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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended November 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to _________
Commission file number 1-4404
THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation)
191 Spring Street, P.O. Box 9191, Lexington, Massachusetts 02173
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 824-6000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
<PAGE>
---
/___/ Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Registrant's Common Stock $.25 par value, held
by non-affiliates of the Registrant as of February 17, 1998, was $548,152,705
based on the closing price on that date on the New York Stock Exchange. As of
February 17, 1998, 47,213,742 shares of the Registrant's Common Stock, $.25 par
value, and the accompanying Preferred Stock Purchase Rights were outstanding.
Documents Incorporated by Reference
Certain portions of the following documents (as more specifically identified
elsewhere in this Annual Report) are incorporated by reference herein:
Part of Form 10-K into
Name of Document which document is incorporated
Portions of the Registrant's Annual Report to
Stockholders for fiscal year ended November 28, 1997
Part I and Part II
Portions of the Registrant's Proxy Statement for 1998
Annual Meeting of Stockholders
Part III
<PAGE>
PART I
Item 1. Business
General
The Stride Rite Corporation is the leading marketer of high quality
children's footwear in the United States and a major marketer of athletic and
casual footwear for children and adults. A significant portion of its products
are manufactured abroad by independent manufacturers to the Company's
specifications. Footwear products are distributed through independent retail
stores, Company-owned stores and footwear departments in department stores.
Unless the context otherwise requires, references to the "Company" and "The
Stride Rite Corporation" in this document are to The Stride Rite Corporation and
all of its wholly owned subsidiaries.
Products
Children's footwear, designed primarily for consumers between the ages
of six months and 12 years, encompasses a complete line of products, including
dress and recreational shoes, boots, sandals and sneakers, in traditional and
contemporary styles. Those products are marketed under the Company's STRIDE
RITE(R), MUNCHKIN(TM), SPERRY(R) and STREET HOT(R) trademarks in medium to high
price ranges.
Sneakers and casual footwear for adults and children are marketed under
the KEDS(R) and PRO-KEDS(R) trademarks and casual footwear for women under the
GRASSHOPPERS(R) label.
Marine footwear and portions of the Company's outdoor recreational,
hand-sewn, dress and casual footwear for adults and children are marketed under
the Company's SPERRY TOP-SIDER(R) and SPERRY(R) trademarks. Products sold under
the SPERRY TOP-SIDER(R) label also include sneakers and sandals for men and
women.
In Spring 1997, the Company introduced dress casual, sport casual,
dress and athletic footwear for men using the TOMMY HILFIGER(R) brand name under
a license agreement with Tommy Hilfiger Licensing, Inc. A boys' product line was
also launched in 1997 in time for back-to-school selling.
During fiscal 1997, the Company solicited and won three new licensed
footwear opportunities, LEVI'S(R), NINE WEST KIDS(TM) and the extension of the
TOMMY HILFIGER(R) brand to women's and girls' footwear. The Company intends to
introduce product lines for these three new opportunities in the second half of
fiscal 1998.
Sales and Distribution
During the 1997 fiscal year, the Company sold its products nationwide
to customers operating retail outlets, including department stores, sporting
goods stores and marinas, as well as Stride Rite Bootery stores and other shoe
stores operated by independent retailers. In addition, the Company sold footwear
products to consumers through Company-owned stores, including bootery stores,
manufacturers' outlet stores, a Keds concept store, Great Feet(R) concept
stores, and children's footwear departments in department stores. The Company's
largest single customer accounted for less than 6% of consolidated net sales for
the fiscal year ended November 28, 1997.
The Company provides assistance to a limited number of qualified
specialty retailers to enable them to operate independent Stride Rite children's
bootery stores. Such assistance sometimes includes the sublease of a desirable
retail site by the Company to a dealer. There are approximately 31 independent
dealers who currently sublease store locations from the Company.
The Company owns an automated distribution center located in
Louisville, Kentucky providing 520,000 square feet of space and a warehouse in
Boston, Massachusetts, providing 565,000 square feet of space. The Company
closed the Boston facility in December of 1997 after transferring the
distribution function for the Stride Rite brand to a 263,000 square foot
facility which has been leased in Huntington, Indiana. The Boston facility and
adjoining real estate are presently being offered for sale by the Company.
The Company maintains an in-stock inventory of its various branded
footwear in a wide range of sizes and widths for shipment to its wholesale
customers. In accordance with practices in the footwear industry, the Company
encourages early acceptance of merchandise by shipping some products to
customers in advance of their seasonal requirements and permitting payment for
such merchandise at specified later dates.
In fiscal 1997, in addition to the United States, KEDS(R) brand
products were also sold in Austria, Belgium, France, Germany, Ireland and the
United Kingdom through a representative office operated by the Company's French
subsidiary which was closed in the first quarter of fiscal 1998 after licensing
the distribution rights to a third party. KEDS(R) brand products were
distributed through third parties in Australia, Brazil, Chile, Cyprus, Denmark,
Egypt, Greece, Hong Kong, Indonesia, Israel, Japan, New Zealand, the
Philippines, Portugal, Saudi Arabia, Singapore, South Africa, South Korea and
Sweden, as well as in several other countries in Latin America and Asia, using
local distributors. PRO-Keds(R) brand products are sold by a licensee in Japan
under a trademark license agreement. Further, KEDS(R) products are sold in
Central America under a distribution agreement. During 1997 the Company entered
into new licensing agreements covering the sale of KEDS(R) footwear in the
Antilles Islands, Aruba, Bahamas, Belize, Bonaire, Cayman Islands, Costa Rica,
Curacao, the Dominican Republic, El Salvador, Guatemala, Haiti, Italy, Honduras,
Jamaica, Nicaragua, Panama, Tobago, Trinidad and Venezuela.
In fiscal 1997, in addition to the United States, the Company sold
SPERRY TOP-SIDER(R) products in Belgium, France, Germany, Ireland, the
Netherlands and the United Kingdom through its French subsidiary which was
closed in the first quarter of fiscal 1998 after licensing the distribution
rights to a third party. The Company distributed its SPERRY TOP-SIDER(R) brand
products in Australia, Greece, Indonesia, Italy, Japan, New Zealand, Portugal,
Singapore and Sweden, as well as other countries in the Middle East, Central and
South America, Asia and Africa through local distributors. In 1997 the Company
entered into licensing agreements covering the sale of SPERRY TOP-SIDER(R)
footwear in Argentina, Italy, Paraguay and Uruguay.
The Company is also a party to foreign license agreements in which
independent companies operate Stride Rite retail stores outside the United
States. An aggregate of 16 stores are currently operating in Canada, Costa Rica,
El Salvador, Honduras, Mexico and Peru pursuant to such agreements. In addition,
the Company also distributes STRIDE RITE(R) brand products to several retailers
in the Caribbean, Latin America, Israel and South Korea.
The Company also distributes SPERRY TOP-SIDER(R), STRIDE RITE(R),
KEDS(R) and TOMMY HILFIGER(R) products in Canada through its Canadian
subsidiary.
International Sourcing
The Company purchases substantially all of its product line overseas.
It maintains a staff of approximately 87 professional and technical personnel in
Mexico, South Korea, Taiwan, Thailand and mainland China, to supervise a
substantial portion of its canvas and leather footwear production. The Company
is a party to a joint venture agreement with a foreign footwear manufacturer
which operates a manufacturing facility in Thailand. The Company has a 49.5%
interest in the Thai corporation operating this facility, which manufactures
vulcanized canvas and leather footwear. During fiscal 1997, approximately 2% of
the Company's total production requirements for footwear were fulfilled by the
Thai facility. In addition, the Company uses the services of buying agents to
source merchandise.
Having closed several of its manufacturing facilities in the United
States and the Caribbean over the years, the Company has increased the volume of
leather footwear for which it contracts with independent offshore suppliers to
approximately 96% in 1997. In February 1997, the Company announced the closing
of its two remaining domestic manufacturing facilities in Missouri. The
manufacturing activities at these facilities ceased during the third quarter of
fiscal 1997 (see "Properties"). The footwear produced at these facilities, which
were primarily STRIDE RITE(R) branded children's products, are being sourced
through independent suppliers in Mexico and the Far East. In December 1997, the
Company closed its manufacturing facility in the Dominican Republic which
produced a portion of its Sperry Top-Sider product line. It is anticipated that
overseas resources will continue to be utilized in the future. The Company also
purchases certain raw materials (particularly leather) from overseas resources.
By virtue of its international activities, the Company is subject to
the usual risks of doing business abroad, such as the risks of expropriation,
acts of war, political disturbances and similar events, including trade
sanctions, loss of most favored nation trading status and other trading
restrictions. Management believes that over a period of time, it could arrange
adequate alternative sources of supply for the products obtained from its
present foreign suppliers. However, disruption of such sources of supply could,
particularly on a short-term basis, have a material adverse impact on the
Company's operations. The Company's contracts to procure finished goods and
other materials are primarily denominated in United States dollars, thereby
reducing short term risks attendant to foreign currency fluctuations. During
1997, the currencies of certain countries in the Far East weakened as compared
to the U.S. dollar. The Company does not expect these conditions to have a
significant effect, favorable or unfavorable, on the future costs of its
production.
Retail Operations
As of November 28, 1997, the Company operated 119 Stride Rite Bootery
stores, 58 leased children's shoe departments in leading department stores, one
retail store for KEDS(R) brand products, four concept stores operated under the
name GREAT FEET(R) and 19 manufacturers' outlet stores for STRIDE RITE(R),
KEDS(R), SPERRY TOP-SIDER(R) and TOMMY HILFIGER(R) brand products. The product
and merchandising formats of the Stride Rite Bootery stores are utilized in the
58 leased children's shoe departments which the Company operates in certain
divisions of Federated Department Stores, including Macy's, Rich's and Lazarus
department stores. The Stride Rite Bootery stores carry a significant portion of
the lines of the Company's STRIDE RITE(R), SPERRY TOP-SIDER(R) and STREET HOT(R)
children's footwear and a portion of the KEDS(R) children's product line. The
TOMMY HILFIGER(R) boys' line was sold in these stores beginning in the Fall 1997
season. The Keds store carries a complete line of KEDS(R) products. The GREAT
FEET(R) stores carry a full line of products for children aged 6 months to 12
years, including STRIDE RITE(R), KEDS(R), SPERRY TOP-SIDER(R) and STREET HOT(R)
brand products. Beginning in July 1997, TOMMY HILFIGER(R) boys' footwear
products were also sold in the GREAT FEET(R) stores. The Company's stores are
located primarily in larger regional shopping malls, clustered generally in the
major marketing areas of the United States. Most of the Company's manufacturers'
outlet stores are located in malls consisting only of outlet stores.
During the 1997 fiscal year, the Company opened one leased department
and two manufacturers' outlet stores. In addition during fiscal 1997, the
Company commenced operating one Stride Rite bootery, which was purchased from an
independent dealer. During 1997, the Company also closed 16 retail stores in an
effort to improve the profitability of the Retail division. The Company
currently plans to open approximately five to ten retail stores in fiscal 1998.
In fiscal 1998, the Company will continue its efforts to close or sell
underperforming retail locations and expects to cease operations in 10 to 15
stores during the year.
Sales through the Company's retail operations accounted for
approximately 17% of consolidated net sales for the fiscal year ended November
28, 1997.
Apparel Licensing Activities
License royalties accounted for approximately 1% of the Company's sales
in fiscal year 1997. The Company has a license agreement under which hosiery for
men, women and children is marketed under the KEDS(R) and PRO-KEDS(R) trademarks
for distribution in the United States and Canada. Hosiery for children is also
marketed under the STRIDE RITE(R) trademark in the United States, the Benelux
Region, Canada, England, France, Germany, Israel, Italy, Mexico, Portugal and
Spain under another license agreement. The Company has a license agreement under
which underwear, day wear and related sleepwear for women and girls is marketed
under the KEDS(R) and PRO-KEDS(R) trademarks for distribution in the United
States and Canada and a license agreement under which infant's, children's and
ladies' tights and pantyhose are marketed under the KEDS(R) trademark for
distribution in the United States, Canada, Europe and Latin America. The Company
has a license agreement under which girls' and boys' playwear, activewear and
windwear are marketed under the KEDS(R) trademark for distribution in the United
States, Canada, Europe and Latin America. The Company has a license agreement
under which sunglasses and optical frames are marketed using the SPERRY
TOP-SIDER(R) trademark for distribution in the United States, Canada and Mexico
and a license agreement under which outerwear for men and women are marketed
under the SPERRY TOP-SIDER(R) trademark for distribution in the United States
and Canada. It has license agreements under which apparel, using the KEDS(R),
PRO-KEDS(R) and SPERRY TOP-SIDER(R) trademarks, is marketed in Japan. The
Company continually evaluates new licensees, for both footwear and non-footwear
products.
Backlog
At November 28, 1997 and November 29, 1996, the Company had a backlog
of orders amounting to approximately $161,100,000 and $168,600,000,
respectively. To a significant extent, the backlog at the end of each fiscal
year represents orders for the Company's Spring footwear styles, and
traditionally substantially all of such orders are delivered or canceled during
the first two quarters of the next fiscal year.
In all of the Company's wholesale businesses, reorders from retail
customers are an important source of revenue to supplement the orders taken in
advance of the season. Over the years, the importance of reorder activity to a
season's success has grown as customers, especially larger retailers, have
placed increased reliance on orders transmitted via electronic data interchange
(EDI) programs.
Competition
The Company competes with a number of suppliers of children's footwear,
a few of which are divisions of companies which have substantially greater net
worth and/or sales revenue than the Company. Management believes, however, that
on the basis of sales, the Company is the largest supplier of nationally branded
children's footwear in the United States.
In the highly fragmented sneaker, casual and recreational footwear
industry, numerous domestic and foreign competitors, some of which have
substantially greater net worth and/or sales revenue than the Company, produce
and/or market goods which are comparable to, and compete with, the Company's
products in terms of price and general level of quality. In addition, the
domestic shoe industry has experienced substantial foreign competition, which is
expected to continue.
Management believes that creation of attractive styles, together with
specialized engineering for fit, durability and quality, and high service
standards are significant factors in competing successfully in the marketing of
all types of footwear. Management believes that the Company is competitive in
all such respects.
In operating its own retail outlets, the Company competes in the
children's retail shoe industry with numerous businesses, ranging from large
retail chains to single store operators.
Employees
As of November 28, 1997, the Company employed approximately 2,900
full-time and part-time employees, approximately 82 of whom were represented by
collective bargaining units. Management believes that its relations with its
employees are good.
Environmental Matters
Compliance with federal, state, local and foreign regulations with
respect to the environment have had, and are expected to have, no material
effect on the capital expenditures, earnings or competitive position of the
Company.
Patents, Trademarks and Licenses; Research and Development
The Company has an existing trademark license agreement with Tommy
Hilfiger Licensing, Inc. pursuant to which it manufactures and sells footwear to
men and boys. In August 1997 the Company entered into a license to design,
manufacture and sell TOMMY HILFIGER(R) branded footwear for women and girls with
the product launch planned for Fall, 1998. In July 1997, the Company also
entered into a trademark license agreement with Nine West Group Inc. to design,
manufacture and sell NINE WEST KIDS(TM) branded children's footwear with the
product launch planned for Fall, 1998. In April 1997 the Company entered into a
trademark license agreement with Levi Strauss & Co. to design, manufacture and
sell LEVI'S(R) branded men's women's and children's footwear. The introduction
of the men's and boys' LEVI'S(R) product line is planned for Fall, 1998. The
Company expects to introduce LEVI'S(R) footwear for women and girls in fiscal
1999.
The Company believes that its patents and trademarks are important to
its business and are generally sufficient to permit the Company to carry on its
business as presently conducted.
The Company depends principally upon its design, engineering,
manufacturing and marketing skills and the quality of its products for its
ability to compete successfully. The Company conducts research and development
for footwear products; however, the level of expenditures with respect to such
activity is not material.
<PAGE>
Executive Officers of the Registrant
The information with respect to the executive officers of the Company listed
below is as of February 17, 1998.
Executive Officers of the Registrant
Name Position with Company Age
Robert C. Siegel Chairman of the Board of Directors, President 61
and Chief xecutive Officer of the Company since
joining the Company in December 1993. Previously,
Mr. Siegel was President of the Dockers division
of Levi Strauss & Co., an apparel manufacturer
and distributor, from December 1986 to December
1993, having been employed by Levi Strauss & Co.
since 1964.
John R. Ranelli Executive Vice President of the Company since 51
joining the Company in September 1996. Prior
to joining the Company, Mr. Ranelli was the
Chief Operating Officer of Deckers Outdoor
Corporation, a footwear company, from January
1995 to September 1995, Executive Vice
President and Chief Financial Officer of TLC
Beatrice, a marketer of food products, from
June 1994 to December 1994, and General
Manager - International and Europe of The
Timberland Company, a footwear company, from
May 1991 to May 1994.
Diane M. Sullivan Group President, Licensed Brands. Previous 42
to this position, Ms. Sullivan was President,
Wholesale division, Stride Rite Children's
Group, Inc., since joining the Company in April
1995. Prior to joining the Company, Ms. Sullivan
was Vice President, Marketing, of The Rockport
Co., a division of Reebok International Ltd.,
a footwear company, from May 1993 to April 1995;
the President of The Comfort Food Co., a
specialty foods firm from December 1991 to
May 1993; and the Vice President, Marketing
and Operations of Bright Horizons Children's
Centers, Inc., a child care provider, from
April 1989 to December 1991. Ms. Sullivan was
previously employed by the Company as Vice
President, Marketing of Stride Rite Children's
Group, Inc. from October 1985 to April 1989.
<PAGE>
Executive Officers of the Registrant
Name Position with Company Age
Joanna M. Jacobson President, The Keds Corporation since 37
joining the Company in April 1996. Prior
to joining the Company, Ms. Jacobson was a
partner of Core Strategy Group, a consulting
firm, from January 1995 to April 1996 and
prior to that was Senior Vice President of
Marketing of Converse Inc., a footwear
company, from November 1991 to September
1994. Ms. Jacobson was previously employed
by the Company as Vice President of Marketing
of Sperry Top-Sider, Inc. from October 1990
to June 1991.
Howard B. Collins, Jr. President, Stride Rite Sourcing International, 51
Inc., since joining the Company in September
1996. Prior to joining the Company, Mr.
Collins was Vice President of Sourcing for
The Timberland Company, a footwear company,
from July 1991 to September 1996.
Robert B. Moore, Jr. President, Sperry Top-Sider, Inc. since 47
joining the Company in October 1992 and
President of LS Footwear, Inc. since the
subsidiary's incorporation in May 1997.
From October 1987 until he joined the
Company, Mr. Moore was President of
Bostonian Shoe Co., a division of
C & J Clark, Inc., a footwear company.
Dennis Garro President, Stride Rite International Corp. 50
Previous to this position, Mr. Garro was
the President, Retail division, Stride
Rite Children's Group, Inc. since joining
the Company in April 1994. Prior to
joining the Company, Mr. Garro served as
Senior Vice President and General
Merchandise Manager for Mervyns division
of Dayton Hudson Corp., a department
store retailer, from May 1992 to
September 1993 and as Senior Vice President
and General Merchandise Manager DFS
Group, Ltd., a specialty store retailer,
from November 1989 to April 1992.
<PAGE>
Executive Officers of the Registrant
Name Position with Company Age
C. Madison Riley III President, Stride Rite Children's Group, 39
Inc. since October 1997. Previous to
this position, Mr. Riley served as President,
Stride Rite International Corp. from May
1997 to October 1997, and Vice President
and General Manager, Stride Rite
International Corp., from January 1996
to May, 1997. Mr. Riley served as Vice
President of Stride Rite International
Corp. from November 1995 to January 1996,
as Vice President and General Manager,
Boston Footwear Group, Inc., a subsidiary
of the Company, from November 1994 to
November 1995, as Vice President, Strategic
Planning of the Company from January 1994
to November 1994, as Vice President,
Strategic Planning of The Keds Corporation
from September 1993 to January 1994 and as
Director, Strategic Planning of the Company
from June 1993 to September 1993. Prior to
joining the Company, Mr. Riley served as a
partner and regional director of Kurt Salmon
Associates, a consulting firm, from July
1985 to June 1993.
Patrick J. Hogan President, Tommy Hilfiger(R) Footwear, Inc., 39
since May 1997. Previous to this position,
Mr. Hogan was Vice President and General
Manager of Tommy Hilfiger Footwear, Inc.,
from August 1995 to May 1997. Prior to
joining the Company, Mr. Hogan was employed
as Director of National Accounts from 1986
to August 1995 at The Rockport Co., a
division of Reebok International Ltd., a
footwear company.
John M. Kelliher Chief Financial Officer of the Company 46
since February 1998, Vice President,
Finance and Treasurer of the Company
since February 1993. Mr. Kelliher had
been Corporate Controller of the Company
from March 1982 to January 1998, having
joined the Company in June 1981.
<PAGE>
Executive Officers of the Registrant
Name Position with Company Age
Joseph T. Barrell Senior Vice President, Operations since 46
April 1997. Previous to this position,
Mr. Barrell served as Vice President
of Global Logistics since joining the
Company in January 1995. Prior to joining
the Company, Mr. Barrell was Vice President,
Distribution of The Timberland Company, a
footwear company, from June 1991 to January
1995 and the Director, Logistics of
Thom McAn Shoe Co., a footwear
retailer, from January 1976 to June 1991.
Gerrald B. Silverman Senior Vice President, Sales, The Keds 37
Corporation since January 1996, and prior
to that President of Stride Rite International
Corp. since joining the Company in April 1994.
Prior to joining the Company, Mr. Silverman
served as the national sales manager of the
Dockers division of Levi Strauss & Co.,
an apparel manufacturer and distributor,
from October 1992 to April 1994, as West
Coast regional manager of the Dockers
division of Levi Strauss & Co. from April
1991 to October 1992, and as East Coast
district manager of the Dockers division
of Levi Strauss & Co. from May 1990 to April 1991.
Lorie M. Karnath Vice President Licensing, Strategic Planning, 38
Mergers and Acquisitions, and Corporate
Communications since joining the Company
in March 1996. Prior to joining the Company,
Ms. Karnath was a consultant with E.M.C.
Group, a consulting firm, from 1991 to 1996,
and an associate with Kidder, Peabody & Co.,
Inc., an investment banking firm, from 1987 to 1991.
Karen K. Crider General Counsel of the Company since joining 52
the Company in October 1992, Clerk of the
Company since November 1992 and Secretary of
the Company since April 1994. Ms. Crider was
U.S. Counsel to British Airways, plc, an
international airline, from May 1988 to
September 1992.
Janet M. DePiero Vice President of Human Resources since 36
March 1997. Previously, Ms. DePiero was
Director of Compensation and Benefits from
October 1995 to February 1997 and Manager
of Compensation and Benefits from December
1991 to September 1995.
<PAGE>
Name Position with Company Age
Frank A. Caruso Vice President and Corporate Controller 44
since January 1998. Mr. Caruso was
previously Vice President and Controller of
Parametric Technology Corporation, a software
company, from June 1997 to December 1997
and Senior Vice President, Finance and
Operations, of The Keds Corporation from
June 1990 to June 1997.
These executive officers are generally elected at the Board of Directors'
meeting held in conjunction with the Company's Annual Meeting and serve at the
pleasure of the Board.
Item 2. Properties
During the first half of fiscal 1997, the Company manufactured
children's footwear at two manufacturing facilities it owns in Missouri, having
closed one leased facility in Fulton, Missouri during February 1996. On February
19, 1997, the Company announced the closure of the two remaining manufacturing
facilities in Missouri. The manufacturing activities at these facilities ceased
during the third quarter of fiscal 1997. The Missouri facilities contained
approximately 62,400 square feet of manufacturing and approximately 31,600
square feet of warehouse space. The Company also manufactured footwear at a
47,000 square foot facility in the Dominican Republic. The manufacturing
activities at that facility ceased during December 1997.
The Company owns an automated distribution center located in
Louisville, Kentucky providing 520,000 square feet of space and a warehouse in
Boston, Massachusetts, which provided 565,000 square feet of space and which
ceased operation in December 1997. In January 1997, the Company entered into a
lease for a 263,000 square foot distribution facility in Huntington, Indiana.
The move of the Stride Rite children's business to the Indiana facility, the
last division remaining in the Company's Boston, Massachusetts facility, took
place during the fourth quarter of fiscal 1997 following the peak back-to-school
shipping season. The Boston facility and the adjoining real estate are presently
being offered for sale by the Company. In addition, the Company owns a facility
with approximately 20,000 square feet of space in Woburn, Massachusetts. The
Company's Canadian subsidiary leases approximately 30,000 square feet for
administrative offices and warehousing in Mississauga, Ontario.
The Company leases approximately 163,000 square feet for its
headquarters and administrative offices in Lexington, Massachusetts in a single
tenant office building. The Company leases an aggregate of 6,000 square feet of
space for sales offices and showrooms in New York City, New York; Chicago,
Illinois; Dallas, Texas and St. Louis, Missouri and leases 15,000 square feet of
space in Richmond, Indiana for its customer service, order processing and
telemarketing functions. In addition during 1997, the Company leased 22,300
square feet of space for its liaison offices in Korea, mainland China, Taiwan
and Thailand.
At November 28, 1997, the Company operated 143 retail stores throughout
the country on leased premises which, in the aggregate, covered approximately
207,000 square feet of space. The Company also operates 58 children's footwear
departments in certain divisions of Federated Department Stores. In addition,
the Company is the lessee of 31 retail locations totaling approximately 35,000
square feet which are subleased to independent Stride Rite dealers and other
tenants.
For further information concerning the Company's lease obligations, see Note 8
to the Company's consolidated financial statements, which are contained in the
Annual Report to Stockholders and are incorporated by reference herein.
Management believes that all properties and facilities of the Company are
suitable, adequate and fit for their intended purposes.
Item 3. Legal Proceedings
On September 27, 1993, the Company announced that The Keds Corporation,
a wholly owned subsidiary of the Company, entered into settlement agreements
with the Attorneys General of all 50 states, the Corporation Counsel of the
District of Columbia and the Federal Trade Commission, to resolve various
investigations into Keds' adoption and enforcement of its suggested retail
pricing policy. In entering into these settlements, Keds, without admitting any
liability, fully settled suits brought by the Attorneys General in the United
States District Court for the Southern District of New York, in their parens
patriae capacity, on behalf of all consumers who purchased certain KEDS(R) shoes
during the relevant period. The settlements required Keds to pay $5.7 million to
several charities nationwide, as well as $1.5 million to provide nationwide
notice to potential class members and other administrative expenses. Keds has
agreed to the imposition of certain injunctive relief for a period of five years
ending August 31, 1998. Following preliminary Court approval on September 27,
1993, Keds paid the administrative costs and part of the settlement amount.
Following final court approval on March 28, 1994, Keds made the remaining
payments.
The Company is a party to various other litigations arising in the
normal course of business. Having considered available facts and opinions of
counsel handling these matters, management of the Company does not believe the
ultimate resolution of such litigations will have a material adverse effect on
the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information required by this item is included in the Registrant's 1997
Annual Report to Stockholders on pages 1, 23 and 30 and is incorporated
herein by reference.
Item 6. Selected Financial Data
The information required by this item is included in the Registrant's 1997
Annual Report to Stockholders on page 12 and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is included in the Registrant's 1997
Annual Report to Stockholders on pages 13 through 17 and is incorporated
herein by reference
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in the Registrant's 1997
Annual Report to Stockholders on pages 18 through 28 and is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information set forth under the caption
"Executive Officers of the Registrant" in Item 1 of Part I of this report and to
information under the captions "Information as to Directors and Nominees for
Director" and "Meetings of the Board of Directors and Committees" in the
Registrant's definitive proxy statement relating to its 1998 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after the
close of the Registrant's fiscal year ended November 28, 1997, all of which
information is incorporated herein by reference.
Item 11. Executive Compensation
Reference is made to the information set forth in the Registrant's
definitive proxy statement relating to its 1998 Annual Meeting of Stockholders
under the caption "Executive Compensation" and continuing through the caption
"Certain Transactions with Management" (excluding the information set forth
under the caption "Compensation Committee Report") which will be filed with the
Commission within 120 days after the close of the Registrant's fiscal year ended
November 28, 1997, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the caption
"Ownership of Equity Securities" in the Registrant's definitive proxy statement
relating to its 1998 Annual Meeting of Stockholders, which will be filed with
the Commission within 120 days after the close of the Registrant's fiscal year
ended November 28, 1997, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth under the caption
"Certain Transactions with Management" in the Registrant's definitive proxy
statement relating to its 1998 Annual Meeting of Stockholders, which will be
filed with the Commission within 120 days after the close of the Registrant's
fiscal year ended November 28, 1997, which information is incorporated herein by
reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) Financial Statements. The following financial statements and
financial statement schedules are contained herein or are incorporated herein
by reference:
Page in Form 10-K
Consolidated Balance Sheets as of November 28, 1997 and
November 29, 1996 *
Consolidated Statements of Income for the fiscal years ended November 28, 1997,
November 29, 1996 and December 1, 1995 *
Consolidated Statements of Cash Flows for the fiscal years ended November 28,
1997, November 29,
1996 and December 1, 1995 *
Consolidated Statements of Changes in Stockholders'
Equity for the fiscal years ended November 28, 1997,
November 29, 1996 and December 1, 1995 *
Notes to Consolidated Financial Statements *
Report of Independent Accountants *
Report of Independent Accountants on Financial
Statement Schedules F-1
Financial Statement Schedule for the fiscal years ended November 28, 1997,
November 29, 1996 and December 1, 1995:
Schedule II - Valuation and Qualifying Accounts F-2
Schedules other than those listed above are omitted because they are either not
required or the information is otherwise included.
* Incorporated herein by reference. See Part II, Item 8 on page 15 of this
Annual Report on Form 10-K.
<PAGE>
Exhibits. The following exhibits are contained herein or are incorporated
herein by reference:
Exhibit No. Description of Exhibit
3 (i) Restated Articles of Organization of the Registrant with
amendments thereto through November 28, 1986, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8 filed
on October 25, 1996.
(ii) Articles of Amendment dated April 7, 1987 to Restated Articles
of Organization, incorporated by reference from Exhibit 4(i)
to the Registrant's Form S-8 filed on October 25, 1996.
(iii) Articles of Amendment dated December 16, 1987 to Restated
Articles of Organization of the Registrant, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8 filed
on October 25, 1996.
(iv) Articles of Amendment dated December 3, 1991 to the Restated
Articles of Organization of the Registrant, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8 filed
on October 25, 1996.
(v) Certificate of Vote of Directors establishing a series of a
Class of Stock dated as of June 18, 1997.
(vi) By-laws of the Registrant, as amended -- Such document was
filed as Exhibit 3 of the Registrant's Form 10-Q for the
fiscal period ended June 1, 1990 and is incorporated herein by
reference.
4 (i) Reference is made to Exhibit 3(i), (ii), (iii) and (iv)
referred to above, which are expressly incorporated
herein by reference.
(ii) Rights Agreement dated June 18, 1997 between the Registrant
and BankBoston, N.A. - Such document was filed as Exhibit 1 to
the Registrant's Form 8-A dated July 1, 1997 and is
incorporated herein by reference.
<PAGE>
Exhibit No. Description of Exhibit
10 (i)* 1975 Executive Incentive Stock Purchase Plan of the
Registrant -- Such document was filed as Appendix A
to the Registrant's Prospectus relating to such Plan,
dated April 18, 1986, which was filed with the Commission
pursuant to Rule 424(b) promulgated under the Securities
Act of 1933, as amended, and is incorporated herein by
reference.
(ii)* 1995 Long-Term Growth Incentive Plan of the Registrant -- Such
document was filed as Exhibit 10(vi) to the Registrant's Form
10-K for the year ended December 2, 1994 and is incorporated
herein by reference.
(iii)* Form of executive termination agreement dated as of February
12, 1998. -- All officers with whom the Registrant entered
into such agreement and which are currently in effect and have
not been terminated and the date of each such agreement are
listed on Addendum 10(iii) attached hereto.
(iv)* Form of executive termination agreement dated as of February
12, 1998. All officers with whom the Registrant entered into
such agreement and which are currently in effect and have not
been terminated and the date of each such agreement are listed
on Addendum 10(iv) attached hereto.
(v)* 1994 Non-Employee Director Stock Ownership Plan -- Such Plan
was filed as Appendix A to the Registrant's Proxy Statement
for its 1994 annual meeting of stockholders, portions of which
were filed with the Commission on March 1, 1994 and is
incorporated herein by reference.
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
Exhibit No. Description of Exhibit
10 (vi)* Form of severance agreement dated February 22, 1995.
All executive officers with whom the Registrant entered
into such an agreement are listed on Addendum 10(vi)
attached hereto.
(vii)* Employment Agreement between the Registrant and Robert C.
Siegel dated November 4, 1997.
(viii)* Annual Incentive Compensation Plan amended and restated
as of December 11, 1997.
(ix)* 1998 Long-Term Growth Incentive Plan of the Registrant.
(x)* 1998 Non-Employee Director Stock Ownership Plan of the
Registrant.
(xi)* Senior Executive Annual Incentive Compensation Plan of the
Registrant.
11 Calculation of Net Income Per Share
13 Portions of Registrant's 1997 Annual Report to Stockholders
incorporated by reference into this Annual Report on
Form 10-K
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedules
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
fourth quarter of fiscal 1997.
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE STRIDE RITE CORPORATION THE STRIDE RITE CORPORATION
/s/ John M. Kelliher /s/ Robert C. Siegel
By: John M. Kelliher, Vice By: Robert C. Siegel, Chairman of
President, Finance the Board, President and
Treasurer Chief Executive Officer
(Principal Accounting Officer)
Date: February 12, 1998 Date: February 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert C. Siegel /s/ Donald R. Gant
Robert C. Siegel, Chairman of Donald R. Gant, Director
the Board of Directors,
President and Chief Executive
Officer Date: February 12, 1998
Date: February 12, 1998
/s/ Margaret A. McKenna /s/ Frank R. Mori
Margaret A. McKenna, Director Frank R. Mori, Director
Date: February 12, 1998 Date: February 12, 1998
/s/ Robert L. Seelert /s/ Myles J. Slosberg
Robert L. Seelert, Director Myles J. Slosberg, Director
Date: February 12, 1998 Date: February 12, 1998
/s/ W. Paul Tippett, Jr.
W. Paul Tippett, Jr., Director
Date: February 12, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors
of The Stride Rite Corporation:
Our report on the consolidated financial statements of The Stride Rite
Corporation has been incorporated by reference in this Annual Report on Form
10-K from the 1997 Annual Report to Stockholders of The Stride Rite Corporation
and appears on page 28 therein. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule listed
in the index on page 16 of this Annual Report on Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 8, 1998
F-1
<PAGE>
THE STRIDE RITE CORPORATION
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description Period Expenses Deductions Period
----------- ------------ ------------ ------------
Fiscal year ended December 1, 1995:
Deducted from assets:
Allowance for doubtful
<S> <C> <C> <C> <C>
accounts $5,861 $1,899 $3,418 (a) $4,342
Allowance for sales
discounts 2,770 2,428 2,401 (b) 2,797
========= ========== ========= ========
$8,631 $4,327 $5,819 $7,139
========= ========== ========= ========
Fiscal year ended November 29, 1996:
Deducted from assets:
Allowance for doubtful
accounts 4,342 1,214 2,108 (a) 3,448
Allowance for sales
discounts 2,797 2,667 1,740 (b) 3,724
========= ========== ========= =========
$7,139 $3,881 $3,848 $7,172
========= ========== ========= =========
Fiscal year ended November 28, 1997:
Deducted from assets:
Allowance for doubtful
accounts 3,448 1,140 846 (a) 3,742
Allowance for sales
discounts 3,724 3,294 1,754 (b) 5,264
========= ========== ========= ========
$7,172 $4,434 $2,600 $9,006
========= ========== ========= ========
</TABLE>
(a) Amounts written off as uncollectible.
(b) Amounts charged against the reserve.
F-2
<PAGE>
THE STRIDE RITE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Index to Exhibits
Exhibit No. Description of Exhibit Page No.
3 (v) Certificate of Vote of Directors establishing 25
a series of a Class of Stock dated as of
June 18, 1997.
10 (iii)* Form of executive termination agreement, 33
dated as of February 12, 1998. All
officers with whom the Registrant entered
into such agreement and which are currently
in effect and have not been terminated and
the date of each such agreement are listed
on Addendum 10(iii) attached hereto.
(iv)* Form of executive termination agreement, 50
dated as of February 12, 1998. All officers
with whom the Registrant entered into such
agreement and which are currently in effect
and have not been terminated and the date
of each such agreement are listed on Addendum
10(iv) attached hereto.
(vi)* Form of severance agreement dated February 22, 67
1995. All executive officers with whom the
Registrant entered into such an agreement
are listed on Addendum 10(vi)
attached hereto.
(vii)* Employment Agreement between the Registrant 68
and Robert C. Siegel dated November 4, 1997.
(viii)* Annual Incentive Compensation Plan amended 76
and restated as of December 11, 1997.
(ix)* 1998 Long-Term Growth Incentive Plan 83
of the Registrant.
(x)* 1998 Non-Employee Director Stock Ownership Plan. 92
(xi)* Senior Executive Annual Incentive Compensation 98
Plan.
11 Calculation of Net Income Per Share 104
13 Portions of Registrant's 1997 Annual Report to 105
Stockholders incorporated by reference into
this Annual Report on Form 10-K
21 Subsidiaries of the Registrant 138
23 Consent of Independent Accountants 139
27 Financial Data Schedules 140
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 3(v)
FEDERAL IDENTIFICATION
No. 04-1399290
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
Corporations Division
One Ashburton Place, Boston, MA 02108-1512
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
We, John M. Kelliher, Vice President, and Karen Crider, Clerk, of The
Stride Rite Corporation located at 191 Spring Street, P.O. Box 9191, Lexington,
Massachusetts 02173 do hereby certify that at a meeting of the directors of the
corporation held on June 18, 1997, the following vote establishing and
designating a series of a class of stock and determining the relative rights and
preferences thereof was duly adopted: (see pages 2A through 2E, attached)
NOTE: Votes for which the space provided above is not sufficient should be set
out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets must
have a left-hand margin 1 inch wide for binding and shall be 8 1/2" x 11". Only
one side should be used.
<PAGE>
VOTED, that pursuant to the authority granted to and vested in
the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Restated
Articles of Organization, as amended, the Board of Directors hereby amends the
Certificate of Vote of Directors (the "Certificate") establishing the Series A
Junior Participating Preferred Stock, par value $1.00 per share, of the
Corporation (the "Preferred Stock"), of which no shares have been issued to
date, by deleting the existing designation and amount of the Series A Junior
Participating Preferred Stock, the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations and restrictions set forth in the
Certificate (as adopted by the Board of Directors on July 2, 1987) in their
entirety and substituting the following:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 600,000.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $0.25 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Restated Articles of Organization, as amended, or in any
other Certificate of Vote creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount pershare, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A
Preferred Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall
rank, with respect to the payment of dividends and the distribution of assets,
junior to all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Restated Articles of Organization,
as amended, of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
<PAGE>
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 17 day of July in the year 1997.
/s/ John M. Kelliher, Vice President
/s/ Karen Crider, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Certificate of Vote of Directors Establishing
A Series of a Class of Stock
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and, the
filing fee in the amount of $100.00
having been paid, said certificate is hereby filed this
23rd day of July, 1997
A TRUE COPY ATTEST
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE 7/24/97 CLERK
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF CERTIFICATE TO BE SENT
TO:
C T CORPORATION SYSTEM
2 Oliver Street
Boston, Massachusetts 02109
Telephone (617) 482-4402
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 10(iii)
EMPLOYMENT AGREEMENT
AGREEMENT by and between The Stride Rite Corporation, a
Massachusetts corporation (the "Company"), and (the "Executive"), dated as of
the 12th day of February, 1998.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean
the first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated within 18-months prior
to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
Notwithstanding the foregoing, the Company reserves the right to terminate this
Agreement without notice in connection with any substantial change in the duties
or responsibilities of the Executive to those deemed by the Board as not
consistent with or appropriate to a key managerial position within the Company;
provided, that such termination of this Agreement is not in connection with, in
anticipation of, or following a Change of Control.
2. Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (iv) any acquisition
pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2 or (v) any acquisition of
less than 25% of the Outstanding Common Stock or Outstanding Company
Voting Securities by a Person who certifies that such securities are
not being acquired or held for the purpose of and will not have the
effect of changing or influencing the control of the Company and are
not being acquired in connection with or as a participant in any
transaction having such purpose or effect, only for so long as such
Person can continue to make such certification; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
entity (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the third anniversary
of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned to the Executive at
any time during the 120-day period immediately preceding the Effective Date and
(B) the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or any office
or location less than 40 miles from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any base salary which
has been earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's target bonus under the Company's Annual Incentive
Compensation Plan, or any comparable target bonus under any predecessor or
successor plan (the "Annual Bonus Plan"), for the last full fiscal year prior to
the Effective Date (the "Target Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies. Notwithstanding any provision of the Company's 1975 Executive
Incentive Stock Purchase Plan (the "1975 Plan"), restrictions on the sale or
disposition, and obligations to offer to resell to the Company, to which common
stock of the Company issued to the Executive upon exercise of rights to purchase
common stock ("Rights") granted under such plan are subject shall be removed
immediately prior to the Change of Control and all such shares of common stock
shall be declared to be free and clear of all such restrictions and obligations.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
at any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative. During any period prior to the Disability Effective Date
that the Executive fails to perform the Executive's duties hereunder as a result
of incapacity due to physical or mental illness, the Executive shall continue to
receive the Annual Base Salary then in effect and all compensation, including
under the Annual Bonus Plan and any incentive compensation plan or program,
otherwise payable during such period.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the Effective Date;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with
and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on which the Company notifies the Executive of such termination and (iii)
if the Executive's employment is terminated by reason of death or Disability,
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a)
Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability or the Executive shall terminate employment
for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination and any incentive
compensation earned by the Executive for any period ended
prior to the Date of Termination under the Company's Annual
Incentive Compensation Plan or any other incentive
compensation plan or program of the Company to the extent not
theretofore paid, (2) the product of (x) the Target Bonus and
(y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2), and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1)
three and (2) the sum of (x) the Executive's Annual Base
Salary, (y) the Target Bonus and (z) "Dividend Equivalents"
(as defined in the 1975 Plan) on vested and unvested Rights
held by the Executive under such plan immediately prior to the
Change of Control, assuming that the dividend for purposes of
calculating the Dividend Equivalents is the same as the
aggregate dividend paid on the Company's common stock for the
last full year prior to the Change of Control; and
C. an amount equal to the difference between
(a) the aggregate benefit under the Company's qualified
defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined
benefit retirement plans in which the Executive participates
(collectively, the "SERP") which the Executive would have
accrued (whether or not vested) if the Executive's employment
had continued for three years after the Date of Termination
and (b) the actual vested benefit, if any, of the Executive
under the Retirement Plan and the SERP, determined as of the
Date of Termination (with the foregoing amounts to be computed
on an actuarial present value basis, based on the assumption
that the Executive's compensation in each of the three years
following such termination would have been that required by
Section 4(b)(i) and Section 4(b)(ii), and using actuarial
assumptions no less favorable to the Executive than the most
favorable of those in effect for purposes of computing benefit
entitlements under the Retirement Plan and the SERP at any
time from the day before the Effective Date) through the Date
of Termination;
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's employment had
not been terminated (and at a cost to the Executive no greater than the
cost to the Executive under such plans, programs, practices and
policies) or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer-provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services for one-year
following the Executive's Date of Termination the scope and provider of
which shall be pursuant to the Company's outplacement policy in effect
during the 120-day period immediately preceding the Effective Date; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) the Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and except as specifically provided in Section 6(a)(ii), such amounts shall not
be reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability or entitlement under, any
provision of this Agreement or any guarantee of performance thereof (whether
such contest is between the Company and the Executive or between either of them
and any third party, and including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration or vesting of any payment, award,
benefit or distribution) by the Company (or any of its affiliated entities) or
by any entity which effectuates a Change of Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any corresponding provisions
of state or local tax laws, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. The payment of a Gross-Up
Payment under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated as
"parachute payments" under Section 280G of the Code does not exceed 110% of the
greatest amount (the "Safe Harbor Amount") that could be paid to the Executive
such that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the amounts payable under
this Agreement shall be reduced so that the Payments, in the aggregate, are
reduced to the Safe Harbor Amount. The reduction of the amounts payable
hereunder, if applicable, shall be made by first reducing the payments under
Section 6(a)(i)(B), unless an alternative method of reduction is elected by the
Executive. For purposes of reducing the Payments to the Safe Harbor Amount, only
amounts payable under this Agreement (and no other Payments) shall be reduced.
If the reduction of the amounts payable under this Agreement would not result in
a reduction of the Payments to the Safe Harbor Amount, no amounts payable under
this Agreement shall be reduced pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Coopers & Lybrand or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts, without reference to principles of conflict of laws. The captions
of this Agreement are not part of the provisions hereof and shall have no force
or effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
If to the Company:
The Stride Rite Corporation
191 Spring Street
Lexington, MA 02173
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, prior to the Effective Date, the Executive's employment may be
terminated by either the Executive or the Company, in which case the Executive
shall have no further rights under this Agreement. During the Employment Period,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof, including, without limitation, the right
of the Executive to participate in any severance plan of the Company or
otherwise receive severance benefits from the Company.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
Executive
THE STRIDE RITE CORPORATION
By:
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Addendum 10(iii)
Joanna M. Jacobson February 12, 1998
John M. Kelliher February 12, 1998
Robert B. Moore, Jr. February 12, 1998
John R. Ranelli February 12, 1998
C. Madison Riley III February 12, 1998
Robert C. Siegel February 12, 1998
Diane M. Sullivan February 12, 1998
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 10(iv)
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between The Stride Rite Corporation, a
Massachusetts corporation (the "Company"), and (the "Executive"), dated as of
the 12th day of February, 1998.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean
the first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated within 18-months prior
to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the second anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
Notwithstanding the foregoing, the Company reserves the right to terminate this
Agreement without notice in connection with any substantial change in the duties
or responsibilities of the Executive to those deemed by the Board as not
consistent with or appropriate to a key managerial position within the Company;
provided, that such termination of this Agreement is not in connection with, in
anticipation of, or following a Change of Control.
2. Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (iv) any acquisition
pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2 or (v) any acquisition of
less than 25% of the Outstanding Common Stock or Outstanding Company
Voting Securities by a Person who certifies that such securities are
not being acquired or held for the purpose of and will not have the
effect of changing or influencing the control of the Company and are
not being acquired in connection with or as a participant in any
transaction having such purpose or effect, only for so long as such
Person can continue to make such certification; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
entity (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the second anniversary
of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned to the Executive at
any time during the 120-day period immediately preceding the Effective Date and
(B) the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or any office
or location less than 40 miles from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any base salary which
has been earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's target bonus under the Company's Annual Incentive
Compensation Plan, or any comparable target bonus under any predecessor or
successor plan (the "Annual Bonus Plan"), for the last full fiscal year prior to
the Effective Date (the "Target Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies. Notwithstanding any provision of the Company's 1975 Executive
Incentive Stock Purchase Plan (the "1975 Plan"), restrictions on the sale or
disposition, and obligations to offer to resell to the Company, to which common
stock of the Company issued to the Executive upon exercise of rights to purchase
common stock ("Rights") granted under such plan are subject shall be removed
immediately prior to the Change of Control and all such shares of common stock
shall be declared to be free and clear of all such restrictions and obligations.
(iv) Welfare Benefit Plans. During the
Employment Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
at any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii)Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative. During any period prior to the Disability Effective Date
that the Executive fails to perform the Executive's duties hereunder as a result
of incapacity due to physical or mental illness, the Executive shall continue to
receive the Annual Base Salary then in effect and all compensation, including
under the Annual Bonus Plan and any incentive compensation plan or program,
otherwise payable during such period.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the Effective Date;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with
and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on which the Company notifies the Executive of such termination and (iii)
if the Executive's employment is terminated by reason of death or Disability,
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a)
Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, the Company shall terminate the Executive's employment other
than for Cause or Disability or the Executive shall terminate employment for
Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination and any incentive
compensation earned by the Executive for any period ended
prior to the Date of Termination under the Company's Annual
Incentive Compensation Plan or any other incentive
compensation plan or program of the Company to the extent not
theretofore paid, (2) the product of (x) the Target Bonus and
(y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2), and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1)
two and (2) the sum of (x) the Executive's Annual Base Salary,
(y) the Target Bonus and (z) "Dividend Equivalents" (as
defined in the 1975 Plan) on vested and unvested Rights held
by the Executive under such plan immediately prior to the
Change of Control, assuming that the dividend for purposes of
calculating the Dividend Equivalents is the same as the
aggregate dividend paid on the Company's common stock for the
last full year prior to the Change of Control; and
C. an amount equal to the difference between
(a) the aggregate benefit under the Company's qualified
defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined
benefit retirement plans in which the Executive participates
(collectively, the "SERP") which the Executive would have
accrued (whether or not vested) if the Executive's employment
had continued for two years after the Date of Termination and
(b) the actual vested benefit, if any, of the Executive under
the Retirement Plan and the SERP, determined as of the Date of
Termination (with the foregoing amounts to be computed on an
actuarial present value basis, based on the assumption that
the Executive's compensation in each of the two years
following such termination would have been that required by
Section 4(b)(i) and Section 4(b)(ii), and using actuarial
assumptions no less favorable to the Executive than the most
favorable of those in effect for purposes of computing benefit
entitlements under the Retirement Plan and the SERP at any
time from the day before the Effective Date) through the Date
of Termination;
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's employment had
not been terminated (and at a cost to the Executive no greater than the
cost to the Executive under such plans, programs, practices and
policies) or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer-provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services for one-year
following the Executive's Date of Termination the scope and provider of
which shall be pursuant to the Company's outplacement policy in effect
during the 120-day period immediately preceding the Effective Date; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) the Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and except as specifically provided in Section 6(a)(ii), such amounts shall not
be reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability or entitlement under, any
provision of this Agreement or any guarantee of performance thereof (whether
such contest is between the Company and the Executive or between either of them
and any third party, and including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration or vesting of any payment, award,
benefit or distribution) by the Company (or any of its affiliated entities) or
by any entity which effectuates a Change of Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any corresponding provisions
of state or local tax laws, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. The payment of a Gross-Up
Payment under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated as
"parachute payments" under Section 280G of the Code does not exceed 110% of the
greatest amount (the "Safe Harbor Amount") that could be paid to the Executive
such that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the amounts payable under
this Agreement shall be reduced so that the Payments, in the aggregate, are
reduced to the Safe Harbor Amount. The reduction of the amounts payable
hereunder, if applicable, shall be made by first reducing the payments under
Section 6(a)(i)(B), unless an alternative method of reduction is elected by the
Executive. For purposes of reducing the Payments to the Safe Harbor Amount, only
amounts payable under this Agreement (and no other Payments) shall be reduced.
If the reduction of the amounts payable under this Agreement would not result in
a reduction of the Payments to the Safe Harbor Amount, no amounts payable under
this Agreement shall be reduced pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Coopers & Lybrand or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and itssuccessors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts, without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
If to the Company:
The Stride Rite Corporation
191 Spring Street
Lexington, MA 02173
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, prior to the Effective Date, the Executive's employment may be
terminated by either the Executive or the Company, in which case the Executive
shall have no further rights under this Agreement. During the Employment Period,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof, including, without limitation, the right
of the Executive to participate in any severance plan of the Company or
otherwise receive severance benefits from the Company.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
Executive
THE STRIDE RITE CORPORATION
By:
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Addendum 10(iv)
Joseph T. Barrell February 12, 1998
Frank A. Caruso February 12, 1998
Howard B. Collins, Jr. February 12, 1998
Janet M. DePiero February 12, 1998
Dennis Garro February 12, 1998
Patrick J. Hogan February 12, 1998
Lorie M. Karnath February 12, 1998
Gerrald B. Silverman February 12, 1998
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Addendum 10(vi)
Robert C. Siegel
Joseph T. Barrell
Frank A. Caruso
Howard B. Collins, Jr.
Karen K. Crider
Janet M. DePiero
Dennis Garro
Patrick J. Hogan
Joanna M. Jacobson
Lorie M. Karnath
John M. Kelliher
Robert B. Moore, Jr.
John R. Ranelli
C. Madison Riley III
Gerrald B. Silverman
Diane M. Sullivan
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 10(vii)
Employment Agreement
This contract of employment (the "Agreement") is entered into as of this 4th day
of November, 1997 by and between The Stride Rite Corporation (the "Company") and
Robert C. Siegel ("Executive").
The Company desires to employ Executive in the capacities of Chairman, Chief
Executive Officer and President of the Company, and
Executive desires to be employed by the Company in the capacities of Chairman,
Chief Executive Officer and President,
The Company and Executive agree as follows:
1. Employment. The Company hereby agrees to and does hereby employ Executive,
and Executive hereby agrees to and does hereby enter the employ of the Company
for the period set forth in Section 2 below in the positions and with the duties
and responsibilities set forth in Section 3 below, and upon the terms and
conditions set forth in this Agreement.
2. Employment Period. The Employment Period shall commence on December 1, 1997
and unless sooner terminated as expressly provided below, shall continue until
the close of business on December 15, 1998 (the "Employment Period").
3. Positions. It is contemplated that during the Employment Period, Executive
shall serve as a principal officer of the Company with the offices and titles of
Chairman, Chief Executive Officer and President, reporting directly to the Board
of Directors. With respect to those offices, Executive shall have powers and
duties as provided in the Company's Bylaws in effect as of the date of this
Agreement and as those may be amended from time to time during the Employment
Period.
4. Performance. Throughout the Employment Period, Executive agrees to devote his
full time and undivided attention to the business and affairs of the Company,
and in particular to the performance of all of the duties and responsibilities
of the Chairman, Chief Executive Officer and President of the Company, and as a
director of each of its subsidiaries, except for reasonable vacation and except
for temporary illness or incapacity. Executive shall be entitled to up to four
(4) weeks of vacation per year.
Executive shall serve the Company and each of its subsidiaries loyally,
diligently and effectively and at all times exert his best efforts to promote
the success of their respective activities. Executive shall discharge his duties
and responsibilities in an efficient, trustworthy and businesslike manner and
shall do nothing which will in any way impair or prejudice the name or
reputation of the Company or any of its subsidiaries.
Nothing in this Agreement shall preclude Executive from devoting reasonable
periods required for:
a. serving as director, trustee or member of a committee of any
organization involving no conflict of interest with the interests of the
Company;
b. engaging in charitable and community activities; and
c. managing his personal investments;
provided that such activities do not, individually or collectively, interfere
with the regular performance of Executive's duties and responsibilities under
this Agreement.
5. Salary and Incentive Compensation. During the Employment Period Executive
shall be entitled to compensation from the Company as follows:
a. For all services to be rendered by Executive to the Company during the
Employment Period, including, without limitation, services as an executive,
officer, director, employee or member of any committee of the Company or its
subsidiaries, divisions, business units or affiliates, Executive shall be paid
compensation in the form of a base or fixed salary, payable not less often than
once each month, at the annual rate of Six Hundred Fifty Thousand Dollars
($650,000) effective December 1, 1997, with the opportunity for periodic annual
reviews and increases in such rate as shall be determined in the sole discretion
of the Board of Directors.
b. Executive shall be paid additional compensation in the form of incentive
compensation as follows:
i. Executive shall be an "Eligible Employee" as that term is defined in
the Company's Annual Incentive Compensation Plan (the "Annual Incentive Plan")
and may receive incentive compensation as provided by its terms. Pursuant to the
Annual Incentive Plan, Executive's "Bonus Percentage" will be 50%. Executive's
participation in the Annual Incentive Plan is subject to the terms and
conditions of the Annual Incentive Plan, or any amended version of the Annual
Incentive Plan or any successor or other annual incentive compensation plan
which may be adopted and become legally effective during the Employment Period.
ii. For the 1997 Fiscal Year, the Company will pay the Executive
pursuant to the Annual Incentive Plan a Bonus of Eight Hundred Seventeen
Thousand Five Hundred Dollars ($817,500) on February 16, 1998, provided the
Corporation achieves 125% or greater of the Corporate Incentive Goal pursuant to
Section 4.4(b) of Annual Incentive Plan. If the Corporation achieves less than
125% of the Corporate Incentive Goal then the Bonus will be pro-rated per the
established matrix and the bonus award will be the maximum under the
performance/allocation matrix subject to the Board of Director's discretion.
iii. The Company acknowledges that in its agreement with Executive
dated October 21, 1993, in order to replace long term benefits forfeited by
Executive by leaving his prior employment and thereby to encourage Executive to
accept employment with the Company, it granted to Executive rights to purchase
60,000 shares of the Company's common stock at a purchase price of $.25 per
share subject to all the terms and conditions of the Company's 1975 Executive
Incentive Purchase Plan, as amended ("Incentive Stock Plan"), which rights have
fully vested in the Executive. The Company shall pay to Executive (or in the
case of death, to Executive's legal representative) on December 11, 1997 a cash
amount equal to the excess, if any, of Nine Hundred Fifty-One Thousand
($951,000) Dollars and the cost of purchasing the stock (twenty-five cents per
share or Fifteen Thousand ($15,000) Dollars), which total Nine Hundred Sixty-Six
Thousand ($966,000) Dollars over the aggregate fair market value on December 11,
1997, of 60,000 shares of the Company's common stock, whether or not the shares
have actually been acquired or disposed of by Executive, plus the aggregate
gain, if any, realized by Executive on any of the shares acquired and resold
after December 13, 1993 at a price exceeding $15.85 per share.
As used herein, "fair market value" shall mean the closing price for
the Company's common stock on the New York Stock Exchange - Composite Index on
December 11, 1997.
iv. At the Board of Directors Meeting on December 11, 1997, the Board
agrees to grant the Executive a grant of options to purchase 100,000 shares of
common stock of The Stride Rite Corporation at the fair market value of the
stock at the close of trading on December 11, 1997 pursuant to the terms of the
Company's 1998 Long-Term Growth Incentive Plan of which one-third of the shares
will vest one year from December 11, 1997, one-third of the shares will vest two
years from December 11, 1997, and one-third of the shares will vest three years
from December 11, 1997.
c. In the event of the death of Executive during the Employment Period, the
legal representative of Executive shall be entitled to the base or fixed salary
provided for in Section 5(a) above for the month in which the death shall have
occurred, at the rate being paid at the time of death, and the Employment Period
shall be deemed to have ended as of the close of business on the last day of the
month in which the death shall have occurred, but without prejudice to any
payments otherwise due in respect of Executive's death, including any payment
under Section 5(b)(ii), or to any rights that Executive's legal representative
may have to exercise stock purchase rights granted to Executive.
6. Perquisites. During the Employment Period, Executive shall be entitled to
perquisites as follows:
a. Executive shall be provided with an appropriate office and secretarial and
clerical staff.
b. Reimbursement of Executive's lease of an automobile (the "Vehicle"), shall be
provided by the Company pursuant to the Company's leased car policy as currently
in effect. Under the Company's leased car policy, an amount of up to $10,000 per
year will be paid by the Company to Executive to reimburse lease payments,
insurance and maintenance costs of the Vehicle. Should costs for the Vehicle
exceed that allowance, Executive will be responsible for payment of any
differential. Executive shall be responsible for the cost of fuel consumed in
the use of the Vehicle. Pursuant to the Company's current automobile policy, the
Company will pay Executive a mileage allowance as reimbursement for the use of
the Vehicle in conducting Company business.
c. The Company shall reimburse Executive for up to $5,000.00 per year for the
Executive's use of personal financial planning services.
7. Employment Benefits; Life Insurance. At the normal employee contribution rate
to Executive, the Company will provide Executive with medical coverage for
Executive and eligible members of Executive's family, insurance on his life
equal to One Million Dollars ($1,000,000) payable to a beneficiary designated by
Executive (in lieu of coverage available under the usual terms of the life
insurance policy which the Company offers) and long-term disability coverage.
Executive shall also be entitled to participate in all of the various employee
benefit plans which the Company maintains and/or adopts during the Employment
Period, including a defined benefit Retirement Plan and various elective
programs, including, without limitation, a dental insurance plan, Employee Stock
Purchase Plan, Deferred Compensation Plan and Employee Savings and Investment
Plan (pursuant to Section 401K of the Internal Revenue Code of 1986, as
amended), subject to their respective terms and requirements, including, without
limitation, their eligibility and vesting requirements.
Nothing in this Agreement shall preclude the Company from amending or
terminating any employee benefit plan or practice, but it is the intent of the
parties that Executive shall continue to be entitled during the Employment
Period to benefits at least equal in the aggregate to those attached to his
position as of the date of this Agreement.
8. Residence Requirement. Executive agrees that during his employment with the
Company his residence and that of his family will remain in the greater
Boston (Massachusetts) area.
9. Termination of Employment. Executive hereby acknowledges and agrees that the
Company by entering into this Agreement shall not be deemed to have waived any
of its rights during the Employment Period or thereafter, including, without
limitation, the right to terminate Executive's employment for any reason.
If by December 11, 1998 this Agreement is not further extended or replaced by a
new agreement regarding employment, the Employment Period will end and
Executive's employment as Chairman, Chief Executive Officer and President of the
Company and all of its subsidiaries deemed terminated on December 15, 1998
(provided that employment is not otherwise terminated for cause). Upon such
termination, or if the Company terminates Executive's employment during the
Employment Period for any reason other than for Cause (as defined below), the
Company shall pay Executive a monthly severance allowance payable at the end of
each month following termination of Executive's employment until the earliest of
(a) twelve months following the Company's termination of Executive's employment,
or (b) the date of Executive's death. Such monthly severance allowance shall be
an amount equal to the monthly fixed or base salary paid to Executive pursuant
to Section 5(a) of the Agreement at the time of the termination of his
employment. In addition, until the earlier of (i) the Executive's reemployment
(other than self-employment or employment by an entity which does not provide
comparable medical benefits to employees), or (ii) the end of the Employment
Period, the Executive shall continue to be entitled to participate (without cost
to the Executive) in the Company's medical and dental insurance programs and the
Executive's life insurance benefit as provided by this Agreement shall be
continued. In addition, the Executive shall be entitled to any cash payments
provided by Sections 5(b)(ii) and 5(b)(iii), any payments earned pursuant to the
terms of the Annual Incentive Plan and the Long-Term Plan, and any rights to
exercise the vested portion of stock options granted to the Executive.
If Executive's employment with the Company is terminated on account of
Executive's death or permanent disability, then except for (i) the cash payments
provided by Section 5(b)(ii) and (iii) and 5(c) of this Agreement, (ii) any
payments earned pursuant to the terms of the Annual Incentive Plan and the
Long-Term Plan and (iii) the rights of Executive or his legal representative to
exercise the vested portion of stock options granted to the Executive, payment
to Executive or Executive's estate will be made exclusively under the Company's
applicable death or disability plans or policies.
If Executive's employment is terminated during the Employment Period for Cause,
then the Executive shall not be entitled to receive any severance allowance or
compensation of any kind except (i) incentive compensation which may have been
fully earned pursuant to the terms and conditions of the Annual Incentive Plan
and/or the Long-Term Plan; (ii) any cash payments provided by Section 5(b)(ii)
and (iii); and (iv) any rights of the Executive not forfeited on account of such
termination to exercise the vested portion of the stock options granted to the
Executive. Also upon such termination, Executive will not be entitled to
continue any of the Company's employee benefits, including any benefits provided
in this Agreement or under the Company's medical, dental, health and life
insurance plans (except to the extent the same may be required by law), or to
perquisites of any kind, from and after the date upon which Executive's
employment is terminated. For the purposes of this section and any other
provision of this Agreement, termination of Executive's employment shall be
deemed to have been for Cause only if:
a. termination of his employment shall have been so deemed by the Board
of Directors of the Company by virtue of (i) an act or acts of dishonesty, (ii)
commission of a felony or act of moral turpitude, (iii) a wrongful act or acts
resulting or intended to result directly or indirectly in gain or personal
enrichment at the expense of the Company, (iv) a willful act or acts which
constitute a material violation or violations of the federal securities laws, or
(v) a willful act or acts which constitute material insubordination or a
material violation of the Company's Conflict of Interest policy or any of its
other policies communicated to Executive in writing; or
b. there has been a breach by Executive during the Employment Period of
any of the material provisions of this Agreement, and, with respect to any
alleged breach, that Executive shall have failed to remedy such alleged breach
within thirty (30) days from his receipt of written notice from the Clerk of the
Company pursuant to the resolution duly adopted by the Board of Directors of the
Company after notice to Executive and an opportunity to be heard demanding that
Executive remedy such alleged breach.
If Executive's employment is terminated by his voluntary resignation other than
"Good Reason" as defined in the Severance Agreement referred to in Section 14(c)
of this Agreement, Executive shall not be entitled to payment of any severance
allowance, or compensation of any kind except (i) incentive compensation which
may have been fully earned pursuant to the terms and conditions of the Annual
Incentive Plan and/or the Long-Term Plan; and (ii) any rights of Executive not
forfeited on account of such termination to exercise the vested portion of stock
options granted to the Executive. Also in the event of such termination
Executive will not be entitled to the continuance of any of the Company's
employee benefits or perquisites of any kind.
On termination of Executive's employment with the Company for any reason the
Executive will be required as a condition precedent for payment under the
arrangements provided for in this Section 9 to submit his resignation as a
director of the Company and all of its subsidiaries to the Company's Board of
Directors, which resignation as a director will only be effective upon
acceptance by the Board of Directors, to execute a release acknowledging full
and final settlement of all claims arising from his employment and to provide
reasonable cooperation to the Company.
10. Agreement Not to Compete. Executive hereby covenants and agrees that for a
period of one (1) year following termination of Executive's employment with the
Company for any reason, Executive will not, directly or indirectly, within the
United States (being the area in which the Company's business is conducted), in
any capacity, enter into or engage in the same or a substantially similar
business as that conducted and carried on by the Company and being directly
competitive with the Company or any of its business units or subsidiaries,
including, but not limited to, specialty retailing of infant's, toddler's and
children's footwear, the design, manufacture of footwear of any type on the
wholesale level, and any and all components of the foregoing, whether as an
individual for his own account, or as a partner, joint venture, employee, agent,
consultant, officer or director for or with any person or entity, or as a
shareholder (greater than one percent (1%) of any corporation), or otherwise.
11. Agreement of Confidentiality. With respect to any secret, proprietary or
confidential information obtained by Executive during his employment at the
Company, except with the prior written agreement of the Company, which consent
shall be granted or withheld in the sole discretion of the Company, Executive
will not, at any time, disclose or use for competitive purposes (other than the
Company's competitive purposes) any such information. For purposes hereof,
secret, proprietary or confidential information shall include, by way of example
but not by way of limitation, any information of a technical, financial,
commercial or other nature pertaining to the business of the Company or to that
of any of its clients, customers, consultants, licensees, business units,
subsidiaries or affiliates, including but not limited to, its and their
operations, plans, financial condition, product development, customers, sources
of supply, manufacturing techniques or procedures, marketing, sales, production
or other competitive information acquired by Executive during the course of his
employment by the Company and all other information that the Company itself does
not disclose to the public.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed to Executive at 30 Hayden Road, Brookline, Massachusetts 02146; and to
the Company at 191 Spring Street, Lexington, Massachusetts 02173 (or at such
other address to which it may relocate its headquarters during the term of this
Agreement), directed to the Board of Directors with a copy of the Clerk of the
Company.
13. Heirs and Successors Bound. This Agreement shall be binding upon the
heirs, administrators and executors of Executive and upon the successors or
assigns of the Company.
14. Miscellaneous.
a. No provision of this Agreement may be modified, waived or discharged, unless
such waiver, modification or discharge is agreed to in writing and signed by
Executive and such officer as may be specifically designated by the Board of
Directors. No waiver by either party hereto at any time of any breach by the
other party hereto of, or in compliance with any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
b. Executive agrees that the remedy at law for any breach by Executive of the
provisions of Sections 10 or 11 of this Agreement will be inadequate and that
the Company will also be entitled to injunctive relief without bond against any
such breach. Such injunctive relief will not be exclusive but will be in
addition to any other relief that the Company may have.
c. The Employment Agreements dated 21st October 1993 and December 11, 1996
between Executive and the Company are each superseded by this Agreement and of
no further force or effect. There are no agreements or understandings, oral or
written, between the parties hereto other than those set forth in this
Agreement, and there are no agreements or understandings which in any way alter,
modify, amend or otherwise change this Agreement, with the exception of a
certain Severance Agreement between Executive and the Company, dated as of
February 17, 1995, as such may be further modified, amended or replaced (the
"Severance Agreement"). If a "change in control" as defined in the Severance
Agreement occurs during the Employment Period which triggers the terms of the
Severance Agreement, the parties agree that the Severance Agreement shall
thenceforth be deemed to supersede this Agreement in all respects, except that
Executive shall retain all his rights under Section 5(b)(ii) and (iii).
d. The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts applicable to
instruments under seal.
e. The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
f. This Agreement may be executed in two counterparts, each of which shall be
deemed an original but all of which together will constitute one and the same
instrument.
g. The section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
Agreed and accepted this 4th day of November, 1997.
THE STRIDE RITE CORPORATION EXECUTIVE
Signed: /s/ Frank Mori Signed: /s/ Robert C. Siegel
Frank Mori, Chairman of the Compensation Robert C. Siegel
Committee of the Board of Directors
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 10(viii)
THE STRIDE RITE CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN
(Amended and Restated Effective As of December 11, 1997)
ARTICLE I
Introduction
The purpose of The Stride Rite Corporation Annual Incentive
Compensation Plan is to provide incentives to key employees of the Company to
enhance the value of the Company. By offering annual financial rewards, the Plan
can recognize contributions made by individual Eligible Employees in the
attainment of important operating objectives. It is also anticipated that the
Plan will help the Company attract and retain the highest quality employees
available.
ARTICLE II
Definitions
2.1. "Board" shall mean the Board of Directors of the Company.
2.2 "Bonus Allocation" shall mean that amount of a Participant's Bonus
Percentage which is allocable to the Participant's Bonus Pool in accordance with
Section 4.4(c).
2.3. "Bonus Award" shall mean the amount of award (if any) made to
a Participant under the Plan in a Plan Year.
2.4. "Bonus Percentage" shall mean that percentage of a
Participant's annual base salary rate (as of the date the Bonus Percentage is
determined) upon which a Bonus Award is calculated. Bonus Percentage may not
exceed 50%.
2.5 "Bonus Pool" shall mean the sum total of the Bonus Allocations of
all the Participants whose Bonus Awards are subject to (i) the Corporate Income
Goal and the same Divisional Goal or (ii) the Corporate Income Goal and the
Combined Divisional Goal.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Combined Divisional Goal" shall mean, for any Plan Year, the
sum of all Divisional Goals.
2.8 "Committee" shall mean the Compensation Committee of the
Board.
2.9 "Company" shall mean The Stride Rite Corporation and its
successors and assigns.
2.10 "Corporate Income" shall mean, for any Plan Year, the consolidated
pre-tax income generated by the Company. For purposes of the Plan, Corporate
Income for any Plan Year shall be determined by the Committee, in its sole
discretion, in accordance with generally accepted accounting principles and
after accounting for non-operating income or expenses and before accounting for
federal income taxes.
2.11 "Corporate Income Goal" shall mean, for any Plan Year, that amount
of Corporate Income which the Committee targets for achievement in the Plan
Year.
2.12 "Covered Employee" means a participant designated prior to the
Plan Year (or within the first 90 days after the beginning of the Plan Year),
who is or may be a "covered employee" within the meaning of Section 162(m) of
the Code.
2.13 "Divisional Goal" shall mean, for any Plan Year, that amount of
pre-tax income which the Committee targets for achievement in the Plan Year for
a division of the Company.
2.14 "Eligible Employee" shall mean a full-time salaried employee of
the Company who is a director or officer of the Company or who is employed in a
managerial or professional position which the Committee determines can
materially affect overall corporate operating results and provide a significant
opportunity to contribute to current earnings and the future success of the
Company.
2.15 "Incentive Goal" shall mean, for any Participant, the Corporate
Income Goal and/or Divisional Goal assigned to the Participant.
2.16 "Participant" shall mean any Eligible Employee who has been
designated as such by the Committee pursuant to Article III to participate in
the Plan for a Plan Year.
2.17 "Plan" shall mean The Stride Rite Corporation Annual Incentive
Compensation Performance Plan.
2.18 "Plan Year" shall mean the fiscal year of the Company.
2.19 "Threshold Corporate Result" shall mean, for any Plan Year, the
minimum level of Corporate Income which the Committee determines must be
generated in a Plan Year as a condition precedent to the payment of any Bonus
Award which the Committee establishes for the Plan Year.
2.20 "Total Disability" shall mean the permanent inability of a
Participant, as a result of accident or sickness, to perform any and every duty
pertaining to such Participant's occupation or employment for which the
Participant is suited by reason of the Participant's previous training,
education and experience.
ARTICLE III
Eligibility
For each Plan Year the Committee shall designate Participants from
among Eligible Employees who are employee-directors of the Company or who hold
the title of President of any division and/or any other Eligible Employees who
report directly to the Chief Executive Officer of the Company or who are Covered
Employees. All other Participants shall be designated from among Eligible
Employees by the Chief Executive Officer of the Company or by such other officer
as he or she may designate.
Participants shall be selected prior to the commencement of each Plan
Year. During the Plan Year other Participants may be added by the Committee
because of promotion, hiring or other reasons warranting their inclusion or
Participants may be excluded by the Committee or the Chief Executive Officer of
the Company by reason of demotion or other reasons warranting exclusion.
ARTICLE IV
Annual Bonuses
4.1. Establishment of Corporate Income Goal and Divisional Goals.
Before the beginning of each Fiscal Year of the Company, the Committee shall, in
consultation with the Chief Executive Officer of the Company, establish the
Threshold Corporate Result, Corporate Income Goal and Divisional Goal for each
of the Company's divisions, pursuant to which, annual bonuses shall be payable,
if at all, under the Plan to a Participant with respect to such fiscal year's
performance.
4.2 Assignment of Incentive Goals.
(a) At the time each Eligible Employee is designated as a Participant
pursuant to Article III, he or she shall be notified of such designation by the
Committee and shall be assigned at least one, but no more than two, Incentive
Goals by the Committee. If the Committee determines that a Participant's
position is substantially tied to and functional at the divisional level, one of
the Incentive Goals shall be the Corporate Income Goal, which shall be 50% of
the Participant's bonus opportunity in any Plan Year. Such a Participant shall
also be assigned as a second Incentive Goal, the Divisional Goal of his or her
respective Division, which shall also be weighted at 50%. A Participant whose
position is not determined to be substantially tied to and functional at the
divisional level shall be assigned a Corporate Income Goal which shall represent
50% of the Participant's bonus opportunity. The other 50% of such a
Participant's bonus opportunity will be based on the Combined Divisional Goal.
(b) The Bonus Percentage shall be confirmed and Incentive Goals
assigned by (i) the Committee with respect to the Chairman and Chief Executive
Officer of the Company, (ii) by the Committee upon the recommendation of the
Chief Executive Officer of the Company with respect to other employee-directors
of the Company, division Presidents and other Participants who report directly
to the Chief Executive Officer or who are Covered Employees, and (ii) the Chief
Executive Officer with respect to any other Participants.
4.3 Review of Performance. As soon as practicable after the close of a
Plan Year, the Company's independent auditors shall advise the Committee of
income generated by the Company for its fiscal year just ended and of the degree
to which the Threshold Corporate Result and Corporate Income Goal have been
achieved, if at all. The Chief Executive Officer of the Company shall determine,
in his or her sole discretion, the degree to which the Divisional Goals have
been met, if at all, in accordance with generally accepted accounting principles
and after accounting for capital charges allocable to the relevant division and
shall advise the Committee accordingly. Achievement of each goal assigned to
each Participant shall be rated; a rating of 100% of an assigned goal shall
indicate full achievement of targeted performance and lesser or greater
achievement shall be rated below 100% or up to 125% as appropriate.
4.4 Bonus Awards.
(a) No Bonus Award shall be payable to any Participant for any goal
unless the Threshold Corporate Result set for the Plan Year is achieved. If the
Threshold Corporate Result has been met, Bonus Awards allocated to any of the
Corporate Income Goal or Divisional Goal shall be payable, provided that
achievement of the goal is rated at least at 85%.
(b) If achievement of all of the Incentive Goals assigned to a
Participant is rated at 100%, then a Bonus Allocation equal to the Participant's
Bonus Percentage will be allocated to the Bonus Pool in which such Participant
participates. If achievement of any Incentive Goal is rated at least 85%, but
less than 100%, the Bonus Allocation allocated to that goal shall be equal to
the Participant's Bonus Percentage reduced by one-half if rated at 85%, and
prorated for achievement rated at 85% to 99%, and then such Bonus Allocation
shall be allocated to the Bonus Pool in which such Participant participates. If
achievement of any Incentive Goal is rated in excess of 100% up to 125%, then
the Bonus Allocation allocated to that goal shall be equal to the Participant's
Bonus Percentage doubled if 125% or more, and prorated for achievement rated at
101% to 124%, and then such Bonus Allocation shall be allocated to the Bonus
Pool in which such Participant participates.
(c) After the Committee determines the total of the Bonus Allocations
allocated to a Bonus Pool for any year pursuant to (b), Bonus Awards shall be
allocated to each Participant in such Bonus Pool whose employment performance
for such year has been rated a "3" or higher by his or her supervisor and
approved by the Chief Executive Officer of the Company, and where applicable by
the Compensation Committee. Ratings for Covered Employees shall be made by the
Compensation Committee. The Bonus Award payable to any such Participant (other
than a Covered Employee) shall be determined by the appropriate executive
management personnel (as designated by the Committee) in consultation with the
Chief Executive Officer of the Company and with respect to Covered Employees
shall be determined by the Committee. The Bonus Award shall be at least 50% and
not greater than 150% of the Participant's Bonus Allocation determined under
(b). In no event shall any Participant receive a Bonus Award in excess of $1.5
million with respect to any Plan Year. Bonus Awards shall not exceed 100% of the
Bonus Pool, and there is no obligation to award the full amount of the Bonus
Pool.
(d) With respect to Participants other than Covered Employees, provided
the Threshold Corporate Result is achieved for a Plan Year, the Committee, upon
the recommendation of the Chief Executive Officer of the Company, shall have the
discretion to make additional Bonus Awards of up to 20% of a Participant's base
salary, notwithstanding the degree to which any Incentive Goal assigned to such
Participant has been achieved, if at all.
(e) All Bonus Awards to be made under the Plan shall be paid to
eligible Participants in cash less applicable taxes as soon as possible after
the review of performance of all Participants has been completed.
4.5 Termination of Employment.
(a) In the event a Participant terminates employment with the Company
before the completion of a Plan Year because of death, Total Disability, or
Early, Normal or Late Retirement under The Stride Rite Corporation Retirement
Income Plan, such Participant, or, in the case of the Participant's death, the
Participant's surviving spouse (or the Participant's estate if there is no
surviving spouse), shall receive a prorated Bonus Award. A prorated Bonus Award
shall be determined by multiplying the amount equal to the Bonus Award that
would have been earned in view of actual results for the Plan Year by a fraction
the numerator of which is the number of full months of the Plan Year during
which the employee was a Participant in the Plan and the denominator of which is
twelve. The foregoing notwithstanding, the Committee may, in its discretion,
cause payment of a Bonus Award to such a Participant (other than a Covered
Employee) on the basis of a full Plan Year.
(b) In the event a Participant's employment with the Company is
terminated before the completion of a Plan Year for any reason other than death,
Total Disability, or Retirement, the Participant shall not be entitled to
receive any Bonus Award for that Plan Year; provided, however, the Committee in
its discretion may award to a Participant (other than a Covered Employee) a
partial Bonus Award based on the formula described above, or a Bonus Award for
the full Plan Year under circumstances which the Committee determines, in its
sole discretion, warrant such exception.
4.6. No Limitation to Corporate Action. Nothing in this Article IV
shall preclude the Committee or the Board, as each or either shall deem
necessary or appropriate, from authorizing the payment to the Participant of
compensation outside the parameters of the Plan, including, without limitation,
base salaries, awards under any other plan of the Company, any other bonuses
(whether or not based on the attainment of performance objectives) and retention
or other special payments.
ARTICLE V
Plan Administration
5.1. Powers of the Committee. The Committee shall have the authority,
subject to the terms of the Plan, to determine each Participant's Bonus Award,
if any, and to make all other determinations under the Plan and to interpret and
administer the Plan, taking into account its purposes and such other factors as
the Committee may deem relevant. The Committee shall have complete control over
the administration of the Plan and complete control and authority to determine,
in its sole discretion, the rights and benefits and all claims, demands and
actions arising out of the provisions of the Plan of any Participant or other
person having or claiming to have any interest under the Plan and the
Committee's determinations shall be conclusive and binding on all such parties.
Neither the Committee nor any member thereof nor the Company shall be liable for
any action or determination made in good faith with respect to the Plan or the
rights of any Participant under the Plan.
5.2. Duties of the Committee. Subject to the limitations of the Plan,
the Committee from time to time shall establish rules for the administration of
the Plan and the transaction of its business. All actions and determinations of
the Committee shall be conclusive and binding on all Participants, their
beneficiaries and estates.
5.3. Action Taken in Good Faith. The members of the Committee and the
Company and its officers, directors and employees shall be entitled to rely upon
all certificates and reports made by any accountant, and upon all opinions given
by any legal counsel, and the members of the Committee, the Company and its
officers, directors and employees shall be fully protected in respect of any
action taken or suffered by them in good faith in reliance upon any such
certificates, reports, opinions or other advice of any accountant or legal
counsel, and all action so taken or suffered, including, without limitation, the
payment of any Bonus Award, shall be conclusive upon each of them and upon all
Participants and their beneficiaries.
5.4. Indemnification. In addition to all other rights of
indemnification that may exist, the Company shall indemnify the Committee, each
of its respective members, and officers and employees of the Company who assist
in the administration and operation of the Plan from and against any liability,
joint and/or several, arising out of or connected with their duties hereunder,
except such liability as may arise from their gross negligence or willful
misconduct.
5.5. Expenses of Administration. The Company shall pay all
expenses of administration of the Plan, including, without limitation, all
expenses incurred by the Committee, accounting and legal fees and expenses,
and any other expenses related to the administration of the Plan.
ARTICLE VI
Miscellaneous
6.1 Amendment and Termination. The Company shall have authority, in its
sole discretion, to amend or terminate the Plan at any time, in whole or in
part, and in any manner. Any such amendment or termination may be made by vote
of the Committee or the Board, or by written instrument signed by the Chief
Executive Officer of the Company, and may be made by the Committee or the Chief
Executive Officer retroactively to apply to Bonus Awards not yet paid to
Participants. Notwithstanding the foregoing, no amendment shall be made without
stockholder approval if such stockholder approval is necessary to comply with
the applicable rules of Section 162(m) of the Code.
6.2. Tax Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, State and local withholding tax requirements on any amount payable
under the Plan, and the Company may defer the payment of any amount until such
requirements are satisfied.
6.3. Inalienability of Interests. Except as otherwise provided by
applicable law, the Participant's interests under the Plan shall not be subject
to alienation, assignment, garnishment, execution or levy of any kind, and any
attempt to cause any benefits to be so subjected shall not be recognized.
6.4 No Funding. Nothing in this Plan will be construed to give any
Participant or any other person rights to any specific assets of the Company, or
of any other person. The Participant shall have only the rights of an unsecured
general creditor of the Company with respect to his or her interest under the
Plan. Any Bonus Award which become payable hereunder shall be paid from the
general assets of the Company in accordance with the terms hereof.
6.5. Limited Effect. Neither the establishment of the Plan nor
participation in the Plan shall be construed as creating any contract of
employment between the Company and any Participant, employee or other person.
Nor shall anything contained in the Plan give any person the right to be
retained in the employ of the Company or otherwise restrain the Company's right
to deal with its employees, including Participants and employees, and their
hiring, discharge, layoff, compensation, and all other conditions of employment
in all respects as though the Plan did not exist.
6.6. Effect on Other Plans, Programs or Arrangements. The adoption of
the Plan shall have no effect on awards made or to be made or compensation paid
or to be paid pursuant to other plans, programs, or arrangements covering
employees of the Company, its subsidiaries or parent, or any predecessors or
successors thereto, except that amounts paid hereunder may be taken into account
as "compensation" for purposes of determining the Participant's benefits under
such other plan to the extent provided therein.
6.7. Governing Law. All questions pertaining to the construction,
validity and effect of the Plan, or to the rights of any person under the Plan,
shall be determined in accordance with the laws of the Commonwealth of
Massachusetts.
Executed this 11th day of December, 1997.
THE STRIDE RITE CORPORATION
By: /s/ John M. Kelliher
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 10(ix)
THE STRIDE RITE CORPORATION
1998 LONG-TERM GROWTH INCENTIVE PLAN
Section 1: Purpose
The purpose of the Stride Rite Corporation 1998 Long-Term Growth
Incentive Plan (the "Plan") is to enable The Stride Rite Corporation (the
"Corporation") and its Subsidiaries to attract and retain key employees who will
make significant contributions towards the successful management, growth and
protection of the Corporation and to provide meaningful incentives to such
employees who are more directly linked to the achievement of long-term business
goals and increase in shareholder value. In addition, the Plan is designed to
encourage and provide opportunities for stock ownership by such employees which
will more closely align their interests with those of the stockholders of the
Corporation.
Section 2: Definition of Terms
(a) Award means any Stock Option or Stock Award granted under the Plan.
(b) Board means the Board of Directors of the Corporation.
(c) Code means the Internal Revenue Code of 1986, as amended from time to
time.
(d) Committee means a committee of not less than two non-employee members of the
Board, appointed by the Board to administer the Plan. The Committee shall be
comprised of members who qualify to administer this Plan as contemplated by (a)
Rule 16b-3 under the 1934 Act or any successor rule, and (b) Section 162(m)
under the Code.
(e) Common Stock means the common stock, $.25 par value, of the
Corporation.
(f) Corporation means The Stride Rite Corporation, a corporation established
under the laws of the Commonwealth of Massachusetts, and its Subsidiaries.
(g) Fair Market Value means on any given date the last reported sale price of
the Common Stock on the last trading date on which the Common Stock was traded
preceding the specified date or, if no Common Stock was traded on such date, the
most recent date on which Common Stock was traded preceding the specified date,
as reflected on The New York Stock Exchange - Composite Tape or, if not listed
on such exchange, on any other national securities exchange on which the Common
Stock is listed or on the National Association of Securities Dealers Automated
Quotation system, or par value of Common Stock if greater.
(h) Incentive Stock Option (ISO) means a Stock Option to purchase Shares awarded
to a Participant which is intended to be an "Incentive Stock Option" within the
meaning of Section 422 of the Code or any successor provision.
(i) Non-Qualified Stock Option (NQSO) means a Stock Option to purchase Shares of
Common Stock awarded to a Participant which is not intended to be an ISO.
(j) 1934 Act means the Securities Exchange Act of 1934, as amended from
time to time.
(k) Participant means a person selected by the Committee (or its delegate
as provided under Section 4) to receive an Award under the Plan.
(l) Reporting Person means an individual who is subject to Rule 16b-3 of
the 1934 Act or any successor rule.
(m) Shares means shares of the Common Stock of the Corporation.
(n) Stock Award means an Award to a Participant comprised of Common Stock or
valued by reference to Common Stock granted under Section 7(c) of the Plan.
(o) Stock Option means an Award in the form of the right to purchase a specified
number of Shares at a specified price during a specified period.
(p) Subsidiary means any entity that, directly or through one or more
intermediaries, is controlled by, controls or is under common control with, the
Corporation or any entity in which the Corporation has a significant equity
interest as determined by the Committee.
Section 3: Effective Dates
The Plan shall be effective as of the date the shareholders of the
Company approve the Plan, subject to the registration of the Shares issuable
pursuant to the Plan. No Awards may be made under the Plan after three years
from the date of shareholder approval or earlier termination of the Plan by the
Board. However, unless otherwise expressly provided in the Plan or in an
applicable Award agreement, any Award granted prior to three years following
shareholder approval or any earlier termination date may extend beyond such
date, and, to the extent set forth in the Plan, the authority of the Committee
to amend, alter, adjust, suspend, discontinue or terminate any such Award, or to
waive any conditions or restrictions with respect to any such Award, and the
authority of the Board to amend the Plan, shall extend beyond such date.
Section 4: Administration
The Plan shall be administered by the Committee. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive and binding upon all persons, including the
Corporation, any Subsidiary, any Participant, any holder or beneficiary of any
Award, any shareholder and any employee of the Corporation or of any Subsidiary.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation of the
Plan as it shall from time to time consider advisable. To the extent permitted
by applicable law and the terms and provisions of the Plan, the Committee may
delegate to one or more employee members of the Board the power to make Awards
to Participants who are not Reporting Persons and are not "covered employees"
within the meaning of Section 162(m) of the Code or any successor provision.
Section 5: Eligibility
Key executives of the Corporation and its Subsidiaries plus, on a
highly selective basis, other employees of the Corporation and its Subsidiaries
whom the Committee determines are key contributors to the business of the
Corporation and its Subsidiaries shall be eligible to receive an Award under the
Plan.
Section 6: Stock Available for Awards
(a) Common Shares Available. Subject to adjustment as provided in
Section 6(c) below, the maximum number of Shares available for Awards under the
Plan shall be 2,400,000, plus, to the extent permitted under applicable law, the
number of shares added back pursuant to Section 6(d).
(b) Share Usage Limits. For the period that the Plan is in effect the
aggregate number of Shares that shall be granted as Stock Awards shall not
exceed 200,000. Additionally, the aggregate number of Shares that shall be
awarded to any one Participant as Awards over the period that the Plan is in
effect shall not exceed 500,000 Shares.
(c) Adjustments. In the event of any stock dividend, stock split,
combination or exchange of Shares, merger, consolidation, spin-off or other
distribution (other than normal cash dividends) of the Corporation's assets to
shareholders, or any other change affecting Shares, such proportionate
adjustments, if any, as the Committee in its discretion may deem appropriate to
reflect such change shall be made with respect to (i) the aggregate number and
kind of shares that may be issued under the Plan; (ii) the number and kind of
shares covered by each outstanding Award made under the Plan; (iii) the option,
base or purchase price per share for any outstanding Stock Option and other
Awards granted under the Plan and/or (iv) the aggregate numbers of Shares that
may be awarded to any one Participant under Awards, provided that any such
actions are consistently and equitably applicable to all affected Participants.
In addition, any shares issued by the Corporation through the assumption or
substitution of outstanding grants or grant commitments from an acquired entity
shall not reduce the shares available for issuance under the Plan.
(d) Common Stock Usage. To the extent permitted by applicable law, the
Shares underlying any Awards which are forfeited, canceled, reacquired by the
Corporation, satisfied without the issuance of Common Stock or otherwise
terminated (other than by exercise) shall be added back to the Shares available
for issuance under the Plan.
(e) Accounting for Awards. The number of Shares covered by an Award
under the Plan, or to which such Award relates, shall be counted on the date of
grant of such Award against the number of Shares available for granting Awards
under the Plan.
Section 7: Awards
(a) General. The Committee shall determine the number and type(s) of
Award(s) (as set forth below) to be made to each Participant and shall approve
the terms and conditions of all such Awards in accordance with Sections 4 and 8
of the Plan. Awards may be granted singly, in combination or in tandem such that
the settlement of one Award automatically reduces or cancels the other. Awards
may also be made in replacement of, as alternatives to or as forms of payment
for grants or rights under any other employee compensation plan or arrangement
of the Corporation, including the plans of any acquired entity.
(b) Stock Options. A Stock Option shall confer on a Participant the
right to purchase a specified number of Shares from the Corporation subject to
the terms and conditions of the Stock Option grant. The Committee shall
establish the option price at the time each Stock Option is awarded, provided
that the per-share price shall not be less than 100% of the Fair Market Value of
a Share on the date of grant. Stock Options may be in the form of ISOs or NQSOs,
and the Committee shall specify at the time of grant whether the Stock Option is
an ISO or an NQSO. If a Participant owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Corporation or any
subsidiary or parent corporation of the corporation (within the meaning of
Section 424 of the code) and an ISO is awarded to such Participant, the option
price shall not be less than 110% of the Fair Market Value at the time such ISO
is awarded. The aggregate Fair Market Value at the time of grant of the Shares
covered by ISOs exercisable by any one optionee in any calendar year shall not
exceed $100,000 (or such other limit as may be required by the Code). The term
of each Stock Option shall be fixed by the Committee, provided, however, that in
no event shall the term of any Stock Option exceed a period of ten years from
the date of its grant. A Stock Option shall become exercisable with respect to
1/3 of the Shares subject to such Stock Option on each of the first three
anniversaries of the date of grant or, alternatively, in such manner and within
such period or periods and in such installments or otherwise as shall be
determined by the Committee. The recipient of a Stock Option grant shall pay for
the Shares at the time of exercise in cash or such other forms as the Committee
may approve, including Shares valued at their Fair Market Value on the date of
exercise, or in a combination of form(s). The Committee may also permit
Participants to have the option price delivered to the Corporation by a broker
pursuant to an arrangement whereby the Corporation, upon irrevocable
instructions from a Participant, delivers the exercised Shares to the broker.
Any ISO which in whole or in part cannot be treated as an ISO following its
grant shall be treated as an NQSO to the extent ISO treatment no longer applies.
(c) Stock Awards. A Stock Award shall confer on a Participant the right
to receive a specified number of Shares subject to the terms and conditions of
the Award, which may include forfeitability contingencies based on continued
employment with the Corporation or on meeting performance criteria or both. The
restriction period for Stock Awards will be a five year restriction period with
restrictions lapsing in equal installments on the third, fourth and fifth
anniversaries of the date of grant or on any other such terms as the Committee
shall establish. Such Stock Awards may be subject to the attainment of specified
performance goals or targets, as determined by the Committee and set forth in
the specific Stock Award agreements. The Committee shall determine the
restrictions and restriction or performance period, and any other terms,
conditions and rights relating to a grant of Stock Awards, including the
determination to adjust performance goals (up or down) as business conditions so
warrant and the consideration, if any, required from Participants for Stock
Awards. The Committee may also grant Stock Awards that are not subject to any
restrictions.
Section 8: General Provisions Applicable to Awards
(a) Transferability and Exercisability. Any Award under this Plan will
be non-transferable and accordingly shall not be assignable, alienable, saleable
or otherwise transferable by the Participant other than by will or the laws of
descent and distribution. A Stock Option may be exercised, during the lifetime
of the Participant, only by such Participant or the Participant's legal
representative.
If so permitted by the Committee, a Participant may designate a
beneficiary or beneficiaries to exercise the Participant's rights and receive
any distributions under this Plan upon the Participant's death. To the extent
required to comply with regulations and rules under the 1934 Act, including Rule
16b-3, any contrary requirements shall prevail over the provisions set forth
above in regards to Reporting Persons.
(b) General Restrictions. Each Award shall be subject to the
requirement that, if at any time the Committee shall determine, in its sole
discretion, that the listing, registration or qualification of any Award under
the Plan upon any securities exchange or under any state or federal law, or the
consent or approval of any government regulatory body, is necessary or desirable
as a condition of, or in connection with, the granting of such Award or the
grant or settlement thereof, such Award may not be exercised or settled in whole
or in part unless such listing, registration, qualification, consent or approval
has been effected or obtained free of any conditions not acceptable to the
Committee.
(c) Grant Terms and Conditions. Subject to the terms and conditions of
this Plan, in addition to its determination under Section 7(b) and/or 7(c) the
Committee shall determine the provisions and duration of grants made under this
Plan, and the conditions under which a Participant will retain rights under this
Plan in the event of the Participant's termination of employment while holding
any outstanding Awards.
(d) Tax Withholding. No later than the date as of which an amount first
becomes includible in the gross income of a Participant for federal income tax
purposes with respect to any Award under this Plan, the Participant shall pay to
the Corporation, or make arrangements satisfactory to the Corporation regarding
the payment of, any federal, state, local or foreign taxes of any kind required
by law to be withheld with respect to such amount. Unless otherwise determined
by the Committee, withholding obligations may be settled with Shares, including
Shares that are part of the Award that gives rise to the withholding
requirement. The obligations of the Corporation under this Plan shall be
conditional on such payment or arrangements, and the Corporation and its
Subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the Participants. The Committee may
establish such procedures as it deems appropriate, including the making of
irrevocable elections, for the settlement of withholding obligations with
Shares. Shares that are used to satisfy withholding obligations shall be valued
at their Fair Market Value on the date the tax withholding is effective.
(e) Documentation of Grants. Awards made under the Plan shall be
evidenced by written agreements or such other appropriate documentation as the
Committee shall prescribe. The Committee need not require the execution of any
instrument or acknowledgment of notice of an Award under the Plan, in which case
acceptance of such Award by the respective Participant will constitute agreement
to the terms of the Award.
(f) Settlement. The Committee shall determine, at the time of grant or
settlement of an Award, whether such Award will be settled in whole or in part
in cash, Shares, or other Awards subject, in the case of Participants subject to
Section 16(b) of the 1934 Act, to compliance with Rule 16b-3 of the 1934 Act.
The Committee may require or permit a Participant to defer all or any portion of
a payment under the Plan, including the crediting of interest on deferred
amounts denominated in cash.
(g) Change of Control. Notwithstanding any other provision of this Plan
to the contrary, in the event of a Change of Control (as hereinafter defined),
the provisions of this Section 8(g) shall apply.
(i) Any Stock Options outstanding as of the date of Change of
Control that are not then exercisable and vested shall become fully
exercisable and vested and all restrictions applicable to any
then-outstanding Stock Award shall lapse, upon the occurrence of a
Change of Control.
(ii) During the 60-day period from and after a Change of
Control (the "Exercisable Period"), unless the Committee shall
determine otherwise at the time of grant, each holder of a Stock Option
(an "Optionee") shall have the right, whether or not such Stock Option
is then fully exercisable and in lieu of the payment of the exercise
price for the Shares being purchased under the Stock Option and by
giving notice to the Corporation, to elect (within the Exercisable
Period) to surrender all or part of the Stock Option to the Corporation
and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the Change of Control Price (as hereinafter
defined) per Share on the date of such election shall exceed the
exercise price per Share under the Stock Option (the "Spread"),
multiplied by the number of Shares granted under the Stock Option as to
which the right granted under this Section 8(g)(ii) shall have been
exercised. Notwithstanding the foregoing, if any right granted pursuant
to this Section 8(g)(ii) would make a Change of Control transaction
ineligible for pooling of interest accounting under APB No. 16 that but
for this Section 8(g)(ii) would otherwise be eligible for such
accounting treatment, the Committee shall have the ability to
substitute for the cash payable pursuant to this Section 8(g)(ii),
Shares or the securities into which such Shares are converted with a
Fair Market Value equal to the cash that would otherwise be payable
hereunder.
(iii) Definition of Change of Control. For purposes of this
Plan, a "Change of Control" shall mean any of the following events:
(A) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the 1934 Act (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of 20%
or more of either (i) the then outstanding Shares (the
"Outstanding Corporation Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting Securities");
provided, however, that for purposes of this subsection (A),
the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Corporation,
(ii) any acquisition by the Corporation, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any corporation controlled by
the Corporation, (iv) any acquisition by any corporation
pursuant to a transaction that complies with clauses (i), (ii)
and (iii) of subsection (C) below; or (v) any acquisition of
less than 25% of the Outstanding Corporation Common Stock or
Outstanding Corporation Company Voting Securities by a Person
who certifies that such securities are not being acquired or
held for the purpose of and will not have the effect of
changing or influencing the control of the Corporation and are
not being acquired in connection with or as a participant in
any transaction having such purpose or effect, only for so
long as such Person can continue to make such certification;
or
(B) individuals who, as of December 11, 1997,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Corporation's shareholders, was approved
by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(C) The approval by the shareholders of the
Corporation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation or the acquisition of assets of
another entity ("Business Combination") or, if consummation of
such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation), in each case,
unless following such Business Combination: (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively of the Outstanding Corporation
Common Stock or the Outstanding Corporation Voting Securities
immediately prior to such Business Combination will
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and
the combined voting power of then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation that as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Corporation Common Stock or the Outstanding
Corporation Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust)
of the Corporation or such corporation resulting from such
Business Combination) will beneficially own, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of
the Board of Directors of the corporation resulting from such
Business Combination will have been members of the Incumbent
Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business
Combination; or
(D) approval by the shareholders of the Corporation
of a complete liquidation or dissolution of the Corporation.
(iv) Change of Control Price. For purposes of this Plan,
"Change of Control Price" means the higher of (i) the highest reported
sales price of a Share in any transaction reported on the New York
Stock Exchange Composite Tape during the 60-day period prior to and
including the date of a Change of Control and (ii) if the Change of
Control is the result of a tender or exchange offer or a Business
Combination, the highest price per share of Stock paid in such tender
or exchange offer or Business Combination; provided, however, that in
the case of ISOs, the Change of Control Price shall be in all cases the
Fair Market Value of the Stock on the date such ISO is exercised. To
the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash
consideration shall be determined in the sole discretion of the
Committee.
Section 9: Miscellaneous
(a) Plan Amendment or Termination. The Board may amend, alter, suspend,
discontinue or terminate the Plan as it deems necessary or appropriate except
that no amendment shall be made (i) without shareholder approval, if such
amendment would increase the total number of Shares available for issuance under
the Plan or if such approval is otherwise necessary under any applicable law or
stock exchange rule; or (ii) to cause the Plan not to comply with Rule 16b-3 of
the 1934 Act or any successor rule and no amendment, alteration, suspension,
discontinuation or termination of the Plan may impair any Participant's rights
under the Plan under an Award theretofore granted with the written consent of
the Participant.
(b) No Right to Employment. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to continued employment. The Corporation expressly
reserves the right at any time to dismiss a Participant free from any liability
or claim under the Plan, except as expressly provided by an applicable Award.
(c) No Rights as Shareholder. Only upon issuance of Shares to a
Participant (and only with respect to such Shares) shall the Participant obtain
the rights of a shareholder, subject, however, to any limitations imposed by the
terms of the applicable Award.
(d) No Fractional Shares. No fractional shares shall be issued
under the Plan, however, the Committee may provide for a cash payment as
settlement in lieu of any fractional shares.
(e) Other Corporate Benefit and Compensation Programs. Except as
expressly determined by the Committee, settlements of Awards received by
Participants under this Plan shall not be deemed to be part of a Participant's
regular, recurring compensation for purposes of calculating payments or benefits
from any Corporate benefit or severance program (or severance pay law of any
country). The above notwithstanding, the Corporation may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
(f) Unfunded Plan. The Plan shall be unfunded and shall not create (or
be construed to create) a trust or a separate fund(s). Likewise, the Plan shall
not establish any fiduciary relationship between the Corporation and any
Participant or other person. To the extent any person holds any rights by virtue
of an Award granted under the Plan, such rights shall be no greater than the
rights of an unsecured general creditor of the Corporation.
(g) Successors and Assignees. The Plan shall be binding on all
successors and assignees of a Participant, including, without limitation, the
estate of such Participant and the executor, administrator or trustee of such
estate, or any receiver or trustee in bankruptcy or representative of the
Participant's creditors.
(h) Governing Law. The validity, construction and effect to the
Plan and any actions taken under or relating to the Plan shall be determined in
accordance with the laws of the Commonwealth of Massachusetts and applicable
federal law.
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 10(x)
THE STRIDE RITE CORPORATION
1998 NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP PLAN
Section 1: Purpose
The Stride Rite Corporation 1998 Non-Employee Director Stock Ownership
Plan (the "Plan") has been adopted to promote the long-term growth and financial
success of The Stride Rite Corporation (the "Company") by attracting and
retaining non-employee directors of outstanding ability and assisting the
Company in promoting a greater identity of interest between the Company's
non-employee directors and its stockholders.
Section 2: Definitions
As used in the Plan, the following terms have the respective meanings as set
forth below.
- - Award means any Stock Option or Stock Award granted under the Plan.
- - Board means the Company's Board of Directors.
- - Common Stock means the Common Stock, $.25 par value, of the Company.
- - Company means The Stride Rite Corporation, a corporation established
under the laws of the Commonwealth of Massachusetts, and any entity
that is directly or indirectly controlled by the Company.
- - Fair Market Value means on any given date the last reported sale price
of the Common Stock on the last trading date on which the Common Stock
was traded preceding the specified date or, if no Common Stock was
traded on such date, the most recent date on which Common Stock was
traded preceding the specified date, as reflected on The New York Stock
Exchange - Composite Tape or, if not listed on such exchange, on any
other national securities exchange on which the Common Stock is listed
or on the National Association of Securities Dealers Automated
Quotation system, or par value of Common Stock if greater.
- - 1934 Act means the Securities Exchange Act of 1934, as amended from
time to time.
- - Participant means a Director of the Board who is not an employee of the
Company coincident with or subsequent to shareholder approval of the
Plan.
- - Shares means shares of the Common Stock.
- - Stock Award means an Award to a Participant comprised of Common Stock
granted under Section 6 of the Plan.
- - Stock Option means an Award in the form of the right to purchase a
specified number of Shares at a specified price during a specified
period granted under Section 6 of the Plan.
Section 3: Effective Dates
(a) The Plan shall be in effect as of April 16, 1998, subject to
approval by the Company's stockholders and registration of the Shares issuable
pursuant to the grant of Stock Awards and the exercise of Stock Options pursuant
to the Securities Act of 1933, as amended. No Awards may be made under the Plan
after ten years from the date of approval or earlier termination of the Plan by
the Board.
(b) The Stride Rite Corporation 1994 Non-Employee Director Stock
Ownership Plan shall terminate with respect to the grant of additional Awards
under such Plan on the date of shareholder approval of this Plan.
Section 4: Plan Operation
The Plan is intended to be self-governing and requires no discretionary
action by any administrative body with regard to any transaction under the Plan.
To the extent, if any, that any questions of interpretation arise, these shall
be resolved by the Board.
Section 5: Stock Available for Awards
(a) Common Shares Available. The maximum number of Shares
available for Awards under the Plan may not exceed 300,000 shares of Common
Stock of the Company.
(b) Adjustments and Reorganizations. In the event of any change in the
Common Stock by reason of any stock dividend, stock split, combination of
shares, exchange of shares, warrants or rights offering to purchase Common Stock
at a price below its fair market value, reclassification, recapitalization,
merger, consolidation, spin-off or other change in capitalization of the
Company, other than a transaction in which the Stock Options would be assumed
pursuant to Section 7(b) hereof, the aggregate number and kind of shares
reserved for issuance under the Plan, the number of Stock Options and Stock
Awards issuable pursuant to the automatic grant provisions of Section 6 hereof,
and the number, kind and option price of shares subject to outstanding Stock
Options, shall be automatically adjusted such that the proportionate interests
of the holders of Stock Options granted under the Plan will be maintained as
before the occurrence of such event; provided, however, that the number of
shares subject to any Award shall always be a whole number.
(c) Common Stock Usage. The number of Shares of Common Stock underlying
any Awards granted under the Plan which are forfeited, canceled, reacquired by
the Company, satisfied without issuance of Common Stock or otherwise terminated
(other than by exercise) shall again be available for granting of additional
Awards under the Plan.
Section 6: Awards
(a) On the day after the date of the effectiveness of the Registration
Statement for the Shares and the day after each annual meeting of stockholders
commencing with the 1999 annual meeting of stockholders, the Company will issue
to each Participant a stock grant of 500 Shares (the "Annual Stock Award") and a
non-qualified Stock Option to purchase 5,000 shares (the "Annual Stock Option")
until the Plan is terminated or amended.
(b) Each Annual Stock Option shall have a term of ten years and shall
become exercisable as follows: with respect to 1,600 Shares one year after
grant; with respect to 1,700 Shares two years after grant and with respect to
1,700 Shares three years after grant.
(c) The Stock Option exercise price shall be the Fair Market Value of a
Share on the date of grant, payable at the time of exercise in cash or Shares
(held at least six months prior to exercise, unless purchased by the Participant
on the open market) valued at their Fair Market Value, or in a combination
thereof.
Section 7: Effect of Changes of Control and Business Combinations
(a) Notwithstanding any other provision of this Plan to the contrary,
in the event of a Change of Control (as hereinafter defined), the provisions of
this Section 7 shall apply.
(i) Any Stock Options outstanding as of the date a Change of
Control occurs, which are not then exercisable and vested, shall become
fully exercisable and vested, effective immediately prior to the
occurrence of such Change of Control.
(ii) Definition of Change of Control. For purposes of
this Plan, a "Change of Control" shall mean the happening of any of the
following events:
(A) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the 1934 Act (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of 20%
or more of either (i) the then outstanding Shares (the
"Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (A)
the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii)
any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, (iv) any acquisition pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (C)
below; or (v) any acquisition of less than 25% of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities by a Person who certifies that such securities are
not being acquired or held for the purpose of and will not
have the effect of changing or influencing the control of the
Company and are not being acquired in connection with or as a
participant in any transaction having such purpose or effect,
only for so long as such Person can continue to make such
certification; or
(B) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board.
(C) The approval by the shareholders of the Company
of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Corporation or the acquisition of assets of another entity
(each a "Business Combination") or, if consummation of such
Business Combination is subject, at the time of such approval
by shareholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation), in each case,
unless following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Stock or the Outstanding Company Voting Securities immediately
prior to such Business Combination will beneficially own,
directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined
voting power of then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that
as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock
or the Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation, except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a
majority of the members of the Board of Directors of the
corporation resulting from such Business Combination will have
been members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(D) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(b) In the event of a Business Combination, outstanding Stock Options
shall be assumed by the successor or acquiror corporation, as the case may be,
or a parent thereof, or be replaced with a comparable option to purchase shares
of the capital stock of such successor, acquiror or parent, provided that each
outstanding Stock Option which is assumed in connection with a Business
Combination or is otherwise to continue in effect shall be appropriately
adjusted, immediately after such Business Combination, to apply and pertain to
the number and class of securities which would have been issuable, upon the
consummation of such Business Combination, to an actual shareholder of the same
number of shares of Common Stock as are subject to such Stock Option immediately
prior to such Business Combination, and provided further that, should the
consideration to be received in the Business Combination by the holders of
Common Stock be cash in whole or in part, the holder of each Stock Option shall
be entitled to receive that amount of cash that would be payable upon the
consummation of such Business Combination, to an actual holder of the same
number of shares of Common Stock as are subject to such Stock Option immediately
prior to such Business Combination, less the exercise price per share subject to
such Stock Option. In the event that Stock Options are assumed or otherwise
continue in effect, in whole or in part, appropriate adjustments shall also be
made to the exercise price payable per share, provided the aggregate exercise
price payable for such securities shall remain the same, and, in addition, the
class and number of securities available for issuance under the Plan and the
automatic grant provisions of Section 6 hereof following the consummation of the
Business Combination shall be appropriately adjusted.
(c) The grant of Stock Options and Stock Awards under this Plan shall
in no way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
Section 8: General Provisions Applicable to Awards
(a) Non-Transferability of Stock Options. Stock Options granted under
Section 6 hereof may not be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or under the laws of descent and
distribution. The designation of a beneficiary shall not constitute a transfer.
A Stock Option may be exercised, during the lifetime of the Participant, only by
such Participant or his legal representative.
(b) Termination of Directorship. If for any reason a Participant ceases
to be a Director of the Company one year or more after the Director's initial
election or appointment to the Board while holding a Stock Option granted under
this plan, any Stock Option which has vested shall continue to be exercisable
for a period of three years or the remainder of the option term whichever is
shorter (the "post termination period"). If for any reason other than death a
Participant ceases to be a Director of the Company within one year of the
Director's initial election or appointment to the Board, any Stock Option
awarded under this plan and held by the Director shall be canceled as of the
date of such termination. In the event a Participant dies within one year of
initial election or appointment to the Board, the Stock Options shall be
exercisable by the transferee who received such Stock Option pursuant to a will
or in accordance with the laws of descent and distribution for a period of three
years following the date of death.
(c) Documentation of Grants. Awards made under the Plan shall be
evidenced by written agreements or such other appropriate documentation as the
Board shall prescribe. The Board need not require the execution of any
instrument or acknowledgment of notice of an Award under the Plan, in which case
acceptance of such Award by the respective Participant will constitute agreement
to the terms of the Award.
(d) Plan Amendment or Termination. The Board may suspend the Plan or
any portion of the Plan or terminate the Plan. The Board may also amend the Plan
if deemed to be in the best interests of the Company and its stockholders;
provided, however, that no such suspension, termination or amendment may impair
any Participant's right regarding any outstanding Awards without his or her
consent.
(e) Governing Law. The validity, construction and effect of the
Plan and any such actions taken under or relating to the Plan shall be
determined in accordance with the laws of the Commonwealth of Massachusetts and
applicable federal law.
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1997
Exhibit 10(xi)
THE STRIDE RITE CORPORATION
SENIOR EXECUTIVE ANNUAL INCENTIVE COMPENSATION PLAN
ARTICLE I
Introduction
The purpose of The Stride Rite Corporation Senior Executive Annual
Incentive Compensation Plan is to provide incentives to the Chief Executive
Officer and certain other senior executive officers of the Company or any of its
subsidiaries, to enhance the value of the Company. By offering annual financial
rewards, the Plan can recognize contributions made by individual senior
executives in the attainment of important operating objectives. It is also
anticipated that the Plan will help the Company attract and retain the highest
quality employees available.
ARTICLE II
Definitions
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Bonus Award" shall mean the amount of award (if any) made to a
Participant under the Plan in a Plan Year in accordance with Section 4.4(b).
2.3 "Bonus Percentage" shall mean that percentage of a Participant's
annual base salary rate (as of the date the Bonus Percentage is determined) upon
which a Bonus Award is calculated. Bonus Percentage may not exceed 50%.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Combined Divisional Goal" shall mean, for any Plan Year, the
sum of all Divisional Goals.
2.6 "Committee" shall mean the Compensation Committee of the
Board.
2.7 "Company" shall mean The Stride Rite Corporation and its
successors and assigns and any of its subsidiaries.
2.8 "Corporate Income" shall mean, for any Plan Year, the consolidated
pre-tax income generated by the Company. For purposes of the Plan, Corporate
Income for any Plan Year shall be determined by the Committee in accordance with
generally accepted accounting principles and after accounting for non-operating
income or expenses and before accounting for income taxes.
2.9 "Corporate Income Goal" shall mean, for any Plan Year, that amount
of Corporate Income which the Committee targets for achievement in the Plan
Year.
2.10 "Covered Employee" means an employee of the Company or any of its
subsidiaries designated by the Committee prior to the Plan Year (or within the
first 90 days after the beginning of the Plan Year), as an employee who is or
may be a "covered employee" within the meaning of Section 162(m) of the Code
with respect to such Plan Year.
2.11 "Divisional Goal" shall mean, for any Plan Year, that amount of
pre-tax income which the Committee targets for achievement in the Plan Year for
a division of the Company.
2.12 "Incentive Goal" shall mean, for any Participant, the Corporate
Income Goal and/or Combined Divisional Goal or Divisional Goal assigned to the
Participant.
2.13 "Participant" shall mean any Covered Employee who has been
designated as such by the Committee pursuant to Article III to participate in
the Plan for a Plan Year.
2.14 "Plan" shall mean The Stride Rite Corporation Senior Executive
Annual Incentive Compensation Plan.
2.15 "Plan Year" shall mean the fiscal year of the Company.
2.16 "Threshold Corporate Result" shall mean, for any Plan Year, the
minimum level of Corporate Income which the Committee determines must be
generated in a Plan Year as a condition precedent to the payment of any Bonus
Award for the Plan Year.
2.17 "Total Disability" shall mean the permanent inability of a
Participant, as a result of accident or sickness, to perform any and every duty
pertaining to such Participant's occupation or employment for which the
Participant is suited by reason of the Participant's previous training,
education and experience.
ARTICLE III
Eligibility
For each Plan Year the Committee shall designate Participants from
among Covered Employees who are employee-directors of the Company or who hold
the title of Chief Executive Officer and certain other senior executives who
report directly to the Chief Executive Officer of the Company.
Participants shall be selected prior to the commencement of each Plan
Year or within the first 90 days after the beginning of the Plan Year. Following
the period referred to in the preceding sentence, other Participants may be
added by the Committee because of promotion, hiring or other reasons warranting
their inclusion or Participants may be excluded by the Committee by reason of
demotion or other reasons warranting exclusion.
ARTICLE IV
Annual Bonuses
4.1. Establishment of Corporate Income Goal and Divisional Goals.
Before the beginning of each Plan Year or within the first 90 days after the
beginning of the Plan Year, the Committee shall establish the Threshold
Corporate Result, Corporate Income Goal, Combined Divisional Goal and Divisional
Goal for each of the Company's divisions, pursuant to which annual bonuses shall
be payable, if at all, under the Plan to a Participant with respect to
performance in such Plan Year.
4.2 Assignment of Incentive Goals.
(a) At the time each Covered Employee is designated as a Participant
pursuant to Article III, he or she shall be notified of such designation by the
Committee and shall be assigned Incentive Goals by the Committee. If the
Committee determines that a Participant's position is substantially tied to and
functional at the divisional level, one of the Incentive Goals shall be the
Corporate Income Goal, which shall be 50% of the Participant's bonus opportunity
in any Plan Year. Such a Participant shall also be assigned as a second
Incentive Goal, the Divisional Goal of his or her respective Division, which
shall also be weighted at 50%. A Participant whose position is not determined to
be substantially tied to and functional at the divisional level shall be
assigned a Corporate Income Goal which shall represent 50% of the Participant's
bonus opportunity. The other 50% of such a Participant's bonus opportunity will
be based on the Combined Divisional Goal.
(b) The Bonus Percentage shall be confirmed and Incentive Goals
assigned by (i) the Committee with respect to the Chairman and Chief Executive
Officer of the Company, and (ii) the Committee upon the recommendation of the
Chief Executive Officer of the Company with respect to other Participants.
4.3 Review of Performance. As soon as practicable after the close of a
Plan Year, the Company's independent auditors shall advise the Committee of
income generated by the Company for its fiscal year just ended and of the degree
to which the Threshold Corporate Result, Corporate Income Goal and Combined
Divisional Goal have been achieved, if at all. To the extent necessary, the
Committee shall also determine the degree to which the Divisional Goals have
been met, if at all, in accordance with generally accepted accounting principles
and after accounting for capital charges allocable to the relevant division.
Achievement of each goal assigned to each Participant shall be rated; a rating
of 100% of an assigned goal shall indicate full achievement of targeted
performance and lesser or greater achievement shall be rated below 100% or up to
150% as appropriate. Following the end of each Plan Year, the Committee shall
approve and certify the attainment of the performance goals and the amount of
Bonus Awards hereunder.
4.4 Bonus Awards.
(a) No Bonus Award shall be payable to any Participant for any goal
unless the Threshold Corporate Result set for the Plan Year is achieved. If the
Threshold Corporate Result has been met, Bonus Awards allocated to any of the
Corporate Income Goal, Combined Divisional Goal or Divisional Goal shall be
payable, provided that achievement of the goal is at least at 85%. Except as
provided in Section 4.4 or in Section 4.5, Bonus Awards shall be equal to the
Participant's Bonus Percentage (as increased or decreased pursuant to Section
4.4(b)) times the Participant's annual base salary. No Participant may earn a
Bonus Award of more than $1.5 million with respect to any Plan Year.
(b) If achievement of all of the Incentive Goals assigned to a
Participant is at 100%, then a Bonus Award equal to the Participant's Bonus
Percentage will be paid to such Participant. If achievement of any Incentive
Goal is at least 85%, but less than 100%, the Bonus Award allocated to that goal
shall be equal to the Participant's Bonus Percentage reduced by one-half if at
85%, and prorated for achievement at 85% to 99%, and then such Bonus Award shall
be paid to such Participant. If achievement of any Incentive Goal is in excess
of 100% up to 125%, then the Bonus Award allocated to that goal shall be equal
to the Participant's Bonus Percentage doubled if 125%, and prorated for
achievement at 101% to 124%, and then such Bonus Award shall be paid to such
Participant. If the achievement of any Incentive Goal is in excess of 125% up to
150%, then the Bonus Award allocated to that goal shall be equal to the
Participant's Bonus Percentage tripled if 150%, and prorated for achievement at
126% to 149%, and then such Bonus Award shall be paid to such Participant.
(c) All Bonus Awards to be made under the Plan shall be paid to
eligible Participants in cash less applicable withholding taxes (as set forth in
Section 6.2) as soon as possible after the review of performance of all
Participants has been completed.
(d) Notwithstanding the attainment of any goals for a Plan Year, the
Committee shall have the authority to eliminate or reduce Bonus Awards in its
discretion.
4.5 Termination of Employment.
(a) In the event a Participant terminates employment with the Company
before the completion of a Plan Year because of death, Total Disability, or
Early, Normal or Late Retirement under The Stride Rite Corporation Retirement
Income Plan, such Participant, or, in the case of the Participant's death, the
Participant's surviving spouse (or the Participant's estate if there is no
surviving spouse), shall receive, subject to Section 4.2(a), a prorated Bonus
Award. A prorated Bonus Award shall be determined by multiplying the amount
equal to the Bonus Award that would have been earned in view of actual results
for the Plan Year by a fraction the numerator of which is the number of full
months of the Plan Year during which the employee was a Participant in the Plan
and the denominator of which is twelve.
(b) In the event a Participant's employment with the Company is
terminated before the completion of a Plan Year for any reason other than death,
Total Disability, or Retirement, the Participant shall not be entitled to
receive any Bonus Award for that Plan Year.
4.6. No Limitation to Corporate Action. Nothing in this Article IV
shall preclude the Committee or the Board, as each or either shall deem
necessary or appropriate, from authorizing the payment to the Participant of
compensation outside the parameters of the Plan, including, without limitation,
base salaries, awards under any other plan of the Company, any other bonuses
(whether or not based on the attainment of performance objectives) and retention
or other special payments.
ARTICLE V
Plan Administration
5.1. Powers of the Committee. The Committee shall have the authority,
subject to the terms of the Plan, to determine each Participant's Bonus Award,
if any, and to make all other determinations under the Plan and to interpret and
administer the Plan, taking into account its purposes and such other factors as
the Committee may deem relevant. The Committee shall have complete control over
the administration of the Plan and complete control and authority to determine,
in its sole discretion, the rights and benefits and all claims, demands and
actions arising out of the provisions of the Plan of any Participant or other
person having or claiming to have any interest under the Plan and the
Committee's determinations shall be conclusive and binding on all such parties.
Neither the Committee nor any member thereof nor the Company shall be liable for
any action or determination made in good faith with respect to the Plan or the
rights of any Participant under the Plan.
5.2. Duties of the Committee. Subject to the limitations of the Plan,
the Committee from time to time shall establish rules for the administration of
the Plan and the transaction of its business. All actions and determinations of
the Committee shall be conclusive and binding on all Participants, their
beneficiaries and estates.
5.3. Action Taken in Good Faith. The members of the Committee and the
Company and its officers, directors and employees shall be entitled to rely upon
all certificates and reports made by any accountant, and upon all opinions given
by any legal counsel, and the members of the Committee, the Company and its
officers, directors and employees shall be fully protected in respect of any
action taken or suffered by them in good faith in reliance upon any such
certificates, reports, opinions or other advice of any accountant or legal
counsel, and all action so taken or suffered, including, without limitation, the
payment of any Bonus Award, shall be conclusive upon each of them and upon all
Participants and their beneficiaries.
5.4. Indemnification. In addition to all other rights of
indemnification that may exist, the Company shall indemnify the Committee, each
of its respective members, and officers and employees of the Company who assist
in the administration and operation of the Plan from and against any liability,
joint and/or several, arising out of or connected with their duties hereunder,
except such liability as may arise from their gross negligence or willful
misconduct.
5.5. Expenses of Administration. The Company shall pay all
expenses of administration of the Plan, including, without limitation, all
expenses incurred by the Committee, accounting and legal fees and expenses,
and any other expenses related to the administration of the Plan.
ARTICLE VI
Miscellaneous
6.1 Amendment and Termination. The Company shall have authority, in its
sole discretion, to amend or terminate the Plan at any time, in whole or in
part, and in any manner. Any such amendment or termination may be made by vote
of the Committee or the Board and may be made by the Committee or the Board
retroactively to apply to Bonus Awards not yet paid to Participants.
6.2. Tax Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, State and local withholding tax requirements on any amount payable
under the Plan, and the Company may defer the payment of any amount until such
requirements are satisfied.
6.3. Inalienability of Interests. Except as otherwise provided by
applicable law, the Participant's interests under the Plan shall not be subject
to alienation, assignment, garnishment, execution or levy of any kind, and any
attempt to cause any benefits to be so subjected shall not be recognized.
6.4 No Funding. Nothing in this Plan will be construed to give any
Participant or any other person rights to any specific assets of the Company, or
of any other person. The Participant shall have only the rights of an unsecured
general creditor of the Company with respect to his or her interest under the
Plan. Any Bonus Award which become payable hereunder shall be paid from the
general assets of the Company in accordance with the terms hereof.
6.5. Limited Effect. Neither the establishment of the Plan nor
participation in the Plan shall be construed as creating any contract of
employment between the Company and any Participant, employee or other person,
nor shall anything contained in the Plan give any person the right to be
retained in the employ of the Company or otherwise restrain the Company's right
to deal with its employees, including Participants, and their hiring, discharge,
layoff, compensation, and all other conditions of employment in all respects as
though the Plan did not exist.
6.6. Effect on Other Plans, Programs or Arrangements. The adoption of
the Plan shall have no effect on awards made or to be made or compensation paid
or to be paid pursuant to other plans, programs, or arrangements covering
employees of the Company, its subsidiaries or parent, or any predecessors or
successors thereto, except that amounts paid hereunder may be taken into account
as "compensation" for purposes of determining the Participant's benefits under
such other plan to the extent provided therein.
6.7. Governing Law. All questions pertaining to the construction,
validity and effect of the Plan, or to the rights of any person under the Plan,
shall be determined in accordance with the laws of the Commonwealth of
Massachusetts.
6.8. Stockholder Approval. Bonus Awards shall not be paid under
this Plan prior to approval of the Plan by the stockholders of the Company.
<PAGE>
Exhibit 11
THE STRIDE RITE CORPORATION
CALCULATION OF NET INCOME PER SHARE
For The Five Fiscal Years Ended November 28, 1997
<TABLE>
<CAPTION>
Dec. 3, Dec. 2, Dec. 1, Nov. 29, Nov. 28,
1993 1994 1995 1996 1997
---------- ---------- ----------- ---------- ----------
Calculation of shares:
Weighted average number of
common shares
<S> <C> <C> <C> <C> <C>
outstanding 50,619,238 49,811,244 49,481,929 49,595,888 48,532,043
Common shares attributable
to assumed exercise of
dilutive stock options and
stock purchase rights using
the treasury stock
method 192,251 92,964 298,476 313,134 417,369
---------- ---------- ---------- ---------- ---------
Average common shares and
common equivalent shares
outstanding 50,811,489 49,904,208 49,780,405 49,909,022 48,949,412
========== ========== ========== ========== ==========
Net income (loss)
available for common
stock 58,291,000a $19,798,000 ($8,430,000)b $2,499,000 $19,780,000
========== =========== ============ ========== ===========
Primary and fully diluted
net income (loss) per share
$1.15 a $0.40 ($0.17) $0.05 $0.40
========== =========== =========== ========== ===========
</TABLE>
a. Net income and net income per common share in 1993 included nonrecurring
charges of $7,200,000 ($4,274,000, net of income taxes, or $.08 per
share). Net income and net income per common share in 1993 were also
reduced by the cumulative effect of change in accounting principle
related to income taxes, which amounted to $2,034,000 or $.04 per share,
respectively.
b. Net income (loss) and net income (loss) per common share in 1995 included
nonrecurring charges of $16,573,000 ($9,972,000, net of income taxes, or
$.20 per share).
<PAGE>
EXHIBIT 13
The Stride Rite Corporation
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
OPERATING RESULTS (1)
<S> <C> <C> <C> <C> <C>
Net sales $582,868 $523,877 $496,432 $448,297 $515,728
Net income (loss) (2)(3) 58,291 19,798 (8,430) 2,499 19,780
Common stock dividends 17,686 18,898 16,581 9,923 9,630
Per common share:
Net income (loss) (2)(3) 1.15 .40 (.17) .05 .40
Cash dividends .35 .38 .335 .20 .20
FINANCIAL POSITION (1)
Working capital 243,249 236,628 204,785 201,597 176,263
Total assets 412,449 396,620 366,616 364,330 343,918
Long-term debt 2,500 1,667 833 - -
Stockholders' equity 302,473 292,506 267,456 261,524 242,026
Book value per
common share 6.02 5.91 5.40 5.27 5.12
STATISTICS (1)
Return on average equity(2)(3) 20.2% 6.6% (2.9)% 0.9% 7.8%
Return on sales (2) (3) 10.0% 3.8% (1.7)% 0.6% 3.8%
Common shares
outstanding at
end of year 50,280 49,518 49,531 49,667 47,316
Number of employees
at end of year 3,600 3,700 3,600 3,500 2,900
Number of shareholders 4,800 5,100 5,000 4,800 5,100
</TABLE>
1. Financial data is in thousands, except for per share information.
2. Amount in 1993 included a charge of $2,034,000 ($.04 per share)
representing the cumulative effect of an accounting change related to
income taxes.
3. Amounts included nonrecurring charges of $16,573,000 ($9,972,000, net of
income taxes, or $.20 per share) in 1995 and $7,200,000 ($4,274,000, net
of income taxes, or $.08 per share) in 1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The table below and the paragraphs which follow summarize the Company's
performance in the last three fiscal years. The Company operates within a very
competitive industry. Portions of the information presented in this Annual
Report include "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve
risks and uncertainties (detailed from time to time in the Company's filings
with the Securities and Exchange Commission) which may cause actual results to
differ materially from those projected or implied in these statements. The risks
and uncertainties faced by the Company include, among others, the following:
general economic conditions, sudden changes in consumer trends, changes in
consumer spending patterns, consumer preference changes for the products of
existing competitors, the introduction of new competitors, or difficulties in
forecasting operating results due to the cancellation of advance orders by
retailers and the variability of reorder demand for the Company's products. The
risks listed here are not exhaustive and should be considered with those
detailed in the Company's filings with the Securities and Exchange Commission.
The Company has made substantial progress over the last two years in
its efforts to improve operating results and to grow sales revenues. The
Company's fiscal 1995 results included nonrecurring charges related to several
initiatives to reduce future operating costs and to realign certain product
lines and business units. The actions included the closing of a children's shoe
manufacturing facility, the closure of 48 underperforming retail locations and
the elimination of certain administrative positions. In connection with these
initiatives, the Company recorded pre-tax nonrecurring charges of $16.6 million
($10 million, net of tax benefits) during fiscal 1995. The 1995 amounts in the
tables below exclude the effect of these nonrecurring charges.
<TABLE>
<CAPTION>
Percent Change
----------------------------------------
1997 vs. 1996 1996 vs. 1995
Increase (decrease)
- -------------------------------------------------------------------------------
<S> <C> <C>
Net sales 15.0% (9.7%)
Gross profit 22.6% (6.9%)
Selling and administrative expenses 3.2% (7.6%)
Operating income 2176.1% 726.1%*
Income before income taxes 954.8% 302.9%*
Net income 691.5% 62.1%*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent to Net Sales
-----------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross profit 36.4% 34.1% 33.1%
Selling and administrative expenses 30.4% 33.8% 33.1%
Operating income 6.0% 0.3% 0.0%*
Income (loss) before income taxes 6.2% 0.7% (0.3)%
Net income 3.8% 0.6% 0.3%
</TABLE>
*Amounts calculated before nonrecurring charges of $16.6M in 1995.
NET SALES
During fiscal 1997, the Company's consolidated net sales increased
$67.4 million or 15% above the sales level achieved in fiscal 1996. Revenues
related to the Company's wholesale businesses increased 20%, partially offset by
a 4% decrease in retail sales. With respect to the wholesale divisions of the
Company, unit shipments of current line merchandise during fiscal 1997 were 7%
higher than in 1996 and the fiscal 1997 average selling price increased 10% from
1996, primarily due to changes in the mix of sales between the Company's branded
divisions. The higher sales of current line merchandise during 1997 offset a 6%
decline in the sales of discontinued products compared to 1996. Excluding the
impact of product mix changes, selling price deflation reduced net sales by
approximately $1.1 million due in 1997.
The higher sales in the Company's wholesale businesses in fiscal 1997
were largely caused by the initial shipments of its Tommy Hilfiger(R) footwear
division. The Tommy Hilfiger(R) men's product line, which is being marketed
under a license agreement with Tommy Hilfiger(R) Licensing, Inc., was introduced
to consumers through leading department stores and other specialty retailers on
February 1, 1997. The Spring 1997 product line included athletic, sport and
casual collections for men. For the Fall season of 1997, the Tommy Hilfiger(R)
footwear division introduced outdoor and dress styles for men and delivered an
expanded men's athletic product line and a boys' product line for back-to-school
selling. In August 1997, the Company was awarded the license to market Tommy
Hilfiger(R) footwear for women and girls. The Company expects to introduce the
initial women's product line, which will include dress casual, sport and
athletic footwear, in approximately 600 locations of leading department stores
during the second half of fiscal 1998. The Company will also introduce two other
licensed footwear brands in fiscal 1998, Levi's(R) footwear for men and boys in
July 1998 and Nine West Kids(TM) footwear for girls in August 1998.
Sales of the Stride Rite Children's Group to independent dealers,
family shoe stores and department stores increased 1% during fiscal 1997 as a 3%
increase in the sales of current line merchandise was partially offset by a 25%
reduction in revenues related to discontinued products. Sales of the Company's
Keds division declined 10% in fiscal 1997 compared to fiscal 1996, following a
22% decrease in fiscal 1996 from fiscal 1995. While approximately 40% of the
revenue decrease in 1997 was caused by lower sales of discontinued styles, the
Keds children's and women's product lines also saw declines during 1997, with
revenues below 1996 by 11% and 5%, respectively. Sales of Keds' basic
Champion(R) style, which have been declining for several seasons due to a shift
in women's fashions, decreased 18% in fiscal 1997. In the second half of fiscal
1997, however, the introduction of Keds' new Ready to Wear(TM) product line, an
updated and more comfortable version of the brand's basic silhouette, done in
soft leathers, offset a portion of the Champion(R) decline. For Spring 1998,
Keds will extend the Ready to Wear(TM) concept to canvas styles and plans to
introduce additional products to build on the success of the new styles
introduced in 1997. Sales of the Sperry Top-Sider division in fiscal 1997
increased 17% as the introduction of new products, aimed at the office casual
market, and continued emphasis on the brand's marine heritage, resulted in a 14%
sales increase in the men's leather footwear category. While Sperry's women's
business is still relatively small at 14% of total division revenues, a stronger
product line helped sales to increase 34% in fiscal 1997. The Company's
International division achieved a 23% sales increase in 1997 with revenues
increasing $7 million from 1996. The introduction of Tommy Hilfiger(R) products
in Canada and Latin America, higher Keds sales in South America and increased
royalties from the sale of Keds and Pro-Keds products in the Far East combined
to produce the sales increase.
In fiscal 1997, sales of the Company's Retail division, which includes
the Stride Rite children's booteries and leased departments, manufacturers'
outlets and the Great Feet(R) and Keds retail concepts, decreased 4% as compared
to fiscal 1996. The impact of store closings more than offset a sales gain of 2%
at comparable stores (stores open for a full year in each fiscal year). The
Retail division operated an average of 205 stores during fiscal 1997, a 10%
decrease from the average of 227 stores operated during fiscal 1996. The
division ended the 1997 fiscal year with 201 stores, down from 213 in November
1996 and 254 in November 1995. Over the last two years, the division has closed
or sold 46 underperforming retail locations targeted for elimination as part of
the Company's 1995 restructuring plan.
In fiscal 1996, consolidated net sales decreased $48.1 million or 9.7%
from the sales level achieved in fiscal 1995. Sales of the Company's wholesale
businesses decreased 12% in 1996, with the decline more than offsetting a 1%
increase in retail sales. A 12% decrease in unit shipments of current line
merchandise during 1996 and increased promotional allowances in the Keds
Division were partially offset by selling price inflation of $4.4 million. The
retail sales increase in 1996 was caused by a 1.7% gain at comparable stores and
a more productive store mix as store closings drove down the average store count
by 15% from 1995. Lower sales at Keds, down 22% from 1995, caused most of the
revenue decrease during 1996 as the children's category declined 26% and women's
sales were down 18%. In fiscal 1996, sales of the Stride Rite Children's Group
to independent accounts were 6% above fiscal 1995's total. Late product
deliveries and inventory shortages hurt Sperry Top-Sider's sales performance in
fiscal 1996 as sales finished 1% below 1995. In fiscal 1996, the International
division posted a 12% sales increase from 1995.
GROSS PROFIT
The Company's gross profit in fiscal 1997 totaled $187.6 million, an
increase of $34.6 million or 22.6% from fiscal 1996. In 1997, the Company's
consolidated gross profit percent of 36.4% was 2.3 percentage points higher than
the 34.1% rate achieved in fiscal 1996. The Company's gross profit performance
in fiscal 1997 was favorably affected by higher sales of current line
merchandise and lower sales of discontinued products, especially in the Keds
division. The Company's LIFO provision had a favorable impact on gross profit
comparisons, with LIFO increasing gross profit by $4.5 million (0.9% of net
sales) in fiscal 1997 compared to a gross profit reduction of $0.1 million in
fiscal 1996. The primary cause of the favorable LIFO impact in 1997 was the
reduction of certain manufactured inventory quantities which were valued at
costs prevailing in prior years. In February 1997, the Company announced the
closure of its two remaining children's footwear manufacturing facilities in
Missouri which completed the restructuring of its production resources that
began in fiscal 1995. Existing reserves and accruals were sufficient to offset
the employee severance and other nonrecurring costs resulting from these
closures. The facilities were closed during the third quarter of fiscal 1997
following the transfer of styles to lower cost sources in the Far East and
Mexico. During the phase-out of these facilities, the Company experienced
inefficiencies in domestic manufacturing operations which reduced 1997's gross
profit by $1.2 million or 0.2% of net sales. During fiscal 1997, the gross
profit percent improved by 0.5 percentage points due to reduced inventory
obsolescence charges and retail markdowns as seasonal products were purchased on
a more disciplined basis. Despite this overall improvement in inventory
management however, gross profit performance in the second half of 1997 was
negatively affected by higher markdowns on the athletic component of the Tommy
Hilfiger(R) product line. Fashion changes, which impacted the entire athletic
footwear market, resulted in high order cancellations from customers during the
Fall 1997 season. Gross profit performance in fiscal 1997 was negatively
affected by the decreased contribution to consolidated sales of the Retail
division, the portion of the Company with the highest gross profit percentage,
as retail sales accounted for 16.6% of total sales in 1997 compared to 19.9% of
total sales in 1996.
The Company imports substantially all of its footwear products from
independent resources in the Far East using dollar denominated transactions.
During 1997, the currencies of certain countries in the Far East weakened as
compared to the U.S. dollar. The Company does not expect these conditions to
have a significant effect, favorable or unfavorable, on the future costs of its
products.
In fiscal 1996, gross profit decreased $11.3 million or 6.9% from
fiscal 1995. The Company's 1996 gross profit rate improved one percentage point
from the 33.1% rate achieved in fiscal 1995. Lower inventory obsolescence
charges and retail markdowns in fiscal 1996 accounted for a two percentage point
improvement from fiscal 1995. The 1996 gross profit performance was also
favorably impacted by a lower LIFO provision ($0.1 million in 1996 compared to
$1.3 million in 1995) and the fact that retail sales in 1996 accounted for 19.9%
of consolidated sales, up from 17.7% of sales in 1995. Increased domestic
manufacturing inefficiencies and reduced profitability of the Company's joint
venture manufacturing facility in Thailand negatively impacted gross profit
performance by 1.5% in 1996 compared to a 0.9% impact in 1995. The 1996 gross
profit percent was also reduced from 1995 by 0.9 percentage points as a result
of a new retail promotion program to help the sell-through of Keds products.
OPERATING COSTS
The Company's selling and administrative expenses in fiscal 1997
increased $4.9 million or 3.2% above the expense level incurred in fiscal 1996.
This rate of increase compares to the overall gain in net sales of 15% achieved
during fiscal 1997. As a percentage of net sales, selling and administrative
costs were 30.4% in 1997 compared to 33.8% in 1996. Advertising and sales
promotion expenses in fiscal 1997 increased $3.6 million or 15% from the total
expenditures in fiscal 1996, resulting in advertising spending of 5.5% of net
sales in 1997. Retail store expenses decreased $3.9 million in 1997, due to
lower payroll and benefit costs and the impact of the store closings effected as
part of the restructuring program announced in 1995. Despite the 20% increase in
sales volume of the Company's wholesale businesses, distribution costs decreased
$0.6 million or 5% in fiscal 1997 compared to fiscal 1996 as further
efficiencies were achieved at the Company's Kentucky distribution facility.
Total distribution costs represented 2.3% of net sales in 1997 compared to 2.8%
in 1996. The 1997 distribution expenses included $1.2 million of start-up
expenses associated with the opening of a new distribution facility in
Huntington, Indiana. In the fourth quarter of 1997, the Company began shipping
Stride Rite children's products from the Indiana facility and, after the
successful transition to the new location, closed its higher cost facility in
Boston, Massachusetts. Accruals for the severance and other one-time costs
associated with the closing of the Boston facility were recorded as nonrecurring
charges in prior years. The Indiana facility will also be used to distribute
Levi's(R) and Nine West Kids(TM) licensed products to customers starting in the
second half of fiscal 1998. Spending on information systems during fiscal 1997
increased $2.3 million from 1996 due to the Company's efforts to upgrade
computer systems and to prepare for the Year 2000 transition. Operating expenses
included $2 million in 1997 and $1.9 million in 1996 of start-up costs
associated with the introduction of new licensed products. In the first half of
fiscal 1998, the Company will expend additional amounts to develop and market
the Levi's(R), women's Tommy Hilfiger(R) and Nine West Kids(TM) product lines.
Revenues associated with these new licensed products are expected to begin in
the second half of fiscal 1998.
In fiscal 1996, selling and administrative expenses decreased $12.5
million or 7.6% from fiscal 1995. Lower advertising costs (down $7.9 million or
26%) and reduced distribution expenses (down $4.1 million or 25%) contributed to
the reduced operating costs during 1996. Retail store expenses decreased
slightly in 1996 as the impact of new stores opened in fiscal 1995 and a 3.9%
cost increase at comparable stores offset cost reductions related to stores
closed as part of the Company's restructuring efforts. Expenses in 1996 included
$1.9 million of costs associated with the introduction of the men's Tommy
Hilfiger(R) product line and a $4 million charge due to the impairment in value
of certain software related costs which were capitalized in prior years.
OTHER INCOME AND TAXES
Non-operating income (expense) increased the Company's pre-tax earnings
by $0.9 million in fiscal 1997 compared to an increase of $1.7 million in fiscal
1996 and a decrease of $1.7 million in fiscal 1995. Investment income increased
slightly in fiscal 1997 compared to fiscal 1996 as increased investment yields
offset a 7% decrease in the funds available for investment during the year.
Investment income in 1996 increased $0.4 million from 1995 with a 29% increase
in available funds offsetting lower yields on short-term investments. Interest
expense in 1997 decreased $0.5 million compared to fiscal 1996 due to the
reduced need for short-term borrowings during the year. Interest expense in 1996
decreased $0.3 million as compared to 1995 due to a 14% decrease in average
borrowings under the Company's available lines of credit. Average interest rates
were also lower during fiscal 1996, 5.9% compared to 6.3% in 1995. Other income
and expense items reduced pre-tax income by $2.7 million in 1997, $1.3 million
in 1996 and $4 million in 1995. Expenses associated with a company-owned life
insurance program reduced income in each year. In fiscal 1996, other income
included $1.2 million in gains from a limited partnership investment, while
other expenses in fiscal 1995 included $1.3 million of losses on the sale of
assets in connection with the move of the Company's corporate headquarters.
Income taxes resulted in expenses of $12.1 million in fiscal 1997 and
$0.5 million in fiscal 1996 compared to a tax benefit of $9.6 million in fiscal
1995 as a result of the higher pre-tax earnings in the past two years and the
absence of nonrecurring charges. The Company's effective income tax expense
(benefit) rate was 38% in 1997, 17.4% in 1996 and (53.3)% in 1995 with tax
savings associated with the company-owned life insurance program being the
largest item causing the effective tax rate to be different from the statutory
tax rate.
NET INCOME (LOSS)
The Company earned $19.8 million in fiscal 1997, a significant
improvement from the earnings of $2.5 million in fiscal 1996 and the net loss of
$8.4 million in fiscal 1995. After adjusting for nonrecurring charges, the
Company earned $1.5 million in fiscal 1995. In fiscal 1997, increased sales
volume of the Company's wholesale business, improved gross profit performance
and controlled operating cost increases contributed to the earnings gain. While
the additional sales volume produced by the new Tommy Hilfiger(R) footwear
division contributed to the increased profits, all business units of the Company
participated in the income improvement compared to 1996. Despite the lower sales
level experienced in fiscal 1996, gross profit improvements and operating cost
reductions resulted in a $1 million increase in net income compared to fiscal
1995, after adjusting for the nonrecurring charge. The continuing improvement in
gross profit performance and an increase in operating expenses, which was well
below the rate of sales growth, combined to produce an after-tax return on sales
of 3.8% in 1997, well above the 0.6% return of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 1997, the Company's balance sheet reflects a
current ratio of 2.8 to 1 with no long-term debt. The Company's cash and
short-term investments totaled $51.1 million at the end of fiscal 1997, down
$40.8 million from the total cash and investments of $91.9 million at the end of
fiscal 1996. The Company's continuing share repurchase program, which resulted
in the expenditures of $31.9 million in fiscal 1997, was the most significant
reason for this decrease. In addition, other assets included $9.3 million in
1997 and $7.1 million in 1996 of investments in intermediate-term, fixed income
instruments. During fiscal 1997, the Company's operations generated $16.3
million of cash, down from $58.6 million in 1996 and $25.6 million in 1995. The
growth of the sales volume in 1997 required a higher investment in working
capital as the combined accounts receivable and inventory amount at November 28,
1997 increased $22.5 million or 13.7% above the year-end 1996 amount. Accounts
receivable increased $6.8 million or 15.2% during 1997, well below the 29% sales
increase of the Company's wholesale businesses in the fourth quarter of 1997.
Inventory levels at November 28, 1997 increased $15.6 million or 13.1% from
year-end 1996 as additional inventories to support the Tommy Hilfiger(R)
business, introduced in February 1997, were partially offset by a 24% reduction
in Keds inventories and a reduction of $2.1 million in raw material and work in
process inventories due to the phase-out of manufacturing activities.
Additions to property and equipment totaled $14.3 million in fiscal
1997 compared with capital expenditures of $7.8 million in 1996 and $22.3
million in 1995. Capital expenditures in 1997 included $6.1 million related to
computer systems as the Company continues its efforts to upgrade information
system capabilities and also prepares for the Year 2000 transition. The Year
2000 issue, which affects most companies that rely on computer systems to
process transactions, involves the computer software changes necessary to handle
the transition from the year 1999 to 2000. During fiscal 1997, the Company
formulated a plan to implement systems changes designed to handle the transition
in the Company's systems. In most areas, the Company plans to implement new
computer systems, which will be Year 2000 compliant, as part of its continuing
efforts to upgrade systems capabilities and to effect the transition from
mainframe computer processing to lower cost, midrange computers. The Company
expects to spend approximately $15 million in capital expenditures during the
1997 to 1999 period as part of this effort to upgrade systems capabilities and
to deal with the Year 2000 transition.
The Company's capital expenditures in fiscal 1997 also included $4.2
million of improvements and equipment associated with the new distribution
facility in Huntington, Indiana which became fully operational in October 1997.
The Indiana facility replaced a higher cost facility in Boston, Massachusetts,
which was closed in December 1997. Spending related to retail stores totaled
$2.2 million during fiscal 1997 compared to retail expenditures of $2.3 million
in 1996 and $4.6 million in 1995. During fiscal 1996 and 1997, the Company's
investment in retail stores has slowed significantly with new store openings
amounting to four locations in 1997 and ten stores in 1996. Since the
announcement of the Company's business realignment initiated in the fourth
quarter of 1995, 67 retail stores have been closed. Minimal store openings are
planned for fiscal 1998 as the Company's efforts will continue to focus on
improving retail profitability and eliminating unproductive locations. The
Company expects that 1998 capital expenditures will be similar to the amounts
expended in fiscal 1997 with the largest category of expenditures being new
computer systems. Funding for capital expenditures is expected to be provided
from internal sources.
Through share repurchases and cash dividends, the Company returned
$41.6 million to shareholders during fiscal 1997. The Company expended $31.9
million in 1997 to repurchase 2,567,500 common shares under its share repurchase
program. The Board of Directors had previously authorized a 16 million share
repurchase program, which was completed during the third quarter of fiscal 1997.
In October 1997, the Board of Directors authorized the repurchase of an
additional two million shares. In the fourth quarter of 1997, the Company
repurchased 525,000 shares under this new authorization leaving 1,475,000 shares
authorized for future repurchase. Over the last ten years, the Company has
repurchased 16,525,000 shares for an aggregate expenditure of $151.9 million.
The Company has paid a dividend to shareholders each quarter since it became a
public company in 1960. Cash used for dividends decreased to $9.7 million in
fiscal 1997 compared to $9.9 million in 1996 and $18.8 million in 1995. In 1995,
the Board of Directors elected to reduce the quarterly dividend from $.095 per
share to $.05 per share beginning with the dividend paid on December 15, 1995.
Funds for these stock repurchases and dividends were provided from internal
sources.
In addition to internal sources of capital, the Company maintains bank
lines of credit to satisfy any seasonal borrowing requirements that may be
imposed by the sales patterns which are characteristic of the footwear industry.
At year-end 1997, the Company's available, uncommitted lines of credit total $60
million. During fiscal 1997, the Company's borrowings averaged $1.6 million
compared to the average borrowings of $9.2 million in 1996 and $10.6 million in
1995. No short-term borrowings were outstanding at the end of fiscal 1997 or
1996. At November 28, 1997, the Company had no long-term debt as the final
payment on the Company's Senior Notes was made in November 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 establishes a different
method of computing net income per share than is currently required under the
provisions of Accounting Principles Board Opinion No. 15. Under SFAS No. 128,
the Company will be required to present both basic net income per share and
diluted net income per share. The Company plans to adopt SFAS No. 128 in its
first quarter of fiscal 1998 and at that time all historical net income per
share data presented will be restated to conform to the provisions of SFAS No.
128. The restated earnings per share data for the three years ended November
28, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
Basic net income per share $.41 $.05 $(.17)
Diluted net income per share .40 .05 (.17)
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. Management has not yet evaluated the
effects of this change on its reporting of income. The Company will adopt SFAS
No. 130 for its fiscal year ending December 3, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which changes the way public
companies report information about operating segments. SFAS No. 131, which is
based on the management approach to segment reporting, establishes requirements
to report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers and the material
countries in which the entity holds assets and reports revenue. Management is
currently evaluating the effects of this change on its reporting of segment
information. The Company will adopt SFAS No. 131 for its fiscal year ending
December 3, 1999.
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
(in thousands, except for share data) 1997 1996
- -------------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 41,663 $ 57,269
Short-term investments 9,417 34,611
Accounts and notes receivable,
less allowances of $9,006 in 1997
and $7,172 in 1996 51,708 44,866
Inventories 134,728 119,087
Deferred income taxes 29,013 33,120
Prepaid expenses 5,122 7,175
----------------- ------------------
Total current assets 271,651 296,128
Property and equipment, net 55,395 52,894
Other assets, net 15,639 14,009
Goodwill, net 1,233 1,299
================= ==================
Total assets $343,918 $364,330
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt - 833
Accounts payable 31,748 32,398
Income taxes payable 21,445 25,618
Accrued expenses and other liabilities 42,195 35,682
----------------- ------------------
Total current liabilities 95,388 94,531
Deferred income taxes 6,504 8,275
Stockholders' Equity:
Preferred stock, $1 par value -
1,000,000 shares authorized;
Issued - none - -
Common stock, $.25 par value -
135,000,000 shares authorized;
Issued - 56,946,544 14,237 14,237
Capital in excess of par value 22,289 22,778
Retained earnings 326,292 316,142
----------------- ------------------
362,818 353,157
Less cost of 9,630,600 shares
of common stock held in
treasury (7,279,457 in 1996) (120,792) (91,633)
----------------- ------------------
Total stockholders' equity 242,026 261,524
----------------- ------------------
Total liabilities and
stockholders' equity $343,918 $364,330
================= ==================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, Years Ended
----------------------------------------
except for per share data) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $515,728 $448,297 $496,432
Cost of sales 328,172 295,292 332,102
Selling and administrative expenses 156,533 151,642 164,165
Nonrecurring charges - - 16,573
------------- ------------ ----------
Operating income (loss) 31,023 1,363 (16,408)
Investment income 3,755 3,713 3,363
Interest expense (188) (701) (1,034)
Other income (expense), net (2,662) (1,348) (3,986)
-------------- ---------- -----------
Income (loss) before income taxes 31,928 3,027 (18,065)
Provision for (benefit from)
income taxes 12,148 528 (9,635)
-------------- ---------- ------------
Net income (loss) $19,780 $ 2,499 $(8,430)
============== ========== ============
Net income (loss) per share
of common stock $ .40 $ .05 $ (.17)
============== =========== ============
Average common shares and
common equivalents outstanding 48,949 49,909 49,780
============== =========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
-----------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
CASH WAS PROVIDED FROM (USED FOR)
OPERATIONS:
<S> <C> <C> <C>
Net income (loss) $19,780 $ 2,499 $(8,430)
Adjustments to reconcile to net cash provided
from operations:
Depreciation and amortization 9,833 9,698 10,860
Impairment of long-term assets - 4,038 1,972
Deferred income taxes 2,336 3,683 (3,414)
Compensation expense related to stock plans 502 484 846
Equity in loss (earnings) of affiliate 400 1,092 (150)
Loss (gain) related to long-term investments - (1,235) 2
Loss on disposal of property and equipment 1,589 2,451 1,797
Changes in:
Accounts and notes receivable (6,842) 3,200 15,337
Inventories (15,641) 26,411 11,330
Prepaid expenses 2,053 (1,994) (454)
Long-term notes receivable 502 143 915
Accounts payable, income taxes, accrued
expenses and other current liabilities 1,813 8,082 (4,992)
--------------------------
Net cash provided from operations 16,325 58,552 25,619
--------------------------
INVESTMENTS:
Short-term investments 25,194 (8,400) 4,323
Additions to property and equipment (14,278) (7,784) (22,301)
Proceeds from sales of property and equipment 653 354 87
Distributions and dividends from long-term
investments - 4,334 261
Purchase of noncurrent marketable securities (2,160) (7,091) -
Acquisition of business - - (5,308)
Decrease (increase) in other assets (604) 94 82
--------------------------
Net cash provided from (used for) investments 8,805 (18,493) (22,856)
--------------------------
FINANCING:
Long-term debt payments (833) (833) (833)
Proceeds from sale of stock under stock plans 1,654 28 1,525
Tax benefit (provision) in connection with
stock plans 65 (199) 75
Repurchase of common stock (31,873) - (2,006)
Cash dividends paid (9,749) (9,916) (18,807)
---------------------------
Net cash used for financing (40,736) (10,920) (20,046)
---------------------------
NET INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS (15,606) 29,139 (17,283)
Cash and cash equivalents at beginning of the year 57,269 28,130 45,413
---------------------------
Cash and cash equivalents at end of the year $41,663 $57,269 $28,130
===========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<CAPTION>
Capital in
(in thousands, Common Excess of Retained Treasury
except for share data) Stock Par Value Earnings Stock
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 2, 1994 $14,237 $23,665 $348,577 $(93,973)
Net loss (8,430)
Issuance of 54,576 common shares
under stock plans (310) 690
Issuance of 153,000 common shares
under employee stock plan (424) 1,936
Tax benefit in connection with
stock plans 75
Repurchase of 195,000 shares of
common stock (2,006)
Cash dividends on common stock,
$.335 per share (16,581)
-------- ---------- ----------- --------
Balance, December 1, 1995 14,237 23,006 323,566 (93,353)
Net income 2,499
Issuance of 136,580 common shares
under stock plans (29) 1,720
Tax provision in connection with
stock plans (199)
Cash dividends on common stock,
$.20 per share (9,923)
-------- ---------- ----------- ----------
Balance, November 29, 1996 14,237 22,778 316,142 (91,633)
Net income 19,780
Issuance of 98,307 common shares
under stock plans (157) 1,234
Issuance of 118,050 common shares
under employee stock plan (397) 1,480
Tax benefit in connection with
stock plans 65
Repurchase of 2,567,500 shares of
common stock (31,873)
Cash dividends on common stock,
$.20 per share (9,630)
-------- ---------- ---------- ----------
Balance, November 28, 1997 $14,237 $22,289 $326,292 $(120,792)
======== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements of The
Stride Rite Corporation include the accounts of the Company and all its
wholly-owned subsidiaries. Intercompany transactions between the Company and its
consolidated subsidiaries have been eliminated. The Company's investment in an
unconsolidated, 49.5% owned affiliate is accounted for in the consolidated
financial statements using the equity method of accounting. Under this method,
the Company's share of the affiliate's income or loss is included in the
consolidated statement of income. Earnings related to transactions between the
affiliate and the Company's consolidated subsidiaries are deferred until
merchandise is resold by those subsidiaries. Certain reclassifications have been
made to prior years' consolidated financial statements to conform to the fiscal
1997 presentation.
Fiscal Year-- The Company's fiscal year ends on the Friday closest to November
30 in each year. Fiscal years 1997, 1996 and 1995 ended on November 28, 1997,
November 29, 1996, and December 1, 1995, respectively.
Cash Equivalents, Short-term Investments and Marketable Securities -- Cash
equivalents represent highly liquid investments, including repurchase
agreements, with a maturity of three months or less at the time of purchase. Due
to the short-term nature of repurchase agreements, the Company does not take
possession of the securities, which are instead held in the Company's
safekeeping account by its banks. For these investments, the value of the
collateral is at least equal to the amount of the repurchase agreements.
Short-term investments, representing commercial paper with a high investment
grade, bank certificates of deposit and tax-exempt debt instruments with a
maturity of between three months and one year, are stated at cost, which, due to
their short-term nature, approximates fair value. Noncurrent marketable
securities, representing funds invested in intermediate-term, fixed income
instruments with maturities greater than one year, are stated at fair value.
Financial Instruments -- Financial instruments consist principally of cash,
short-term investments, intermediate-term investments, trade receivables and
payables and long-term debt. The Company places its investments in highly rated
financial institutions and investment grade, short-term financial instruments,
which limits the amount of credit exposure. The Company sells footwear to
numerous retailers. Historically, the Company has not experienced significant
losses related to investments or trade receivables. The Company's exposure to
foreign exchange risk is limited through dollar denominated transactions. The
Company does not enter into derivative financial instruments such as futures,
forward or option contracts. The Company calculates the fair value of all
financial instruments and includes this additional information in the
consolidated financial statements when the fair value is different than book
value. The Company uses quoted market prices, when available, to calculate these
fair values.
Inventory Valuation -- Inventories are stated at the lower of cost or market.
The cost of substantially all inventories is determined on the last-in,
first-out (LIFO) basis.
Property and Equipment -- Property and equipment are stated at cost. The cost of
equipment includes the capitalization of certain associated computer software
costs. Depreciation, which is calculated primarily on the straight-line method,
is provided by periodic charges to expense over the estimated useful lives of
the assets. Leaseholds and leasehold improvements are amortized over the terms
of the related leases or their estimated useful lives, whichever is shorter,
using the straight-line method.
Goodwill and Trademarks -- Goodwill represents the excess of the amount paid
over the fair value of net assets acquired. Trademark rights are stated at
acquisition cost. These assets are amortized on a straight-line basis primarily
over a 25-year period. The carrying value of these intangible assets is
periodically reviewed by the Company and, if necessary, impairments of values
are recognized. If there is a permanent impairment in the carrying value of
goodwill, trademarks or other intangible assets, the amount of such impairment
is computed by comparing the anticipated discounted future operating income of
the acquired business or trademark to the carrying value of the assets. In
performing this analysis, the Company considers current results and trends,
future prospects and other economic factors.
Income Taxes -- Deferred income taxes are provided for temporary differences
between financial and taxable income. Deferred taxes are also provided on
undistributed earnings of subsidiaries and affiliates located outside the United
States at rates expected to be applicable at the time of repatriation.
Net Income (Loss) per Common Share -- Net income (loss) per common share is
computed by dividing net income (loss) by the average number of common shares
and common equivalents outstanding during the year.
Industry Segment Information -- The Company operates primarily within the
footwear industry; therefore, no segment information is required.
Estimates Included in Financial Statements -- The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INVENTORIES
The cost of inventories at November 28, 1997 and November 29, 1996 was
determined primarily on a last-in, first-out (LIFO) basis. A summary of
inventory values is as follows:
(in thousands) 1997 1996
---------------- ----------------
Finished goods $133,233 $115,468
Work in process 256 615
Raw materials 1,239 3,004
---------------- ----------------
$134,728 $119,087
During 1997, the LIFO reserve decreased by $4,541,000 to $18,290,000 at
November 28, 1997. If all inventories had been valued on a FIFO basis, net
income would have been lower by $2,731,000 ($.06 per share) in 1997. The LIFO
reserve increased by $103,000 in 1996 and $1,339,000 in 1995. If all inventories
had been valued on a FIFO basis, net income would have been increased by $90,000
(less than $.01 per share) in 1996 and $806,000 ($.02 per share) in 1995.
During 1997, 1996 and 1995, reductions in certain inventory quantities
resulted in the sale of products carried at costs prevailing in prior years
which were different than current costs. As a result of these inventory
reductions, net income was increased by $3,379,000 ($.07 per share), $1,874,000
($.04 per share) and $491,000 ($.01 per share) in 1997, 1996 and 1995,
respectively.
3. PROPERTY AND EQUIPMENT
The components of property and equipment at November 28, 1997 and
November 29, 1996 and the range of asset lives used in depreciation calculations
for each asset category are as follows:
<TABLE>
<CAPTION>
Range of Useful
Lives
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements 10 years $ 3,664 $ 3,667
Buildings and improvements 12-45 years 15,672 17,442
Machinery, equipment,
computer software and fixtures
3-15 years 55,065 48,906
Leaseholds and leasehold
improvements 5-15 years 15,337 13,433
------------ -----------
89,738 83,448
Less accumulated depreciation
and amortization (34,343) (30,554)
------------ -----------
$55,395 $52,894
============ ===========
</TABLE>
4. OTHER ASSETS
As of November 28, 1997 and November 29, 1996, other assets includes
the following:
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Marketable securities $ 9,252 $ 7,091
Joint venture manufacturing facility 2,008 2,408
Limited partnership 331 331
Trademark rights and other
intangible assets, net 2,378 1,827
Other 1,670 2,352
============= ================
$ 15,639 $ 14,009
============= ================
</TABLE>
In 1996, the Company invested $10,000,000 in intermediate-term, fixed
income securities using an outside investment advisory firm. Other assets
included $9,252,000 in 1997 and $7,091,000 in 1996, representing the fair value
of the noncurrent portion of this investment. Short-term investments includes
$1,580,000 in 1997 and $3,112,000 in 1996 representing the current portion of
this investment.
During 1988 and 1989, the Company invested a total of $1,948,000 in a
joint venture, which is accounted for under the equity method, with a foreign
manufacturer to construct and operate a footwear manufacturing facility in
Thailand. The consolidated statements of income include losses of $400,000 and
$1,092,000 in 1997 and 1996, respectively, and income of $150,000 in 1995
representing the Company's share of the joint venture's operating results in
those years. The joint venture paid a cash dividend to each shareholder of
$2,359,000 in 1996 which reduced the carrying value of the Company's investment.
In 1986, the Company agreed to invest $5,000,000 in a limited
partnership which is authorized to make investments in assets and securities of
all kinds. Cash distributions are made to the limited partners as investments
are sold. In fiscal 1996 and 1995, the Company recognized gains of $1,235,000
and $78,000, respectively, due to the sale of certain investments by the limited
partnership. The Company's investment in this limited partnership is accounted
for under the cost method. The fair value of this investment as of September 30,
1997, the latest valuation as determined by the General Partner, totaled
approximately $706,000.
5. DEBT
The Company utilizes short-term bank loans to finance seasonal working
capital requirements. Banks have extended lines of credit to the Company
amounting to $60 million. During fiscal 1997, 1996, and 1995, borrowings under
these lines averaged $1,557,000, $9,173,000 and $10,622,000, respectively, with
a maximum amount outstanding of $11,800,000 in 1997, $33,500,000 in 1996 and
$34,800,000 in 1995. The weighted average interest rate paid on these borrowings
during the year was 6.2% in 1997, 5.9% in 1996 and 6.3% in 1995. No short-term
borrowings were outstanding on November 28, 1997 or November 29, 1996.
Interest payments amounted to $216,000, $714,000 and $896,000 in fiscal
1997, 1996 and 1995, respectively.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at November 28, 1997 and
November 29, 1996 consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Salaries, wages and commissions $ 12,731 $ 7,626
Nonrecurring charges 5,816 9,580
Advertising 3,809 3,919
Dividends 2,366 2,483
Other liabilities 17,473 12,074
============== ==============
$ 42,195 $ 35,682
============== ==============
</TABLE>
7. NONRECURRING CHARGES
In November 1995, the Company announced several initiatives to reduce
future operating costs and to realign certain product lines and business units.
The actions included the closing of a children's shoe manufacturing facility,
the closure of 48 underperforming retail locations and the elimination of
certain administrative positions. In connection with these initiatives, the
Company recorded pre-tax nonrecurring charges of $16,573,000 ($9,972,000, net of
tax benefits, or $.20 per share) during fiscal 1995. The nonrecurring charges
included $3,680,000 related to the cost of severing approximately 600
associates, $5,946,000 in estimated termination costs related to leases and
$6,947,000 in reserves to adjust the carrying values of associated assets to
estimated realizable values. During fiscal 1996 and 1997, the Company completed
the majority of the restructuring efforts contemplated in the nonrecurring
charge including the closing of its Missouri manufacturing facilities and the
closure of 46 underperforming retail locations.
The Company's nonrecurring charges incurred in 1992 were primarily
related to the decision to consolidate and relocate two Massachusetts
distribution centers to a new facility in Louisville, Kentucky and, included the
estimated costs of severance, relocation, training and other expenses associated
with the move, as well as estimated losses on the disposal of property and
equipment. After correcting the initial problems encountered in 1994, when the
distribution function of the Keds division was shifted to the new facility, the
Company began distributing Sperry Top-Sider products from the Kentucky facility
in August 1995 and distributed products for the new Tommy Hilfiger(R) footwear
business starting in January 1997. The Company had delayed the complete closing
of its Boston, Massachusetts facility, which distributed Stride Rite children's
products, because of the Kentucky facility's start-up difficulties and increased
service demands from retailers. In 1997, the Company transferred the
distribution function for Stride Rite branded products to a new facility in
Huntington, Indiana and initiated shipping from the new facility in the fourth
quarter of fiscal 1997.
The following table summarizes activity during the three years ended
November 28, 1997 with respect to the nonrecurring charges:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $9,580 $17,257 $7,416
Unanticipated start-up expenses - - 2,902
Nonrecurring charges - - 16,573
Amounts charged against accrual (3,764) (7,677) (9,634)
-------------- ----------- ------------
Balance at end of year $ 5,816 $ 9,580 $17,257
============== =========== ============
</TABLE>
The balance of $5,816,000, which remains in accrued expenses as of November 28,
1997, relates to the costs of severing associates of the Boston distribution
facility and the affected retail stores, the estimated termination costs related
to store leases and adjustments to the carrying value of property and equipment
involved in the initiatives.
8. LEASES
The Company leases office space, retail store space, certain factory
space and equipment. A portion of the retail store space is sublet. Some of the
leases have provisions for additional rentals based on increased property taxes
and the leases for retail store space generally require additional rentals based
on sales volume in excess of certain levels. Some leases have renewal options.
Rent expense for operating leases for the three years in the period
ended November 28, 1997 was as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Base rent $16,548 $16,693 $15,983
Additional rent 1,174 1,168 1,750
Less rental from subleases (1,161) (1,552) (2,119)
--------------- --------------- --------------
$16,561 $16,309 $15,614
=============== =============== ==============
</TABLE>
The future minimum rental payments for all non-cancelable operating
leases and the amounts due from tenants on related subleases at November 28,
1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
<C> <C>
1998 $11,657
1999 10,323
2000 9,157
2001 7,751
2002 7,193
Later years 28,049
------------------
Total minimum rental payments 74,130
Less rental due from subleases (3,184)
------------------
$70,946
==================
</TABLE>
9. BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan
covering eligible associates. Pension costs are determined actuarially and are
funded to the extent that deductions are allowable under the United States
Internal Revenue Code. Salaried, management, sales and non-production hourly
associates accrue pension benefits based on the associate's service and
compensation. Production associates accrue pension benefits at a fixed unit rate
based on service.
Pension expense, including amortization of prior service costs over the
remaining service periods of active associates and the remaining lives of vested
and retired associates, consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefit earned during the period $1,768 $1,774 $1,274
Interest cost on benefit obligations 2,686 2,498 2,319
Actual return on plan assets (6,356) (5,443) (7,532
Amortization and deferral, net 2,776 2,221 4,612
========= ========= ========
$ 874 $1,050 $ 673
========= ========= ========
</TABLE>
The accrued pension liability in the Company's consolidated balance
sheets at November 28, 1997 and November 29, 1996 includes the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Fair market value of plan assets $43,810 $40,041
Projected benefit obligations 40,134 37,386
------------------ -----------------
Excess assets 3,676 2,655
Unrecognized prior service cost 348 505
Unrecognized net gain (5,246) (3,239)
Unrecognized net asset (859) (1,146)
================== =================
$(2,081) $(1,225)
================== =================
</TABLE>
At November 28, 1997, the accumulated benefit obligation, which
represents the actuarial present value of the Company's pension obligation if
the plans were to be discontinued, totaled $36,499,000, including a vested
benefit obligation of $34,918,000. The accumulated benefit obligation at
November 29, 1996 was $31,638,000, including a vested benefit obligation of
$30,723,000. In each year, a discount rate of 7% and an annual compensation
increase at the rate of 5% were assumed to determine these liabilities.
During fiscal 1997 and 1996, approximately 65% of the plan assets were
invested in equity investments with the remaining 35% in fixed income
securities. The expected long-term rate of return, net of related expenses, on
plan assets is 9% for both 1997 and 1996.
The Company's savings and investment plans, which are qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended, enable eligible
associates to defer a portion of their salary to be held by the trustees of the
plans. The Company makes an additional contribution to the plans equal to a
maximum of 25% of the first 6% of savings by each participant. During fiscal
1997, 1996 and 1995, this contribution amounted to $446,000, $495,000 and
$544,000, respectively.
10. STOCK PURCHASE AND OPTION PLANS
The Company's Stock Purchase Plan, as amended, permits eligible
associates to elect to subscribe for an aggregate of 5,640,000 shares of common
stock of the Company. Under the Plan, participating associates may authorize the
Company to withhold either 2.5% or 5% of their earnings for a one-or two-year
payment period for the purchase of shares. At the conclusion of the period,
associates may purchase shares at the lesser of 85% of the market value of the
Company's common stock on either their entry date into the Plan or ten days
prior to the end of the payment period. The Board of Directors may set a minimum
price for the stock. For the payment period which ended in fiscal 1997, 118,050
shares were issued under the Plan for an aggregate amount of $1,083,000. Funds
are currently being withheld from participating associates during a payment
period ending October 31, 1999. As of November 28, 1997, $68,000 has been
withheld from associates' earnings and, if all participants had been allowed to
exercise their stock purchase rights at that date, approximately 6,700 shares
could have been purchased at a price of $10.15 per share. At November 28, 1997,
a total of 5,063,331 shares had been purchased under the Plan and 576,669 shares
were available for purchase by participating associates.
Under the 1994 Non-Employee Director Stock Ownership Plan, awards of
common stock and options to purchase common stock are granted to any director
who is not an employee of the Company in accordance with the provisions of the
Plan. An aggregate of 100,000 shares is authorized for issuance under the Plan.
Options to purchase common stock are granted at a price equal to the closing
price of the Company's common stock on the date the option is granted. Each
non-employee director is granted an option to purchase 5,000 shares of common
stock upon his or her initial appointment or election to the Board and an annual
award of 500 shares of common stock. Options have a term of ten years and are
non-transferable. Under the Plan, options become exercisable over a three-year
period and must be paid for in full at the time of exercise. Under the terms of
the Plan, the Company awarded 3,500, 3,000 and 3,500 shares of common stock
during 1997, 1996 and 1995, respectively.
In April 1995, the Company's shareholders approved The Stride Rite
Corporation 1995 Long-Term Growth Incentive Plan (the "1995 Incentive Plan").
Under the Plan, which expires in April 1998, options to purchase common stock
and stock awards of up to an aggregate of 2,400,000 shares of the Company's
common stock may be granted to officers and other key associates. The option
price of the shares may not be less than the fair market value of the Company's
common stock at the date of grant. Options under the Plan will generally vest
over a three-year period and the rights to purchase common shares expire ten
years following the date of grant. In fiscal 1997, 1996 and 1995, 157, 109 and
102 associates, respectively, held outstanding rights under the Plan. Stock
awards, which are limited to 200,000 shares in the Plan, generally vest over a
five-year period. During fiscal 1997 and 1996, stock awards of 5,000 and 20,779
shares, respectively, were made under the Plan. The Company expects to replace
the 1995 Incentive Plan with a similar plan, subject to shareholder approval in
April 1998.
The 1995 Incentive Plan replaced the Company's prior incentive plans.
The 1975 Executive Incentive Stock Purchase Plan was terminated in April 1995.
Under the 1975 Plan, rights to purchase shares of the Company's common stock
were granted to officers and other key associates of the Company at a price
determined by the Board of Directors. This price could not be less than the then
current par value of the Company's common stock, which is $.25 per share. For
most options granted under the Plan, rights to purchase shares may be exercised
at any time within ten years of the grant date, cannot be transferred and must
be paid for in full at the time of exercise. Shares issued under the 1975 Plan
may be subject to restrictions. Restricted shares may not be sold, pledged or
otherwise transferred and generally must be resold to the Company upon
termination of employment. Restrictions on transfer of shares and the obligation
to resell shares to the Company generally lapse at the rate of one-third of the
granted shares at the third, fourth and fifth anniversaries of the date of
grant. The Company charges to compensation expense over a five-year period the
difference between the fair market value at the date of grant and the purchase
price.
A summary of the activity in stock options with respect to all plans
for the three years in the period ended November 28, 1997 is as follows:
<PAGE>
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 2, 1994 834,996 $ 5.80
Granted 638,400 11.67
Exercised (51,076) 0.25
Canceled (154,404) 6.45
--------- ----
Outstanding at December, 1, 1995 1,267,916 8.90
Granted 1,072,800 8.14
Exercised (112,801) 0.25
Canceled (418,553) 8.16
--------- ----
Outstanding at November 29, 1996 1,809,362 9.16
Granted 1,031,750 11.35
Exercised (98,307) 5.81
Canceled (160,105) 10.04
--------- -----
Outstanding at November 28, 1997 2,582,700 $10.11
========= ======
</TABLE>
The following table summarizes information about stock options outstanding at
November 28, 1997.
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
<C> <C> <C> <C> <C> <C> <C>
$ 0.25 - $ 8.50 865,967 7.7 years $ 6.32 379,573 $ 4.25
$ 9.00 - $11.25 1,011,000 8.9 years 10.93 86,934 9.68
$11.625- $15.875 705,733 7.2 years 13.59 444,586 13.78
------- -------
2,582,700 8.0 years $10.11 911,093 $ 9.42
========= =======
</TABLE>
At November 29, 1996, options to purchase 549,197 shares at an average
price of $8.81 per share were exercisable (607,466 shares at $5.37 per share at
December 1, 1995). At November 28, 1997, stock awards and options to purchase a
total 6,330,069 shares had been granted under all plans and rights to purchase
an additional 250,775 shares (1,125,889 shares at November 29, 1996) could be
granted.
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 defines a fair-value method of accounting for
employee stock options or similar equity instruments and encourages companies to
adopt that method of accounting beginning in the Company's 1997 fiscal year.
However, SFAS 123 also allows companies to continue to use the intrinsic value
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and to make proforma
disclosures of the impact on net income and earnings per share of applying SFAS
123. The Company has elected to continue to account for stock options in
accordance with APB 25 and related interpretations. Accordingly, no compensation
cost has been recorded in connection with fair market value stock option grants
under the Company's stock option plans and its employee stock purchase plan.
Proforma net income and earnings per share information included in the
table below, has been calculated as if the Company had accounted for employee
stock options and other stock-based compensation under the fair value method.
The fair value was estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rates of 5.95% for 1997 and 5.59% for 1996, a dividend yield of 1.5%, a
volatility factor of the Company's common stock of 35%, and a weighted average
expected life of the stock options of 4.5 years in both 1997 and 1996. The
weighted average grant date fair values of stock options granted during 1997 and
1996 were $3.95 and $2.88, respectively. For purposes of proforma disclosure,
the estimated fair value is amortized to expense on a straight-line basis over
the options vesting periods.
(in thousands except for per share data 1997 1996
- ----------------------------------------------------------- ---------------
Net income As reported $19,780 $2,499
Proforma 19,058 1,958
Net income per share As reported .40 .05
of common stock Proforma .39 .04
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option pricing models require the use
of highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options and other stock-based
compensation.
11. PREFERRED STOCK PURCHASE RIGHTS
On June 18, 1997, The Company's Board of Directors adopted a
Stockholder Rights Plan to replace a similar plan which was due to expire in
July 1997. In connection with the Plan, the Board declared a dividend of one
Preferred Share Purchase Right for each outstanding share of common stock of the
Company, payable to stockholders of record on July 17, 1997.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors. The Rights may be redeemed by the Company at a price of
$.01 per Right prior to the time that a person or group has acquired beneficial
ownership of 10% or more of the common shares.
Each Right entitles the holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock at a
price of $68 per one one-hundredth of a Preferred Share. Each preferred share is
entitled to minimum quarterly dividends of $1.00 per share, a minimum
preferential liquidation payment of $100 per share and each preferred share will
have 100 votes, voting together with the common shares. The Rights, which may be
amended by the Board of Directors of the Company under most circumstances,
become exercisable at the earlier of ten days following a public announcement
that a person or group ("Acquiring Person") has acquired beneficial ownership of
10% or more of the Company's outstanding common stock or ten business days
following the commencement of, or announcement of an intention to make, a tender
or exchange offer which would result in the beneficial ownership by an Acquiring
Person of 10% or more of the outstanding common shares. In the event that the
Company is acquired in a merger or other business combination transaction, or
50% or more of its assets or earnings power are sold after a person has acquired
beneficial ownership of 10% or more of the Company's outstanding common stock,
the holders of the Rights will have the right to receive upon exercise that
number of shares of common stock of the Acquiring Person having a market value
of two times the exercise price of the Right. In the event that any person or
group becomes an Acquiring Person, the holders of the Rights, other than the
Acquiring Person, will have the right to receive on exercise that number of
shares of Company common stock having a market value of two times the exercise
price of the Right. The Board of Directors of the Company may also exchange the
Rights, in whole or in part, at an exchange ratio of one common share or one
one-hundredth of a preferred share, at any time after a person or group becomes
an Acquiring Person and prior to the acquisition of 50% or more of the Company's
common stock by such Acquiring Person. The Rights, which have no voting power,
expire on July 17, 2007. Preferred Stock Purchase Rights outstanding under the
new Plan totaled 47,315,944 as of November 28, 1997.
12. LITIGATION
The Company is a party to various litigation arising in the normal
course of business. Having considered available facts and opinions of counsel
handling these matters, management of the Company does not believe the ultimate
resolution of such litigation will have a material adverse effect on the
Company's financial position or results of operation.
13. INCOME TAXES
The provision for (benefit from) income taxes consists of the following
for the three years in the period ended November 28, 1997:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 7,942 $(2,428) $(6,300)
State 1,870 (727) 79
--------------- ---------------- ----------------
9,812 (3,155) (6,221)
--------------- ---------------- ----------------
Deferred:
Federal 2,095 2,537 (1,994)
State 241 1,146 (1,420)
--------------- ---------------- ----------------
2,336 3,683 (3,414)
--------------- ---------------- ----------------
$12,148 $ 528 $(9,635)
=============== ================ ================
</TABLE>
Net deferred tax assets as of November 28, 1997 and November 29, 1996
have the following significant components:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Inventory valuation reserves $5,998 $6,464
Nonrecurring charges 3,288 4,800
Accounts receivable allowances 3,628 3,827
Compensation accruals 3,234 3,894
Other accounting reserves and accruals 12,865 14,135
------------- --------------
29,013 33,120
------------- --------------
Deferred tax liabilities:
Depreciation and amortization 6,467 6,563
Other items 37 1,712
------------- --------------
6,504 8,275
------------- --------------
$22,509 $ 24,845
============= ==============
</TABLE>
A valuation allowance has not been assigned to the deferred tax assets
since management believes it is more likely than not that the Company will fully
realize the benefits of such tax assets.
The effective income tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% (35.0)
State income taxes, net of federal tax benefit 4.3 9.0 (4.8)
Tax benefit related to company-owned life
insurance program (1.8) (29.8) (14.0)
Other 0.5 3.2 0.5
--------- --------- ----------
Effective income tax rate 38.0% 17.4% (53.3)%
========= ========= ==========
</TABLE>
In 1997, the Company paid $8,185,000 in income taxes. During 1996, the Company
received a net refund of $9,085,000 as a result of the loss incurred in fiscal
1995. Payments of income taxes amounted to $13,565,000 in 1995.
14. QUARTERLY DATA (UNAUDITED)
The following table provides quarterly data for the fiscal years ended
November 28, 1997 and November 29, 1996.
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except
for per share data) First Second Third Fourth
- --------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C>
Net sales $131,805 $141,604 $144,463 $97,856
Gross profit 46,010 51,263 54,044 36,239
Net income 4,120 7,077 8,186 397
Per common share:
Net income .08 .14 .17 .01
Dividends .05 .05 .05 .05
1996
Net sales $118,899 $124,185 $123,540 $81,673
Gross profit 39,753 42,929 43,473 26,850
Net income (loss) 1,378 3,012 3,193 (5,084)
Per common share:
Net income (loss) .03 .06 .06 (.10)
Dividends .05 .05 .05 .05
</TABLE>
MANAGEMENT'S REPORT ON FINANCIAL INFORMATION
Management of The Stride Rite Corporation is responsible for the
preparation and integrity of the financial information included in this annual
report. The financial statements have been prepared in accordance with generally
accepted accounting principles. Where required, the financial statements reflect
our best estimates and judgments.
It is the Company's policy to maintain a control-conscious environment
through an effective system of internal accounting controls supported by formal
policies and procedures communicated throughout the Company. These controls are
adequate to provide reasonable assurance that assets are safeguarded against
loss or unauthorized use and to produce the records necessary for the
preparation of financial information. There are limits inherent in all systems
of internal control based on the recognition that the costs of such systems
should be related to the benefits to be derived. We believe the Company's
systems provide this appropriate balance.
The control environment is complemented by the Company's internal
auditors who perform audits and evaluate the adequacy of and the adherence to
these controls, policies and procedures. In addition, the Company's independent
public accountants have developed an understanding of our accounting and
financial controls and have conducted such tests as they consider necessary to
support their report on the Company's financial statements.
The Board of Directors pursues its oversight role for the financial
statements through the Audit Committee, which consists solely of independent
directors. The Audit Committee meets regularly with management, the corporate
internal auditors and the Company's independent accountants, Coopers & Lybrand
L.L.P., to review management's process of implementation and administration of
internal accounting controls, and auditing and financial reporting matters. The
independent and internal auditors have unrestricted access to the Audit
Committee.
The Company maintains high standards in selecting, training and
developing personnel to help ensure that management's objectives of maintaining
strong, effective internal controls and unbiased, uniform reporting standards
are attained. We believe it is essential for the Company to conduct its business
affairs in accordance with the highest ethical standards as expressed in The
Stride Rite Corporation's Code of Ethics.
/s/ Robert C. Siegel /s/ John R. Ranelli /s/ John M. Kelliher
- -------------------- ------------------- --------------------
Robert C. Siegel John R. Ranelli John M. Kelliher
Chairman of the Board of Executive Vice President, Vice President, Finance
Directors, President and Finance and Operations and Treasurer
Chief Executive Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors
The Stride Rite Corporation:
We have audited the accompanying consolidated balance sheets of The
Stride Rite Corporation as of November 28, 1997 and November 29, 1996, and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended November
28, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Stride Rite Corporation as of November 28, 1997 and November 29, 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended November 28, 1997, in conformity with generally
accepted accounting principles.
Boston, Massachusetts /s/Coopers & Lybrand L.L.P.
January 8, 1998 COOPERS & LYBRAND L.L.P
<PAGE>
BOARD OF DIRECTORS
Robert C. Siegel
Chairman of the Board of Directors,
President and Chief Executive Officer
Donald R. Gant
Limited Partner, The Goldman Sachs Group, L.P.
Margaret A. McKenna
President, Lesley College
Frank R. Mori
President and Chief Executive Officer,
Takihyo, Inc.
Robert L. Seelert
Chief Executive Officer, Saatchi & Saatchi, plc.
Myles J. Slosberg
Attorney and Former Executive Vice
President of the Company
W. Paul Tippett, Jr.
Principal, Ann Arbor Partners
Committees of the Board
AUDIT COMMITTEE INVESTMENT COMMITTEE
Robert L. Seelert* Myles J. Slosberg*
Frank R. Mori Robert L. Seelert
Myles J. Slosberg W. Paul Tippett, Jr.
COMPENSATION COMMITTEE COMMITTEE ON THE BOARD
Frank R. Mori* Donald R. Gant*
Donald R. Gant Margaret A. McKenna
Margaret A. McKenna W. Paul Tippett, Jr.
W. Paul Tippett, Jr.
* Signifies Chairperson
<PAGE>
CORPORATE DATA
SENIOR MANAGEMENT
Robert C. Siegel
Chairman of the Board of Directors,
President and Chief Executive Officer
John R. Ranelli
Executive Vice President
Joseph T. Barrell
Senior Vice President, Operations
Frank A. Caruso
Vice President and Corporate Controller
Howard B. Collins, Jr.
President, Stride Rite Sourcing International, Inc.
Karen K. Crider
General Counsel, Secretary and Clerk
Janet M. DePiero
Vice President, Human Resources
Dennis Garro
President, Stride Rite International Corp.
Patrick J. Hogan
President, Tommy Hilfiger(R) Footwear, Inc.
Joanna M. Jacobson
President, The Keds Corporation
Lorie M. Karnath
Vice President, Licensing, Strategic Planning,
Mergers and Acquisitions and Corporate Communications
John M. Kelliher
Chief Financial Officer and Treasurer
Robert B. Moore, Jr.
President, Sperry Top-Sider, Inc.
President, LS Footwear, Inc.
C. Madison Riley III
President, Stride Rite Children's Group, Inc.
Gerrald B. Silverman
Senior Vice President, Sales
The Keds Corporation
Diane M. Sullivan
Group President, Licensed Brands
<PAGE>
EXECUTIVE OFFICES
191 Spring Street
P.O. Box 9191
Lexington, Massachusetts 02173-9191
(617) 824-6000
Internet address: www.striderite.com
MAJOR SUBSIDIARIES
The Keds Corporation
LS Footwear, Inc.
Sperry Top-Sider, Inc.
Stride Rite Canada Limited
Stride Rite Children's Group, Inc.
Stride Rite International Corp.
Stride Rite Sourcing International, Inc.
Tommy Hilfiger(R) Footwear, Inc.
AUDITORS
Coopers & Lybrand L.L.P.
Boston, Massachusetts
STOCK LISTING
The Stride Rite Corporation's common stock is listed on the New York Stock
Exchange and is identified by the symbol SRR.
ANNUAL MEETING
The 1998 Annual Meeting of Stockholders of The Stride Rite Corporation is
scheduled to be held on Thursday, April 16, 1998 at 10:00 a.m. at the Company's
Corporate Headquarters, 191 Spring Street, Lexington, Massachusetts.
TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND AUTOMATIC DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLANS Communication concerning transfer
requirements, address changes, dividend reinvestment and stock purchase plan
enrollment, and lost certificates should be addressed to:
BankBoston, N.A.
c/o Boston Equiserve
P.O. Box 8040
Boston, MA 02266-8040
The telephone number is (781) 575-3170.
FORM 10-K
The Stride Rite Corporation's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission, is available without charge upon request and
may be obtained by writing to Shareholder Relations at the Company's executive
offices. Information regarding the Company is also available on the Company's
website at the internet address listed on this page.
<PAGE>
<TABLE>
COMMON STOCK PRICES
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------
Fiscal Quarter High Low High Low
- ----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
1st 12 5/8 10 8 3/4 6 5/8
2nd 15 3/8 12 3/8 10 3/4 7 7/8
3rd 15 11 7/8 9 3/8 6 7/8
4th 14 15/16 11 9/16 10 1/4 7 7/8
</TABLE>
Based on closing prices on the New York Stock Exchange - Composite Tape.
Portions of the information presented include forward-looking statements that
involve risks and uncertainties detailed from time to time in the Company's
filings with the Securities and Exchange Commission which may cause actual
results to differ materially from those projected or implied in forward-looking
statements including without limitation the factors set forth in Exhibit 99 to
the Company's Quarterly Report on Form 10-Q for the period ending March 1, 1996
which are incorporated herein by reference.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE STRIDE RITE CORPORATION
The subsidiaries of the Registrant, all of which are wholly owned by the
Registrant except for PSR Footwear Company Limited (49.5% owned), are listed
below:
Place of Incorporation
Boston Footwear Group, Inc. Massachusetts
Stride Rite Children's Group, Inc. Massachusetts
Stride Rite International Corp. Massachusetts
Stride Rite Sourcing International, Inc. Massachusetts
Sperry Top-Sider, Inc. Massachusetts
The Keds Corporation Massachusetts
LS Footwear, Inc. Massachusetts
Tommy Hilfiger Footwear, Inc. Massachusetts
Stride Rite Investment Corporation Massachusetts
Stride Rite Manufacturing of Missouri, Inc. Missouri
SRR, Inc. Delaware
SR Holdings Inc. Delaware
SRL, Inc. Delaware
SR California Inc. California
Stride Rite Export, Limited Jamaica
Stride Rite Canada Limited Ontario, Canada
S.R. Footwear Limited Bermuda
Stride Rite de Mexico, S.A. de C.V. Mexico
PSR Footwear Company Limited Thailand
Stride Rite Europe S.A.R.L. France
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Stride Rite Corporation:
We consent to the incorporation by reference in the Registration
Statements on Form S-8 (SEC File No. 2-76795, 33-54439, 33-58567 and 333-14837)
of The Stride Rite Corporation of our reports dated January 8, 1998 on our
audits of the consolidated financial statements and financial statement
schedules of The Stride Rite Corporation as of November 28, 1997 and November
29, 1996 and for the years ended November 28, 1997, November 29, 1996 and
December 1, 1995 which reports are included or incorporated by reference in this
Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The notes to the condensed consolidated financial statements are an integral
part of such statements and the condensed consolidated financial informationin
this schedule. Figures below are in thousands, except per-share data.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> NOV-28-1997 NOV-28-1997
<PERIOD-END> NOV-28-1997 NOV-28-1997
<CASH> 41,663 41,663
<SECURITIES> 9,417 9,417
<RECEIVABLES> 60,714 60,714
<ALLOWANCES> 9,006 9,006
<INVENTORY> 134,728 134,728
<CURRENT-ASSETS> 271,651 271,651
<PP&E> 89,738 89,738
<DEPRECIATION> 34,343 34,343
<TOTAL-ASSETS> 343,918 343,918
<CURRENT-LIABILITIES> 95,388 95,388
<BONDS> 0 0
0 0
0 0
<COMMON> 14,237 14,237
<OTHER-SE> 348,581 348,581
<TOTAL-LIABILITY-AND-EQUITY> 343,918 343,918
<SALES> 97,856 515,728
<TOTAL-REVENUES> 97,856 515,728
<CGS> 61,617 328,172
<TOTAL-COSTS> 61,617 328,172
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (415) 1,140
<INTEREST-EXPENSE> 37 188
<INCOME-PRETAX> 1,546 31,928
<INCOME-TAX> 1,149 12,148
<INCOME-CONTINUING> 397 19,780
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 397 19,780
<EPS-PRIMARY> .01 .40
<EPS-DILUTED> .01 .40
</TABLE>
