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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
For the fiscal year ended November 27, 1998
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
incorporation) Number)
191 Spring Street, P.O. Box 9191, Lexington, Massachusetts 02420-9191
(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, 1999, was $472,754,004
based on the closing price on that date on the New York Stock Exchange. As of
February 17, 1999, 46,405,301 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 27, 1998 Part I and Part II
Portions of the Registrant's Proxy
Statement for 1999 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. All of the Company's products are
manufactured abroad by independent manufacturers in accordance with the
Company's specifications and quality standards. 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
The Stride Rite Children's Group designs and markets children's footwear,
primarily for consumers between the ages of six months and ten years, 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. During 1998 the Company introduced a line of casual and dress
footwear, which is targeted at six to ten year old girls, using the NINE WEST
KIDS(TM) trademark under a licensing agreement with Nine West Group.
The Keds group designs and markets sneakers and casual footwear for adults
and children under the KEDS(R) and PRO-KEDS(R) trademarks and casual footwear
for women under the GRASSHOPPERS(R) label.
The Sperry group designs and markets marine footwear and outdoor
recreational, hand-sewn, dress and casual footwear for adults and children 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 1997, the Company began marketing a line of dress casual, sport casual
and athletic footwear for men and boys using the TOMMY HILFIGER(R) brand name
under a license agreement with Tommy Hilfiger Licensing, Inc. A women's footwear
product line was also launched in August 1998 using the TOMMY HILFIGER(R) brand
name.
During fiscal 1998, the Company introduced men's and boys' casual footwear
using the LEVI'S(R) brand name under a licensing agreement with Levi Strauss &
Co. In the fourth quarter of fiscal 1998, the Company and Levi Strauss & Co.
mutually agreed to discontinue this line of footwear.
Sales and Distribution
During the 1998 fiscal year, the Company sold its products nationwide to
customers operating retail outlets, including department stores, sporting
<PAGE>
goods stores and marinas, as well as to Stride Rite children's shoe stores and
other shoe stores operated by independent retailers. In addition, the Company
sold footwear products to consumers through company-owned stores, including
children's shoe stores, manufacturers' outlet stores, GREAT FEET(R) concept
stores, and children's footwear departments in department stores. The Company's
largest single customer accounted for less than 7% of consolidated net sales for
the fiscal year ended November 27, 1998.
The Company provides assistance to a limited number of qualified specialty
retailers to enable them to operate independent Stride Rite children's shoe
stores. Such assistance sometimes includes the sublease of a desirable retail
site by the Company to a dealer. There are approximately 19 independent dealers
who currently sublease store locations from the Company.
The Company owns two distribution centers, one located in Louisville,
Kentucky with 520,000 square feet of space and the other in Huntington, Indiana
with 263,000 square feet of space. The Company sold its Boston, Massachusetts
distribution facility in March 1998 after transferring the distribution function
for the Stride Rite brand to the Huntington, Indiana facility.
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.
Generally, the Company uses independent distributors and licensees to
market its various product lines outside of North America. International
revenues, including sales of the Company's Canadian subsidiary, represented 6%
of consolidated net sales for the fiscal year ended November 27, 1998.
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 17 stores are currently operating in Canada, Costa Rica,
El Salvador, Honduras, Mexico and Peru pursuant to such agreements.
The Company also distributes SPERRY TOP-SIDER(R), STRIDE RITE(R), KEDS(R),
TOMMY HILFIGER(R) and NINE WEST KIDS(TM) products in Canada through its Canadian
subsidiary.
International Sourcing
The Company purchases substantially all of its products from foreign
sources. It maintains a staff of approximately 100 professional and technical
personnel in Taiwan, Thailand, Indonesia and 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 1998, approximately 3% of the Company's total
production requirements for footwear were fulfilled by
<PAGE>
the Thai facility. In addition, the Company uses the services of buying
agents to source merchandise.
Having closed all of its manufacturing facilities in the United States and
the Caribbean over the years, the Company has increased the volume of canvas and
leather footwear for which it contracts with independent offshore suppliers so
that now substantially all product is sourced offshore. In December 1997, the
Company closed its manufacturing facility in the Dominican Republic which
produced a portion of its SPERRY TOP-SIDER(R) 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.
Approximately 80% of the Company's footwear products are manufactured by
independently owned footwear manufacturers in China. Historically, instability
in China's political and economic environment has not had a material adverse
effect on the Company's financial condition or results of operations. The
Company cannot predict, however, the effect that future changes in economic or
political conditions in China could have on the economics of doing business with
its Chinese manufacturers.
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 normal trading relations 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 1998, 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 27, 1998, the Company operated 111 Stride Rite children's
shoe stores, 60 leased children's shoe departments in leading department stores,
4 concept stores operated under the name GREAT FEET(R) and 24 manufacturers'
outlet stores under the name STRIDE RITE FAMILY FOOTWEAR which sell primarily
prior season goods for all of its owned and licensed brands. The product and
merchandising formats of the Stride Rite children's shoe stores are utilized in
the 60 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 children's shoe stores carry a significant
portion of the lines of the Company's STRIDE RITE(R) and SPERRY TOP-SIDER(R)
children's footwear and a portion of the KEDS(R) children's product line, the
TOMMY HILFIGER(R) boys' line and the NINE WEST KIDS(R) girls' styles. 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), TOMMY HILFIGER(R)
and NINE WEST
<PAGE>
KIDS(TM) brand products. The Company's stores are located primarily in larger
regional shopping centers, clustered generally in the major marketing areas of
the United States. Most of the Company's manufacturers' outlet stores are
located in shopping centers consisting only of outlet stores.
During the 1998 fiscal year, the Company opened three Stride Rite
booteries, four leased departments and five manufacturers' outlet stores. During
1998, the Company closed 14 retail stores in an effort to improve the
profitability of the Retail division. The Company currently plans to open
approximately 10 to 15 retail stores in fiscal 1999. In fiscal 1999, the Company
will also continue its efforts to close or sell underperforming retail locations
and expects to cease operations in 5 to 10 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 27, 1998.
Apparel and Accessory Licensing Activities
License royalties accounted for approximately 1% of the Company's sales in
fiscal year 1998. The Company has license agreements with a number of third
parties pursuant to which apparel and accessories are designed, manufactured and
sold under the KEDS(R), PRO-KEDS(R), STRIDE RITE (R) and SPERRY TOP-SIDER(R)
trademarks. The Company is actively evaluating its current license structure and
is continually pursuing new licensees.
Backlog
At November 27, 1998 and November 28, 1997, the Company had a backlog of
orders amounting to approximately $170,800,000 and $161,100,000, 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 the Spring season of fiscal 1998, the Company
experienced an unusually high level of order cancellations from retailers,
especially with respect to its SPERRY TOP-SIDER(R) and TOMMY HILFIGER(R) product
lines. For fiscal 1999, the Company has altered its policies for recording
certain advance orders in an effort to better control order cancellations.
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 during the season which are 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.
<PAGE>
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.
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 27, 1998, the Company employed approximately 2,400
full-time and part-time employees. One collective bargaining unit represents a
small number of these employees. 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
The Company has an existing trademark license agreement with Tommy
Hilfiger Licensing, Inc. pursuant to which it designs, markets and sells
footwear to men, women and boys. In connection with this agreement, the Company
expects to introduce a TOMMY HILFIGER(R) girls' line during the year 2000. The
Company also has a trademark license agreement with Nine West Group, Inc. to
design, manufacture and sell NINE WEST KIDS(TM) branded children's footwear. 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. This agreement was terminated in fiscal 1998.
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.
Research and Development
The Company depends principally upon its design, engineering 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, 1999.
Name Position with Company Age
James A. Eskridge Chairman of the Board of Directors and Chief 56
Executive Officer of the Company since
joining the Company in December 1998. Mr.
Eskridge was a private investor from April
1996 until December 1998 and was a
consultant with Mattel, Inc., a toy
company. Mr. Eskridge was Group President,
Worldwide, Mattel, Inc., from April 1995
until April 1996 and President and Chief
Executive Officer of Fisher Price, a toy
company wholly owned by Mattel, from October
1993 to April 1995.
Joanna M. Jacobson President, The Keds Corporation since 38
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
was Senior Vice President of Marketing of
Converse Inc., a footwear company, from
November 1991 to September 1994.
Diane M. Sullivan Group President of the Company since October 43
1997. Previous 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
footwear company wholly owned by Reebok
International Ltd., from May 1993 to April
1995.
Joseph T. Barrell Senior Vice President, Operations since 47
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.
<PAGE>
Executive Officers of the Registrant
Name Position with Company Age
Howard B. Collins, Jr. President, Stride Rite Sourcing 52
International, 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.
Janet M. DePiero Vice President of Human Resources since 37
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.
John M. Kelliher Chief Financial Officer of the Company since 47
February 1998, Vice President, Finance and
Treasurer of the Company since February 1993.
Thomas L. Nelson President, Sperry Top-Sider, Inc. since 44
joining the Company in May 1998. Prior to
joining the Company, Mr. Nelson was Senior
Vice President for North American Sales for
Converse, Inc., an athletic footwear
company, from March 1995 to May 1998 and
Senior Vice President of Global Sales for
the Rockport Company, a footwear company
wholly owned by Reebok International, Ltd.,
from September 1992 to January 1995.
C. Madison Riley III President, Stride Rite Children's Group, 40
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. Prior to that, Mr. Riley
held various executive positions since
joining the Company in June 1993.
<PAGE>
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
The Company owns an automated distribution center located in Louisville,
Kentucky with 520,000 square feet of space. During fiscal 1998, the Company
purchased a 263,000 square foot distribution facility in Huntington, Indiana,
which had previously been leased by the Company, and sold its warehouse in
Boston, Massachusetts, which contained 565,000 square feet of space. The Company
also sold a facility with approximately 20,000 square feet of space in Woburn,
Massachusetts. The Company leases approximately 18,000 square feet of space in
Wilmington, Massachusetts for product sample distribution and customer returns
processing. 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 20,000 square feet of space in Richmond, Indiana
for its customer service, order processing and telemarketing functions, and
25,000 square feet of space for its liaison offices in mainland China and
Taiwan. In addition, the Company leases smaller facilities for local sales
offices and showrooms in various locations in the United States.
At November 27, 1998, the Company operated 139 retail stores throughout
the country on leased premises which, in the aggregate, covered approximately
211,000 square feet of space. The Company also operates 60 children's footwear
departments in certain divisions of Federated Department Stores. In addition,
the Company is the lessee of 19 retail locations with a total of approximately
22,000 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
The Company is a party to various litigations arising in the normal course
of business. 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 1998
Annual Report to Stockholders on pages 1, 35 and 41 and is incorporated
herein by reference.
Item 6. Selected Financial Data
The information required by this item is included in the Registrant's 1998
Annual Report to Stockholders on page 18 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 1998
Annual Report to Stockholders on pages 19 through 25 and is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in the Registrant's 1998
Annual Report to Stockholders on pages 26 through 43 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 1999 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 27, 1998, 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 1999 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 27, 1998, 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 1999 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 27, 1998, 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 1999 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 27, 1998, 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 27, 1998 and November
28, 1997 *
Consolidated Statements of Income for the fiscal years ended
November 27, 1998, November 28, 1997 and November 29, 1996 *
Consolidated Statements of Cash Flows for the fiscal years ended
November 27, 1998, November 28, 1997 and November 29, 1996 *
Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended November 27, 1998, November 28, 1997 and
November 29, 1996 *
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 27, 1998, November 28, 1997 and November 29, 1996:
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 12 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>
Exhibits. The following exhibits are contained herein or are incorporated
herein by reference:
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. Such document was filed as Exhibit 10(iii) to the
Registrant's Form 10-K for the year ended November 28, 1997
and is incorporated herein by reference.
(iv)* Form of executive termination agreement dated as of February
12, 1998. Such document was filed as Exhibit 10(iv) to the
Registrant's Form 10-K for the year ended November 28, 1997
and is incorporated herein by reference.
10 (v)* Form of severance agreement dated February 22, 1995.
This document was filed as Exhibit 10(vi) to the Registrant's
Form 10-K for the year ended November 28, 1997 and is
incorporated herein by reference.
(vi)* Employment Agreement between the Registrant and Robert C.
Siegel dated November 4, 1997. This document was filed as
Exhibit 10(vii) to the Registrant's Form 10-K for the year
ended November 28, 1997 and is incorporated herein by
reference.
(vii)* Amendment to Employment Agreement between the Registrant and
Robert C. Siegel dated June 5, 1998. This document was filed
as Exhibit 10(i) to the Registrant's Form 10-Q for the period
ending August 28, 1998 and is incorporated herein by
reference.
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
Exhibit No. Description of Exhibit
(viii)* Amendment to Employment Agreement between the Registrant
and Robert C. Siegel dated November 11, 1998.
(ix)* Employment Agreement between the Registrant and James A.
Eskridge dated November 11, 1998.
(x)* Annual Incentive Compensation Plan amended and restated as
of December 11, 1997. This document was filed as Exhibit
10(viii) to the Registrant's Form 10-K for the year ended
November 28, 1997 and is incorporated herein by reference.
(xi)* 1998 Stock Option Plan of the Registrant (as amended).
(xii)* 1998 Non-Employee Director Stock Ownership Plan of the
Registrant (as amended).
(xiii)* Senior Executive Annual Incentive Compensation Plan of the
Registrant. This document was filed as Exhibit 10(xi) to the
Registrant's Form 10-K for the year ended November 28, 1997
and is incorporated herein by reference.
(xiv)* 1999 Executive Long Term Bonus Plan of the Registrant.
(xv) Amended and Restated License Agreement between Registrant
and Tommy Hilfiger Licensing, Inc.
(xvi) January 13, 1999 Letter from Lynn Shanahan (Tommy Hilfiger
Licensing, Inc.) to Diane Sullivan (Tommy Hilfiger
Footwear, Inc.)
(xvii) January 14, 1999 Letter from James A. Eskridge (The Stride
Rite Corp.) to Joel Horowitz (Tommy Hilfiger U.S.A., Inc.)
13 Portions of Registrant's 1998 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
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
Exhibit No. Description of Exhibit
27 Financial Data Schedules
(b) Reports on Form 8-K
On November 30, 1998, the Company filed a report on Form 8-K
restating the quarterly financial data schedules for the
periods ending March 1, 1996; May 31, 1996; August 30, 1996;
November 29, 1996; February 28, 1997; May 30, 1997; August
29, 1997; and November 28, 1997. This restatement was
required by Statement of Financial Accounting Standards No.
128 to reflect a different method of computing net income
per share than previously required under the provisions of
Accounting Principle Board Opinion No. 15.
*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/ James A. Eskridge
By: John M. Kelliher, Chief By: James A. Eskridge, Chairman
Financial Officer of the Board and Chief
(Principal Accounting Officer) Executive Officer
Date: February 4, 1999 Date: February 4, 1999
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/ James A. Eskridge /s/ Warren Flick
James A. Eskridge, Chairman of Warren Flick, Director
the Board of Directors and
Chief Executive Officer
Date: February 4, 1999 Date: February 4, 1999
/s/ Donald R. Gant /s/ Margaret A. McKenna
Donald R. Gant, Director Margaret A. McKenna, Director
Date: February 4, 1999 Date: February 4, 1999
/s/ Frank R. Mori /s/ Robert L. Seelert
Frank R. Mori, Director Robert L. Seelert, Director
Date: February 4, 1999 Date: February 4, 1999
/s/ Myles J. Slosberg /s/ W. Paul Tippett, Jr.
Myles J. Slosberg, Director W. Paul Tippett, Jr., Director
Date: February 4, 1999 Date: February 4, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Directors of
The Stride Rite Corporation:
Our audits of the consolidated financial statements referred to in our report
dated January 6, 1999 appearing on page 43 of the 1998 Annual Report to
Stockholders and Directors of The Stride Rite Corporation (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
January 6, 1999
F-1
<PAGE>
THE STRIDE RITE CORPORATION
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance at
at Costs and End of
Description Beginning Expenses Deductions Period
Period
---------- ------------ ----------- -----------
Fiscal year ended November 29, 1996:
Deducted from assets:
Allowance for doubtful
<S> <C> <C> <C> <C>
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
=========== ============ ============ ===========
Fiscal year ended November 27, 1998:
Deducted from assets:
Allowance for doubtful
accounts 3,742 1,402 1,246 (a) 3,898
Allowance for sales
discounts 5,264 2,329 1,920 (b) 5,673
=========== ============ ============ ===========
$9,006 $3,731 $3,166 $9,571
=========== ============ ============ ===========
</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 27, 1998
Index to Exhibits
Exhibit No. Description of Exhibit Page No.
10 (viii)* Amendment to Employment Agreement between the 22
Registrant and Robert C. Siegel dated November 11,
1998.
(ix)* Employment Agreement between the Registrant and 24
James A. Eskridge dated November 11, 1998.
(xi)* 1998 Stock Option Plan of the Registrant (as 37
amended).
(xii)* 1998 Non-Employee Director Stock Ownership Plan (as 47
amended).
(xiv)* 1999 Executive Long Term Bonus Plan of the 62
Registrant.
(xv) Amended and Restated License Agreement between 68
Registrant and Tommy Hilfiger Licensing, Inc.
(xvi) January 13, 1999 Letter from Lynn Shanahan (Tommy 144
Hilfiger Licensing, inc.) to Diane Sullivan (Tommy
Hilfiger Footwear, Inc.)
(xvii) January 14, 1999 Letter from James A. Eskridge (The 147
Stride Rite Corp.) to Joel Horowitz (Tommy Hilfiger
U.S.A., Inc.)
13 Portions of Registrant's 1998 Annual Report to 148
Stockholders incorporated by reference into this
Annual Report on Form 10-K.
21 Subsidiaries of the Registrant 184
23 Consent of Independent Accountants 185
27 Financial Data Schedules 186
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10(viii)
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment dated November 11, 1998 (the "Second Amendment")
modifies the Employment Agreement dated November 4, 1997 (the "Employment
Agreement") and the Amendment to Employment Agreement dated June 5, 1998 (the
"First Amendment") between The Stride Rite Corporation (the "Company") and
Robert C. Siegel ("Executive").
WHEREAS, Executive has advised the Company that Executive will
voluntarily retire as an officer of the Company; and
WHEREAS, the Company has named Executive's successor and desires to
retain Executive's services as an advisor;
NOW THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, Executive and the Company agree as follows:
1. Second Amendment Controls. Notwithstanding anything to the contrary
contained in the Employment Agreement and First Amendment, the terms and
conditions of this Second Amendment shall control.
2. Resignation. Effective midnight December 6, 1998, Executive resigns as
a Director of the Company and resigns as Chairman of the Board, Chief Executive
Officer and President of the Company and as an officer and director of the
Company's subsidiaries and affiliated entities on which he serves as an officer
and/or director, with the exception of the Stride Rite Charitable Foundation,
which the Executive shall continue to serve as a director under the terms set
forth in this Second Amendment. Executive agrees to execute such documents,
including, without limitation, letters of resignation, which the Company may
request from time to time, evidencing such resignations.
3. Advisor. Section 5, Director/Advisor, of the First Amendment is deleted
in its entirety and the following substituted therefore: "The parties
acknowledge that Executive has resigned as a director of the Company. The
Company retains Executive as an advisor for the Company for the period of
January 1, 1999 through December 31, 1999 (the "Advisory Period"). Executive's
compensation for acting as an advisor during the Advisory Period shall be
$50,000, payable in equal monthly installments of $4,166.66 on or about the
fifteenth day of the month. The Company shall reimburse Executive for travel and
expenses incurred by Executive in performing his duties as an advisor."
<PAGE>
4. Extension of Agreement Not to Compete. Section 10, Agreement Not to
Compete, of the Employment Agreement is modified by substituting the words "for
the period of December 7, 1998 through December 31, 2000" for the words "for a
period of one (1) year following termination of Executive's employment with the
Company for any reason" found in the first and second lines thereof.
5. Extension of Stock Option Exercise Period. Section 4a, Stock Options,
of the First Amendment is modified by substituting the words "until December 31,
2000, at which time the exercise period shall terminate" for the words "within
one (1) year of the Retirement Date" found in the third line thereof.
6. Charitable Foundation. Executive agrees to continue to serve as a
director of the Stride Rite Charitable Foundation (the "Foundation") until the
Company requests, in writing, that Executive resign from such position.
Executive acknowledges that the Company has made substantial charitable
contributions to the Foundation in the past in the expectation that the
Foundation would serve as a vehicle by which the Company's charitable objectives
could be achieved. In view of the foregoing, Executive agrees to consult with
the Company regarding any votes or other actions to be taken with respect to the
Foundation and to take the Company's input with respect to such matters into
account to the extent consistent with his obligations as a director of the
Foundation.
7. Other Terms. All terms of the Employment Agreement and the First
Amendment not modified herein shall remain in full force and effect.
Agreed and accepted this 11th day of November, 1998.
EXECUTIVE THE STRIDE RITE CORPORATION
/s/ Robert C. Siegel /s/ Charles W. Redepenning, Jr.
_____________________________ By:________________________________
Robert C. Siegel, an individual
General Counsel
Its:________________________________
<PAGE>
EXHIBIT 10(ix)
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is made as of November 11, 1998 (the
"Effective Date"), by and between The Stride Rite Corporation, a Massachusetts
corporation with its headquarters located in Lexington, Massachusetts (the
"Employer"), and James A. Eskridge (the "Executive"). In consideration of the
mutual covenants contained in this Agreement, the Employer and the Executive
agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement. The Executive's active employment shall commence on or
before December 7, 1998 (the "Start Date"); provided, that the Executive's
employment is conditioned upon the Executive being able to perform the essential
functions of his positions on or about December 7, 1998. The Employer's
obligations under Section 4 shall not commence until the Employer has made this
determination.
2. Capacity/Duties. The Executive shall initially serve the Employer as
Chairman and Chief Executive Officer, subject to election by the Board of
Directors of the Employer (the "Board"), and Executive's duties, position
(including titles), authority and responsibilities shall be similar to, but no
less than those held by the Executive on the date hereof with such additions and
modifications thereto to be consistent with existing duties, position, authority
and responsibilities hereunder, as the Board may, from time to time, in its
discretion and acting in good faith after consultation with the Executive,
adopt. The Executive shall also serve the Employer in such other or additional
offices as the Executive may reasonably be requested to serve by the Board.
The Executive shall be based at the Employer's headquarters in Lexington,
Massachusetts, or such other headquarters as may be established by the Employer.
The Executive shall have overall responsibility for the general management of
the Employer, subject to the direction and authority of the Board. The Executive
shall preside at all meetings of the Board and shall be responsible for
formulating and submitting to the Board matters of general policy for the
Employer. The Executive additionally shall be responsible for the general
supervision and control of the business and affairs of the Employer, subject in
each case to the direction and authority of the Board. The Executive shall be
responsible for developing, maintaining and enhancing the Employer's
relationships and reputation with investors, customers, suppliers, analysts and
the public at large. The Executive shall also perform such other duties as
normally are incident to the office of Chief Executive Officer. The Executive
acknowledges that his responsibilities in these capacities will require a
substantial time commitment, frequent travel, and availability at any time the
needs of the business so require. The Executive acknowledges the foregoing
requirements of the position and represents that he is fully capable of
performing the responsibilities from and after the Start Date. Executive agrees
that during his employment with Employer his primary residence and that of his
spouse will be in the greater Boston, Massachusetts area.
<PAGE>
3. Term. Subject to the provisions of Section 6, the term of employment
pursuant to this Agreement (the "Term") shall be three (3) years from the Start
Date and shall be renewed automatically for periods of one (1) year, unless
either the Executive or the Employer gives written notice to the other not less
than sixty (60) days prior to the date of any such anniversary of such party's
election not to extend the Term.
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary (the "Salary") at
the annual rate of Six Hundred Thousand Dollars ($600,000), subject to
increase from time to time in the discretion of the Board or the
Compensation Committee of the Board (the "Compensation Committee"). The
Salary shall be payable in periodic installments in accordance with the
Employer's usual practice for its senior executives. Any increase in the
Executive's Salary shall not serve to limit or reduce any other obligation
of the Employer hereunder and, after any such increase, the Executive's
Salary shall not be reduced.
(b) Bonus. Commencing during the Employer's 1999 fiscal year, Executive
shall be an "Eligible Employee" as that term is defined in the Employer's
Annual Incentive Compensation Plan (the "Annual Incentive Plan") and may
receive incentive compensation as provided by its terms. Pursuant to the
Annual Incentive Compensation Plan, Executive's "Bonus Percentage" (as
defined) will be fifty percent (50%). Executive's participation in the
Annual Incentive Plan is subject to the terms and conditions of such plan,
or any amended version of such plan or any successor or other annual
incentive compensation plan which may be adopted and become legally
effective during the Term.
(c) Stock Options. The Executive shall, subject to Board approval and such
terms and conditions as may be proscribed by the Board, be awarded a
non-qualified stock option to purchase up to Five Hundred Thousand
(500,000) shares of the Employer's common stock at fair market value,
which shall be the price at the close of trading on the New York Stock
Exchange - Composite Index on the trading day immediately prior to
Employer's public announcement of Executive's appointment to the position
of Chairman and Chief Executive Officer. The non-qualified stock option as
set forth herein, shall vest ratably in annual increments over a period of
three (3) years, with the first vesting date being the first anniversary
of the Start Date. All or a portion of Executive's non-qualified stock
option may, at the Employer's discretion, be outside Employer's existing
stock option plans. At the Board's discretion, additional grants of stock
options may be awarded to the Executive, from time to time, under the
prevailing terms and conditions of the Employer's current Stock Option
Plan(s) or any successor plan.
<PAGE>
(d) Regular Benefits. The Executive shall be entitled to participate in
any employee benefit plans, medical insurance plans, life insurance plans,
disability income plans, retirement plans and other benefit plans which
the Employer may from time to time have in effect for all or most of its
senior executives. Such participation shall be subject to the terms of the
applicable plan documents, generally applicable policies of the Employer,
applicable law and the discretion of the Board, the Compensation Committee
or any administrative or other committee provided for in or contemplated
by any such plan. Nothing contained in this Agreement shall be construed
to create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
(e) Car Allowance. Executive shall receive a car allowance of Ten Thousand
Dollars ($10,000) per year, prorated and payable in regular installments
coinciding with the Employer's normal pay periods for senior executives.
(f) Vacation. Executive shall be entitled to four (4) weeks paid vacation
per year. Any carryover of unused vacation from one annual period to the
next shall be subject to the policies and practices applicable to other
senior executives of the Employer.
(g) Relocation. In order to assist the Executive in alleviating the tax
burden caused by the reimbursement of certain expenses arising from the
relocation of the Executive by the Employer, the Employer shall pay to the
Executive an amount sufficient to reimburse the Executive for additional
Federal and State income taxes, including those applicable taxes on such
reimbursement, incurred on that portion of the Executive's relocation
expenses, including expenses paid pursuant to "Moving Expenses", "Travel
Expenses" and "Temporary Housing", which are not deductible under current
Internal Revenue Service rules, regulations and interpretations. A record
of all reimbursed relocation expenses shall be provided to the Executive
by the Employer's Payroll Department at the end of the tax year. The tax
allowance paid to the Executive shall be reported by the Employer as extra
income and appropriate tax withheld.
(h) 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 policies and practices of
the Employer as in effect from time to time with respect to executives
employed by the Employer.
(i) Taxation of Payments and Benefits. The Employer shall undertake to
make deductions, withholdings and tax reports with respect to payments and
benefits under this Agreement to the extent that it reasonably and in good
faith believes that it is required to make such deductions, withholdings
and tax reports. Payments under this Agreement shall be in amounts net of
any such deductions or withholdings. Except as provided in Section 4(g)
and as provided in the CoC Agreement, nothing in this Agreement shall be
construed to require the Employer to
<PAGE>
make any payments to compensate the Executive for any adverse tax effect
associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.
(j) Exclusivity of Salary and Benefits. The Executive shall not be
entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Board, devote the Executive's full business time, best efforts and business
judgment, skill and knowledge to the advancement of the Employer's interests and
to the discharge of the Executive's duties and responsibilities under this
Agreement. The Executive shall not engage in any other business activity, except
as may be approved by the Board; provided that nothing in this Agreement shall
be construed as preventing the Executive from:
(a) investing the Executive's assets in any company or other entity in a
manner not prohibited by Section 7(d) and in such form or manner as shall
not require any material activities on the Executive's part in connection
with the operations or affairs of the companies or other entities in which
such investments are made;
(b) engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the
Executive's duties and responsibilities under this Agreement; or
(c) serving as a director on the board of directors of up to two other
companies, with the prior reasonable approval of the Board.
6. Termination and Termination Benefits. Notwithstanding the provisions of
Section 3, the Executive's employment under this Agreement shall terminate under
the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Employer may terminate the
Executive's employment for "Cause" if a majority, consisting of at least
two-thirds (2/3) of the non-management members of the Board, determines
that "Cause" exists, following a process, when and where practicable,
where the Executive has been provided prior written notice of an impending
action, to include the "grounds" therefor, and a prior opportunity to
demonstrate why his employment should not be terminated based on these
grounds. For purposes of this Agreement, the following shall constitute
"Cause" for such termination:
(i) conviction of or plea of no contest to a felony or conviction of
any crime of moral turpitude or admitting the commission of same;
(ii) fraudulent conduct in connection with the business or affairs
of the Employer or any affiliate of the Employer, regardless of
whether said conduct is designed to defraud the Employer or others;
<PAGE>
(iii) failure to perform to the reasonable satisfaction of the Board
a substantial portion of the Executive's duties and responsibilities
assigned or delegated under this Agreement, which failure continues,
in the reasonable judgment of the Board, after written notice given
to the Executive by the Board;
(iv) willful engagement by Executive in misconduct which is
substantially injurious to the Employer, monetarily or otherwise; or
(v) material breach by the Executive of any of the Executive's
fiduciary duties to the Employer or its shareholders, or his
obligations under this Agreement, the Employer's Conflict of
Interest Policy, or other policies promulgated in writing from time
to time.
For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to
be done, by the Executive in bad faith without reasonable belief that his
action or omission was in the best interests of the Employer.
(b) Termination by the Executive. The Executive's employment under this
Agreement may be terminated by the Executive by written notice to the
Board at least ninety (90) days prior to such termination.
(c) Termination by the Employer Without Cause. The Executive's employment
under this Agreement may be terminated by the Employer without cause upon
written notice to the Executive by a vote of the Board.
(d) Termination by Executive for Good Reason. The Executive may terminate
his employment at any time for Good Reason. For purposes of this
Agreement, "Good Reason" means the good faith determination by the
Executive that any one or more of the following have occurred:
(i) without the express written consent of the Executive, the
Employer effects any material change(s) in any of the duties,
authority, or responsibilities of the Executive which is (are)
inconsistent in any substantial respect with the Executive's
position, authority, duties, or responsibilities as contemplated by
Section 2 of this Agreement, which action is not remedied by
Employer promptly after receipt of notice thereof given by the
Executive; or
(ii) any failure by the Employer to comply with any of the
provisions of Section 4 of this Agreement, other than an
insubstantial and inadvertent failure remedied by the Employer
promptly after receipt of notice thereof given by the Executive.
(e) Certain Termination Benefits. Unless otherwise specifically provided
in this Agreement or otherwise required by law, all compensation and
benefits payable to the Executive under this Agreement
<PAGE>
shall terminate on the date of termination of the Executive's employment
under this Agreement. Notwithstanding the foregoing, in the event of
termination of the Executive's employment with the Employer pursuant to
Section 6(c) or Section 6(d) above and subject to the Executive's
execution and delivery to the Employer of an irrevocable Separation
Agreement containing, among other things, a general release of claims, in
a form satisfactory to the Employer, the Employer shall provide to the
Executive the following termination benefits ("Termination Benefits"):
(i) continuation of the Executive's Salary at the rate then in
effect pursuant to Section 4(a);
(ii) the acceleration of the vesting, if applicable, of the stock
options as set forth in Section 4(c), provided that on the Date of
Termination, the closing price of the Employer's common stock on the
New York Stock Exchange - Composite Index, is no less than double
the exercise price of the option subject to accelerated vesting, and
Executive shall have a period of thirty (30) days following the Date
of Termination to exercise such options then exercisable or any
others which become exercisable during the 30-day post-termination
period pursuant to this Section 6(e)(ii) otherwise the unvested
options shall lapse;
(iii) an amount equal to the bonus (prorated as provided herein)
that would have been paid Executive pursuant to the Employer's
current Annual Incentive Plan or its successor, had the Executive's
employment not been terminated prior to the end of the then
applicable Annual Incentive Plan period, provided, however, that
such amount shall be prorated to reflect the period ending with the
fiscal quarter in which the Date of Termination occurred, and the
said resulting amount is to be paid to Executive no later than such
time as Employer pays its other executives under the Annual
Incentive Plan; and
(iv) continuation of group health plan benefits to the extent
authorized by and consistent with 29 U.S.C. ss. 1161 et seq.
(commonly known as "COBRA"), with the cost of the regular premium
for such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the Date of Termination.
The Termination Benefits set forth in (i) and (iv) above shall continue
for a period of twelve (12) months after the date of termination; provided
that in the event that the Executive commences any employment or
self-employment during the period during which the Executive is entitled
to receive Termination Benefits (the "Termination Benefits Period"), the
remaining amount of Salary due pursuant to Section 6(e)(i) for the period
from the commencement of such employment or self-employment to the end of
the Termination Benefits Period shall be reduced by the amount of gross
compensation which Executive is entitled to receive from the new employer
or self-employment and the payments
<PAGE>
provided under Section 6(e)(iv) shall cease effective as of the date of
commencement of such employment or self-employment. Notwithstanding the
foregoing, nothing in this Section 6(e) shall be construed to affect the
Executive's right to receive COBRA continuation entirely at the
Executive's own cost to the extent that the Executive may continue to be
entitled to COBRA continuation after the Executive's right to cost sharing
under Section 6(e)(iv) ceases. The Executive shall be obligated to give
prompt notice of the date of commencement of any employment or
self-employment during the Termination Benefits Period and shall respond
promptly to any reasonable inquiries concerning any employment or
self-employment in which the Executive engages during the Termination
Benefits Period.
(f) Disability. The Employer may terminate this Agreement, after having
established the Executive's inability to perform the essential functions
of the Executive's then existing position or positions with or without
reasonable accommodation, and if any questions arise as to whether the
Executive is disabled so as to be unable to resume or continue performance
and execution of such essential duties within a period not to exceed four
weeks in duration, the Executive may, and at the request of the Employer
shall, submit to the Employer a certification in reasonable detail by a
physician selected by the Employer to whom the Executive or the
Executive's guardian has no reasonable objection as to whether the
Executive is so disabled or how long such disability is expected to
continue, and such certification shall, for the purposes of this
Agreement, be conclusive of the issue. The Executive hereby agrees and
acknowledges that even relatively short periods of disability may prevent
him from being able to perform the essential functions of his position,
particularly during the start-up phase of his employment and that it would
not be reasonable for the Employer to accommodate such a disability by
reducing the Executive's duties or by allowing a leave of absence that
would extend for more than four weeks. The Executive agrees to cooperate
with any reasonable request of the physician in connection with such
certification. If such question shall arise and the Executive shall fail
to submit to such certification, the Employer's determination of such
issue shall be final and binding on the Executive. The Board may exercise
the Employer's right to terminate the Agreement by giving to the Executive
written notice of termination (the "Disability Notice"), and his
employment with the Employer shall terminate effective on the 30th day
after receipt of such notice (the "Disability Effective Date").
Notwithstanding any such Termination, the Executive shall continue to
receive the Executive's full Salary (less any disability pay or sick pay
benefits to which the Executive may be entitled under the Employer's
policies) and benefits under Section 3 of this Agreement (except to the
extent that the Executive may be ineligible for one or more such benefits
under applicable plan terms) for a period of one year dating from the
Disability Effective Date.
(g) Termination Pursuant to a Change of Control. The Employer shall
provide Executive the standard Change of Control Employment Agreement
("CoC Agreement") as previously approved by the Board. Notwithstanding
anything to the contrary contained herein, in the event of a change of
<PAGE>
control, as defined in the CoC Agreement, the terms of the CoC
Agreement shall govern.
(h) Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Employer and for
which the Executive qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any stock option or
other agreement with the Employer or any of its affiliates. Except as
otherwise provided herein, amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or program of
the Employer at or subsequent to the Date of Termination shall be payable
in accordance with such plan or program.
(i) Date of Termination. "Date of Termination" means the date of actual
receipt of the Notice of Termination or any later date specified therein
(but not more than fifteen (15) days after the giving of the Notice of
Termination), as the case may be; provided that (i) if the Executive's
employment is terminated by the Employer for any reason other than Cause
or Disability, the Date of Termination is the date on which the Employer
notifies the Executive of such termination; (ii) if the Executive's
employment is terminated due to Disability, the Date of Termination is the
Disability Effective Date; and (iii) if the Executive's employment is
terminated due to the Executive's death, the Date of Termination shall be
the date of death.
7. Confidential Information, Noncompetition and Cooperation.
(a) Confidential Information. As used in this Agreement, "Confidential
Information" means information belonging to the Employer which is of value
to the Employer in the course of conducting its business and the
disclosure of which could result in a competitive or other disadvantage to
the Employer. Confidential Information includes, without limitation,
financial information, reports, and forecasts; inventions, improvements
and other intellectual property; trade secrets; know-how; designs,
processes or formulae; software; market or sales information or plans;
customer lists; and business plans, prospects and opportunities (such as
possible acquisitions or dispositions of businesses or facilities) which
have been discussed or considered by the management of the Employer.
Confidential Information includes information developed by the Executive
in the course of the Executive's employment by the Employer, as well as
other information to which the Executive may have access in connection
with the Executive's employment. Confidential Information also includes
the confidential information of others with which the Employer has a
business relationship. Notwithstanding the foregoing, Confidential
Information does not include information in the public domain, unless due
to breach of the Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with
<PAGE>
the Employer and after its termination, the Executive will keep in
confidence and trust all such Confidential Information, and will not use
or disclose any such Confidential Information without the written consent
of the Employer, except as may be necessary in the ordinary course of
performing the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the
Executive will return all such materials and property immediately upon
termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Term and for twelve
(12) months thereafter, the Executive (i) will not, directly or
indirectly, whether as owner, partner, shareholder, consultant, agent,
employee, co-venturer or otherwise, engage, participate, assist or invest
in any Competing Business (as hereinafter defined); (ii) will refrain from
directly or indirectly employing, attempting to employ, recruiting or
otherwise soliciting, inducing or influencing any person to leave
employment with the Employer (other than terminations of employment of
subordinate employees undertaken in the course of the Executive's
employment with the Employer); and (iii) will refrain from soliciting or
encouraging any customer or supplier to terminate or otherwise modify
adversely its business relationship with the Employer. The Executive
understands that the restrictions set forth in this Section 7(d) are
intended to protect the Employer's interest in its Confidential
Information and established employee, customer and supplier relationships
and goodwill, and agrees that such restrictions are reasonable and
appropriate for this purpose. For purposes of this Agreement, the term
"Competing Business" shall mean a business conducted anywhere in the
United States which is competitive with any business which the Employer or
any of its affiliates conducts or proposes to conduct at any time during
the employment of the Executive, including, but not limited to, specialty
retailing of infant's, toddler's and children's footwear, the design or
manufacture of footwear of any type on the wholesale level, and any and
all components of the foregoing. Notwithstanding the foregoing, the
Executive may own up to one percent (1%) of the outstanding stock of a
publicly held corporation which constitutes or is affiliated with a
Competing Business.
(e) Third-Party Agreements and Rights. The Executive hereby confirms that
the Executive is not bound by the terms of any agreement with any previous
employer or other party which restricts in any way the Executive's use or
disclosure of information or the Executive's engagement in any business.
The Executive represents to the Employer that the Executive's execution of
this Agreement, the Executive's employment with the Employer and the
performance of the Executive's
<PAGE>
proposed duties for the Employer will not violate any obligations the
Executive may have to any such previous employer or other party. In the
Executive's work for the Employer, the Executive will not disclose or make
use of any information in violation of any agreements with or rights of
any such previous employer or other party, and the Executive will not
bring to the premises of the Employer any copies or other tangible
embodiments of non-public information belonging to or obtained from any
such previous employment or other party.
(f) Litigation and Regulatory Cooperation. During and after the
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of
the Employer which relate to events or occurrences that transpired while
the Executive was employed by the Employer. The Executive's full
cooperation in connection with such claims or actions shall include, but
not be limited to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the Employer at
mutually convenient times. During and after the Executive's employment,
the Executive also shall cooperate fully with the Employer in connection
with any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or
occurrences that transpired while the Executive was employed by the
Employer. The Employer shall reimburse the Executive for any reasonable
out-of-pocket expenses incurred in connection with the Executive's
performance of obligations pursuant to this Section 7(f).
(g) Nondisparagement. Executive agrees not to take any action or make any
statement, written or oral, to any current or former employee of Employer
or to any other person which disparages or could reasonably be interpreted
to be in any way harmful to the interest of Employer, its officers,
directors, management, business practices, or which disrupts or impairs
its normal operations, including actions or statements that would (i) harm
the reputation of the Employer with its customers, suppliers, or the
public; or (ii) interfere with existing contractual or employment
relationships with customers, suppliers or Employer's employees.
(h) Standstill Agreement . For a period of twelve (12) months from the
date of termination of Executive's employment with Employer, Executive
agrees not to, directly or indirectly: (a) effect or seek, offer or
propose (whether publicly or otherwise) to effect, or cause to participate
in or in any way assist any other person to effect or seek, offer or
propose (whether publicly or otherwise) to effect, or cause or participate
in, (i) any acquisition of any securities (or beneficial ownership
thereof) or assets of the Employer; (ii) any tender or exchange offer,
merger or other business combination involving the Employer; (iii) any
recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction with respect to the Employer; or (iv) any
"solicitation" of "proxies" (as such terms are used in the proxy rules of
the Securities and Exchange Commission) to vote any voting securities of
the Employer; (b) form, join or in any way participate in a "group" (as
defined in the 1934 Act) or otherwise act,
<PAGE>
alone or in concert with others, to seek to control or influence the management,
Board of Directors or policies of the Employer; (c) take any action which
might force the Employer to make a public announcement regarding any of
the types of matters set forth in subsection (a) above; or (d) enter into
any discussions or arrangements with any third party with respect to any
of the foregoing. The restrictions contained in this paragraph shall not
be applicable to purchases solely for investment purposes aggregating less
then 5% of the Employer's outstanding voting securities.
(i) Injunction. The parties agree that it would be difficult to measure
any damages caused which might result from any breach by the Executive or
Employer of the promises set forth in this Section 7, and that in any
event money damages would be an inadequate remedy for any such breach.
Accordingly, subject to Section 8 of this Agreement, the parties agree
that if one of the parties breaches, or proposes to breach, any portion of
this Agreement, the other party shall be entitled, in addition to all
other remedies that it may have, to an injunction or other appropriate
equitable relief to restrain any such breach without showing or proving
any actual damage to such party.
8. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's hiring, employment or the termination of that employment (including,
without limitation, any claims of unlawful employment discrimination whether
based on age or otherwise) shall, to the fullest extent permitted by law, be
settled by arbitration in any forum and form agreed upon by the parties or, in
the absence of such an agreement, under the auspices of the American Arbitration
Association ("AAA") in Boston, Massachusetts in accordance with the Employment
Dispute Resolution Rules of the AAA, including, but not limited to, the rules
and procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Employer may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity's agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the Superior Court of the Commonwealth of
Massachusetts and the United States District Court for the District of
Massachusetts. Accordingly, with respect to any such court action, the Executive
(a) submits to the personal jurisdiction of such courts; (b) consents to service
of process; and (c) waives any other requirement (whether imposed by statute,
rule of court, or otherwise) with respect to personal jurisdiction or service of
process.
<PAGE>
10. Integration. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the Employer may assign its rights under this Agreement
without the consent of the Executive in the event that the Employer shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Employer and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, such portion or provision may be reformed by a court
of competent jurisdiction to the extent necessary to render it legal or
enforceable, and in any event shall be enforced to the extent permissible under
the law, and the remainder of this Agreement, or the application of such portion
or provision in circumstances other than those as to which it is so declared
illegal or unenforceable, shall not be affected thereby, and each portion and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
General Counsel, and shall be effective on the date of delivery in person or by
courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a Massachusetts contract and shall be construed
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without giving effect to the conflict of laws principles of such
Commonwealth. With respect to any disputes concerning
<PAGE>
federal law, such disputes shall be determined in accordance with the law as it
would be interpreted and applied by the United States Court of Appeals for the
First Circuit.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
18. Public Announcements. Without the prior written consent of Employer,
Executive shall make no public announcement, including, without limitation,
press releases or media interviews, with respect to the terms of this Agreement
or, if applicable, the termination of Executive's employment with Employer.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the Effective Date.
EXECUTIVE THE STRIDE RITE CORPORATION
/s/ James A. Eskridge /s/ Frank R. Mori
____________________________ By:_____________________________
James A. Eskridge Frank R. Mori
an individual Chairman, Compensation Committee
of the Board of Directors
<PAGE>
EXHIBIT 10(xi)
THE STRIDE RITE CORPORATION
1998 STOCK OPTION PLAN (as amended)
SECTION 1: PURPOSE
The purpose of The Stride Rite Corporation 1998 Stock Option 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.
<PAGE>
(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
<PAGE>
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 3,900,000, 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 number 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.
<PAGE>
(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.
<PAGE>
(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 determinations 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.
<PAGE>
(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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 Common 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. 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.
<PAGE>
(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>
EXHIBIT 10(xii)
THE STRIDE RITE CORPORATION
1998 NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP PLAN (as amended)
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, Stock Award or Director's 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.
<PAGE>
- -- 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
The Plan, as amended, shall be in effect as of April 15, 1999, subject to
approval by the Company's stockholders. No Awards may be made under the Plan
after ten years from the date of original approval of the Plan (April 16, 1998)
or earlier termination of the Plan by the Board.
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, the Company will issue to each Participant a
stock grant of 500 Shares and a non-qualified Stock Option to purchase
5,000 Shares. The Company will issue to each Participant an additional
non-qualified Stock Option to purchase 5,000 Shares on the day after
<PAGE>
each annual meeting of Stockholders commencing with the 1999 annual
meeting of stockholders. Any Stock Option granted pursuant to this Section
6(a) shall be referred to as an "Annual Stock Option".
(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.
(d) In the case of a new Director elected or appointed to the Board after the
1999 annual meeting of stockholders, such new Director shall be issued an
initial Stock Option prorated for the number of months of service as a
Director prior to the next annual meeting of the stockholders determined
in accordance with the following schedule ("Initial Stock Option"):
<TABLE>
<CAPTION>
Months of service to be completed Number of Shares awarded
until next annual stockholders' meeting as Initial Stock Option
--------------------------------------------------------------------------
<S> <C> <C>
Fewer than 3 1,250
3 or more, but fewer than 6 2,500
6 or more, but fewer than 9 3,750
9 or more 5,000
</TABLE>
Each Initial Stock Option shall have a term of ten years and shall become
exercisable as follows: with respect to 32%, one year after the date of
grant; with respect to 34%, two years after the date of grant; with
respect to 34%, three years after the date of grant.
(e) Effective with the beginning of the first fiscal quarter following the
1999 annual meeting of stockholders, the Company shall provide each
Participant with an annual opportunity ("Director's Award Election") to
choose from among the following forms of Director's compensation
("Director's Award"): (i) the issuance of Shares with a Fair Market
Value equal to $40,000, or (ii) the issuance of Shares with a Fair
Market Value equal to $20,000 and $20,000 in cash. A Director's Award
shall be earned on a quarterly basis, and shall be payable (in Shares,
or in Shares and cash, as the case may be) in advance as of the
beginning of each quarter of the Company's fiscal year. The number of
Shares to be issued as of the beginning of each quarter shall be
determined by the Fair Market Value of the Shares as of the end of the
Company's preceding fiscal quarter. In the case of a new Director who
is elected or appointed to the Board other than effective as of the
first day of a fiscal quarter, the Director shall be entitled to a pro
<PAGE>
rata portion of the Director's Award based upon the number of days
remaining in the Company's fiscal quarter.
(f) Except as otherwise provided in this Section 6(f), a Director's Award
Election shall be made prior to the beginning of the Company's fiscal
year to which the Director's Award relates. In the case of a new
Director, a Director's Award Election shall be made by the Participant
within 30 days after becoming a Director. Each Director who is already
a Participant of this Plan as of the date of the 1999 annual meeting of
stockholders shall make a special Director's Award Election with
respect to the Director's Award for the balance of the Company's fiscal
year ending in 1999 within 30 days after the 1999 annual meeting of the
stockholders.
(g) A Director's Award Election shall be made in writing on a form to be
prescribed for such purpose by the Company. In the absence of a signed
Director's Award Election specifying the manner of payment, a
Director's Award shall be paid quarterly in the form of Shares only.
In the event that a Director fails to make a new Director's Award
Election for any subsequent year, the election in effect or deemed to
be in effect for the previous year shall be continued and shall be
deemed effective with respect to any subsequent Director's Award.
(h) The Company shall have the power to withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy any federal, state,
or local withholding tax requirements on any amount payable or Shares
issued under the Plan, and the Company may defer the payment of any amount
or the issuance of Shares until such requirements are satisfied.
(i) Each Participant may elect to defer delivery of all or a portion of the
Shares to be issued or the cash to be paid pursuant to a Director's Award
Election in accordance with the Deferred Compensation Plan for Directors
of The Stride Rite Corporation set forth as Exhibit 1 to this Plan.
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
<PAGE>
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
<PAGE>
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 holder 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
<PAGE>
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 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.
<PAGE>
(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>
Exhibit 1
DEFERRED COMPENSATION PLAN FOR DIRECTORS
OF
THE STRIDE RITE CORPORATION
ARTICLE I
1.1 Name and Purpose. The name of this plan is the "Deferred Compensation
Plan for Directors of The Stride Rite Corporation" (the "Plan"). This Plan is an
amendment and restatement of the Directors' Deferred Compensation Plan
originally adopted by the Company effective as of December 17, 1993, and later
amended and restated as of January 1, 1997. The changes made pursuant to this
amendment and restatement of the Plan are effective as of April 15, 1999,
subject to approval by the Company's stockholders. The purpose of the Plan, as
amended, is to provide non-employee Directors of the Company with flexibility in
timing the receipt of Director's Awards under the Non-Employee Director Stock
Ownership Plan and to assist the Company in attracting and retaining qualified
individuals to serve as Directors. Capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Non-Employee Director
Stock Ownership Plan.
1.2 Definitions. Whenever used in the Plan, the following terms shall have
the meaning set forth below:
(a) "Closing Price" means the NYSE closing price of the Company's
Common Stock as reported in The Wall Street Journal, for the day at issue or the
previous trading day if the day at issue is not a trading day.
(b) "Common Stock" means the Common Stock $.25 par value of the
Company.
(c) "Company" means The Stride Rite Corporation.
(d) "Compensation" means all remuneration paid to a Director for
service as a Director under the Non-Employee Director Stock Ownership Plan, and
such other cash remuneration as the Board of Directors of the Company may permit
to be deferred under this Plan.
(e) "Director" means any individual serving on the Board of
Directors of the Company who is not an employee of the Company or any of its
subsidiaries.
(f) "Non-Employee Director Stock Ownership Plan" means the Stride
Rite Corporation 1998 Non-Employee Director Stock Ownership Plan, as such plan
may be amended from time to time by the Company.
(g) "Participant" means a Director who has filed an election to
participate under Section 3.1 of this Plan with regard to any Plan Year.
<PAGE>
(h) "Plan Administrator" means the Compensation Committee of the
Board.
(i) "Plan Year" means the calendar year.
(j) "Stock Credit" means a credit that is equivalent to one share of
Stride Rite Common Stock.
ARTICLE II
2.1 Participation in the Plan. Any individual who is a non-employee
Director may participate in the Plan.
ARTICLE III
3.1 Election to Participate. Each Director may elect annually to have
payment of all or any portion of his or her Compensation for that Plan Year
deferred. If the Participant ceases to be a Director, the Participant's account
balance under this Plan will be paid in accordance with Section 3.3 as soon as
practicable following the end of the Plan Year during which the Participant
ceased to be a Director. No election to defer under this Plan may be made after
December 31 of the year preceding the Plan Year during which Compensation would
otherwise be paid or within thirty days after the date a Director becomes a
Director. An election to defer any Compensation shall be in writing and shall be
received by the Secretary of the Company in a form prescribed by the Plan
Administrator. An election to defer shall be irrevocable by the Director and
shall be effective only for the Plan Year immediately following the date on
which it was filed. In the absence of a signed Director's election to defer
delivered to the Secretary, any Compensation will be paid directly to the
Director.
3.2 Mode of Deferral. Payment of a Participant's Compensation which is
otherwise payable in cash may be deferred only by means of a Cash Credit.
Payment of a Participant's Compensation which is otherwise payable in the form
of Shares may be deferred only by means of a Stock Credit. Cash Credits and
Stock Credits shall be recorded in accounts established in each Participant's
name on the books of the Company.
(a) Cash Credits. If the deferral is by means of a Cash Credit, the
Participant's Cash Credit account shall be credited with the dollar amount of
Compensation deferred by means of a Cash Credit at the time it would otherwise
have been paid. As of the last day of each calendar quarter, the Participant's
Cash Credit account shall be credited with interest equivalent to the sum of (i)
an amount determined by multiplying one quarter of the applicable interest rate
to the balance in the account as of the first day of such quarter, and (ii) for
each deferral amount credited to the Participant's Cash Credit account during
such quarter, such amount multiplied by the applicable interest rate and further
multiplied by a fraction, the numerator of which is the number of days during
such quarter that such amount was credited to the Cash Credit account and the
denominator of which is 365. The "applicable interest rate" for any calendar
quarter shall be equal to the
<PAGE>
closing prime commercial rate on the last business day of such quarter at the
Chase Manhattan Bank (National Association) located in New York City.
(b) Stock Credits. If the deferral is by means of a Stock Credit,
the Participant's Stock Credit account shall be credited with a Common Stock
equivalent equal to the number of shares of Common Stock (including fractions of
a share) that would have been issued as Shares under the Non-Employee Director
Stock Ownership Plan. As of the date any dividend is paid to shareholders of
Common Stock the Participant's Stock Credit account shall also be credited with
an additional Common Stock equivalent equal to the number of shares of Common
Stock (including fractions of a share) that could have been purchased at the
Closing Price of Common Stock on such date with the dividend paid on the number
of shares of Common Stock to which the Participant's Stock Credit account is
then equivalent. In case of dividends paid in property, the dividend shall be
deemed to be the fair market value of the property at the time of distribution
of the dividend, as determined by the Plan Administrator. A Participant shall
have no shareholder rights with respect to any Stock Credits credited to his or
her Stock Credit account.
3.3 Distribution of Credits.
(a) Payment of a Participant's account balance shall be made in one
installment as soon as practicable following the end of the Plan Year in which
the Participant ceases to be a Director. Notwithstanding any provision hereof to
the contrary, if a Participant believes he or she is suffering from an
unforeseen emergency, an application may be made to the Plan Administrator for
an acceleration of payments from such Participant's Cash Credit account.
"Unforeseen Emergency" for this purpose shall mean a severe financial hardship
to the Participant resulting from a sudden and unexpected illness or accident of
the Participant or a dependent of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. If the Plan Administrator determines, in its sole discretion, that
the Participant is suffering from an "unforeseen emergency," the Plan
Administrator may accelerate payment to the Participant of only such portion of
such Participant's Cash Credit account as the Plan Administrator may determine
is required to alleviate such unforeseen emergency, and such Cash Credit account
shall be charged with the amount paid therefrom as of the date of payment.
(b) Distribution of a Participant's Cash Credit account balance
shall be made in cash. Distribution of his or her Stock Credit account balance
shall be made in shares of Common Stock, with the amount of the distribution
determined by multiplying the number of Stock Credits by the Closing Price of
Common Stock on the last business day in December immediately prior to the Plan
Year in which the distribution is to be paid. Any fractional shares shall be
paid in cash.
3.4 Adjustment. If at any time the number of outstanding shares of Common
Stock shall be changed as the result of any stock dividend, subdivision or
reclassification of shares, the number of shares of Common Stock to which each
Participant's Stock Credit account is equivalent shall be changed in the same
proportion as the outstanding number of shares of Common Stock is
<PAGE>
changed. In the event the Company shall at any time be consolidated with or
merged into any other corporation and holders of the Company's Common Stock
receive common shares of the resulting or surviving corporation, there shall be
credited to each Participant's Stock Credit account, in place of the shares then
credited thereto, a stock equivalent determined by multiplying the number of
common shares of stock given in exchange for a share of Common Stock upon such
consolidation or merger, by the number of shares of Common Stock to which the
Participant's account is then equivalent. If in such a consolidation or merger,
holders of the Company's Common Stock shall receive any consideration other than
common shares of the resulting or surviving corporation, the Plan Administrator,
in its sole discretion, shall determine the appropriate change in Participants'
accounts.
3.5 Distribution upon Death. In the event of the death of a Participant,
whether before or after cessation of service as a Director, any Cash Credit
account balance and Stock Credit account to which he or she was entitled, shall
be converted to cash or shares of Common Stock, as the case may be, and
distributed in a single payment to such person or persons or the survivors
thereof, including corporations, unincorporated associates or trusts, as the
Participant may have designated. All such designations shall be made in writing,
signed by the Participant and delivered to the Clerk. A Participant may from
time to time revoke or change any such designation by written notice to the
Clerk. If there is no unrevoked designation on file with the Plan Administrator
at the time of the Participant's death, or if the person or persons designated
therein shall have all predeceased the Participant or otherwise ceased to exist,
such distribution shall be made in accordance with the Participant's will or in
the absence of a will, to the administrator of the Participant's estate. Any
distribution under this Section 3.5 shall be made as soon as practicable
following notification to the Plan Administrator of the Participant's death. In
this case, the Participant's Stock Credit account shall be converted to shares
of Common Stock by multiplying the number of whole and fractional shares of
Common Stock to which the Participant's Stock Credit account is equivalent by
the Closing Price of Common Stock on the last business day during the last month
prior to the date of death.
3.6 Withholding Taxes. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any federal, state, or local tax withholding requirements.
ARTICLE IV
4.1 Plan Administrator. The Plan Administrator shall have full power and
authority to administer the Plan including the power to promulgate forms to be
used with regard to the Plan, the power to promulgate rules of Plan
administration, the power to settle any disputes as to rights or benefits
arising from the Plan, and the power to make such decisions or take such action
as the Plan Administrator, in its sole discretion, deems necessary or advisable
to aid in the proper maintenance of the Plan.
<PAGE>
ARTICLE V
5.1 No Funding Required.
(a) Except as provided in (c) below, nothing in this Plan will be
construed to create a trust or to obligate the Company or any other person to
segregate a fund, purchase an insurance contract, or in any other way to fund
currently the future payment of any benefits hereunder, nor will anything herein
be construed to give any Participant or any other person rights to any specific
assets of the Company or of any other person. Except as described in (b) or (c)
below, any benefits which become payable hereunder shall be paid from the
general assets of the Company, in accordance with the terms hereof.
(b) The Company, in its sole discretion, may establish (i) a grantor
or other trust of which the Company is treated as the owner under the Code and
the assets of which are subject to the claims of the Company's general creditors
in the event of its insolvency and which conforms to the terms of Revenue
Procedure 92-64 or any successor ruling thereto, (ii) an insurance arrangement,
or (iii) any other arrangement or arrangements designed to provide for the
payment of benefits hereunder. Any such arrangement shall be subject to such
other terms and conditions as the Company may deem necessary or advisable to
ensure that benefits are not includible, by reason of the establishment of any
such arrangement or the funding of any such trust, in the income of the
beneficiaries of such trust or other arrangement prior to actual distribution or
other payment.
(c) Notwithstanding the foregoing, if the Company is subject to a
"change of control", the Company shall, as soon as possible thereafter, but in
no event longer than thirty (30) days following the change of control, as
defined herein, make an irrevocable contribution to a trust described in (b)(i)
above of an amount that is sufficient to pay each Participant or beneficiary the
benefits to which Participants or their beneficiaries would be entitled pursuant
to the terms of the Plan as of the date on which the change of control occurred.
For purposes of this Section 5.1(c), "change of control" shall mean the
occurrence of any one 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
Securities Exchange Act of 1934, as amended (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 of Common Stock (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
<PAGE>
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 February 4, 1999, 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
Company 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
<PAGE>
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.
ARTICLE VI
6.1 Non-Alienation of Benefits. No benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge; and any attempt to do so shall be void. No such benefit
shall, prior to receipt thereof by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements, or torts of the
Participant.
ARTICLE VII
7.1 Delegation of Administrative Duties. Administrative duties imposed by
this Plan may be delegated by the Plan Administrator.
7.2 Governing Law. This Plan shall be governed by the laws of the
Commonwealth of Massachusetts.
7.3 Unsecured General Creditors. No Director or his or her legal
representative or any beneficiary designated by him or her shall have any right,
other than the right of an unsecured general creditor, against the Company in
respect of the account of such Director established hereunder.
7.4 Amendment and Termination. The Board of Directors of the Company may
suspend, amend, or terminate the Plan at any time if deemed to be in the best
interest of the Company; provided, however, that no such suspension, amendment,
or termination may (disregarding any future fluctuation in the Closing Price of
Common Stock) reduce the account balance of any Participant as of the time of
such suspension, amendment, or termination.
<PAGE>
EXHIBIT 10(xiv)
THE STRIDE RITE CORPORATION
1999 EXECUTIVE LONG-TERM BONUS PLAN
ARTICLE I
INTRODUCTION
1.1 Purpose. The purpose of this Plan is to provide key executives of the
Company and any of its subsidiaries with incentive compensation based upon the
future achievement of established performance goals over designated three-year
performance periods.
1.2. Effective Date. Subject to approval of the Plan by a majority of
the Company's stockholders, the Plan is effective as of November 28, 1998.
ARTICLE II
DEFINITIONS
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3 "Committee" shall mean the Compensation Committee of the Board.
2.4 "Company" shall mean The Stride Rite Corporation and its successors
and assigns and any of its subsidiaries.
2.5 "Covered Employee" shall mean an employee of the Company or any of its
subsidiaries designated by the Committee as an employee who is or may be a
"covered employee" within the meaning of section 162(m) of the Code.
2.6 "Participant" shall mean any employee of the Company (or of a
subsidiary) who has been designated as a participant of the Plan by the
Committee pursuant to Article III of the Plan.
2.7 "Payment Date" shall have the meaning given to such term by Section
4.4 of the Plan.
2.8 "Performance Award" shall have the meaning given to such term by
Section 4.2 of the Plan.
2.9 "Performance Goals" shall have the meaning given to such term by
Section 4.1 of the Plan.
2.10 "Performance Period" shall mean any three-year period measured by
reference to three consecutive fiscal years of the Company, as designated by the
Committee.
2.11 "Plan" shall mean The Stride Rite Corporation 1999 Executive
Long-Term Bonus Plan.
<PAGE>
2.12 "Total Disability" shall mean a determination by the Committee or its
designate that a Participant is permanently unable, 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
The Committee shall select the Participants of this Plan, if any, within
the first 90 days after the beginning of each Performance Period. Thereafter,
other Participants may be added by the Committee because of promotion, hiring,
or other reasons warranting their inclusion.
ARTICLE IV
PERFORMANCE AWARDS
4.1 Establishment of Performance Goals. Within the first 90 days after the
beginning of each Performance Period designated by the Committee, the Committee
shall establish in writing the specific Performance Goals that must be achieved
for the Performance Period in order for a Participant to be eligible to receive
payment of a Performance Award ("Performance Goals"). The Performance Goals
shall be based upon any two or more of the following criteria: revenue growth,
earnings per share growth, cash flow, cash flow return on investment, return on
equity, and the Company's stock price as a percentage of a peer group of stocks.
The Committee shall also establish the weighting of the performance criteria.
4.2 Performance Awards. Within the first 90 days after the beginning of
each Performance Period (or, if an individual is not a Participant of this Plan
as of such date, the date that the individual is designated by the Committee as
a Participant in the Plan), the Committee shall establish in writing a
performance incentive award target for such Participants as shall be designated
by the Committee, and in such amounts as the Committee shall determine, subject
to the limitations of the Plan ("Performance Award"). No Performance Award for
any Participant for any single Performance Period shall exceed $1,000,000.
4.3 Certification. As soon as reasonably practical following each
Performance Period, the Committee shall determine in its sole discretion whether
or not the Performance Goals have been attained. If the Performance Goals have
been attained, then the Committee will certify that the Performance Goals and
any other material terms of the Plan were in fact satisfied. For this purpose,
approved minutes of the Compensation Committee meeting in which the
certification is made shall be treated as written certification.
4.4 Payment of Performance Awards. In the event that the
Compensation Committee certifies the payment of Performance Awards in
accordance with Section 4.3 of this Plan, such payment shall be made one-half
in cash and one-half in common stock of the Company, or all in cash, at the
discretion of the Committee, as soon as reasonably practicable following
certification. Except
<PAGE>
as provided in this Section 4.4, payment of certified Performance Awards shall
be made no later than February 15th of the calendar year immediately following
the end of the Performance Period. All Performance Awards shall be subject to
forfeiture in the event that a Participant fails to remain actively employed by
the Company until the earlier of such February 15th, or the actual date of
payment of a Performance Award ("Payment Date"). The Committee may, in its sole
discretion, defer payment of all or a portion of a Participant's Performance
Award to a date not later than thirty days following the date that the
Participant ceases to be a Covered Employee in order to avoid the loss of the
Company's tax deduction for the payment of the Performance Award under section
162(m) of the Code. In the event of any deferral of payment of a Performance
Award to a Covered Employee that is subject to the deduction limit of section
162(m) of the Code, the Committee may, in its sole discretion, elect to also pay
to the affected Participant a reasonable rate of interest on the deferred
portion of the Performance Award. Notwithstanding the foregoing provisions of
this Section 4.4, the Committee may pay a Performance Award to a Covered
Employee even if a Company tax deduction would be disallowed by reason of
section 162(m) of the Code if the Committee in its sole discretion determines
that payment is in the best interest of the Company.
4.5 Termination of Employment.
(a) In the event a Participant terminates employment with the Company
before a Payment Date because of death, Total Disability, or Early, Normal or
Late Retirement as defined under The Stride Rite Corporation Retirement Income
Plan ("Retirement"), 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 the terms of this Plan, a
prorated Performance Award for the Performance Period in which the Participant
dies, becomes disabled, or retires. A prorated Performance Award shall be
determined by multiplying the amount equal to the Performance Award (if any)
that would have been earned in view of actual results for such Performance
Period by a fraction the numerator of which is the number of full months of the
Performance Period during which the employee was a Participant in the Plan and
the denominator of which is thirty-six.
(b) In the event a Participant's employment with the Company is terminated
before a Payment Date for any reason other than death, Total Disability, or
Retirement, the Participant shall not be entitled to receive any Performance
Award.
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.
<PAGE>
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 Performance
Award, if any, for each Performance Period, and to make all other determinations
under the Plan and to interpret and administer the Plan (including the power to
remedy any ambiguities, inconsistencies, or omissions), taking into account its
purposes and such other factors as the Committee may deem relevant (including
recommendations of the Chief Executive Officer of the Company). 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.
Except to the extent precluded by section 162(m) of the Code, the Committee
shall have the discretion to modify any Performance Goals and any Performance
Awards to take into account the affect of unforeseen or extraordinary events
(including mergers and acquisitions) and accounting changes.
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 determination 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 Performance Awards, 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
<PAGE>
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 the 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 Performance 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, a 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 Performance Awards 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 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 but
only to the extent expressly 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.
<PAGE>
6.8 Stockholder Approval. No Performance Awards shall be paid under this
Plan prior to approval of the Plan by the stockholders of the Company.
<PAGE>
EXHIBIT 10(xv)
AMENDED AND RESTATED
LICENSE AGREEMENT
BETWEEN
TOMMY HILFIGER LICENSING, INC.
AND
THE STRIDE RITE CORPORATION
<PAGE>
TABLE OF CONTENTS
RECITALS.....................................................................1
ARTICLE 1. DEFINITIONS
1.1 Affiliates of Licensee............................................1
1.2 Agreement.........................................................1
1.3 Annual Period.....................................................1
1.4 Close-Outs........................................................2
1.5 Gross Sales.......................................................2
1.6 Guaranteed Minimum Royalty........................................2
1.7 Inventory.........................................................2
1.8 Inventory Schedule................................................2
1.9 Labels............................................................2
1.10 Licensed Products.................................................2
1.11 Minimum Sales Level...............................................2
1.12 Net Sales.........................................................2
1.13 Percentage Royalty................................................2
1.14 Seasonal Collections..............................................2
1.15 Seconds...........................................................2
1.16 Term..............................................................3
1.17 Territory.........................................................3
1.18 Trade Secrets.....................................................3
1.19 Trademark.........................................................3
ARTICLE 2. GRANT
2.1 License...........................................................3
2.2 Reservations......................................................3
2.3 Territory.........................................................3
2.4 Exclusivity.......................................................4
2.5 Definitional Disputes.............................................4
2.6 Best Efforts......................................................4
2.7 Showrooms and In-Store Shops......................................4
2.8 Sales and Deliveries..............................................5
2.9 Organization......................................................6
2.10 Merchandise Coordinator Program...................................6
ARTICLE 3. TERM OF THE AGREEMENT
3.1 Term..............................................................7
3.2 Extension.........................................................7
<PAGE>
ARTICLE 4. SALES
4.1 Sales/Marketing and Production Plans..............................7
4.2 Minimum Sales Levels..............................................7
4.3 Certification.....................................................8
ARTICLE 5. LICENSE FEES
5.1 Requirement of Royalties..........................................9
5.2 Guaranteed Minimum Royalty........................................9
5.3 Percentage Royalty................................................9
5.4 Royalty Statements...............................................10
5.5 Books and Records................................................10
5.6 Taxes............................................................11
5.7 Underpayments....................................................11
5.8 Manner of Payment................................................11
5.9 Interest on Late Payments........................................11
5.10 No Set-Off.......................................................11
5.11 Purchases By Licensor's Outlet Stores............................11
5.12 Purchases By Licensor's Retail Stores............................12
5.13 Products for Licensor's Use......................................12
5.14 Purchases By Licensor............................................12
5.15 Financial Statements.............................................12
ARTICLE 6. REPRESENTATIONS AND WARRANTIES
6.1 Warranties and Representations of Licensor.......................13
6.2 Warranties and Representations of Licensee.......................13
ARTICLE 7. ADVERTISING
7.1 Guaranteed Minimum Advertising Payment...........................14
7.2 Percentage Advertising Payment...................................15
7.3 Advertising Expenditures.........................................15
7.4 Approval of Packaging, Labeling and Advertising..................16
7.5 Launch...........................................................16
7.6 Fashion Show......................................................16
7.7 Trade Shows.......................................................17
ARTICLE 8. QUALITY AND STANDARDS
8.1 Distinctiveness and Quality of the Trademark.....................17
8.2 Shops, Stores, Retail Outlets....................................17
8.3 Samples of Manufactured Products.................................18
8.4 Non-Conforming Products..........................................18
8.5 Approvals........................................................19
8.6 Approval Withdrawal..............................................19
8.7 Samples and Artwork..............................................19
8.8 Confidentiality..................................................20
8.9 Manufacture of Licensed Products by Third Parties................20
8.10 Compliance with Applicable Laws..................................24
8.11 Inspection of Facilities.........................................24
8.12 Rules and Regulations............................................24
8.13 Disposal of Seconds and Close-Outs...............................24
8.14 Assistance By Licensor...........................................25
8.15 Meetings.........................................................25
8.16 Design Rights....................................................25
8.17 Pricing..........................................................26
8.18 Cost of Designs..................................................26
8.19 Morals...........................................................26
ARTICLE 9. THE TRADEMARK
9.1 Rights to the Trademark..........................................26
9.2 Protecting the Trademark.........................................27
9.3 Compliance with Legal Requirements...............................27
9.4 Ownership of Copyright...........................................27
9.5 Notice of Infringement...........................................27
9.6 Counterfeit Protection...........................................27
9.7 Use of Other Trademarks..........................................28
9.8 Use of Trademark on Invoices, etc................................28
9.9 Monitoring.......................................................28
ARTICLE 10. INSOLVENCY
10.1 Effect of Proceeding in Bankruptcy, etc..........................28
10.2 Rights, Personal.................................................29
10.3 Trustee in Bankruptcy............................................29
ARTICLE 11. TERMINATION
11.1 Other Rights Unaffected..........................................29
11.2 Termination Without Notice.......................................29
11.3 Termination With Notice..........................................30
11.4 Effect of Termination............................................30
11.5 Inventory Upon Termination.......................................31
11.6 Freedom to License...............................................31
11.7 Equitable Relief.................................................31
ARTICLE 12. RELATIONSHIP BETWEEN THE PARTIES
12.1 No Agency........................................................31
ARTICLE 13.
ARTICLE 14. BENEFIT
14.1 Benefit..........................................................32
ARTICLE 15. ENTIRE AGREEMENT; AMENDMENT
15.1 Entire Agreement; Amendment......................................32
ARTICLE 16. NON-WAIVER
16.1 Non-Waiver.......................................................32
ARTICLE 17. ASSIGNMENT
17.1 No Assignment Without Consent....................................32
17.2 Sale of Assets...................................................32
17.3 Sale of Stock/Interest...........................................33
17.4 Assignment by Licensor...........................................33
ARTICLE 18. INDEMNIFICATION AND INSURANCE
18.1 Indemnification by Licensee......................................33
18.2 Notice of Suit or Claim..........................................34
18.3 Indemnification by Licensor......................................34
18.4 Insurance........................................................34
ARTICLE 19. SEVERABILITY
19.1 Severability.....................................................35
ARTICLE 20. NOTICES
20.1 Notices..........................................................36
ARTICLE 21. SUSPENSION OF OBLIGATIONS
21.1 Suspension of Obligations........................................36
ARTICLE 22. EXHIBITS
22.1 Exhibits.........................................................37
ARTICLE 23. OTHER PROVISIONS
23.1 Headings.........................................................37
23.2 Counterparts.....................................................37
23.3 Construction.....................................................37
23.4 Jurisdiction.....................................................37
23.5 Compliance with Laws.............................................37
<PAGE>
EXHIBITS
EXHIBIT A... TRADEMARK REGISTRATIONS
EXHIBIT B... ROYALTY STATEMENT
EXHIBIT C... SAMPLE SUBMISSION FORM
EXHIBIT D... THIRD PARTY MANUFACTURING AGREEMENT
EXHIBIT E... ADVERTISING EXPENDITURE
EXHIBIT F... ORGANIZATIONAL CHART
EXHIBIT G CERTIFICATION
EXHIBIT H SUPPLIER CODE OF CONDUCT
<PAGE>
[G2410B.001]
AMENDED AND RESTATED
LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT entered into this ______
day of __________, 1997, by and between TOMMY HILFIGER LICENSING, INC., having
an address at 913 N. Market Street, Wilmington, Delaware 19801 (hereinafter
referred to as "Licensor") and THE STRIDE RITE CORPORATION, a Massachusetts
corporation, having its offices at 191 Spring Street, P.O. Box 9191, Lexington,
Massachusetts 02173 (hereinafter referred to as "Licensee").
W I T N E S S E T H :
WHEREAS, TOMMY HILFIGER LICENSING, INC. and THE STRIDE RITE
CORPORATION entered into a license agreement dated August 22, 1995, which was
first amended on January 17, 1996; which was secondly amended on September 1,
1996; which was thirdly amended on January 1, 1997; and which was fourthly
amended on August 18, 1997 (the license agreement and amendments are hereinafter
referred to as the "License Agreement"); and
WHEREAS, The parties desire to clarify and restate the License
Agreement incorporating all terms and provisions of the August 22, 1995
Agreement and all subsequent amendments.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
agreements herein contained and promises herein expressed, and for other good
consideration acknowledged by each of them to be satisfactory and adequate, do
hereby agree as follows:
ARTICLE 1. DEFINITIONS
Definitions. The following terms shall have the following meanings
when used in this Agreement attached hereto:
1.1 Affiliates of Licensee shall mean all persons and business
entities, whether corporations, partnerships, joint ventures or otherwise, which
now or hereafter control, or are owned or controlled, directly or indirectly by
Licensee, or are under common control with Licensee.
1.2 Agreement shall mean this agreement.
1.3 Annual Period shall mean each twelve-month period commencing on
January 1 and ending on December 31, except that the first Annual Period shall
be the period commencing on the date hereof and ending on December 31, 1997.
<PAGE>
- 5 -
[G2410B.001]
1.4 Close-Outs shall mean first quality Licensed Products which
cannot reasonably be sold to regular customers.
1.5 Gross Sales shall mean the invoiced amount of Licensed Products
shipped by Licensee before any deductions for discounts and returns, insurance
and freight.
1.6 Guaranteed Minimum Royalty shall mean the minimum royalties
payable in each Annual Period as set forth in Paragraph 5.2.
1.7 Inventory shall mean Licensee's inventory of Licensed Products
and of related work in progress.
1.8 Inventory Schedule shall mean a complete and accurate schedule
of Inventory.
1.9 Labels shall mean all labels, tags, packaging material, business
supplies and advertising and promotional materials and all other forms of
identification bearing the Trademark.
1.10 Licensed Products shall mean all types and sizes of mens,
womens, childrens (including boys, girls, infants and toddlers) footwear, other
than performance ski boots.
1.11 Minimum Sales Level shall mean the minimum Net Sales of
Licensed Products during each Annual Period as set forth in Paragraph 4.2.
1.12 Net Sales shall mean the Gross Sales price of Licensed
Products, including but not limited to, Seconds and Close-Outs, to retailers who
are not Affiliates of Licensee less returns actually allowed and actually
received by Licensee, price allowances and customary and usual trade discounts
granted. The combined deductions from the Gross Sales for allowances and trade
discounts, including returns, from the total gross invoice price shall not
exceed ten (10%) percent of the Gross Sales of the Licensed Products shipped in
any Annual Period. No other deductions shall be taken. It is the intention of
the parties that royalties will be based on the bona fide wholesale prices at
which Licensee sells Licensed Products to independent retailers in arms' length
transactions. In the event Licensee shall sell Licensed Products to its
Affiliates, royalties shall be calculated on the basis of such a bona fide
wholesale price irrespective of Licensee's internal accounting treatment of such
sales. Licensee shall identify separately in the statements of operations
provided to Licensor pursuant to paragraph 5.4 hereof all sales to Affiliates.
1.13 Percentage Royalty shall have the definition given that term in
Paragraph 5.3.
1.14 Seasonal Collections shall mean at least two (2) collections
per annum.
<PAGE>
1.15 Seconds shall mean damaged, imperfect, non-first quality or
defective goods.
1.16 Term shall have the definition given that term in Paragraph 3.1
and shall, if not otherwise specifically excluded, include all Renewal Terms
hereinafter defined.
1.17 Territory shall mean the continental United States, Alaska,
Hawaii, Puerto Rico, Canada and the United States possessions.
1.18 Trade Secrets shall mean information including a formula,
pattern, compilation, program, device, method, technique, or process, that
derives independent economic value, actual or potential, from not being
generally known to the public or to other persons who can obtain economic value
from its disclosure or use; and is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
1.19 Trademark shall mean the trademark registrations which are set
forth in the annexed Exhibit A, and all combinations, forms and derivatives
thereof which may be hereafter approved by Licensor for use by Licensee in
connection with the Licensed Products subject to any conditions set forth in any
written approval.
ARTICLE 2. GRANT
2.1 License. Licensor hereby grants to Licensee an exclusive
non-assignable license during the Term of the Agreement, subject to all of the
terms and conditions contained in this Agreement to use the Trademark in
connection with the manufacture and sale of the Licensed Products in the
Territory.
2.2 Reservations. The license granted in this Article 2 does not
grant any right to Licensee to use the name "TOMMY" or "HILFIGER" individually
or derivatives of the Trademark. Nothing contained in this Agreement shall be
construed as an assignment or grant to Licensee of any right, title or interest
in or to the Trademark, it being understood and acknowledged by Licensee that
all rights relating thereto are reserved by Licensor except for the rights
specifically granted to Licensee in this Agreement. Licensee understands and
agrees that Licensor, and its other licensees and sublicensees, may manufacture
or authorize third parties to manufacture Licensed Products in the Territory for
ultimate sale outside of the Territory, or to manufacture and sell or authorize
third parties to manufacture and sell products of any and all types and
descriptions other than the Licensed Products in or outside the Territory. In
addition, to the extent it is legally permissible to do so, no license is
granted hereunder for the manufacture, sale or distribution of the Licensed
Products to be used for publicity purposes, other than publicity of the Licensed
Products, in combination sales, premiums or giveaways, or to be disposed of
under or in connection with similar methods of merchandising, such license being
specifically reserved for Licensor.
<PAGE>
2.3 Territory. Licensee agrees that it will neither export Licensed
Products from the Territory nor sell same to any entity which it knows or has
any reason to believe intend to export Licensed Products from the Territory.
Licensee will use its best efforts to prohibit its customers from shipping
Licensed Products outside of the Territory. To that end, Licensee shall include
the following legend on all invoices to its customers:
"The Purchaser is expressly prohibited from exporting the
items sold hereunder from the continental United States,
including Alaska, Hawaii, Puerto Rico and Canada."
2.4 Exclusivity. Licensor shall neither use nor authorize third
parties to use the Trademark in connection with the sale and/or importation of
the Licensed Products in the Territory during the Term hereof without Licensee's
prior approval. Licensor hereby agrees that Licensee shall have the exclusive
right to import into and resell the Licensed Products in the Territory.
2.5 Definitional Disputes. Licensee acknowledges that due to the
nature of the marketplace, the definition of Licensed Products may change or may
not be amenable to precise delineation. Licensee agrees that if there is a
dispute over the definition of Licensed Products, Licensor shall render a
reasonable written determination which shall be conclusive and binding on
Licensee without legal recourse.
2.6 Best Efforts. At all times while this Agreement is in effect,
Licensee shall use its best efforts to exploit the License granted throughout
the Territory, including but not limited to, selling a sufficiently
representative quantity of all styles, fabrications and colors of the Licensed
Products; offering for sale the Licensed Products so that they may be sold to
the consumer on a timely basis; maintaining a sales force sufficient to provide
effective distribution throughout all areas of the Territory; and cooperating
with Licensor's and any of its licensees' marketing, merchandising, sales and
anti-counterfeiting programs.
2.7 Showrooms and In-Store Shops.
(a) Licensee shall display the Licensed Products for sale in
separate showrooms for each of mens footwear, womens footwear and childrens
footwear, designed and displayed in accordance with Licensor's specifications,
apart from any showroom(s) in which Licensee or another business may offer other
than Licensed Products for sale. Subject to prior approval by Licensor, Licensee
may display the Trademark on showroom doors and office directories;
(b) Licensor reserves the right to designate the location of
Licensee's primary showroom required by Paragraph 2.7(a) above and in
satisfaction of the foregoing, Licensee agrees to sublease (the "Sublease") a
portion of the premises at 25 West 39th Street, New York, New York to house the
aforementioned showroom and offices. Among other provisions, the Sublease shall
contain (i) a cross default provision with this Agreement and (ii) a monthly
rent equal to Licensee's pro rata portion of Licensor's rent
<PAGE>
(including common area charges and additional rent). Upon
reasonable notice, Licensee shall be permitted to inspect Licensor's expense
records in connection with such showroom and offices; and
(c) Licensee will, at Licensor's option, participate in any
in-store shop or main floor fixturing program with any of Licensee's customers.
To that end, to the extent that the same is not paid for by Licensee's customers
or Licensor pursuant to the following sentence, Licensee shall pay for the
necessary fixturing for the display of the Licensed Products which shall be in
keeping with the specifications and design of the respective shop or main floor
fixtures. In connection with the fixturing associated with mens footwear,
Licensor shall contribute the first $_______________ toward the in-store shop
program during the First and Second Annual Periods, which contribution shall be
applied to the cost of the design and installation of the shop fixtures. To the
extent that Licensor contributes more than $_______________ toward the in-store
shop program for the fixturing associated with mens footwear during the First
and Second Annual Periods, Licensee shall add an amount equal to such excess to
its advertising obligations set forth in Article 7 ("Excess Advertising
Payment"). The Excess Advertising Payments shall be in addition to, and not in
lieu of any other advertising obligations of Licensee hereunder, and shall be
due and payable to Licensor within thirty (30) days of the excess contribution
by Licensor. Licensor will, upon reasonable request from Licensee, provide
Licensee with evidence of such contribution. In connection with the fixturing
associated with womens footwear, Licensee shall contribute the greater of (i)
$_______________; or (ii) _____ (___%) percent of Net Sales of womens footwear
toward the in-store shop program during each Annual Period hereunder. Payments
associated with Fixturing Costs for all Licensed Products shall be paid directly
by Licensee as incurred for the purpose of displaying the Licensed Products and
within sixty (60) days of the end of each Annual Period, Licensee shall provide
to Licensee a statement of fixturing constructed during that Annual Period and
the cost of such fixturing. In the event that the cost of such fixturing is less
than the required contribution for that Annual Period, such unused amounts shall
be available to be used for fixturing in the following Annual Period in
accordance with this Paragraph 2.7(c). Any apportionment of fixturing costs
among the Licensed Products and other products bearing the Trademarks shall be
made by Licensor in its reasonable discretion.
(d) In the event that Licensee shall maintain a showroom in a
city in which Licensor's U.S. mens sportswear licensee shall maintain a
showroom, such as Dallas, Atlanta, etc., Licensor may require Licensee's
showroom to be located in the sportswear showroom or adjacent thereto.
2.8 Sales and Deliveries. Licensee acknowledges that the
availability and selection of styles, fabrications, colors and sizes are an
integral part of the high reputation and value which the trade and consumers
have come to associate with the Trademark. Therefore, to protect that reputation
and value, Licensee agrees that its policy of sale, distribution, and
exploitation shall be of a high standard and to the best advantage, and that the
same shall in no way adversely reflect upon the good name, trademarks and trade
names of Licensor or any of its programs. Licensee further agrees
<PAGE>
that it will use due diligence to make certain that at all times no
less than ninety-five (95%) percent of the Licensed Products ordered and
approved by Licensee for shipment are shipped timely in compliance with the
shipping schedule recited in each order. Licensee shall at all times maintain a
sales force for the sale of the Licensed Products which shall be sufficient to
provide effective distribution of the Licensed Products throughout the entire
Territory.
2.9 Organization. Licensee shall establish a separate division of
its company dedicated exclusively to the sale of Licensed Products, under the
name "Tommy Hilfiger Footwear". In connection with such division, Licensee
shall, at its sole cost and expense, employ individuals qualified to hold the
positions set forth on the organization charts for each of mens and womens
footwear annexed hereto as Exhibit F. All personnel employed by the Tommy
Hilfiger Footwear division shall work exclusively with Licensor's
representatives on the Licensee's business arising under this Agreement and
shall report directly to the President of Licensee or his designee. The
individuals holding the positions marked with an asterisk on Exhibit F will be
hired with the prior approval of Licensor and will be relieved of their duties
under this Agreement at the request of Licensor. In addition, Licensee shall
maintain separate sales force for the sale of mens footwear, a separate sales
force for the sale of womens footwear and a separate sales force for the sale of
childrens footwear. The members of such sales forces may not sell or represent
any products other than the Licensed Products.
2.10 Merchandise Coordinator Program. Licensee shall participate in
Licensor's Merchandise Coordinator Program on a direct cost basis to be
reasonably determined by Licensor. In no event shall the amount of Licensee's
required participation for the First Annual Period exceed $100,000.00 and for
each Annual Period thereafter exceed _____ (___%) percent of its Net Sales.
Licensee shall be responsible for paying for the portion of such cost of the
program as is dedicated to Licensee relative to the other licensees included in
the program. Effective May 1, 1998, Licensor shall no longer include mens and
boys footwear in Licensor's Merchandise Coordinator Program, however Licensee
shall continue to pay to Licensor _____ (___%) percent of Net Sales of Licensed
Products for the month of May 1998. Effective June 1, 1998, Licensor shall
establish a separate merchandise coordination staff dedicated to the
coordination of the Licensed Products (the "Program"). Thereafter, and
throughout the Term, Licensee shall pay to Licensor on a quarterly basis, _____
(___%) percent of Net Sales of all Licensed Products (excluding Licensed
Products sold in Licensee owned and operated stores, Seconds and Close-Outs) to
support the Program. By September 30th of each Annual Period, the parties shall
mutually agree upon an annual budget which shall set forth the allocation of
funds in the Program for the following Annual Period ("Program Budget"). Any
funds contained in the Program, but not expended during the Annual Period for
which such funds were budgeted to be spent, shall roll-over into the Program
Budget for following Annual Period. The Program Budget shall include all costs
associated with in-store staffing and store planning allocations. All
out-of-pocket expenses for the design, preparation and distribution of all
materials to be used for marketing programs, as ordering mechanisms, for product
knowledge or for product updates ("Sales Materials"),
<PAGE>
shall be incurred and borne by Licensee, separate and apart from the
Program Budget. Licensee shall submit all such Sales Materials to Licensor for
approval prior to such Sales Materials going into final production. Licensor
shall endeavor to approve such submitted Sales Materials in a timely manner, and
Licensee shall endeavor to make any necessary modifications to the Sales
Materials indicated by Licensor. The percentage of Net Sales paid by Licensee
for the Program which are a result of sales in Canada shall be designated for
use in Canada.
ARTICLE 3. TERM OF THE AGREEMENT
3.1 Term. The initial term of this Agreement shall commence on the
date hereof and shall end on December 31, 2001 (the "Term"). Notwithstanding
anything to the contrary contained herein, Licensor shall have the right to
terminate this Agreement on ninety (90) days written notice if the actual Net
Sales of Licensed Products are not equal to or greater than the applicable
Minimum Sales Level set forth in Paragraph 4.2 below.
3.2 Extension. Providing that Licensee is not then in default and is
not in default for the balance of the initial Term, and providing further that
Licensee has met the Minimum Sales Levels for each Annual Period during the Term
hereof, Licensee shall have the right to extend this Agreement for one
additional three (3) year term on one (1) year prior written notice to Licensor
(the "Extension"). The notice may not be given more than fifteen (15) months
prior to end of the initial Term. Licensee acknowledges that the one (1) year
period for notice is necessary in order to maintain the continuity of Licensor's
Licensing and Marketing programs and the goodwill associated with the Trademark.
Licensee agrees that "time is of the essence" and that Licensee's failure to
exercise its option to renew timely shall be construed as a decision by Licensee
that it has elected not to renew and shall permit Licensor to immediately
replace Licensee by executing a new License Agreement with third parties, to
commence after this Agreement has concluded, without any liability to Licensee.
Expiration or termination of this Agreement shall not affect any obligation of
Licensee to make payments hereunder accruing prior to such expiration or
termination.
ARTICLE 4. SALES
4.1 Sales/Marketing and Production Plans. On each January 1 and July
1 of each Annual Period during the Term, Licensee will submit to Licensor, for
Licensor's approval, a schedule showing in detail the projected sales and
marketing plans for the Licensed Products for each of the next two quarterly
periods. In addition, Licensee will submit to Licensor upon execution of the
Agreement a proposed production calendar for the Licensed Products. Licensee
will work with Licensor to create a production calendar for Licensed Products
that is agreeable to both parties. Licensee shall provide to Licensor, on a
monthly basis, monthly wholesale bookings reports and retail selling reports, to
the extent the same are available from the retailers.
<PAGE>
4.2 Minimum Sales Levels. The first bona fide shipment of mens
footwear to a customer of Licensee shall occur no later than February 28, 1997.
In addition, during each Annual Period, Licensee shall be required to meet the
following minimum levels of Net Sales of the mens footwear ("Minimum Sales Level
of Mens Footwear"):
Minimum Sales
Annual Period Level of Mens Footwear
First ...... $ 7,000,000*
Second...... $13,000,000
Third ...... $20,000,000
Fourth $25,000,000
Fifth ...... $29,000,000
Sixth ...... $32,000,000
Seventh..... $35,000,000
Eighth $38,000,000
*In the event that Licensee commences shipment of Licensed Products prior to
October 15, 1996, the Minimum Sales Level for the First Annual Period shall be
increased by $583,333.33 for each month or part thereof from the date of first
shipment to October 15, 1996.
The first bona fide shipment of womens footwear to a customer of Licensee shall
occur no later than September 30, 1998. For purposes of the license granted
hereunder for womens footwear, the Minimum Sales Level, Net Sales and
corresponding payments associated therewith, shall be accumulated for the Second
and Third Annual Periods. In addition, during each Annual Period, Licensee shall
be required to meet the following minimum levels of Net Sales of womens
footwear:
Minimum Sales Level
Annual Period For Womens Footwear
Second and Third $ 54,000,000
Fourth $ 75,000,000
Fifth $ 96,000,000
Sixth $ 120,000,000
Seventh $ 150,000,000
Eighth $ 180,000,000
The Minimum Sales Level for each Annual Period shall be the greater of the
amounts set forth above for such Annual Periods and eighty (80%) percent of the
actual Net Sales for the immediately preceding Annual Period. In no event may
the Minimum Sales Level for any Annual Period be less than Minimum Sales Level
for the immediately preceding Annual Period.
4.3 Certification. Within ninety (90) days of the end of each Annual
Period, Licensee shall send to Licensor a certification by a duly authorized
officer of Licensee of the Net Sales of Licensed Products during
<PAGE>
such Annual Period (the "Certification"). Within one hundred twenty
(120) days of the end of each Annual Period, Licensee shall send to Licensor the
Certification further certified by Licensee's external auditors.
ARTICLE 5. LICENSE FEES
5.1 Requirement of Royalties. All Licensed Products sold by
Licensee, or its Affiliates or subsidiaries, require the payment of royalties by
Licensee to Licensor as set forth in this Article 5.
5.2 Guaranteed Minimum Royalty. In consideration of the rights
granted to Licensee pursuant to this Agreement, Licensee shall, during each
Annual Period or portion thereof calculated on a pro rata basis, during the
Term, pay to Licensor the Guaranteed Minimum Royalties listed below, payable in
quarterly installments in advance on the first day of each quarter during each
year during the Term hereof, except that for the First Annual Period, the
Guaranteed Minimum Royalties shall be paid in four (4) equal installments on the
date hereof, October 1, 1996, January 1, 1997 and April 1, 1997. The Guaranteed
Minimum Royalty payable to Licensor for the sale of womens footwear shall be as
follows:
Guaranteed Minimum
Royalty for Womens
Annual Period Footwear
Second & Third $ 3,780,000
Fourth $ 5,250,000
Fifth $ 6,720,000
Sixth $ 8,400,000
Seventh $ 10,500,000
Eighth $ 12,600,000
In the event that during any Annual Period, the actual payments under Paragraph
5.3 hereof exceed the entire Guaranteed Minimum Royalty with respect to that
Annual Period, no further Guaranteed Minimum Royalty payments need be made for
such Annual Period. The Guaranteed Minimum Royalty for each Annual Period shall
be equal to _____ (___%) percent of the Minimum Sales Level for such Annual
Period.
5.3 Percentage Royalty. In consideration of the rights granted to
Licensee pursuant to this Agreement, Licensee shall, during each of the First
and Second Annual Periods or portion thereof pay Licensor a royalty of the
following listed percentages of Net Sales of mens footwear sold by Licensee.
Annual Net Sales Percentage Royalties for
Mens Footwear
$0 - $9,999,999.99 ___%
$10,000,000 - $19,999,999.99 ___%
Over $20,000,000 ___%
<PAGE>
Licensee shall, during each Annual Period or portion thereof beginning with the
Third Annual Period pay Licensor a royalty of _____ (___%) percent of Net Sales
of Licensed Products sold by Licensee. In consideration of the rights granted to
Licensee pursuant to this Agreement, Licensee shall, during each Annual Period
or portion thereof pay to Licensor a percentage royalty of _____ (___%) percent
of the Net Sales of womens and childrens footwear sold by Licensee. Percentage
royalties shall be payable in quarterly installments on January 15, April 15,
July 15 and October 15 for the immediately preceding quarter of sale, less
Guaranteed Minimum Royalty payments for such period. All royalties shall accrue
upon the sale of the Licensed Products regardless of the time of collection by
Licensee. For purposes of this Agreement, a Licensed Product shall be considered
"sold" upon the date of billing, invoicing, shipping, or payment, whichever
occurs first.
5.4 Royalty Statements. Licensee will deliver to Licensor at the
time each Percentage Royalty payment is due, complete and accurate statements,
in the form annexed hereto as Exhibit B, signed by a duly authorized officer of
Licensee and certified by him as accurate indicating all of the following
information by month: (i) the total invoice price of all Licensed Products sold
during the period covered by such percentage royalty payment; (ii) the amount of
discounts and credits from Gross Sales which properly may be deducted therefrom,
during said period; and (iii) computation of the amount of percentage royalty
payable hereunder for said period. At least once annually, or more often at
Licensor's request, Licensee will also deliver to Licensor a certification from
its external auditors that the statement which it accompanies is in accordance
with the requirements of this paragraph 5.4. Receipt or acceptance by Licensor
of any statement furnished, or of any sums paid by Licensee, shall not preclude
Licensor from questioning their correctness at any time; provided, however, that
reports submitted by Licensee shall be binding and conclusive on Licensee in the
event of any termination based on a breach by Licensee arising out of any
payment or report.
<PAGE>
5.5 Books and Records. Licensee shall, at its sole cost and expense,
maintain complete and accurate books and records (specifically including,
without limitation, the originals or copies of documents supporting entries in
the books of account) covering all transactions arising out of or relating to
this Agreement. In addition, Licensor and its duly authorized representative
have the right, during normal business hours, for the duration of this Agreement
and for seven (7) years thereafter, to examine and copy said books and records
and all other documents and materials in the possession of and under the control
of Licensee with respect to the subject matter and terms of this Agreement. The
exercise by Licensor of any right to audit at any time or times or the
acceptance by Licensor of any statement or payment shall be without prejudice to
any of Licensor's rights or remedies and shall not bar Licensor from thereafter
disputing the accuracy of any payment or statement and Licensee shall remain
fully liable for any balance due under this Agreement. The Products shall be
assigned style numbers unique from any products other than the Licensed Products
Licensee may manufacture and/or sell. The style number assigned to each Licensed
Product shall be identical to the style number utilized to identify that
Licensed Product in all Licensee's books and records. All documents evidencing
the sale of Licensed Products shall state the style and number of each of such
products. Licensee
<PAGE>
shall not use terms such as "assorted" or "irregular" without a
style specification. All sales of the Licensed Products shall be made on
sequentially numbered invoices which shall (1) contain sales only of the
Licensed Products, (2) contain a statement that it shall only be paid to an
account owned by Licensee or its assignee, and (3) be recorded in a separate
ledger account.
5.6 Taxes. Licensee will bear all taxes, duties and other
governmental charges in the Territory relating to or arising under this
Agreement, including without limitation, any state or federal income taxes
(except withholding taxes on royalties), any stamp or documentary taxes or
duties, turnover, sales or use taxes, value-added taxes, excise taxes, customs
or exchange control duties or any other charges relating to or on any royalty
payable by Licensee to Licensor. Licensee shall obtain, at its own cost and
expense, all licenses, Reserve Bank, Commercial Bank or other bank approvals,
and any other documentation necessary for the importation of materials and the
transmission of royalties and all other payments relevant to Licensee's
performance under this Agreement. If any tax or withholding is imposed on
royalties, Licensee shall obtain certified proof of the tax payment or
withholding and immediately transmit it to Licensor. Nothing contained in this
Paragraph 5.6 shall be interpreted to mean that Licensee is responsible for any
income taxes or other taxes which would be the obligation of Licensor.
5.7 Underpayments. If, upon any examination of Licensee's books and
records pursuant to Paragraph 5.5 hereof, Licensor shall discover any royalty
underpayment by Licensee, Licensee will make all payments required to be made to
correct and eliminate such underpayment within ten (10) days of Licensor's
demand. In addition, if said examination reveals a royalty underpayment of five
percent (5%) or more for any royalty period, Licensee will reimburse Licensor
for the cost of said examination within ten (10) days of Licensor's demand.
5.8 Manner of Payment. All payments required by Licensee hereunder
shall be made to Licensor in Delaware in U.S. Dollars, and all references to
dollars shall mean U.S. Dollars. In the event that Licensee is required to
withhold certain amounts for payment to the appropriate governmental
authorities, Licensee will supply to Licensor the official receipts evidencing
payment therefor.
5.9 Interest on Late Payments. In addition to any other remedy
available to Licensor, if any payment due under this Agreement is delayed for
any reason, interest shall accrue and be payable, to the extent legally
enforceable, on such unpaid principal amounts from and after the date on which
the same became due, at a per annum equal to the lower of four (4) percentage
points above the prime rate of interest in effect from time to time at Chemical
Bank in New York, New York, U.S.A. and the highest rate permitted by law in New
York.
5.10 No Set-Off. The obligation of Licensee to pay royalties
hereunder shall be absolute notwithstanding any claim which Licensee may assert
against Licensor. Licensee shall not have the right to set-off, compensate or
make any deduction from such royalty payments for any reason whatsoever.
<PAGE>
5.11 Purchases By Licensor's Outlet Stores. Licensee agrees that it
will offer for sale an amount of Closeouts and Seconds to outlet stores owned by
or affiliated with Licensor (the "Outlet Stores") equal to the amount of
Closeouts and Seconds made available to Licensee's outlet stores. Prior to
offering Close-Outs and Seconds for sale to other customers, Licensee shall
first offer the same to the Outlet Stores. The price for such Closeouts and
Seconds shall be the price charged to Licensee's most favored customers. In
addition, beginning on the first day of each of Licensee's market periods,
Outlet Stores may purchase Licensed Product at the wholesale price of the
Licensed Product. Licensee agrees to fill the orders of the Outlet Stores in at
least the same manner which Licensee fills orders from its other customers.
Finally, Outlet Stores may contract for special programs of Licensed Product at
a price equal to the landed cost of such product plus twenty-five (25%) percent.
No royalty or advertising payment shall be due on purchases of Licensed Product
(including Closeouts, Seconds or special programs) by Outlet Stores. No Licensed
Product may be sold or displayed in the outlet stores of Licensor or Licensee
earlier than six (6) months from the launch of that product. Licensee may not
manufacture Licensed Products for its outlet stores and may only sell Close-Outs
and Seconds from such stores.
5.12 Purchases By Licensor's Retail Stores. Beginning on the first
day of each of Licensee's market periods, retail stores owned by or affiliated
with Licensor (the "Retail Stores") may purchase Licensed Product at the
wholesale price of the Licensed Product. Licensee agrees to fill the orders of
the Retail Stores and flagship retail locations owned or affiliated with
Licensor "the "Flagship Stores") in at least the same manner which Licensee
fills orders from its other customers. In addition, Retail Stores may contract
for special programs of Licensed Product at a price equal to the landed cost of
such product plus twenty-five (25%) percent and Flagship Stores (such Flagship
Stores in the United States not to exceed three in number) may purchase all
Licensed Products including, but not limited to, special programs, at a price
equal to the landed cost of such product plus twenty (20%) percent. No royalty
or advertising payment shall be due on purchases of Licensed Product (including
Closeouts, Seconds or special programs) by Retail Stores or Flagship Stores.
5.13 Products for Licensor's Use. Licensee shall supply to Licensor,
at Licensee's sole cost and expense, three (3) edited sets of each Seasonal
Collection of Licensed Products for Licensor's public relations and advertising
purposes or for Licensor's showrooms, plus a reasonable quantity of Licensed
Products for Mr. Tommy Hilfiger's personal use and a reasonable quantity of
Licensed Products for "shoe" advertisements.
5.14 Purchases By Licensor. In addition to the Licensed Products
which Licensee provides to Licensor pursuant to Paragraph 5.13 above, Licensor
may purchase reasonable quantities of Licensed Products from Licensee for
display in Licensor's showrooms, for public relations purposes and for "non-shoe
specific" advertisements at forty (40%) percent off the regular wholesale price
of Licensed Products on standard industry terms. Licensee shall permit Licensor
to purchase a reasonable amount of Licensed Products for the personal use of
Licensor's employees from Licensee at the regular wholesale price of such
Licensed Products on standard industry terms. No royalty or advertising payment
shall be payable by Licensee with respect to such purchases.
<PAGE>
5.15 Financial Statements. Licensee shall provide Licensor (a) a
certified, audited financial statement to be delivered to Licensor within five
(5) months after the end of each fiscal year of Licensee and (b) a six (6) month
interim financial statement to be delivered to Licensor within sixty (60) days
after the end of the six (6) month period. The year end financial information
must be prepared by a chartered accountant having no interest in Licensee's
business and approved by Licensor.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES
6.1 Warranties and Representations of Licensor. Licensor hereby
represents, warrants and covenants that:
(a) it has the full right, power and authority to enter into this
Agreement and to license Licensee with respect to all the rights granted
hereunder;
(b) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(c) all necessary corporate acts have been effected by it to render
this Agreement valid and binding upon it; and
(d) in its negotiations relative to this Agreement, it has not
utilized the services of any finder, broker or agent and it owes no commissions
or fees to any such person in relation hereto. Licensor agrees to indemnify
Licensee against, and hold it harmless from, any and all liabilities (including,
without limitation, reasonable attorneys' fees) to any person, firm or
corporation claiming commissions or fees in connection with this Agreement or
the transactions contemplated hereby as a result of an agreement with or
services rendered to Licensor.
(e) it is the owner of the trademarks listed on Exhibit A, which
trademarks are valid, existing trademarks.
6.2 Warranties and Representations of Licensee. Licensee hereby
represents, warrants and covenants that:
(a) it has the full right, power and authority to enter into this
Agreement and to perform all of its obligations hereunder;
(b) it is financially capable of undertaking the business operations
which it conducts and of performing its obligations hereunder;
(c) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(d) all necessary corporate acts have been effected by it to render
this Agreement valid and binding upon it; and
(e) in its negotiations relative to this Agreement, it has not
utilized the services of any finder, broker or agent and it owes no commission
<PAGE>
or fees to any such person in relation hereto. Licensee agrees to
indemnify Licensor against, and hold it harmless from, any and all liabilities
(including, without limitation, reasonable legal fees) to any person, firm or
corporation claiming commissions or fees in connection with this Agreement or
the transactions contemplated hereby as a result of an agreement with or
services rendered to Licensee.
ARTICLE 7. ADVERTISING
7.1 Guaranteed Minimum Advertising Payment. In order to ensure that
advertising of the Licensed Products shall be consistent with Licensor's
advertising plans, Licensee shall, during each Annual Period or portion thereof
calculated on a pro rata basis during the Term, pay to Licensor the Guaranteed
Minimum Advertising Payments listed below, payable in quarterly installments
concurrently with the Guaranteed Minimum Royalty Payments in advance on the
first day of each quarter, except that for the First Annual Period, the
Guaranteed Minimum Advertising Payments shall be paid in four (4) equal
installments on the date hereof, September 1, 1996, January 1, 1997, and April
1, 1997. In the event that the foregoing payment schedule is not sufficient to
pay for expenditures made by Licensor pursuant to the advertising plan submitted
by Licensor for that Annual Period, Licensee shall accelerate, any or all of
such payments, as necessary, on ten (10) days written notice. In the event that
during any Annual Period, the actual payments under Paragraph 7.2 hereof exceed
the entire Guaranteed Minimum Advertising Payment with respect to that Annual
Period, no further Guaranteed Minimum Advertising Payment need be made for such
Annual Period:
Guaranteed Minimum
Annual Period Advertising Payment
First $_______________*
Second and all Annual Periods thereafter $_______________
The Guaranteed Minimum Advertising Payment for each Annual Period shall be equal
to the greater of $_______________ or _____ (___%) percent of the Minimum Sales
Level for such Annual Period as provided in Paragraph 4.2 above.
*In the event that Licensee commences shipment of Licensed Products prior to
October 15, 1996, the Guaranteed Minimum Advertising Payment for the First
Annual Period shall be increased by $______________ for each month or part
thereof from the date of first shipment to October 15, 1996.
In order to ensure that the advertising of the womens line of the Licensed
Products shall be consistent with Licensor's advertising plans, Licensee shall,
during each Annual Period or portion thereof calculated on a pro rata basis
during the Term, pay to Licensor the Guaranteed Minimum Advertising Payments for
the sales of womens footwear, listed below, payable in quarterly installments
concurrently with the Guaranteed Minimum Royalty Payments payable for the sales
of womens footwear, in advance on the first day of each quarter, except that for
the Second and Third Annual Periods, the Guaranteed Minimum Advertising Payments
for the sales of womens footwear shall be paid in four equal installments on the
date hereof, January 1, 1998, January 1, 1999, and
<PAGE>
March 25, 1999. In the event that the foregoing payment schedule is not
sufficient to pay for expenditures made by Licensor pursuant to the advertising
plan submitted by Licensor for that Annual Period, Licensee shall accelerate,
any or all of such payments, as necessary, on ten (10) days written notice. In
the event that during any Annual Period, the actual payments under Paragraph 7.2
hereof exceed the entire Guaranteed Minimum Advertising Payment with respect to
that Annual Period, no further Guaranteed Minimum Advertising Payment need be
made for such Annual Period:
Guaranteed Minimum
Advertising Payment
Annual Period For Womens Footwear
Second & Third $_______________
Fourth $_______________
Fifth $_______________
Sixth $_______________
Seventh $_______________
Eighth $_______________
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7.2 Percentage Advertising Payment. During each Annual Period or
portion thereof during the Term and any Extension, Licensee pay to Licensor a
Percentage Advertising Payment equal to _____ (___%) percent of Net Sales of
Licensed Products. Percentage Advertising Payments shall be payable in quarterly
installments on January 15, April 15, July 15 and October 15 for the immediately
preceding quarter of sale, less Guaranteed Minimum Advertising Payments for such
period.
7.3 Advertising Expenditures. Licensor shall spend the amounts
received from Licensee pursuant to Paragraphs 7.1 and 7.2 above, as well as the
Excess Advertising Payments received pursuant to Paragraph 2.7(c) above, for the
purpose of promoting the Licensed Products and the Trademark in any manner
Licensor, in its sole discretion, deems appropriate.
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- --------------------.
Such expenditures shall include, without limitation, creative, marketing,
advertising, public relations, special events and promotions, media and
production, administration and other costs related to all of the foregoing. All
amounts received by Licensor from Licensee pursuant to Paragraphs 7.1 and 7.2
above, which are a result of sales in
<PAGE>
Canada shall be directed by Licensor to be spent in Canada. Within
sixty (60) days of the end of each Annual Period, Licensor shall provide to
Licensee a statement of advertising including the Licensed Products placed
during that Annual Period and the cost of such advertising. In the event that
the cost of such advertising is less than the total advertising payments made by
Licensee to Licensor for that Annual Period, Licensor agrees to place additional
advertising in an amount equal to the shortage during the first quarter of the
next Annual Period. Any apportionment of advertising costs among the Licensed
Products and other products bearing the Trademark shall be made by Licensor in
its sole discretion. Licensor shall make its best efforts to have Licensed
Products appear in advertising placed by Licensor if the model's feet are
visible and the model is wearing shoes.
7.4 Approval of Packaging, Labeling and Advertising. All packaging,
labeling and advertising shall be in strict compliance with specifications to be
provided by Licensor. No advertising, including cooperative advertising, may be
used without the prior written consent of Licensor first had and obtained in
each instance. Licensee agrees that it will cease selling Licensed Products to
any of its customers who place or use unauthorized advertisements including the
Licensed Products or the Trademarks. The use of any other packaging or labeling
is expressly prohibited. All packaging and labeling shall use the Trademark, but
no other trademark or trade name shall be used except as may be required by
applicable law or permitted by Licensor. Licensee shall not be permitted to use
its name(s) on the Licensed Products, packaging and other materials displaying
the Trademark other than as specifically approved by Licensor. Any packaging and
labeling materials provided by Licensor to Licensee shall be so provided at
Licensee's expense and the price therefor shall be Licensor's cost of producing
and providing the same. Licensor reserves the right to require Licensee to
purchase Labels to be used on the Licensed Products only from sources designated
by Licensor, provided that such sources provide the Labels to Licensee in a
reasonably competitive manner as to price and delivery.
7.5 Launch. In addition to the advertising requirements of
Paragraphs 7.1 and 7.2, Licensee agrees to host a launch event or distribute a
gift package to the fashion and financial press and to major retail accounts
during the initial selling season for the first Seasonal Collection to be sold
under this Agreement. Such event shall be comparable to similar launch events
hosted by Licensor's other licensees of the Trademark and shall reasonably
reflect the prestige of the Trademark and the relative significance of Licensed
Products to Licensor. Licensor shall develop advertisements to be used in
connection with the consumer launch of the Licensed Products.
7.6 Fashion Show. Licensee shall, at Licensee's sole cost and
expense, provide reasonable quantities of mens footwear for fashion shows held
by Licensor and/or its other licensees. For fashion shows held by Licensor or
its other licensees in which womens footwear
<PAGE>
is required, Licensee shall provide womens footwear, including
footwear to be manufactured specifically for use in fashion shows, at Licensee'
sole cost and expense, however such cost and expense shall not exceed fifty
thousand ($50,000) dollars for womens footwear during each Annual Period.
7.7 Trade Shows. Licensee may not participate in trade shows
without the prior written consent of Licensor.
ARTICLE 8. QUALITY AND STANDARDS
8.1 Distinctiveness and Quality of the Trademark. Licensee shall
maintain the distinctiveness of the Trademark and the image and high quality of
the goods and merchandise bearing the mark presently manufactured and sold by
Licensor and its other licensees, and the prestigious marketing of same as
hitherto and presently maintained by Licensor and its other licensees. Licensee
agrees that, with respect to all Licensed Products manufactured or sold by it,
the same will be of high quality as to workmanship, fit, design and materials
used therein, and shall be at least equal in quality, workmanship, fit, design
and material to the samples of Licensed Products submitted by Licensee and
approved by Licensor pursuant to Paragraph 8.3 hereof. All manufacturing and
production shall be of a quality in keeping with the prestige of the Trademark.
In addition, Licensee acknowledges that in order to preserve the goodwill
attached to the Trademark, the Licensed Products should be sold at prices and
terms reflecting the prestigious nature of the Trademark, and the reputation of
the Trademark as appearing on goods of high quality and reasonable price, it
being understood, however, that Licensor is not empowered to fix or regulate the
prices for which the Licensed Products are to be sold, either at the wholesale
or retail level.
8.2 Shops, Stores, Retail Outlets. The Licensed Products sold by
Licensee may be sold only to those specialty shops, department stores and retail
outlets which carry high quality and prestige merchandise and whose operations
are consistent with Licensor's reputation and its sales policies and with the
prestige of the Trademark and only to those customers expressly approved by
Licensor. Prior to the opening of each selling season (and whenever Licensee
shall wish to sell Licensed Products to customers not previously approved by
Licensor), Licensee shall submit a written list of the proposed customers to
Licensor for Licensor's prior written approval, which approval may be given or
withheld at Licensor's sole discretion, based upon whether it deems that the
proposed customer shall enhance the quality and prestige of the Trademark.
Licensor shall have the right to withdraw any such approval on thirty (30) days
written notice to Licensee. Licensee shall not (a) market or promote or seek
customers for the Licensed Products outside of the Territory; (b) establish a
branch, wholly owned by subsidiary, distribution or warehouse with inventories
of Licensed Products outside of the Territory; (c) sell or distribute any
Licensed Products to wholesalers, jobbers, diverters, catalog vendors or any
other entity which does not operate retail stores exclusively; (d) use the
Licensed Products as giveaways, prizes or premiums, except for promotional
<PAGE>
programs which have received the prior written approval of Licensor;
or (e) sell the Licensed Products to any third party or Affiliate of Licensee or
any of its directors, officers, employees or any person having an equity
participation in or any other affiliation to Licensee, without the prior written
approval of Licensor. Licensee shall include and shall enforce the following on
all invoices to its customers:
"Limitations on Sale by Buyer. (A) Seller expressly reserves the
right to limit the amount of merchandise delivered to only such
quantities as are necessary to meet the reasonably expect demand at
Buyer's store locations.
(B) This Merchandise is sold to Buyer for resale to the ultimate
consumer only. Buyer shall be expressly prohibited from selling the
merchandise purchased hereunder to a retailer or other dealer in
like merchandise, or to any party who Buyer knows, or has reason to
know, intends to resell the merchandise.
(C) The merchandise purchased hereunder may not be sold by Buyer
from any of its store location(s) which Seller has advised Buyer
does not qualify as an acceptable location."
8.3 Samples of Manufactured Products. Before Licensee shall sell or
distribute any Licensed Products in any Seasonal Collection, Licensee shall
submit samples of each of such Licensed Products to Licensor for its prior
written approval, which approval may be withheld by Licensor in its sole and
absolute discretion. Any such request for approval shall be submitted to
Licensor on the form annexed hereto as Exhibit C. Such samples shall be
submitted sufficiently far in advance to permit Licensee time to make such
changes as Licensor deems necessary. Any approval given hereunder shall apply
only to that Seasonal Collection for which it is submitted to Licensor. Once
samples have been approved, Licensee will manufacture only in accordance with
such approved samples and will not make any changes for manufacture without
Licensor's prior written approval. All samples of Licensed Products submitted to
Licensor pursuant to this Paragraph 8.3 shall be provided at Licensee's sole
cost and expense. Licensee shall submit to Licensor additional samples of
Licensed Products upon Licensor's reasonable request. No Licensed Products
(including samples) shall be distributed and/or sold by Licensee pursuant to
this Agreement unless such Licensed Products are in substantial conformity with
and at least equal in quality to the samples previously approved by Licensor in
accordance with this Paragraph 8.3.
8.4 Non-Conforming Products. In the event that any Licensed Product
is, in the judgment of Licensor, not being manufactured, distributed or sold
with first quality workmanship or in strict adherence to all details and
characteristics
<PAGE>
furnished by Licensor, Licensor shall notify Licensee thereof in
writing and Licensee shall promptly repair or change such Licensed Product to
conform thereto. If a Licensed Product as repaired or changed does not strictly
conform after Licensor's request and such strict conformity cannot be obtained
after at least one (1) resubmission, the Trademark shall be promptly removed
from the item, at the option of Licensor, in which event the item may be sold by
Licensee, provided such miscut or damaged item does not contain any labels or
other identification bearing the Trademark without Licensor's prior approval.
Notwithstanding anything in this paragraph 8.4 to the contrary, sales of all
products of Licensor's design whether or not bearing the Trademark, shall
nonetheless be subject to royalty payments pursuant to Article 5 hereof.
Licensor may purchase at Licensee's expense any Licensed Products found in the
marketplace which, in Licensor's judgment, are inconsistent with approved
quality standards and bill such costs to Licensee. Licensee must pay all
royalties due on sales of nonconforming goods. Licensor may require Licensee to
recall any Licensed Products not consistent with approved quality standards.
Licensee shall use its best efforts to comply.
8.5 Approvals. All approvals required or permitted by this Agreement
must be in writing from Licensor to Licensee. All matters requiring approval of
Licensor or the exercise of its discretion shall be at the sole subjective
discretion of Licensor. A submission for approval shall be deemed disapproved
unless Licensor delivers a notice of approval within ten (10) business days from
date stamped receipt at Licensor's office. Licensor will make reasonable efforts
to provide a timely response. Licensor shall provide an explanation for
disapprovals. Licensor has no obligation to approve, review or consider any item
which does not strictly comply with the required submission procedures provided
that Licensor designates the procedure which was not followed. Approval by
Licensor shall not be construed as a determination that the approved matter
complies with all applicable regulations and laws. No disapproved item shall be
manufactured, sold, used, distributed or advertised. Licensee may revise any
disapproved item and resubmit it. Licensee must strictly comply with all of
Licensor's decisions. The parties will adjust the approval forms as appropriate.
Upon reasonable notice, Licensor may withdraw approval of any previously
approved item. In the event that it is reasonably necessary for Licensor to do
on-site approvals, Licensee will pay any and all expenses and airfare incurred
by Licensor with respect to such on-site approvals.
8.6 Approval Withdrawal. If the style, appearance or quality of any
Licensed Product ceases to be acceptable to Licensor, Licensor shall have the
right in the exercise of its sole discretion to withdraw its approval of such
Licensed Product. In the event that a style of Licensed Product comprises twenty
(20%) percent or more of a "category", Licensor may only withdraw approval of
such Licensed Product in the reasonable exercise of its discretion. For the
purposes hereof, a "category" shall (a) dress shoes; (b) casual shoes; or (c)
athletic shoes. Upon receipt of written notice from Licensor of its election to
withdraw such approval, Licensee shall immediately cease the use of the
Trademark in connection with the promotion, advertising, sale, manufacture,
distribution or
<PAGE>
use of such Licensed Product(s). Notice of such election by Licensor
to withdraw approval shall not relieve Licensee from its obligation to pay
royalties on sales of such Licensed Product(s) made by Licensee to the date of
disapproval or thereafter as permitted. Licensee may, however, complete work in
process and utilize materials on hand provided that it submits proof of such
work in progress and fabric inventory to Licensor.
8.7 Samples and Artwork. Licensor shall, at least four (4) times
during each Annual Period, make available to Licensee certain samples, designs,
colors, fabric samples, tags, labels, packaging and artwork available to
Licensor, and the cost of providing such materials shall be borne by Licensee at
the cost incurred by Licensor to provide the same. All right, title and interest
in and to samples, sketches, designs, and other materials furnished by or to
Licensee or submitted by or to Licensor whether created by Licensor or Licensee
in connection with such Licensed Product, including any modifications or
improvements thereof which may be created by Licensor or Licensee, are hereby
assigned to and shall be the sole property of Licensor as between Licensee and
Licensor, and are licensed hereunder solely and exclusively for use in
connection with the manufacture and sale of Licensed Products in the Territory.
Licensor may use and permit others to use said designs and other materials in
any manner it desires, provided that such use does not conflict with any rights
granted Licensee hereunder. Licensee specifically acknowledges that such designs
and other materials may be used by Licensor and other licensees on Licensed
Products in jurisdictions outside the Territory and on products other than
Licensed Products anywhere in the world. In addition to the foregoing, for
marketing purposes, Licensor shall, upon reasonable request, make available to
Licensee such of the following which are available to Licensor: (a) reports on
marketing policy of Licensor; (b) reports on color, style and fabric trends; (c)
samples of advertising materials; (d) display ideas; (e) labels, hangtags and
packaging.
8.8 Confidentiality. Licensee acknowledges that it will receive from
Licensor prints, designs, ideas, sketches, and other materials or Trade Secrets
which Licensor intends to use on or in connection with lines of merchandise
other than the Licensed Products and which have not as yet found their way into
the channels of distribution. The parties recognize that these materials are
valuable property of Licensor. Licensee acknowledges the need to preserve the
confidentiality and secrecy of these materials and agrees to take all necessary
steps to ensure that use by it, or by its contractors will in all respects
preserve such confidentiality and secrecy. Licensee shall take all reasonable
precautions to protect the secrecy of the materials, samples, and designs
described in this Article 8 prior to their commercial distribution or the
showing of samples for sale, and shall not sell any merchandise employing or
adapted from any of said designs except under the Trademark. Licensor shall take
all reasonable precautions to protect the secrecy of the original designs
created by Licensee for Licensed Products prior to their advertisement,
commercial distribution or the showing of samples for sale. Neither Licensor nor
Licensee shall, at any time during the term of this Agreement, disclose or use
for any purpose, other than as contemplated by this Agreement, any revealed or
otherwise acquired confidential information and data relating to the business of
the other.
<PAGE>
8.9 Manufacture of Licensed Products by Third Parties.
(a) For purposes of this Agreement a "Third Party
Manufacturer" shall be defined as an entity or an individual which or whom
Licensee either hires or pays to manufacture the Licensed Products. A
"subcontractor" shall be defined as an entity or an individual which or whom a
Third Party Manufacturer either hires or pays to perform the manufacturing tasks
which the Third Party Manufacturer could otherwise perform itself at its own
facility or through its own employees and staff. A "supplier" shall be defined
as an individual or entity who produces components for the Licensed Products,
and provides such components to manufacturer in order to assemble the finished
Licensed Products. Examples of a supplier include, but are not limited to,
fabric/trim manufacturers, yarn manufacturers, button manufacturers, or zipper
manufacturers, provided that such named manufacturers do not contribute further
to the manufacture of the finished Licensed Products.
(b) Attached hereto as Exhibit H is Licensor's Supplier Code
of Conduct (the "Code") which applies to any entity manufacturing merchandise
under the Tommy Hilfiger(R) label (including the components thereof). Licensee
shall ensure that Licensee and all Third Party Manufacturers, subcontractors and
suppliers shall comply with the terms of the Code and shall evidence such
compliance by, (1) upon execution of this Agreement, Licensee executing the Code
and having all Third Party Manufacturers, subcontractors and suppliers executed
the Code in the form as attached or such other form as may be provided by
Licensor from time to time, and returning such document to Licensor, and (2)
publicly displaying and having all Third Party Manufacturers, subcontractors and
suppliers display the Code, in the most current form provided by Licensor, in a
clearly visible location in Licensee's manufacturing facilities (if applicable)
and in the manufacturing facilities of Licensee's Third Party Manufacturers,
subcontractors and suppliers, at all times during the Term of this Agreement.
(c) Licensee acknowledges that it has in effect (or will
promptly develop), to the satisfaction of Licensor, a program of monitoring
manufacturing facilities whether operated by Licensee, by Third Party
Manufacturers, subcontractors and suppliers which is sufficient to ensure their
compliance with the Code and all applicable state, local and foreign laws and
regulations pertaining to wages, overtime compensation, benefits, hours, hiring
and employment, workplace conditions and safety, the environment, collective
bargaining, freedom of association and that their products or and the components
thereof are made without the use of child (persons under the age of 15 or
younger than the age for completing compulsory education, if that age is higher
than 15), prison, indentured, exploited bonded, forced or slave labor. Such
compliance shall be evidenced by Licensee, upon execution of this Agreement,
executing and abide by the Certification in the form as attached hereto as
Exhibit G, and executing and abiding by any such other form as may be provided
by Licensor from time to time.
<PAGE>
(d) Within thirty (30) days after establishing a new
arrangement with a Third Party Manufacturer or subcontractor, Licensee shall
inspect each Third Party Manufacturer or subcontractor and provide approval, in
writing, signed by an authorized employee or agent of Licensee that such Third
Party Manufacturer or subcontractor is in compliance with Paragraph 8.9(c)
above, and shall obtain and provide to Licensor the signature of an authorized
representative from each of such parties on a Third Party Manufacturing
Agreement in the form as Exhibit D attached hereto, or such other form as may be
provided by Licensor from time to time. Within thirty (30) days after
establishing a new arrangement with a supplier, Licensee shall obtain and
provide to Licensor the signature of an authorized representative from each
supplier on a Certification in the form as Exhibit G attached hereto, or such
other form as may be provided by Licensor from time to time. In the event
Licensee has knowledge of, has reason to believe, or should have reason to know
that any Third Party Manufacturer, subcontractor or supplier is in breach of the
Third Party Manufacturing Agreement or Certification, as the case may be,
Licensee shall immediately notify Licensor and Licensee shall, at its sole
expense, take immediate action to rectify such breach, including, where Licensor
deems it necessary, immediate termination of its relationship with such Third
Party Manufacturer, subcontractor or supplier. If Licensee fails to take
immediate action or such action is not successful, Licensee shall assign its
rights to proceed against such Third Party Manufacturer, subcontractor or
supplier to Licensor and Licensor shall, at Licensee's expense, have the right
to pursue all available remedies to protect its rights. Notwithstanding the
foregoing, Licensee acknowledges that it shall remain primarily liable and
completely obligated under all of the provisions of this Agreement in respect of
the production of Licensed Products hereunder.
(e) In order to maintain Licensor's high standard of quality
control and to insure that appropriate measures are taken against
counterfeiting, Licensee shall provide notice to Licensor, on a quarterly basis,
including all of the following information: (i) the name and address of each
Third Party Manufacturer, subcontractor and supplier; (ii) the type of Licensed
Products manufactured by such Third Party Manufacturer and subcontractor; (iii)
quantity of Licensed Products to be manufactured by each such entity; (iv) the
type of components provided by each supplier; and (iv) any other relevant
information regarding all such entities.
(f) Licensee shall ensure that all merchandise manufactured
hereunder shall be manufactured in compliance with all federal, state and local
laws which pertain to the manufacture of clothing, apparel, and other
merchandise including the Flammable Fabrics Act, as amended, and regulations
thereunder and Licensee guarantees, that with regard to all products, fabrics or
related materials used in the manufacture of Licensed Products, for which
flammability standards have been issued, amended or continued in effect under
the Flammable Fabrics Act, as amended, reasonable and representative tests, as
prescribed by the Consumer Product Safety Commission, have been performed which
show that Licensed Products at the time of their shipment or delivery conform to
the above-referenced flammability standards as are applicable.
<PAGE>
(g) All Licensed Products manufactured in the United States
(whether by Licensee, by Licensee's manufacturer or by manufacturers'
contractors) shall be in compliance with all applicable requirements of Sections
6, 7, and 12 of the Fair Labor Standards Act, as amended, and all regulations
and orders of the United States Department of Labor under Section 14 thereof,
and applicable state and local laws pertaining to child labor, minimum wage and
overtime compensation; and, all Licensed Products manufactured outside the
United States, (whether by Licensee, by Licensee's manufacturer or by
manufacturers' contractors) shall be manufactured in compliance with the wage,
overtime compensation, benefits, hour, hiring and employment, workplace
conditions and safety, environmental, collective bargaining, freedom of
association laws of the country of manufacture and without the use of child
(persons under the age of fifteen or younger than the age for completing
compulsory education, if that age is higher than 15), prison, indentured,
exploited bonded, forced or slave labor.
(h) Licensee will require that all commercial invoices (bills
of lading) which accompany all Licensed Products must include the following
language (either preprinted or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was manufactured in compliance
with the Tommy Hilfiger Supplier Code of Conduct and: (1) if the
merchandise was manufactured in the United States, it was
manufactured in compliance with (a) sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and orders
of the United States Department of Labor under section 14 thereof,
and (b) state and local laws pertaining to child labor, minimum wage
and overtime compensation; or (2) if the merchandise was
manufactured outside the United States, it was manufactured in
compliance with the wage and hour laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger
than the age for completing compulsory education, if that age is
higher than 15), prison, indentured, exploited bonded, forced or
slave labor. We further certify that we have in effect a program of
monitoring our subcontractors and suppliers and other designated
contract facilities which manufacture Tommy Hilfiger(R) brand
merchandise for compliance with the foregoing. We also certify that
the merchandise is in compliance with all laws governing the
designation of country of origin and, if applicable, is being
shipped under legally issued and valid export license or visa."
(i) Licensee shall not utilize or permit any Third Party
Manufacturer, subcontractors or suppliers to utilize in the manufacture or
treatment of any Licensed Products (including the components thereof)
manufactured hereunder any Azo dyes that can be split into any of the following
amines:
<PAGE>
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-87-5 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
(j) Licensee's use or any of Licensee' Third Party
Manufacturers, subcontractors or suppliers use of the following chemicals in
connection with the manufacturer or treatment of any of the Licensed Products
(including the components thereof) manufactured hereunder, shall be in
accordance with the following standards or such other standards Licensor may
designate from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when
tested in by the Acetylacetone method in
accordance with Japanese law 112.
(ii) Pentachlorophenol (Pesticides): Must be less
than 5 p.p.m.
and; (iii) Nickel: In the event any metal parts of a
garment or other merchandise coming into contact
with the skin, contain nickel in excess of 0.5
micrograms per square centimeter/week, Licensor
must be so notified and special warning labels
need to be attached to the garment.
8.10 Compliance with Applicable Laws. All Licensed Products
manufactured, distributed or sold by, or on behalf of, Licensee shall be marked,
labeled, packaged, advertised, distributed and sold in accordance with this
Agreement, in accordance with all applicable laws, rules and regulations in the
Territory, and in such a manner as will not tend to mislead or deceive the
public. At the request of Licensor, Licensee shall cause to be placed on all
Licensed Products appropriate notice designating Licensor as the trademark,
copyright or design patent owner thereof, as the case may be. The manner of
presentation of said notice shall be determined by Licensor.
8.11 Inspection of Facilities. Licensee shall regularly, and not
less than two (2) times per year, inspect the facilities it utilizes and those
facilities utilized by
<PAGE>
Third Parties for compliance with Paragraph 8.9 and shall take all
action necessary to cure any deficiencies. Licensee further agrees that it shall
terminate any agreement with any third party found to be in default of the terms
of this provision on three (3) separate inspections. Licensor and its duly
authorized representatives shall have the right, during normal business hours
and upon reasonable notice, to inspect all facilities utilized by Licensee,
Licensee's third party manufacturers, and such third party manufacturers'
contractors and suppliers in connection with the manufacture, sale, storage or
distribution of Licensed Products, and to examine (i) the Licensed Products at
all stages manufacture; (ii) the manufacturing facility, residential facilities
(if any) and any manufacturing and/or residential facility; (iii) the books and
records relating to employee wages, employee timecards, evidence of employee
age, shipping documents, cutting reports and other documentation relating to the
manufacture and shipment of the Licensed Products; and (iii) the books and
records relating to the use of chemicals and dyestuffs in the fabrics, trims,
garments and other components of the Licensed Products manufactured hereunder.
8.12 Rules and Regulations. To the extent permitted by applicable
law, Licensor may, from time to time, promulgate rules and regulations to
Licensee relating to the manner of use of the Trademark. Licensee shall comply
with all such rules and regulations.
8.13 Disposal of Seconds and Close-Outs.
(a) Seconds. Licensee shall only sell Licensed Products which
are Seconds in a way which shall not reduce the value of the Trademark or
detract from its reputation and shall obtain the express prior written consent
of Licensor with respect to the terms and method of such disposal. All Seconds
approved for sale by Licensor shall be clearly marked "Seconds" or "Irregular".
The percentage of Seconds of any of the Licensed Products which may be disposed
of pursuant to this Paragraph 8.13(a) shall not, in any event, exceed five (5%)
percent of the total number of units of Licensed Products distributed or sold by
Licensee.
(b) Close-Outs. All Close-Outs, which shall for the purpose
hereof be defined as excess first quality Licensed Products which cannot
reasonably be sold to regular customers, shall be sold only with Licensor's
prior written approval, which Licensor may withhold in its sole discretion,
through retail outlets and traditional and accepted dealers in such merchandise
and upon such terms and conditions as Licensee, in its reasonable discretion,
determines appropriate and shall not be sold to any person which Licensee knows,
or has reason to know, will export such Close-Outs from the Territory. The
percentage of Close-Outs of any of the Licensed Products which may be disposed
of pursuant to this Paragraph 8.13(b) shall not, in any event, exceed fifteen
(15%) percent of the total number of units of Licensed Products distributed or
sold by Licensee.
<PAGE>
8.14 Assistance By Licensor. Licensee shall have the right to cause
its personnel to reasonably visit Licensor's offices, factories, showroom, and
other places of business, and also to attend Licensor's sales meetings in order
to obtain additional know-how and assistance. The scheduling of such visits
shall be at times mutually convenient to the parties hereto. In connection with
such visits, Licensee shall bear all airfare to and from, and subsistence
expenses of Licensee's representatives. In the event Licensee requests Mr. Tommy
Hilfiger or any other member(s) of Licensor's staff to make a personal
appearance, to attend any function, to visit Licensee's manufacturing plants or
facilities or to attend any design meetings, Licensee shall pay all of the
reasonable expenses in connection therewith, including air travel and hotel
accommodations, and other reasonable services of Licensor's choosing. Licensee
shall reimburse Licensor for all reasonable expenses so incurred by Licensor. On
at least two (2) months notice, Licensor shall have Mr. Tommy Hilfiger appear at
Licensee's launch party. At Mr. Tommy Hilfiger's personal appearances for other
licensed products, Licensor shall make reasonable efforts to have the Licensed
Products visually enhanced.
8.15 Meetings. Licensor may from time to time but no more than twice
a year hold a meeting of Licensor's Licensees/Distributors. Licensee agrees upon
receipt of reasonable notice to attend any such meeting(s) at its own expense.
8.16 Design Rights. Licensee acknowledges and agrees that Licensor
owns or shall own all design rights, regardless of whether such designs were
created by Licensor or by or on behalf of Licensee. Licensee agrees to make,
procure and execute all assignments necessary to vest ownership of design rights
in Licensor. Licensee shall place appropriate notices, reflecting ownership of
design rights by Licensor, on all the Licensed Products, packaging, tags, labels
and advertising and promotional materials. Licensee shall not do or allow to be
done anything which may adversely affect any of Licensor's design rights. All
designs used by Licensee for the Licensed Products shall be used exclusively for
the Licensed Products and may not be used under any other trademark or private
label without the prior written consent of Licensor. Licensee shall disclose and
freely make available to Licensor any and all developments or improvements it
may make relating to the Licensed Products and to their manufacture, promotion
and sales, including, without limitation, developments and improvements in any
machine, process or product design, that may be disclosed or suggested by
Licensor or regarding any patent or trademark which Licensee is entitled to
utilize.
8.17 Pricing. Licensee acknowledges that in order to preserve the
goodwill attached to the Trademark, the Licensed Products should be sold at
prices and terms reflecting the prestigious nature of the Trademark, it being
understood, however, that Licensor is not empowered to fix or regulate the
prices for which the Licensed Products are to be sold, either at the wholesale
or retail level.
<PAGE>
8.18 Cost of Designs. Licensor will only be responsible for its
ordinary pre-adoption costs associated with the preparation and submission of
designs by Licensor to Licensee of inspirational sketches or prototypes only.
Licensee shall pay for all other pre and post-adoption design costs for
Licensor's designs and all design costs for Licensee's designs, as well as all
extraordinary costs such as expedited shipping charges associated with the
delivery of the designs.
8.19 Morals. Mr. Tommy Hilfiger's conduct shall be with due regard
to public conventions and morals, and Mr. Tommy Hilfiger has not done and shall
not do or commit any act that will degrade him before a substantial portion of
society or bring him into public hatred. If Mr. Tommy Hilfiger shall materially
breach this provision, Licensee may terminate this License on six (6) months
written notice to Licensor.
ARTICLE 9. THE TRADEMARK
9.1 Rights to the Trademark. Licensee acknowledges the great value
of the goodwill associated with the Trademark, and acknowledges that the
Trademark and all the rights therein, and goodwill attached thereto, belong
exclusively to Licensor. Licensee will not, at any time, do, or otherwise suffer
to be done any act or thing which may, in any way, adversely affect any rights
of Licensor in and to the Trademark or any registrations thereof or which,
directly or indirectly, may reduce the value of the Trademark or detract from
its reputation. Nothing contained in this Agreement shall be construed as an
assignment or grant to Licensee of any right, title or interest in or to the
Trademark, or any of Licensor's other trademarks, it being understood that all
rights relating thereto are reserved by Licensor, except for the License
hereunder to Licensee of the right to use and utilize the Trademark only as
specifically and expressly provided herein. Licensee shall not file or prosecute
a trademark or service mark application or applications to register the
Trademark in respect of the Licensed Products or any other goods or services.
Licensee shall not, during the term of this Agreement or thereafter, (a) attack
Licensor's title or right in and to the Trademark in any jurisdiction or attack
the validity of this License or the Trademark or (b) contest the fact that
Licensee's rights under this Agreement (i) are solely those of a manufacturer
and distributor and, (ii) subject to the provisions of Article 11 hereof, cease
upon termination of this Agreement. The provisions of this paragraph 9.1 shall
survive the termination of this Agreement.
9.2 Protecting the Trademark. Licensee shall cooperate fully and in
good faith with Licensor for the purpose of securing, preserving and protecting
Licensor's rights in and to the Trademark. At the request of Licensor, Licensee
shall execute and deliver to Licensor any and all documents and do all other
acts and things which Licensor deems necessary or appropriate to make fully
effective or to implement the provisions of this Agreement relating to the
ownership or registration of the Trademark.
<PAGE>
9.3 Compliance with Legal Requirements. Licensee will use the
Trademark in the Territory strictly in compliance with the legal requirements
therein. Whenever any Trademark is used on any item of packaging or labeling or
in any advertisement, it must be followed, in the case of a registered trademark
by the registration symbol, i.e., R, and in the case of all other trademarks by
the symbol TM, or other appropriate symbols of similar import acceptable to
Licensor. Licensee shall duly display all other notices with respect to the
Trademark, on the Licensed Products and otherwise, as are or may be required by
the trademark laws and regulations applicable within the Territory. Upon
expiration or termination of this Agreement for any reason whatsoever, Licensee
will execute and deliver to Licensor any and all documents required by Licensor
terminating any and all trademark registrations, Registered User agreements and
other documents regarding this Trademark.
9.4 Ownership of Copyright. Any copyright which may be created in
any sketch, design, print, package, label, tag or the like designed or approved
or used with the Trademark by Licensor will be the property of Licensor.
Licensee will not, at any time, do, or otherwise suffer to be done, any act or
thing which may adversely affect any rights of Licensor in such sketches,
designs, prints, packages, labels, tags and the like and will, at Licensor's
request, do all things reasonably required by Licensor to preserve and protect
said rights.
9.5 Notice of Infringement. Licensee shall notify Licensor in
writing of any infringement or imitation of the Trademark or the use by any
person of any trademarks or tradenames confusingly similar to the Trademark
promptly as same may come to the attention of Licensee. Licensor will thereupon
take such action as it deems advisable for the protection of the Trademark and
its rights therein, and Licensee shall assist Licensor in the prosecution of any
such suit, as Licensor may reasonably request, at Licensor's expense. In no
event, however, will Licensor be required to take any action if it deems it
inadvisable to do so and Licensee will have no right to take any action with
respect to the Trademark without the prior written consent of Licensor. In the
event a third party infringes the use of the Trademark in the Territory on items
similar to the Licensed Products, Licensor shall take all advisable and
necessary measures to protect the Trademark and Licensee agrees that, at
Licensor's request, it will pay the reasonable costs incurred therefor,
including judicial expenses and legal fees.
9.6 Counterfeit Protection. Licensee shall use its best efforts to
prevent counterfeiting. All Licensed Products shall bear and use any reasonable
counterfeit preventive system, devices or labels designated by Licensor. At its
option, Licensor may supply the system, devices or labels (provided that they
are supplied on a timely basis), which Licensee must use and for which Licensee
shall pay all reasonable costs in advance.
<PAGE>
9.7 Use of Other Trademarks. At all times while this Agreement is in
effect, neither Licensee, nor any company affiliated with Licensee, owned or
controlled by Licensee, under common ownership with or having common
stockholders as Licensee, in which the owner of Licensee is a partner, or in
which Licensee is a partner, shall act as a licensee or distributor in the
Territory of any products included in Paragraph 1.10 under any name directly
competitive with Licensor without the prior written approval of Licensor.
Nothing herein is to be construed so as to prohibit Licensee from acting as a
manufacturer only of such products under a name competitive with Licensor,
providing that Licensee shall not be the licensee or distributor thereof. The
design and style of any such products or any of Licensee's private label
products, must be clearly distinguished from the Licensed Products. If such
consent is given, unless prohibited by other agreements, Licensee shall provide
Licensor with samples of any other products, lines or collections it
manufactures or has manufactured for it or distributed for it which do not bear
the Trademarks. A breach of this clause shall constitute a violation of
Licensee's obligation to use its best efforts to exploit this license. The
design, merchandising, packaging, sales and display of all of Licensee's
non-licensed products shall be separate and distinct from the Licensed Products.
Licensee shall maintain a separate area for exhibition of the Licensed Products
wherever the Licensed Products are sold.
9.8 Use of Trademark on Invoices, etc. The use of the Trademark by
Licensee on invoices, order forms, stationery and related materials in
advertising in telephone or other directory listings is permitted only upon
Licensor's prior written approval of the format in which the Trademark is to be
so used, the juxtaposition of the Trademark with other words and phrases, and
the content of the copy prior to the initial such use of the Trademark and prior
to any material change therein; provided, however, that each such use of the
Trademark is only in conjunction with the manufacture, sale, distribution or
advertisement of Licensed Products pursuant to this Agreement.
9.9 Monitoring. Licensee shall actively monitor use of the Trademark
by Licensee and its customers and shall use its best efforts to see that such
use does not impair the image or reputation heretofore or hereafter established
by Licensor for products bearing the Trademark; provided, however, that the
Licensee shall have no obligation to place any unlawful restriction on its
customers.
ARTICLE 10. INSOLVENCY
10.1 Effect of Proceeding in Bankruptcy, etc. If either party
institutes for its protection or is made a defendant in any proceeding under
bankruptcy, insolvency, reorganization or receivership law, or if either party
is placed in receivership or makes an assignment for benefit of creditors or is
unable
<PAGE>
to meet its debts in the regular course of business, the other party
may elect to terminate this Agreement immediately by written notice to the other
party without prejudice to any right or remedy the terminating party may have,
including, but not limited to, damages for breach to the extent that the same
may be recoverable.
10.2 Rights, Personal. The license and rights granted hereunder are
personal to Licensee. No assignee for the benefit of creditors, receiver,
trustee in bankruptcy, sheriff or any other officer or court charged with taking
over custody of Licensee's assets or business, shall have any right to continue
performance of this Agreement or to exploit or in any way use the Trademark if
this Agreement is terminated pursuant to Paragraphs 11.1 and 11.2, except as may
be required by law.
10.3 Trustee in Bankruptcy. Notwithstanding the provisions of
Paragraph 10.2 above, in the event that, pursuant to the applicable bankruptcy
law (the "Code"), a trustee in bankruptcy, receiver or other comparable person,
of Licensee, or Licensee, as debtor, is permitted to assume this Agreement and
does so and, thereafter, desires to assign this Agreement to a third party,
which assignment satisfies the requirements of the Code, the trustee or
Licensee, as the case may be, shall notify Licensor of same in writing. Said
notice shall set forth the name and address of the proposed assignee, the
proposed consideration for the assignment and all other relevant details
thereof. The giving of such notice shall be deemed to constitute an offer to
Licensor to have this Agreement assigned to it or its designee for such
consideration, or its equivalent in money, and upon such terms as are specified
in the notice. The aforesaid offer may be accepted by Licensor only by written
notice given to the trustee or Licensee, as the case may be, within fifteen (15)
days after Licensor's receipt of the notice to such party. If Licensor fails to
deliver such notice within the said fifteen (15) days, such party may complete
the assignment referred to in its notice, but only if such assignment is to the
entity named in said notice and for the consideration and upon the terms
specified therein. Nothing contained herein shall be deemed to preclude or
impair any rights which Licensor may have as a creditor in any bankruptcy
proceeding.
ARTICLE 11. TERMINATION
11.1 Other Rights Unaffected. It is understood and agreed that
termination by Licensor on any ground shall be without prejudice to any other
remedies which Licensor may have.
11.2 Termination Without Notice. If any of the following grounds for
termination shall occur, this Agreement shall thereupon forthwith terminate and
come to an end without any need for notice from Licensor:
(a) If Licensee shall make an unauthorized disclosure of
confidential information, Trade Secrets, or materials given or loaned to
Licensee by Licensor;
<PAGE>
(b) If Licensee institutes proceedings seeking relief under a
bankruptcy act or any similar law, or otherwise violates the provisions of
paragraph 10.1 thereof;
(c) If Licensee transfers or agrees to transfer substantially
all of its property, its shares of stock or, this Agreement in violation of
Article 17 thereof;
(d) If Licensee shall sell unapproved merchandise in violation
of paragraph 8.3 hereof;
(e) If Licensee shall, without the prior written consent of
Licensor, use the Trademark in an unauthorized or improper manner;
(f) If Licensee shall use the Trademark in connection with
another trademark or name; and/or
(g) If Licensee shall place or participate in any advertising
prohibited by Article 7.
11.3 Termination With Notice. If Licensee breaches any of its
obligations under this Agreement, other than those specified in Paragraph 11.2
above, Licensor may terminate this Agreement by giving Notice of Termination to
Licensee. Termination will become effective automatically unless Licensee
completely cures the breach within fifteen (15) days of the giving of such
Notice. Termination based upon Licensee's failure to comply with the Minimum
Sales Levels set forth in Paragraph 4.2 shall become effective thirty (30) days
after the giving of the Notice. If the notice relates to royalties or to product
quality, pending cure Licensee shall ship no Licensed Products; if Licensee does
ship, it shall automatically forfeit its right to cure and the License shall be
terminated. Upon the giving of a Notice of Termination for the second time, for
any reason, Licensee shall no longer have the right to cure any violation, and
termination shall be effective upon the giving of the Notice.
11.4 Effect of Termination. On the termination of this Agreement for
any reason whatsoever: all of the rights of Licensee under this Agreement shall
forthwith terminate and immediately revert to Licensor; all royalties on sales
theretofore made shall become immediately due and payable; Licensee shall
forthwith discontinue all use of the Trademark, except that Licensee may have a
period of ninety (90) days after such termination to consummate all sales of
Licensed Products which were firm upon the delivery of the Inventory Schedule in
accordance with Paragraph 11.5 hereof and to sell the balance of the Inventory
not purchased by Licensor, and royalties with respect thereto shall be due on
such ninetieth day. Licensor shall have the right to conduct a physical
inventory of the Licensed Products in Licensee's possession or control. Licensee
will completely remove the Trademark from Licensed Products and destroy all
<PAGE>
hangtags and labeling attached to such Licensed Products. Licensee shall, at
Licensee's expense, either return to Licensor all remaining Inventory after such
ninetieth (90th) day or destroy all remaining Inventory under the supervision of
Licensor. Licensee shall no longer use the Trademark, any variation, imitation
or simulation thereof, or any Trademark similar thereto; Licensee will promptly
transfer to Licensor, free of charge, all registrations, filings and rights with
regard to the Trademark which it may have possessed at any time; and Licensee
shall thereupon deliver to Licensor, free of charge, all sketches, designs,
colors and the like in its possession or control, designed or approved by
Licensor, and all Labels supplied by Licensor in Licensee's possession or
control. Licensor shall have the option, exercisable upon notice to Licensee
within thirty (30) days of termination, to negotiate the purchase of the Labels
which have not been supplied by Licensor. If such negotiations do not result in
the purchase of the Labels not supplied by Licensor, Licensee shall destroy the
Labels under the supervision of Licensor, and Licensee, shall supply to Licensor
a certificate of destruction thereof signed by a duly authorized officer of
Licensee.
11.5 Inventory Upon Termination. Within twenty (20) days of the
termination of this Agreement for any reason whatsoever, Licensee shall deliver
to Licensor an Inventory Schedule. The Inventory Schedule shall be prepared as
of the close of business on the date of such termination and shall reflect
direct cost of each such item (not including overhead or any general or
administrative expenses). Licensor thereupon shall have the option, exercisable
by notice in writing delivered to Licensee within thirty (30) days after its
receipt of the complete Inventory Schedule, to purchase any or all of the
Inventory for an amount equal to the Licensee's standard cost (the actual
manufacturing cost). In the event such notice is sent by Licensor, Licensor may
collect the Inventory referred to therein within ninety (90) days after
Licensor's said notice. Licensor will pay such Licensee for such Inventory upon
such collection. In the event such notice is not sent, Licensee may dispose of
the Licensed Products within ninety (90) days of the date of termination;
provided, however, that any advertising used during such period shall be subject
to Licensor's prior written approval and such disposition of the Licensed
Products shall be subject to Licensee's obligations hereunder, including, but
not limited to payments to be made to Licensor. At the end of such ninety (90)
day period, any Licensed Products remaining in Licensee's possession shall, at
the request of Licensor, be destroyed.
11.6 Freedom to License. In the event of termination of this
Agreement or the receipt by Licensor of a notice of termination from Licensee,
Licensor shall be free to license to others the use of the Trademark in
connection with the manufacture and sale of Licensed Products in the Territory,
but only if the sale of such Licensed Products in the Territory produced
pursuant to such third party agreement is prohibited until after the termination
of this Agreement.
<PAGE>
11.7 Equitable Relief. Licensor and Licensee shall be entitled to
equitable relief by way of temporary and permanent injunction and such other and
further relief as any court with jurisdiction may deem just and proper.
ARTICLE 12. RELATIONSHIP BETWEEN THE PARTIES
12.1 No Agency. Licensee shall not represent itself as the agent or
legal representative of Licensor, Licensor's affiliates or Tommy Hilfiger for
any purpose whatsoever and shall have no right to create or assume any
obligation of any kind, express or implied, for or on behalf of them in any way
whatsoever. Licensor shall similarly not represent itself as the agent or legal
representative of Licensee.
ARTICLE 13. INTENTIONALLY OMITTED
ARTICLE 14. BENEFIT
14.1 Benefit. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, and, subject to Article 17 hereof, their
successors and assigns.
ARTICLE 15. ENTIRE AGREEMENT; AMENDMENT
15.1 Entire Agreement; Amendment. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and this Agreement may not be amended or modified, except in a writing signed by
both parties hereto.
ARTICLE 16. NON-WAIVER
16.1 Non-Waiver. The failure of either party to enforce at any time
any term, provision or condition of this Agreement, or to exercise any right or
option herein, shall in no way operate as a waiver thereof, nor shall any single
or partial exercise preclude any other right or option herein; and no waiver
whatsoever shall be valid unless in writing, signed by the waiving party, and
only to the extent herein set forth.
ARTICLE 17. ASSIGNMENT
17.1 No Assignment Without Consent. The license and rights granted
to Licensee hereunder are personal in nature, and Licensee may not and shall not
sell, transfer, lease, sublicense or assign this Agreement or its rights and
interest hereunder, or any part hereof, by operation of law or otherwise,
without the prior written
<PAGE>
consent of Licensor, which consent may be withheld by Licensor in
its sole and absolute discretion, except that Licensee shall have the right,
upon written notice to Licensor, to assign this Agreement to a corporation,
subsidiary or affiliate under the same direction and control as Licensee;
provided, however, that in such event Licensee agrees to guarantee the
performance and obligations of such corporation, subsidiary or affiliate under
this Agreement.
17.2 Sale of Assets. A sale or other transfer of all or
substantially all of the assets of Licensee or a change in the control of
Licensee other than as permitted under Paragraph 17.1 shall be deemed an
assignment of Licensee's rights and interests under this Agreement to which the
terms and conditions of Paragraph 17.1 of this Agreement shall apply.
17.3 Sale of Stock/Interest. Any transfer, by operation of law or
otherwise, of Licensee's interest in this Agreement (in whole or in part), a
fifty (50%) percent or greater interest in one or in a series of transactions in
Licensee (whether stock, partnership, interest or otherwise) or any interest
directly or indirectly to a competitor of Licensor shall be deemed an assignment
of Licensee's rights and interest under this Agreement to which the terms and
conditions of Paragraph 17.1 of this Agreement shall apply. The issuance of
shares of stock to other than the existing shareholders is deemed to be a
transfer of that stock for the purposes of this paragraph. If there has been a
previous transfer of less than a fifty (50%) percent interest in Licensee, then
any other transfer of an interest in Licensee which when added to the total
percentage previously transferred totals a transfer of greater than fifty (50%)
percent interest of Licensee, shall be deemed an assignment of Licensee's
interest in this Agreement within the meaning of this Paragraph to which the
terms and conditions of Paragraph 20.1 shall apply.
17.4 Assignment by Licensor. Licensor shall have a complete and
unrestricted right to sell, transfer, lease or assign its rights and interests
in this Agreement to any domestic or foreign corporation or other business
entity, providing that such transferee agrees to be bound by all of the terms
hereof and is the holder of the Trademark in the Territory. When Licensor wishes
to sell, transfer, lease or assign its rights and interests in this Agreement,
Licensor shall do so on notice to Licensee.
ARTICLE 18. INDEMNIFICATION AND INSURANCE
18.1 Indemnification by Licensee. Licensee does hereby indemnify and
hold harmless Licensor, Tommy Hilfiger, and their directors, officers,
employees, agents, officials and related companies from and against any and all
losses, liability, damages and expenses (including reasonable attorneys' fees
and expenses) which they or any
<PAGE>
of them may incur or be obligated to pay in any action, claim or
proceeding against them or any of them, for or by reason of any acts, whether of
omission or commission, that may be committed or suffered by Licensee or any of
their servants, agents or employees in connection with Licensee's performance of
this Agreement, including but not limited to:
18.1.1. any alleged defect in any Licensed Product, regardless
of whether the action is based upon negligence or strict liability, and
regardless of whether the alleged negligence of Licensor is characterized as
"passive" or "active";
18.1.2. the manufacture, labelling, sale, distribution
or advertisement of any Licensed Product by Licensee;
18.1.3. any violation of any warranty, representation
or agreement made by Licensee pertaining to a Licensed Product;
18.1.4. the claim of any broker, finder or agent in
connection with the making of this Agreement or any transactions contemplated
by this Agreement.
The provisions of this paragraph and Licensee's obligations hereunder shall
survive any termination or rescission of this Agreement.
18.2 Notice of Suit or Claim. Licensee shall promptly inform
Licensor by written notice of any suit or claim against Licensee relating to
Licensee's performance under this Agreement, whether such suit or claim is for
personal injury, involves alleged defects in the Licensed Products manufactured,
sold or distributed hereunder, or otherwise.
18.3 Indemnification by Licensor. Licensor does hereby indemnify and
hold harmless Licensee, against any and all liabilities, damages and expense
(including reasonable attorneys' fees, costs and expenses) which Licensee may
incur or be obligated to pay in any action or claim against Licensee for
infringement of any other person's claimed right to use a trademark in the
Territory, but only where such action or claim results from Licensee's use of
the Trademark in the Territory in accordance with the terms of this Agreement.
Licensee shall give Licensor prompt written notice of any such claim or action
and thereupon Licensor shall undertake and conduct the defense of any suit so
brought. It is understood, however, that if there is a dispute between Licensor
and Licensee as to whether the suit was brought as a result of Licensee's
failure to use the Trademark in accordance with the terms of this Agreement
Licensee may be required to conduct such defense unless and until it is
determined that no such misuse of the Trademark occurred. In the event
appropriate action is not taken by Licensor within thirty (30) days of its
receipt of notice from Licensee, Licensee shall have the right to defend such
claim or action in its own name, but no settlement or compromise of any such
claim or action may be
<PAGE>
made without the prior written approval of Licensor. In either case,
Licensor and Licensee shall keep each other fully advised of all developments
and shall cooperate fully with each other and in all respects in connection with
any such defense. Such indemnification shall be deemed to apply solely to the
amount of the judgment, if any, against Licensee, and sums paid by Licensee in
connection with its defense, and shall not apply to any consequential damages
suffered by Licensee which are not included in the aforementioned judgment. Such
indemnification shall not apply to any damages sustained by Licensee by reason
of such claimed infringement other than those specified above.
18.4 Insurance.
(a) Requirements. Without limiting Licensee's liability
pursuant to the indemnity provisions of this Agreement, Licensee shall maintain
comprehensive general liability insurance in the amount of at least $5,000,000
(combined single limit per occurrence) with a broad form property damage
liability endorsement. This insurance shall include broad form blanket
contractual liability, personal injury liability, advertising liability,
products and completed operations liability. Each coverage shall be written on
an "occurrence" form.
(b) Theft and destruction coverage. Licensee shall purchase
insurance against theft and destruction of the Licensed Products which shall (1)
be written on an "all risk" basis; (2) provide that Licensee shall be reimbursed
for loss in an amount equal to the manufacturer's selling price for the products
(this may be accomplished by either a selling price endorsement or business
interruption insurance); (3) provide that Licensor is added as a loss payee as
respects loss to Licensed Products; (4) be in effect while goods are on premises
owned, rented or controlled by Licensee and while in transit or storage; and (5)
include a brand and label clause stating that the insurer will pay the cost of
removing Licensor's name from damaged merchandise and relabeling goods.
(c) General provisions. The insurance described in
subparagraphs (a) and (b) shall include: (1) a cross-liability endorsement; (2)
an endorsement stating that Licensor shall receive at least thirty (30) days
written notice prior to cancellation or non-renewal of coverage; (3) an
endorsement naming Licensor as an insured; (4) an endorsement stating that the
insurance required by this Agreement is primary and that any insurance purchased
by Licensor shall only apply in excess of the insurance purchased by Licensee;
(5) a waiver of subrogation in favor of Licensor; and (6) an endorsement stating
that Licensor may recover for any loss caused Licensor, its agents or employees
by the negligence (including active, passive and gross negligence) of Licensee.
(d) Approved Carrier/Policy Changes. All insurance shall be
obtained from an insurance company approved by Licensor. Licensee shall give at
least thirty (30) days prior written notice to Licensor of the
<PAGE>
cancellation of, or any modification in, such insurance policy
that would affect Licensor's status or benefits thereunder. This insurance may
be obtained for Licensor by Licensee in conjunction with a policy which covers
products other than the Licensed Products.
(e) Evidence of coverage. No later than thirty (30) days from
the date hereof, Licensee shall furnish to Licensor evidence, in form and
substance satisfactory to Licensor, of the maintenance and renewal of the
required insurance including, but not limited to, copies of policies with
applicable riders and endorsements, and certificates of insurance.
(f) Territory. The insurance set forth in this Section must
cover the entire Territory.
ARTICLE 19. SEVERABILITY
19.1 Severability. If any provision or any portion of any provision
of this Agreement shall be construed to be illegal, invalid, or unenforceable,
such shall be deemed stricken and deleted from this Agreement to the same extent
and effect as if never incorporated herein, but all other provisions of this
Agreement and any remaining portion of any provision which is not deemed
illegal, invalid or unenforceable in part shall continue in full force and
effect.
ARTICLE 20. NOTICES
20.1 Notices. All reports, approvals and notices required or
permitted to be given under this Agreement shall, unless specifically provided
otherwise in this Agreement, be deemed to have been given if personally
delivered or if mailed by certified or registered mail, if to Licensor, to:
TOMMY HILFIGER LICENSING, INC.
913 N. Market Street
Wilmington, Delaware 19801
Attention: Mr. Joel Horowitz
Chief Executive Officer
Copy to: Steven R. Gursky, Esq.
Gursky & Associates, P.C.
21 East 40th Street
New York, New York 10016
and if to Licensee, to the address set forth above. The parties may change their
address for receipt of notices at any time upon notice to the other party.
<PAGE>
ARTICLE 21. SUSPENSION OF OBLIGATIONS
21.1 Suspension of Obligations. If Licensee shall be prevented from
performing any of its obligations because of governmental regulation or order,
or by strike or war, declared or undeclared, or other calamities such as fire,
earthquake, or similar acts of God, or because of other similar or dissimilar
cause beyond the control of Licensee, Licensee's obligations shall be suspended
during the period of such conditions. If such condition continues for a period
of more than sixty (60) days, Licensor shall have the right to terminate this
Agreement. If the act of force majeure consists of a fire, earthquake, flood,
hurricane, tornado, or nuclear war and if the act prevents Licensee from
manufacturing and/or delivering the Licensed Products, whether due to an
inability to obtain fabric or other materials, destruction of manufacturing
facilities, inability to deliver finished product, or otherwise, Licensee shall
have a period of not to exceed ninety (90) days to find alternate sources and
Licensee shall advise Licensor on a weekly basis of the progress it has made in
that regard. If, in Licensor's reasonable opinion, Licensee shall fail to
diligently proceed to obtain alternate sources, or if the condition shall
continue to exist for a period of ninety (90) days, Licensor shall have the
right to terminate this Agreement.
ARTICLE 22. EXHIBITS
22.1 Exhibits. All Exhibits are incorporated into this Agreement.
The forms of Licensor may be revised by Licensor at any time.
ARTICLE 23. OTHER PROVISIONS
23.1 Headings. The headings of the Articles and Paragraphs of this
Agreement are for convenience only and in no way limit or affect the terms or
conditions of this Agreement.
23.2 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23.3 Construction. This Agreement shall be interpreted and construed
in accordance with the laws of the State of New York with the same force and
effect as if fully executed and to be performed therein.
<PAGE>
23.4 Jurisdiction. The parties hereby consent to the jurisdiction of
the United States District Court for the Southern District of New York and of
any of the courts of the State of New York in any dispute arising under this
Agreement and agree further that service of process or notice in any such
action, suit or proceeding shall be effective if in writing and delivered in
person or sent as provided in Paragraph 20.1 hereof.
23.5 Compliance with Laws. Licensee shall comply with all laws,
rules, regulations and requirements of any governmental body which may be
applicable to the operations of Licensee contemplated hereby, including, without
limitation, as they relate to the manufacture, distribution, sale or promotion
of Licensed Products, notwithstanding the fact that the Licensor may have
approved such item or conduct.
IN WITNESS WHEREOF, the parties have executed this Agreement.
TOMMY HILFIGER LICENSING, INC. THE STRIDE RITE CORPORATION
By:_____________________________ By:_________________________________
Title:______________________________ Title:_________________________________
<PAGE>
[G2410B.001]
TOMMY HILFIGER LICENSING, INC.
TRADEMARK REGISTRATIONS
IN CLASS 25
IN U.S. PATENT AND TRADEMARK OFFICE
Trademark Registration Number
TOMMY HILFIGER Reg. No. 1,398,612
FLAG/LOGO DESIGN Reg. No. 1,460,988
CREST DESIGN Reg. No. 1,673,527
EXHIBIT A
<PAGE>
TOMMY HILFIGER LICENSING, INC.
STATEMENT OF ROYALTIES
FOR___________________TO__________________19__
(QUARTER)
LICENSEE NAME____________________________________________
LICENSEE ADDRESS_________________________________________
- -----------------------------------------------------------
LICENSEE PRODUCT(S)______________________________________
- -------------------------------------------------------------------------------
CUSTOMER INVOICE ITEM UNIT NUMBER GROSS
NAME NUMBER STYLE NO. WHOLESALE SOLD SALES
PRICE
LESS LESS LESS LESS NET SALES NET
ALLOWANCES MARKDOWNS TRADE RETURNS ROYALTY
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTALS
SEND STATEMENT TO: TOMMY HILFIGER LICENSING, INC.
I CERTIFY THAT THE ABOVE IS ACCURATE
913 N. Market Street
Wilmington, Delaware 19801
- ----------------------------------------------------
U.S.A.
SIGNATURE
----------------------------------------------------
EXHIBIT B
<PAGE>
TOMMY HILFIGER LICENSING, INC. Page______ of ________
Date__________________
FORM MUST BE SUBMITTED COMPLETE SUBMIT TO THE ATTENTION OF:
TOMMY HILFIGER LICENSING, INC.
25 WEST 39TH STREET
NEW YORK, NEW YORK 10018
SAMPLE APPROVAL FORM
(ALL SAMPLES SUBMITTED FOR APPROVAL MUST BE IN CORRECT FABRIC)
NAME OF LICENSEE ____________________________________________________________
LICENSED PRODUCT ____________________________________________________________
LICENSEE'S ADDRESS __________________________________________________________
SEASON _______________ STYLE NUMBER ______________ FABRICATION _____________
WHOLESALE PRICE _________________ COLORS ___________________________________
SIZES _________________________ FACTORY _____________________________________
START TAKING ORDERS __________________ END TAKING ORDERS _____________________
START SHIP ______________________________ END SHIP ___________________________
APPROVED ___________________ DISAPPROVED ___________________
COMMENTS
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------ ------------------------------
SIGNATURE OF LICENSEE SIGNATURE OF LICENSOR
DATE RETURNED TO LICENSEE _______________________________________
EXHIBIT C
<PAGE>
THIRD PARTY MANUFACTURING AGREEMENT
THIS AGREEMENT made this ____ day of ___________ 199__, by and between
______________________________, having an office at __________________________
__________________________________ (hereinafter referred to as the "Company"),
and ________________________________________________________________ having an
office at ________________________________________________________________
(hereinafter referred to as the "Manufacturer").
W I T N E S S E T H :
WHEREAS, Manufacturer is engaged is the manufacture of garments and/or
other items of merchandise;
WHEREAS, Company wishes to contract with Manufacturer for manufacture of
certain garments and/or other merchandise from time to time, which garments
and/or other items of merchandise (the "Products") will bear the trademark TOMMY
HILFIGER, the trade name TOMMY HILFIGER, all related logos, crests, emblems or
symbols, and all combinations, forms and derivatives thereof as are from time to
time used by Company or any of its affiliates, whether registered or
unregistered (the "Trademarks"); and
WHEREAS, Company has been licensed by Tommy Hilfiger Licensing, Inc.
("THLI"), the owner of all rights, title and interests in and to the Trademarks,
to use the Trademarks.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. THE PRODUCTS.
Company and THLI have created certain designs and patterns from
which Manufacturer will create three-dimensional samples. Company shall advise
Manufacturer if the samples meet Company's quality requirements within fifteen
(15) days of receipt. Manufacturer shall make any modifications to the samples
as required by Company. Samples accepted by Company shall be designated as
prototypes for the purposes of this Agreement.
2. TERM.
(a) The term of this Agreement shall commence as of the date hereof
and continue through December 31, 1999.
EXHIBIT D
<PAGE>
(b) In the event that Manufacturer shall have faithfully performed
each and every obligation of this Agreement during the Term referred to in
Paragraph 2(a) above, then this Agreement shall automatically renew from month
to month commencing immediately upon expiration of the term, unless either party
has given the other thirty (30) days written notice of its intention to
terminate the Agreement.
3. MANUFACTURE.
(a) Manufacturer shall only manufacture the specific number of
Products as requested by Company and at no time shall manufacture excess goods
or overruns. Manufacturer shall not sell any Products bearing the Trademarks to
any third parties without the express written consent of Company.
(b) Manufacturer shall manufacture the Products and Packaging to
conform in quality and specifications to the prototypes as defined in Paragraph
1, above.
(c) All Products and Packaging manufactured by Manufacturer shall be
delivered to locations specified by Company or directly to Company, whichever
Company may direct.
4. COMPLIANCE WITH CODE; APPLICABLE LAWS.
(a) Attached hereto as Addendum A is THLI's Supplier Code of Conduct
(the "Code") which applies to any entity manufacturing merchandise under the
Tommy Hilfiger(R) label (including the components thereof). As a condition to
manufacturing Products hereunder, Manufacturer shall comply with the terms of
the Code and evidence such compliance by, (1) upon execution of this Agreement,
executing the Code in the form as attached or such other form as provided by
THLI, and returning such document to THLI, and (2) publicly displaying the Code,
in a form as provided by THLI from time to time, in a clearly visible location
in Manufacturer's facility at all times while this Agreement is in effect.
(b) In order to ensure compliance with the Code, Company has
developed a program of monitoring its manufacturers and such manufacturers'
subcontractors (hereinafter the "Supplier Monitoring Program"). As a condition
to manufacturing Product hereunder, Manufacturer hereby agrees that it shall
cooperate fully with the Supplier Monitoring Program, which cooperation includes
but is not limited to Company's inspections in accordance with Paragraph 5,
below.
(c) For purposes of this Agreement a "subcontractor" shall be
defined as an entity or an individual which or whom Manufacturer either hires or
pays to perform the manufacturing tasks which Manufacturer could otherwise
perform itself at its own facility or through its own employees and staff. A
"supplier" shall be defined as an individual or entity who produces components
for merchandise, and provides such components to manufacturer in order to
assemble the finished merchandise. Examples of a supplier include, but are not
limited to, fabric/trim manufacturers, yarn manufacturers, button manufacturers,
or zipper manufacturers, provided that such named manufacturers
<PAGE>
do not contribute further to the manufacture of the finished
merchandise. Prior to utilizing any subcontractor or supplier for the
manufacture of the Products, Manufacturer shall provide written notice to
Company of: (i) the name and address of each such subcontractor and/or supplier;
(ii) the nature and type of work performed or product supplied to Manufacturer;
and (iii) duration of the subcontractor or supplier relationship.
(d) Within thirty (30) days from executing this Agreement for any
existing subcontractor and suppliers, and within thirty (30) days after
establishing a new arrangement with a subcontractor or supplier, Manufacturer
shall obtain and provide to Company the signature of an authorized
representative from each of its subcontractors (if any) used in the production
of Products for Company on a Manufacturing Agreement in the same form as this
Agreement. Manufacturer shall further obtain and provide to Company the
signature of an authorized representative from each of Manufacturer's suppliers
of fabric, trim or any other product used in the manufacture of merchandise for
Company on a Certification in the same form as that which is attached hereto and
hereafter referred to as Addendum B, and provided by Company from time, or such
other form as provided by Company. In the event Manufacturer has knowledge of,
has reason to believe, or should have reason to know that any supplier or
subcontractor used by Manufacturer is in breach of the Certification or
Manufacturing Agreement, as the case may be, Manufacturer shall immediately
notify Company and Manufacturer shall, at its sole expense, take immediate
action to rectify such breach, including, where Company deems it necessary,
immediate termination of its relationship with such supplier or subcontractor.
If Manufacturer fails to take immediate action, Company shall have the right to
terminate this Manufacturing Agreement immediately. Manufacturer acknowledges
that it shall remain primarily liable and completely obligated under all of the
provisions of this Agreement in respect of such subcontracting and supplier
arrangement.
(e) Manufacturer certifies that it has in effect a program of
monitoring its subcontractors and suppliers and other designated contract
facilities which manufacture Tommy Hilfiger(R) brand merchandise which is
sufficient to ensure their compliance with the Code and all applicable state,
local and foreign laws and regulations pertaining to wages, overtime
compensation, benefits, hours, hiring and employment, workplace conditions and
safety, the environment, collective bargaining, freedom of association and that
their products or and the components thereof are made without the use of child
(persons under the age of 15 or younger than the age for completing compulsory
education, if that age is higher than 15), prison, indentured, exploited bonded,
forced or slave labor.
(f) Manufacturer shall ensure that all merchandise manufactured
hereunder shall be manufactured in compliance with all federal, state and local
laws which pertain to the manufacture of clothing, apparel, and other
merchandise including the Flammable Fabrics Act, as amended, and regulations
thereunder and Manufacturer guarantees, that with regard to all products,
fabrics or related materials used in the manufacture of the Products, for which
flammability standards have been issued, amended or continued in effect
<PAGE>
under the Flammable Fabrics Act, as amended, reasonable and
representative tests, as prescribed by the Consumer Product Safety Commission,
have been performed which show that the Products at the time of their shipment
or delivery conform to the above-referenced flammability standards as are
applicable.
(g) Manufacturer shall manufacture or cause to manufacture all
Products (including components thereof) manufactured in the United States, in
compliance with all applicable requirements of Sections 6, 7, and 12 of the Fair
Labor Standards Act, as amended, and all regulations and orders of the United
States Department of Labor under Section 14 thereof, and applicable state and
local laws pertaining to child labor, minimum wage and overtime compensation,
and, if the Products are manufactured outside the United States, in compliance
with all applicable laws, including but not limited to, wage, overtime
compensation, benefits, hour, hiring and employment, workplace conditions and
safety, environmental, collective bargaining, freedom of association laws of the
country of manufacture and without the use of child (persons under the age of
fifteen or younger than the age for completing compulsory education, if that age
is higher than 15), prison, indentured, exploited bonded, forced or slave labor.
(h) Manufacturer acknowledges that it has read and understands
Company's policy with regard to the manufacture of Products for Company.
Manufacturer further agrees that it shall, simultaneous to executing this
Agreement, execute and abide by the Certification, shall execute and abide by
all Certifications provided by Company from time to time. Failure by
Manufacturer to execute and abide by such Certification shall be grounds for
immediate termination of this Agreement by Company.
(i) Manufacturer shall not utilize or permit any subcontractors or
suppliers to utilize in the manufacture or treatment of any of the Products
(including the components thereof) manufactured hereunder any Azo dyes that can
be split into any of the following amines:
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-87-5 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
<PAGE>
(j) Manufacturer's use or any of Manufacturer's subcontractors or
suppliers use of the following chemicals in connection with the manufacturer or
treatment of any of the Products (including the components thereof) manufactured
hereunder, shall be in accordance with the following standards or such other
standards Company may designate from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when tested
in by the Acetylacetone method in accordance with
Japanese law 112.
(ii) Pentachlorophenol (Pesticides): Must be less than 5
p.p.m.
and; (iii) Nickel: In the event any metal parts of a garment
or other merchandise coming into contact with the skin,
contain nickel in excess of 0.5 micrograms per square
centimeter/week, Company must be so notified and special
warning labels need to be attached to the garment.
5. INSPECTION.
(a) Manufacturer shall arrange for and provide access to Company's
and THLI's representative, including, but not limited to, any independent entity
designated by Company or THLI's legal representative, to: (i) Manufacturer's
manufacturing facility, residential facilities (if any) and any manufacturing
and/or residential facility operated by any of Manufacturer's subcontractors;
(ii) Manufacturer's books, records and documents necessary to evidence
Manufacturer's compliance with the Code and all applicable laws, rules and
regulations including, but not limited to, employee wages, employee timecards,
withholding rates and deductions, worker's contracts and/or agreements, any
company policies affecting employees, evidence of employee age, shipping
documents, cutting reports and other documentation relating to the manufacture
and shipment of the Products; and (iii) Manufacturer's books, records and
documents relating to the use of chemicals and dyestuffs in the fabrics, trims,
garments and other merchandise manufactured hereunder. For purposes of this
Paragraph, all such books, records and documents shall be maintained by
Manufacturer in a secure and readily accessible location for a period of three
(3) years from their creation.
(b) The access provided by Manufacturer as set forth in Paragraph
5(a), above, shall include Company's and THLI's right to inspect, test, and take
samples of the Products, whether finished or semi-finished, at any time during
the manufacturing process to ensure that the manufacture of the Products is in
accordance with the terms and restrictions herein contained
(c) Company shall have the right to reject any Products or packaging
not meeting the standards described in Paragraph 1, above. Manufacturer shall
not have the right to sell or otherwise distribute any rejected Products or
packaging. All such products shall be destroyed according to methods and
procedures provided by Company.
<PAGE>
6. SHIPPING LEGEND.
All commercial invoices (bills of lading) which accompany all
Products must include the following language (either preprinted or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was manufactured in compliance
with the Tommy Hilfiger Supplier Code of Conduct and: (1) if the
merchandise was manufactured in the United States, it was
manufactured in compliance with (a) sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and orders
of the United States Department of Labor under section 14 thereof,
and (b) state and local laws pertaining to child labor, minimum wage
and overtime compensation; or (2) if the merchandise was
manufactured outside the United States, it was manufactured in
compliance with the wage and hour laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger
than the age for completing compulsory education, if that age is
higher than 15), prison, indentured, exploited bonded, forced or
slave labor. We further certify that we have in effect a program of
monitoring our subcontractors and suppliers and other designated
contract facilities which manufacture Tommy Hilfiger(R) brand
merchandise for compliance with the foregoing. We also certify that
the merchandise is in compliance with all laws governing the
designation of country of origin and, if applicable, is being
shipped under legally issued and valid export license or visa."
Any merchandise shipped that is not accompanied by a commercial invoice bearing
the required language will be subject to rejection and returned at
Manufacturer's expense and Manufacturer may be charged for any and all costs
that are incurred by Company due to the rejection, including, but not limited
to, damages sustained as a result of Company's liability to customers, any
resulting fines and penalties and attorney's fees for said rejected goods. Such
rejected goods may not be sold or distributed by Manufacturer to any entity
other than Company.
7. USE OF TRADEMARKS; TRADEMARKS.
(a) Manufacturer shall not use the Trademarks, in any manner
whatsoever (including, without limitation, for advertising, promotion and
publicity purposes), without obtaining the prior written approval of THLI, which
may be withheld in THLI's sole discretion. In any event Manufacturer shall not
at any time use, promote, advertise, display or otherwise commercialize the
Trademarks or any material utilizing or reproducing the Trademarks in any
manner. Manufacturer shall not make any reference in its business materials,
advertising or in any of its business activities to the fact that Manufacturer
is being contracted by Company to manufacture merchandise under the Tommy
Hilfiger(R) label.
<PAGE>
(b) The Trademarks will appear on all of the Products and all
packaging in the manner provided by Company.
(c) No other trademarks or notices shall appear on Products or
packaging without Company's and THLI's prior written consent in each instance.
(d) Manufacturer's use of the Trademarks shall inure to the benefit
of THLI. Manufacturer shall take any and all steps required by THLI and the law
to perfect THLI's rights therein.
8. PROPERTY OF OWNER.
(a) Manufacturer recognizes the great value of the goodwill
associated with the Trademarks and the identification of the Products with the
Trademarks and acknowledges that the Trademarks and all rights therein and
goodwill pertaining thereto belong exclusively to THLI Manufacturer further
recognizes and acknowledges that a breach by Manufacturer of any of its
covenants, agreements or other undertakings hereunder will cause THLI
irreparable damage, which cannot be adequately remedied in damages in an action
at law, and may, in addition thereto, constitute an infringement of THLI's
rights in the Trademarks, thereby entitling THLI to equitable remedies, costs
and reasonable attorney's fees.
(b) To the extent any rights in and to the Trademarks are deemed to
accrue to Manufacturer, Manufacturer hereby assigns any and all such rights, at
such time as they may be deemed to accrue, including the related goodwill, to
THLI.
(c) Manufacturer shall (i) never challenge the validity of THLI's
ownership in and to the Trademarks or any application for registration thereof,
or any trademark registration thereof and (ii) never contest the fact that
Manufacturer's rights under this Agreement are solely those of a manufacturer
and terminate upon expiration of this Agreement. Manufacturer shall, at any
time, whether during or after the term of the Agreement, execute any documents
reasonably requested by THLI to confirm THLI's ownership rights. All rights in
the Trademarks other than those specifically granted herein are reserved by THLI
for its own use and benefit.
(d) Without limiting the generality of any other provision of this
Agreement, Manufacturer shall not (i) use the Trademarks, in whole or in part,
as a corporate or trade name or (ii) join any name or names with the Trademarks
so as to form a new trademark. Manufacturer agrees not to register, or attempt
to register, the Trademarks in its own name or any other name, anywhere in the
world.
(e) All provisions of this paragraph shall survive the expiration or
termination of this Agreement.
<PAGE>
9. TRADEMARK PROTECTION.
(a) In the event that Manufacturer learns of any infringement or
imitation of the Trademarks or of any use by any person or entity of a trademark
similar to the Trademarks, it shall promptly notify Company and thereupon,
Company shall so notify THLI. THLI shall take such action as it deems advisable
for the protection of its rights in and to the Trademark and, if requested to do
so by THLI, Manufacturer shall cooperate with THLI in all respects. In no event,
however, shall THLI be required to take any action if it deems it inadvisable to
do so.
(b) THLI shall defend, at its cost and expense, and with counsel of
its own choice, any action or proceeding brought against Manufacturer for
alleged trademark infringement arising out of Manufacturer's use of the
Trademarks in accordance with the provisions of this Agreement.
(c) Manufacturer shall cooperate with THLI in the execution, filing
and prosecution of any trademark, copyright or design patent applications that
THLI may desire to file and for that purpose Manufacturer shall supply to THLI
from time to time such samples as may be reasonably required.
(d) All provisions of this paragraph shall survive the expiration or
of this Agreement.
10. TRANSSHIPMENT. Transshipment is an illegal practice of falsely
documenting the country of origin of the raw materials used to manufacture the
Products and the finished Products shipped to the United States in order to
evade quota restraints on the country of actual production and the shipment of
products under counterfeit export licenses or visas. Manufacturer acknowledges
that transshipment in any form, violates U.S. federal law, that Company and THLI
will review all documents received from Manufacturer to assure the veracity and
the authenticity of the sources of Products and that, upon indication of
transshipment of the Products by Manufacturer, Company or THLI reserves the
right to immediately terminate this Agreement and pursue available remedies
against Manufacturer.
11. SECONDS, THIRDS OR EXCESS GOODS. Manufacturer shall not have the right
to sell any Products or packaging which are determined to be seconds, thirds or
are in excess of the amount of the Products requested by Company. All seconds,
thirds or excess products, including trims, shall be purchased by Company at a
reasonable fair market price. Company shall have the right to inspect any
seconds, thirds or excess Products to ensure that they comply with the terms of
this Agreement.
12. STOLEN GOODS OR DAMAGED GOODS. Manufacturer will provide Company with
immediate notice of any stolen Products or damaged Products including Products
that were then in production. With regard to damaged Products, Manufacturer
shall not have the right to sell any damaged Products. With regard to stolen
Products, Manufacturer shall cooperate with Company with respect to any action
regarding the stolen Products.
<PAGE>
13. DESIGN OWNERSHIP. All rights, including without limitation, copyright,
trade secret and design patent, to designs for the Products including, without
limitation, artwork, prints, patterns, package designs, labels, advertising or
promotional materials or any other designs using or used on or affixed thereto,
and to any package design, bearing the Trademarks shall, as between the parties
hereto be the property of THLI. All Products manufactured from designs submitted
by Manufacturer and approved by THLI shall bear the Trademarks.
14. CONFIDENTIALITY. During the term of this Agreement and thereafter,
each party shall keep strictly secret and confidential any and all information
acquired from the other party hereto or its designee and shall take all
necessary precautions to prevent unauthorized disclosure of such information.
Manufacturer acknowledges that it will receive from Company prints, designs,
ideas, sketches, and other materials which Company and THLI intend to use on or
in connection with lines of merchandise which have not yet been put into the
channels of distribution. The parties recognize that these materials are
valuable property of THLI. Manufacturer acknowledges the need to preserve the
confidentiality and secrecy of these materials and agrees to take all necessary
steps to ensure that use by it or by its employees and/or agents will in all
respects preserve such confidentiality and secrecy. Manufacturer shall take all
reasonable precautions to protect the secrecy of the materials, samples, and
designs prior to their commercial distribution or the showing of samples for
sale, and shall not manufacture any merchandise employing or adapted from any of
said designs except for Company, THLI or its affiliates or designees.
15. FORCE MAJEURE.
(a) No failure or omission by either of the parties to perform any
of its obligations under this Agreement shall be deemed a breach of this
Agreement if such failure or omission is the result of acts of God, war, riot,
accidents, compliance with any action or restriction of any government or agency
thereof, strikes or labor disputes, inability to obtain suitable raw materials,
fuel, power or transportation, or any other factor or circumstance beyond the
control of the party, which is not attributable to the negligence of such party.
(b) Any suspension of performance by reason of this paragraph shall
be limited to the period during which such cause of failure exists, but such
suspension shall not affect the running of the term of this Agreement. However,
if the suspension of performance by reason of this paragraph exceeds six months,
either party may give written notice of termination of this Agreement.
16. MANUFACTURER'S WARRANTIES AND REPRESENTATIONS.
Manufacturer warrants and represents that:
<PAGE>
(a) It has and will have throughout the term of this Agreement, the
full power, authority and legal right to execute and deliver, and to perform
fully and in accordance with all of the terms of this Agreement.
(b) The entering of this Agreement by Manufacturer does not violate
any agreements, rights or obligations existing between Manufacturer and any
other person, entity, or corporation.
(c) It is not engaged in and will not engage in any activities which
are in violation of any applicable domestic, foreign or international laws,
rules or regulations, including without limitation laws, rules or regulations
governing labor, the environment, the manufacture and sale of goods, U.S.
Customs laws or illegal transshipment. Company maintains a policy against
engaging in any illegal activities and will not buy or sell products provided
throughout the use of any unlawful or unethical practices.
(d) It accurately states the country of origin on all products, that
it does not and will not transship, and it will act to stop or prevent any known
illegal transshipment activity.
(e) It shall not utilize, nor permit any of its subcontractors or
suppliers to utilize in the manufacture or treatment of any of the Products
(including the components thereof) manufactured hereunder any AZO dyes that can
be split into any of the amines set forth in Paragraph 3(i), above.
(f) Its use or any of its subcontractors or suppliers use of the
chemicals set forth in Paragraph 3(j), above, in connection with the
manufacturer or treatment of any of the Products (including the components
thereof) manufactured hereunder, shall be in accordance with the standards set
forth in Paragraph 3(j) or such other standards as Company may designate from
time to time.
17. COMPANY'S WARRANTIES AND REPRESENTATIONS.
Company warrants and represents that:
(a) it has, and will have throughout the Term of this Agreement, the
right to authorize use of the Trademark to Manufacturer in accordance with the
terms and provisions of this Agreement; and
(b) the entering of this Agreement by Company does not violate any
agreements, rights or obligations existing between Company and any other person,
entity, or corporation.
18. INDEMNIFICATIONS.
(a) Company hereby indemnifies Manufacturer and shall hold it
harmless from any loss, liability, damage, cost or expense (including reasonable
attorney's fees) arising out of any claims or suits which may be brought against
Manufacturer by reason of the breach by Company of the
<PAGE>
warranties or representations as set forth in Paragraph 17, above,
provided that Manufacturer gives prompt written notice, and full cooperation and
assistance to Company relative to any such claim or suit, and that Company shall
have the option to undertake and conduct the defense of any suit so brought.
Manufacturer shall cooperate fully in all respects with Company in the conduct
and defense of said suit and/or proceedings.
(b) Manufacturer indemnifies and agrees to hold Company harmless
from any loss, liability, damage, cost or expense (including reasonable
attorney's fees), arising out of (i) any breach of the terms herein contained;
(ii)any claims or suits by reason of any unauthorized use by Manufacturer in
connection with the Products or the Trademarks covered by this Agreement; (iii)
Manufacturer's noncompliance with any applicable federal, state, or local law or
with any other applicable governmental units or agency's rules, regulations; and
(iv) any alleged defects and/or inherent dangers in Products or use thereof.
(c) If reasonably available in the country in which Manufacturer
operates its factory, Manufacturer agrees to obtain, at its own expense, product
liability insurance providing adequate protection for Company and Manufacturer
against any claims or suits in an amount no less than $3,000,000. If applicable,
within thirty (30) days from the date hereof, Manufacturer undertakes to submit
to Company a fully paid policy or Certificate of Insurance naming Company as an
insured party and, requiring that the insurer shall not terminate or materially
modify such without written notice to Company of at least twenty (20) days.
19. TERMINATION.
(a) Company shall have the right to terminate this Agreement
immediately upon written notice to Manufacturer if Manufacturer breaches any of
its obligations under this Agreement or such other occurrences as outlined
below, and such breach remains uncured or cannot be cured by Manufacturer within
ten (10) days from receipt of notice;
(b) Company shall have the right to terminate this Agreement
immediately upon written notice to Manufacturer, if Manufacturer is found at any
time to be in breach of the representation made in Paragraph 16(e) or if any
governmental agency or other body or office or official vested with appropriate
authority deems the Products to be harmful or defective in any way, manner or
form, or are being sold or distributed in contravention of applicable laws and
regulations or in a manner likely to cause harm;
(c) Company shall have the right to terminate this Agreement
immediately upon written notice to Manufacturer, if Manufacturer manufactures
the Products without the prior written approval of Company as provided herein;
(d) Company shall have the right to terminate this Agreement upon
ten (10) days written notice to Manufacturer, if Manufacturer is unable to pay
its debts when due, or makes any assignment for the benefit of creditors, or
<PAGE>
files any petition under the bankruptcy or insolvency laws of any
jurisdiction, country or place, or has or suffers a receiver or trustee to be
appointed for its business or property, or is adjudicated a bankrupt or an
insolvent;
(e) Company shall have the right to terminate this Agreement upon
ten (10) days written notice to Manufacturer, if Manufacturer fails to make
timely delivery of the Products; or
(f) Notwithstanding the foregoing provisions, Company shall have the
right to terminate this Agreement, with or without cause, upon thirty (30) days
notice to Manufacturer, provided however, that, upon written approval by
Company, Manufacturer shall have the right to complete any work then in
progress.
20. ACTS UPON EXPIRATION OR TERMINATION OF THIS AGREEMENT.
(a) Upon and after the expiration or termination of this Agreement,
Manufacturer agrees not to make reference in its advertising or its business
materials to having been formerly associated with Company or the Trademarks.
(b) Upon and after the expiration or termination of this Agreement,
Manufacturer will refrain from further use of the Trademarks or of anything
confusingly similar thereto, in connection with the manufacture of any products.
Additionally, all originals and copies of all sketches, patterns, prototypes,
samples or other materials relating to the Products shall be immediately
returned by Manufacturer to Company.
(c) In the event of expiration or termination of this Agreement, as
herein provided, with the exception of the Products which Manufacturer may, with
Company's consent, ship to satisfy any unfilled, confirmed orders for the
current season it had received prior to said expiration or termination, Company
shall have the prior right and option to purchase any or all of the Products and
packaging materials, as then in Manufacturer's possession or carried on its
books of account. Upon such termination or expiration, Manufacturer shall
immediately cause physical inventories to be taken of (i) Products on hand; (ii)
Products in the process of manufacture; and (iii) all packaging materials, which
inventories shall be reduced to writing and a copy thereof shall be delivered to
Company not later than fifteen (15) days from such termination or expiration.
Written notice of the taking of each inventory shall be given Company at least
forty-eight (48) hours prior thereto. Company shall have the right to be present
at such physical inventory or to take its own inventory, and to exercise all
rights it has available with respect to the examination of Manufacturer's books
and records. If Manufacturer does not allow Company to take such inventory, it
shall have no right to sell the remaining Products as provided in Paragraph
20(e) below.
(d) Manufacturer recognizes that any sale of the Products upon
termination or expiration, would cause irreparable damage to the prestige of
Company and to the Trademarks, and to the goodwill pertaining thereto.
<PAGE>
(e) Upon expiration or termination of this Agreement, Manufacturer
shall cease the manufacture of Products. All the Products set forth on the
inventories referred to in subdivision (i) and (ii) of Paragraph 20(c) which are
not purchased by Company pursuant to such paragraph may be sold subject to
Company's prior right to approve the customers in writing and the terms and
conditions of each sale. Such sale shall otherwise be strictly in accordance
with the terms, covenants and conditions of this Agreement as though the
Agreement had not expired or terminated. In no event shall Manufacturer sell any
Products to any third party without the prior written approval of Company.
21. NOTICES.
All notices which either party hereto is required or may desire to
give shall be given by addressing the same to the address hereinafter in this
paragraph, or at such other address as may be designated in writing by any party
in a notice to the other given in the manner prescribed in this paragraph. All
such notices shall be sufficiently given when mailed by registered or certified
mail. The address to which any such notices, shall be given are the following:
TO COMPANY: TO MANUFACTURER:
22. NO PARTNERSHIP, ETC.
This Agreement does not constitute and shall not be construed as a
partnership or joint venture between Company and Manufacturer. Neither party
shall have any right to obligate or bind the other party in any manner
whatsoever, and nothing herein contained shall give, or is intended to give, any
rights of any kind to any third persons.
23. NON-ASSIGNABILITY, ETC.
This Agreement shall bind and inure to the benefit of Company and
its successors and assigns. This Agreement is personal to Manufacturer, and
Manufacturer shall not franchise its rights hereunder and neither this Agreement
nor any of the rights of Manufacturer hereunder shall be sold, transferred or
assigned by Manufacturer and no rights hereunder shall devolve by operation of
law or otherwise upon any receiver, liquidator, trustee or other party.
<PAGE>
24. SEVERABILITY.
If any provision or any portion of any provision of this Agreement
shall be construed to be illegal, invalid, or unenforceable, such shall be
deemed stricken and deleted from this Agreement to the same extent and effect as
if never incorporated herein, but all other provisions of this Agreement and
remaining portion of any provision which is illegal, invalid or unenforceable in
part shall continue in full force and effect.
25. HEADINGS.
The headings of the Paragraphs of this Agreement are for convenience
only and shall in no way limit or affect the term or conditions of this
Agreement.
26. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
27. CONSTRUCTION.
This Agreement shall be construed in accordance with the laws of the
State of New York of the United States of America with the same force and effect
as if fully executed and to be performed therein.
28. JURISDICTION
The parties hereby consent to the exclusive jurisdiction of the
United States District Court for the Southern District of New York and of any of
the courts of the State of New York in any dispute arising under this Agreement
and agree further that service of process or notice in any such action, suit or
proceeding shall be effective if in writing and delivered in person or sent as
provided in Paragraph 21 hereof.
29. WAIVER, MODIFICATION, ETC.
No waiver, modification or cancellation of any term or condition of
this Agreement shall be effective unless executed in writing by the party
charged therewith. No written waiver shall excuse the performance of any acts
other than those specifically referred to herein. The fact that Company has not
previously insisted upon Manufacturer expressly complying with any provision of
this Agreement shall not be deemed to be a waiver of Company's future right to
require compliance in respect thereof and Manufacturer specifically acknowledges
and agrees that the prior forbearance in respect of any act, term or condition
shall not prevent Company from subsequently requiring full and complete
compliance thereafter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first written above.
- ------------------------------------- ------------------------------------
[LICENSEE NAME] [MANUFACTURER NAME]
By: ________________________________ By:_________________________________
Print Name: ________________________ Print Name:_________________________
Title: _____________________________ Title:______________________________
Date: ______________________________ Date: ______________________________
EXHIBIT D
<PAGE>
Tommy Hilfiger Corporation
Supplier Code of Conduct
We, at the Tommy Hilfiger Corporation (hereinafter "Tommy Hilfiger")
are proud of our tradition of conducting our business in accordance with the
highest ethical standards and in compliance with the laws of the United States
and of the countries in which we produce, buy and sell our products.
Tommy Hilfiger is committed to legal compliance and ethical business
practices in all operations and seeks to do business with suppliers who share
that commitment. Tommy Hilfiger actively seeks to engage as its suppliers,
companies which offer their workers safe and healthy workplaces.
Tommy Hilfiger will not tolerate exploitative or abusive conditions once
known. The Tommy Hilfiger Supplier Code of Conduct (hereinafter the "Code of
Conduct") defines our minimum expectations. No Code can be all inclusive, but we
expect our suppliers to act reasonably in all respects and to ensure that no
abusive, exploitative or illegal conditions exist at their workplaces.
Tommy Hilfiger requires its suppliers to extend principles of fair and
honest dealing to all others with whom they do business, including employees,
subcontractors and other third parties. We also require our suppliers to ensure
and to certify to us that no abusive, exploitative or illegal conditions exist
at the workplaces of their suppliers and subcontractors.
Tommy Hilfiger will only do business with suppliers who obey the laws of
the country in which they operate and the principles expressed in this Code of
Conduct.
Tommy Hilfiger will only do business with suppliers who have certified to
us that their business practices are lawful, ethical and in compliance with the
principles set forth in this Code of Conduct. Moreover, Tommy Hilfiger will only
do business with suppliers who have agreed to be subjected to the scrutiny of
the Tommy Hilfiger Supplier Monitoring Program under which they will be
inspected and evaluated to ensure their compliance with this Code of Conduct.
Forced Labor: Tommy Hilfiger will not purchase products or components
thereof from suppliers that use forced labor, prison labor, indentured labor or
exploited bonded labor, or permit their suppliers to do so.
Child Labor: Tommy Hilfiger will not purchase products or components
thereof manufactured by persons younger than 15 years of age or younger than the
age of completing compulsory education in the country of manufacture where such
age is higher than 15.
Addendum A
<PAGE>
Harassment or Abuse: Tommy Hilfiger suppliers and subcontractors must
treat their employees with respect and dignity. No employee shall be subject to
physical, sexual or psychological harassment or abuse.
Nondiscrimination: Tommy Hilfiger suppliers and subcontractors shall not
subject any person to discrimination in employment, including hiring, salary,
benefits, advancement, discipline, termination or retirement, on the basis of
gender, race, religion, age, disability, sexual orientation, nationality,
political opinion, or social or ethnic origin.
Health and Safety: Tommy Hilfiger suppliers and subcontractors shall
provide a safe and healthy working environment to prevent accidents and injury
to health arising out of, linked with, or occurring in the course of work or as
a result of the operation of employer facilities. Employers must fully comply
with all applicable workplace conditions, safety and environmental laws.
Freedom of Association: Tommy Hilfiger suppliers and subcontractors shall
recognize and respect the right of employees to freely associate in accordance
with the laws of the countries in which they are employed.
Wages and Benefits: Tommy Hilfiger suppliers and subcontractors recognize
that wages are essential to meeting employees' basic needs. Tommy Hilfiger
suppliers and subcontractors shall pay employees at least the minimum wage
required by local law regardless of whether they pay by the piece or by the hour
and shall provide legally mandated benefits.
Work Hours: Tommy Hilfiger suppliers and subcontractors shall not require
their employees to work more than the limits on regular and overtime hours
allowed by the law of the country of manufacture. Except under extraordinary
business circumstances, Tommy Hilfiger suppliers' and subcontractors' employees
shall be entitled to one day off in every seven-day period. Tommy Hilfiger
suppliers and subcontractors must inform their workers at the time of their
hiring if mandatory overtime is a condition of their employment. Tommy Hilfiger
suppliers and subcontractors shall not compel their workers to work excessive
overtime hours.
Overtime Compensation: Tommy Hilfiger suppliers' and subcontractors'
employees, shall be compensated for overtime hours at such premium rate as is
legally required in the country of manufacture or, in countries where such laws
do not exist, at a rate at least equal to their regular hourly compensation
rate.
Contract Labor: Tommy Hilfiger suppliers or subcontractors shall not use
workers obligated under contracts which exploit them, which deny them the basic
legal rights available to people and to workers within the countries in which
they work or which are inconsistent with the principles set forth in this Code
of Conduct
Addendum A
<PAGE>
Legal and Ethical Business Practices: Tommy Hilfiger suppliers and
subcontractors must fully comply with all applicable local, state, federal,
national and international laws, rules and regulations including, but not
limited to, those relating to wages, hours, labor, health and safety, and
immigration. Tommy Hilfiger suppliers and subcontractors must be ethical in
their business practices.
Penalties: Tommy Hilfiger reserves the right to terminate its business
relationship with any supplier who violates this Code of Conduct or whose
suppliers or subcontractors violate this Code of Conduct. Tommy Hilfiger
reserves the right to terminate its business relationship with suppliers who
fail to provide written confirmation to Tommy Hilfiger that they have a program
in place to monitor their suppliers and subcontractors for compliance with this
Code of Conduct.
Addendum A
<PAGE>
CERTIFICATION
In consideration of Tommy Hilfiger U.S.A., Inc. ("THUSA") placing orders
for the manufacture of Tommy Hilfiger(R) brand merchandise with us in the
future, and in compliance with THUSA's Manufacturing Agreement with us (the
"Agreement"), we hereby certify that:
I. Any merchandise (including components thereof) we manufacture or cause
to be manufactured under the Agreement will be manufactured in compliance with:
(1) all applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended, and all regulations and orders of the United States
Department of Labor under Section 14 thereof, and applicable state and local
laws pertaining to child labor, minimum wage and overtime compensation, and, if
the merchandise is manufactured outside the United States, it will be
manufactured in compliance with the wage, overtime compensation, benefits, hour,
hiring and employment, workplace conditions and safety, environmental,
collective bargaining, freedom of association laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger than the
age for completing compulsory education, if that age is higher than 15), prison,
indentured, exploited bonded, forced or slave labor; (2) we currently have in
effect and will maintain a program of monitoring all of our suppliers,
subcontractors, subcontract sewing shops and other designated contract
facilities producing Tommy Hilfiger(R) brand merchandise for compliance with (1)
above; (3) we will obtain the signature of an authorized representative of our
suppliers, subcontractors, subcontract sewing shops and other designated
contract facilities producing Tommy Hilfiger(R) brand merchandise on a current
supplier agreement, as provided by THUSA; and (4) within two (2) weeks of the
execution of this Certification, we will provide to THUSA the names and
addresses of all of our suppliers, subcontractors, subcontract sewing shops and
other designated contract facilities producing Tommy Hilfiger(R) brand
merchandise under the Agreement and all such merchandise shall be manufactured
solely in factories (whether operated by our suppliers, subcontractors,
subcontract sewing shops or designated contract facilities) that have been
inspected and approved in writing by our authorized employee or agent; and (5)
all shipping documents which accompany all Tommy Hilfiger(R) brand merchandise
will include the following language (either preprinted or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was, if manufactured in the
United States, in compliance with all applicable requirements
(1) of Sections 6, 7, and 12 of the Fair Labor Standards Act,
as amended and all regulations and orders of the United States
Department of Labor under Section 14 thereof; (2) state and
local laws pertaining to child labor, minimum wage and
overtime compensation; or if the merchandise was manufactured
outside the United States, in compliance with the wage and
hour laws of the country of manufacture and without the use of
child (persons under the age of 15 or
Addendum B
<PAGE>
younger than the age for completing compulsory education, if that
age is higher than 15), prison, indentured, exploited bonded, forced
or slave labor; and for all merchandise, wherever manufactured, in
compliance with the Tommy Hilfiger Supplier Code of Conduct. We
further certify that we have in effect a program of monitoring our
subcontractors and suppliers and other designated contract
facilities which manufacture Tommy Hilfiger(R) brand merchandise
which is sufficient to ensure such entities' compliance with the
foregoing. We also certify that upon importation (if applicable)
this shipment is in compliance with all laws applicable to the
designation of country of origin and is being shipped under legally
issued and valid export license or visa."
II. Neither we, nor any of our subcontractors or suppliers, will in the
manufacture or treatment of any of the merchandise and Products (including the
components thereof) manufactured hereunder use any Azo dyes that can be split
into any of the following amines:
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-87-5 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
and;
III. We, and our subcontractors or suppliers, will only use the following
chemicals in connection with the manufacture or treatment of any of the
merchandise and products (including the components thereof) manufactured
hereunder, in accordance with the following standards or any further standards
THUSA designates from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when tested
in by the Acetylacetone method in accordance with
Japanese law 112.
Addendum B
<PAGE>
(ii) Pentachlorophenol (Pesticides): Must be less than 5
p.p.m.
(iii) Nickel: In the event any metal parts of a garment or
other merchandise coming into contact with the skin,
contain nickel in excess of 0.5 micrograms per square
centimeter/week, Company must be so notified and special
warning labels need to be attached to the garment.
----------------------------------
[Name of your Company]
Date: _____________________ By:_______________________________
[Authorized Signature]
Print Name: _______________________
Addendum B
<PAGE>
TOMMY HILFIGER LICENSING, INC. PAGE_______OF ______
DATE________________
FORM MUST BE SUBMITTED COMPLETED SUBMIT TO THE ATTENTION OF:
TOMMY HILFIGER LICENSING, INC.
913 N. MARKET STREET
WILMINGTON, DELAWARE 19801
NAME OF LICENSEE______________________________________________________________
LICENSED PRODUCT______________________________________________________________
LICENSEE'S ADDRESS____________________________________________________________
EXPENDITURES REFLECT THE PERIOD _____ / _____ / _____ TO _____ /_____ /_____,
ALL TEARSHEETS AND ADVERTISING BILLS MUST ACCOMPANY THIS FORM.
DATE OF PUBLICATION OF DOLLAR AMOUNT
ADVERTISING TYPE OF ADVERTISING LICENSEE
SPENT
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EXHIBIT E
<PAGE>
CERTIFICATION
In consideration of ____________________ ("Company") placing orders for
the manufacture of Tommy Hilfiger(R) brand merchandise with us in the future,
and in compliance with Company's Manufacturing Agreement with us (the
"Agreement"), we hereby certify that:
I. Any merchandise (including components thereof) we manufacture or cause
to be manufactured under the Agreement will be manufactured in compliance with:
(1) all applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended, and all regulations and orders of the United States
Department of Labor under Section 14 thereof, and applicable state and local
laws pertaining to child labor, minimum wage and overtime compensation, and, if
the merchandise is manufactured outside the United States, it will be
manufactured in compliance with the wage, overtime compensation, benefits, hour,
hiring and employment, workplace conditions and safety, environmental,
collective bargaining, freedom of association laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger than the
age for completing compulsory education, if that age is higher than 15), prison,
indentured, bonded, forced or slave labor; (2) we currently have in effect and
will maintain a program of monitoring all of our suppliers and subcontractors
and other designated contract facilities producing Tommy Hilfiger(R) brand
merchandise for compliance with (1) above; (3) we will obtain the signature of
an authorized representative of (i) our subcontractors and other designated
contract facilities producing Tommy Hilfiger(R) brand merchandise on a current
Manufacturing Agreement in the same form as that which we have executed with
Company and (i) our suppliers on a Certification in the same form as this
Certification; and (4) within two (2) weeks of the execution of this
Certification, we will provide to Company the names and addresses of all of our
suppliers, and subcontractors and other designated contract facilities producing
Tommy Hilfiger(R) brand merchandise under the Agreement and all such merchandise
shall be manufactured solely in factories (whether operated by our suppliers,
subcontractors or other designated contract facilities) that have been inspected
and approved in writing by our authorized employee or agent; and (5) all
commercial invoices which accompany all Tommy Hilfiger(R) brand merchandise will
include the following language (either preprinted or "stamped"):
"We hereby certify that the merchandise (including components thereof)
covered by this shipment was manufactured in compliance with (1) all
applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended and all regulations and orders of the United
States Department of Labor under Section 14 thereof, and applicable state
and local laws pertaining to child labor, minimum wage and overtime
compensation, and, (2) if manufactured outside the United States, was
manufactured in compliance with all applicable requirements of the wage,
overtime compensation, benefits, hour, hiring and employment, workplace
conditions and safety, environmental, collective bargaining, freedom of
association laws of the country of manufacture and without the use of
child (persons under the age of 15 or younger than the age for completing
compulsory education, if that age is
EXHIBIT G
<PAGE>
higher than 15), prison, indentured, bonded, forced or slave labor. We
further certify that we currently have in effect a program of monitoring
of our suppliers and subcontractors and other designated contract
facilities which manufacture Tommy Hilfiger(R) brand merchandise to ensure
their compliance with the Fair Labor Standards Act and all state, local
and foreign laws pertaining to wages, overtime compensation, benefits,
hours, hiring and employment, workplace conditions and safety,
environmental, collective bargaining, freedom of association and that
their products or and the components thereof are made without the use of
child (persons under the age of 15 or younger than the age for completing
compulsory education, if that age is higher than 15), prison, indentured,
bonded, forced or slave labor. We also certify that upon importation (if
applicable) this shipment is in compliance with all laws applicable to the
designation of country of origin and is being shipped under legally issued
and valid export license or visa."
II. Neither we, nor any of our subcontractors or suppliers, will use any
of the following chemicals or dyestuffs in the manufacture or treatment of any
of the merchandise and Products (including the components thereof) manufactured
hereunder:
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-87-5 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
and;
III. We, and our subcontractors or suppliers, will only use the following
chemicals in connection with the manufacture or treatment of any of the
merchandise and products (including the components thereof) manufactured
hereunder, in accordance with the following standards or any further standards
Company and THLI designate from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when tested
in by the Acetylacetone method in accordance with
Japanese law 112.
EXHIBIT G
<PAGE>
(ii) Pentachlorophenol (Pesticides): Must be less than 5
p.p.m.
(iii) Nickel: In the event any metal parts of a garment or
other merchandise coming into contact with the skin,
contain nickel in excess of 0.5 micrograms per square
centimeter/week, Company must so notified and special
warning labels need to be attached to the garment.
----------------------------------
[Name of your Company]
Date: _____________________ By:_______________________________
[Authorized Signature]
Print Name: _______________________
EXHIBIT G
<PAGE>
Tommy Hilfiger Corporation
Supplier Code of Conduct
We, at the Tommy Hilfiger Corporation (hereinafter "Tommy Hilfiger")
are proud of our tradition of conducting our business in accordance with the
highest ethical standards and in compliance with the laws of the United States
and of the countries in which we produce, buy and sell our products.
Tommy Hilfiger is committed to legal compliance and ethical business
practices in all operations and seeks to do business with suppliers who share
that commitment. Tommy Hilfiger actively seeks to engage as its suppliers,
companies which offer their workers safe and healthy workplaces.
Tommy Hilfiger will not tolerate exploitative or abusive conditions once
known. The Tommy Hilfiger Supplier Code of Conduct (hereinafter the "Code of
Conduct") defines our minimum expectations. No Code can be all inclusive, but we
expect our suppliers to act reasonably in all respects and to ensure that no
abusive, exploitative or illegal conditions exist at their workplaces.
Tommy Hilfiger requires its suppliers to extend principles of fair and
honest dealing to all others with whom they do business, including employees,
subcontractors and other third parties. We also require our suppliers to ensure
and to certify to us that no abusive, exploitative or illegal conditions exist
at the workplaces of their suppliers and subcontractors.
Tommy Hilfiger will only do business with suppliers who obey the laws of
the country in which they operate and the principles expressed in this Code of
Conduct.
Tommy Hilfiger will only do business with suppliers who have certified to
us that their business practices are lawful, ethical and in compliance with the
principles set forth in this Code of Conduct. Moreover, Tommy Hilfiger will only
do business with suppliers who have agreed to be subjected to the scrutiny of
the Tommy Hilfiger Supplier Monitoring Program under which they will be
inspected and evaluated to ensure their compliance with this Code of Conduct.
Forced Labor: Tommy Hilfiger will not purchase products or components
thereof from suppliers that use forced labor, prison labor, indentured labor or
exploited bonded labor, or permit their suppliers to do so.
Child Labor: Tommy Hilfiger will not purchase products or components
thereof manufactured by persons younger than 15 years of age or younger than the
age of completing compulsory education in the country of manufacture where such
age is higher than 15.
EXHIBIT H
<PAGE>
Harassment or Abuse: Tommy Hilfiger suppliers and subcontractors must
treat their employees with respect and dignity. No employee shall be subject to
physical, sexual or psychological harassment or abuse.
Nondiscrimination: Tommy Hilfiger suppliers and subcontractors shall not
subject any person to discrimination in employment, including hiring, salary,
benefits, advancement, discipline, termination or retirement, on the basis of
gender, race, religion, age, disability, sexual orientation, nationality,
political opinion, or social or ethnic origin.
Health and Safety: Tommy Hilfiger suppliers and subcontractors shall
provide a safe and healthy working environment to prevent accidents and injury
to health arising out of, linked with, or occurring in the course of work or as
a result of the operation of employer facilities. Employers must fully comply
with all applicable workplace conditions, safety and environmental laws.
Freedom of Association: Tommy Hilfiger suppliers and subcontractors shall
recognize and respect the right of employees to freely associate in accordance
with the laws of the countries in which they are employed.
Wages and Benefits: Tommy Hilfiger suppliers and subcontractors recognize
that wages are essential to meeting employees' basic needs. Tommy Hilfiger
suppliers and subcontractors shall pay employees at least the minimum wage
required by local law regardless of whether they pay by the piece or by the hour
and shall provide legally mandated benefits.
Work Hours: Tommy Hilfiger suppliers and subcontractors shall not require
their employees to work more than the limits on regular and overtime hours
allowed by the law of the country of manufacture. Except under extraordinary
business circumstances, Tommy Hilfiger suppliers' and subcontractors' employees
shall be entitled to one day off in every seven-day period. Tommy Hilfiger
suppliers and subcontractors must inform their workers at the time of their
hiring if mandatory overtime is a condition of their employment. Tommy Hilfiger
suppliers and subcontractors shall not compel their workers to work excessive
overtime hours.
Overtime Compensation: Tommy Hilfiger suppliers' and subcontractors'
employees, shall be compensated for overtime hours at such premium rate as is
legally required in the country of manufacture or, in countries where such laws
do not exist, at a rate at least equal to their regular hourly compensation
rate.
Contract Labor: Tommy Hilfiger suppliers or subcontractors shall not use
workers obligated under contracts which exploit them, which deny them the basic
legal rights available to people and to workers within the countries in which
they work or which are inconsistent with the principles set forth in this Code
of Conduct
EXHIBIT H
<PAGE>
Legal and Ethical Business Practices: Tommy Hilfiger suppliers and
subcontractors must fully comply with all applicable local, state, federal,
national and international laws, rules and regulations including, but not
limited to, those relating to wages, hours, labor, health and safety, and
immigration. Tommy Hilfiger suppliers and subcontractors must be ethical in
their business practices.
Penalties: Tommy Hilfiger reserves the right to terminate its business
relationship with any supplier who violates this Code of Conduct or whose
suppliers or subcontractors violate this Code of Conduct.
Tommy Hilfiger reserves the right to terminate its business relationship
with suppliers who fail to provide written confirmation to Tommy Hilfiger that
they have a program in place to monitor their suppliers and subcontractors for
compliance with this Code of Conduct.
EXHIBIT H
<PAGE>
EXHIBIT 10(xvi)
January 13, 1999
Diane Sullivan
President, Tommy Hilfiger Footwear
Group President, The Stride Rite Corporation
191 Spring Street
Lexington, MA 02420-9191
Dear Diane:
Following is our response to your letter of January 8, 1999. We are willing to
make the following concessions, subject to the conditions set forth at the end
of this letter, and provided that we have Stride Rite's commitment to comply
with all other provisions of the existing license agreement:
1. We are willing to accept your request to lower the minimum sales levels
for men's to the following:
Third Annual Period (1/99-12/99) $44,600,000
Fourth Annual Period (1/00-12/00) $48,300,000
Fifth Annual Period (1/01-12/01) $53,100,000
Also, provided we mutually agree to go forward with athletic distribution,
we will apply the sales volume for the athletic distribution to these
minimums. We feel that this is a significant concession, considering that
the current contract does not take into consideration the athletic
distribution channel.
2. The minimum royalty remains at _____ percent (___%) of the above stated
minimums.
3. Starting with the third annual period, we will reduce the percentage
advertising commitment for men's to _____ percent (___%) of net sales. We
will also reduce the percentage advertising due on close-outs to _____
percent (___%), up to twenty percent (20%) of sales. The minimum
advertising is _____ percent (___%) of the above stated minimums.
<PAGE>
4. The advertising commitment for women's will remain the same for calendar
1999 ($_______________), and then be reduced in calendar 2000 from _____
percent (___%) to _____ percent (___%) of net sales. In calendar 2000 and
2001, we will also grant the same percentage advertising reduction on
close-outs as for men's.
For calendar years 2000 and 2001, the advertising minimums for women's
will be _____ percent (___%) and will be based on the re-negotiated
minimum sales levels of $60M and $75M respectively.
- ------------------------------------------------------------------------------.
5. The fixturing commitment of $______________ per year stands.
-----------------------------------------------------------------------.
6. We will allow you to run your own merchandise coordinator program,
including service to Nordstrom's, subject, of course, to a reasonable
transition and provided that your program is comparable to ours; if it is
not, we would have to revert to our program as originally contracted.
7. Tommy Hilfiger will take over the responsibility for the footwear
designers at TH USA.
8. The percentage royalty on close-outs will remain at _____% up to 20%.
Athletic Specialty
1. The royalty remains at _____ percent (___%). Close-outs are _____% up to
20%.
2. The advertising rate can be reduced to _____ percent (___%). We will waive
the advertising fee on close-outs up to twenty percent (20%).
3. ________________________________________________________________.
4. We do not accept your fixturing proposal of $750 per door. We will propose
language to the effect that you must fixture according to the needs of the
business or Tommy Hilfiger can choose not to service the doors that do not
meet our fixturing requirement.
5. No merchandise coordinator program will be in effect, provided that the
service level to and in the stores is at the same level as that of the
best of our competition.
6. We will support the design staff at TH USA.
<PAGE>
This counteroffer is subject to final approval by our board of directors and our
setting forth the above terms in a formal amendment to the contract. Please
understand, however, that this is our final proposal. This counteroffer will be
open to you only until 5:00 p.m., January 15, 1999. If you do not accept this
counteroffer by that time, we have no alternative but to deem your actions to be
a repudiation of our agreement. In such case, we will search for a new licensee
and we will seek damages against you for royalties unpaid to date, future
royalties through the initial term of the agreement, and any and all other
damages suffered by us as a result of your breach.
We look forward to your reply.
Best regards,
/s/ Lynn Shanahan
Lynn Shanahan
cc: Joel Horowitz, Tommy Hilfiger
Jorge Arciniega, Tommy Hilfiger
Rick Thornton, The Stride Rite Corporation
<PAGE>
EXHIBIT 10(xvii)
January 14, 1999
Mr. Joel Horowitz
President and
Chief Executive Officer
Tommy Hilfiger U.S.A., Inc.
25 West 39th Street, 11th Floor
New York, New York 10018
Dear Joel:
As we discussed by telephone this morning, I appreciate your working with us to
revise the License Agreement so that we will have more incentive to drive the
business forward and also be able to make a profit at Stride Rite.
You know I wanted greater concessions; nevertheless, after polling several
members of the Stride Rite Board, we accept your offer as delineated in Lynn
Shanahan's letter to Diane Sullivan dated January 13, 1999.
With this new start, all of us here at Stride Rite look forward to working with
you to build the Tommy Hilfiger footwear business to new heights.
Very truly yours,
/s/ James A. Eskridge
James A. Eskridge
JAE/ccj
Cc: Diane Sullivan-President Brands, The Stride Rite Corporation
Lynn Shanahan-Executive Vice President , Tommy Hilfiger U.S.A., Inc.
<PAGE>
EXHIBIT 13
<TABLE>
Selected Financial Data
<CAPTION>
1994 1995 1996 1997 1998
Operating Results (1)
<S> <C> <C> <C> <C> <C>
Net sales $523,877 $496,432 $448,297 $515,728 $539,413
Net income (loss) (2) 19,798 (8,430) 2,499 19,780 21,052
Common stock dividends 18,898 16,581 9,923 9,630 9,401
Per common share:
Net income (loss) (2) .40 (.17) .05 .40 .44
Cash dividends .38 .335 .20 .20 .20
Financial Position (1)
Working capital 236,628 204,785 201,597 176,263 173,502
Total assets 396,620 366,616 364,330 343,918 335,496
Long-term debt 1,667 833 - - -
Stockholders' equity 292,506 267,456 261,524 242,026 244,727
Book value per common share 5.91 5.40 5.27 5.12 5.28
Statistics (1)
Return on average equity (2) 6.6% (2.9)% 0.9% 7.8% 8.5%
Return on sales (2) 3.8% (1.7)% 0.6% 3.8% 3.9%
Common shares outstanding 49,518 49,531 49,667 47,316 46,381
at end of year
Number of employees at end 3,700 3,600 3,500 2,900 2,400
of year
Number of shareholders 5,100 5,000 4,800 5,100 4,800
</TABLE>
(1) Financial data is in thousands, except for per share information. (2)1995
amounts include nonrecurring charges of $16,573,000 ($9,972,000, net of income
taxes, or $.20 per share).
<PAGE>
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, delays in the launch
of new product lines, 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.
<TABLE>
<CAPTION>
Percent Change
Increase (decrease) 1998 vs. 1997 1997 vs. 1996
<S> <C> <C>
Net sales 4.6% 15.0%
Gross profit 1.7% 22.6%
Selling and administrative expenses 3.0% 3.2%
Operating income (4.8)% 2176.1%
Income before income taxes 4.1% 954.8%
Net income 6.4% 691.5%
</TABLE>
<TABLE>
<CAPTION>
Percent to Net Sales
1998 1997 1996
<S> <C> <C> <C>
Gross profit 35.4% 36.4% 34.1%
Selling and administrative expenses 29.9% 30.4% 33.8%
Operating income 5.5% 6.0% 0.3%
Income before income taxes 6.2% 6.2% 0.7%
Net income 3.9% 3.8% 0.6%
</TABLE>
<PAGE>
Net Sales
During fiscal 1998, consolidated net sales increased $23.7 million or 4.6% above
the sales level achieved in fiscal 1997 as the Company's wholesale and retail
businesses both increased at similar rates. For the wholesale divisions of the
Company, sales of licensed brands increased 10% in fiscal 1998, while the
Company's owned brands posted a revenue increase of 4% as compared to 1997. In
1998, unit shipments of current line merchandise for the wholesale divisions of
the Company were 6% higher than in 1997, while average selling prices increased
less than 1% from 1997. Sales of discontinued products in 1998 were 29% higher
than last year with most of the increase due to the disposition of discontinued
styles in the Tommy Hilfiger men's product line. In 1998, sales of the Company's
retail business, which includes the Stride Rite children's booteries and leased
departments, manufacturers' outlets and the Great Feet(TM) children's concept,
increased 5% as compared to 1997. Retail sales represented 16.6% of consolidated
net sales in each of the last two years. Sales at comparable retail stores
(stores open for a full year in each fiscal year) increased 6.7% in 1998,
following the 2% sales gain achieved in 1997. The Company operated an average of
196 stores during 1998, a 4% decrease from the average of 205 stores operated
during 1997. As of year-end 1998, the Company had 199 stores, down from the
store count of 201 in November 1997 and 213 in November 1996. Excluding the
impact of product mix changes, net sales in 1998 were adversely affected by
approximately $9 million due to selling price declines.
The increase in sales in the Company's wholesale businesses in fiscal 1998 was
largely the result of improving conditions in the Keds' business, which
delivered a 13% sales increase for the year, its first revenue gain in the past
six years. Sales of Keds current line merchandise increased 17% in 1998, while
sales of discontinued styles were 33% lower than 1997. Despite a 29% decline in
sales of the Keds Champion(R) style during 1998, sales of Women's Keds increased
21% from 1997 as the strategy of reinventing the basic Keds silhouette produced
substantial revenue gains. Sales of Keds' new, more comfortable basics
offerings, including the first full year for the "Ready to Wear(R)" product line
and the introduction of the "Relaxed Fit(R)" collection, more than offset the
sales decline of the Champion(R) style during 1998. The Keds children's
business, primarily directed at young girls, also had higher sales in 1998, up
14% from 1997. Sales of the Stride Rite Children's Group were 4% higher in 1998
with sales of Stride Rite and Nine West Kids products to independent dealers,
family shoe stores and department stores increasing nearly 4% and sales at
company-owned retail stores up 5%. Sales of the Sperry Top-Sider division in
1998 decreased 12% as the brand experienced heavy cancellations of future orders
and soft reorders in the Spring season due to increased competition in the men's
boat shoe market. International division revenues declined $5.8 million or 16%
in 1998, due primarily to a restructuring of the Company's operations from a
subsidiary and distributor structure to licensing arrangements in certain
countries.
Sales of the Tommy Hilfiger division for fiscal 1998 were even with the sales
level achieved during the same period in fiscal 1997 as revenues associated with
the Tommy Hilfiger women's launch in August 1998 and the liquidation of
<PAGE>
discontinued men's styles offset a 38% decrease in the sales of current line
merchandise for the Tommy men's business. While the revenue comparison with 1997
was challenging, as last year's sales included heavy shipments to retailers to
support the initial launch of the men's product line, the slowdown in the
overall athletic footwear market during 1998 had a negative effect on Tommy
Hilfiger division sales. Additionally, product line changes away from higher
priced basketball styles and more competitive market conditions in the men's
footwear market resulted in an average selling price in 1998 which was 20% lower
than in 1997. In April 1997, the Company had entered into a license agreement to
market Levi's brand footwear. During the third quarter of 1998, the Company
began shipping the initial Levi's product line which was targeted at boys and
young men. After the Company evaluated the early retail results, which were
significantly below expectations, and assessed the general strength of the
Levi's brand and the current competitive conditions in the young men's footwear
market, the Company and Levi Strauss & Co. mutually agreed to discontinue the
footwear line. Sales of Levi's footwear for 1998 totaled $7.1 million, including
the liquidation of the majority of Levi's remaining inventory. The Company
recorded a one-time, pre-tax charge of $5 million ($.07 per share after tax) in
the fourth quarter of 1998 to cover losses on the disposal of inventory,
severance and other costs associated with this decision.
In fiscal 1997, consolidated net sales increased $67.4 million or 15% from the
sales level achieved in fiscal 1996. Sales of the Company's wholesale businesses
increased 20% in 1997, while retail sales decreased 4%. The retail sales
decrease in 1997 was the result of a 2% sales gain at comparable stores, more
than offset by store closings which drove down the average store count by 10%
from 1996. A 7% increase in unit shipments of current line merchandise during
1997 and a higher average selling price, up 10%from 1996, contributed to the
sales growth of the wholesale businesses. Sales of discontinued products in 1997
decreased 6% from 1996, offsetting a portion of this sales gain. The higher
sales in the Company's wholesale businesses in fiscal 1997 were largely related
to licensed brands as the initial shipments of the Tommy Hilfiger men's and
boys' product line helped results. In 1997, Keds division sales decreased 10%
from 1996 due to lower sales of discontinued styles and revenue declines in the
children's and women's product lines of 11% and 5%, respectively. Sales of the
Stride Rite Children's Group in 1997 decreased 2% as a 4% reduction in retail
sales offset a 1% increase in sales of Stride Rite brand products to independent
accounts. Sales of the Sperry Top-Sider division increased 17% in 1997 as
compared to 1996 due to the introduction of new products aimed at the
office-casual market. In 1997, the Company's International division posted a 23%
sales increase from 1996 due to the introduction of Tommy Hilfiger products in
Canada and Latin America and increased Keds sales in South America.
<PAGE>
Gross Profit
The Company's gross profit in fiscal 1998 totaled $190.8 million, an increase of
$3.2 million or 1.7% from fiscal 1997. In 1998, the Company's consolidated gross
profit percent of 35.4% was a full percentage point below the 36.4% rate
achieved in fiscal 1997. Excluding the one-time cost of sales charge of $3.7
million associated with the decision to terminate the Levi's footwear license,
the Company's gross margin percent was 36.1% in 1998, slightly below the
performance in 1997. The Company's LIFO provision had a favorable impact on
gross profit comparisons in each year, with LIFO increasing gross profit by $3.7
million (0.7% of net sales) in 1998 compared to an increase of $4.5 million
(0.9% of net sales) in 1997. The primary cause of the favorable LIFO impacts in
1997 and 1998 was the reduction of certain domestically manufactured inventory
quantities which were valued at costs prevailing in prior years. In addition to
the impact of the Levi's shutdown, the Company's gross profit performance in
1998 was negatively impacted by increased inventory obsolescence charges and
sales allowances, as well as higher retail markdowns. In 1998, these costs
adversely affected gross profit comparisons by 1.9 percentage points, with the
largest area of cost increase being in the Tommy Hilfiger division. The
increased level of sales related to discontinued merchandise during 1998 also
tended to negatively impact gross profit performance as compared to 1997. An
improved gross profit performance at Keds in 1998 partially offset these
unfavorable items.
In fiscal 1997, gross profit increased $34.6 million or 22.6% from fiscal 1996.
The Company's 1997 gross profit rate improved 2.3 percentage points to 36.4%
compared to the 34.1% rate achieved in 1996. The gross profit performance in
1997 was favorably affected by higher sales of current line merchandise and
lower sales of discontinued products. Obsolescence charges and retail markdowns
were also lower in 1997 resulting in an improvement of 0.5 percentage points as
compared to 1996. The Company's LIFO provision also had a favorable impact on
gross profit comparisons with LIFO increasing gross profit by $4.5 million (0.9%
of net sales) in 1997 compared to a gross profit reduction of $0.1 million in
1996. In 1997, gross profit performance was negatively impacted by $1.2 million
(0.2% of net sales) of manufacturing inefficiencies during the phase-out of the
Company's last two children's production facilities in Missouri. The decreased
contribution to consolidated sales of retail operations, the portion of the
Company with the highest gross profit percentage, also lowered the 1997 gross
profit percent as retail sales accounted for 16.6% of total sales in 1997
compared to 19.9% in 1996.
<PAGE>
Operating Costs
The Company's selling and administrative expenses in fiscal 1998 increased $4.7
million or 3% above the expense level incurred in fiscal 1997. This rate of
expense increase was somewhat lower than the overall gain in net sales of 4.6%
achieved during 1998. As a percentage of net sales, selling and administrative
costs were 29.9% in 1998 compared to 30.4% in 1997. Operating expenses in 1998
included $1.3 million (0.2% of net sales) of severance and other costs related
to the shutdown of the Levi's footwear business. Advertising and sales promotion
expenses accounted for all of the higher costs in 1998, increasing $6.3 million
or 22% from the total expenditures in 1997. Advertising spending represented
6.4% of net sales in 1998 compared to 5.5% of sales in 1997. The Keds national
television campaign, which supported the introduction of the "Ready to Wear" and
"Relaxed Fit" collections, was the principal reason for the higher spending in
1998. Selling and administrative expenses in 1998 also included $3.6 million of
product development and other costs related to the introduction of new licensed
brands in the second half of the year. Retail store expenses decreased $0.3
million in 1998 due principally to the lower average store count as compared to
1997. Despite the 5% sales increase for the Company's wholesale businesses,
distribution costs decreased $1.1 million or 10% in 1998 as efficiencies were
realized at the Company's Huntington, Indiana distribution facility, which was
operational for its first full year in 1998. Total distribution costs
represented 2% of net sales in 1998 compared to 2.3% in 1997. The 1997
distribution expenses had included $1.2 million of start-up expenses associated
with the opening of the new Indiana facility. In addition, the restructuring of
International operations, including the closing of a European sales office,
resulted in $3.7 million in cost savings during 1998. Spending on information
systems in 1998 increased $2.4 million from 1997 as part of the Company's effort
to upgrade computer systems and to prepare for the Year 2000 transition.
In fiscal 1997, selling and administrative expenses increased $4.9 million or
3.2% from fiscal 1996. As a percentage of sales, selling and administrative
costs were 30.4% in 1997 compared to 33.8% in 1996. Advertising and sales
promotion expenses were higher by $3.6 million in 1997 as advertising spending
increased to 5.5% of net sales compared to 5.1% in 1996. Retail store expenses
decreased $3.9 million in 1997 due to lower payroll and benefit costs in the
stores and cost reductions related to store closings effected as part of the
Company's restructuring program announced in 1995. Distribution expenses
decreased $0.6 million in 1997, despite the 20% increase in sales volume of the
Company's wholesale businesses and $1.2 million of start-up costs related to a
new facility, as further efficiencies were achieved in the Company's Kentucky
distribution facility. Spending on information systems during 1997 increased
$2.3 million from 1996 as part of efforts to upgrade computer systems. Operating
expenses in 1997 also included $2 million of start-up costs associated with the
introduction of new licensed brands, which was slightly above the spending of
$1.9 million in 1996.
<PAGE>
Other Income and Taxes
Non-operating income (expense) increased the Company's pre-tax earnings by $3.7
million in fiscal 1998 compared to an increase of $0.9 million in fiscal 1997
and an increase of $1.7 million in fiscal 1996. Investment income decreased by
$0.2 million in 1998 as compared to 1997 due to a decrease in the funds
available for investment during the year. Investment income in 1997 increased
slightly from 1996 as increased investment yields offset a 7% decrease in the
funds available for investment during the year. Interest expense in 1998
increased $1.5 million as compared to 1997 due to an increase of $25.1 million
in average borrowings during the year required to fund working capital needs and
increased capital expenditures. Average interest rates were also higher during
1998, 6.4% compared to 6.2% in 1997. Interest expense in 1997 decreased $0.5
million as compared to 1996 due to the reduced need for short-term borrowing
during the year. Other income and expense items increased pre-tax income by $1.8
million in 1998, compared to reductions of $2.7 million in 1997 and $1.3 million
in 1996. In 1998, other income included a gain of $3.9 million from the sale of
the Company's former distribution facility in Boston, Massachusetts. Expenses
associated with a company-owned life insurance program reduced income in each
year.
Income taxes resulted in expenses of $12.2 million in fiscal 1998 and $12.1
million in fiscal 1997, up significantly from income taxes of $0.5 million in
fiscal 1996 as a result of the higher pre-tax earnings in the past two years.
The Company's effective income tax rate was 36.6% in 1998, below 1997's
effective tax rate of 38% as lower state income taxes offset reduced tax
benefits from a company-owned life insurance program. In 1996, the Company's
effective tax rate was 17.4%.
Net Income
The Company earned $21.1 million in fiscal 1998, a 6.4% improvement from the
earnings of $19.8 million in fiscal 1997. Excluding the cost of terminating the
Levi's footwear business offset partially by a real estate gain, net income
totaled $21.8 million in 1998, an increase of 10% above 1997. The increased
earnings in 1998 were driven principally by profitable sales growth of the Keds
division, partially offset by operating losses related to the unsuccessful
introduction of the Levi's brand and difficulties in the Tommy Hilfiger
division. Although the Company's gross profit percentage deteriorated somewhat
in 1998 as compared to 1997, operating expenses increased, below the rate of
sales growth, and combined with the gain on the sale of real estate produced a
slight improvement in profitability. The Company's after-tax return on sales
finished at 3.9% in 1998, above the 3.8% return in 1997.
<PAGE>
Liquidity and Capital Resources
As of the end of fiscal 1998, the Company's balance sheet reflected a current
ratio of 3 to 1 with no long-term debt. The Company's cash and short-term
investments totaled $42.4 million at November 27, 1998, down $8.7 million from
the total cash and investments of $51.1 million at the end of 1997. In addition,
other assets included $10.5 million in 1998 and $9.3 million in 1997 of
investments in intermediate-term, fixed income instruments. During 1998, the
Company's operations generated $21.7 million of cash, an increase from the
operating cash flow of $16.3 million in 1997, but well below the $58.6 million
of cash generated in 1996. Working capital decreased slightly in 1998 as lower
inventories at year-end more than offset an increased level of accounts
receivable. Inventory levels at November 27, 1998 decreased $6.3 million or 4.6%
from year-end 1997 as all business units showed decreased inventory levels,
except for the Keds division. Year-end inventory levels of Tommy Hilfiger and
Sperry Top-Sider products were reduced 35% and 48%, respectively, from the 1997
inventory levels reflecting a more appropriate investment going into fiscal
1999. The 1998 year-end inventory level of Keds products was 40% higher than
1997 as inventories of core basic styles were increased to better support
reorder demand and planned business growth in fiscal 1999.
Additions to property and equipment totaled $17.3 million in fiscal 1998
compared with $14.3 million in fiscal 1997 and $7.8 million in fiscal 1996.
Capital expenditures in 1998 included $10.2 million related to computer systems
as the Company continues its efforts to upgrade information systems capabilities
and prepares for the Year 2000 transition. In most areas, the Company is
implementing 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.
Capital expenditures in 1998 also included $3.6 million for the purchase of the
Company's Huntington, Indiana distribution facility. The cash required by this
capital expenditure was more than offset by the sale of the Boston,
Massachusetts distribution facility which was closed in December 1997. In 1998,
spending related to updating retail store designs and opening new retail stores
totaled $2.7 million compared to retail expenditures of $2.2 million in 1997 and
$2.3 million in 1996. During 1998, the Company opened twelve new retail stores
compared to four store openings in 1997. Since the announcement of the Company's
business realignment initiated in the fourth quarter of 1995, 81 retail stores
have been closed. In 1999, the Company will continue to focus its efforts on
improving retail profitability by critically evaluating underperforming
locations and opening new booteries and manufacturers' outlets where
appropriate. In fiscal 1999, the Company expects that total capital expenditures
will be approximately $18 million, with the most significant expenditures in new
computer systems. Funding for capital expenditures is expected to be provided
from internal sources.
<PAGE>
Through share repurchases and cash dividends, the Company returned $21.9 million
to shareholders during fiscal 1998. Following the completion of an earlier share
repurchase program, the Board of Directors authorized the repurchase of an
additional two million common shares in October 1997. The Company expended $12.5
million in 1998 to repurchase 1,233,000 common shares under its share repurchase
program. Combined with the shares repurchased in the fourth quarter of 1997, the
Company has repurchased 1,758,000 shares under this new authorization leaving
242,000 shares authorized for future repurchase. Over the last eleven years, the
Company has repurchased 17,758,000 shares for an aggregate expenditure of $164.4
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 $9.4
million in 1998 compared to $9.7 million in 1997 and $9.9 million in 1996 as a
result of the lower outstanding shares. 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
1998, the Company's available, uncommitted lines of credit totaled $60 million.
During 1998, the Company's borrowings averaged $26.7 million compared to the
average borrowings of $1.6 million in 1997 and $9.2 million in 1996. This
increased level of borrowings in 1998 was primarily due to expenditures related
to the Company's share repurchase program and higher capital expenditures. No
short-term borrowings were outstanding at the end of 1998 or 1997. At November
27, 1998, the Company had no long-term debt as the final payment on the
Company's Senior Notes was made in November 1997.
Year 2000
Many existing computer programs were designed and developed without regard for
the Year 2000 ("Y2K") and beyond. If the Company or its significant suppliers or
customers fail to make necessary modifications, conversions, and contingency
plans on a timely basis, the Y2K issue could have a material adverse effect on
the Company's business, operations, cash flow, and financial condition. At this
time, the effect cannot be quantified, in part because the Company cannot
accurately estimate the magnitude, duration, or ultimate impact of noncompliance
by third parties which have no direct relationship to the Company. Management of
the Company believes that its competitors face a similar risk. In April 1997,
the Company established a project team to identify non-compliant software and
complete the corrections or plans required to mitigate the Y2K issue. The
Company had identified three categories of software and systems that required
attention:
o Information Technology ("IT") systems, such as mainframes, personal computers,
networks and telecommunications
o Non-IT systems, such as equipment, machinery, climate control and security
systems, which may contain micro-controllers with embedded technology, and
o Partner (supplier and customer) IT and non-IT systems.
<PAGE>
Over the last two years, the Company has modified or replaced portions of its
software so that its computer systems and equipment will function properly with
respect to dates for the Year 2000 and thereafter. This modification process
will continue during fiscal 1999 and will be supplemented by extensive testing
of modified and new computer systems. This modification and replacement process
is being implemented by the Company's internal resources and various third
parties. The Y2K efforts are being supervised by the Company's Senior Vice
President of Information Technology and internal executive management. The
Company presently believes that with the planned modifications to existing
software and conversions to new software, the Y2K issue will not pose
significant operational problems for its computer systems.
With respect to its internal infrastructure, the Company has completed a
thorough assessment of all its existing information technology infrastructure
including information systems. A significant portion of the Company's Y2K issues
will be resolved with the installation of new information systems which are Y2K
compliant. During 1997 and 1998, the Company installed new Y2K compliant systems
in its two distribution centers in Kentucky and Indiana, as well as its new
electronic data interchange translator. The installation of new financial and
other support systems should be completed during the first quarter of fiscal
1999 and tested by June 1999. The Company's most extensive systems project
involves the installation of upgraded order management software which is Y2K
compliant. The Company plans to complete the testing and begin installation of
this new order management and inventory system by August 1999. Due to the
importance of the order management and inventory system to the Company's
operations, the existing order management system, which was internally developed
during the 1980's, has been remediated and testing should be complete by May
1999 to ensure a smooth transition into Y2K for these critical systems. The
Company is currently upgrading its retail merchandise systems and its store
point-of-sale equipment and systems with Y2K compliant software versions. The
installation and testing of these new systems should be completed by June 1999.
The Company estimates that approximately 60% of the activities related to the
internal infrastructure portions of its Y2K compliance efforts have been
completed through November 27, 1998.
The Company's non-IT systems include: security and fire prevention systems,
elevators and environmental control equipment. These non-IT systems are
continuing to be assessed and plans continue to be updated. With respect to its
key business partners, the Company has communicated with its most critical
retail customers, suppliers, banks and other vendors seeking assurances that
their organizations will be Y2K compliant. Although no method exists for
achieving certainty that any organization's significant partners will function
without disruption in the Year 2000, the Company's goal is to obtain as much
detailed information as possible about its significant partners' plans and to
identify those companies which appear to pose a significant risk of failure to
perform their obligations to the Company as a result of the Y2K issue. The
Company expects to have compiled detailed information regarding all of its
<PAGE>
significant business partners by June 1999 and plans to avoid those partners who
may present an unacceptable level of risk. The Company currently is not
dependent on a single source for any products or services. In the event a
significant supplier or other business partner is unable to provide products or
services to the Company due to Y2K issues, the Company believes it has adequate
alternate sources for such products or services. There can be no guarantee,
however, that similar or identical products or services would be available on
the same terms and conditions or that the Company would not experience some
adverse effects as a result of switching to such alternate sources. The Company
believes that suppliers and customers present an area of significant risk in
part because of the Company's limited ability to influence actions of third
parties and because of the Company's inability to estimate the level and impact
of noncompliance of third parties throughout the extended supply chain.
Like most large business enterprises, the Company is dependent upon its own
internal computer technology and relies upon timely performance by its business
partners. As noted above, a large-scale Y2K failure could impair the Company's
ability to deliver product on a timely basis to customers, resulting in
potential lost sales opportunities and additional operating expenses. Neither
the precise magnitude of such lost sales opportunities and additional operating
expenses nor the exact costs of carrying out contingency plans has yet to be
determined by the Company. The Company's Y2K program seeks to identify and
minimize this risk and includes testing of its internally developed systems and
purchased hardware and software to ensure, to the extent feasible, that all such
systems will function before and after January 1, 2000. The Company is
continually refining its understanding of the risk that Y2K issues pose to its
significant business partners based upon information obtained through its
surveys and interviews. That refinement will continue throughout 1999.
Contingency plans are being developed on a case-by-case basis, and may include
encouraging customers to place orders and producing products before anticipated
business disruptions, manual intervention of processes, or finding alternative
suppliers. In addition, the Company has taken steps to remediate certain legacy
information systems that it believes are critical to the Company's operations.
This includes the new order management and inventory systems that are being
installed to improve business information, while dealing with the Y2K issue. If
the new system should fail or be delayed, the current software should be
available to continue critical information systems. Despite these efforts,
judgments regarding contingency plans - such as how to develop them and to what
extent - are themselves subject to many variables and uncertainties. There can
be no assurance that Stride Rite will correctly anticipate the level, impact or
duration of noncompliance by suppliers and customers that provide inadequate
information. As a result, there is no certainty that its contingency plans will
be sufficient to mitigate the impact of noncompliance by suppliers and
customers, and some material adverse effect to Stride Rite may result from one
or more third parties regardless of defensive contingency plans.
<PAGE>
The total cost of achieving Y2K compliance is estimated at approximately $24
million and is being funded through operating cash flows and cash on hand. This
amount includes the upgrade and enhancement of the Company's order management
system. Of the total project cost, approximately $19 million is attributed to
the purchase, development and installation of new software which is being
capitalized. Costs of approximately $5 million, representing spending related to
software remediation, testing and other support related to the Y2K project, are
being expensed. Total Y2K project costs expended through November 27, 1998
amounted to approximately $16.8 million.
Recent Accounting Pronouncements
Recent accounting pronouncements, which may impact the Company's financial
statements in the future, are described in Note 14 to the consolidated financial
statements.
<PAGE>
<TABLE>
Consolidated Balance Sheets
In thousands, except for share data
<CAPTION>
1998 1997
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 42,427 $ 41,663
Short-term investments - 9,417
Accounts and notes receivable, less allowances 56,475 51,708
of $9,572 in 1998 and $9,006 in 1997
Inventories 128,472 134,728
Deferred income taxes 24,758 29,013
Prepaid expenses 6,097 5,122
Total current assets 258,229 271,651
Property and equipment, net 58,350 55,395
Other assets, net 17,739 15,639
Goodwill, net 1,178 1,233
------------------------
Total assets $335,496 $343,918
Liabilities and Stockholders' Equity
Accounts payable 40,951 31,748
Income taxes payable 14,130 21,445
Accrued expenses and other liabilities 29,646 42,195
------------------------
Total current liabilities 84,727 95,388
Deferred income taxes 6,042 6,504
Stockholders' Equity:
Preferred stock, $1 par value - 1,000,000 shares - -
authorized; Issued - none
Common stock, $.25 par value - 135,000,000 shares 14,237 14,237
authorized; Issued - 56,946,544
Capital in excess of par value 22,063 22,289
Retained earnings 337,943 326,292
------------------------
374,243 362,818
Less cost of 10,565,526 shares of common stock held
in treasury (9,630,600 in 1997) (129,516) (120,792)
------------------------
Total stockholders' equity 244,727 242,026
------------------------
Total liabilities and stockholders' equity $335,496 $343,918
------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
Consolidated Statements of Income
In thousands, except for per share data
<CAPTION>
Years Ended
1998 1997 1996
<S> <C> <C> <C>
Net sales $539,413 $515,728 $448,297
Cost of sales 348,587 328,172 295,292
Selling and administrative expenses 161,279 156,533 151,642
Operating income 29,547 31,023 1,363
Investment income 3,635 3,755 3,713
Interest expense (1,730) (188) (701)
Other income (expense), net 1,770 (2,662) (1,348)
Income before income taxes 33,222 31,928 3,027
Provision for income taxes 12,170 12,148 528
Net income $21,052 $19,780 $ 2,499
Net income per common share:
Diluted $ .44 $ .40 $ .05
Basic $ .45 $ .41 $ .05
Average common shares used in per share computations:
Diluted 47,335 48,949 49,909
Basic 47,074 48,532 49,596
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
In thousands Years Ended
1998 1997 1996
Cash was provided from (used for) Operations:
<S> <C> <C> <C>
Net income $21,052 $19,780 $ 2,499
Adjustments to reconcile to net cash provided from operations:
Depreciation and amortization 9,384 9,833 9,698
Impairment of long-term assets - - 4,038
Deferred income taxes 3,793 2,336 3,683
Compensation expense related to stock plans 112 502 484
Equity in loss (earnings) of affiliate (813) 400 1,092
Gain related to long-term investments (58) - (1,235)
Loss (gain) on disposal of property and
equipment (3,199) 1,589 2,451
Changes in:
Accounts and notes receivable (4,767) (6,842) 3,200
Inventories 6,256 (15,641) 26,411
Prepaid expenses (975) 2,053 (1,994)
Long-term notes receivable 92 502 143
Accounts payable, income taxes, accrued
expenses and other current liabilities (9,207) 1,813 8,082
Net cash provided from operations 21,670 16,325 58,552
Investments:
Short-term investments 9,417 25,194 (8,400)
Additions to property and equipment (17,323) (14,278) (7,784)
Proceeds from sales of property and equipment
8,375 653 354
Distributions and dividends from long-term
investments 361 - 4,334
Purchase of noncurrent marketable securities
(1,313) (2,160) (7,091)
Decrease (increase) in other assets (506) (604) 94
Net cash provided from (used for)
investments (989) 8,805 (18,493)
Financing:
Long-term debt payments - (833) (833)
Proceeds from sale of stock under stock plans
1,777 1,654 28
Tax benefit (provision) in connection with
stock plans 207 65 (199)
Repurchase of common stock (12,453) (31,873) -
Cash dividends paid (9,448) (9,749) (9,916)
Net cash used for financing (19,917) (40,736) (10,920)
Net Increase (decrease) in cash and cash
equivalents 764 (15,606) 29,139
Cash and cash equivalents at beginning of the
year 41,663 57,269 28,130
Cash and cash equivalents at end of the year
$42,427 $41,663 $57,269
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
Consolidated Statements of Changes
in Stockholders' Equity
In thousands, except for share data
<CAPTION>
Common Capital in Retained Treasury
Stock Excess of Earnings Stock
Par Value
<S> <C> <C> <C> <C> <C>
Balance, December 1, 1995 $14,237 $23,006 $323,566 $ (93,353)
Net income 2,499
Issuance of 136,580 common (29) 1,720
shares under stock plans
Tax provision in connection (199)
with stock plans
Cash dividends on common (9,923)
stock, $.20 per share
Balance, November 29, 1996 14,237 22,778 316,142 (91,633)
Net income 19,780
Issuance of 98,307 common (157) 1,234
shares under stock plans
Issuance of 118,050 common (397) 1,480
shares under employee stock
plan
Tax benefit in connection 65
with stock plans
Repurchase of 2,567,500 (31,873)
shares of common stock
Cash dividends on common (9,630)
stock, $.20 per share
Balance, November 28, 1997 14,237 22,289 326,292 (120,792)
Net income 21,052
Issuance of 298,074 common (433) 3,729
shares under stock plans
Tax benefit in connection 207
with stock plans
Repurchase of 1,233,000 (12,453)
shares of common stock
Cash dividends on common (9,401)
stock, $.20 per share
Balance, November 27, 1998 $14,237 $22,063 $337,943 $(129,516)
</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
1998 presentation.
Fiscal Year The Company's fiscal year ends on the Friday closest to November 30
in each year. Fiscal years 1998, 1997 and 1996 ended on November 27, 1998,
November 28, 1997, and November 29, 1996, respectively.
Cash Equivalents, Short-Term Investments and Marketable Securities Cash
equivalents represent highly liquid investments, with a maturity of three months
or less at the time of purchase. 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 and are considered available for sale.
Financial Instruments Financial instruments consist principally of cash,
short-term investments, intermediate-term investments and trade receivables and
payables. 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 only
derivative financial instruments which the Company utilizes are foreign exchange
forward contracts relating to immaterial royalty arrangements. The Company does
not enter into material 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 inventories is determined on the last-in, first-out (LIFO) basis.
<PAGE>
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.
Advertising The Company expenses advertising costs as incurred. Total
advertising expense amounted to $34,385,000, $28,121,000 and $24,530,000 for
1998, 1997 and 1996, respectively.
Industry Segment Information The Company operates solely 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.
Net Income per Common Share Earnings per share information has been restated to
conform to SFAS No. 128, "Earnings per Share" which the Company adopted
effective November 29, 1997. Basic earnings per common share is calculated by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is calculated by dividing net
income by the sum of the weighted average number of shares plus additional
common shares that would have been outstanding if potential dilutive common
shares had been issued for stock options granted. The following table reconciles
the number of shares for the basic and dilutive computations for the fiscal
years presented in the consolidated statements of income:
<PAGE>
<TABLE>
<CAPTION>
In thousands, except for per share data 1998 1997 1996
<S> <C> <C> <C>
Net income $21,052 $19,780 $2,499
Weighted average common shares outstanding (basic) 47,074 48,532 49,596
Dilutive effect of stock options 261 417 313
Weighted average common shares outstanding (diluted) 47,335 48,949 49,909
Earnings per common share:
Basic $.45 $.41 $.05
Diluted .44 .40 .05
</TABLE>
2. Inventories
The cost of inventories, which consist primarily of finished product, at
November 27, 1998 and November 28, 1997 was determined primarily on a last-in,
first-out (LIFO) basis. During 1998, the LIFO reserve decreased by $3,684,000 to
$14,606,000 at November 27, 1998. If all inventories had been valued on a FIFO
basis, net income would have been lower by $2,323,000 ($.05 per share) in 1998.
The LIFO reserve decreased by $4,541,000 in 1997 and increased by $103,000 in
1996. If all inventories had been valued on a FIFO basis, net income would have
been decreased by $2,731,000 ($.06 per share) in 1997 and increased by $90,000,
(less than $.01 per share) in 1996.
During 1998, 1997 and 1996, reductions in certain inventory quantities resulted
in the sale of products carried at costs prevailing in prior years which were
different from current costs. As a result of these inventory reductions, net
income was increased by $1,733,000 ($.04 per share), $3,379,000 ($.07 per share)
and $1,874,000 ($.04 per share) in 1998, 1997 and 1996, respectively.
3. Property and Equipment
The components of property and equipment at November 27, 1998 and November 28,
1997 and the range of asset lives used in depreciation calculations for each
asset category are as follows: <TABLE>
<CAPTION>
In thousands Range of Useful 1998 1997
Lives
<S> <C> <C> <C>
Land and improvements 10 years $ 2,635 $ 3,664
Buildings and improvements 10-40 years 12,535 15,672
Machinery, equipment, computer 3-12 years 64,854 55,065
software and fixtures
Leaseholds and leasehold 5-15 years 14,576 15,337
improvements
----------------------
94,600 89,738
Less accumulated depreciation and (36,250) (34,343)
amortization
----------------------
$58,350 $55,395
</TABLE>
4. Other Assets
As of November 27, 1998 and November 28, 1997, other assets includes the
following:
<PAGE>
<TABLE>
<CAPTION>
In thousands 1998 1997
<S> <C> <C>
Marketable securities $10,445 $ 9,252
Joint venture manufacturing facility 2,821 2,008
Trademark rights and other intangible assets, net 2,239 2,378
Other 2,234 2,001
$17,739 $15,639
</TABLE>
Marketable securities of $10,445,000 in 1998 and $9,252,000 in 1997 represent
the noncurrent portion of intermediate-term, fixed income securities. The cost
basis of these investments was $10,463,000 in 1998 and $9,306,000 in 1997. Cash
equivalents and short-term investments include $1,014,000 in 1998 and $1,580,000
in 1997 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 income of $813,000 in
1998 and losses of $400,000 and $1,092,000 in 1997 and 1996, respectively,
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.
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 1998, 1997, and 1996, borrowings under these lines
averaged $26,691,000, $1,557,000 and $9,173,000, respectively, with a maximum
amount outstanding of $52,800,000 in 1998, $11,800,000 in 1997 and $33,500,000
in 1996. The weighted average interest rate paid on these borrowings during the
year was 6.4% in 1998, 6.2% in 1997 and 5.9% in 1996. No short-term borrowings
were outstanding on November 27, 1998 or November 28, 1997. Interest payments
amounted to $1,703,000, $216,000 and $714,000 in 1998, 1997 and 1996,
respectively.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities at November 27, 1998 and November
28, 1997 consist of the following:
<TABLE>
<CAPTION>
In thousands 1998 1997
<S> <C> <C>
Salaries, wages and commissions $ 8,001 $12,731
Advertising 3,279 3,809
Pensions 2,620 2,081
Dividends 2,319 2,366
Nonrecurring charges - 5,816
Other liabilities 13,427 15,392
$29,646 $42,195
</TABLE>
<PAGE>
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. In 1992, the Company's nonrecurring charges were
primarily related to the decision to consolidate and relocate two Massachusetts
distribution centers to a more central location in the Midwest. The changes
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. The Company shifted the distribution function of the
Keds division to a new facility in Kentucky during 1994 and began distributing
Sperry Top-Sider products from the Kentucky facility in August 1995. 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 1997. In December 1997, the Company
closed its facility in Boston, Massachusetts, which had distributed Stride Rite
children's products.
With the closure of the former distribution center in Boston during 1998, the
Company completed the major initiatives covered by the nonrecurring charges in
1992 and 1995. The Company charged $5,816,000 in 1998, $3,764,000 in 1997 and
$7,677,000 in 1996 against the accrued liabilities established in prior years as
the Company's restructuring initiatives progressed. As of November 27, 1998, all
property and equipment and other assets involved in these restructuring efforts
were sold or otherwise liquidated. During 1998, the final costs of employee
severance and other costs related the transfer of the Company's distribution
functions to new facilities and to the closure of the Company's manufacturing
facilities and certain under-performing retail locations were charged against
the accrued liabilities. The amounts accrued in prior years were sufficient to
cover these costs and no accrued liabilities related to these nonrecurring
charges remain as of November 27, 1998.
8. Leases
The Company leases office and retail store space and certain 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.
<PAGE>
Rent expense for operating leases for the three years in the period ended
November 27, 1998 was as follows:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
<S> <C> <C> <C>
Base rent $17,090 $16,548 $16,693
Additional rent 1,091 1,174 1,168
Less rental from subleases (1,051) (1,161) (1,552)
$17,130 $16,561 $16,309
</TABLE>
The future minimum rental payments for all non-cancelable operating leases and
the amounts due from tenants on related subleases at November 27, 1998 are as
follows:
<TABLE>
<CAPTION>
In thousands
<C> <C>
1999 $11,238
2000 10,048
2001 8,558
2002 7,546
2003 6,919
Later years 16,398
Total minimum rental payments 60,707
Less rental due from subleases (2,405)
- -------------------------------------------------------------------
$58,302
</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 accrued 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 1998 1997 1996
<S> <C> <C> <C>
Service cost-benefit earned during the period $1,871 $1,768 $1,774
Interest cost on benefit obligations 2,819 2,686 2,498
Actual return on plan assets (3,979) (6,356) (5,443)
Amortization and deferral, net (172) 2,776 2,221
$ 539 $ 874 $1,050
</TABLE>
<PAGE>
The accrued pension liability in the Company's consolidated balance sheets at
November 27, 1998 and November 28, 1997 includes the following:
<TABLE>
<CAPTION>
In thousands 1998 1997
<S> <C> <C>
Fair market value of plan assets $45,715 $43,810
Projected benefit obligations 43,422 40,134
Excess assets 2,293 3,676
Unrecognized prior service cost 287 348
Unrecognized net gain (4,628) (5,246)
Unrecognized net asset (572) (859)
$(2,620) $(2,081)
</TABLE>
At November 27, 1998, the accumulated benefit obligation, which represents the
actuarial present value of the Company's pension obligation if the plans were to
be discontinued, totaled $39,384,000, including a vested benefit obligation of
$37,552,000. The accumulated benefit obligation at November 28, 1997 was
$36,499,000, including a vested benefit obligation of $34,918,000. A discount
rate of 6.75% in 1998 and 7% in 1997 and an annual compensation increase at the
rate of 4.5% in 1998 and 5% in 1997 were assumed to determine these liabilities.
During 1998 and 1997, 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 1998 and 1997.
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 50% of the first 6% of savings by each participant. Prior to July 1,
1998, the additional contribution to the plans equaled a maximum of 25% of the
first 6% of savings for each participant. During fiscal 1998, 1997 and 1996, the
Company's contribution to the plans amounted to $437,000, $446,000 and $495,000,
respectively.
10. Stock Purchase and Option Plans
The Company's Employee 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 27, 1998, $809,000 has been
withheld from associates' earnings and, if all participants had been allowed to
exercise their stock purchase rights at that date, approximately 107,300 shares
could have been purchased at a price of $7.54 per share. At November 27, 1998, a
total of 5,063,331 shares had been purchased under the Plan and 576,669 shares
were available for purchase by participating associates.
<PAGE>
10. Stock Purchase and Option Plans (continued)
In April 1998, the Company's shareholders approved The Stride Rite Corporation
1998 Non-Employee Director Stock Ownership Plan (the "1998 Director's Plan").
This Plan replaced a similar plan, the 1994 Non-Employee Director Stock
Ownership Plan. Under the 1998 Director's 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 300,000 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 annually receives an award of 500 shares of common stock and an option
to purchase 5,000 shares of common stock. Non-employee directors may elect to
defer receipt of the annual stock award in connection with their participation
in the Company's Deferred Compensation Plan for Directors. 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 1,000 shares of
common stock during 1998. Under the 1994 Director's Plan, which was terminated
in April 1998, each non-employee director was 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. Under the terms of
the 1994 Director's Plan, the Company awarded 3,500 and 3,000 shares of common
stock during 1997 and 1996, respectively.
In April 1998, the Company's shareholders approved The Stride Rite Corporation
1998 Long-Term Growth Incentive Plan (the "1998 Incentive Plan"). The 1998
Incentive Plan replaced a similar long-term incentive plan which had been
approved by the shareholders in 1995. Under the 1998 Incentive Plan, which
expires in April 2001, 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 1998 Incentive Plan will generally vest over a
three-year period and the rights to purchase common shares expire ten years
following the date of grant. Stock awards, which are limited to 200,000 shares
in the Plan, generally vest over a five-year period. During fiscal 1998, no
stock awards were made under the Plan. The 1995 Incentive Plan had replaced the
1975 Executive Incentive Stock Purchase Plan, which was terminated in April
1995. Rights under the 1975 Plan vested over a five-year period with a minimum
option price established at the then par value of the Company's common stock,
which is $.25 per share. During fiscal 1997 and 1996, stock awards of 5,000 and
20,779 shares, respectively, were made under the 1995 Incentive Plan.
<PAGE>
A summary of the activity in stock options with respect to all plans for the
three years in the period ended November 27, 1998 is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
<S> <C> <C> <C>
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 1,023,250 11.44
Exercised (89,807) 6.36
Canceled (160,105) 10.04
Outstanding at November 28, 1997 2,582,700 10.11
Granted 1,054,650 11.11
Exercised (297,074) 5.98
Canceled (533,246) 10.23
Outstanding at November 27, 1998 2,807,030 $10.90
</TABLE>
The following table summarizes information about stock options outstanding at
November 27, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Range of Exercise Number Remaining Weighted Number Weighted
Prices Outstanding Contractual Average Exercisable Average
Life Exercise Exercise
Price Price
<C> <C> <C> <C> <C> <C> <C>
$ 0.25 - $10.875 669,298 7.2 years $ 7.64 414,957 $ 7.20
$11.00 - $11.875 1,460,832 8.3 years 11.12 223,982 11.25
$12.00 - $15.875 676,900 6.5 years 13.63 539,732 13.84
2,807,030 7.6 years $ 10.90 1,178,671 $11.01
</TABLE>
At November 28, 1997, options to purchase 911,093 shares at an average price of
$9.42 per share were exercisable (549,197 shares at $8.81 per share at November
29, 1996). At November 27, 1998, stock awards and options to purchase a total
6,852,473 shares had been granted under all plans and rights to purchase an
additional 2,025,250 shares (250,775 shares at November 28, 1997) could be
granted.
<PAGE>
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
expense 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 5.76% for 1998, 5.95% for 1997 and 5.59% for 1996, a dividend
yield of 1.5% for each year, a volatility factor of the Company's common stock
of 37% for 1998 and 35% for 1997 and 1996, and a weighted average expected life
of the stock options of 4.5 years in each year. The weighted average grant date
fair values of stock options granted during 1998, 1997 and 1996 were $3.75,
$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.
<TABLE>
<CAPTION>
In thousands, except for per share data 1998 1997 1996
<S> <C> <C> <C>
Net income As reported $21,052 $19,780 $2,499
Proforma 19,412 19,058 1,958
Net income per diluted share As reported .44 .40 .05
of common stock Proforma .41 .39 .04
</TABLE>
10. Stock Purchase and Option Plans (continued)
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.
<PAGE>
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
Plan totaled 46,381,018 and 47,315,944 as of November 27, 1998 and November 28,
1997, respectively.
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
<PAGE>
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 income taxes consists of the following for the three years in
the period ended November 27, 1998:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
Current:
<S> <C> <C> <C>
Federal $ 7,390 $ 7,942 $(2,428)
State 987 1,870 (727)
------------------------------------
8,377 9,812 (3,155)
Deferred:
Federal 3,783 2,095 2,537
State 10 241 1,146
------------------------------------
3,793 2,336 3,683
$12,170 $12,148 $ 528
</TABLE>
Net deferred tax assets as of November 27, 1998 and November 28, 1997 have
the following significant components:
<TABLE>
<CAPTION>
In thousands 1998 1997
Deferred tax assets:
<S> <C> <C>
Inventory valuation reserves $ 5,477 $ 5,998
Accounts receivable allowances 3,425 3,628
Compensation and pension accruals 3,742 3,234
Nonrecurring charges - 3,288
Other accounting reserves and accruals 12,114 12,865
------------------------
24,758 29,013
Deferred tax liabilities:
Depreciation and amortization 5,078 6,467
Other items 964 37
------------------------
6,042 6,504
$18,716 $22,509
</TABLE>
A valuation allowance has not been assigned to the Company's deferred tax assets
since management believes it is more likely than not that the Company will fully
realize the benefits of such tax assets.
<PAGE>
The effective income tax rate differs from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 2.0 4.3 9.0
Tax benefit related to company-owned life insurance (5.3) (1.8) (29.8)
program
Other 4.9 0.5 3.2
-------------------------
Effective income tax rate 36.6% 38.0% 17.4%
</TABLE>
In 1998 and 1997, the Company paid income taxes of $17,666,000 and $8,185,000,
respectively. During 1996, the Company received a net refund of $9,085,000 as a
result of the loss incurred in fiscal 1995.
14. Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on applying
generally accepted accounting principles in addressing whether, and under what
conditions, the costs of internal-use software should be capitalized. SOP 98-1
is effective for transactions entered into in fiscal years beginning after
December 15, 1998, however earlier adoption is encouraged. The Company plans to
adopt the guidelines of SOP 98-1 in its first quarter of fiscal 1999.
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 expects that this new standard
will not have a significant effect 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.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-Retirement Benefits," which does not change the
measurement or recognition of those plans, but rather standardizes the
disclosure requirements for pensions and other post-retirement benefits. SFAS
<PAGE>
No. 132 also requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and also eliminates certain pension disclosures. The company will
adopt SFAS No. 132 for its fiscal year ending December 3, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. This statement
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Since
the Company's current international operations are not significant and the cost
of merchandise sourced from factories outside the United States is generally
denominated in U.S. dollars, management expects minimal impacts from this new
standard.
15. Quarterly Data (Unaudited)
The following table provides quarterly data for the fiscal years ended November
27, 1998 and November 28, 1997:
<TABLE>
In thousands, except for per share data
<CAPTION>
First Second Third Fourth
1998
<S> <C> <C> <C> <C>
Net sales $128,985 $143,176 $168,516 $98,736
Gross profit 46,480 51,633 62,744 29,969
Net income (loss) 4,401 9,596 12,766 (5,711)
Per diluted common share:
Net income (loss) .09 .20 .27 (.12)
Dividends .05 .05 .05 .05
First Second Third Fourth
1997
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 diluted common share:
Net income .08 .14 .17 .01
Dividends .05 .05 .05 .05
</TABLE>
In the fourth quarter of fiscal 1998, the Company recorded pre-tax charges of
$4,976,000, $.07 per share after tax, associated with its decision to terminate
its license agreement to market footwear under the Levi's brand. The charge
included losses on the disposal of Levi's inventory as well as severance and
other costs associated with the decision.
<PAGE>
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 audit function
which performs audits and evaluates 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, PricewaterhouseCoopers LLP, 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/ James A. Eskridge /s/ John M. Kelliher
James A. Eskridge John M. Kelliher
Chairman of the Board of Directors Chief Financial Officer and Treasurer
and Chief Executive Officer
<PAGE>
Report of Independent Accountants
To the Stockholders and Directors
The Stride Rite Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of The Stride
Rite Corporation and its subsidiaries at November 27, 1998 and November 28,
1997, and the results of their operations and their cash flows for each of the
three years in the period ended November 27, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the The Stride Rite Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts
January 6, 1999
<PAGE>
Board of Directors
James A. Eskridge
Chairman of the Board of Directors and Chief Executive Officer
Warren Flick
Chairman of the Board, eSave Network, Inc.
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
Chairman, Saatchi & Saatchi, plc.
Myles J. Slosberg
Attorney and Former Executive Vice President of the Company
W. Paul Tippett, Jr.
Principal, Ann Arbor Partners
<PAGE>
Senior Management
James A. Eskridge
Chairman of the Board of Directors and Chief Executive Officer
Joanna M. Jacobson
President, The Keds Corporation
Diane M. Sullivan
Group 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.
Janet M. DePiero
Vice President, Human Resources
John B. Douglas III
General Counsel and Clerk
John M. Kelliher
Chief Financial Officer and Treasurer
Thomas L. Nelson
President, Sperry Top-Sider, Inc.
C. Madison Riley III
President, Stride Rite Children's Group, Inc.
Gerrald B. Silverman
Executive Vice President, The Keds Corporation
Robert H. White
Senior Vice President, Information Technology
<PAGE>
Corporate Data
Executive Offices
191 Spring Street
P.O. Box 9191
Lexington, Massachusetts 02420-9191
(617) 824-6000
Internet addresses:
www.striderite.com
www.keds.com
www.sperrytopsider.com
Major Subsidiaries
The Keds Corporation
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
PricewaterhouseCoopers LLP
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 1999 Annual Meeting of Stockholders of The Stride Rite Corporation is
scheduled to be held on Thursday, April 15, 1999 at 10:00 a.m. at the Company's
Corporate Headquarters, 191 Spring Street, Lexington, Massachusetts.
Transfer Agent, Registrar, Dividend Distributing 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.
<PAGE>
Form 10-K
This Annual Report to Shareholders, the Company's Annual Report on Form 10-K and
its quarterly filings with The Securities and Exchange Commission are available
on the Company's website (www.striderite.com). The Stride Rite Corporation's
Form 10-K is also available without charge upon request and may be obtained by
writing to Shareholder Relations at the Company's executive offices.
<TABLE>
Common Stock Prices
<CAPTION>
1998 1997
Fiscal Quarter High Low High Low
<C> <C> <C> <C> <C> <C> <C> <C>
1st 12 3/8 10 13/16 12 5/8 10
2nd 13 9/16 11 3/4 15 3/8 12 3/8
3rd 15 11/16 9 1/2 15 11 7/8
4th 10 1/8 6 7/8 14 15/16 11 9/16
</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 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 Stockholders and Directors of
The Stride Rite Corporation:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (SEC File No. 333-51161 and 333-51163) of The Stride Rite Corporation
of our reports dated January 6, 1998 on our audits of the consolidated financial
statements and financial statement schedules of The Stride Rite Corporation as
of November 27, 1998 and November 28, 1997 and for the years ended November 27,
1998, November 28, 1997 and November 29, 1996 which reports are included or
incorporated by reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
February 22, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The notes to the condensed consolidated financial statements are an integral
part of such statements and the condensed consolidated financial information in
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-27-1998 NOV-27-1998
<PERIOD-END> NOV-27-1998 NOV-27-1998
<CASH> 42,427 42,427
<SECURITIES> 0 0
<RECEIVABLES> 66,047 66,047
<ALLOWANCES> 9,572 9,572
<INVENTORY> 128,472 128,472
<CURRENT-ASSETS> 258,229 258,229
<PP&E> 94,600 94,600
<DEPRECIATION> 36,250 36,250
<TOTAL-ASSETS> 335,496 335,496
<CURRENT-LIABILITIES> 84,727 84,727
<BONDS> 0 0
0 0
0 0
<COMMON> 14,237 14,237
<OTHER-SE> 230,490 230,490
<TOTAL-LIABILITY-AND-EQUITY> 335,496 335,496
<SALES> 98,737 539,413
<TOTAL-REVENUES> 98,737 539,413
<CGS> 68,768 348,587
<TOTAL-COSTS> 68,768 348,587
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 393 1,402
<INTEREST-EXPENSE> 235 1,730
<INCOME-PRETAX> (9,128) 33,222
<INCOME-TAX> (3,417) 12,170
<INCOME-CONTINUING> (5,711) 21,052
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,711) 21,052
<EPS-PRIMARY> (.12) .45
<EPS-DILUTED> (.12) .44
</TABLE>
