended
January 31, 1998 (unaudited)............................................ F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Maxwell Shoe Company Inc.
We have audited the accompanying consolidated balance sheets of Maxwell Shoe
Company Inc. as of October 31, 1996 and 1997, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each
of the three years in the period ended October 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Maxwell Shoe Company Inc. at October 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended October 31, 1997 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
December 15, 1997
F-2
<PAGE>
MAXWELL SHOE COMPANY INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS--EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31,
--------------- JANUARY 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $10,393 $ 3,129 $ 1,493
Accounts receivable, trade (net of allowance for
doubtful accounts and discounts of $730 in 1996,
$739 in 1997)................................... 16,853 28,594 29,715
Inventory, net................................... 12,175 20,141 25,696
Prepaid expenses................................. 127 251 295
Deferred income taxes............................ 821 1,526 1,374
------- ------- -------
Total current assets............................... 40,369 53,641 58,573
Property and equipment, net........................ 1,039 1,393 3,208
Trademarks......................................... 5,500 5,133 5,042
Other assets....................................... 12 12 12
------- ------- -------
$46,920 $60,179 $66,835
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 880 $ 2,197 $ 3,080
Accrued expenses................................. 3,300 6,767 10,322
Income taxes payable............................. 433 -- --
Deferred income taxes............................ 91 111 131
Current portion of capital lease obligation...... 142 125 125
------- ------- -------
Total current liabilities.......................... 4,846 9,200 13,658
Capital lease obligation........................... 469 344 313
Stockholders' equity:
Preferred stock, par value $.01, 1,000 shares
authorized, none outstanding.................... -- -- --
Class A common stock, par value $.01, 20,000
shares authorized, 2,525 outstanding............ 25 25 25
Class B common stock, par value $.01, 10,000
shares authorized, 5,063 shares outstanding..... 51 51 51
Additional paid-in capital....................... 27,312 27,312 27,312
Retained earnings................................ 14,217 23,247 25,476
------- ------- -------
Total stockholders' equity......................... 41,605 50,635 52,864
------- ------- -------
$46,920 $60,179 $66,835
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
MAXWELL SHOE COMPANY INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, JANUARY 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $101,870 $104,337 $134,211 $ 28,764 $ 36,328
Cost of sales................. 77,912 79,915 98,230 21,503 26,491
-------- -------- -------- --------- ---------
Gross profit.................. 23,958 24,422 35,981 7,261 9,837
Operating expenses:
Selling..................... 4,777 5,314 7,614 1,770 2,378
General and administrative.. 8,804 10,099 13,368 2,793 3,802
-------- -------- -------- --------- ---------
13,581 15,413 20,982 4,563 6,180
-------- -------- -------- --------- ---------
Operating income.............. 10,377 9,009 14,999 2,698 3,657
Other expenses (income):
Interest.................... 255 38 110 7 11
Other, net.................. 399 (579) 325 11 49
-------- -------- -------- --------- ---------
654 (541) 435 18 60
-------- -------- -------- --------- ---------
Income before income taxes.... 9,723 9,550 14,564 2,680 3,597
Income taxes.................. 3,889 3,629 5,534 1,018 1,367
-------- -------- -------- --------- ---------
Net income.................... $ 5,834 $ 5,921 $ 9,030 $ 1,662 $ 2,230
======== ======== ======== ========= =========
Earnings per share
Basic....................... $ .77 $ .78 $ 1.19 $ .22 $ .29
======== ======== ======== ========= =========
Diluted..................... $ .70 $ .72 $ 1.06 $ .20 $ .26
======== ======== ======== ========= =========
Shares used to compute
earnings per share
Basic....................... 7,588 7,588 7,588 7,588 7,588
======== ======== ======== ========= =========
Diluted..................... 8,311 8,261 8,537 8,358 8,702
======== ======== ======== ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAXWELL SHOE COMPANY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, JANUARY 31,
---------------------------- --------------------
1995 1996 1997 1997 1998
-------- ------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income................ $ 5,834 $ 5,921 $ 9,030 $ 1,662 $ 2,230
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation and
amortization........... 213 242 672 157 267
Deferred income taxes... (153) 240 (685) (220) 172
Doubtful accounts
provision.............. 150 50 125 30 31
Changes in operating
assets and liabilities:
Accounts receivable... (1,571) 931 (11,866) (9,225) (1,152)
Inventory............. 4,157 219 (7,966) (7,307) (5,556)
Prepaid expenses...... (2) 706 (124) (94) (44)
Accounts payable...... (1,768) (48) 1,317 2,022 883
Income taxes payable.. (306) 433 (433) 1,514 597
Accrued expenses...... (897) 791 3,467 2,731 2,957
-------- ------- --------- --------- ---------
Net cash provided (used)
by operating activities.. 5,657 9,485 (6,463) (8,730) 385
Investing activities:
Purchase of trademark .... -- (5,500) -- -- --
Purchases of property and
equipment................ (144) (101) (659) (146) (1,990)
-------- ------- --------- --------- ---------
Net cash used by investing
activities............... (144) (5,601) (659) (146) (1,990)
Financing activities:
Payments on capital lease
obligation............... (163) (176) (142) (41) (31)
Proceeds from lease
financing................ 717 -- -- -- --
-------- ------- --------- --------- ---------
Net cash provided (used)
by financing activities.. 554 (176) (142) (41) (31)
-------- ------- --------- --------- ---------
Net increase (decrease) in
cash and cash
equivalents.............. 6,067 3,708 (7,264) (8,917) (1,636)
Cash and cash equivalents
at beginning of year..... 618 6,685 10,393 10,393 3,129
-------- ------- --------- --------- ---------
Cash and cash equivalents
at end of year........... $ 6,685 $10,393 $ 3,129 $ 1,476 $ 1,493
======== ======= ========= ========= =========
Interest paid............. $ 255 $ 38 $ 110 $ 7 $ 11
======== ======= ========= ========= =========
Income taxes paid......... $ 4,975 $ 2,380 $ 6,807 $ 107 $ 442
======== ======= ========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
MAXWELL SHOE COMPANY INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
---------------- ----------------
ADDITIONAL
NUMBER OF NUMBER OF PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ --------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1994................... 2,375 $24 5,213 $52 $27,312 $ 2,462 $29,850
Net income for 1995... 5,834 5,834
Shares converted...... 150 1 (150) (1) --
----- --- ----- --- ------- ------- -------
Balance at October 31,
1995................... 2,525 25 5,063 51 27,312 8,296 35,684
Net income for 1996... 5,921 5,921
----- --- ----- --- ------- ------- -------
Balance at October 31,
1996................... 2,525 25 5,063 51 27,312 14,217 41,605
Net income for 1997... 9,030 9,030
----- --- ----- --- ------- ------- -------
Balance at October 31,
1997................... 2,525 25 5,063 51 27,312 23,247 50,635
Net income for the
three months ended
January 31, 1998
(unaudited).......... 2,230 2,230
----- --- ----- --- ------- ------- -------
Balance at January 31,
1998
(unaudited)............ 2,525 $25 5,063 $51 $27,312 $25,477 $52,865
===== === ===== === ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
OCTOBER 31, 1997
1. INTERIM FINANCIAL STATEMENTS
The unaudited financial statements at January 31, 1998 and for the three
months ended January 31, 1997 and 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation have been
included. The results of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim
period or the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All intercompany accounts and transactions
have been eliminated in consolidation.
Concentration of Credit Risk
The Company sells footwear for women and children to retailers located
throughout the United States, Canada and Japan. The Company performs periodic
credit evaluations of its customers' financial condition and generally does
not require collateral. Credit losses have been within or below management's
expectations. In fiscal 1995, 1996 and 1997 one customer accounted for
approximately 14%, 15%, and 19% respectively, of net sales. During 1996, this
one customer was acquired by another customer of the Company. Had these two
customers been treated as one account for fiscal years 1995 and 1996, they
would have accounted for approximately 18% and 22% respectively, of net sales.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Recognition of Revenue
Sales are recognized upon shipment of products.
Cash and Cash Equivalents
Cash, checking accounts and all highly-liquid debt instruments with original
maturities three months or less are deemed to be cash and cash equivalents.
Inventory
Inventory is valued at the lower of cost or market, using the first-in,
first-out method.
F-7
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Long Term Assets
Property and equipment are stated at cost. Depreciation is provided using
both straight line and accelerated methods over the estimated useful lives of
these assets or the lease term, if shorter. The estimated useful lives of these
assets are as follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Furniture and fixtures....................................... 5 Years
Warehouse equipment.......................................... 7 Years
Leasehold improvements....................................... 7 Years
Computer equipment........................................... 5 Years
</TABLE>
In August 1996, the Company acquired the rights to the Sam & Libby and
certain related trademarks and tradenames for $5.5 million cash. The trademarks
and tradenames will be amortized on a straight line basis over 15 years, their
estimated useful lives. Amortization began in 1997 when sale of product with
the trademark names commenced. Accumulated amortization at October 31, 1997 was
$367.
Operating Expenses
General and administrative expenses include the cost of warehousing and
shipping operations.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense (including
cooperative advertising with retailers) amounted to $1,449, $1,546, and $2,502
for the years ended October 31, 1995, 1996 and 1997, respectively.
Income Taxes
The Company utilizes the liability method for accounting for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities and are
measured using the enacted tax rates and law that will be in effect when the
differences reverse. Deferred tax assets may be reduced by a valuation
allowance to reflect the uncertainty associated with their ultimate
realization.
Forward Exchange Contracts
The Company uses forward exchange contracts to manage its foreign currency
exposure. Realized and unrealized gains and losses on contracts that hedge
anticipated cash flows are determined by comparison of contract values to
current market values upon execution of a contract (realized) and at each
balance sheet date for open contracts (unrealized). Resulting gains and losses
are recognized in other income and expense ($41 loss in 1995, $275 gain in 1996
and $76 loss in 1997).
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and, accordingly, recognizes no compensation expense for
the stock option grants.
F-8
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). These provisions require the Company to disclose pro
forma net income and earnings per share amounts as if compensation related to
grants of stock options were recognized based on the fair value of such options
(see Note 7).
NET INCOME PER SHARE
For all periods presented, the difference between basic and diluted shares
used in the computation of earnings per share are the common equivalent shares
resulting from outstanding common stock options. In 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, Earnings per Share. Statement 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements. For all periods presented, the difference between basic and
diluted shares used in the computation of earnings per share are the common
equivalent shares resulting from outstanding common stock options.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) and Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (FAS 131). FAS 130 establishes standards
for reporting and displaying comprehensive income and its components. FAS 131
establishes standards for public companies to report information about
operating segments in financial statements, and supersedes FAS 14, "Financial
Reporting for Segments of a Business Enterprise," but retains the requirements
to report information about major customers. FAS 130 and FAS 131 are effective
for the Company in fiscal 1999. The Company does not believe the adoption of
these Statements will have a material effect on the Company's financial
statements.
3. RELATED PARTY TRANSACTIONS
One of the principal stockholders and another officer of the Company had
owned a chain of six retail stores that purchase footwear from the Company.
Their ownership position in these stores was sold during fiscal 1996. Total
sales (and cost of sales) to these stores in fiscal 1995, and while they had an
ownership position in 1996, were $365 ($229) and $237 ($173), respectively. In
addition, the Company has provided administrative services to these stores.
Fees for such services, as negotiated between the parties, totaled $25 and $19
in fiscal 1995 and 1996, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at October 31:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Warehouse equipment........................................... $1,275 $1,278
Furniture and fixtures........................................ 523 641
Leasehold improvements........................................ 398 635
Computer equipment............................................ 285 485
Other......................................................... 4 4
------ ------
2,485 3,043
Less accumulated depreciation................................. 1,446 1,650
------ ------
Property and equipment, net................................... $1,039 $1,393
====== ======
</TABLE>
F-9
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT -- (CONTINUED)
At October 31, 1996 and 1997, property and equipment included assets recorded
under capital leases of $1,047. Accumulated depreciation of such assets was
$468 and $637 at October 31, 1996, and 1997, respectively. Depreciation
expense, including amortization of assets recorded under capital leases, for
the years ended October 31, 1995, 1996 and 1997 amounted to $213, $242 and
$305, respectively.
5. BANK BORROWINGS
The Company has a revolving line of credit pursuant to a loan agreement with
Bank of Boston. The loan agreement provides that the bank will both advance
funds directly to the Company and issue letters of credit on behalf of the
Company. The total credit line available shall not exceed an amount which is
the lesser of (i) an amount determined under a formula based upon qualified
accounts receivable and inventory balances, or (ii) $25,000.
Direct borrowings bear interest at the bank's base rate. At October 31, 1997,
the Company had outstanding letters of credit totaling $10.9 million for the
purchase of inventory and approximately $14.1 million available under the line
of credit. The line of credit is secured by substantially all of the Company's
assets.
6. ACCRUED EXPENSES
Accrued expenses consist of the following at October 31:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Inventory purchases........................................... $1,149 $3,394
Compensation.................................................. 1,455 2,653
Employee benefit plan contribution............................ 142 248
Other......................................................... 554 472
------ ------
$3,300 $6,767
====== ======
</TABLE>
7. STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Charter authorizes the issuance of 1,000,000 shares of
preferred stock. The Company's Charter provides that the Board of Directors of
the Company may authorize the issuance of one or more series of preferred stock
having such rights, including voting, conversion and redemption rights, and
such preferences, including dividend and liquidation preferences, as the Board
may determine without any further action by the stockholders of the Company.
There are no shares of preferred stock currently outstanding.
Common Stock
Each share of Class B Common Stock is freely convertible into one share of
Class A Common Stock at the option of the Class B stockholders. Holders of
Class A Common Stock are entitled to one vote for each share held of record,
and holders of Class B Common Stock are entitled to ten votes for each share
held of record. The Class A Common Stock and the Class B Common Stock vote
together as a single class on all matters submitted to a vote of stockholders
(including the election of directors), except that, in the case of a proposed
amendment to the Company's Certificate of Incorporation that would alter the
powers, preferences or special rights of either the Class A Common Stock or the
Class B Common Stock, the class of Common Stock to be altered shall vote on the
amendment as a separate class. Shares of Common Stock do not have cumulative
voting rights with respect to the election of directors.
F-10
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY-- (CONTINUED)
Stock Options
Under the 1994 Stock Incentive Plan (the Plan), the Board of Directors has
reserved 750,000 shares of Class A Common Stock for issuance upon exercise of
options or grants of other awards under the Plan. Except for options granted to
non-employee directors, which vest immediately, options generally vest annually
over a four-year period.
In the first quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123). FAS 123 encourages companies to adopt the fair value method of accounting
for employee stock options. Under this method, compensation expense for stock-
based compensation plans is measured at the grant date based on the fair value
of the award and is recognized over the service period.
In accordance with FAS 123, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," (APB 25) and related interpretations in accounting for its employee
stock options. Under APB 25, no compensation expense is recognized as long as
the exercise price equals the market price of the underlying stock on the date
of grant.
Pro forma information regarding net income and earnings per share is required
by FAS 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options and other stock-based
compensation granted subsequent to October 31, 1995 under the fair value method
of that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1997: risk-free interest rates
ranging from 5.26% to 6.89%; dividend yield of 0%; volatility factor of the
expected market price of the Company's common stock of 63.4%; and a weighted
average expected life of 5.1 years for options granted. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Pro forma:
Net income................................................ $5,758 $8,731
Earnings per share:
Basic..................................................... $ .76 $ 1.15
Diluted................................................... $ .70 $ 1.02
Weighted average fair value of options granted during the
period..................................................... $ 3.53 $ 3.92
</TABLE>
During the initial phase-in period, the effects of applying FAS 123 for
recognizing compensation expense may not be representative of the effects on
reported net income or loss for future years because the options granted by the
Company vest over several years and additional awards may be made in future
years.
F-11
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
Presented below is a summary of the status of the stock option plan and
related transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year....... 104,700 $10.38 294,250 $ 9.47 670,850 $7.46
Granted.................. 198,000 $ 9.00 382,500 $ 5.96 129,500 $6.45
Cancelled................ (8,450) $ 9.81 (5,900) $10.38 (64,500) $9.00
------- ------- -------
Options outstanding at
end of year............. 294,250 $ 9.47 670,850 $ 7.46 735,850 $7.15
======= ======= =======
Options exercisable at
end of year............. 44,408 102,324 214,405
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
under the stock option plan at October 31, 1997:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------ -----------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE
----------------------- ------- ------------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$5.00 - $ 7.75............. 512,000 8.6 $6.08 121,930 $6.26
$9.00 - $10.38............. 223,850 6.9 $9.58 92,475 $9.77
------- -------
735,850 8.1 $7.15 214,405 $8.25
======= =======
</TABLE>
At October 31, 1996 and 1997, there were 79,150 shares and 14,150 shares
available, respectively, for future grants under stock option plans. In
December 1997, the Board of Directors reserved an additional 300,000 shares of
Class A Common Stock for issuance upon exercise of options or grants of other
awards under the 1994 Stock Incentive Plan. The shares reserved are subject to
the approval of the stockholders at the Company's April 1998 annual meeting.
In 1994, in consideration for the termination of a deferred compensation
agreement, the Board of Directors approved a non-transferable stock option
grant to the President for the purchase of 888,412 shares of Class A Common
Stock at an exercise price of $1.50 per share. The grant was outside of the
Company's stock option plan, and the stock options were immediately
exercisable. At October 31, 1997, all of the options granted were outstanding.
F-12
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
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. Significant components
of the Company's deferred tax liabilities and assets as of October 31 were as
follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Stock option compensation................................... $ 2,800 $ 2,800
Inventory reserve........................................... 376 571
Allowance for doubtful accounts............................. 292 295
Accrued compensation........................................ -- 386
Inventory capitalization.................................... 153 274
------- -------
3,621 4,326
Valuation allowance for deferred tax assets................... (2,800) (2,800)
------- -------
Total deferred tax assets..................................... 821 1,526
Deferred tax liabilities:
Depreciation................................................ 91 111
------- -------
Total deferred tax liabilities................................ 91 111
------- -------
Net deferred tax assets....................................... $ 730 $ 1,415
======= =======
</TABLE>
FAS 109 requires a Company to recognize a valuation allowance if it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. The stock option compensation, discussed in Note 7, will be
deductible for tax reporting only upon the exercise of the option. The ultimate
amount of the compensation deduction cannot be determined currently as it is
not certain when, if ever, the holder of the option will ultimately exercise
the option, or the value of the tax deduction that the Company would realize.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................. $3,183 $3,011 $5,023
State............................................... 859 378 1,196
------ ------ ------
Total current......................................... 4,042 3,389 6,219
Deferred:
Federal............................................. (130) 204 (582)
State............................................... (23) 36 (103)
------ ------ ------
Total deferred........................................ (153) 240 (685)
------ ------ ------
$3,889 $3,629 $5,534
====== ====== ======
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate........................................... 34% 34% 34%
State income taxes, net of federal tax benefit.............. 6 4 4
--- --- ---
Effective tax rate.......................................... 40% 38% 38%
=== === ===
</TABLE>
F-13
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PROFIT-SHARING PLAN
The Company has a contributory 401(k) profit-sharing plan covering
substantially all employees. The plan requires the Company to match 100% of
employee contributions up to 2% of total employee compensation. The plan also
allows for additional discretionary Company contributions. Total plan expense
amounted to $156, $200 and $300 for fiscal years 1995, 1996 and 1997,
respectively.
10. COMMITMENTS
The Company leases equipment and office and warehouse space under long-term
non-cancelable operating leases which expire at various dates through January
31, 2007. These leases require the Company to pay the real estate taxes on the
real property. The Company also leases equipment under capital leases.
At October 31, 1997, future minimum payments under such leases were as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1998..................................................... $151 $1,225
1999..................................................... 151 1,026
2000..................................................... 142 1,003
2001..................................................... 123 1,066
2002..................................................... -- 660
Later years.............................................. -- 2,550
---- ------
Total minimum lease payments............................. $567 $7,530
======
Amounts representing interest............................ (98)
----
Capital lease obligation (including current portion)..... $469
====
</TABLE>
Rent expense for the years ended October 31, 1995, 1996 and 1997 was $605,
$639 and $831, respectively.
The Company is a licensee under two agreements which allow for the
manufacture and sale of various items of footwear. The agreements require the
payment of royalties on qualified product sales and generally guarantee minimum
royalty payments regardless of sales volume. In April 1997, the Company
exercised its option to renew the license agreement with Jones Investment Co.,
Inc. (the Jones Agreement) through December 31, 2002 which requires minimum
royalty payments ranging from $800 to $1,250 per annum during the period ending
December 31, 2002. The April 1997 amendment also granted the Company three
five-year option periods to renew through December 2017, subject to satisfying
certain conditions. The three option periods require minimum royalty payments
of $1,250 per annum. In April 1997, the Company entered into a license
agreement with J. G. Hook, Inc. (the Hook agreement) for an initial 18 month
period ending September 30, 1998, with two one-year option periods.
In January 1997, the Company entered into a license agreement with Inter-
Pacific Corporation (IPC), which provides IPC with the exclusive rights to
design, manufacture and distribute Sam & Libby beachwear type footwear for an
initial term of January 1997 to May 2000. For the use of the Sam & Libby
tradename, IPC will pay the Company royalties based on qualified product sales
subject to payment of minimum royalties of $495 over the initial term of the
agreement. Upon satisfaction of certain conditions, IPC may exercise its option
to extend the license agreement until May 2003.
On April 14, 1997 the Company completed a transaction to own and operate
approximately 130 retail women's footwear stores through a joint venture, SLJ
Retail LLC (SLJ Retail), which will sell a complete
F-14
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS -- (CONTINUED)
selection of women's footwear under the Sam & Libby and Jones New York brand
names. Initially, the joint venture will be 49% owned by the Company, which
will account for its ownership under the equity method, and 51% owned by the
Butler Group, Inc., a wholly owned subsidiary of General Electric Capital
Corporation. The Company also holds an option through February 1, 2000 to
purchase additional equity in the joint venture to increase its equity
ownership to 55%. Under certain circumstances, the Company may be obligated to
acquire the ownership interest of the Butler Group at a value based upon the
operating results of SLJ Retail. The Company also entered into an agreement to
provide management services to SLJ Retail for $500 per annum.
Summarized financial information of SLJ Retail as of October 31, 1997 and for
the period from April 14, 1997 (date of inception) to October 31, 1997 is as
follows: current assets--$17,559, noncurrent assets--$7,352, current
liabilities--$4,933, noncurrent liabilities--$26,532, net sales--$7,050, gross
profit--$4,107 and net operating loss--($6,430). The results reflect
significant start up costs associated with store openings and implementing a
new data processing system. The Company has not recognized any portion of SLJ
Retail's net operating losses through October 31, 1997 because, under the
equity method of accounting, the Company does not recognize any losses beyond
the carrying value of its investment in SLJ Retail, which is zero.
Simultaneously with the formation of SLJ Retail, the Company entered into a
sub-license agreement with SLJ Retail pursuant to which the Company granted to
SLJ Retail a sub-license of its rights under the Jones Agreement noted above.
The initial term of this sub-license agreement expires in December 2002, but is
extended automatically for the same period of time as any extension by the
Company of the Jones Agreement. The sub-license agreement is subject to early
termination for various reasons, including any termination of the Jones
Agreement. In addition, the Company entered into a retail license agreement
(the "Retail License Agreement") with SLJ Retail pursuant to which the Company
granted to SLJ Retail a license, throughout the United States and such other
locations outside the United States, in which SLJ Retail may manufacture and
sell Sam & Libby women's footwear products, provided however, that such license
does not extend to products to which IPC has the exclusive rights. Under the
Retail License Agreement, SLJ Retail does not have to pay any royalty to the
Company in consideration of the license granted. The initial term of the Retail
License Agreement expires on January 31, 2047, subject to earlier termination
upon the occurrence of certain specified events.
The Company has entered into forward exchange contracts in anticipation of
future purchases of inventory denominated in foreign currency, principally the
Spanish peseta. At October 31, 1997, forward exchange contracts totalling $700
were outstanding with settlement dates ranging from November 3, 1997 through
January 30, 1998. Maximum risk of loss on these contracts is the amount of the
difference between the spot rate at the date of contract delivery and the
contracted rate. The Company expects that future inventory purchases will
require sufficient foreign currency to meet these commitments.
F-15
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly results for the fiscal
years ended October 31, 1996 and October 31, 1997 and the quarter ended January
31, 1998.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------
APRIL JULY
JANUARY 31, 30, 31, OCTOBER 31,
----------- ------- ------- -----------
<S> <C> <C> <C> <C>
Fiscal 1996
Net sales........................ $23,705 $26,774 $30,222 $23,636
Gross profit..................... 5,821 5,917 7,009 5,675
Net income....................... 1,452 1,530 1,920 1,019
Net income per share
Basic............................ $ .19 $ .20 $ .25 $ .13
======= ======= ======= =======
Diluted.......................... $ .18 $ .19 $ .23 $ .12
======= ======= ======= =======
Fiscal 1997
Net sales........................ $28,764 $31,073 $36,833 $37,541
Gross profit..................... 7,261 9,161 10,173 9,386
Net income....................... 1,662 2,190 2,965 2,213
Net income per share
Basic............................ $ .22 $ .29 $ .39 $ .29
======= ======= ======= =======
Diluted.......................... $ .20 $ .26 $ .35 $ .25
======= ======= ======= =======
Fiscal 1998
Net sales........................ $36,328
Gross profit..................... 9,837
Net income....................... 2,230
Net income per share
Basic............................ $ .29
=======
Diluted.......................... $ .26
=======
</TABLE>
F-16
<PAGE>
[Copy of current Sam & Libby ad.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE CLASS A COMMON STOCK OFFERED HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 14
Price Range of Class A Common Stock....................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial Data ..................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 23
Management................................................................ 35
Certain Transactions...................................................... 39
Principal and Selling Stockholders........................................ 41
Description of Capital Stock.............................................. 42
Shares Eligible for Future Sale........................................... 44
Certain United States Federal Tax Considerations for Non-U.S. Holders of
Class A Common Stock..................................................... 46
Underwriting.............................................................. 49
Legal Matters............................................................. 51
Experts................................................................... 51
Available Information..................................................... 51
Incorporation of Certain Documents by Reference........................... 52
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,344,167 SHARES
MAXWELL SHOE COMPANY INC.
CLASS A COMMON STOCK
[LOGO OF MAXWELL SHOE COMPANY INC.]
------------------
PROSPECTUS
, 1998
------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
TUCKER ANTHONY
INCORPORATED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses payable by the Registrant in
connection with the offering of the securities being registered, other than
underwriting discounts. Pursuant to a registration rights agreement, the
Selling Stockholders will not share any portion of these expenses. All the
amounts shown are estimates except the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the NASDAQ listing fee.
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............. $ 31,954.28
Filing Fee--National Association of Securities Dealers, Inc...... 14,315.00
NASDAQ Listing Fee............................................... 16,032.50
Accounting Fees and Expenses..................................... 60,000.00
Legal Fees and Expenses (other than Blue Sky).................... 225,000.00
Blue Sky Fees and Expenses, including Legal Fees................. 7,500.00
Printing, including Registration Statement, Prospectus, etc...... 195,000.00
Transfer Agent and Registrar Fees................................ 3,000.00
Miscellaneous Expenses........................................... 47,198.22
-----------
Total.......................................................... $600,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Registrant's Certificate of Incorporation and Article VII
of its Bylaws provide for the indemnification by the Company of each director,
officer and employee of the Registrant to the fullest extent permitted by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended. Section 145 of the Delaware General Corporation Law provides in
relevant part that a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
II-1
<PAGE>
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Delaware law further provides
that nothing in the above-described provisions shall be deemed exclusive of any
other rights to indemnification or advancement of expenses to which any person
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
The Registrant has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director and executive officer of the
Registrant. The Indemnity Agreements provide that the Company will indemnify
the director or officer (the "Indemnitee") against any amounts that he or she
becomes legally obligated to pay in connection with any claim against him or
her based upon any act, omission, neglect or breach of duty that he or she may
commit, omit or suffer while acting in his or her capacity as a director and/or
officer of the Company; provided that such a claim: (i) is not based upon the
Indemnitee's gaining any personal profit or advantage to which he or she is not
legally entitled; (ii) is not for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or
similar provisions of any state law; and (iii) is not based upon the
Indemnitee's knowingly fraudulent, deliberately dishonest or willful
misconduct. The Indemnity Agreements also provide that all costs and expenses
incurred by the Indemnitee in defending or investigating such claim shall be
paid by the Company in advance of the final disposition thereof unless the
Company, independent legal counsel, the stockholders of the Company or a court
of competent jurisdiction determines that: (i) the Indemnitee did not act in
good faith and in a manner that he or she reasonably believe to be in or not
opposed to the best interests of the Company; (ii) in the case of any criminal
action or proceeding, the Indemnitee had reasonable cause to believe his or her
conduct was unlawful; or (iii) the Indemnitee intentionally breached his or her
duty to the Company or its stockholders. Each Indemnitee has undertaken to
repay the Company for any costs or expenses so advanced if it shall ultimately
be determined by a court of competent jurisdiction in a final, nonappealable
adjudication that he or she is not entitled to indemnification under the
Indemnity Agreements.
The Registrant maintains an insurance policy insuring its directors and
officers against certain liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
1 Form of Underwriting Agreement
5 Opinion of Gibson, Dunn & Crutcher LLP
10.1 1994 Stock Incentive Plan (incorporated by reference to
exhibit 10.1 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.2.1 Form of Employee Nonqualified Stock Option Agreement pursuant
to 1994 Stock Incentive Plan (incorporated by reference to
exhibit 10.2.1 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.2.2 Form of Employee Incentive Stock Option Agreement pursuant to
1994 Stock Incentive Plan (incorporated by reference to
exhibit 10.2.2 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.2.3 Form of Nonemployee Director Stock Option Agreement pursuant
to 1994 Stock Incentive Plan (incorporated by reference to
exhibit 10.2.3 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.3 Form of Restricted Stock Agreement pursuant to 1994 Stock
Incentive Plan (incorporated by reference to exhibit 10.3 to
the Registrant's Form S-1 Registration Statement No. 33-
74768)
10.4 Form of Indemnity Agreement between Maxwell Shoe Company Inc.
and each of each of its directors and executive officers
(incorporated by reference to exhibit 10.4 to the
Registrant's Form S-1 Registration Statement No. 33-74768)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.5 Form of Tax Indemnification Agreement between Maxwell Shoe
Company Inc. and each of Maxwell V. Blum, Eleanor S. Blum,
Betty Ann Blum and Marjorie Blum (incorporated by reference
to exhibit 10.5 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.6 Lease dated as of May 15, 1991 by and between George Shapiro,
Arthur S. Goldberg and Sidney Shapiro, Trustees of the
Shapiro Properties Realty Trust, as lessor, and Maxwell Shoe
Co., Inc., as lessee (incorporated by reference to
exhibit 10.7 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.7 Lease dated as of November 17, 1993 by and between Trustees
of Bradshaw Westwood Trust, as landlord, and Maxwell Shoe
Co., Inc., as tenant (incorporated by reference to exhibit
10.8 to the Registrant's Form S-1 Registration Statement
No. 33-74768)
10.8 Agreement of Lease between Anon Realty Associates, L.P., as
successor lessor to 1414 Americas Company and Maxwell Shoe
Co., Inc., as lessee (incorporated by reference to exhibit
10.9 to the Registrant's Form S-1 Registration Statement
No. 33-74768)
10.9 Loan and Security Agreement dated May 30, 1991 between
Maxwell Shoe Co., Inc. and The First Bank of Boston, as
amended March 11, 1993, June 22, 1993, and August 31, 1993
(incorporated by reference to exhibit 10.10 to the
Registrant's Form S-1 Registration Statement No. 33-74768)
10.10 Promissory Note dated March 11, 1993 issued by Maxwell Shoe
Co., Inc. to The First National Bank of Boston (incorporated
by reference to exhibit 10.11 to the Registrant's Form S-1
Registration Statement No. 33-74768)
10.11 License Agreement dated July 1, 1993 between Jones Investment
Co., Inc. and Maxwell Shoe Co., Inc. (incorporated by
reference to exhibit 10.12 to the Registrant's Form S-1
Registration Statement No. 33-74678)
10.12 Form of Registration Rights Agreement between Maxwell Shoe
Company Inc. on the one hand and Maxwell V. Blum, Betty A.
Blum, Marjorie Blum, Mark J. Cocozza, and Joseph Aborn, as
trustee of the Eleanor S. Blum Trust (incorporated by
reference to exhibit 10.13 to the Registrant's Form S-1
Registration Statement No. 33-74768)
10.13 Employment Agreement dated as of January 26, 1994 between
Maxwell Shoe Co., Inc. and Mark J. Cocozza (incorporated by
reference to exhibit 10.14 to the Registrant's Form S-1
Registration Statement No. 33-74768)
10.14 Stock Option and Registration Rights Agreement dated as of
January 26, 1994 between Maxwell Shoe Co., Inc. and Mark J.
Cocozza (incorporated by reference to exhibit 10.15 to the
Registrant's Form S-1 Registration Statement No. 33-74768)
10.15 Master Lease Agreement dated as of July 18, 1994 between
Maxwell Shoe Company Inc. and BancBoston Leasing Inc.
(incorporated by reference to exhibit 10.23 to the
Registrant's Form 10-K for the fiscal year ended October 31,
1994)
10.16 Assumption Agreement dated July 7, 1995 between BancBoston
Leasing Inc. and Maxwell Shoe Company Inc. (incorporated by
reference to exhibit 10.24 to the Registrant's Form 10-K for
the fiscal year ended October 31, 1995)
10.17 Letter Agreement dated January 25, 1995 between Legas Realty
Corp., as successor lessor to S.L. Green Properties Inc., as
successor to Anon Realty Associates, L.P., and Maxwell Shoe
Company Inc. (incorporated by reference to exhibit 10.25 to
the Registrant's Form 10-K for the fiscal year ended
October 31, 1995)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.18 First Amendment to License Agreement dated October 2, 1995
between Jones Investment Co., Inc., and Maxwell Shoe Company
Inc. (incorporated by reference to Exhibit 10.26 to the
Registrant's Form 10-K for the fiscal year ended October 31,
1995)
10.19 Trademark and Intellectual Property Rights Purchase and Sale
Agreement dated July 2, 1996 between Sam & Libby, Inc. and
Maxwell Shoe Company Inc. (incorporated by reference to
exhibit 10.21 to the Registrant's Form 10-K for the fiscal
year ended October 31, 1996)
10.20 License Agreement dated January 8, 1997 between Inter-Pacific
Trading Corporation d/b/a Inter-Pacific Corporation and
Maxwell Shoe Company Inc. (incorporated by reference to
exhibit 10.22 to the Registrant's Form 10-K for the fiscal
year ended October 31, 1996)
10.21 License Agreement dated April 1, 1997 between J.G. Hook, Inc.
and Maxwell Shoe Company Inc. (incorporated by reference to
exhibit 10.31 to the Registrant's Form 10-K for the fiscal
year ended October 31, 1997)
10.22 Sublease Agreement dated June 16, 1997 between Macy's East,
Inc. and Maxwell Shoe Company Inc. (incorporated by reference
to exhibit 10.32 to the Registrant's Form 10-K for the fiscal
year ended October 31, 1997)
10.23 Lease Agreement dated June 16, 1997 between John H. Finley,
III as trustee of Brockton Oak Real Estate Trust And Maxwell
Shoe Company Inc. (incorporated by reference to exhibit 10.33
to the Registrant's Form 10-K for the fiscal year ended
October 31, 1997)
10.24 Contribution Agreement dated as of April 14, 1997 by and among
The Butler Group Inc., Maxwell Shoe Company Inc. and Maxwell
Retail Inc. (incorporated by reference to exhibit 10.1 to the
Registrant's Form 8-K filed May 5, 1997)
10.25 Operating Agreement of SLJ Retail LLC dated as of April 14,
1997 by and between The Butler Group Inc. and Maxwell Retail
Inc. (incorporated by reference to exhibit 10.2 to the
Registrant's Form 8-K filed May 5, 1997)
10.26 Option Agreement dated as of April 14, 1997 by and among The
Butler Group Inc., Maxwell Shoe Company Inc., Maxwell Retail
Inc. and SLJ Retail LLC (incorporated by reference to
exhibit 10.3 to the Registrant's Form 8-K filed May 5, 1997)
10.27 Services Agreement dated as of April 14, 1997 by and between
Maxwell Shoe Company Inc. and SLJ Retail LLC (incorporated by
reference to exhibit 10.4 to the Registrant's Form 8-K filed
May 5, 1997)
10.28 Non-Compete Agreement dated as of April 14, 1997 by and among
SLJ Retail LLC, Maxwell Shoe Company Inc., Maxwell V. Blum,
Betty Ann Blum, Marjorie W. Blum, Mark J. Cocozza, David
Andelman, as trustee of the Eleanor S. Blum Trust, Maxwell
Retail Inc. and Sprague Company (incorporated by reference to
exhibit 10.5 to the Registrant's Form 8-K filed May 5, 1997)
10.29 Retail Opportunity Agreement dated as of April 14, 1997 by and
among SLJ Retail LLC, Maxwell Shoe Company, Inc., Maxwell V.
Blum, Betty Ann Blum, Marjorie W. Blum, David Andelman, as
trustee of the Eleanor S. Blum Trust, Maxwell Retail Inc. and
Sprague Company (incorporated by reference to exhibit 10.6 to
the Registrant's Form 8-K filed May 5, 1997)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.30 Registration Rights Agreement dated as of April 14, 1997 by
and among Maxwell Shoe Company Inc., The Butler Group Inc.,
Maxwell V. Blum, Betty Ann Blum, Marjorie W. Blum, Mark J.
Cocozza and David Andelman, as trustee of the Eleanor S. Blum
Trust (incorporated by reference to exhibit 10.7 to the
Registrant's Form 8-K filed May 5, 1997)
10.31 Second Amendment to License Agreement dated as of April 14,
1997 by and between Maxwell Shoe Company Inc. and Jones
Investment Co., Inc. (incorporated by reference to exhibit
10.8 to the Registrant's Form 8-K filed May 5, 1997)
10.32 Trademark Sublicense Agreement dated as of April 14, 1997 by
and between Maxwell Shoe Company Inc. and SLJ Retail LLC
(incorporated by reference to exhibit 10.9 to the
Registrant's Form 8-K filed May 5, 1997)
10.33* Third Amendment to License Agreement dated as of March 16,
1998 by and between Maxwell Shoe Company Inc. and Jones
Investment Co., Inc.
10.34* First Amendment to the Trademark Sublicense Agreement dated
as of March 16, 1998 by and between Maxwell Shoe Company Inc.
and SLJ Retail LLC
10.35 Employment Agreement dated as of April 1998 by and between
Mark J. Cocozza and Maxwell Shoe Company Inc.
10.36 Employment Agreement dated as of April 1998 by and between
James J. Tinagero and Maxwell Shoe Company Inc.
10.37 Consulting Agreement dated as of April 1998 by and between
Maxwell V. Blum and Maxwell Shoe Company Inc.
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5)
23.2 Consent of Ernst & Young LLP
</TABLE>
- --------
* Previously filed
(b) Financial Statement Schedules:
Schedule II--Valuation
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities rising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the repayment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Pre-Effective
Amendment No. 2 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on April 20, 1998.
MAXWELL SHOE COMPANY INC.
/s/ Mark J. Cocozza
By __________________________________
Mark J. Cocozza
President and Chief Operating
Officer
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Maxwell V. Blum* Chairman of the Board and April 20, 1998
- ------------------------------------ Chief Executive Officer
Maxwell V. Blum (Principal Executive
Officer)
/s/ Mark J. Cocozza President and Chief April 20, 1998
- ------------------------------------ Operating Officer
Mark J. Cocozza
/s/ James J. Tinagero* Executive Vice President April 20, 1998
- ------------------------------------ (Principal Financial
James J. Tinagero Officer)
/s/ Richard J. Bakos* Vice President Finance and April 20, 1998
- ------------------------------------ Chief Financial Officer
Richard J. Bakos (Principal Accounting
Officer)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Betty Ann Blum* Executive Vice President April 20, 1998
------------------------------------ and Director
Betty Ann Blum
/s/ Marjorie W. Blum* Vice President Sales and April 20, 1998
------------------------------------ Secretary and Director
Marjorie W. Blum
/s/ Stephen A. Fine* Director April 20, 1998
------------------------------------
Stephen A. Fine
/s/ Jonathan K. Layne* Director April 20, 1998
------------------------------------
Jonathan K. Layne
/s/ Malcolm L. Sherman* Director April 20, 1998
------------------------------------
Malcolm L. Sherman
/s/ Mark J. Cocozza
*By: _______________________________
Mark J. Cocozza, Attorney-in-fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement
5 Opinion of Gibson, Dunn & Crutcher LLP
10.1 1994 Stock Incentive Plan (incorporated by reference to
exhibit 10.1 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.2.1 Form of Employee Nonqualified Stock Option Agreement
pursuant to 1994 Stock Incentive Plan (incorporated by
reference to exhibit 10.2.1 to the Registrant's Form S-
1 Registration Statement No. 33-74768)
10.2.2 Form of Employee Incentive Stock Option Agreement
pursuant to 1994 Stock Incentive Plan (incorporated by
reference to exhibit 10.2.2 to the Registrant's Form S-
1 Registration Statement No. 33-74768)
10.2.3 Form of Nonemployee Director Stock Option Agreement
pursuant to 1994 Stock Incentive Plan (incorporated by
reference to exhibit 10.2.3 to the Registrant's Form S-
1 Registration Statement No. 33-74768)
10.3 Form of Restricted Stock Agreement pursuant to 1994
Stock Incentive Plan (incorporated by reference to
exhibit 10.3 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.4 Form of Indemnity Agreement between Maxwell Shoe
Company Inc. and each of each of its directors and
executive officers (incorporated by reference to
exhibit 10.4 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.5 Form of Tax Indemnification Agreement between Maxwell
Shoe Company Inc. and each of Maxwell V. Blum, Eleanor
S. Blum, Betty Ann Blum and Marjorie Blum (incorporated
by reference to exhibit 10.5 to the Registrant's Form
S-1 Registration Statement No. 33-74768)
10.6 Lease dated as of May 15, 1991 by and between George
Shapiro, Arthur S. Goldberg and Sidney Shapiro,
Trustees of the Shapiro Properties Realty Trust, as
lessor, and Maxwell Shoe Co., Inc., as lessee
(incorporated by reference to exhibit 10.7 to the
Registrant's Form S-1 Registration Statement No. 33-
74768)
10.7 Lease dated as of November 17, 1993 by and between
Trustees of Bradshaw Westwood Trust, as landlord, and
Maxwell Shoe Co., Inc., as tenant (incorporated by
reference to exhibit 10.8 to the Registrant's Form S-1
Registration Statement No. 33-74768)
10.8 Agreement of Lease between Anon Realty Associates,
L.P., as successor lessor to 1414 Americas Company and
Maxwell Shoe Co., Inc., as lessee (incorporated by
reference to exhibit 10.9 to the Registrant's Form S-1
Registration Statement No. 33-74768)
10.9 Loan and Security Agreement dated May 30, 1991 between
Maxwell Shoe Co., Inc. and The First Bank of Boston, as
amended March 11, 1993, June 22, 1993, and August 31,
1993 (incorporated by reference to exhibit 10.10 to the
Registrant's Form S-1 Registration Statement No. 33-
74768)
10.10 Promissory Note dated March 11, 1993 issued by Maxwell
Shoe Co., Inc. to The First National Bank of Boston
(incorporated by reference to exhibit 10.11 to the
Registrant's Form S-1 Registration Statement No. 33-
74768)
</TABLE>
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.11 License Agreement dated July 1, 1993 between Jones
Investment Co., Inc. and Maxwell Shoe Co., Inc.
(incorporated by reference to exhibit 10.12 to the
Registrant's Form S-1 Registration Statement No. 33-
74678)
10.12 Form of Registration Rights Agreement between Maxwell
Shoe Company Inc. on the one hand and Maxwell V. Blum,
Betty A. Blum, Marjorie Blum, Mark J. Cocozza, and
Joseph Aborn, as trustee of the Eleanor S. Blum Trust
(incorporated by reference to exhibit 10.13 to the
Registrant's Form S-1 Registration Statement No. 33-
74768)
10.13 Employment Agreement dated as of January 26, 1994
between Maxwell Shoe Co., Inc. and Mark J. Cocozza
(incorporated by reference to exhibit 10.14 to the
Registrant's Form S-1 Registration Statement No. 33-
74768)
10.14 Stock Option and Registration Rights Agreement dated as
of January 26, 1994 between Maxwell Shoe Co., Inc. and
Mark J. Cocozza (incorporated by reference to exhibit
10.15 to the Registrant's Form S-1 Registration
Statement No. 33-74768)
10.15 Master Lease Agreement dated as of July 18, 1994
between Maxwell Shoe Company Inc. and BancBoston
Leasing Inc. (incorporated by reference to
exhibit 10.23 to the Registrant's Form 10-K for the
fiscal year ended October 31, 1994)
10.16 Assumption Agreement dated July 7, 1995 between
BancBoston Leasing Inc. and Maxwell Shoe Company Inc.
(incorporated by reference to exhibit 10.24 to the
Registrant's Form 10-K for the fiscal year ended
October 31, 1995)
10.17 Letter Agreement dated January 25, 1995 between Legas
Realty Corp., as successor lessor to S.L. Green
Properties Inc., as successor to Anon Realty
Associates, L.P., and Maxwell Shoe Company Inc.
(incorporated by reference to exhibit 10.25 to the
Registrant's Form 10-K for the fiscal year ended
October 31, 1995)
10.18 First Amendment to License Agreement dated October 2,
1995 between Jones Investment Co., Inc., and Maxwell
Shoe Company Inc. (incorporated by reference to
Exhibit 10.26 to the Registrant's Form 10-K for the
fiscal year ended October 31, 1995)
10.19 Trademark and Intellectual Property Rights Purchase and
Sale Agreement dated July 2, 1996 between Sam & Libby,
Inc. and Maxwell Shoe Company Inc. (incorporated by
reference to exhibit 10.21 to the Registrant's Form 10-
K for the fiscal year ended October 31, 1996)
10.20 License Agreement dated January 8, 1997 between Inter-
Pacific Trading Corporation d/b/a Inter-Pacific
Corporation and Maxwell Shoe Company Inc. (incorporated
by reference to exhibit 10.22 to the Registrant's Form
10-K for the fiscal year ended October 31, 1996)
10.21 License Agreement dated April 1, 1997 between J.G.
Hook, Inc. and Maxwell Shoe Company Inc. (incorporated
by reference to exhibit 10.31 to the Registrant's Form
10-K for the fiscal year ended October 31, 1997)
10.22 Sublease Agreement dated June 16, 1997 between Macy's
East, Inc. and Maxwell Shoe Company Inc. (incorporated
by reference to exhibit 10.32 to the Registrant's Form
10-K for the fiscal year ended October 31, 1997)
</TABLE>
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.23 Lease Agreement dated June 16, 1997 between John H.
Finley, III as trustee of Brockton Oak Real Estate
Trust And Maxwell Shoe Company Inc. (incorporated by
reference to exhibit 10.33 to the Registrant's Form 10-
K for the fiscal year ended October 31, 1997)
10.24 Contribution Agreement dated as of April 14, 1997 by
and among The Butler Group Inc., Maxwell Shoe Company
Inc. and Maxwell Retail Inc. (incorporated by reference
to exhibit 10.1 to the Registrant's Form 8-K filed
May 5, 1997)
10.25 Operating Agreement of SLJ Retail LLC dated as of
April 14, 1997 by and between The Butler Group Inc. and
Maxwell Retail Inc. (incorporated by reference to
exhibit 10.2 to the Registrant's Form 8-K filed May 5,
1997)
10.26 Option Agreement dated as of April 14, 1997 by and
among The Butler Group Inc., Maxwell Shoe Company Inc.,
Maxwell Retail Inc. and SLJ Retail LLC (incorporated by
reference to exhibit 10.3 to the Registrant's Form 8-K
filed May 5, 1997)
10.27 Services Agreement dated as of April 14, 1997 by and
between Maxwell Shoe Company Inc. and SLJ Retail LLC
(incorporated by reference to exhibit 10.4 to the
Registrant's Form 8-K filed May 5, 1997)
10.28 Non-Compete Agreement dated as of April 14, 1997 by and
among SLJ Retail LLC, Maxwell Shoe Company Inc.,
Maxwell V. Blum, Betty Ann Blum, Marjorie W. Blum, Mark
J. Cocozza, David Andelman, as trustee of the Eleanor
S. Blum Trust, Maxwell Retail Inc. and Sprague Company
(incorporated by reference to exhibit 10.5 to the
Registrant's Form 8-K filed May 5, 1997)
10.29 Retail Opportunity Agreement dated as of April 14, 1997
by and among SLJ Retail LLC, Maxwell Shoe Company,
Inc., Maxwell V. Blum, Betty Ann Blum, Marjorie W.
Blum, David Andelman, as trustee of the Eleanor S. Blum
Trust, Maxwell Retail Inc. and Sprague Company
(incorporated by reference to exhibit 10.6 to the
Registrant's Form 8-K filed May 5, 1997)
10.30 Registration Rights Agreement dated as of April 14,
1997 by and among Maxwell Shoe Company Inc., The Butler
Group Inc., Maxwell V. Blum, Betty Ann Blum, Marjorie
W. Blum, Mark J. Cocozza and David Andelman, as trustee
of the Eleanor S. Blum Trust (incorporated by reference
to exhibit 10.7 to the Registrant's Form 8-K filed May
5, 1997)
10.31 Second Amendment to License Agreement dated as of
April 14, 1997 by and between Maxwell Shoe Company Inc.
and Jones Investment Co., Inc. (incorporated by
reference to exhibit 10.8 to the Registrant's Form 8-K
filed May 5, 1997)
10.32 Trademark Sublicense Agreement dated as of April 14,
1997 by and between Maxwell Shoe Company Inc. and SLJ
Retail LLC (incorporated by reference to exhibit 10.9
to the Registrant's Form 8-K filed May 5, 1997)
10.33* Third Amendment to License Agreement dated as of March
16, 1998 by and between Maxwell Shoe Company Inc. and
Jones Investment Co., Inc.
10.34* First Amendment to the Trademark Sublicense Agreement
dated as of March 16, 1998 by and between Maxwell Shoe
Company Inc. and SLJ Retail LLC.
10.35 Employment Agreement dated as of April 1998 by and
between Mark J. Cocozza and Maxwell Shoe Company Inc.
</TABLE>
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.36 Employment Agreement dated as of April 1998 by and between James
J. Tinagero and Maxwell Shoe Company Inc.
10.37 Consulting Agreement dated as of April 1998 by and between Maxwell
V. Blum and Maxwell Shoe Company Inc.
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5)
23.2 Consent of Ernst & Young LLP
</TABLE>
- --------
* Previously filed
<PAGE>
EXHIBIT 1
5,344,167 SHARES
MAXWELL SHOE COMPANY INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
April __, 1998
Lehman Brothers Inc.
Bear, Stearns & Co., Inc.
BT Alex. Brown Incorporated
Tucker Anthony Incorporated,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Certain stockholders and option holders of Maxwell Shoe Company Inc.,
a Delaware corporation (the "Company") named in Schedule 2 hereto (the "Selling
Stockholders"), propose to sell an aggregate of 5,344,167 shares (the "Firm
Stock") of the Company's Class A Common Stock, par value $0.01 per share (the
"Common Stock"). In addition, the Company proposes to grant to the Underwriters
named in Schedule 1 hereto (the "Underwriters") an option to purchase up to an
additional 801,625 shares of the Common Stock on the terms and for the purposes
set forth in Section 3 (the "Option Stock"). The Firm Stock and the Option
Stock, if purchased, are hereinafter collectively called the "Stock." The
irrevocable trust established by agreement dated December 23, 1980 for the
benefit of Eleanor S. Blum is referred to herein as the "Trust Selling
Stockholder." This is to confirm the agreement concerning the purchase of the
Stock from the Selling Stockholders and the Company by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
---------------------------------------------------------
Company represents, warrants and agrees that:
(a) A registration statement on Form S-2 and two amendments thereto,
with respect to the Stock has (i) been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rules and Regulations") of
the United States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities Act and
(iii)
<PAGE>
become effective under the Securities Act. Copies of such registration
statement and amendment[s] thereto have been delivered by the Company to you as
the representatives (the "Representatives") of the Underwriters. As used in
this Agreement, "Effective Time" means the date and the time as of which such
registration statement, or the most recent post-effective amendment thereto, if
any, was declared effective by the Commission; "Effective Date" means the date
of the Effective Time; "Preliminary Prospectus" means each prospectus included
in such registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the Commission
by the Company with the consent of the Representatives pursuant to Rule 424(a)
of the Rules and Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including any documents
incorporated by reference therein at such time and all information contained in
the final prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 6(a) hereof and deemed to be a
part of the registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; and "Prospectus" means
such final prospectus, as first filed with the Commission pursuant to paragraph
(1) or (4) of Rule 424(b) of the Rules and Regulations. Reference made herein to
any Preliminary Prospectus or to the Prospectus shall be deemed to refer to and
include any documents incorporated by reference therein pursuant to Item 12 of
Form S-2 under the Securities Act, as of the date of such Preliminary Prospectus
or the Prospectus, as the case may be.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and no proceedings for that purpose are pending or,
to the best knowledge of the Company or the Selling Stockholders, threatened or
contemplated by the Commission; no order suspending the offering of the Firm
Stock or the Option Stock, as the case may be, in any jurisdiction designated by
you has been issued and no proceedings for that purpose have been instituted or,
to the best knowledge of the Company or the Selling Stockholders, threatened or
contemplated, and any request of the Commission for additional information (to
be included in the Registration Statement or Prospectus or otherwise) has been
complied with.
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all respects to the requirements of the Securities
Act and the Rules and Regulations and do not and will not, as of the applicable
effective date (as to the Registration Statement and any amendment thereto) and
as of the applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein (i) in the case of the Registration Statement, not misleading
and (ii) in the case of the Prospectus, in light of the circumstances under
which they were made, not misleading; provided that no representation or
warranty is made as to information contained in or omitted from the Registration
Statement or the Prospectus in reliance upon and in conformity with written
information furnished to the Company and the Selling Stockholders through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein.
(d) The documents incorporated by reference in the Prospectus, when
they were filed with the Commission conformed in all material respects to the
requirements of the
2
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations of the Commission thereunder, and none of such documents contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(e) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change, or any development involving a prospective material adverse
change, in or affecting the business, prospects, properties, management,
condition (financial or other), stockholders' equity or results of operations of
the Company and its subsidiaries, whether or not arising from transactions in
the ordinary course of business (the foregoing is collectively referred to
herein as a "Material Adverse Change"), and since the date of the latest balance
sheet presented in the Registration Statement and the Prospectus, neither the
Company nor any of its subsidiaries has incurred or undertaken any liabilities
or obligations, direct or contingent, which are material to the Company and its
subsidiaries, except for liabilities or obligations which are reflected in or
contemplated by the Registration Statement and the Prospectus.
(f) The Company has all requisite corporate power and authority to
enter into this Agreement and the Custody Agreement and to perform its
obligations hereunder and thereunder. This Agreement, the Custody Agreement and
the transactions contemplated herein and therein have been duly and validly
authorized by the Company and this Agreement and the Custody Agreement have been
duly and validly executed and delivered by the Company; the Custody Agreement
(assuming due authorization, execution and delivery by the Custodian and the
Selling Stockholders) will constitute the valid and binding agreement of the
Company enforceable against the Company in accordance with its terms.
(g) Neither the Company nor any of its subsidiaries is in default in
the performance or observance of, or in violation of, any obligation, agreement,
covenant or condition contained in any loan agreement, note, contract,
instrument, indenture, lease, franchise, license, mortgage, permit or other
agreement to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
properties or assets of the Company or any of its subsidiaries are subject,
except for such defaults that would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, properties, management,
condition (financial or other), stockholders' equity or results of operations of
the Company and its subsidiaries (the foregoing is collectively referred to
herein as a "Material Adverse Effect"). Neither the Company nor any of its
subsidiaries is and on each Delivery Date (as hereinafter defined) will be, in
violation of any provisions of its Certificate of Incorporation or by-laws.
(h) The execution, delivery and performance of this Agreement and the
Custody Agreement and the consummation of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or result in a breach of any
of the terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to, any
loan agreement,
3
<PAGE>
note, contract, instrument, indenture, lease, franchise, license, mortgage,
permit or other agreement to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the properties or assets of the Company or any of its subsidiaries are
subject, except for such conflicts, breaches, defaults or liens that would not,
singly or in the aggregate, have a Material Adverse Effect; (ii) violate or
conflict with any provisions of the Certificate of Incorporation or by-laws of
the Company or any of its subsidiaries; or (iii) violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or the property or
assets of the Company or any of its subsidiaries, except for such violations or
conflicts that would not, singly or in the aggregate, have a Material Adverse
Effect.
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which its
ownership or lease of property or the conduct of its business requires such
qualification, except for any such failure to so qualify which would not have a
Material Adverse Effect, and has all power and authority necessary to own or
hold its properties and to conduct the business in which it is engaged.
(j) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of each of the Company
and its subsidiaries have been duly and validly authorized and issued, are fully
paid and non-assessable, conform, in the case of the Company's capital stock, to
the description thereof contained in the Prospectus and were not issued and are
not now in violation of or subject to any preemptive rights.
(k) The shares of the Stock to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly
and validly issued, fully paid and non-assessable, and will not have been issued
in violation of or be subject to any preemptive rights; and the Stock will
conform to the description thereof contained in the Prospectus.
(l) No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any third party or any court or any
public, governmental or regulatory agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of the
properties or assets of the Company or any of its subsidiaries is required for
the execution, delivery and performance of this Agreement or the Custody
Agreement or the consummation of the transactions contemplated hereby and
thereby, including the issuance, sale and delivery of the Option Stock to be
issued, sold and delivered by the Company hereunder, except the registration
under the Securities Act of the Stock, approval by the National Association of
Securities Dealers, Inc. ("NASD") of the underwriting terms and arrangements,
and such consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as have been obtained or as may be required
under state securities or blue sky laws in connection with the purchase and
distribution of the Stock by the Underwriters.
4
<PAGE>
(m) There are no contracts, agreements or understandings between the
Company or any of its subsidiaries and any person granting such person the right
to require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Securities Act.
(n) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued pursuant to
employee benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or warrants.
(o) Ernst & Young LLP, who have certified certain consolidated
financial statements of the Company, whose report appears in the Prospectus or
is incorporated by reference therein and who have delivered the initial letter
referred to in Section 9(g) hereof, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
(p) The conditions for use of Form S-2, as set forth in the General
Instructions thereto, have been satisfied.
(q) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required to be described in the Prospectus which is
not so described.
(r) Each of the Company and its subsidiaries is in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or any of its subsidiaries would have any
liability; neither the Company nor any of its subsidiaries has incurred or
expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company or any of its subsidiaries would have any liability that
is intended to be qualified under Section 401(a) of the Code is so qualified in
all material respects and nothing has occurred, whether by action or by failure
to act, which would cause the loss of such qualification.
(s) Each of the Company and its subsidiaries has filed all federal,
state and local income and franchise tax returns required to be filed through
the date hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or any of its subsidiaries which has
had (nor does the Company have any knowledge of any tax deficiency which, if
determined adversely to the Company or any of its subsidiaries might have) a
Material Adverse Effect.
5
<PAGE>
(t) Except as described in the Prospectus, there is no litigation or
governmental proceeding, domestic or foreign, to which the Company or any of its
subsidiaries is a party or to which any property, assets or business of the
Company or any of its subsidiaries is subject or which is pending or, to the
knowledge of the Company, contemplated against the Company or any of its
subsidiaries that might result in a Material Adverse Change, or which is
required to be disclosed in the Registration Statement and the Prospectus.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Stock.
(v) The consolidated financial statements, including the notes
thereto, and supporting schedules included (through incorporation by reference
or otherwise) in the Registration Statement and the Prospectus present fairly
the consolidated financial position of the Company and its subsidiaries as of
the dates indicated and the results of its operations for the periods specified;
except as otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis; and the supporting schedules included
in the Registration Statement present fairly the information required to be
stated therein.
(w) Neither the Company nor any of its subsidiaries is, and upon
consummation of the transactions contemplated hereby will be, subject to
registration as an "investment company" under the Investment Company Act of
1940, as amended, and the rules and regulations of the Commission thereunder.
(x) There are no contracts or other documents which are required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described and filed as
required.
(y) Each of the Company and its subsidiaries has good and valid title
to all personal property and assets described in the Prospectus as owned by the
Company and its subsidiaries, free and clear of all liens, charges, encumbrances
or restrictions, except such as (A) are described in the Prospectus or (B) are
neither material in amount nor materially significant in relation to the
business of the Company and its subsidiaries; all of the leases and subleases
material to the business of the Company and its subsidiaries and under which the
Company and its subsidiaries hold properties described in the Prospectus, are in
full force and effect, and neither the Company nor any of its subsidiaries has
notice of any material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any of its subsidiaries under any of the
leases or subleases mentioned above, or affecting or questioning the rights of
such corporation to the continued possession of the leased or subleased premises
under any such lease or sublease, except for such claims which if the subject of
an unfavorable decision or resolution would not have a Material Adverse Effect.
Neither the Company nor any of its subsidiaries owns any real property.
6
<PAGE>
(z) Each of the Company and its subsidiaries has all requisite power
and authority, and other than as described in subparagraph (aa) below, each of
the Company and its subsidiaries owns, possesses or has obtained all material
governmental and business licenses, permits, certificates, consents, orders,
approvals and other authorizations necessary to own or lease, as the case may
be, and to operate its properties and assets and to carry on its business as
presently conducted, and as described in the Registration Statement and the
Prospectus; no such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome restriction
not adequately disclosed in the Registration Statement and the Prospectus, and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to revocation or modification of any such licenses,
permits, certificates, consents, orders, approvals or authorizations.
(aa) Each of the Company and its subsidiaries owns or possesses
adequate and enforceable rights to use, under license or otherwise, all patents,
patent applications, trademarks, trade names, service marks, copyrights, rights,
trade secrets, confidential information, processes and formulations used or
proposed to be used in the conduct of its business as described in the
Prospectus including, but not limited to, Mootsies Tootsies(R), Mootsies
Kids(R), Sam & Libby(R), Jones New York(R), Jones New York Sport(R), J.G.
Hook(R) and Hook Sport(R) (collectively, the "Intangibles"); to the best of the
-----------
Company's knowledge, neither the Company nor any of its subsidiaries has
infringed or is infringing upon the rights of others with respect to the
Intangibles, and neither the Company nor any of its subsidiaries has received
any notice of conflict with the asserted rights of others with respect to the
Intangibles, which could, singly or in the aggregate, have a Material Adverse
Effect, and the Company knows of no basis therefor; and, to the best of the
Company's knowledge, no others have infringed upon the Intangibles of the
Company or any of its subsidiaries.
(bb) To the best knowledge of the Company, no labor dispute exists
with the Company's employees or is imminent that would have a Material Adverse
Effect, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, contractors or
customers that would have a Material Adverse Effect.
(cc) Each of the Company and its subsidiaries is in material
compliance with applicable existing federal, state and local laws and
regulations relating to protection of human health or the environment and has no
liability or alleged liability under any such law which is required to be
disclosed in the Registration Statement or the Prospectus that is not so
disclosed.
(dd) As of the date of the latest financial statements included in or
incorporated by reference in the Registration Statement and the Prospectus, to
the best of the Company's knowledge, the Company's inventory was saleable and
the Company's accounts receivable were collectible in the ordinary course of the
Company's business, subject to posted reserves; and, as of the last day of the
calendar month prior to the date hereof, to the best of the Company's knowledge,
the Company's inventory was saleable and the Company's accounts receivable were
collectible in the ordinary course of the Company's business, subject to posted
reserves.
(ee) Except as described in the Prospectus, to the best of the
Company's knowledge, none of the officers and directors listed in the Prospectus
under the caption
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"Management" has any current plans to terminate his or her present employment
with the Company.
2. Representations, Warranties and Agreements of the Selling
---------------------------------------------------------
Stockholders. Each Selling Stockholder severally represents, warrants and
- ------------
agrees that:
(a) The Selling Stockholder has good and valid title to the shares,
if any, of Class B common stock, par value $0.01 per share, of the Company (the
"Class B Common Stock"), which will be converted into the Stock and the options,
if any, with respect to Common Stock held by the Selling Stockholder which will
be exercised immediately prior to the First Delivery Date (as defined in Section
5 hereof); and immediately prior to the First Delivery Date the Selling
Stockholder will have good and valid title to the shares of Stock to be sold by
the Selling Stockholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; such shares have been duly authorized and are
validly issued, fully paid and non-assessable; and upon delivery of such shares
and payment therefor pursuant hereto, good and valid title to such shares, free
and clear of all liens, encumbrances, equities or claims, will pass to the
several Underwriters.
(b) The Selling Stockholder has placed in custody, or will place in
custody prior to the First Delivery Date after conversion of the related Class B
Common Stock or exercise of the related options with respect to the Common
Stock, under a custody agreement (the "Custody Agreement") with Boston Equiserve
Limited Partnership, as custodian (the "Custodian"), for delivery under this
Agreement, certificates in negotiable form (with signature guaranteed by a
commercial bank or trust company having an office or correspondent in the United
States or a member firm of the New York or American Stock Exchange) representing
the shares of Stock to be sold by the Selling Stockholder hereunder.
(c) The Selling Stockholder has duly and irrevocably executed and
delivered a power of attorney (the "Power of Attorney" and, together with all
other similar agreements executed by the other Selling Stockholders, the "Powers
of Attorney") appointing the Custodian and one or more other persons, as
attorneys-in-fact, with full power of substitution, and with full authority
(exercisable by any one or more of them) to execute and deliver this Agreement
and to take such other action as may be necessary or desirable to carry out the
provisions hereof on behalf of the Selling Stockholder.
(d) The Selling Stockholder has full right, power and authority to
enter into this Agreement, the Power of Attorney and the Custody Agreement; this
Agreement, the Power of Attorney and the Custody Agreement have been duly
authorized, executed and delivered by the Selling Stockholder; the Power of
Attorney and the Custody Agreement (assuming due authorization, execution and
delivery by the Company and the Custodian) will constitute valid and binding
agreements of the Selling Stockholder, each enforceable against the Selling
Stockholder in accordance with its terms; the execution, delivery and
performance of this Agreement, the Power of Attorney and the Custody Agreement
by the Selling Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, any loan agreement, note, contract,
instrument, indenture, lease,
8
<PAGE>
franchise, license, mortgage, permit or other agreement or instrument to which
the Selling Stockholder is a party or by which the Selling Stockholder is bound
or to which any of the property or assets of the Selling Stockholder is subject,
nor will such actions result in any violation of the provisions of the trust
agreement of the Selling Stockholder, if applicable, or any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body, domestic or foreign, having jurisdiction over the
Selling Stockholder or the property or assets of the Selling Stockholder; and,
except for the registration under the Securities Act of the Stock, approval by
the NASD of the underwriting terms and arrangements, and such consents,
approvals, authorizations, orders, registrations, filings, qualifications,
licenses and permits as may be required under the state securities or blue sky
laws in connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court, agency or body is required for the execution,
delivery and performance of this Agreement, the Power of Attorney or the Custody
Agreement by the Selling Stockholder or the consummation by the Selling
Stockholder of the transactions contemplated hereby and thereby.
(e) To the best of the Selling Stockholder's knowledge, the
Registration Statement and the Prospectus and any further amendments or
supplements to the Registration Statement or the Prospectus will, when they
become effective or are filed with the Commission, as the case may be, do not
and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date (as to
the Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein (i) in the case of
the Registration Statement, not misleading and (ii) in the case of the
Prospectus, in light of the circumstances under which they were made, not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information furnished
to the Company and the Selling Stockholders through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein.
(f) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in Section 1 hereof are
not materially true and correct, is familiar with the Registration Statement and
the Prospectus (as amended or supplemented) and has no knowledge of any material
fact, condition or information not disclosed in the Registration Statement, as
of the effective date, or the Prospectus (or any amendment or supplement
thereto), as of the applicable filing date, which would have a Material Adverse
Effect, and is not prompted to sell shares of Stock by any information
concerning the Company which is not set forth in the Registration Statement and
the Prospectus.
(g) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to cause or result in, or which constitutes
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of the
-----------------------------------------
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, each Selling Stockholder hereby agrees to sell
the number of shares of the Firm Stock set opposite his
9
<PAGE>
or her name in Schedule 2 hereto, severally and not jointly, to the several
Underwriters and each of the Underwriters, severally and not jointly, agrees to
purchase the number of shares of the Firm Stock set opposite that Underwriter's
name in Schedule 1 hereto. Each Underwriter shall be obligated to purchase from
each Selling Stockholder, that number of shares of the Firm Stock which
represents the same proportion of the number of shares of the Firm Stock to be
sold by each Selling Stockholder, as the number of shares of the Firm Stock set
forth opposite the name of such Underwriter in Schedule 1 represents of the
total number of shares of the Firm Stock to be purchased by all of the
Underwriters pursuant to this Agreement. The respective purchase obligations of
the Underwriters with respect to the Firm Stock shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 801,625 shares of Option Stock. Such option is granted for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section 5 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock to be purchased by the
Underwriters shall be $[_____] per share.
The Company and the Selling Stockholders shall not be obligated to
deliver any of the Stock to be delivered on any Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein.
4. Offering of Stock by the Underwriters. Upon authorization by the
-------------------------------------
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and payment
-------------------------------------
for the Firm Stock shall be made at the office of Milbank, Tweed, Hadley &
McCloy, One Chase Manhattan Plaza, New York, NY 10005, at 10:00 A.M., New York
City time, on the [fourth] full business day following the date of this
Agreement or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Selling Stockholders shall deliver or cause to be delivered certificates
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Selling Stockholders of
the purchase price by wire transfer in immediately available funds, net of any
payments to the Company in immediately available funds to be effected by wire
transfer to the Company on the First Delivery Date pursuant to an instruction
delivered by the Company and the Selling Stockholders to the Representatives
with respect to (i) the exercise price due the Company in connection with the
exercise of options that give rise to the Firm Stock being sold on the First
Delivery Date and (ii) amounts required to be withheld by the Company in respect
of taxes due as a result of such exercise of options and sale of Firm Stock.
Time shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of each
Underwriter hereunder. Upon delivery, the Firm Stock shall be registered in
such names and in such denominations as the Representatives shall request in
10
<PAGE>
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Firm Stock, the Selling Stockholders shall make the certificates
representing the Firm Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the First Delivery Date.
The option granted in Section 3 will expire 30 days after the date of
this Agreement and may be exercised in whole or in part from time to time by
written notice being given to the Company by the Representatives. Such notice
shall set forth the aggregate number of shares of Option Stock as to which the
option is being exercised, the names in which the shares of Option Stock are to
be registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been exercised
nor later than the fifth business day after the date on which the option shall
have been exercised. The date and time the shares of Option Stock are delivered
are sometimes referred to as a "Second Delivery Date" and the First Delivery
Date and any Second Delivery Date are sometimes each referred to as a "Delivery
Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on such
Second Delivery Date. On such Second Delivery Date, the Company shall deliver
or cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in immediately
available funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder. Upon delivery, the Option Stock shall
be registered in such names and in such denominations as the Representatives
shall request in the aforesaid written notice. For the purpose of expediting
the checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to such Second Delivery
Date.
6. Further Agreements of the Company. The Company agrees:
---------------------------------
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under the
Securities Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under the
Securities Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus except as permitted herein; to
advise the Representatives, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or suspending the
use of any
11
<PAGE>
Preliminary Prospectus or the Prospectus, of the suspension of the qualification
of the Stock for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such qualification,
to use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement as originally
filed with the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits other
than this Agreement and the computation of per share earnings), (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus and (iii) any document incorporated by reference in the Prospectus
(excluding exhibits thereto); and, if the delivery of a prospectus is required
at any time after the Effective Time in connection with the offering or sale of
the Stock or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be necessary
to amend or supplement the Prospectus or to file under the Exchange Act any
document incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, to notify the Representatives and, upon
their request, to file such document and to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or effect
such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the Representatives, be required by
the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or any Prospectus pursuant to Rule
424 of the Rules and Regulations, to furnish a copy thereof to the
Representatives and counsel for the Underwriters and obtain the consent of the
Representatives to the filing;
(f) To make generally available (within the meaning of Section 11(a)
of the Act) to its security holders and to the Underwriters as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the Effective Date occurs,
12
<PAGE>
an earning statement (in form complying with the provisions of Rule 158 of the
Regulations) covering a period of at least twelve consecutive months beginning
after the Effective Date;
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the Company
to its shareholders and all public reports and all reports and financial
statements furnished by the Company to the principal national securities
exchange or national securities market upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange or market or to the
Commission pursuant to the Exchange Act or any rule or regulation of the
Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering and
sale under the securities laws of such jurisdictions as the Representatives may
request and to comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Stock; provided that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction;
(i) For a period of 90 days from the date of the Prospectus, not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or securities convertible into or exchangeable
for Common Stock (other than (x) the Stock, (y) shares issued pursuant to
employee benefit plans, nonqualified or qualified stock option plans or other
employee compensation plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights, and (z) 100,000 shares of Common Stock
(the "Foundation Shares") to be issued to Maxwell V. Blum upon the conversion of
a corresponding amount of Class B Common Stock, such Foundation Shares to be
donated to the Maxwell V. Blum Family Foundation on or about the First Delivery
Date), or sell or grant options, rights or warrants with respect to any shares
of Common Stock or securities convertible into or exchangeable for Common Stock
(other than the grant of options pursuant to option plans existing on the date
hereof), or (2) enter into any swap or other derivatives transaction that
transfers to another, in whole or in part, any of the economic benefits or risks
of ownership of such shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc.; and to cause each officer and director
of the Company to furnish to the Representatives, prior to the First Delivery
Date, a letter or letters, in the form of Exhibit A hereto, pursuant to which
each such person shall agree not to, directly or indirectly, (1) offer for sale,
sell, pledge or otherwise dispose of (or enter into any transaction or device
which is designed to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock (other than, in
the case of Mr. Blum, the Foundation Shares) or securities convertible into or
exchangeable for Common Stock or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or
13
<PAGE>
other securities, in cash or otherwise, in each case for a period of 90 days
from the date of the Prospectus, without the prior written consent of Lehman
Brothers Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of the
Stock on the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ NMS") and to use its best efforts to complete
that listing, subject only to official notice of issuance, prior to the First
Delivery Date;
(k) To apply the net proceeds, if any, from the sale of the Stock
being sold by the Company as set forth in the Prospectus;
(l) To take such steps as shall be necessary to ensure that the
Company shall not become an "investment company" within the meaning of such term
under the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder; and
(m) Not to issue additional shares of Class B Common Stock, except in
conjunction with stock splits, reverse stock splits, stock dividends,
reclassifications and similar transactions and events regarding the Common Stock
that would otherwise have the effect of changing the conversion rights of the
Class B Common Stock relative to the Common Stock; and as soon as practicable
after the First Delivery Date, but in no event later than the Company's next
regularly scheduled annual meeting of stockholders after the date hereof, to
seek stockholder approval to amend the Company's Certificate of Incorporation to
eliminate the authorization for the issuance of Class B Common Stock.
7. Further Agreements of the Selling Stockholders. Each Selling
----------------------------------------------
Stockholder agrees:
(a) For a period of 90 days from the date of the Prospectus, not to,
directly or indirectly,(1) offer for sale, sell, pledge or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or securities convertible into or exchangeable
for Common Stock (other than the Stock and, in the case of Mr. Blum, the
Foundation Shares) or (2) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc.;
(b) That the Stock to be sold by the Selling Stockholder hereunder,
which is represented by the certificates or options held in custody for the
Selling Stockholder, is subject to the interest of the Underwriters and the
other Selling Stockholders thereunder, that the arrangements made by the Selling
Stockholder for such custody are to that extent irrevocable, and that the
obligations of the Selling Stockholder hereunder shall not be terminated by any
act of the Selling Stockholder, by operation of law, by the death or incapacity
of any individual Selling Stockholder or, in the case of a trust, by the death
or incapacity of any executor or trustee or the termination of such trust, or
the occurrence of any other event;
14
<PAGE>
(c) To deliver to the Representatives prior to the First Delivery
Date a properly completed and executed United States Treasury Department Form W-
9; and
(d) To convert, prior to the First Delivery Date, all shares of Class
B Common Stock that are owned by the Selling Stockholder into shares of Common
Stock, or to exercise, prior to the First Delivery Date, all options to purchase
shares of Common Stock, as the case may be, which shares will constitute not
less than the required number of shares of Stock to be sold by the Selling
Stockholder to the Underwriters under this Agreement.
8. Expenses. The Company agrees (except to the extent that
--------
applicable law requires payment of any such expenses on a pro rata basis between
the Company and the Selling Stockholders or except as otherwise agreed between
the Company and the Selling Stockholders) to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus or any document
incorporated by reference therein, all as provided in this Agreement; (d) the
costs of producing and distributing this Agreement and any other related
documents in connection with the offering, purchase, sale and delivery of the
stock; (e) the costs of delivering and distributing the Custody Agreements and
the Powers of Attorney; (f) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Stock (including related fees and expenses of counsel to the
Underwriters); (g) any applicable listing or other fees; (h) the fees and
expenses of qualifying the Stock under the securities laws of the several
jurisdictions as provided in Section 6(h) and of preparing, printing and
distributing a blue sky Memorandum (including related fees and expenses of
counsel to the Underwriters); and (i) all other costs and expenses incident to
the performance of the obligations of the Company and the Selling Stockholders
under this Agreement except commissions and discounts incurred by the Selling
Stockholders in respect of shares of Stock to be sold by the Selling
Stockholders to the Underwriters under this Agreement; provided that, except as
provided in this Section 8 and in Section 13 the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Stock which they may sell and the expenses of advertising
any offering of the Stock made by the Underwriters.
9. Conditions of Underwriters' Obligations. The respective
---------------------------------------
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholders contained herein, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 6(a); no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for
15
<PAGE>
inclusion of additional information in the Registration Statement or the
Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Milbank, Tweed, Hadley & McCloy, counsel for
the Underwriters, is material or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein (i) in the case of the Registration Statement,
not misleading and (ii) in the case of the Prospectus, in light of the
circumstances under which they were made, not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Custody Agreement, the
Powers of Attorney, the Stock, the Registration Statement and the Prospectus,
and all other legal matters relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company and the Selling Stockholders shall
have furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Gibson, Dunn & Crutcher LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed to the
Underwriters and dated the First Delivery Date and each such other Delivery
Date, in form and substance reasonably satisfactory to the Representatives, to
the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state
of Delaware, is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which its ownership
or lease of property or the conduct of its business requires such
qualification, except for any such failure to so qualify which would
not have a Material Adverse Effect, and has all power and authority
necessary to own or hold its properties and to conduct the business in
which it is engaged;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the shares of Stock being delivered on such
Delivery Date) have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus;
(iii) Except as disclosed in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any shares of the Stock
pursuant to the Company's Certificate of Incorporation or by-laws or
any agreement or other instrument known to such counsel;
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(iv) To the best of such counsel's knowledge, there is no
litigation or governmental or other action, suit, proceeding or
investigation before any court or before or by any public,
governmental or regulatory agency or body pending, threatened against,
or involving the properties or business of, the Company or any of its
subsidiaries that might have a Material Adverse Effect or which is
required to be disclosed in the Registration Statement and the
Prospectus which has not been properly disclosed therein.
(v) To the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries is in default in the performance
or observance of, or in violation of, any loan agreement, note,
contract, instrument, indenture, lease, franchise, license, mortgage,
permit or other agreement to which it is a party or by which it is
bound or to which any of its properties are subject and that is filed
as an exhibit to the Registration Statement, except for such defaults
that would not have a Material Adverse Effect. To the best of such
counsel's knowledge, neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or by-laws.
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such opinion,
the Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations specified in
such opinion on the date specified therein and no stop order
suspending the effectiveness of the Registration Statement has been
issued and, to the knowledge of such counsel, no proceeding for that
purpose is pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements, financial
data and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the requirements of the Securities Act and the Rules and Regulations;
the documents incorporated by reference in the Prospectus (other than
the financial statements, financial data and related schedules
therein, as to which such counsel need express no opinion), when they
were filed with the Commission complied as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder;
(viii) The statements contained in the Prospectus under the
caption "Certain United States Federal Tax Considerations for Non-U.S.
Holders of Class A Common Stock", insofar as they describe federal
statutes, rules and regulations, constitute a fair summary thereof;
(ix) The descriptions in the Prospectus of the statutes,
regulations, legal or governmental proceedings, contracts and other
documents therein described fairly summarize the information required
to be shown in all material respects.
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(x) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
Registration Statement or the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described or filed as exhibits to the
Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations;
(xi) The Company has all requisite corporate power and
authority to enter into this Agreement and the Custody Agreement and
to perform its obligations hereunder and thereunder; this Agreement
has been duly authorized, executed and delivered by the Company; the
Custody Agreement has been duly authorized, executed and delivered by
the Company, and (assuming due execution and delivery by the Custodian
and the Selling Stockholder) will constitute a valid and binding
agreement of the Company enforceable against the Company in accordance
with its terms; except (x) as enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, and (y) as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law);
(xii) The issue and sale of the shares of Stock being delivered
on such Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the Custody Agreement
and the consummation of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a
default) under, any loan agreement, note, contract, instrument,
indenture, lease, franchise, license, mortgage, permit or other
agreement known to such counsel to which the Company is a party or by
which the Company is bound or to which any of the property or assets
of the Company is subject, nor will such actions result in any
violation of the provisions of the Certificate of Incorporation or by-
laws of the Company or any judgment, decree, order, statute, rule or
regulation known to such counsel of any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or the property or assets of the Company, except in any such
case for such conflicts, breaches, violations or defaults that would
not, singly or in the aggregate, have a Material Adverse Effect; and,
except for such consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses and permits as have
been obtained or as may be required under state securities or Blue sky
laws in connection with the purchase and distribution of the Stock by
the Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court, agency or body is
required for the execution, delivery and performance of this Agreement
and the Custody Agreement by the Company or the consummation of the
transactions contemplated hereby and thereby;
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(xiii) To the best of such counsel's knowledge, and except as
disclosed in the Prospectus, there are no contracts, agreements or
understandings between the Company and any person granting such person
the right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Securities Act.
(xiv) Each of the Company and its subsidiaries owns or
possesses adequate and enforceable rights to use the Intangibles; to
the best of such counsel's knowledge, neither the Company nor any of
its subsidiaries has infringed or is infringing upon the rights of
others with respect to the Intangibles; and, to the best of such
counsel's knowledge, neither the Company nor any of its subsidiaries
has received any notice of conflict with the asserted rights of others
with respect to the Intangibles which might, singly or in the
aggregate, have a Material Adverse Effect and such counsel is not
aware of any licenses with respect to the Intangibles which are
required to be obtained by the Company or any of its subsidiaries
which have not been obtained by the Company or any of its
subsidiaries; and
(xv) The Common Stock currently outstanding is listed, and the
shares of Stock to be sold under this Agreement to the Underwriters
are duly authorized for quotation, on the NASDAQ NMS.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the States of New York and
California and the General Corporation Law of the State of Delaware
and (ii) rely upon the opinion of other counsel of good standing
familiar with applicable laws provided that (A) such other counsel is
satisfactory to counsel for the Underwriters, (B) such other counsel
furnishes a copy of such opinion addressed to the Representatives and
dated such Delivery Date and (C) the opinion of Gibson, Dunn &
Crutcher LLP states that the opinion of such other counsel is in form
satisfactory to Gibson, Dunn & Crutcher LLP and, in Gibson, Dunn &
Crutcher LLP's opinion, the Underwriters and Gibson, Dunn & Crutcher
LLP are justified in relying thereon. In rendering such opinion on a
Delivery Date other than the First Delivery Date, such counsel may
omit any references to the Custody Agreement. Such counsel shall also
have furnished to the Representatives a written statement, addressed
to the Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives, to the effect that (x)
such counsel has acted as counsel to the Company in connection with
the preparation of the Registration Statement, and (y) based on the
foregoing, no facts have come to the attention of such counsel which
lead it to believe that (I) the Registration Statement, as of the
Effective Date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus contained as of its date or contains as of such
Delivery Date
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any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading or (II) any document incorporated by
reference in the Prospectus and the Registration Statement when they
were filed with the Commission contained an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that such
counsel need express no belief or opinion with respect to the
financial statements and schedules and other financial data included
or incorporated by reference therein).
(e) Lourie & Cutler P.C., special counsel for the Company and special
counsel for the Selling Stockholders, shall have furnished to the
Representatives its written opinion, as counsel to the Selling Stockholders,
addressed to the Underwriters and dated the First Delivery Date and each such
other Delivery Date (but only as to matters pertaining to the Company), in form
and substance reasonably satisfactory to the Representatives, to the effect
that:
(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Stockholder;
(iii) A Power-of-Attorney and the Custody Agreement have been
duly authorized, executed and delivered by or on behalf of each
Selling Stockholder and (assuming due authorization, execution and
delivery by the Custodian) will constitute valid and binding
agreements of each Selling Stockholder, enforceable against each
Selling Stockholder in accordance with their respective terms, except
(x) as enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, (y) as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law);
(iv) The execution, delivery and performance of this Agreement,
the Power of Attorney and the Custody Agreement by each Selling
Stockholder and the consummation by each Selling Stockholder of the
transactions contemplated hereby and thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default (or an event which with notice or lapse of
time, or both, would constitute a default) under, any loan agreement,
note, contract, instrument, indenture, lease, franchise, license,
mortgage, permit or other agreement known to such counsel to which any
Selling Stockholder is a party or by which any Selling Stockholder is
bound or to which any of the property or assets of any Selling
Stockholder is subject, nor will such actions result in any violation
of the provisions of the trust agreement of any Selling
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Stockholder or any judgment, decree, order, statute, rule or
regulation known to such counsel of any court or any public,
governmental or regulatory agency or body having jurisdiction over any
Selling Stockholder or the property or assets of any Selling
Stockholder; and, except for such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits
as have been obtained or as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court, agency or
body is required for the execution, delivery and performance of this
Agreement, the Power of Attorney or the Custody Agreement by any
Selling Stockholder or the consummation by any Selling Stockholder of
the transactions contemplated hereby and thereby;
(v) Immediately prior to the First Delivery Date, each Selling
Stockholder had good and valid title to the shares of Stock to be sold
by each Selling Stockholder under this Agreement free and clear of all
liens, encumbrances, equities or claims, and full right, power and
authority to sell, assign, transfer and deliver such shares to be sold
by such Selling Stockholder hereunder;
(vi) Good and valid title to the shares of Stock to be sold by
each Selling Stockholder under this Agreement, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each
of the several Underwriters;
(vii) The Company is duly qualified to do business and is in
good standing as a foreign corporation in the state of Massachusetts;
and
(viii) The issue and sale of the shares of Stock being delivered
on such Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the Custody Agreement
and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation of the provisions of
any judgment, decree, order, statute, rule or regulation known to such
counsel of any court or any public, governmental or regulatory agency
or body in the state of Massachusetts; and except for such consents,
approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as have been obtained or as may
be required under the securities or blue sky laws in connection with
the purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court, agency or body is required for the
execution, delivery and performance of this Agreement and the Custody
Agreement. by the Company or the consummation of the transactions
contemplated hereby and thereby.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United States of
America and the laws of the State of Massachusetts and (ii) in rendering the
opinion in Section 9(e)(v) above, rely upon a
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certificate of each Selling Stockholder in respect of matters of fact as to
ownership of and liens, encumbrances, equities or claims on the shares of Stock
sold by such Selling Stockholder, provided that such counsel shall furnish
copies thereof to the Representatives and state that it believes that both the
Underwriters and it are justified in relying upon such certificate.
(f) The Representatives shall have received from Milbank, Tweed,
Hadley & McCloy, counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Representatives
shall have received from Ernst & Young a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and dated the
date hereof (i) confirming that they are independent public accountants within
the meaning of the Securities Act and the Rules and Regulations and are in
compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, and (ii)
stating, as of the date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection with registered
public offerings.
(h) With respect to the letter of Ernst & Young referred to in the
preceding paragraph and delivered to the Representatives concurrently with the
execution of this Agreement (the "initial letter"), the Company shall have
furnished to the Representatives a letter (the "bring-down letter") of such
accountants, addressed to the Underwriters and dated such Delivery Date (i)
confirming that they are independent public accountants within the meaning of
the Securities Act and the Rules and Regulations and are in compliance with the
applicable requirements relating to the qualification of accountants under Rule
2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the
bring-down letter (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than five days prior to the date of the
bring-down letter), the conclusions and findings of such firm with respect to
the financial information and other matters covered by the initial letter and
(iii) confirming in all material respects the conclusions and findings set forth
in the initial letter.
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date;
the Company has complied with all its agreements contained herein; and
the conditions set forth in Sections 9(a) and 9(k) have been
fulfilled; and
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(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement did not contain any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (B) as of the date thereof and as of such Delivery Date,
the Prospectus did not and does not contain any untrue statement of a
material fact and did not and does not omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading, and (C) since the Effective Date no event
has occurred which should have been set forth in a supplement or
amendment to the Registration Statement or the Prospectus.
(j) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have furnished to
the Representatives on the First Delivery Date a certificate, dated the First
Delivery Date, signed by, or on behalf of, the Selling Stockholder (or the
Custodian or one or more attorneys-in-fact) stating that the representations,
warranties and agreements of the Selling Stockholder contained herein are true
and correct as of the First Delivery Date and that the Selling Stockholder has
complied with all agreements contained herein to be performed by the Selling
Stockholder at or prior to the First Delivery Date. Any Selling Stockholder
which is a trust shall have furnished to the Representatives the documents or
agreements, including but not limited to the trust agreement, which authorize
the trustee of such trust to act on behalf of the trust as a Selling Stockholder
hereunder and to comply with and perform this Agreement.
(k) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus or (ii)
since such date there shall not have been any change in the capital stock or
long-term debt of the Company or any Material Adverse Change, otherwise than as
set forth or contemplated in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a
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material adverse change in general economic, political or financial conditions
(or the effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of a majority in
interest of the several Underwriters, impracticable or inadvisable to proceed
with the public offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the Prospectus.
(m) The NASDAQ NMS shall have approved the Stock for inclusion,
subject only to official notice of issuance.
(n) Each of the directors and officers of the Company shall have
furnished to the Representatives letters dated the First Delivery Date in the
form of Exhibit A hereto.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. Indemnification and Contribution.
--------------------------------
(a) The Company and the Selling Stockholders (other than the Trust
Selling Stockholder), jointly and severally, shall indemnify and hold harmless
each Underwriter, its officers and employees, each of its directors and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Stock), to which that Underwriter, officer, employee, director or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto, or in
any blue sky application any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company and the Selling
Stockholders shall not be liable under this clause (iii) to the extent that it
is determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct), and shall reimburse each
Underwriter and each such officer, employee, director or controlling person
promptly upon demand for any legal or other expenses reasonably incurred by that
Underwriter, officer, employee, director or controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company and the Selling Stockholders shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the
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Registration Statement or the Prospectus, or in any such amendment or
supplement, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company and the Selling
Stockholders through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein which information consists solely of the
information specified in Section 10(f). The foregoing indemnity agreement is in
addition to any liability which the Company or any Selling Stockholder may
otherwise have to any Underwriter or to any officer, employee, director or
controlling person of that Underwriter.
(b) The Trust Selling Stockholder shall indemnify and hold harmless
each Underwriter, its officers and employees, each of its directors and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Stock), to which that Underwriter, officer, employee, director or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto, or in
any blue sky application any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Trust Selling Stockholder
shall not be liable under this clause (iii) to the extent that it is determined
in a final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee, director or controlling person promptly upon demand for
any legal or other expenses reasonably incurred by that Underwriter, officer,
employee, director or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Trust
Selling Stockholder shall be liable only to the extent that any such loss,
claim, damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any such amendment or supplement, in reliance upon and in conformity with
written information concerning the Trust Selling Stockholder furnished to the
Company and the Representatives specifically for inclusion therein. The
foregoing indemnity agreement is in addition to any liability which the Trust
Selling Stockholder may otherwise have to any Underwriter or to any officer,
employee, director or controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its directors,
each person, if any, who controls the Company within the meaning of the
Securities Act, and each of the Selling Stockholders from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which the Company, any such director, officer, employee or controlling
25
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person or any such Selling Stockholder may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any blue sky application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any blue sky
application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company and the Selling Stockholders through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company, any such director, officer,
employee or controlling person and any such Selling Stockholder for any legal or
other expenses reasonably incurred by the Company, any such director, officer,
employee or controlling person or any such Selling Stockholder in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Underwriter may
otherwise have to the Company, any such director, officer, employee or
controlling person or any such Selling Stockholder.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that an
indemnified party shall have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
26
<PAGE>
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. No indemnifying party shall (i)
without the prior written consent of the indemnified parties (which consent
shall not be unreasonably withheld), settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(e) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10(a), 10(b) or 10(c) in respect of any loss, claim, damage
or liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Stock purchased under this Agreement
(before deducting expenses) received by the Company and the Selling Stockholders
on the one hand, and the total underwriting discounts and commissions received
by the Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the offering
of the shares of the Stock under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, the Selling Stockholders or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section
shall be
27
<PAGE>
deemed to include, for purposes of this Section 10(e), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding anything to
the contrary in the provisions of this Section 10(e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 10(e) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 10(e) are several in proportion to their respective
underwriting obligations and not joint.
(f) The Underwriters severally confirm and the Company and the Selling
Stockholders acknowledge that the statements with respect to the public offering
of the Stock by the Underwriters set forth in the last paragraph on the cover
page of, the legend concerning over-allotments on the inside front cover page of
and the concession and reallowance figures appearing under the caption
"Underwriting" in, the Prospectus are correct and constitute the only
information concerning such Underwriters furnished in writing to the Company and
the Selling Stockholders by or on behalf of the Underwriters specifically for
inclusion in the Registration Statement and the Prospectus.
(g) Each Selling Stockholder hereby designates C.T. Corporation, 1633
Broadway, New York, NY 10019 as its authorized agent, upon which process may be
served in any action which may be instituted in any state or federal court in
the State of New York by any Underwriter, any director, officer or employee of
any Underwriter or any person controlling any Underwriter asserting a claim for
indemnification or contribution under or pursuant to this Section 10, and each
Selling Stockholder will accept the jurisdiction of such court in such action,
and waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall
be sent or given to such Selling Stockholder, at the address for notices
specified in Section 14.
(h) Notwithstanding anything to the contrary in the foregoing
provisions of this Section 10, no Selling Stockholder shall be required to pay
or contribute any amount pursuant to any provision of this Section 10 in excess
of the total net proceeds (before deducting expenses and in the case of the
Trust Selling Stockholders, after the payment of any taxes due as a result of
the sale of Stock) received by such Selling Stockholder from the offering of the
Stock purchased by the underwriters from such Selling Stockholder under this
Agreement.
11. Defaulting Underwriters. If, on any Delivery Date, any
-----------------------
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Stock which the defaulting Underwriter agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting Underwriters in Schedule
1 hereto; provided, however, that the remaining non-defaulting Underwriters
shall not be obligated to
28
<PAGE>
purchase any of the Stock on such Delivery Date if the total number of shares of
the Stock which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such date exceeds 9.09% of the total number of shares of the Stock
to be purchased on such Delivery Date, and any remaining non-defaulting
Underwriter shall not be obligated to purchase more than 110% of the number of
shares of the Stock which it agreed to purchase on such Delivery Date pursuant
to the terms of Section 3. If the foregoing maximums are exceeded, the remaining
non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be obligated
to purchase, in such proportion as may be agreed upon among them, all the Stock
to be purchased on such Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the
shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to a Second
Delivery Date, the obligation of the Underwriters to purchase, and of the
Company to sell, the Option Stock) shall terminate without liability on the part
of any non-defaulting Underwriter or the Company or the Selling Stockholders,
except that the Company and the Selling Stockholders will continue to be liable
for the payment of expenses to the extent set forth in Sections 8 and 13. As
used in this Agreement, the term "Underwriter" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company and the Selling Stockholders for damages
caused by its default. If other underwriters are obligated or agree to purchase
the Stock of a defaulting or withdrawing Underwriter, either the Representatives
or the Company and the Selling Stockholders may postpone the Delivery Date for
up to seven full business days in order to effect any changes that in the
opinion of counsel for the Company and the Selling Stockholders or counsel for
the Underwriters may be necessary in the Registration Statement, the Prospectus
or in any other document or arrangement.
12. Termination. The obligations of the Underwriters hereunder may
-----------
be terminated by the Representatives by notice given to and received by the
Company and the Selling Stockholders prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Sections 9(k)
or 9(l), shall have occurred or if the Underwriters shall decline to purchase
the Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If the Company or any
---------------------------------------
Selling Stockholder (the "Defaulting Person") shall fail to tender the Stock for
delivery to the Underwriters by reason of any failure, refusal or inability on
the part of the Defaulting Person to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Defaulting Person is not fulfilled,
the Defaulting Person will reimburse the Underwriters for all reasonable out-of-
pocket expenses (including fees and disbursements of counsel) incurred by the
Underwriters in connection with this Agreement and the proposed purchase of the
Stock to be sold by the Defaulting Person, and upon demand the Defaulting
Person, shall pay the full amount thereof to the Representatives. If this
Agreement is terminated pursuant to Section 11 by reason of the default of one
or more Underwriters, neither the Company nor any Selling Stockholder shall be
obligated to reimburse any defaulting Underwriter on account of those expenses.
29
<PAGE>
14. Notices, etc. All statements, requests, notices and agreements
------------
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial Center,
New York, New York 10285, Attention: Syndicate Department (Fax: 212-526-6588),
with a copy, in the case of any notice pursuant to Section 10(c), to the
Director of Litigation, Office of the General Counsel, Lehman Brothers Inc., 3
World Financial Center, 10/th/ Floor, New York, NY 10285;
(b) if to the Selling Stockholders, shall be delivered or sent by
mail, telex or facsimile transmission to Mark J. Cocozza at the address of the
Company set forth in the Registration Statement (Fax: (617) 364-9058); and
(c) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Mr. Mark J. Cocozza (Fax: (617) 364-9058);
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and
the Selling Stockholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of the Selling Stockholders by the
Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
----------------------------------------
inure to the benefit of and be binding upon the Underwriters, the Company, the
Selling Stockholders and their respective personal representatives and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Stockholders contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 14 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 10(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 14 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 15, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
--------
warranties and agreements of the Company, the Selling Stockholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect,
30
<PAGE>
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
17. Definition of the Term "Business Day". For purposes of this
-------------------------------------
Agreement, "business day" means each Monday, Tuesday, Wednesday, Thursday or
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
18. Counterparts. This Agreement may be executed by fax in one or
------------
more counterparts and, if executed in more than one counterpart, the executed
counterparts (by facsimile or otherwise) shall each be deemed to be an original
but all such counterparts shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience of
--------
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
31
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
the Selling Stockholders and the Underwriters, please indicate your acceptance
in the space provided for that purpose below.
Very truly yours,
MAXWELL SHOE COMPANY INC.
By:_____________________________________
Name:
Title:
The Selling Stockholders named
in Schedule 2 to this Agreement
By:_____________________________________
Attorney-in-Fact
Accepted:
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO., INC.
BT ALEX. BROWN INCORPORATED
TUCKER ANTHONY INCORPORATED
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By:_____________________________________
Authorized Representative
32
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares of Firm Stock
- ------------ ---------------------
Lehman Brothers Inc...........................
Bear, Stearns & Co., Inc......................
BT Alex. Brown Incorporated...................
Tucker Anthony Incorporated...................
Total............................... 5,344,167
=========
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
Number of
Selling Stockholders Shares of Firm Stock
- -------------------- --------------------
<S> <C>
Maxwell V. Blum............................. 788,790
Mark J. Cocozza............................. 300,000
Betty Ann Blum.............................. 1,728,387
Marjorie W. Blum............................ 1,728,387
David Andelman, as
Trustee of the Maxwell V.
Blum Irrevocable Trust UA 12/23/80
FBO Eleanor S. Blum........................ 798,603
---------
Total..................... 5,344,167
=========
</TABLE>
<PAGE>
Exhibit A
LOCK-UP LETTER AGREEMENT
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO., INC.
BT ALEX. BROWN INCORPORATED
TUCKER ANTHONY INCORPORATED
As Representatives of the
several underwriters
c/o LEHMAN BROTHERS INC.
Three World Financial Center
New York, NY 10285
Dear Sirs:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Class A Common Stock, par value $.01 per share (the "Common
Stock"), of Maxwell Shoe Company Inc.(the "Company") and that the Underwriters
propose to reoffer the Shares to the public (the "Offering").
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of Lehman
Brothers Inc., the undersigned will not, directly or indirectly, (1) offer for
sale, sell, pledge, or otherwise dispose of (or enter into any transaction or
device that is designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of Common Stock
(including, without limitation, shares of Common Stock that may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common Stock
that may be issued upon exercise of any option or warrant) or securities
convertible into or exchangeable for Common Stock (other than the Shares [and
the Foundation Shares (as defined in the Underwriting Agreement)])/1/ owned by
the undersigned on the date of execution of this Lock-Up Letter Agreement or on
the date of the completion of the Offering, or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of such shares of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in cash or otherwise,
for a period of 90 days after the date of the final Prospectus relating to the
Offering.
In furtherance of the foregoing, the Company and its Transfer Agent
are hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this Lock-Up Letter
Agreement.
- -----------------------
/1/ Insert in the Lock-up Letter Agreement to be delivered by Mr. Blum.
<PAGE>
It is understood that, if the Company notifies you that it does not intend
to proceed with the Offering, if the Underwriting Agreement does not become
effective, or if the Underwriting Agreement (other than the provisions thereof
which survive termination) shall terminate or be terminated prior to payment for
and delivery of the Shares, we will be released from our obligations under this
Lock-Up Letter Agreement.
The undersigned understands that the Company, the Underwriters and the
stockholders selling shares in the Offering will proceed with the Offering in
reliance on this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Letter Agreement and that,
upon request, the undersigned will execute any additional documents necessary in
connection with the enforcement hereof. Any obligations of the undersigned
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned.
Very truly yours,
__________________________________
Name:
Title:
Dated: April ___, 1998
2
<PAGE>
EXHIBIT 5
[LETTERHEAD OF MAXWELL SHOE COMPANY INC.]
April 20, 1998
(213) 229-7000 C 59343-00026
Maxwell Shoe Company Inc.
101 Sprague Street
P.O. Box 37
Readville, MA 02137
Re: Maxwell Shoe Company Inc. - Form S-2
Registration Statement (No. 333-48199)
--------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Maxwell Shoe Company Inc., a Delaware
corporation (the "Company"), in connection with the registration by the Company
of 6,145,792 shares of the Company's Class A Common Stock, $.01 par value per
share (the "Shares"), on Form S-2 Registration Statement No. 333-48199 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). Of the 6,145,792 Shares, (i) 5,344,167 Shares are to be sold
by Mr. Maxwell V. Blum, Ms. Betty Ann Blum, Ms. Marjorie W. Blum, a trust for
the benefit of Mr. Blum's wife and Mr. Mark Cocozza (collectively, the "Selling
Stockholders"), and (ii) 801,625 Shares are subject to an option granted to the
Underwriters (as defined below) by the Company to cover over-allotments. We
understand that the Company and the Selling Stockholders propose to sell the
Shares to a group of underwriters (the "Underwriters") represented by Lehman
Brothers Inc., Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated and Tucker
Anthony Incorporated for offering to the public.
For purposes of rendering this opinion, we have made such legal and factual
examinations as we have deemed necessary under the circumstances and, as part of
such examination, we have examined, among other things, originals and copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed
<PAGE>
Maxwell Shoe Company Inc.
April 20, 1998
Page 2
necessary or appropriate. For the purposes of such examination, we have assumed
the genuineness of all signatures on original documents and the conformity to
original documents of all copies submitted to us.
On the basis of and in reliance upon the foregoing, we are of the opinion
that (i) the Shares have been duly authorized and (ii) (x) the 380,850 Shares to
be issued by the Company and sold by the Selling Stockholders, when issued in
accordance with the terms of the stock option agreements between the Company and
the respective Selling Stockholders and sold in accordance with the terms of the
Registration Statement and an underwriting agreement among the Company, the
Selling Stockholders and the Underwriters, substantially in the form filed as an
exhibit to the Registration Statement (the "Underwriting Agreement"), (y) the
801,625 Shares to be issued upon any exercise of the over-allotment option by
the Underwriters and sold by the Company, if and when issued and sold in
accordance with the terms of the Registration Statement and the Underwriting
Agreement and (z) the 4,963,317 Shares to be sold by the Selling Stockholders,
when issued by the Company upon the conversion of a like number of shares of the
Company's Class B Common Stock, par value $.01 per share, in accordance with the
terms of the Company's Certificate of Incorporation, will be duly and legally
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" contained in the prospectus that forms a part of the
Registration Statement. In giving this consent, we do not hereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Sincerely,
GIBSON, DUNN & CRUTCHER LLP
<PAGE>
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
--------------------
This agreement (the "Agreement") is made as of the ____ day of April, 1998
(the "Effective Date"), by and between Mark J. Cocozza (the "Employee") and
Maxwell Shoe Company Inc., a Delaware corporation (the "Company").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes the
Employee's past and continuing contribution to the growth and success of the
Company and desires to assure the Company of the Employee's continued employment
in an executive capacity and to compensate him therefor; and
WHEREAS, the Company and the Employee each wishes that this Agreement
supersede and render void the terms of that certain Employment Agreement dated
as of January 26, 1994 by and between the Company and the Employee; and
WHEREAS, the Employee wishes to continue his employment by the Company and
to commit himself to serve the Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Position, Responsibilities and Term of Employment.
-------------------------------------------------
1.01 Position and Responsibilities. The Employee shall serve as Chairman
-----------------------------
of the Board, Chief Executive Officer and President of the Company and in such
additional management position(s) as the Board shall designate. In this
capacity the Employee shall, subject to the by-laws of the Company and to the
direction of the Board, have general supervisory responsibility for the
operations of the Company's business. The Employee shall be accountable to the
Board and shall perform and discharge, faithfully, diligently and to the best of
his ability, his duties and responsibilities hereunder. The Employee shall
devote substantially all of his working time and efforts to the business and
affairs of the Company.
1.02 Term. Subject to the provisions of Sections 1.03, 1.04, 1.05 and
----
1.06 hereof, the term of this Agreement shall commence on the Effective Date and
shall expire on the fifth anniversary of the Effective Date.
1.03 Termination on Account of the Employee's Death. In the event of the
----------------------------------------------
Employee's death during the term of this Agreement, this Agreement shall
terminate except as provided in this Section 1.03. Following the Employee's
death, the beneficiary or beneficiaries indicated below shall be entitled to the
following benefits:
(a) For a period of six months subsequent to the date of the Employee's
death, the Company shall continue to pay an amount equal to the Employee's
Base Salary (as defined in Section 2.01 hereof) to Susan M. Cocozza, the
Employee's beneficiary, or such other beneficiary or beneficiaries as he
may later designate (or to his estate, if he fails to make such
designation) at the salary rate in effect on the date of his
<PAGE>
death, said payments to be made on the same periodic dates as salary
payments would have been made to the Employee had he not died.
(b) For a period of six months subsequent to the date of the Employee's
death, the Employee's surviving spouse, if any, shall continue to receive
all benefits described in Section 2.04 hereof in effect on the date of his
death. For purposes of determining the amount of such benefits, the
Employee shall be deemed to have remained in the employ of the Company,
with an annual salary at the rate in effect on the date of his death. In
addition, service credits under the benefit plans will continue to accrue
during such six-month period as if the Employee had remained an employee of
the Company. If benefits or service credits contemplated by the previous
two sentences cannot be provided under any benefit plan because of a
prohibition in the terms of the plan, the Company shall pay or provide
directly for payment of any benefits which would have been payable if the
terms of such benefit plan allowed for the crediting required by the two
previous sentences.
The Employee may change the beneficiary for the purposes of this Section 1.03 by
making a written designation and delivering such designation to the Secretary of
the Company. If the Employee makes more than one such written designation, the
designation last received by the Chairman of the Board before the Employee's
death shall control.
1.04. Termination for Cause. The Company shall have the right, after
---------------------
fourteen (14) days' written notice to the Employee, to terminate his employment
for cause. For purposes of this Agreement, cause ("Cause") shall mean (a)
committing fraud, misappropriation or embezzlement in the performance of duties
as an employee of the Company, (b) conviction of a felony involving a crime of
moral turpitude, (c) willful disregard of any written directive of the Board
that is not inconsistent with the Company's Certificate of Incorporation, by-
laws or applicable law, (d) an act of the Employee constituting willful material
breach by the Employee of any material provision of this Agreement or (e) the
Employee willfully engaging in any business activity that materially conflicts
with Employee's duties owed to the Company. Any termination of the Employee for
Cause after a Change of Control occurs (as defined in Section 4.03(a) hereof)
must relate to an act or omission of the Employee occurring after the Change of
Control occurs.
1.05 Termination for Other than Cause. Subject to the provisions of
--------------------------------
Section 4 hereof, the Employee's employment may be terminated by either party by
giving thirty (30) days written notice to the other party. If the Employee
terminates his employment, it shall be considered to be a termination of the
Employee's employment by the Company for other than Cause if any of the
following events shall occur: if the Company (a) fails to appoint (or elect)
the Employee to the position or positions listed in Section 1.01 hereof; (b)
fails to comply with the provisions of Section 2 hereof; (c) engages in conduct
that, against the Employee's volition, would cause the Employee to commit
fraudulent acts or would expose the Employee to criminal liability; (d) reduces
or attempts to reduce the Employee's annual compensation (as described in
Section 2 hereof); (e) takes or attempts to take from the Employee a title or an
office; or (f) effects or attempts to effect a significant change in the
Employee's responsibilities and/or duties which constitutes a demotion in the
judgment of the Employee (such judgment being exercised in good faith).
2
<PAGE>
1.06 Extensions. On the fifth anniversary of the Effective Date, and on
----------
each subsequent annual anniversary of the Effective Date thereafter, this
Agreement shall be automatically extended for an additional year unless either
party notifies the other in writing more than six months prior to the relevant
anniversary date that this Agreement is no longer to be extended.
2. Compensation.
------------
2.01 Base Salary. For the period beginning with the date hereof through
-----------
October 31, 1998, the Company shall pay to the Employee for the services to be
rendered hereunder a base salary (the "Base Salary") at an annual rate of
$525,000 and, for periods beginning after October 31, 1998, the Base Salary
shall be determined by the Company's Compensation and Stock Option Committee;
provided, however, that such Base Salary shall be paid at an annual rate not
less than $525,000. The Employee's Base Salary shall be payable in periodic
instruments in accordance with the Company's usual practice for its senior
executive officers.
2.02 Performance Bonus. The Employee shall be eligible to receive an
-----------------
annual performance bonus (the "Performance Bonus"), the amount of which shall be
determined pursuant to the Company's Senior Management Incentive Plan
established by the Company's Compensation and Stock Option Committee. Any
Performance Bonus earned under this Section 2.02 shall be payable in accordance
with the Company's normal practices with respect to bonus payments made to the
Company's senior executive officers; provided, however, that any such
Performance Bonus shall be paid not later than thirty (30) days after audited
financial statements with respect to the Company's fiscal year during which such
bonus was earned become available.
2.03 Stock Option. The Company and the Employee acknowledge that, on the
------------
Effective Date, the Company granted a nonqualified stock option to the Employee
to purchase 75,000 shares of the Company's Class A Common Stock at an exercise
price per share equal to the fair market value on the Effective Date and subject
to certain time and stock price performance vesting provisions as set forth in
that certain Stock Option Agreement between the Company and the Employee, dated
as of April ___, 1998 (the "Stock Option Agreement"), a copy of which is
attached hereto as Exhibit A.
2.04 Participation in Benefit Plans. The Employee shall be entitled to
------------------------------
participate in, and receive benefits under, all the Company employee benefit
plans and arrangements in effect on the Effective Date for as long as such plans
and arrangements may remain in effect (including, but not limited to,
participation in any pension and profit-sharing plan adopted by the Company, any
employee stock option plan and all group life, health, dental, disability and
other insurance) or any substitute or additional plans, policies or arrangements
made available in the future to the executives and key management employees of
the Company, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans, policies and arrangements. Nothing paid
to the Employee under any plan, policies or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of other compensation
to the Employee hereunder as described in this Section 2.
3
<PAGE>
2.05 Vacation Days; Sick Leave. The Employee shall be entitled to annual
-------------------------
vacation time and sick leave without reduction in Base Salary in the same amount
and manner as other senior executive officers of the Company.
2.06 Expenses. During the term of his employment hereunder, the Employee
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures established by
the Board for its senior executive officers) in performing services hereunder,
provided that the Employee properly accounts therefor in accordance with Company
policy.
3. Rights and Obligations Binding on Employee, the Company and its
---------------------------------------------------------------
Successor(s).
- ------------
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of each of the parties hereto and shall also bind
and inure to the benefit of any successor or successors, or assignee or
assignees, of the Company. Except as to any such successor or assignee of the
Company, neither this Agreement nor any rights, obligations or benefits
hereunder may be assigned by the Company or by the Employee. As used in this
Agreement, a "successor" or "assignee" of the Company shall include but not be
limited to (a) any person or entity succeeding the Company, whether by sale or
exchange of stock or assets, merger, consolidation, recapitalization, or a
reorganization of any kind, including but not limited to all reorganizations
defined in section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), or (b) any person or entity receiving, directly or indirectly, any
substantial portion of the business, properties or assets of the Company, in any
type of transfer, including, but not limited to, any sale, exchange or other
transfer of any assets of the Company, or any transfer in connection with the
liquidation and/or dissolution of the Company, or the bankruptcy of the Company.
For any such transaction in which the successor or assignee does not succeed to
the obligations of the Company under this Agreement by operation of law, the
Company agrees that it shall be a precondition to the closing of such
transaction that the successor or assignee expressly assume the Company's
obligations under this Agreement. Except as provided in Section 4.03 hereof,
the rights and obligations of the parties to this Agreement shall not be limited
in any way or affected by a Change of Control (as defined in Section 4.03 (a)
hereof).
4. Consequences of Early Termination of Agreement.
----------------------------------------------
4.01 Termination by the Company Other than for Cause. If the Company
-----------------------------------------------
terminates this Agreement other than for Cause (including if the Employee
terminates this Agreement under the circumstances described in the second
sentence of Section 1.05 hereof), then the Employee (or the Employee's
beneficiary designated pursuant to Section 1.03 hereof if the Employee is
deceased at the time of payment) shall continue, throughout the remainder of
what would have been the normal term of this Agreement, to receive such
compensation and benefits as are provided to the Employee pursuant to Section 2
hereof; provided, however, that in no event shall the Employee receive, during
the period beginning with the date of termination of the Employee's employment
and the end of what would have been the normal term of this Agreement, an
aggregate amount of compensation and benefits less than one and one-half (11/2)
times the Employee's total compensation (including, for purposes of computing
total compensation under this Section 4.01, the amount of any bonus or employee
benefits accrued during the relevant
4
<PAGE>
period) earned during the twelve-month period immediately preceding the
effective date of such termination. The Employee's right to receive such
compensation and benefits shall not be subject to any obligations on the part of
the Employee to perform any work or other obligations on behalf of the Company,
its successor(s) or assignee(s), or to mitigate his damages; provided, however,
that if the Employee actually receives compensation for services rendered to any
person other than the Company, which services were rendered after the date the
Employee was terminated by the Company and before the date constituting the end
of what would have been the normal term of this Agreement, then the amount of
any such compensation shall be subtracted from the amount otherwise owed to the
Employee by the Company pursuant to this Section 4.01. For the purposes of
determining the amount of benefits to which the Employee shall continue to be
entitled pursuant to Section 2.04 above, the Employee shall be deemed,
throughout the period of his entitlement pursuant to this Section 4.01, to have
remained in the employ of the Company with an annual salary at the rate in
effect on the date of his termination of employment. If continuation of any of
the benefits described in Section 2.04 cannot be provided as contemplated by
this Section 4.01 on account of a prohibition in the terms of a benefit plan,
the Company shall pay or provide directly for payment of any benefits which
would have been payable if the terms of such plan allowed for the crediting
anticipated in this Section 4.01.
4.02 Termination by the Company for Cause. If the Company terminates this
------------------------------------
Agreement for Cause, then the Company shall thereafter have no further
obligations or liability to the Employee under this Agreement; provided,
however, that the Employee shall be entitled to receive within thirty (30) days
after the effective date of such termination such compensation and benefits as
are accrued and unpaid on the effective date of such termination.
4.03 Termination Following Change of Control. If there is a Change of
---------------------------------------
Control while this Agreement is in effect, the provisions of this Section 4.03
shall apply and shall continue to apply for a one-year period following the
Change of Control, regardless of whether or not this Agreement is terminated.
If during the one-year period following a Change of Control the Employee's
employment is terminated by the Company without Cause, the Employee (or the
Employee's beneficiary designated pursuant to Section 1.03 hereof if the
Employee is deceased at the time of payment) shall receive such compensation as
is provided to the Employee pursuant to subsection (b) of this Section 4.03.
After said one-year period following said Change of Control, this Section 4.03
shall no longer apply, and all of the other provisions of this Agreement shall
apply and remain in full force and effect.
(a) For the purposes of this Section 4.03, Change of Control shall mean the
occurrence of one or more of the following three events:
(i) any one beneficial stockholder or affiliated group of beneficial
stockholders becomes at any time the beneficial holder of twenty-five
percent (25%) or more of the aggregate voting power of the issued and
outstanding securities of the Company with rights to vote for the
election of directors of the Company;
(ii) at any time after any "reorganization" involving the Company, as
such term is defined in section 368 of the Code, or any other type of
5
<PAGE>
reorganization, recapitalization, merger, consolidation or sale of
assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who
were directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board; or
(iii) at any time after a tender offer or exchange offer for voting
securities of the Company (other than by the Company), the individuals
who were directors of the Company immediately prior thereto shall
cease to constitute a majority of the Board.
(b) If the Employee becomes entitled to receive compensation pursuant to
this Section 4.03, then, in addition to any payments to which the Employee
is entitled under Section 4.01 hereof, the Employee shall receive within
thirty (30) days of the termination of his employment a lump-sum payment
equal to three (3) times the Employee's average annual total compensation
(including, for purposes of computing total compensation under this Section
4.03, the amount of any bonus and employee benefits accrued during the
relevant period) earned during the five-year period immediately preceding
the effective date of the change of control (such payment hereinafter
referred to as the "Termination Payment"). If any amount payable to the
Employee pursuant to this Section 4.03 would subject the Employee to the
excise tax imposed by section 4999 of the Code, then the amount of the
Termination Payment that the Employee would otherwise have been entitled to
receive under this Section 4.03 shall be reduced to the amount that
maximizes the amount of the Termination Payment net of such excise tax.
4.04 Other Terminations. If the Employee terminates his employment under
------------------
this Agreement under such circumstances as would not cause the Employee to be
deemed to be terminated by the Company for other than Cause as provided in the
second sentence of section 1.05 hereof, and Section 4.03 does not apply to such
termination, then the Employee shall be entitled to receive within thirty (30)
days after the effective date of such termination such compensation and benefits
as are accrued and unpaid on the effective date of such termination, and neither
party to this Agreement shall thereafter have any further liability to the other
under this Agreement.
5. Miscellaneous.
-------------
5.01 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed for all purposes by the laws of The Commonwealth of Massachusetts.
5.02 Interpretation. In case any one or more of the provisions contained
--------------
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
6
<PAGE>
5.03 Legal Fees. Any legal expenses incurred by either party to this
----------
Agreement in enforcing its rights hereunder (including any legal expenses
incurred with respect to any arbitration proceeding pursuant to Section 5.04
hereof) shall be borne and paid solely by such party. Notwithstanding the
foregoing or anything to the contrary contained in this Agreement, no provision
of this Agreement shall be construed as a limitation on or waiver of any rights
that one party to this Agreement may have to be reimbursed by the other party to
this Agreement for such first party's attorneys' fees pursuant to any statute or
other applicable law.
5.04 Arbitration of Disputes. Any controversy or claim arising out of, or
-----------------------
relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of The Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one by the
Employee, and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Boston. Such arbitration shall be conducted in the City of Boston in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators, which shall be as provided in this
Section 5.04. Judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
5.05 Notices. Any notice required or permitted to be given hereunder
-------
shall be effective when received and shall be sufficient if in writing and if
personally delivered or sent by certified or registered mail, return receipt
requested, to the party to receive such notice at its address set forth below or
at such other address as a party may by notice specify to the other.
If to the Company: If to the Employee:
Maxwell Shoe Company Inc. Mark J. Cocozza
101 Sprague Street 1 Pendant Court
P.O. Box 37 Andover, MA 01810
Readville (Boston), MA 02137
Attn: James J. Tinagero,
Executive Vice President
With a copy to: With a copy to:
Jonathan K. Layne, Esq. Thomas E. Peckham, Esq.
Gibson, Dunn & Crutcher LLP Peckham, Lobel, Casey, Prince & Tye
333 South Grand Avenue Boston, MA 02109
Los Angeles, CA 90071
5.06 Confidential Information. The Employee will not disclose to any
------------------------
other person or entity (except as required by applicable law or in connection
with the performance of his responsibilities hereunder), or use for his own
benefit, any confidential information of the Company obtained by him incident to
his employment with the Company. The term "confidential information" includes,
without limitation, financial information, business plans, prospects and
7
<PAGE>
opportunities which have been discussed or considered by the Company's
management but does not include any information which has become public other
than on account of the Employee's failure to comply with the provisions of this
Section 5.06.
5.07 Non-Competition. The Employee agrees that, for a period of eighteen
---------------
(18) months following the date of termination of this Agreement (other than a
termination that results solely from the expiration of the initial or extended
normal term of this Agreement contemplated by Sections 1.02 and 1.06 hereof), he
will not directly or indirectly own, manage, operate, control or participate in
the ownership, management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or have any financial
interest in, or aid or assist anyone else in the conduct of, or solicit any
employees of the Company on behalf of, any entity or business which competes
directly with the footwear or retail businesses conducted by the Company or by
any group, division or subsidiary of the Company, in any area where such
business is being conducted or is proposed to be conducted at such date of
termination; provided, however, that this provision shall not apply if this
Agreement is terminated as provided in the parenthetical phrase set forth above
in this sentence. It is understood and agreed that, for the purposes of the
foregoing provisions of this Section 5.07, (i) no business shall be deemed to be
a business conducted by the Company, or any group, division or subsidiary of the
Company, unless not less than five percent (5%) of the Company's consolidated
gross sales or operating revenues is derived from, or not less than five percent
(5%) of the Company's consolidated assets is devoted to, such business; and (ii)
no business conducted by any entity by which the Employee is employed or in
which he is interested or with which he is connected or associated shall be
deemed competitive with any business conducted by the Company unless it is one
from which five percent (5%) or more its consolidated gross sales or operating
revenues is derived, or to which five percent (5%) or more of its consolidated
assets is devoted; provided, however, that if the actual gross sales or
operating revenues or assets of such entity derived from or devoted to such
business is equal to or in excess of ten percent (10%) of the most nearly
comparable figure for the Company, such business of such entity shall be deemed,
to be competitive with a business of the Company. Furthermore, ownership of five
percent (5%) or less of the voting stock of any publicly held corporation shall
not constitute a violation of this Section 5.07.
5.08 Amendment and Waiver. This Agreement may not be amended, supplemented
--------------------
or waived except by a writing signed by the party against which such amendment,
supplement or waiver is to be enforced. The waiver by any party of a breach of
any provision of this Agreement shall not operate to waive, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
5.09 Binding Effect. Subject to the provisions of Section 3 hereof, this
--------------
Agreement shall be binding on the successors and assigns of the parties hereto.
5.10 Other Agreements. This Agreement supersedes and renders void the terms
of any previously executed employment, including but not limited to that certain
Employment Agreement dated January 26, 1994 between the Company and the
Employee, and/or compensation agreements between the parties, which shall no
longer be considered to have any force or effect.
8
<PAGE>
5.11 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which is an original but which shall together constitute one and the
same instrument.
Upon execution below by both parties, this Agreement will enter into full
force and effect as of April ___, 1998.
MAXWELL SHOE COMPANY INC. THE EMPLOYEE
By:
-------------------------- ------------------------
James J. Tinagero Mark J. Cocozza
Executive Vice President
9
<PAGE>
Exhibit A
---------
Stock Option Agreement
10
<PAGE>
MAXWELL SHOE COMPANY INC.
-------------------------
EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT
--------------------------------------------
PURSUANT TO THE
---------------
1994 STOCK INCENTIVE PLAN
-------------------------
This Employee Nonqualified Stock Option Agreement (this "Agreement") is
made and entered into as of the Date of Grant indicated below by and between
Maxwell Shoe Company Inc., a Delaware corporation (the "Company"), and the
person named below as Employee.
WHEREAS, Employee is an employee of the Company and/or one or more of its
subsidiaries; and
WHEREAS, pursuant to the Company's 1994 Stock Incentive Plan (the "Plan"),
the committee of the Board of Directors of the Company administering the Plan
(the "Committee") has approved the grant to Employee of an option to purchase
shares of the Class A Common Stock, par value $.01 per share, of the Company
(the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby
---------------------------------------------
grants to Employee, and Employee hereby accepts, as of the Date of Grant, an
option to purchase the number of shares of Common Stock indicated below (the
"Option Shares") at the Exercise Price per share indicated below, which option
shall expire at 5:00 o'clock p.m., Boston time, on the Expiration Date indicated
below and shall be subject to all of the terms and conditions set forth in this
Agreement (the "Option"). The Option shall become exercisable to purchase
("Vesting Rate") that number of Option Shares (rounded to the nearest whole
share) equal to the total number of Option Shares multiplied by the Vesting Rate
indicated below.
Employee: Mark J. Cocozza
Date of Grant: April ___, 1998
Number of shares purchasable: 75,000
Exercise Price per share: $ __________
<PAGE>
Expiration Date: April ___, 2008
Vesting Rate:
(A) With respect to 35,000 Option Shares, the Vesting Rate shall be as
follows: 17% on 4/___/1999, 17% on 4/___/2000, 33% on 4/___/2001 and 33% on
4/___/2002.
(B) With respect to 40,000 Option Shares, the Vesting Rate shall be as
follows:
(i) 13,333 Option Shares shall vest on the date, if ever, when the last
sale price of the Common Stock equals or exceeds the sum of (x) the average of
the last sale prices of the Common Stock during the period commencing on the
Date of Grant and ending on May ___, 1998 (thirty days after the Date of Grant)
and (y) two dollars.
(ii) 13,333 Option Shares shall vest on the date, if ever, when the last
sale price of the Common Stock equals or exceeds the sum of (x) the average of
the last sale prices of the Common Stock during the period commencing on the
Date of Grant and ending on May ___, 1998 (thirty days after the Date of Grant)
and (y) four dollars.
(iii) 13,334 Option Shares shall vest on the date, if ever, when the last
sale price of the Common Stock equals or exceeds the sum of (x) the average of
the last sale prices of the Common Stock during the period commencing on the
Date of Grant and ending on May ___, 1998 (thirty days after the Date of Grant)
and (y) six dollars.
The Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
2. ACCELERATION OF VESTING AND TERMINATION OF OPTION.
-------------------------------------------------
(a) Termination of Employment.
-------------------------
(i) Retirement. If Employee ceases to be employed by reason of Employee's
retirement in accordance with the Company's then-current retirement policy
("Retirement"), then (A) the portion of the Option that has not vested on or
prior to the date of such Retirement shall terminate on such date and (B) the
remaining vested portion of the Option shall terminate upon the earlier of the
Expiration Date or the first anniversary of the date of such Retirement.
(ii) Death or Permanent Disability. If Employee ceases to be
employed by reason of the death or Permanent Disability (as hereinafter
defined) of Employee, then (A) the portion of the Option that has not
vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option
shall terminate upon the earlier of the Expiration Date or the first
anniversary of the date of Employee's death or Permanent Disability.
"Permanent
2
<PAGE>
Disability" shall mean the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months.
Employee shall not be deemed to have a Permanent Disability until proof of
the existence thereof shall have been furnished to the Board in such form
and manner, and at such times, as the Board may require. Any determination
by the Board that Employee does or does not have a Permanent Disability
shall be final and binding upon the Company and Employee.
(iii) Termination for Cause. If Employee is terminated for
Cause, both the vested and unvested portions of the Option shall terminate
immediately. "Cause" shall mean Employee's (A) conviction by a court of
competent jurisdiction of a felony or serious misdemeanor involving moral
turpitude, (B) willful disregard of any written directive of the Board that
is not inconsistent with the Certificate of Incorporation or Bylaws of the
Company or applicable law, (C) breach of his or her fiduciary duty
involving personal profit, or (D) neglect of his or her duties that has a
material adverse effect on the Company.
(iv) Other Termination. If Employee is terminated without
Cause, then (A) the portion of the Option that has not vested on or prior
to the date of such termination of employment shall terminate on such date
and (B) the remaining vested portion of the Option shall terminate upon the
earlier of the Expiration Date or the 90th day following the date of such
termination of employment; provided, however, that if Employee is
terminated without Cause within one year after a Change of Control, then
(x) the portion of the Option that has not vested on or prior to the date
on which Employee is terminated shall fully vest as of such date and (y)
the Option shall terminate upon the earlier of the Expiration Date or the
90th day following the date on which Employee is terminated. A "Change of
Control" shall mean the first to occur of the following:
(1) the date upon which the directors of the Company who were
nominated by the Board for election as directors cease to constitute a
majority of the directors of the Company;
(2) the consummation of a reorganization, merger or
consolidation of the Company (other than a reorganization, merger or
consolidation the sole purpose of which is to change the Company's
domicile solely within the United States) (a) as a result of which the
outstanding securities of the class then subject to the Option are
exchanged for or converted into cash, property and/or securities not
issued by the Company and (b) the terms of which provide that the
Option shall continue in effect thereafter; or
(3) the date of the first public announcement that any person
or entity, together with all Affiliates and Associates (as such
capitalized terms are defined in Rule 12b-2 promulgated under the
Exchange Act of 1934, as
3
<PAGE>
amended (the "Exchange Act")) of such person or entity, shall have
become the Beneficial Owner (as defined in Rule 13d-3 promulgated
under the Exchange Act) of voting securities of the Company
representing more than 50% of the voting power of the Company (a "50%
Stockholder"); provided, however, that the term "50% Stockholder"
shall not include (a) the Company or any of its subsidiaries, (b) any
employee benefit plan of the Company or any of its subsidiaries, (c)
any entity holding voting securities of the Company for or pursuant to
the terms of any such plan, (d) any person or entity who held shares
of the Company's Class B Common Stock, par value $.01 per share, as of
the completion of an initial public offering of shares of the Common
Stock and any Permitted Transferee (as defined in the Company's
Certificate of Incorporation) of such person or entity, or (e) any
person or entity if the transaction that resulted in such person or
entity becoming a 50% Stockholder was approved in advance by the
Board.
(b) Death Following Termination of Employment. Notwithstanding anything
-----------------------------------------
to the contrary in this Agreement, if Employee shall die at any time after the
termination of his or her employment and prior to the date on which the Option
is terminated pursuant to Section 2(a), then the vested portion of the Option
shall terminate on the earlier of the Expiration Date or the first anniversary
of the date of Optionee's death.
(c) Acceleration of Option of Option by Committee. The Committee, in
---------------------------------------------
its sole discretion, may accelerate the exercisability of the Option at any time
and for any reason.
(d) Other Events Causing Acceleration and Termination of Option.
-----------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, the Option shall
become fully exercisable immediately prior to, and shall terminate upon, the
consummation of any of the following events:
(i) the dissolution or liquidation of the Company;
(ii) a reorganization, merger or consolidation of the Company
(other than a reorganization, merger or consolidation the sole purpose of
which is to change the Company's domicile solely within the United States)
the consummation of which results in the outstanding securities of any
class then subject to the Option being exchanged for or converted into
cash, property and/or a different kind of securities, unless such
reorganization, merger or consolidation shall have been affirmatively
recommended to the stockholders of the Company by the Board and the terms
of such reorganization, merger or consolidation shall provide that the
Option shall continue in effect thereafter on terms substantially similar
to those under the Plan; or
(iii) a sale of all or substantially all of the property and
assets of the Company, unless the terms of such sale shall provide
otherwise.
3. ADJUSTMENTS. In the event that the outstanding securities of the
-----------
class then subject to the Option are increased, decreased or exchanged for or
converted into cash,
4
<PAGE>
property and/or a different number or kind of securities, or cash, property
and/or securities are distributed in respect of such outstanding securities, in
either case as a result of a reorganization, merger, consolidation,
recapitalization, reclassification, dividend (other than a regular, quarterly
cash dividend) or other distribution, stock split, reverse stock split or the
like, or in the event that substantially all of the property and assets of the
Company are sold, then, unless such event shall cause the Option to terminate
pursuant to Section 2(d) hereof, the Committee shall make appropriate and
proportionate adjustments in the number and type of shares or other securities
or cash or other property that may thereafter be acquired upon the exercise of
the Option; provided, however, that any such adjustments in the Option shall be
made without changing the aggregate Exercise Price of the then unexercised
portion of the Option.
4. EXERCISE. The Option shall be exercisable during Employee's lifetime
--------
only by Employee or by his or her guardian or legal representative, and after
Employee's death only by the person or entity entitled to do so under Employee's
last will and testament or applicable intestate law. The Option may only be
exercised by the delivery to the Company of a written notice of such exercise
(the "Exercise Notice"), which notice shall specify the number of Option Shares
to be purchased (the "Purchased Shares") and the aggregate Exercise Price for
such shares, together with payment in full of such aggregate Exercise Price in
cash or by check payable to the Company; provided, however, that payment of such
aggregate Exercise Price may instead be made, in whole or in part, by one or
more of the following means:
(a) by the delivery to the Company of a promissory note in a form
and amount satisfactory to the Committee, provided that the principal
amount of such note shall not exceed the excess of such aggregate Exercise
Price over and above the aggregate par value of the Purchased Shares; or
(b) by (i) the delivery to the Company of a certificate or
certificates representing shares of Common Stock, duly endorsed or
accompanied by a duly executed stock powers, which delivery effectively
transfers to the Company good and valid title to such shares, free and
clear of any pledge, commitment, lien, claim or other encumbrance (such
shares to be valued on the basis of the aggregate Fair Market Value (as
defined in the Plan) thereof on the date of such exercise) and/or (ii)
"pyramiding" of shares issuable upon exercise of the Option, provided that
the Company is not then prohibited from purchasing or acquiring such shares
of Common Stock.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated to
----------------------------
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax (the "Withholding Liability"), then Employee shall, on the date of exercise
and as a condition to the issuance of the Option Shares, pay the Withholding
Liability to the Company in cash or by check payable to the Company. Employee
hereby consents to the Company withholding the full amount of the
5
<PAGE>
Withholding Liability from any compensation or other amounts otherwise payable
to Employee if Employee does not pay the Withholding Liability to the Company on
the date of exercise of the Option, and Employee agrees that the withholding and
payment of any such amount by the Company to the relevant taxing authority shall
constitute full satisfaction of the Company's obligation to pay such
compensation or other amounts to Employee.
6. NOTICES. All notices and other communications required or permitted
-------
to be given pursuant to this Agreement shall be in writing and shall be deemed
given if delivered personally or five days after mailing by certified or
registered mail, postage prepaid, return receipt requested, to the Company at
101 Sprague Street, P.O. Box 37, Readville (Boston), Massachusetts 02137,
Attention: President, or to Employee at the address set forth beneath his or her
signature on the signature page hereto, or at such other addresses as they may
designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE OR NASDAQ REQUIREMENTS; APPLICABLE LAWS.
------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, no shares of stock
purchased upon exercise of the Option, and no certificate representing all or
any part of such shares, shall be issued or delivered if (a) such shares have
not been admitted to listing upon official notice of issuance on each stock
exchange upon which shares of that class are then listed or (b) in the opinion
of counsel to the Company, such issuance or delivery would cause the Company to
be in violation of or to incur liability under any federal, state or other
securities law, or any requirement of any stock exchange listing agreement to
which the Company is a party, or any other requirement of law or of any
administrative or regulatory body having jurisdiction over the Company.
8. NON-TRANSFERABILITY. Neither the Option nor any interest therein
-------------------
may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution
9. PLAN. The Option is granted pursuant to the Plan, as in effect on
----
the Date of Grant, and is subject to all the terms and conditions of the Plan,
as the same may be amended from time to time; provided, however, that no such
amendment shall deprive Employee, without his or her consent, of the Option or
of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
6
<PAGE>
11. EMPLOYMENT RIGHTS. No provision of this Agreement or of the Option
-----------------
granted hereunder shall (a) confer upon Employee any right to continue in the
employ of the Company or any of its subsidiaries, (b) affect the right of the
Company and each of its subsidiaries to terminate the employment of Employee,
with or without cause, or (c) confer upon Employee any right to participate in
any employee welfare or benefit plan or other program of the Company or any of
its subsidiaries other than the Plan. EMPLOYEE HEREBY ACKNOWLEDGES AND AGREES
THAT THE COMPANY AND EACH OF ITS SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OF
EMPLOYEE AT ANY TIME AND FOR ANY REASON, OR FOR NO REASON, UNLESS EMPLOYEE AND
THE COMPANY OR SUCH SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT AGREEMENT
THAT EXPRESSLY PROVIDES OTHERWISE.
7
<PAGE>
12. GOVERNING LAW. This Agreement and the Option granted hereunder
-------------
shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the Date of Grant.
MAXWELL SHOE COMPANY INC.
By:________________________________
Title: President
EMPLOYEE:
__________________________________
Signature
__________________________________
Street Address
__________________________________
City, State and Zip Code
__________________________________
Social Security Number
8
<PAGE>
Exhibit 10.36
EMPLOYMENT AGREEMENT
--------------------
This agreement (the "Agreement") is made as of the ___ day of April, 1998
(the "Effective Date"), by and between James J. Tinagero (the "Employee") and
Maxwell Shoe Company Inc., a Delaware corporation (the "Company").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes the
Employee's past and continuing contribution to the growth and success of the
Company and desires to assure the Company of the Employee's continued employment
in an executive capacity and to compensate him therefor; and
WHEREAS, the Employee wishes to continue his employment by the Company and
to commit himself to serve the Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Position, Responsibilities and Term of Employment.
-------------------------------------------------
1.01 Position and Responsibilities. The Employee shall serve as Executive
-----------------------------
Vice President of the Company and in such additional management position(s) as
the Chief Executive Officer of the Company shall designate. In this capacity
the Employee shall, subject to the by-laws of the Company and to the direction
of the Chief Executive Officer of the Company, report directly to and shall have
such responsibilities for the Company's business as may be designated by the
Company's Chief Executive Officer. The Employee shall perform and discharge,
faithfully, diligently and to the best of his ability, his duties and
responsibilities hereunder. The Employee shall devote substantially all of his
working time and efforts to the business and affairs of the Company.
1.02 Term. Subject to the provisions of Sections 1.03, 1.04, 1.05 and
----
1.06 hereof, the term of this Agreement shall commence on the Effective Date and
shall expire on the third anniversary of the Effective Date.
1.03 Termination on Account of the Employee's Death. In the event of the
----------------------------------------------
Employee's death during the term of this Agreement, this Agreement shall
terminate except as provided in this Section 1.03. Following the Employee's
death, the beneficiary or beneficiaries indicated below shall be entitled to the
following benefits:
(a) For a period of six months subsequent to the date of the Employee's
death, the Company shall continue to pay an amount equal to the Employee's
Base Salary (as defined in Section 2.01 hereof) to Employee's spouse, the
Employee's beneficiary, or such other beneficiary or beneficiaries as he
may later designate (or to his estate, if he fails to make such
designation) at the salary rate in effect on the date of his death, said
payments to be made on the same periodic dates as salary payments would
have been made to the Employee had he not died.
1
<PAGE>
(b) For a period of six months subsequent to the date of the Employee's
death, the Employee's surviving spouse, if any, shall continue to receive
all benefits described in Section 2.04 hereof in effect on the date of his
death. For purposes of determining the amount of such benefits, the
Employee shall be deemed to have remained in the employ of the Company,
with an annual salary at the rate in effect on the date of his death. In
addition, service credits under the benefit plans will continue to accrue
during such six-month period as if the Employee had remained an employee of
the Company. If benefits or service credits contemplated by the previous
two sentences cannot be provided under any benefit plan because of a
prohibition in the terms of the plan, the Company shall pay or provide
directly for payment of any benefits which would have been payable if the
terms of such benefit plan allowed for the crediting required by the two
previous sentences.
The Employee may change the beneficiary for the purposes of this Section 1.03 by
making a written designation and delivering such designation to the Chairman of
the Board. If the Employee makes more than one such written designation, the
designation last received by the Chairman of the Board before the Employee's
death shall control.
1.04. Termination for Cause. The Company shall have the right, after
---------------------
fourteen (14) days' written notice to the Employee, to terminate his employment
for cause. For purposes of this Agreement, cause ("Cause") shall mean (a)
committing fraud, misappropriation or embezzlement in the performance of duties
as an employee of the Company, (b) conviction of a felony involving a crime of
moral turpitude, (c) willful disregard of any written directive of the Board
that is not inconsistent with the Company's Certificate of Incorporation, by-
laws or applicable law, (d) an act of the Employee constituting willful material
breach by the Employee of any material provision of this Agreement or (e) the
Employee willfully engaging in any business activity that materially conflicts
with Employee's duties owed to the Company. Any termination of the Employee for
Cause after a Change of Control occurs (as defined in Section 4.03(a) hereof)
must relate to an act or omission of the Employee occurring after the Change of
Control occurs.
1.05 Termination for Other than Cause. Subject to the provisions of
--------------------------------
Section 4 hereof, the Employee's employment may be terminated by either party by
giving thirty (30) days written notice to the other party. If the Employee
terminates his employment, it shall be considered to be a termination of the
Employee's employment by the Company for other than Cause if any of the
following events shall occur: if the Company (a) fails to appoint (or elect)
the Employee to the position or positions listed in Section 1.01 hereof; (b)
fails to comply with the provisions of Section 2 hereof; (c) engages in conduct
that, against the Employee's volition, would cause the Employee to commit
fraudulent acts or would expose the Employee to criminal liability; (d) reduces
or attempts to reduce the Employee's annual compensation (as described in
Section 2 hereof); (e) takes or attempts to take from the Employee a title or an
office; or (f) effects or attempts to effect a significant change in the
Employee's responsibilities and/or duties which constitutes a demotion in the
judgment of the Employee (such judgment being exercised in good faith).
1.06 Extensions. On the third anniversary of the Effective Date, and on
----------
each subsequent annual anniversary of the Effective Date thereafter, this
Agreement shall be
2
<PAGE>
automatically extended for an additional year unless either party notifies the
other in writing more than six months prior to the relevant anniversary date
that this Agreement is no longer to be extended.
2. Compensation.
------------
2.01 Base Salary. For the period beginning with the date hereof through
-----------
October 31, 1998, the Company shall pay to the Employee for the services to be
rendered hereunder a base salary (the "Base Salary") at an annual rate of
$325,000 and, for periods beginning after October 31, 1998, the Base Salary
shall be determined by the Company's Compensation and Stock Option Committee;
provided, however, that such Base Salary shall be paid at an annual rate not
less than $325,000. The Employee's Base Salary shall be payable in periodic
instruments in accordance with the Company's usual practice for its senior
executive officers.
2.02 Performance Bonus. The Employee shall be eligible to receive an
-----------------
annual performance bonus (the "Performance Bonus"), the amount of which shall be
determined pursuant to the Company's Senior Management Incentive Plan
established by the Company's Compensation and Stock Option Committee. Any
Performance Bonus earned under this Section 2.02 shall be payable in accordance
with the Company's normal practices with respect to bonus payments made to the
Company's senior executive officers; provided, however, that any such
Performance Bonus shall be paid not later than thirty (30) days after audited
financial statements with respect to the Company's fiscal year during which such
bonus was earned become available.
2.03 Stock Option. The Company and the Employee acknowledge that, on the
------------
Effective Date, the Company granted a nonqualified stock option to the Employee
to purchase 25,000 shares of the Company's Class A Common Stock at an exercise
price per share equal to the fair market value on the Effective Date and subject
to certain time vesting provisions as set forth in that certain Stock Option
Agreement between the Company and the Employee, dated as of April ___, 1998 (the
"Stock Option Agreement"), a copy of which is attached hereto as Exhibit A.
2.04 Participation in Benefit Plans. The Employee shall be entitled to
------------------------------
participate in, and receive benefits under, all the Company employee benefit
plans and arrangements in effect on the Effective Date for as long as such plans
and arrangements may remain in effect (including, but not limited to,
participation in any pension and profit-sharing plan adopted by the Company, any
employee stock option plan and all group life, health, dental, disability and
other insurance) or any substitute or additional plans, policies or arrangements
made available in the future to the executives and key management employees of
the Company, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans, policies and arrangements. Nothing paid
to the Employee under any plan, policies or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of other compensation
to the Employee hereunder as described in this Section 2.
2.05 Vacation Days; Sick Leave. The Employee shall be entitled to annual
-------------------------
vacation time and sick leave without reduction in Base Salary in the same amount
and manner as other senior executive officers of the Company.
3
<PAGE>
2.06 Expenses. During the term of his employment hereunder, the Employee
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures established by
the Board for its senior executive officers) in performing services hereunder,
provided that the Employee properly accounts therefor in accordance with Company
policy.
3. Rights and Obligations Binding on Employee, the Company and its
---------------------------------------------------------------
Successor(s).
- ------------
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of each of the parties hereto and shall also bind
and inure to the benefit of any successor or successors, or assignee or
assignees, of the Company. Except as to any such successor or assignee of the
Company, neither this Agreement nor any rights, obligations or benefits
hereunder may be assigned by the Company or by the Employee. As used in this
Agreement, a "successor" or "assignee" of the Company shall include but not be
limited to (a) any person or entity succeeding the Company, whether by sale or
exchange of stock or assets, merger, consolidation, recapitalization, or a
reorganization of any kind, including but not limited to all reorganizations
defined in section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), or (b) any person or entity receiving, directly or indirectly, any
substantial portion of the business, properties or assets of the Company, in any
type of transfer, including, but not limited to, any sale, exchange or other
transfer of any assets of the Company, or any transfer in connection with the
liquidation and/or dissolution of the Company, or the bankruptcy of the Company.
For any such transaction in which the successor or assignee does not succeed to
the obligations of the Company under this Agreement by operation of law, the
Company agrees that it shall be a precondition to the closing of such
transaction that the successor or assignee expressly assume the Company's
obligations under this Agreement. Except as provided in Section 4.03 hereof,
the rights and obligations of the parties to this Agreement shall not be limited
in any way or affected by a Change of Control (as defined in Section 4.03 (a)
hereof).
4. Consequences of Early Termination of Agreement.
----------------------------------------------
4.01 Termination by the Company Other than for Cause. If the Company
-----------------------------------------------
terminates this Agreement other than for Cause (including if the Employee
terminates this Agreement under the circumstances described in the second
sentence of Section 1.05 hereof), then the Employee (or the Employee's
beneficiary designated pursuant to Section 1.03 hereof if the Employee is
deceased at the time of payment) shall continue, throughout the remainder of
what would have been the normal term of this Agreement, to receive such
compensation and benefits as are provided to the Employee pursuant to Section 2
hereof; provided, however, that in no event shall the Employee receive, during
the period beginning with the date of termination of the Employee's employment
and the end of what would have been the normal term of this Agreement, an
aggregate amount of compensation and benefits less than one and one-half (1 1/2)
times the Employee's total compensation (including, for purposes of computing
total compensation under this Section 4.01, the amount of any bonus or employee
benefits accrued during the relevant period) earned during the twelve-month
period immediately preceding the effective date of such termination. The
Employee's right to receive such compensation and benefits shall not be subject
to any obligations on the part of the Employee to perform any work or other
obligations on behalf of the Company, its successor(s) or assignee(s), or to
mitigate his damages; provided, however,
4
<PAGE>
that if the Employee actually receives compensation for services rendered to any
person other than the Company, which services were rendered after the date the
Employee was terminated by the Company and before the date constituting the end
of what would have been the normal term of this Agreement, then the amount of
any such compensation shall be subtracted from the amount otherwise owed to the
Employee by the Company pursuant to this Section 4.01. For the purposes of
determining the amount of benefits to which the Employee shall continue to be
entitled pursuant to Section 2.04 above, the Employee shall be deemed,
throughout the period of his entitlement pursuant to this Section 4.01, to have
remained in the employ of the Company with an annual salary at the rate in
effect on the date of his termination of employment. If continuation of any of
the benefits described in Section 2.04 cannot be provided as contemplated by
this Section 4.01 on account of a prohibition in the terms of a benefit plan,
the Company shall pay or provide directly for payment of any benefits which
would have been payable if the terms of such plan allowed for the crediting
anticipated in this Section 4.01.
4.02 Termination by the Company for Cause. If the Company terminates this
------------------------------------
Agreement for Cause, then the Company shall thereafter have no further
obligations or liability to the Employee under this Agreement; provided,
however, that the Employee shall be entitled to receive within thirty (30) days
after the effective date of such termination such compensation and benefits as
are accrued and unpaid on the effective date of such termination.
4.03 Termination Following Change of Control. If there is a Change of
---------------------------------------
Control while this Agreement is in effect, the provisions of this Section 4.03
shall apply and shall continue to apply for a one-year period following the
Change of Control, regardless of whether or not this Agreement is terminated.
If during the one-year period following a Change of Control the Employee's
employment is terminated by the Company without Cause, the Employee (or the
Employee's beneficiary designated pursuant to Section 1.03 hereof if the
Employee is deceased at the time of payment) shall receive such compensation as
is provided to the Employee pursuant to subsection (b) of this Section 4.03.
After said one-year period following said Change of Control, this Section 4.03
shall no longer apply, and all of the other provisions of this Agreement shall
apply and remain in full force and effect.
(a) For the purposes of this Section 4.03, Change of Control shall mean the
occurrence of one or more of the following three events:
(i) any one beneficial stockholder or affiliated group of beneficial
stockholders becomes at any time the beneficial holder of twenty-five
percent (25%) or more of the aggregate voting power of the issued and
outstanding securities of the Company with rights to vote for the
election of directors of the Company;
(ii) at any time after any "reorganization" involving the Company, as
such term is defined in section 368 of the Code, or any other type of
reorganization, recapitalization, merger, consolidation or sale of
assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who
were directors of the
5
<PAGE>
Company immediately prior thereto shall cease to constitute a majority
of the Board; or
(iii) at any time after a tender offer or exchange offer for voting
securities of the Company (other than by the Company), the individuals
who were directors of the Company immediately prior thereto shall
cease to constitute a majority of the Board.
(b) If the Employee becomes entitled to receive compensation pursuant to
this Section 4.03, then, in addition to any payments to which the Employee
is entitled under Section 4.01 hereof, the Employee shall receive within
thirty (30) days of the termination of his employment a lump-sum payment
equal to the Employee's total compensation (including, for purposes of
computing total compensation under this Section 4.03, the amount of any
bonus and employee benefits accrued during the relevant period) earned
during the eighteen-month period immediately preceding the effective date
of such change of control (such payment hereinafter referred to as the
"Termination Payment"). If any amount payable to the Employee pursuant to
this Section 4.03 would subject the Employee to the excise tax imposed by
section 4999 of the Code, then the amount of the Termination Payment that
the Employee would otherwise have been entitled to receive under this
Section 4.03 shall be reduced to the amount that maximizes the amount of
the Termination Payment net of such excise tax.
4.04 Other Terminations. If the Employee terminates his employment under
------------------
this Agreement under such circumstances as would not cause the Employee to be
deemed to be terminated by the Company for other than Cause as provided in the
second sentence of section 1.05 hereof, and Section 4.03 does not apply to such
termination, then the Employee shall be entitled to receive within thirty (30)
days after the effective date of such termination such compensation and benefits
as are accrued and unpaid on the effective date of such termination, and neither
party to this Agreement shall thereafter have any further liability to the other
under this Agreement.
5. Miscellaneous.
-------------
5.01 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed for all purposes by the laws of The Commonwealth of Massachusetts.
5.02 Interpretation. In case any one or more of the provisions contained
--------------
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
5.03 Legal Fees. Any legal expenses incurred by either party to this
----------
Agreement in enforcing its rights hereunder (including any legal expenses
incurred with respect to any arbitration proceeding pursuant to Section 5.04
hereof) shall be borne and paid solely by such
6
<PAGE>
party. Notwithstanding the foregoing or anything to the contrary contained in
this Agreement, no provision of this Agreement shall be construed as a
limitation on or waiver of any rights that one party to this Agreement may have
to be reimbursed by the other party to this Agreement for such first party's
attorneys' fees pursuant to any statute or other applicable law.
5.04 Arbitration of Disputes. Any controversy or claim arising out of, or
-----------------------
relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of The Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one by the
Employee, and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Boston. Such arbitration shall be conducted in the City of Boston
in accordance with the rules of the American Arbitration Association, except
with respect to the selection of arbitrators, which shall be as provided in this
Section 5.04. Judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
5.05 Notices. Any notice required or permitted to be given hereunder
-------
shall be effective when received and shall be sufficient if in writing and if
personally delivered or sent by certified or registered mail, return receipt
requested, to the party to receive such notice at its address set forth below or
at such other address as a party may by notice specify to the other.
If to the Company: If to the Employee:
Maxwell Shoe Company Inc. James J. Tinagero
101 Sprague Street 790 Boylston Street, Apt. 23B
P.O. Box 37 Boston, MA 02199
Readville (Boston), MA 02137
Attn: Mark J. Cocozza,
Chairman
With a copy to:
Jonathan K. Layne, Esq.
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
5.06 Confidential Information. The Employee will not disclose to any
------------------------
other person or entity (except as required by applicable law or in connection
with the performance of his responsibilities hereunder), or use for his own
benefit, any confidential information of the Company obtained by him incident to
his employment with the Company. The term "confidential information" includes,
without limitation, financial information, business plans, prospects and
opportunities which have been discussed or considered by the Company's
management but does not include any information which has become public other
than on account of the Employee's failure to comply with the provisions of this
Section 5.06.
7
<PAGE>
5.07 Non-Competition. The Employee agrees that, for a period of twelve
---------------
(12) months following the date of termination of this Agreement (other than a
termination that results solely from the expiration of the initial or extended
normal term of this Agreement contemplated by Sections 1.02 and 1.06 hereof), he
will not directly or indirectly own, manage, operate, control or participate in
the ownership, management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or have any financial
interest in, or aid or assist anyone else in the conduct of, or solicit any
employees of the Company on behalf of, any entity or business which competes
directly with the footwear and retail businesses conducted by the Company or by
any group, division or subsidiary of the Company, in any area where such
business is being conducted or is proposed to be conducted at such date of
termination; provided, however, that this provision shall not apply if this
Agreement is terminated as provided in the parenthetical phrase set forth above
in this sentence. It is understood and agreed that, for the purposes of the
foregoing provisions of this Section 5.07, (i) no business shall be deemed to be
a business conducted by the Company, or any group, division or subsidiary of the
Company, unless not less than five percent (5%) of the Company's consolidated
gross sales or operating revenues is derived from, or not less than five percent
(5%) of the Company's consolidated assets is devoted to, such business; and (ii)
no business conducted by any entity by which the Employee is employed or in
which he is interested or with which he is connected or associated shall be
deemed competitive with any business conducted by the Company unless it is one
from which five percent (5%) or more its consolidated gross sales or operating
revenues is derived, or to which five percent (5%) or more of its consolidated
assets is devoted; provided, however, that if the actual gross sales or
operating revenues or assets of such entity derived from or devoted to such
business is equal to or in excess of ten percent (10%) of the most nearly
comparable figure for the Company, such business of such entity shall be deemed,
to be competitive with a business of the Company. Furthermore, ownership of
five percent (5%) or less of the voting stock of any publicly held corporation
shall not constitute a violation of this Section 5.07.
5.08 Amendment and Waiver. This Agreement may not be amended,
--------------------
supplemented or waived except by a writing signed by the party against which
such amendment, supplement or waiver is to be enforced. The waiver by any party
of a breach of any provision of this Agreement shall not operate to waive, or be
construed as a waiver of, any other breach of that provision nor as a waiver of
any breach of another provision.
5.09 Binding Effect. Subject to the provisions of Section 3 hereof, this
--------------
Agreement shall be binding on the successors and assigns of the parties hereto.
5.10 Other Agreements. This Agreement supersedes and renders void the
----------------
terms of any previously executed employment and/or compensation agreements
between the parties, which shall no longer be considered to have any force or
effect.
5.11 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which is an original but which shall together constitute one and the
same instrument.
8
<PAGE>
Upon execution below by both parties, this Agreement will enter into full
force and effect as of April __, 1998.
MAXWELL SHOE COMPANY INC. THE EMPLOYEE
By:
------------------------------ ---------------------------
Mark J. Cocozza James J. Tinagero
Chairman and Chief Executive Officer
9
<PAGE>
Exhibit A
---------
Stock Option Agreement
10
<PAGE>
MAXWELL SHOE COMPANY INC.
-------------------------
EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT
--------------------------------------------
PURSUANT TO THE
---------------
1994 STOCK INCENTIVE PLAN
-------------------------
This Employee Nonqualified Stock Option Agreement (this "Agreement") is
made and entered into as of the Date of Grant indicated below by and between
Maxwell Shoe Company Inc., a Delaware corporation (the "Company"), and the
person named below as Employee.
WHEREAS, Employee is an employee of the Company and/or one or more of its
subsidiaries; and
WHEREAS, pursuant to the Company's 1994 Stock Incentive Plan (the "Plan"),
the committee of the Board of Directors of the Company administering the Plan
(the "Committee") has approved the grant to Employee of an option to purchase
shares of the Class A Common Stock, par value $.01 per share, of the Company
(the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby
---------------------------------------------
grants to Employee, and Employee hereby accepts, as of the Date of Grant, an
option to purchase the number of shares of Common Stock indicated below (the
"Option Shares") at the Exercise Price per share indicated below, which option
shall expire at 5:00 o'clock p.m., Boston time, on the Expiration Date indicated
below and shall be subject to all of the terms and conditions set forth in this
Agreement (the "Option"). The Option shall become exercisable to purchase
("Vesting Rate") that number of Option Shares (rounded to the nearest whole
share) equal to the total number of Option Shares multiplied by the Vesting Rate
indicated below.
Employee: James J. Tinagero
Date of Grant: April ___, 1998
Number of shares purchasable: 25,000
Exercise Price per share: $ _______
Expiration Date: April ___, 2008
Vesting Rate: 17% on 4/__/1999;
17% on 4/__/2000;
33% on 4/__/2001;
33% on 4/__/2002.
<PAGE>
The Option is not intended to qualify as an incentive stock option under Section
422 of the Internal Revenue Code.
2. ACCELERATION OF VESTING AND TERMINATION OF OPTION.
-------------------------------------------------
(a) Termination of Employment.
-------------------------
(i) Retirement. If Employee ceases to be employed by reason of
Employee's retirement in accordance with the Company's then-current
retirement policy ("Retirement"), then (A) the portion of the Option that
has not vested on or prior to the date of such Retirement shall terminate
on such date and (B) the remaining vested portion of the Option shall
terminate upon the earlier of the Expiration Date or the first anniversary
of the date of such Retirement.
(ii) Death or Permanent Disability. If Employee ceases to be
employed by reason of the death or Permanent Disability (as hereinafter
defined) of Employee, then (A) the portion of the Option that has not
vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option
shall terminate upon the earlier of the Expiration Date or the first
anniversary of the date of Employee's death or Permanent Disability.
"Permanent Disability" shall mean the inability to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than 12 months. Employee shall not be deemed to have a Permanent
Disability until proof of the existence thereof shall have been furnished
to the Board in such form and manner, and at such times, as the Board may
require. Any determination by the Board that Employee does or does not
have a Permanent Disability shall be final and binding upon the Company and
Employee.
(iii) Termination for Cause. If Employee is terminated for
Cause, both the vested and unvested portions of the Option shall terminate
immediately. "Cause" shall mean Employee's (A) conviction by a court of
competent jurisdiction of a felony or serious misdemeanor involving moral
turpitude, (B) willful disregard of any written directive of the Board that
is not inconsistent with the Certificate of Incorporation or Bylaws of the
Company or applicable law, (C) breach of his or her fiduciary duty
involving personal profit, or (D) neglect of his or her duties that has a
material adverse effect on the Company.
(iv) Other Termination. If Employee is terminated without
Cause, then (A) the portion of the Option that has not vested on or prior
to the date of such termination of employment shall terminate on such date
and (B) the remaining vested portion of the Option shall terminate upon the
earlier of the Expiration Date or the 90th day following the date of such
termination of employment; provided, however, that if Employee is
terminated without Cause within one year after a Change of Control, then
(x) the portion of the Option that has not vested on or prior to the date
on which Employee is terminated shall fully vest as of such date and (y)
the Option shall
2
<PAGE>
terminate upon the earlier of the Expiration Date or the 90th day following
the date on which Employee is terminated. A "Change of Control" shall mean
the first to occur of the following:
(1) the date upon which the directors of the Company who
were nominated by the Board for election as directors cease to
constitute a majority of the directors of the Company;
(2) the consummation of a reorganization, merger or
consolidation of the Company (other than a reorganization, merger or
consolidation the sole purpose of which is to change the Company's
domicile solely within the United States) (a) as a result of which the
outstanding securities of the class then subject to the Option are
exchanged for or converted into cash, property and/or securities not
issued by the Company and (b) the terms of which provide that the
Option shall continue in effect thereafter; or
(3) the date of the first public announcement that any
person or entity, together with all Affiliates and Associates (as such
capitalized terms are defined in Rule 12b-2 promulgated under the
Exchange Act of 1934, as amended (the "Exchange Act")) of such person
or entity, shall have become the Beneficial Owner (as defined in Rule
13d-3 promulgated under the Exchange Act) of voting securities of the
Company representing more than 50% of the voting power of the Company
(a "50% Stockholder"); provided, however, that the term "50%
Stockholder" shall not include (a) the Company or any of its
subsidiaries, (b) any employee benefit plan of the Company or any of
its subsidiaries, (c) any entity holding voting securities of the
Company for or pursuant to the terms of any such plan, (d) any person
or entity who held shares of the Company's Class B Common Stock, par
value $.01 per share, as of the completion of an initial public
offering of shares of the Common Stock and any Permitted Transferee
(as defined in the Company's Certificate of Incorporation) of such
person or entity, or (e) any person or entity if the transaction that
resulted in such person or entity becoming a 50% Stockholder was
approved in advance by the Board.
(b) Death Following Termination of Employment. Notwithstanding
-----------------------------------------
anything to the contrary in this Agreement, if Employee shall die at any time
after the termination of his or her employment and prior to the date on which
the Option is terminated pursuant to Section 2(a), then the vested portion of
the Option shall terminate on the earlier of the Expiration Date or the first
anniversary of the date of Optionee's death.
(c) Acceleration of Option of Option by Committee. The Committee,
---------------------------------------------
in its sole discretion, may accelerate the exercisability of the Option at any
time and for any reason.
(d) Other Events Causing Acceleration and Termination of Option.
-----------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, the Option shall
become fully
3
<PAGE>
exercisable immediately prior to, and shall terminate upon, the consummation of
any of the following events:
(i) the dissolution or liquidation of the Company;
(ii) a reorganization, merger or consolidation of the Company
(other than a reorganization, merger or consolidation the sole purpose of
which is to change the Company's domicile solely within the United States)
the consummation of which results in the outstanding securities of any
class then subject to the Option being exchanged for or converted into
cash, property and/or a different kind of securities, unless such
reorganization, merger or consolidation shall have been affirmatively
recommended to the stockholders of the Company by the Board and the terms
of such reorganization, merger or consolidation shall provide that the
Option shall continue in effect thereafter on terms substantially similar
to those under the Plan; or
(iii) a sale of all or substantially all of the property and
assets of the Company, unless the terms of such sale shall provide
otherwise.
3. ADJUSTMENTS. In the event that the outstanding securities of
-----------
the class then subject to the Option are increased, decreased or exchanged for
or converted into cash, property and/or a different number or kind of
securities, or cash, property and/or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, reclassification, dividend (other than
a regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless such event shall cause the
Option to terminate pursuant to Section 2(d) hereof, the Committee shall make
appropriate and proportionate adjustments in the number and type of shares or
other securities or cash or other property that may thereafter be acquired upon
the exercise of the Option; provided, however, that any such adjustments in the
Option shall be made without changing the aggregate Exercise Price of the then
unexercised portion of the Option.
4. EXERCISE. The Option shall be exercisable during Employee's
--------
lifetime only by Employee or by his or her guardian or legal representative, and
after Employee's death only by the person or entity entitled to do so under
Employee's last will and testament or applicable intestate law. The Option may
only be exercised by the delivery to the Company of a written notice of such
exercise (the "Exercise Notice"), which notice shall specify the number of
Option Shares to be purchased (the "Purchased Shares") and the aggregate
Exercise Price for such shares, together with payment in full of such aggregate
Exercise Price in cash or by check payable to the Company; provided, however,
that payment of such aggregate Exercise Price may instead be made, in whole or
in part, by one or more of the following means:
(a) by the delivery to the Company of a promissory note in a form
and amount satisfactory to the Committee, provided that the principal
amount of such
4
<PAGE>
note shall not exceed the excess of such aggregate Exercise Price over and
above the aggregate par value of the Purchased Shares; or
(b) by (i) the delivery to the Company of a certificate or
certificates representing shares of Common Stock, duly endorsed or
accompanied by a duly executed stock powers, which delivery effectively
transfers to the Company good and valid title to such shares, free and
clear of any pledge, commitment, lien, claim or other encumbrance (such
shares to be valued on the basis of the aggregate Fair Market Value (as
defined in the Plan) thereof on the date of such exercise) and/or (ii)
"pyramiding" of shares issuable upon exercise of the Option, provided that
the Company is not then prohibited from purchasing or acquiring such shares
of Common Stock.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
----------------------------
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax (the "Withholding Liability"), then Employee shall, on the date of exercise
and as a condition to the issuance of the Option Shares, pay the Withholding
Liability to the Company in cash or by check payable to the Company. Employee
hereby consents to the Company withholding the full amount of the Withholding
Liability from any compensation or other amounts otherwise payable to Employee
if Employee does not pay the Withholding Liability to the Company on the date of
exercise of the Option, and Employee agrees that the withholding and payment of
any such amount by the Company to the relevant taxing authority shall constitute
full satisfaction of the Company's obligation to pay such compensation or other
amounts to Employee.
6. NOTICES. All notices and other communications required or
-------
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
101 Sprague Street, P.O. Box 37, Readville (Boston), Massachusetts 02137,
Attention: President, or to Employee at the address set forth beneath his or her
signature on the signature page hereto, or at such other addresses as they may
designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE OR NASDAQ REQUIREMENTS; APPLICABLE LAWS.
------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, no shares of stock
purchased upon exercise of the Option, and no certificate representing all or
any part of such shares, shall be issued or delivered if (a) such shares have
not been admitted to listing upon official notice of issuance on each stock
exchange upon which shares of that class are then listed or (b) in the opinion
of counsel to the Company, such issuance or delivery would cause the Company to
be in violation of or to incur liability under any federal, state or other
securities law, or any requirement of any stock exchange listing agreement to
which the Company is a party, or any other requirement of law or of any
administrative or regulatory body having jurisdiction over the Company.
5
<PAGE>
8. NON-TRANSFERABILITY. Neither the Option nor any interest
-------------------
therein may be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the laws of descent
and distribution
9. PLAN. The Option is granted pursuant to the Plan, as in effect
----
on the Date of Grant, and is subject to all the terms and conditions of the
Plan, as the same may be amended from time to time; provided, however, that no
such amendment shall deprive Employee, without his or her consent, of the Option
or of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
11. EMPLOYMENT RIGHTS. No provision of this Agreement or of the
-----------------
Option granted hereunder shall (a) confer upon Employee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and each of its subsidiaries to terminate the employment of
Employee, with or without cause, or (c) confer upon Employee any right to
participate in any employee welfare or benefit plan or other program of the
Company or any of its subsidiaries other than the Plan. EMPLOYEE HEREBY
ACKNOWLEDGES AND AGREES THAT THE COMPANY AND EACH OF ITS SUBSIDIARIES MAY
TERMINATE THE EMPLOYMENT OF EMPLOYEE AT ANY TIME AND FOR ANY REASON, OR FOR NO
REASON, UNLESS EMPLOYEE AND THE COMPANY OR SUCH SUBSIDIARY ARE PARTIES TO A
WRITTEN EMPLOYMENT AGREEMENT THAT EXPRESSLY PROVIDES OTHERWISE.
6
<PAGE>
12. GOVERNING LAW. This Agreement and the Option granted hereunder
-------------
shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware.
IN WITNESS WHEREOF, the Company and Employee have duly executed this Agreement
as of the Date of Grant.
MAXWELL SHOE COMPANY INC.
By:
________________________________
Title: President
EMPLOYEE:
__________________________________
Signature
__________________________________
Street Address
__________________________________
City, State and Zip Code
__________________________________
Social Security Number
7
<PAGE>
EXHIBIT 10.37
CONSULTING AGREEMENT
--------------------
This Consulting Agreement (the "Agreement") is made and entered into as of
April ___, 1998 by and between Maxwell Shoe Company Inc., a Delaware
corporation (the "Company"), and Maxwell V. Blum (the "Consultant").
1. Recitals.
--------
1.1 The Company is engaged in the business of designing, developing
and marketing casual and dress footwear for women and children under multiple
brand names.
1.2 Until the date hereof, the Consultant was a substantial
stockholder of the Company and was engaged in the active management of the
Company. The Consultant has accumulated substantial knowledge in the businesses
in which the Company is engaged, in the management of companies engaged in such
businesses and in particular in the management of the Company.
1.3 The Company desires to engage Consultant as an independent
contractor to provide advice in connection with the business of the Company and
related strategic planning, customer relations and marketing issues of the
Company and the Consultant desires to provide such services on the terms and
conditions hereinafter set forth.
2. Term. This Agreement shall commence on the date hereof and shall
----
continue for one (1) year, through the day prior to the first anniversary hereof
("Term"). On the first anniversary of the date hereof, and on each subsequent
annual anniversary of the date hereof thereafter, this Agreement shall be
automatically extended for an additional year unless either party notifies the
other in writing more than thirty days prior to the relevant anniversary date
that this Agreement is no longer to be extended.
3. General Terms.
-------------
3.1 Nature of Agreement. The parties acknowledge and agree that the
-------------------
Consultant will be retained by the Company as an independent contractor, and not
as an employee, and that, as an independent contractor of the Company, the
Consultant will be under the control, supervision and direction of the Company
only as to the results of the services provided to the Company under the terms
of this Agreement, and not as to the means by which such services are provided.
3.2 Duties and Services. During the term of this Agreement, the
-------------------
Consultant agrees to perform such consulting services as may be assigned to the
Consultant by the Chief Executive Officer of the Company consistent with the
knowledge and expertise of the Consultant for up to 240 hours per year (with any
additional hours which are requested by the Chief Executive Officer of the
Company to be provided at a fee of $2,000 per day). Except as specifically
directed by the Company, it is agreed that the Consultant shall have no
authority to act on behalf of the Company.
<PAGE>
4. Compensation.
------------
4.1 Basic Compensation. In consideration of the consulting services
------------------
to be rendered by the Consultant hereunder, the Company shall provide to the
Consultant an office, a secretary, an automobile allowance of up to $20,000 per
year and such health insurance benefits under the Company's medical plans as the
Company provides to its executive officers.
4.2 Expenses. The Company shall from time to time pay or reimburse
--------
the Consultant for the reasonable and necessary expenses (including travel
expenses) incurred by the Consultant in connection with the performance of his
duties hereunder if such expenses have been previously approved by the Company
or if reimbursement is otherwise appropriate in accordance with the Company's
established policies and if the Company receives such verification thereof as
the Company may require in order to qualify such expenses as deductible business
expenses.
4.3 No Withholding. Because the Consultant is retained as an
--------------
independent contractor and not as an employee, the Company and the Consultant
acknowledge and agree that no federal and state taxes or social security
contributions shall be made by the Company from the payments made to the
Consultant pursuant to this Article 4, and that the Consultant will remain
solely liable for the payment of all such taxes. The Consultant further
acknowledges that the Company will report compensation paid pursuant to this
Agreement on a Form 1099 at the end of the year in which the Consultant's
services were provided. The Consultant hereby expressly covenants to make such
tax payments as may be required by applicable law and to indemnify and hold the
Company harmless for any liability the Company may incur as a consequence of the
Consultant's failure to make such payments.
5. Termination, Death, Disability.
------------------------------
5.1 Termination of Agreement With Cause. In addition to any other
-----------------------------------
remedies available to the Company at law, in equity or as set forth in this
Agreement, the Company shall have the right, upon written notice to the
Consultant, to immediately terminate this Agreement if the Consultant: (a)
breaches any material provision of this Agreement and, if such breach is
curable, in the sole judgment of the Company, such breach is not cured within
ten (10) days after written notice thereof from the Company; or (b) has
committed an act of gross misconduct in connection with the performance of his
duties hereunder as determined by the Board of Directors; or (c) demonstrates
incompetence or habitual negligence in the performance of his duties as
determined by the Board of Directors; or (d) is convicted of or pleads nolo
contendere to any misdemeanor involving moral turpitude or to any felony; or (e)
has committed any act of fraud, misappropriation of funds or embezzlement in
connection with is services hereunder.
5.2 Death; Disability. In the event that the Consultant dies or
-----------------
becomes Disabled (as defined herein), this Agreement shall terminate when such
death occurs or, upon written notice by the Company, at any time after
Disability occurs.
For purposes of this Agreement the Consultant shall be deemed to be
"Disabled" or have a "Disability" if, because of his physical or mental
disability, he has been substantially unable to perform his duties hereunder for
twelve (12) work weeks in any twelve (12)-month period.
5.3 Obligations. The Consultant acknowledges that, if this Agreement
-----------
is terminated under this Section 5, the Company shall have no further obligation
to the Consultant
2
<PAGE>
except to reimburse Consultant for any expenses incurred in accordance with
Section 4.2 but unreimbursed as of the date of termination.
6. Ownership of Proceeds; Non-Disclosure.
-------------------------------------
6.1 Results and Proceeds of Employment. The Company shall be the
----------------------------------
sole and exclusive owner throughout the universe in perpetuity of all of the
results and proceeds of the Consultant's services, work and labor during the
Term in connection with the Consultant's services rendered to the Company, free
and clear of any and all claims, liens or encumbrances. All results and
proceeds of such services, work and labor during the Term shall be deemed to be
works-made-for-hire for the Company within the meaning of the copyright laws of
the United States and the Company shall be deemed to be the sole author thereof
in all territories and for all purposes.
6.2 Non-Disclosure of Confidential Information. As used herein,
------------------------------------------
"Confidential Information" means any and all information affecting or relating
to the business of the Company and its affiliates, including without limitation,
financial data, customer lists and data, licensing arrangements, business
strategies, pricing information, product development, intellectual, artistic
rights, works, or other materials of any kind or nature (whether or not entitled
to protection under applicable copyright laws, or reduced to or embodied in any
medium or tangible form), including without limitation, all copyrights, patents,
trademarks, service marks, trade secrets, contract rights, titles, themes,
treatments, ideas, concepts, technologies, art work, logos, hardware, software,
and may be embodied in any and all computer programs, tapes, diskettes, disks,
mailing lists, lists of actual or prospective customers and/or suppliers,
notebooks, documents, memoranda, reports, files, correspondence, charts, lists
and all other written, printed or otherwise recorded material of any kind
whatsoever and any other information, whether or not reduced to writing,
including "know-how," ideas, concepts, research, processes and plans.
"Confidential Information" does not include information that is in the public
domain, information that is generally known in the trade, or information that
the Consultant can prove he acquired wholly independently of his services for
the Company. The Consultant shall not, at any time during the Term or
thereafter, directly or indirectly, disclose or furnish to any other person,
firm or corporation any Confidential Information, except in the course of the
proper performance of his duties hereunder or as required by law (in which event
the Consultant shall give prior written notice to the Company and shall
cooperate with the Company and the Company's counsel in complying with such
legal requirements). Promptly upon the expiration or termination of the
Consultant's services hereunder for any reason or whenever the Company so
requests, the Consultant shall surrender to the Company all documents, drawings,
work papers, lists, memoranda, records and other data (including all copies)
constituting or pertaining in any way to any of the Confidential Information.
6.3 Non-Competition. The Consultant shall not, for so long as he is
---------------
entitled to compensation under or pursuant to this Agreement, directly or
indirectly: (a) compete with the Company; or (b) be interested in, employed by,
engaged in or participate in the ownership, management, operation or control of,
or act in any advisory or other capacity for, any Competing Entity (as defined
below) which conducts its business within the Territory (as such terms are
hereinafter defined); provided, however, that notwithstanding the foregoing, the
Consultant may make solely passive investments in any Competing Entity the
common stock of which is "publicly held," and of which the Consultant shall not
own or control, directly or indirectly, in the aggregate securities which
constitute more than two (2%) percent of the voting rights or equity ownership
3
<PAGE>
of such Competing Entity; or (c) solicit or divert any business or any customer
from the Company or assist any person, firm or corporation in doing so or
attempting to do so; or (d) cause or seek to cause any person, firm or
corporation to refrain from dealing or doing business with the Company or assist
any person, firm or corporation in doing so or attempting to do so.
For purposes of this Section 6.3, (i) the term "Competing Entity"
shall mean any entity which presently or during the period referred to above
engages in any business activity the Company is then engaged in or proposes to
be engaged in, and (ii) the term "Territory" shall mean any geographic area in
which the Company conducts business during such period.
6.4 Non-Solicitation. The Consultant shall not, for a period of two
----------------
(2) years from the date of any termination or expiration of his services
hereunder, directly or indirectly: (a) solicit or hire, or attempt to solicit or
hire, any employee of the Company, or assist any person, firm or corporation in
doing so or attempting to do so; or (b) plan for, acquire any financial interest
in or perform any services for himself or any other entity in connection with a
business in which the Consultant's interest, duties or activities would
inherently require the Consultant to reveal any Confidential Information; or (c)
solicit or cause to be solicited the disclosure of or disclose any Confidential
Information for any purpose whatsoever or for any other party.
6.5 Breach of Provisions. In the event that the Consultant shall
--------------------
breach any of the provisions of this Article 6, or in the event that any such
breach is threatened by the Consultant, in addition to and without limiting or
waiving any other remedies available to the Company at law or in equity, the
Company shall be entitled to immediate injunctive relief in any court, domestic
or foreign, having the capacity to grant such relief, without the necessity of
posting a bond, to restrain any such breach or threatened breach and to enforce
the provisions of this Article 6. The Consultant acknowledges and agrees that
there is no adequate remedy at law for any such breach or threatened breach and,
in the event that any action or proceeding is brought seeking injunctive relief,
the Consultant shall not use as a defense thereto that there is an adequate
remedy at law.
6.6 Reasonable Restrictions. The parties acknowledge that the
-----------------------
foregoing restrictions, the duration and the territorial scope thereof as set
forth in this Article 6, are under all of the circumstances reasonable and
necessary for the protection of the Company and its business.
6.7 Definition. For purposes of this Article 6, the term "the
----------
Company" shall be deemed to include any subsidiary of, affiliate of, predecessor
to or successor of the Company.
7. Miscellaneous.
-------------
7.1 Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the parties hereto and their respective legal representatives,
heirs, distributees, successors and assigns; provided that the rights and
obligations of the Consultant hereunder shall not be assignable by him.
7.2 Notices. Any notice provided for herein shall be in writing and
-------
shall be deemed to have been given or made when personally delivered or three
(3) days following deposit for mailing by first class registered or certified
mail, return receipt requested, or if delivered by facsimile transmission, upon
confirmation of receipt of the transmission, to the address of the other party
set forth below or to such other address as may be specified by notice given in
accordance with this Section 7.2:
4
<PAGE>
If to the Company: Maxwell Shoe Company Inc.
101 Sprague Street
P.O. Box 37
Readville (Boston), MA 02137
Attention: Mark J. Cocozza
Fax No.: (617) 364-9058
With a copy to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attention: Jonathan K. Layne, Esq.
Fax No.: (213) 229-6141
If to the Consultant: Mr. Maxwell V. Blum
11 Howe Road
Newton Center, MA 02159
Fax No.: (617) 558-3210
7.3 Severability. If any provision of this Agreement, or portion
------------
thereof, shall be held invalid or unenforceable by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision or portion thereof, and shall not in any manner affect or render
invalid or unenforceable any other provision of this Agreement or portion
thereof, and this Agreement shall be carried out as if any such invalid or
unenforceable provision or portion thereof were not contained herein. In
addition, any such invalid or unenforceable provision or portion thereof shall
be deemed, without further action on the part of the parties hereto, modified,
amended or limited to the extent necessary to render the same valid and
enforceable.
7.4 Arbitration. Any controversy, claim or dispute arising out of or
-----------
in any way relating to this Agreement, the alleged breach thereof, and/or the
Consultant's relationship with the Company or termination therefrom shall be
determined by binding arbitration administered by the American Arbitration
Association applicable rules ("Rules") which are in effect at the time of the
arbitration or the demand therefor. The Rules are hereby incorporated by
reference. In reaching a decision, the arbitrator shall have no authority to
change, extend, modify or suspend any of the terms of this Agreement. The
arbitration shall be commenced and heard in Boston, Massachusetts. The
arbitrator(s) shall apply the substantive law (and the law of remedies, if
applicable) of The Commonwealth of Massachusetts or federal law, or both, as
applicable to the claim(s) asserted. Judgment on the award may be entered in any
court of competent jurisdiction, even if a party who received notice under the
Rules fails to appear at the arbitration hearing(s). The parties may seek, from
a court of competent jurisdiction, provisional remedies or injunctive relief in
support of their respective rights and remedies hereunder without waiving any
right to arbitration. However, the merits of any action that involves such
provisional remedies or injunctive relief, including, without limitation, the
terms of any permanent injunction, shall be determined by arbitration under this
paragraph.
7.5 Waiver. No waiver by a party hereto of a breach or default
------
hereunder by the other party shall be considered valid unless in writing signed
by such first party, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or any other nature.
5
<PAGE>
7.6 Entire Agreement. This Agreement sets forth the entire agreement
----------------
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements or understanding between the Company and the
Consultant, whether written or oral, fully or partially performed relating to
any or all matters covered by and contained or otherwise dealt with in this
Agreement.
7.7 Amendment. No modification, change or amendment of this
---------
Agreement or any of its provisions shall be valid unless in writing and signed
by the party against whom such claimed modification, change or amendment is
sought to be enforced.
7.8 Authority. The parties each represent and warrant that they have
---------
the power, authority and right to enter into this Agreement and to carry out and
perform the terms, covenants and conditions hereof.
7.9 Applicable Law. This Agreement, and all of the rights and
--------------
obligations of the parties in connection with the employment relationship
established hereby, shall be governed by and construed in accordance with the
substantive laws of The Commonwealth of Massachusetts without giving effect to
principles relating to conflicts of law.
7.10 Counterparts. Thus Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"Company"
MAXWELL SHOE COMPANY INC.
By:________________________________
Mark J. Cocozza
Chairman and Chief Executive Officer
"CONSULTANT"
___________________________________
Maxwell V. Blum
6
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" in the Registration Statement (Form
S-2 No. 333-48199) and related Prospectus of Maxwell Shoe Company Inc. and to
the incorporation by reference therein of our report dated December 15, 1997,
with respect to the consolidated financial statements and schedule of Maxwell
Shoe Company Inc. included in its Annual Report (Form 10-K) for the year ended
October 31, 1997, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Boston, Massachusetts
April 16, 1998
