AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998,
REGISTRATION NO. 333-59295
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STEVEN MADDEN, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEW YORK 3140 13-3588231
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(STATE OR OTHER JURIS- (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
DICTION OF ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
52-16 BARNETT AVENUE
LONG ISLAND CITY, NY 11104
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR
INTENDED PRINCIPAL PLACE OF BUSINESS)
STEVE MADDEN
PRESIDENT
52-16 BARNETT AVENUE
LONG ISLAND CITY, NY 11104
(718) 446-1800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
STEVEN F. WASSERMAN, ESQ.
ALAN N. FORMAN, ESQ.
BERLACK, ISRAELS & LIBERMAN LLP
120 WEST 45TH STREET
NEW YORK, NY 10036
(212) 704-0100
(212) 704-0196 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS REASONABLY
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE
OFFERED ON A DELAYED OR CONTINUOUS BASIS, PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933, CHECK THE FOLLOWING BOX: | X |
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(C) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING.
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE
434, PLEASE CHECK THE FOLLOWING BOX. [ ]
CONTINUED OVERLEAF
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED OFFERING PRICE PER OFFERING PRICE(1) REGISTRATION FEE
SECURITIES(1)
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Common Stock, par value $.0001 per 64,520 $11.00 $709,720.00 $209.37
share, held by Selling Securityholder
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Amount Previously Paid $209.37
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Total Amount Due $ 0
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(1) Established solely for purposes of calculating registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended (the
"Act").
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
ii
PROSPECTUS
STEVEN MADDEN, LTD.
64,520 Shares of Common Stock
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This Prospectus relates to an aggregate offering of up to 64,520 shares
(the "Shares") of Common Stock, par value $.0001 per share (the "Common Stock"),
of Steven Madden, Ltd., a New York corporation (the "Company"), which may be
offered and sold from time to time by Robert Schmertz and Deborah Schmertz, or
their transferees (the "Selling Securityholder"). In connection with the
execution of an Employment Agreement between Shoe Biz, Inc., a wholly owned
subsidiary of the Company ("Shoe Biz"), and Mr. Schmertz, Shoe Biz loaned Mr.
Schmertz $300,000. The promissory note issued by Mr. Schmertz to Shoe Biz in
exchange for the loan is secured by the pledge of 36,232 Shares. Any brokerage
commissions or other similar expenses incurred pursuant to the sale of the
Shares will be borne by the Selling Securityholder. Sales of such securities or
the potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Selling Securityholder" and "The
Offering".
The securities offered by this Prospectus may be sold from time to time
by the Selling Securityholder, or its transferees. No underwriting arrangements
have been entered into by the Selling Securityholder. The distribution of the
securities by the Selling Securityholder or its transferees may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately negotiated transactions or
through sales to one or more market makers or dealers for resale of such
securities as principals at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholder or its transferees in connection with sales
of the Company's securities.
The Selling Securityholder or its transferees, brokers, dealers or
underwriters and intermediaries that participate with the Selling Securityholder
in the distribution of the Company's securities may be deemed "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Act"), with
respect to the securities offered and any profits realized or commissions
received may be deemed underwriting compensation.
The Company's shares of Common Stock, Class A Warrants and Class B
Warrants were quoted since December 10, 1993 on The Nasdaq SmallCap Market under
the symbols SHOO, SHOOW and SHOOZ, respectively. In January 1996, the Class A
Warrants ceased trading as a result of the Company's call for redemption of such
securities. In January 1997, the Company's shares of Common Stock and Class B
Warrants commenced trading on The Nasdaq National Market. In December 1998, the
Class B Warrants will expire, and as a result, such securities will no longer
trade on the Nasdaq National Market. On June 26, 1998, the closing price of the
Common Stock and Class B Warrants were $11.25, and $5.69, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY __, 1998.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information
including annual and quarterly reports on Form 10-KSB and 10-QSB (the "1934 Act
Filings") with the Securities and Exchange Commission (the "Commission"). The
statements contained in this Prospectus with respect to the contents of any
agreement or other document referred to herein are not necessarily complete and,
in each instance, reference is made to a copy of such agreement or document as
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by reference to the provisions of the relevant
documents. Reports and other information filed by the Company can be inspected
and copied at the public reference facilities maintained at the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material
can be obtained upon written request addressed to the Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a web site on the Internet (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information reference is made to
the Registration Statement.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents or portions thereof, as filed with the
Securities and Exchange Commission by the Company, are incorporated herein by
reference into this Prospectus:
(1) Current Report on Form 8-K filed on July 14, 1998.
(2) Proxy Statement on Schedule 14A dated April 22, 1998.
(3) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
(4) Current Report on Form 8-K filed on February 13, 1998.
(5) Current Report on Form 8-K filed on January 20, 1998.
(6) Annual Report on Form 10-KSB for the year ended December 31, 1997.
(7) The description of the Common Stock, par value $.0001 per share
("Common Stock"), the Class A Redeemable Common Stock Purchase
Warrants ("Class A Warrants"), and the Class B Redeemable Common
Stock Purchase Warrants ("Class B Warrants"), of the Company
contained in the Company's registration statement filed under
Section 12 of the Exchange Act, including any amendment or report
filed for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, subsequent to the effective date of this
Prospectus and prior to the filing of a post-effective amendment which indicate
that all securities offered have been sold or which registers all securities
then remaining unsold, shall be deemed to be incorporated by reference in this
Prospectus and to be part thereof from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
2
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION AND SHOULD ONLY BE
PURCHASED BY INVESTORS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
PROSPECTIVE PURCHASERS, PRIOR TO MAKING AN INVESTMENT, SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS AND SPECULATIVE FACTORS, AS WELL AS OTHER INFORMATION SET
FORTH ELSEWHERE IN THIS PROSPECTUS, ASSOCIATED WITH THIS OFFERING, INCLUDING THE
INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS INCORPORATED BY REFERENCE
HEREIN.
STATEMENTS IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF HISTORICAL OR
CURRENT FACT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER UNKNOWN
FACTORS THAT COULD CAUSE THE ACTUAL RESULTS OF THE COMPANY TO BE MATERIALLY
DIFFERENT FROM THE HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION TO STATEMENTS THAT
EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO CONSIDER
STATEMENTS LABELED WITH THE TERMS "BELIEVES," "BELIEF," "EXPECTS," "INTENDS,"
"ANTICIPATES" OR "PLANS" TO BE UNCERTAIN AND FORWARD-LOOKING. THE FORWARD-
LOOKING STATEMENTS CONTAINED HEREIN ARE ALSO SUBJECT GENERALLY TO OTHER RISKS
AND UNCERTAINTIES THAT ARE DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS
AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
AND CERTAIN OF THESE RISKS ARE SUMMARIZED BELOW.
1. DEPENDENCE ON KEY PERSONNEL. The Company is dependent, in
particular, upon the services of Steven Madden, its Chief Executive Officer,
President, Chairman of the Board and chief designer and Rhonda Brown, its Chief
Operating Officer. If Mr. Madden or Ms. Brown are unable to provide services to
the Company for whatever reason, the business would be adversely affected. The
Company therefore maintains a key person life insurance policy on Mr. Madden
with coverage in the amount of $10,000,000; however, the Company does not
maintain a policy on Ms. Brown. The Company has an employment contract with Mr.
Madden that expires on December 31, 2007, and an employment contract with Ms.
Brown that expires on June 30, 2001. In the event Mr. Madden is terminated for
other than cause or total disability, the Company will be required to pay Mr.
Madden's remaining salary under his 10-year contract (up to approximately
$2,000,000 depending on the timing of such termination), half of which must be
paid upon termination. Mr. Madden is also entitled during the term of the
contract to an annual $50,000 non-accountable expense account. In the event of a
change in control, Mr. Madden and Ms. Brown may choose to continue their
employment with the Company or terminate employment and receive the remaining
salary under their respective contracts.
Since Mr. Madden and Ms. Brown are involved in all aspects of the
Company's business, there can be no assurance that a suitable replacement for
either could be found if either were unable to perform services for the Company.
As a consequence, a loss of Mr. Madden, Ms. Brown or other key management
personnel could have a material adverse effect upon the Company's business,
results of operations and financial condition. In addition, the Company's
ability to market its products and to achieve profitability will depend, in
large part, on its ability to attract and retain qualified personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to attract and retain such personnel. The inability of the
Company to attract and retain such qualified personnel would have a material
adverse effect on the Company's business, financial condition and results of
operations.
3
2. FASHION INDUSTRY RISKS. The success of the Company will depend in
significant part upon its ability to anticipate and respond to women's product
and fashion trends as well as to anticipate, gauge and react to changing
consumer demands in a timely manner. There can be no assurance that the
Company's products will correspond to the changes in taste and demand or that
the Company will be able to successfully market products which respond to such
trends. If the Company misjudges the market for its products, it may be faced
with significant excess inventories for some products and missed opportunities
with others. In addition, misjudgments in merchandise selection could adversely
affect the Company's image with its customers and weak sales and resulting
markdown requests from customers could have a material adverse effect on the
Company's business, results of operations and financial condition.
The industries in which the Company operates are cyclical, with
purchases tending to decline during recessionary periods when disposable income
is low. Purchases of contemporary shoes and accessories tend to decline during
recessionary periods and also may decline at other times. While the Company has
fared well in recent years in a difficult retail environment, there can be no
assurance that the Company will be able to maintain its historical rate of
growth in revenues and earnings, or remain profitable in the future. A recession
in the national or regional economies or uncertainties regarding future economic
prospects, among other things, could affect consumer spending habits and have a
material adverse effect on the Company's business results of operations and
financial condition.
In recent years, the retail industry has experienced consolidation and
other ownership changes. In addition, some of the Company's customers have
operated under the protection of the federal bankruptcy laws. In the future,
retailers in the United States and in foreign markets may consolidate, undergo
restructurings or reorganizations, or realign their affiliations, any of which
could decrease the number of stores that carry the Company's products or
increase the ownership concentration within the retail industry. While such
changes in the retail industry to date have not had a material adverse effect on
the Company's business or financial condition, there can be no assurance as to
the future effect of any such changes.
3. INVENTORY MANAGEMENT. The Company's ability to manage its
inventories properly is an important factor in its operations. Inventory
shortages can adversely affect the timing of shipments to customers and diminish
brand loyalty. Conversely, excess inventories can result in increased interest
costs as well as lower gross margins due to the necessity of providing discounts
to retailers. The inability of the Company to effectively manage its inventory
would have a material adverse effect on the Company's business, financial
condition and results of operations.
4. DEPENDENCE UPON CUSTOMERS AND RISKS RELATED TO EXTENDING CREDIT TO
CUSTOMERS. The Company's customers purchasing shoes consist principally of
department stores and specialty stores, including shoe boutiques. Certain of the
Company's department store customers, including some under common ownership,
account for significant portions of the Company's wholesale net sales.
Presently, the Company sells approximately fifty percent (50%) of its products
to department stores, including Federated Stores (Bloomingdales, Burdines,
Macy's and Bullocks), Dillards and Dayton Hudson and approximately fifty (50%)
percent to specialty stores, including shoe boutiques. As a result of the merger
between Federated Stores and R.H. Macy and Company, Federated Stores, the
Company's largest customer, accounts for approximately seventeen percent (17%)
of the Company's sales.
The Company believes that a substantial portion of sales of the
Company's licensed products by its domestic licensing partners are also made to
the Company's largest department store customers. The
4
Company generally enters into a number of purchase order commitments with its
customers for each of its lines every season and does not enter into long-term
agreements with any of its customers. Therefore, a decision by Federated Stores
or any other significant customer, whether motivated by competitive conditions,
financial difficulties or otherwise, to decrease the amount of merchandise
purchased from the Company or its licensing partners, or to change its manner of
doing business could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company sells its products primarily to retail stores across the
United States and extends credit based on an evaluation of each customer's
financial condition, usually without requiring collateral. While various
retailers, including some of the Company's customers, have experienced financial
difficulties in the past few years which increased the risk of extending credit
to such retailers, the Company's losses due to bad debts have been limited.
However, financial difficulties of a customer could cause the Company to curtail
business with such customer or require the Company to assume more credit risk
relating to such customer's receivables.
5. IMPACT OF FOREIGN MANUFACTURERS. A significant portion of the
Company's products are currently sourced outside the United States through
arrangements with a number of foreign manufacturers in four different countries.
During fiscal 1997, approximately 95% of the Company's products were purchased
from sources outside the United States, including Mexico, China, Brazil and
Spain.
Risks inherent in foreign operations include work stoppages,
transportation delays and interruptions, changes in social, political and
economic conditions which could result in the disruption of trade from the
countries in which the Company's manufacturers or suppliers are located, the
imposition of additional regulations relating to imports, the imposition of
additional duties, taxes and other charges on imports, significant fluctuations
of the value of the dollar against foreign currencies, or restrictions on the
transfer of funds, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not believe that any such economic or political conditions will materially
affect the Company's ability to purchase products, since a variety of materials
and alternative sources exist. The Company cannot be certain, however, that it
will be able to identify such alternative sources without delay or without
greater cost to the Company, if ever. The Company's inability to identify and
secure alternative sources of supply in this situation would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's imported products are also subject to United States
customs duties which comprise a material portion of the cost of the merchandise.
The United States and the countries in which the Company's products are produced
or sold may, from time to time, impose new quotas, duties, tariffs, or other
restrictions, or may adversely adjust prevailing quota, duty or tariff levels,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
6. POSSIBLE ADVERSE IMPACT OF UNAFFILIATED MANUFACTURERS' INABILITY TO
MANUFACTURE IN A TIMELY MANNER, TO MEET QUALITY STANDARDS OR TO USE ACCEPTABLE
LABOR PRACTICES. As is common in the footwear industry, the Company contracts
for the manufacture of a majority of its products to its specifications through
foreign manufacturers. The Company does not own or operate any manufacturing
facilities and is therefore dependent upon independent third parties for the
manufacture of all of its products. The Company's products are manufactured to
its specifications by both domestic and international manufacturers. The
inability of a manufacturer to ship orders of the Company's products in a timely
manner or to meet the Company's quality standards could cause the Company to
miss the
5
delivery date requirements of its customers for those items, which could result
in cancellation of orders, refusal to accept deliveries or a reduction in
purchase prices, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Although the Company enters into a number of purchase order commitments
each season specifying a time frame for delivery, method of payment, design and
quality specifications and other standard industry provisions, the Company does
not have long-term contracts with any manufacturer. As a consequence, any of
these manufacturing relationships may be terminated, by either party, at any
time. Although the Company believes that other facilities are available for the
manufacture of the Company's products, both within and outside of the United
States, there can be no assurance that such facilities would be available to the
Company on an immediate basis, if at all, or that the costs charged to the
Company by such manufacturers will not be greater than those presently paid.
The Company requires its licensing partners and independent
manufacturers to operate in compliance with applicable laws and regulations.
While the Company promotes ethical business practices and the Company's staff
periodically visits and monitors the operations of its independent
manufacturers, the Company does not control such manufacturers or their labor
practices. The violation of labor or other laws by an independent manufacturer
of the Company or by one of the Company's licensing partners, or the divergence
of an independent manufacturer's or licensing partner's labor practices from
those generally accepted as ethical in the United States, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
7. INTENSE INDUSTRY COMPETITION. The fashionable footwear industry is
highly competitive and barriers to entry are low. The Company's competitors
include specialty companies as well as companies with diversified product lines.
The recent substantial growth in the sales of fashionable footwear has
encouraged the entry of many new competitors and increased competition from
established companies. Most of these competitors, including Kenneth Cole, Nine
West, Esprit, Reebok, Nike, Zodiac and Guess, have significantly greater
financial and other resources than the Company and there can be no assurance
that the Company will be able to compete successfully with other fashion
footwear companies. Increased competition could result in pricing pressures,
increased marketing expenditures and loss of market share, and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes effective advertising and marketing, fashionable
styling, high quality and value are the most important competitive factors and
plans to employ these elements as it develops its products. The Company's
inability to effectively advertise and market its products could have a material
adverse effect on the Company's business, financial condition and results of
operations.
8. EXPANSION OF RETAIL BUSINESS. The Company's continued growth
depends to a significant degree on further developing the Steve Madden and David
Aaron brands, creating new product categories and businesses and operating
Company-owned stores on a profitable basis. The Company plans to open 10 stores
through June 1999, representing a significant increase in the number of stores
opened and operated in one fiscal year. The Company's recent and planned
expansion includes the opening of stores in new geographic markets. New markets
have in the past presented, and will continue to present, competitive and
merchandising challenges that are different from those faced by the Company in
its existing markets. There can be no assurance that the Company will be able to
open new stores, and if opened, that such new stores will be able to achieve
sales and profitability levels consistent with existing stores.
6
The Company's retail expansion is dependent on a number of factors,
including the Company's ability to locate and obtain favorable store sites, the
performance of the Company's wholesale and retail operations, and the ability of
the Company to manage such expansion and hire and train personnel. Past
comparable store sales results may not be indicative of future results, and
there can be no assurance that the Company's comparable store sales results will
increase or not decrease in the future. In addition, there can be no assurance
that the Company's strategies to increase other sources of revenue, which may
include expansion of its licensing activities, will be successful or that the
Company's overall sales or profitability will increase or not be adversely
affected as a result of the implementation of such retail strategies.
The Company's growth has increased and will continue to increase demand
on the Company's managerial, operational and administrative resources. The
Company has recently invested significant resources in, among other things, its
management information systems and hiring and training new personnel. However,
in order to manage currently anticipated levels of future demand, the Company
may be required to, among other things, expand its distribution facilities,
establish relationships with new manufacturers to produce its products, and
continue to expand and improve its financial, management and operating systems.
There can be no assurance that the Company will be able to manage future growth
effectively and a failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operation.
9. SEASONAL AND QUARTERLY FLUCTUATIONS. The Company's quarterly
results may fluctuate quarter to quarter as a result of the timing of holidays,
weather, the timing of larger shipments of footwear, market acceptance of the
Company's products, the mix, pricing and presentation of the products offered
and sold, the hiring and training of additional personnel, the timing of
inventory write downs, the cost of materials, the mix between wholesale and
licensing businesses, the incurrence of other operating costs and factors beyond
the Company's control, such as general economic conditions and actions of
competitors. In addition, the Company expects its sales and operating results
may fluctuate significantly with the opening of new retail stores, the amount of
revenue contributed by new stores, changes in comparable store sales and the
introduction of new products. Accordingly, the results of operations in any
quarter will not necessarily be indicative of the results that may be achieved
for a full fiscal year or any future quarter.
10. TRADEMARK AND SERVICEMARK PROTECTION. The Steve Madden trademark
has been registered in one International Class (Int'l Cl. 18 - leather goods,
hand bags, wallets) in the Untied States Patent and Trademark Office and the
Company has numerous applications for registration in other International
Classes (such as clothing, sunglasses, jewelry, cosmetics, and fragrances)
pending in the United States Patent and Trademark Office, the Company also has a
service mark registration in the United States Patent and Trademark Office for
the Steve Madden service mark in Int'l Cl. 35 for retail store services. Through
the Company's seven year long use of the Steve Madden trademark in the United
States in connection with shoes, the Company has also acquired common law
trademark right in the Steve Madden trademark. The Company also has pending
trademark applications for the Steve Madden trademark in numerous countries
around the world. There can be no assurance, however, that the Company will be
able to effectively obtain rights in the Steve Madden mark throughout the world.
The failure of the Company to protect such right from unlawful and improper
appropriation may have a material adverse effect on the Company's business,
financial condition and results of operation.
7
The Company also owns a federal trademark registration in the United
States Patent and Trademark Office for the David Aaron trademark in Int'l
Classes 18 and 25 (leather goods and clothing, shoes) and has numerous
applications pending in the United States and around the world for the David
Aaron trademark and service mark. The Company believes that the David Aaron
trademark has a significant value and is important to the marketing of the
Company's products. The Company believes that its trademarks and other
proprietary rights are important to its success and its competitive position.
Accordingly, the Company devotes substantial resources to the establishment and
protection of its trademarks on a worldwide basis. Nevertheless, there can be no
assurance that the actions taken by the Company to establish and protect its
trademarks and other proprietary rights will be adequate to prevent imitation of
its products by others or to prevent others from seeking to block sales of the
Company's products as violative of the trademarks and proprietary rights of
others. Moreover, no assurance can be given that others will not assert rights
in, or ownership of, trademarks and other proprietary rights of the Company or
that the Company will be able to successfully resolve such conflicts. In
addition, the laws of certain foreign countries may not protect proprietary
rights to the same extent as do the laws of the United States. The failure of
the Company to establish and then protect such proprietary rights from unlawful
and improper appropriation could have a material adverse impact on the Company's
business, financial condition and results of operations.
11. FOREIGN CURRENCY FLUCTUATIONS. The Company generally purchases its
products in U.S. dollars. However, the Company sources substantially all of its
products overseas and, as such, the cost of these products may be affected by
changes in the value of the relevant currencies. Changes in currency exchange
rates may also affect the relative prices at which the Company and foreign
competitors sell their products in the same market. There can be no assurance
that foreign currency fluctuations will not have a material adverse impact on
the Company's business, financial condition and results of operations.
12. ABSENCE OF DIVIDENDS. The Company anticipates that all of its
earnings in the foreseeable future will be retained to finance the continued
growth and expansion of its business and has no current intention to pay cash
dividends.
13. OUTSTANDING WARRANTS AND OPTIONS. The Company currently has
outstanding approximately 1,854,943 Class B Warrants exercisable at $5.50 per
share and 150,000 Class C Warrants exercisable at $15.00 per share. The Class B
Warrants have been called for redemption by the Company and will expire at the
close of business on August 13, 1998. Class B Warrantholders will receive a
redemption price of $.05 per Class B Warrants in the event that they don't
exercise the Class B Warrants held thereby by such date. The Class C Warrants
will expire in December 1998. As of July 23, 1998, the Company had outstanding
options to purchase an aggregate of approximately 2,200,000 shares of Common
Stock. Holders of such options and warrants are likely to exercise them when, in
all likelihood, the Company could obtain additional capital on terms more
favorable than those provided by the options. Further, while its options and
warrants are outstanding, they may adversely affect the terms in which the
Company could obtain additional capital.
8
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares by the Selling Securityholder.
SELLING SECURITYHOLDER
The Registration Statement of which this Prospectus is a part relates
to the offer and sale of 64,520 shares of Common Stock (the "Shares") by the
Selling Securityholder or its transferees. All of such shares of Common Stock
are expected to become tradable on or about the date of this Prospectus.
The following table sets forth the beneficial ownership of the
securities of the Company held by each person who is a Selling Securityholder
prior to this Offering and after this Offering, assuming all of the shares of
Common Stock owned by the Selling Securityholder are sold.
- -----------------------------------------------------------------------------------------------------------------------------
SHARES OF COMMON SHARES OF COMMON PERCENTAGE OF
STOCK PERCENTAGE OF COMMON STOCK COMMON STOCK
BENEFICIALLY STOCK BENEFICIALLY SHARES OF BENEFICIALLY BENEFICIALLY
OWNED BEFORE OWNED COMMON STOCK OWNED AFTER OWNED AFTER
NAME OFFERING BEFORE OFFERING OFFERED HEREBY OFFERING(1) OFFERING(1)
- -----------------------------------------------------------------------------------------------------------------------------
Robert Schmertz (2)(3) 32,260(4) .35% 32,260 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Deborah Schmertz(2) 32,260(5) .35% 32,260 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Total 64,520 .7% 64,520 0 0
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes the sale of all of the Shares.
(2) Robert and Deborah Schmertz acquired the shares from Daniel Scott,
Inc., a New York corporation which was dissolved on June 29, 1998.
Robert and Deborah Schmertz are married and were the sole shareholders
of Daniel Scott, Inc. prior to its dissolution.
(3) Robert Schmertz is an employee of Shoe Biz, Inc., a wholly owned
subsidiary of the Company.
(4) Disclaims beneficial ownership of shares of Common Stock held by
Deborah Schmertz.
(5) Disclaims beneficial ownership of shares of Common Stock held by Robert
Schmertz.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Securityholder or its transferees.
The securities offered by this Prospectus may be sold from time to time
directly by the Selling Securityholder or its transferees, or to their
transferees. Alternatively, the Selling Securityholders or its transferees may
from time to time offer such securities through underwriters, brokers or agents.
No underwriting arrangements have been entered into by the Selling
Securityholder or its transferees. The distribution of the securities by the
Selling Securityholder or its transferees may be effected in one or
9
more transactions that may take place on the over-the-counter market including
ordinary broker's transactions, privately negotiated transactions or through
sales to one or more market makers or dealers for resale of such securities as
principals at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholder or its transferees in connection with sales of the securities.
This offering is currently not being underwritten. However, the Selling
Securityholder or its transferees, brokers, dealers or underwriters and
intermediaries that participate with the Selling Securityholder or its
transferees may be deemed "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Act"), with respect to the securities offered and
any profits realized or commissions received may be deemed underwriting
compensation. It is anticipated that all the securities being offered hereby,
when sales thereof are made, will be made in one or more transaction (which may
involve one or more block transaction) through customary brokerage channels,
either through brokers acting as brokers or agents for the sellers, or through
market makers, dealers or underwriters acting as principals who may resell the
Common Stock on The Nasdaq National Market or the securities in privately
negotiated sales, or otherwise, or by a combination of such methods of offering.
Sales may be made at market prices prevailing at the time of the sales or at
negotiated prices.
At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder or its transferees, to the extent required, a
prospectus will be distributed which will set forth the number of securities
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for securities purchased from the Selling Securityholder or its
transferees and any discounts, commissions or concessions allowed or reallowed
or paid to dealers, and the proposed selling price to the public.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the shares of Common Stock may not
simultaneously engage in market making activities with respect to the Common
Stock for a period of up to five days preceding such distribution. The Selling
Securityholder or its transferees will be subject to the applicable provisions
of the Exchange Act and the rules and regulations promulgated thereunder,
including without limitation Regulation M, which provisions may limit the timing
of purchases and sales by the Selling Securityholder or its transferees.
In order to comply with certain state securities laws, if applicable,
the Common Stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states, the Common Stock may not be sold
unless the Common Stock has been registered and qualified for sale in such
state, or unless an exemption from registration or qualification is available
and is obtained.
LEGAL MATTERS
The validity of the securities offered hereby have been passed upon for
the Company by Berlack, Israels & Liberman LLP.
10
EXPERTS
The consolidated financial statements of Steven Madden, Ltd. and
subsidiaries included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1997, incorporated by reference in this Prospectus and the
Registration Statement have been audited by Richard A. Eisner & Company, LLP,
independent auditors, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the report of said firm given
upon their authority as experts in accounting and auditing.
11
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
-------------
TABLE OF CONTENTS
Page
----
Available Information................................... 2
Risk Factors............................................ 3
Use of Proceeds......................................... 9
Selling Securityholder.................................. 9
Plan of Distribution.................................... 9
Legal Matters........................................... 10
Experts................................................. 11
================================================================================
-------------
STEVEN MADDEN, LTD.
64,520 SHARES OF COMMON STOCK
-------------
PROSPECTUS
-------------
JULY __, 1998
================================================================================
12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this offering are as
follows:
SEC filing fee................................ $ 202.23
Legal fees and expenses*...................... $ 12,500.00
Accounting fees and expenses*................. $ 5,000.00
Blue Sky fees and expenses*................... $ --
Printing and engraving*....................... $ 500.00
Transfer Agent's and Registrar fees*.......... $ --
Miscellaneous expenses*....................... $ 797.77
-----------
Total......................................... $ 19,000.00
===========
* Estimated
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of the By-Laws of the Company ("By-Laws"), which is
set forth below in its entirety, provides for indemnification of
officers, directors, employees and agents substantially to the
extent permitted under the New York Business Corporation Law.
Article IV of the By-Laws provides as follows:
"ARTICLE IV"
INDEMNIFICATION
INDEMNIFICATION. The Corporation shall (a) indemnify any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation
as a director, officer or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense of settlement of
such action or suit, (b) indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Corporation), by reason of the fact that he is or was
a director or officer of the Corporation, or served at the request
of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, for expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any such action, suit or
proceeding, in each case to the fullest extent permissible under
the indemnification provisions of Section 722 of the New York
Business Corporation Law or any successor
statute and (c) advance reasonable and necessary expenses in
connection with such actions or suits, and not seek reimbursement
of such expenses unless there is a specific determination that the
officer or director is not entitled to such indemnification. The
foregoing right of indemnification shall in no way be exclusive of
any other rights of indemnification to which any such persons may
be entitled, under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise, and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
controlling persons of the Registrant pursuant to the provisions
referred to in Item 15 of this Registration Statement or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 16. EXHIBITS.
Exhibits
--------
3.01* Certificate of Incorporation of the Company.
3.02* By-Laws of the Company. (Incorporated by reference to
the Company's Registration Statement on Form S-8,
File No. 33-8810)
4.01* Specimen Certificate for shares of Common Stock.
5.01 Legal Opinion of Berlack, Israels & Liberman LLP.
10.25 Asset Purchase Agreement by and among Daniel Scott,
Inc., Steven Madden Outlets, Inc., Steven Madden,
Ltd. and Robert Schmertz.
23.01 Consent of Richard A. Eisner & Company, LLP
23.02 Consent of Berlack, Israels & Liberman LLP (included
in Exhibit 5.01).
* Previously filed with and incorporated hereby with reference
to the Company's Registration Statement on Form SB-2
(No.33-67162-NY, as amended, declared effective on December
10, 1994.)
ITEM 17. UNDERTAKINGS.
(a) RULE 415 OFFERING
The undersigned registrant will:
1. File, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to:
14
(i) Include any prospectus required by Section 10(a)(3) of
the Act;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement;
(iii) Include any additional or changed material information
on the plan of distribution;
2. For determining liability under the Securities Act, treat
each such post-effective amendment as a new registration statement
of the securities offered, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering.
3. File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(c) INDEMNIFICATION
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
controlling persons of the Registrant pursuant to the provisions
referred to in Item 15 of this Registration Statement or otherwise,
the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
(d) RULE 430A
The undersigned Registrant will:
(1) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in the form of a prospectus filed by the Company under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of
this Registration Statement as of the time the Commission declared
it effective.
(2) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new Registration Statement for the securities
offered in the Registration Statement, and the offering of the
securities at that time shall be deemed as the initial bona fide
offering of those securities.
15
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, as amended,
the Registrant, certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Long Island City, New York, on the 20th day of July, 1998.
STEVEN MADDEN, LTD
By: /s/ STEVEN MADDEN
-------------------------------------
Steven Madden
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ STEVEN MADDEN Chairman of the Board, President July 20, 1998
- ------------------------ and Chief Executive Officer
Steven Madden
/s/ RHONDA BROWN Chief Operating Officer July 20, 1998
- ------------------------ and Director
Rhonda Brown
/s/ ARVIND DHARIA Chief Financial Officer July 20, 1998
- ------------------------ and Director
Arvind Dharia
/s/ JOHN BASILE Director of Operations July 20, 1998
- ------------------------ and Director
John Basile
/s/ JOHN L. MADDEN Director July 20, 1998
- ------------------------
John L. Madden
/s/ LES WAGNER Director July 20, 1998
- ------------------------
Les Wagner
/s/ PETER MIGLIORINI Director July 20, 1998
- ------------------------
Peter Migliorini
/s/ CHARLES KOPPELMAN Director July 20, 1998
- ------------------------
Charles Koppelman
EXHIBIT 5.01
[LETTERHEAD OF BERLACK, ISRAELS & LIBERMAN LLP]
July 10, 1998
Steven Madden, Ltd.
52-16 Barnett Avenue
Long Island City, NY 11105
Ladies and Gentlemen:
We have acted as counsel for Steven Madden, Ltd., a New York
corporation ("Company"), in connection with a Registration Statement on Form S-3
("Registration Statement") being filed contemporaneously herewith by the Company
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), covering 64,520 shares (the "Shares") of the
Company's common stock, par value $.0001 per share, on behalf of certain selling
securityholders.
In that connection, we have examined the Certificate of Incorporation,
as amended, and the By-Laws of the Company, the Registration Statement,
corporate proceedings of the Company relating to the issuance of the Common
Stock and such other instruments and documents as we have deemed relevant under
the circumstances.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us as original or photostat copies. We have also assumed that the
corporate records of the Company include all corporate proceedings taken by the
Company to date.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized, validly issued and are fully paid and
nonassessable.
We hereby consent to the use of this opinion as herein set forth as an
exhibit to the Registration Statement.
Very truly yours,
/s/ BERLACK, ISRAELS & LIBERMAN LLP
---------------------------------------
Berlack, Israels & Liberman Llp
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
DANIEL SCOTT, INC.,
ROBERT SCHMERTZ,
STEVEN MADDEN, LTD.
AND
STEVEN MADDEN OUTLETS, INC.
DATED AS OF MAY 1, 1998
================================================================================
TABLE OF CONTENTS
PAGE
ARTICLE I....................................................................1
1.1 CERTAIN DEFINITIONS...........................................1
1.2 TRANSFER OF THE ASSETS........................................4
1.3 ASSUMPTION BY THE BUYER OF CERTAIN LIABILITIES................4
1.4 NON-ASSUMED LIABILITIES.......................................4
1.5 PURCHASE PRICE FOR THE ASSETS; RESTRICTIONS ON TRANSFER.......5
1.6 CLOSING ADJUSTMENTS...........................................5
ARTICLE II...................................................................5
2.1 THE CLOSING...................................................5
2.2 ADDITIONAL ACTIONS TO BE TAKEN ON THE CLOSING DATE............6
ARTICLE III..................................................................7
3.1 ORGANIZATION AND QUALIFICATION................................7
3.2 SUBSIDIARIES..................................................7
3.3 VALIDITY AND EXECUTION OF AGREEMENT...........................7
3.4 NO CONFLICT...................................................7
3.5 LITIGATION....................................................8
3.6 THE ASSETS....................................................8
3.7 INTANGIBLE PROPERTY...........................................8
3.8 NO MATERIAL ADVERSE CHANGE....................................8
3.9 CONTRACTS AND OTHER AGREEMENTS................................8
3.10 REAL ESTATE...................................................8
3.11 ERISA.........................................................8
3.12 ENVIRONMENTAL MATTERS.........................................9
3.13 LICENSES AND PERMITS..........................................9
3.14 INVESTMENT REPRESENTATIONS....................................9
ARTICLE IV..................................................................10
4.1 ORGANIZATION AND QUALIFICATION...............................10
4.2 VALIDITY AND EXECUTION OF AGREEMENT..........................10
4.3 NO CONFLICT..................................................10
4.4 THE SHARES...................................................11
4.5 SEC REPORTS; DISCLOSURE......................................11
i
ARTICLE V...................................................................11
5.1 SURVIVAL.....................................................11
5.2 INDEMNIFICATION AND OTHER COVENANTS..........................12
5.3 METHOD OF ASSERTING CLAIMS...................................12
5.4 SUBROGATION; EXCLUSIVITY OF REMEDY...........................14
5.5 NON-COMPETITION..............................................15
ARTICLE VI..................................................................15
6.1 SALES AND TRANSFER TAXES.....................................15
6.2 POST-CLOSING FURTHER ASSURANCES..............................15
6.3 NOTICES......................................................16
6.4 PUBLICITY....................................................17
6.5 ENTIRE AGREEMENT.............................................17
6.6 WAIVERS AND AMENDMENTS.......................................17
6.7 GOVERNING LAW................................................17
6.8 BINDING EFFECT; NO ASSIGNMENT................................17
6.9 VARIATIONS IN PRONOUNS.......................................17
6.10 COUNTERPARTS.................................................17
6.11 EXHIBITS AND SCHEDULES.......................................17
6.12 EFFECT OF DISCLOSURE ON SCHEDULES............................18
6.13 HEADINGS.....................................................18
6.14 SEVERABILITY OF PROVISIONS...................................18
6.15 BROKERS......................................................18
6.16 CHANGE AND USE OF NAME.......................................18
EXHIBITS
EXHIBIT A - Assignment & Assumption Agreement
EXHIBIT B - Bill of Sale
EXHIBIT C - Assignment of Lease and Landlord's Consent
EXHIBIT D - Registration Rights Agreement
EXHIBIT E - Employment Agreement
SCHEDULES
1.1(a) - Excluded Assets
1.2 - Assets
1.3(b) - Assumed Liabilities
3.9 - Material Agreements
3.10 - Real Estate
ii
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of May 1, 1998 by and between Daniel
Scott, Inc., a New York corporation ("Seller), Steven Madden Outlets, Inc., a
Delaware corporation (the "Buyer"), Steven Madden, Ltd., a New York corporation
("Buyer Parent"), and Robert Schmertz ("Schmertz").
W I T N E S S E T H :
WHEREAS, the Seller is engaged in the business of operating a retail
shoe store under the name Shoe Biz located at 86 Main Street, Mineola, NY 11501
(the "Business"); and
WHEREAS, the Seller owns certain assets comprising the Assets (as
hereinafter defined) which are related to the conduct of the Business; and
WHEREAS, the Seller wishes to transfer, and the Buyer wishes to
purchase, the Assets, subject to the assumption by the Buyer of certain
liabilities of the Seller comprising the Assumed Liabilities (as hereinafter
defined) in exchange for the Shares (as hereafter defined); and
WHEREAS, Seller and Buyer have adopted a plan of reorganization and
intend that the sale of the Assets qualify as a reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Seller, Schmertz, Buyer Parent and the
Buyer hereby agree as follows:
ARTICLE I
DEFINITIONS; PURCHASE OF THE ASSETS;
ASSUMPTION OF ASSUMED LIABILITIES; PURCHASE PRICE;
CLOSING ADJUSTMENTS; CONDITION OF ASSETS; ADDITIONAL SHARES
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:
"AFFILIATE" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person.
"ASSETS" has the meaning specified in Section 1.2.
"ASSIGNED CONTRACTS AND LEASES" means the unexpired lease(s) set forth
in Schedule 3.10) and executory contracts set forth on Schedule 3.9.
1
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means an instrument substantially
in the form of Exhibit A attached hereto.
"ASSIGNMENT OF LEASE AND LANDLORD'S CONSENT" means an instrument
substantially in the form of Exhibit C attached hereto.
"BILL OF SALE" means an instrument substantially in the form of Exhibit
B attached hereto.
"BUSINESS" has the meaning specified in the Recitals.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks are authorized or required by law to close in New York
City.
"BUYER" has the meaning specified in the introductory paragraph of this
Agreement.
"CLAIM NOTICE" has the meaning specified in Section 5.3(a).
"CLOSING" has the meaning specified in Section 2.1(a).
"EFFECTIVE DATE" means 12:01 a.m. on May 1, 1998.
"EMPLOYMENT AGREEMENT" means an instrument substantially in the form of
Exhibit E attached hereto.
"ENVIRONMENTAL LAW" means any and all present and future federal,
state, local and statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, grants, franchises, licenses or agreements relating to
(a) the protection of the environment, health or workers safety; (b) pollution
or environmental contamination; or (c) the use, processing, distribution,
generation, treatment, storage, recycling, transportation, disposal, handling,
Release or threatened or potential Release of any Material of Environmental
Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCLUDED ASSETS" means those assets of the Seller or an Affiliate of
Seller set forth on Schedule 1.1(a).
"GOVERNMENTAL OR REGULATORY BODY" means any government or political
subdivision thereof, whether federal, state, county, local or foreign, or any
agency, authority or instrumentality of any such government or political
subdivision.
"INDEMNIFIED PARTY" has the meaning specified in Section 5.3.
"INDEMNIFYING PARTY" has the meaning specified in Section 5.3.
2
"LANDLORD" means Barnet Michelman, the landlord of the Seller's retail
store location at 86 Main street, Mineola, New York 11501.
"LEASES" has the meaning specified in Section 3.10.
"LIEN" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"LOSSES" has the meaning specified in Section 5.2.
"MATERIAL ADVERSE EFFECT" means any change or changes or effect or
effects that individually or in the aggregate are or is reasonably expected to
be materially adverse to (a) the Assets, operations, income or conditions
(financial or otherwise) of the Business or the transactions contemplated by
this Agreement or (b) the ability of the Seller to perform its obligations under
this Agreement.
"MATERIAL AGREEMENTS" has the meaning specified in Section 3.9.
"NON-ASSUMED LIABILITIES" has the meaning specified in Section 1.4.
"PERMITTED LIENS" means Liens for taxes not yet due.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental or Regulatory Body or other entity.
"PLAN" means any plan, fund, program, understanding, policy,
arrangement, contract or commitment, whether qualified or not qualified for
federal income tax purposes, whether formal or informal, whether for the benefit
of a single individual or more than one individual, which is in the nature of
(a) an employee pension benefit plan (as defined in ERISA Section 3(2)) (b) an
employee welfare benefit plan (as defined in ERISA Section 3(1)) or (c) an
incentive, deferred compensation, or other benefit arrangement for employees,
former employees, their dependents or their beneficiaries.
"PURCHASE PRICE" has the meaning specified in Section 1.5.
"RECORDS" shall mean files and records, including correspondence, books
of account, employment records, customer files, purchase and sales records and
correspondence, advertising records, files and literature, and other written
materials of Seller to the extent relating to the Assets or the Business;
PROVIDED, HOWEVER, that Records shall not mean or include the corporate minute
books and stock records of Seller and any shares of capital stock of Seller, nor
shall they include any communications that do not relate to the Assets or the
Business that are currently protected from disclosure by Seller by virtue of the
attorney-client privilege.
3
"REGISTRATION RIGHTS AGREEMENT" means an instrument substantially in
the form of Exhibit D attached hereto.
"RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"SCHMERTZ" has the meaning specified in the introductory paragraph of
this Agreement.
"SHARES" has the meaning specified in Section 1.5.
"SELLER" has the meaning specified in the introductory paragraph of
this Agreement.
"TAX" or "TAXES" mean all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign Taxing Authority,
including, without limitation, gross income, gross receipts, income, capital,
excise, property (tangible and intangible), sales, transfer, value added,
employment, payroll and franchise taxes and such terms shall include any
interest, penalties or additions attributable to or imposed on or with respect
to such assessments.
1.2 TRANSFER OF THE ASSETS. Subject to the terms and conditions set
forth in this Agreement, the Seller agrees that, on the date hereof (the
"Closing Date"), the Seller shall sell, transfer, assign, convey and deliver to
the Buyer, without recourse, representation or warranty except as otherwise
expressly provided herein and Buyer shall purchase from the Seller, all of the
assets owned, used or held by the Seller to conduct the Business, including
without limitation the assets set forth on Schedule 1.2, other than the Excluded
Assets (the "Assets"), free and clear of all Liens, other than Permitted Liens.
1.3 ASSUMPTION BY THE BUYER OF CERTAIN LIABILITIES. Subject to the
terms and conditions set forth in this Agreement, Buyer agrees that, on the
Closing Date but effective as of the Effective Date, Buyer shall assume and
thereafter pay, perform or discharge, as the case may be, the following
obligations and liabilities of the Seller (the "Assumed Liabilities"):
(a) all obligations and liabilities of the Seller arising out of, or in
connection with, the Assigned Contracts and Leases;
(b) all liabilities of the Seller outstanding as of the Effective Date
reflected on Schedule 1.3 (b) attached hereto not to exceed $150,000 in the
aggregate; and
(c) all liabilities and obligations of Seller incurred in the ordinary
course of business during the period commencing on the Effective Date and ending
on the Closing Date.
1.4 NON-ASSUMED LIABILITIES. The Buyer shall not assume nor be
responsible for any liabilities or obligations of the Seller or any of its
Affiliates other than the Assumed Liabilities (the "Non-Assumed Liabilities").
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1.5 PURCHASE PRICE FOR THE ASSETS; RESTRICTIONS ON TRANSFER. The
consideration for the Assets shall be the (i) assumption by the Buyer of the
Assumed Liabilities; and (ii) the delivery on the Closing Date of 64,520 shares
of common stock of Buyer Parent (the "Shares") (collectively, the "Purchase
Price"). Except as contemplated by the Note (as hereinafter defined), Seller and
Schmertz agree (and, if necessary, cause his wife to agree) not to sell,
transfer, pledge, hypothecate or otherwise encumber more than 32,260 shares
during the eighteen (18) month period (the "Restricted Period") following the
date hereof without the prior written consent of the Buyer; provided, however,
that (i) Seller may transfer the Shares to Schmertz and his wife upon
liquidation of Seller and (ii) Seller or Schmertz, as the case may be, may sell
such additional shares in order to repay the outstanding principal amount and
accrued and unpaid interest on that certain promissory note dated May 1, 1998
issued by Schmertz to Buyer (the "Note"). At the conclusion of the Restricted
Period and upon the request of Seller or Schmertz, Buyer Parent shall cause its
transfer agent to remove any restrictive legend contemplated by the preceding
sentence.
1.6 CLOSING ADJUSTMENTS. (a) Adjustments shall be made between the
Seller and the Buyer as of the Effective Date with respect to the rent and
additional rent or charges (including, but not limited to, additional rent or
charges for real estate taxes, water charges, insurance and common area
maintenance) payable by or to the Seller pursuant to the Lease with the
Landlord.
(b) The net amount of any closing adjustments in favor of the Seller
shall be paid to the Seller on the Closing Date in immediately available funds,
and the net amount of any closing adjustments in favor of the Buyer shall be
paid to the Buyer on the Closing Date in shares of common stock of Buyer Parent
valued as specified in Section 5.3(d).
(c) Any errors or omissions in computing closing adjustments discovered
after Closing Date shall be corrected promptly upon discovery. The obligation of
the parties under this Section shall survive the Closing.
ARTICLE II
CLOSING
2.1 THE CLOSING. (a) The consummation of the transactions contemplated
by this Agreement (the "Closing") shall be held simultaneous with the execution
of this Agreement at the offices of Berlack, Israels & Liberman LLP, 120 West
45th Street, New York, New York 10036.
(b) At the Closing, the Seller shall execute and deliver or cause to be
executed and delivered to the Buyer, all documents and instruments necessary to
transfer to the Buyer, all of the right, title and interest of the Seller in and
to the Assets, including, without limitation:
(i) the Assignment and Assumption Agreement, signed by the
Seller;
(ii) the Bill of Sale, as applicable, signed by the Seller; and
(iii) the Assignment of Lease and Landlord's Consent, signed by
the Seller and the Landlord.
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(c) At the Closing, the Buyer shall:
(i) execute and deliver to the Seller the Assignment and
Assumption Agreement;
(ii) assume the Assumed Liabilities effective as of the
Effective Date; and
(iii) deliver the Shares to the Seller.
(d) At the Closing, the Buyer and Schmertz shall execute and deliver
the Employment Agreement.
(e) At the Closing, the Buyer Parent and Seller shall execute and
deliver the Registration Rights Agreement.
2.2 ADDITIONAL ACTIONS TO BE TAKEN ON THE CLOSING DATE.
(a) LIENS/CONSENTS. The Seller shall have satisfied and discharged all
Liens on the Assets, except for Permitted Liens and provided the Buyer with
evidence of such satisfaction and discharge as well as all necessary consents to
transfer or assign the Assets to Buyer, in form and substance satisfactory to
the Buyer.
(b) SHAREHOLDER CONSENT. The Buyer shall have received a consent to the
transactions contemplated by this agreement signed by all of the shareholders of
Seller.
(c) BULK SALES ACT. Other than with respect to the Assumed Liabilities,
Schmertz agrees to indemnify Buyer and Buyer Parent from any Losses incurred by
Buyer and Buyer Parent arising out of or resulting from the failure of the
Seller to comply with Article 6 of the Uniform Commercial Code of the State of
New York. Buyer and Buyer Parent hereby waive compliance with the provisions of
any applicable bulk sales law of any jurisdiction in connection with the
transactions contemplated hereby and no representation, warranty or covenant
contained in this Agreement shall be deemed to have been breached as a result of
such non-compliance.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND SCHMERTZ
The Seller and Schmertz jointly and severally represent and warrant to the Buyer
as follows:
3.1 ORGANIZATION AND QUALIFICATION. Seller is a corporation validly
existing and in good standing under the laws of the State of New York doing
business as "Shoe Biz", and has all requisite corporate power and authority to
(a) own, lease and operate its properties and assets as they are now owned,
leased and operated and (b) carry on its business as now presently conducted and
as proposed to be conducted. Seller is duly qualified to do business in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary, except where the failure to do so would not have a
Material Adverse Effect.
3.2 SUBSIDIARIES. Seller has no subsidiaries.
3.3. VALIDITY AND EXECUTION OF AGREEMENT. Seller has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The shareholders and the board of
directors of Seller have each approved the transactions contemplated pursuant to
this Agreement and each of the other agreements required to be entered into
pursuant hereto by Seller. This Agreement and such other agreements and
instruments have been duly executed and delivered by Seller and each constitutes
the valid and binding obligation of Seller enforceable against it in accordance
with its terms, except as may be limited by any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws (whether
statutory, regulatory or decisional), now or hereafter in effect, relating to or
affecting the rights of creditors generally or by equitable principles
(regardless of whether considered in a proceeding at law or in equity).
3.4 NO CONFLICT. Neither the execution and delivery of this Agreement
nor the performance by the Seller or Schmertz of the transactions contemplated
hereby will violate or conflict with (a) any of the provisions of the
Certificate of Incorporation or By-Laws or other organizational documents of the
Seller; (b) result in the acceleration of, or entitle any party to accelerate
the maturity or the cancellation of the performance of any obligation under, or
result in the creation or imposition of any Lien in or upon the Assets or
constitute a default (or an event which might, with the passage of time or the
giving of notice, or both, constitute a default) under any material contract to
which Seller is a party other than (1) as specifically set forth on Schedule
3.9, (2) any contract or instrument evidencing any of the Non-Assumed
Liabilities, and (3) such contract violations, accelerations, cancellations,
defaults or Liens as do not individually or in the aggregate have a Material
Adverse Effect; and, (c) any order, judgment, regulation or ruling of any
Governmental or Regulatory Body to which the Seller and Schmertz is a party or
by which any of its property or assets may be bound or affected or with any
provision of any law, rule, regulation, order, judgment, or ruling of any
Governmental or Regulatory Body applicable to the Seller other than such
violations or conflicts as do not or will not individually or in the aggregate
have a Material Adverse Effect.
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3.5 LITIGATION. There are no outstanding orders, judgments,
injunctions, investigations, awards or decrees of any court, Governmental or
Regulatory Body or arbitration tribunal by which the Seller, or any of its
securities, assets, properties or business is bound. There are no actions,
suits, claims, investigations, legal, administrative or arbitral proceedings
pending or, to the best knowledge of the Seller, threatened (whether or not the
defense thereof or liabilities in respect thereof are covered by insurance)
against or affecting the Seller, or any of its assets or properties, that,
individually or in the aggregate, are reasonably expected to have a Material
Adverse Effect.
3.6 THE ASSETS. The Seller owns outright and has good title to all of
the owned Assets free and clear of any Lien, other than Permitted Liens. The
Assignment and Assumption Agreement and such other conveyancing documents as
shall have been executed and delivered to the Buyer will convey good title to
the Assets, free and clear of any Liens, except for Permitted Liens. Except for
the assets described on Schedule 1.1(a), the Assets transferred pursuant hereto
constitute all of the assets necessary and appropriate for the conduct of the
Business as of the date hereof in substantially the same manner as the Business
has heretofore been conducted.
3.7 INTANGIBLE PROPERTY. To the best knowledge of the Seller without
having conducted any investigation, (i) no patent, invention, trademark, service
mark or trade name of any other Person infringes upon, or is infringed upon by
any of the trademarks, service marks, logos or tradenames of the Seller and (ii)
the operation of the Business has not infringed on the intellectual property
rights of others.
3.8 NO MATERIAL ADVERSE CHANGE. Since January 1, 1998, there has been
no material adverse change in the Business, operations or financial condition of
the Seller, or in the assets, liabilities, net worth or properties of the
Seller, and the Seller knows of no such change that is threatened, nor has there
been any damage, destruction or loss which could have a Material Adverse Effect,
whether or not covered by insurance.
3.9 CONTRACTS AND OTHER AGREEMENTS. Schedule 3.9 sets forth all written
agreements (and, to the best knowledge of the Seller, any oral agreement) and
arrangements that materially affect the operations of the Business or to which
Seller is a party (collectively, the "Material Agreements").
3.10 REAL ESTATE. Schedule 3.10 sets forth a list and supplies
descriptions of all leases or subleases (the "Leases") under which the Seller is
lessor or lessee of any real property. A true, correct and complete copy of all
Leases have been delivered or made available to the Buyer. To Seller's
knowledge, the Lease is in full force and effect and the Seller has not received
any notice of any default thereunder.
3.11 ERISA. The Seller does not sponsor, maintain, have any obligation
to contribute to, have any liability under, and is not otherwise a party to, any
Plan.
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3.12 ENVIRONMENTAL MATTERS. The Seller is not in violation of, or
delinquent in respect to, any Environmental Law which violation or delinquency
would have a Material Adverse Effect.
3.13 LICENSES AND PERMITS. Any permits, licenses, registrations and
consents which are necessary in connection with the Seller's operations and
properties, are in full force and effect and in good standing, except for
permits, licenses, registrations or consents which the failure to obtain would
not have a Material Adverse Effect.
3.14 INVESTMENT REPRESENTATIVES. The issuance of the Shares in this
transaction is intended to be a private transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"), and is made
in reliance upon the representations set forth below.
(a) Seller is acquiring the Shares for its own account for investment
only and not with a view to, or for sale in connection with, a distribution of
the Shares in violation of the Securities Act and any applicable state
securities or blue-sky laws;
(b) Seller acknowledges to the Buyer that:
(i) the Buyer has advised Seller that the Shares have not been
registered under the Securities Act or under the laws of any state on the basis
that the issuance thereof contemplated by this Agreement is exempt from such
registration and the certificate representing the Shares shall contain a
restrictive legend reflecting the fact that the Shares have not been registered;
(ii) the Buyer's reliance on the availability of such
exemption is, in part, based upon the accuracy and truthfulness of Seller's
representations contained herein;
(iii) the Shares cannot be resold without registration or an
exemption under the Securities Act and such state securities laws, and that
certificates representing the Shares will bear a restrictive legend to such
effect as well as a restrictive legend in accordance with the restrictions on
transfer contained in Section 1.5;
(iv) Seller has evaluated the merits and risks of acquiring
the Shares and has such knowledge and experience in financial and business
matters and is capable of evaluating the merits and risks of such acquisition,
is aware of and has considered the financial risks and financial hazards of
acquiring the Shares, and is able to bear the economic risk of acquiring the
Shares, including the possibility of a complete loss with respect thereto.
3.15 EXCLUSIVITY OF REPRESENTATIONS; RELIANCE ON REPRESENTATIONS. The
representations and warranties made by Seller and Schmertz in this Agreement are
in lieu of and are exclusive of all other representations and warranties,
including, without limitation, any implied warranty of merchantability or of
fitness for a particular purpose and any other implied warranties of Seller and
Schmertz. Seller and Schmertz each hereby disclaims any such other or implied
representations or warranties, notwithstanding the delivery or disclosure by
Seller and Schmertz or any other person to Buyer or Buyer Parent or any of their
directors, officers, employees, agents or representatives, of any documentation
or other information in connection with this Agreement or the transactions
contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND BUYER PARENT
The Buyer and Buyer Parent, jointly and severally, represent and
warrant to the Seller and Schmertz as follows:
4.1 ORGANIZATION AND QUALIFICATION. The Buyer is a corporation validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted and is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary. Buyer will as soon as practicable after the
Closing be duly qualified to do business in the State of New York. Buyer Parent
is a corporation validly existing and in good standing under the laws of the
State of New York.
4.2 VALIDITY AND EXECUTION OF AGREEMENT. The Buyer and Buyer Parent
each has the full legal right, capacity and power and all requisite corporate
authority and approval required to enter into, execute and deliver this
Agreement and any other agreement or instrument contemplated hereby, and to
perform fully its respective obligations hereunder and thereunder. The
respective board of directors of the Buyer and Buyer Parent each has approved to
the extent required by law the transactions contemplated by this Agreement and
each of the other agreements required to be entered into pursuant hereto by the
Buyer and Buyer Parent and no other corporate or shareholder approvals are
required. This Agreement and such other agreements and instruments have been
duly executed and delivered by the Buyer and Buyer Parent and each constitutes
the valid and binding obligation of the Buyer and Buyer Parent enforceable
against them in accordance with their respective terms, except as may be limited
by any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
or other laws (whether statutory, regulatory or decisional), now or hereafter in
effect, relating to or affecting the rights of creditors generally or by
equitable principles (regardless of whether considered in a proceeding at law or
in equity).
4.3 NO CONFLICT. Neither the execution and delivery of this Agreement
nor the performance by the Buyer of the transactions contemplated herein will
violate or conflict with (a) any of the provisions of their respective
Certificates of Incorporation or By-Laws or other organizational documents of
Buyer and Buyer Parent; or (b) result in the acceleration of, or entitle any
party to accelerate the maturity or the cancellation of the performance of any
obligation under, or result in the creation or imposition of any Lien or
constitute a default (or an event which might, with the passage of time or the
giving of notice, or both, constitute a default) under any material contract to
which Buyer or Buyer Parent is a party, other than (1) such contract violations,
accelerations, cancellations, defaults or Liens as do not individually or in the
aggregate have a material adverse effect on Buyer or Buyer Parent or their
ability to perform their obligations hereunder or under the other agreements
10
contemplated hereby, (2) any order, judgment, regulation or ruling of any
Governmental or Regulatory Body to which the Buyer or Buyer Parent is a party or
by which any of its respective property or assets may be bound or affected or
with any provision of any law, rule, regulation, order, judgment, or ruling of
any Governmental or Regulatory Body applicable to the Buyer or Buyer Parent,
other than such violations or conflicts as do not individually or in the
aggregate have a material adverse effect on Buyer or Buyer Parent or their
ability to perform their obligations hereunder or under the other agreements
contemplated hereby.
4.4 THE SHARES. The Shares have been duly and validly authorized and
issued by Buyer Parent and are fully paid and non-assessable.
4.5 SEC REPORTS; DISCLOSURE. .
(a) Buyer has delivered to Seller a true and complete copy of the
Annual Report on Form 10-K for Buyer Parent for the year ended December 31, 1997
and all 10-Q and 8-K reports for Buyer Parent filed since the filing of such
10-K by Buyer Parent with the Securities and Exchange Commission (the
"SEC")(collectively, the "Buyer Reports"). As of their respective dates, Buyer
Reports complied in all material respects with the applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the SEC, and, as of their respective dates, no Buyer Report contained any
untrue statement of material fact or omits to state a material fact required to
be stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The financial statements contained in the Buyer Reports are in
accordance with the books and records regularly maintained with respect to Buyer
Parent and present fairly the financial conditions as of and the results of
operations and cash flow for the dates and periods so indicated, in accordance
with Generally Accepted Accounting Principles ("GAAP").
4.6 NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, there has been
no material adverse change in the business of the Buyer or Buyer Parent, the
liabilities, net worth or properties of the Buyer or Buyer Parent.
ARTICLE V
INDEMNIFICATION AND OTHER COVENANTS
5.1 SURVIVAL. Subject to this Section 5.1, all representations,
warranties, covenants and agreements contained in this Agreement, the
Registration Rights Agreement or in any exhibit, certificate, agreement,
document or statement delivered pursuant hereto (an "Ancillary Instrument")
shall survive (and not be affected in any respect by) the Closing and any
investigation conducted by any party hereto. Notwithstanding the foregoing, the
representations and warranties contained in or made pursuant to this Agreement
or any Ancillary Instrument and the related indemnity obligations set forth in
Article V, shall terminate on, and no claim or action with respect thereto may
be brought after, the date that is two years after the Effective Date, except
that the representations and warranties contained in Sections 3.6 and 4.4 shall
survive in perpetuity.
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5.2 INDEMNIFICATION. (a) The Seller and Schmertz jointly and severally
agree to indemnify, defend and hold harmless the Buyer and Buyer Parent and
their respective directors, officers, employees, shareholders and any Affiliates
of the foregoing, and their successors and assigns (collectively, the "Buyer
Group") from and against any and all losses, liabilities (including to the
extent arising from third-party claims, punitive or exemplary damages and fines
or penalties and any interest thereon), expenses (including reasonable fees and
disbursements of counsel and expenses of investigation and defense), claims,
Liens or other obligations of any nature whatsoever (hereinafter individually, a
"Loss" and collectively, "Losses") suffered or incurred by the Buyer Group
which, directly or indirectly, arise out of, result from or relate to, (i) any
inaccuracy in or any breach (as of the Effective Date) of any representation or
warranty of the Seller contained in Article III, (ii) any breach of any covenant
or agreement of the Seller, in each case contained in this Agreement or in any
other document contemplated by this Agreement, (iii) any Taxes of the Seller or
Schmertz attributable to the period prior to the Effective Date, other than any
Taxes included within the Assumed Liabilities (a "Tax Loss") or (iv) any
liability or obligation arising out of the operation of the Business before the
Effective Date, except for the Assumed Liabilities. Notwithstanding anything
provided in this Agreement, Seller and Schmertz shall not be responsible for any
Losses (other than Tax Losses), until the cumulative aggregate amount of such
Losses exceeds $15,000 (the "Minimum Amount"), in which case Seller and Schmertz
shall then be liable only for such Losses in excess of the Minimum Amount, and
the cumulative aggregate indemnity obligation of Seller and Schmertz shall in no
event exceed $500,000 (the "Maximum Amount"). With respect to a Tax Loss, Seller
and Schmertz's liability shall not be limited in any manner by the Minimum
Amount or the Maximum Amount.
(b) The Buyer and Buyer Parent jointly and severally agree to
indemnify, defend and hold harmless Schmertz, the Seller and its respective
directors, officers, employees, and shareholders, and any Affiliates of the
foregoing, and their successors and assigns from and against any and all Losses
suffered or incurred by them which, directly or indirectly, arise out of, result
from or relate to (i) any inaccuracy in or any breach (as of the Effective Date)
of any representation or warranty of the Buyer or Buyer Parent contained in
Article IV, (ii) any breach of any covenant or agreement of the Buyer or Buyer
Parent contained in this Agreement or in any other document contemplated by this
Agreement, (iii) the Assumed Liabilities, or (iv) any liability or obligation
arising out of the operation of the Business after the Effective Date.
5.3 METHOD OF ASSERTING CLAIMS. The party making a claim under this
Article V is referred to as the "Indemnified Party" and the party against whom
such claims are asserted under this Article V is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Article V
shall be asserted and resolved as follows:
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(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the nature of the
specific basis for such claim or demand, and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim and demand; any such notice, together with any
notice given pursuant to Section 5.3(b) hereof, collectively being the "Claim
Notice"); PROVIDED, HOWEVER, that any failure to give such Claim Notice will not
be deemed a waiver of any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are actually prejudiced or harmed. The
Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
(who shall be reasonably acceptable to the Indemnified Party) to represent the
Indemnified Party, and shall pay the fees and disbursements of such counsel with
regard thereto, PROVIDED, FURTHER, that any Indemnified Party is hereby
authorized prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose reasonable
fees and expenses shall be at the expense of the Indemnifying Party, to file any
motion, answer or other pleading and take such other action which it reasonably
shall deem necessary to protect its interests or those of the Indemnifying Party
until the date on which the Indemnified Party receives such notice from the
Indemnifying Party. After the Indemnifying Party shall retain such counsel, the
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties of any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Indemnifying Party shall not, in connection with any proceedings or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one such firm for the Indemnified Party (except to the
extent the Indemnified Party retained counsel to protect its (or the
Indemnifying Party's) rights prior to the selection of counsel by the
Indemnifying Party). The Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand which the
Indemnifying Party defends. No claim or demand may be settled by an Indemnifying
Party or, where permitted pursuant to this Agreement, by an Indemnified Party
without the consent of the Indemnified Party in the first case or the consent of
the Indemnifying Party in the second case, which consent shall not be
unreasonably withheld, unless such settlement shall be accompanied by a complete
release of the Indemnified Party in the first case or the Indemnifying Party in
the second case.
(b) In the event any Indemnified Party shall have a claim against any
Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not dispute such claim, the
amount of such claim shall be paid to the Indemnified Party within thirty (30)
days of receipt of the Claim Notice.
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(c) So long as any right to indemnification exists pursuant to this
Article V, the affected parties each agree to retain all books, records,
accounts, instruments and documents reasonably related to the Claim Notice. In
each instance, the Indemnified Party shall have the right to be kept informed by
the Indemnifying Party and its legal counsel with respect to all significant
matters relating to any legal proceedings. Any information or documents made
available to any party hereunder, which information is designated as
confidential by the party providing such information and which is not otherwise
generally available to the public, or which information is not otherwise
lawfully obtained from third parties or not already within the knowledge of the
party to whom the information is provided (unless otherwise covered by the
confidentiality provisions of any other agreement among the parties hereto, or
any of them), and except as may be required by applicable law or requested by
third party lenders to such party, shall not be disclosed to any third Person
(except for the representatives of the party being provided with the
information, in which event the party being provided with the information shall
request its representatives not to disclose any such information which it
otherwise required hereunder to be kept confidential).
(d) To the extent a Loss occurs under Section 5.2(a)(i) or (ii), for so
long as Seller, Schmertz, an affiliate thereof or any family member of Schmertz
owns any Shares Buyer shall be indemnified by Seller's surrender for
cancellation of Shares having a fair market value equal to such Loss. For
purposes of this paragraph, fair market value of the Shares shall mean the
average market price of the Shares for five trading days before an
indemnification claim is paid. Notwithstanding the foregoing, to the extent a
Tax Loss occurs, Buyer shall be indemnified by Buyer's payment to Seller of
immediately available funds. Any indemnification pursuant to Section 5.2 shall
be treated as an adjustment to the Purchase Price.
5.4 SUBROGATION; EXCLUSIVITY OF REMEDY.
(a) Notwithstanding anything contained in this Agreement, upon
payment of any amount pursuant to any indemnification claim, the Indemnifying
Party shall be subrogated, to the extent of such payment, to all of the
Indemnified Party's rights of recovery against any third party with respect to
the matters to which such indemnification claim relates.
(b) Notwithstanding anything contained in this Agreement, the
rights and remedies of Seller, Schmertz, Buyer and Buyer Parent under this
Article V are exclusive and in lieu of any and all other rights and remedies
which Seller and Schmertz or Buyer and Buyer Parent, as the case may be, may
have against the other, under this Agreement or otherwise, (i) with respect to
(x) the inaccuracy of any representation, warranty, certification or other
statement made (or deemed made) by Seller and Schmertz or Buyer and Buyer Parent
in or pursuant to this Agreement or any Ancillary Instrument or (y) any breach
of, or failure to perform or comply with, any covenant or agreement set forth in
this Agreement or in any Ancillary Instrument or (ii) with respect to the
transactions contemplated by this Agreement. All claims for indemnification must
be asserted, if at all, in good faith and in accordance with the provisions of
this Article V and, to the extent applicable to such claims, within the relevant
time period set forth in this Article V.
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5.5 NON-COMPETITION.
(a) Seller and Schmertz acknowledge that (i) Seller's operation of the
Business has brought it in close contact with certain confidential affairs of
the Business not readily available to the public; and (ii) Buyer would not
purchase the Assets and assume the Assumed Liabilities but for the agreements
and covenants of Seller contained in this Section 5.5.
(b) Seller shall not in the New York City metropolitan area, directly
or indirectly, for a period consisting of one year following the Effective Date
(the "Restricted Period"), (i) engage in the Restricted Activities or (ii)
become affiliated with any person engaged in the Restricted Activities (other
than Buyer and Buyer Parent) as a partner, shareholder, principal, agent,
trustee, consultant or lender; provided however, that this Section 5.5 shall not
be construed to prohibit the ownership of not more than 2% of the issued and
outstanding voting securities of any class of any company whose voting capital
stock is traded on a national securities exchange or the over-the-counter
market. "Restricted Activities" means the sale, marketing, design or
distribution of footwear products, or provide technical assistance, advice or
counseling regarding the footwear industry. If any of the restrictions contained
in this Section 5.5 shall be deemed to be unenforceable by reason of the extent,
duration or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Section shall
then be enforceable in the manner contemplated hereby.
ARTICLE VI
MISCELLANEOUS
6.1 SALES AND TRANSFER TAXES. All required filings under any applicable
Federal, state, foreign or local sales tax, stamp tax or similar laws or
regulations shall be made in a timely manner by the party responsible therefor
under such laws and regulations, and, within ten (10) days following the
Closing, such party shall deliver to the other parties either (a) proof of the
payment of any sales tax assessed pursuant to such filings or (b) statements of
no sales tax due, as the case may be. Buyer shall pay any and all transfer,
sales or stamp taxes and any similar taxes or assessments imposed on the
transfer of the Assets and the Assumed Liabilities in accordance with the terms
of this Agreement, including but not limited to any New York state real property
transfer tax.
6.2 POST-CLOSING FURTHER ASSURANCES. (a) At any time and from time to
time after the Closing Date at the request of either party, and without further
consideration, the other party will execute and deliver, or cause the execution
and delivery of, such other instruments of sale, transfer, conveyance,
assignment and confirmation and take or cause to be taken such other action as
the party requesting the same may reasonably deem necessary or desirable in
order to transfer, convey and assign more effectively to the requesting party
all of the property and rights intended to be conveyed to such party pursuant to
the provisions of this Agreement.
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(b) Seller, Schmertz, Buyer and Buyer Parent agree to report the sale
of Assets for income Tax purposes as a tax-free reorganization under Section
368(a)(1)(C) of the Code (and any corresponding provision of state or local
income tax law).
6.3 NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, sent by facsimile transmission or sent by prepaid air courier
or certified, registered or express mail, postage prepaid. Any such notice shall
be deemed to have been given (a) when received, if delivered in person, sent by
facsimile transmission and confirmed in writing within three (3) Business Days
thereafter or sent by prepaid air courier or (b) two (2) Business Days following
the mailing thereof, if mailed by certified first class mail, postage prepaid,
return receipt requested, in any such case as follows (or to such other address
or addresses as a party may have advised the other in the manner provided in
this Section 6.4):
If to Seller and Schmertz, to:
Robert Schmertz
Daniel Scott, Inc.
86 Main Street
Mineola, NY 11501
with a copy to:
Hughes Hubbard & Reed, LLP
One Battery Park Plaza
New York, New York 10004
Attn: Kenneth A. Lefkowitz, Esq.
Telephone Number (212) 837-6000
Telecopier Number (212) 422-4726
If to Buyer or to Buyer Parent to:
Steven Madden Retail, Inc.
52-16 Barnett Avenue
Long Island City, New York 11104
Attn: Steven Madden
Telephone Number (718) 446-1800
Telecopier Number (718) 446-5599
with a copy to:
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attn: Alan N. Forman, Esq.
Telephone Number (212) 704-0100
Telecopier Number (212) 704-0196
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6.4 PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without advance
approval thereof by the Buyer and the Seller.
6.5 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
6.6 WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof.
6.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
6.8 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors, assigns
and legal representatives. This Agreement is not assignable except by operation
of law and any other purported assignment shall be null and void.
6.9 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
6.10 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
6.11 EXHIBITS AND SCHEDULES. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
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6.12 EFFECT OF DISCLOSURE ON SCHEDULES. Any item disclosed on any
Schedule shall be deemed to be disclosed in connection with (a) the specific
representation and warranty to which such Schedule is expressly referenced, (b)
any specific representation and warranty which expressly cross-references such
Schedule and (c) any specific representation and warranty to which any other
Schedule to this Agreement is expressly referenced if such other Schedule
expressly cross-references such Schedule.
6.13 HEADINGS. The headings in this agreement are for reference only,
and shall not affect the interpretation of this Agreement.
6.14 SEVERABILITY OF PROVISIONS. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance, shall be held invalid or unenforceable,
the remaining portion of such provision and the remaining provisions of this
Agreement, or the application of such provision or portion of such provision as
is held invalid or unenforceable to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affect thereby.
6.15 BROKERS. Each party hereto represents and warrants that no broker
or finder is entitled to any brokerage or finder's fee or other commission from
such party, based on agreements, arrangements or undertakings made by such
party, in connection with the transactions contemplated hereby.
6.16 CHANGE AND USE OF NAME. The Seller, within ten (10) days from the
date hereof, shall deliver to the Buyer evidence that it has changed its assumed
name "Shoe Biz", in those jurisdictions in which the Seller is licensed or
qualified to do business and, thereafter shall refrain from directly or
indirectly using any name or names, corporate or otherwise, which could be
confusingly similar to the name, "Shoe Biz". Seller covenants that it shall
cause its affiliate Shoe Biz, Inc., a New York corporation, to change its name
within ten days from the date hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DANIEL SCOTT, INC.
By: /s/ ROBERT SCHMERTZ
-----------------------------------
Name: Robert Schmertz
Title: President
STEVEN MADDEN, LTD.
By: /s/ STEVEN MADDEN
-----------------------------------
Name: Steven Madden
Title: Chief Executive Officer
STEVEN MADDEN OUTLETS, INC.
By: /s/ STEVEN MADDEN
-----------------------------------
Name: Steven Madden
Title: Chief Executive Officer
/s/ ROBERT SCHMERTZ
-----------------------------------
Robert Schmertz
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EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement on Form S-3 of our report dated February 6, 1998 on the financial
statements of Steven Madden, Ltd. included in the 1997 Annual Report on Form
10-KSB. We also consent to the reference to our firm under the caption "Experts"
in the prospectus.
Richard A. Eisner & Company, LLP
New York, New York
July 15, 1998
