SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
COMMISSION FILE NO. 0-23702
STEVEN MADDEN, LTD.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-3588231
- - ------------------------------- ---------------------------------
(STATE OF OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
52-16 BARNETT AVENUE
LONG ISLAND CITY, NEW YORK 11104
- - -------------------------- ----------
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (718) 446-1800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
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(TITLE OF CLASS)
CLASS B REDEEMABLE COMMON STOCK PURCHASE WARRANT
------------------------------------------------
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the twelve month period ended December 31, 1997 were
$59,311,000.
The aggregate market value of the voting stock held by non- affiliates of
the Registrant, computed by reference to the closing price of such stock as of
March 16, 1998 was approximately $67,853,268.
Number of shares outstanding of the issuers common stock, as of March 16, 1998,
was 8,571,073 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
PART III INCORPORATES CERTAIN INFORMATION BY REFERENCE FROM THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
SCHEDULED FOR MAY 22, 1998.
PART I
ITEM 1. BUSINESS.
Steven Madden, Ltd. (the "Company") designs contemporary footwear under the
Steve Madden(R) and David Aaron(R) brands for women ages 16 to 45 years. The
Company's branded products are designed to appeal to style-conscious consumers
in the junior and bridge market segments. The Company sells its products through
its seventeen (17) Steve Madden(R) retail stores, one (1) David Aaron(R) store
and more than two thousand two hundred (2,200) department and specialty store
locations in the United States, Canada, Australia and Venezuela. The Company's
product line includes core products, which are sold year-round, complemented by
a broad range of updated styles, which are designed to establish or capitalize
on market trends. The Company's business is comprised of four (4) distinct
segments: a wholesale division; a retail subsidiary; a private label subsidiary
and the David Aaron(R) subsidiary. In 1997, the Company commenced an aggressive
licensing program and entered into six (6) licensing agreements for sportswear
and jeanswear, outerwear, handbags, sunglasses, hosiery and jewelry. The Company
was founded and developed by Steven Madden, its principal designer and Chief
Executive Officer, President and Chairman of the Board, who has established a
reputation for his creative designs, popular styles and quality products at
accessible price points. Mr. Madden has over twenty (20) years of experience in
the footwear industry and is responsible for the Company's overall fashion
direction.
Steven Madden, Ltd., was incorporated as a New York corporation on July 9,
1990. The Company commenced operations in August, 1990 and introduced its first
styles of women's footwear and began shipping its products in the Fall of 1990.
The Company completed its initial public offering in December 1993 and its
securities traded on The Nasdaq SmallCap Market until December 1996. Commencing
in January 1997, the Company's shares of Common Stock and Class B Warrants trade
on The Nasdaq National Market under the symbols "SHOO" and "SHOOZ" respectively.
The Company maintains its principal executive offices and a wholesale
warehouse facility at 52-16 Barnett Avenue, Long Island City, NY 11104,
telephone number (718) 446-1800, a showroom at 1370 Avenue of the Americas, New
York, NY 10019, a wholesale warehouse at 3400 McIntosh Rd., Ft. Lauderdale, FL
33316 and a retail warehouse at 43-15 38th Street, Long Island City, New York
11104.
STEVEN MADDEN, LTD. - WHOLESALE DIVISION
The wholesale division sells and markets the Company's Steve Madden(R)
brand to major department stores, better specialty stores, and shoe stores
throughout the country and in Australia, Canada and Venezuela. During the last
few years the Steve Madden(R) product line has
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become a leading footwear brand in the fashion conscious junior marketplace. To
serve its customers (women primarily ages 16 to 25), the Company creates and
markets fashion forward footwear designed to appeal to customers seeking
exciting, new footwear designs at reasonable prices. In 1997, the wholesale
division expanded its product mix to include sales of athletic footwear and
evening shoes.
As the Company's largest division, the Steve Madden(R) wholesale division
accounted for $38,487,000 in sales in 1997, or approximately 65% of the
Company's total sales. Many of the wholesale division's newly created styles are
test marketed at the Company's retail stores. Within a few days, the Company can
determine if a test product appeals to customers. This enables the Company to
use its flexible manufacturing model to rapidly respond to changing preferences
which is essential for success in the junior marketplace.
THE DIVA ACQUISITION CORP. - DAVID AARON(R) WHOLESALE DIVISION
On April 1, 1996, the Company acquired Diva International, Inc., a New York
corporation ("Diva"). The Company acquired all of the outstanding capital stock
of Diva for a total purchase price of approximately $1,885,000 in cash and
stock. In connection with the Diva transaction, the Company entered into
employment agreements with four (4) key employees of Diva, none of whom are
currently employed by the Company.
Diva designs and markets fashion footwear to women under the "David
Aaron(R)" name through one (1) Company owned retail shoe store located in the
Soho area of Manhattan, major department stores and better footwear specialty
stores. Diva's products are designed to appeal principally to fashion conscious
women, ages 26 to 45, who shop at department stores and footwear boutiques,
priced a tier above the Steve Madden(R) brand. The Company recorded sales from
the David Aaron(R) brand of $6,447,000 for the year ended December 31, 1997, or
11% of the Company' total sales.
STEVEN MADDEN RETAIL, INC. - RETAIL DIVISION
The Company currently operates seventeen (17) retail shoe stores under the
Steve Madden(R) name and one (1) under the David Aaron(R) name. Three (3) stores
are located in Manhattan (in Soho and the Upper Eastside), fourteen (14) stores
are located in major shopping malls in California, Florida, Georgia, Maryland,
Massachusetts, New Jersey and New York and one (1) store is located in a highly
traveled urban street location in Coconut Grove, Florida. Each of the Steve
Madden(R) stores has been designed to appeal to young fashion conscious women by
creating a "nightclub" type atmosphere. The retail stores have been very
successful for the Company, generating in excess of $700 per square foot. Sales
are primarily from the sale of the Company's Steve Madden(R)
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product line. Same store sales increased 17% in 1997 over 1996 sales and total
sales for the retail division were $13,249,000 compared to $3,805,000 for 1996.
The Company believes that the Retail Division will continue to enhance
overall sales and profits while building equity in the brand. It is for these
reasons that the Company has embarked upon an aggressive expansion plan and
intends to add approximately nine (9) new retail stores during the remainder of
1998. Additionally, the expansion of the Retail Division enables the Company to
test and react to new products and classifications which strengthen the Steve
Madden wholesale division.
THE ADESSO-MADDEN, INC. - PRIVATE LABEL DIVISION
In September 1995, the Company incorporated Adesso-Madden, Inc. as a wholly
owned subsidiary ("A-M"). A-M was formed to serve as a buying agent to mass
market merchandisers, shoe store chains and other off-price retailers with
respect to their purchase of private label shoes. As a buying agent, A-M
arranges with shoe manufacturers in Asia and South America for them to
manufacture private label shoes to the specifications of their clients. As a
result of the manner in which A-M has operated its business since April 1, 1997,
A-M receives commissions in connection with the purchase of private label shoes
by its clients. In 1997, the Private Label Division generated sales revenue of
$1,128,000 for the year ended December 31, 1997 and commission revenue of
$2,192,000 for the year ended December 31, 1997. See "Management's Discussion
and Analysis."
PRODUCTS AND LICENSING
The Company's products emphasize youthful styling and contemporary design
and are marketed at moderate to bridge price points. The Company's primary
products include Steve Madden(R) and David Aaron(R) branded shoes. The Company
also has a private label shoe operation, Adesso-Madden, Inc., and has also
entered into strategic licensing agreements for additional Steve Madden(R)
branded products. The following paragraphs describe the Company's products.
STEVE MADDEN(R)
Steve Madden(R) branded products are designed to appeal to style conscious
consumers in the junior market (ages 16 to 25 years). The Steve Madden(R) line
emphasizes up-to-date fashion and includes a wide range of women's footwear
including boots, clogs, sneakers, evening shoes, and sandals. Steve Madden(R)
brand shoes sell at retail price points generally ranging from $48 to $70 for
shoes and up to $99 for boots.
In order to reduce the impact of changes in fashion trends on the Steve
Madden(R) brand product sales, the Company designs and classifies its product
line into three categories: CORE, CORE-PLUS, and FASHION. The Company's CORE
line is available year round and consists of
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classic products which have proven to be consistent sellers over several
seasons. The CORE line currently includes twelve (12) style/color combinations
which can be reordered by size and shipped to retailers within one to two weeks,
allowing for the rapid replenishment of the most popular Steve Madden(R) styles.
The Company's CORE-PLUS line consists of basic styles whose patterns and colors
are updated each season to keep pace with changing trends. Finally, the
Company's FASHION line consists of styles that are designed close to or in
season and capitalize on the Company's ability to design, test, manufacture and
market products quickly. CORE and CORE-PLUS products account for a majority of
Steve Madden(R) brand sales.
DAVID AARON(R)
The Company acquired the David Aaron(R) brand in 1996, and currently
markets David Aaron(R) products through its Diva division. David Aaron(R)
branded products are designed to appeal to more sophisticated, career and
fashion oriented consumers (ages 26 to 45 years) in the bridge market segment.
David Aaron(R) products are priced at a tier above the Steve Madden(R) brand and
have retail price points generally ranging from $70 to $100 for shoes and up to
$150 for boots. Similar to the Steve Madden(R) line, the Company's David
Aaron(R) line is organized into CORE, CORE-PLUS, and FASHION categories with
CORE and CORE-PLUS products accounting for a large majority of David Aaron(R)
brand sales.
ADESSO-MADDEN, INC.
Adesso-Madden, Inc., a private label division, acts primarily as a buying
agent for mass merchandising and off-price retailers. The Company believes that
its entry into the private label, mass merchandising market enables it to
maximize additional non-branded sales opportunities and provides for more
competitive sourcing thereby leveraging the Company's overall sourcing, design
and manufacturing capabilities. Currently, this division manufactures women's
footwear for large retailers including J.C. Penney, Sears, Mervyn's, and Target.
LICENSING
The Company believes that strategic licensing will enhance the Steve Madden
brand(R), increase brand equity and leverage customer loyalty. During 1997, the
Company began to license the Steve Madden(R) brand selectively while attempting
to maintain strict design, merchandising and marketing control over its
licensees. To date, the Company has entered into agreements for sportswear and
jeans, eyewear, handbags, hosiery, jewelry, and outerwear. Each licensee
requires that licensees pay to the Company a royalty based on net sales and a
minimum royalty in the event that net sales fail to reach specified targets.
During 1998, the Company may continue to pursue additional licensees in new
product categories as well as to seek expansion into certain markets outside the
United States.
DESIGN
Steve Madden, the principal designer of the Company, has established a
reputation for his creative designs, popular styles and quality products at
accessible price points. Mr. Madden has
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been involved in the footwear industry for over twenty (20) years and is
responsible for the Company's overall fashion direction, maintaining direct,
day-to-day responsibility for the design and marketing of the Company's
products.
The Company believes that its future success will depend in substantial
part on its ability to continue to anticipate and react to changing consumer
demands in a timely manner. To meet this objective, the Company has developed a
unique design process that allows it to recognize and adapt quickly to changing
consumer demands. Mr. Madden and his design team work together to create a
design which they believe fits the Company's image, reflects current or
approaching trends and can be manufactured in a timely and cost-effective
manner. Once the initial design is complete, a prototype is developed, which is
reviewed and refined prior to the commencement of limited production. Most new
designs are then tested in the Steve Madden(R) retail stores. Designs that prove
popular are then scheduled for mass production overseas and wholesale and retail
distribution nationwide. The Company believes that its unique design and testing
process and flexible manufacturing model is a significant competitive advantage
allowing the Company to cut mass production lead times and avoid the costly
production and distribution of unpopular designs.
MANUFACTURING
The Company sources each of its product lines separately based on the
individual design, styling and quality specifications of such products. The
Company does not own or operate any mass manufacturing facilities and sources
its branded products directly or indirectly through independently owned
manufacturers in Mexico (50%), China (10%), Brazil (10%), Spain (6%), Italy (4%)
and the United States (20%). The Company has established relationships with a
number of manufacturers in each country. The Company believes that this sourcing
of footwear products minimizes its investment and inventory risk, and enables
efficient and timely introduction of new product designs. Although the Company
has not entered into any long-term manufacturing or supply contracts, the
Company believes that a sufficient number of alternative sources exist for the
manufacture of its products. The principal materials used in the Company's
footwear are available from any number of sources, both within the United States
and in foreign countries.
The Company's design and distribution processes are intended to be
flexible, allowing the Company to respond to and accommodate changing consumer
demand. The Company's production staff tracks warehouse inventory on a daily
basis, monitors sell through data and incorporates input on product demand from
wholesale customers. The Company can use product feedback to adjust production
or manufacture new products in as little as five weeks. Constant inventory
tracking allows the Company to manage inventory on a "continuous flow" basis
with the goal of optimizing inventory turns. More specifically, all inventory is
classified into three categories: CORE products, which are sold year round,
CORE-PLUS products which are in-season styles that are experiencing unusually
strong sell through, and FASHION products. The Company
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strives to only have reorder inventory in selected CORE and CORE-PLUS products
that are proven best-sellers.
In 1997, the Company began to leverage this inventory control capability
even further by offering electronic data interchange ("EDI") quick replenishment
to its top department store accounts. The Company plans to expand this program
to more wholesale accounts in 1998. The Company believes that its flexible
product introduction schedule and perpetual inventory control system are
competitive edges in an industry that is subject to high fashion risks.
CUSTOMERS
The Company's customers purchasing shoes consist principally of department
stores and specialty stores, including shoe boutiques. Presently, the Company
sells approximately fifty percent (50%) of its products to department stores,
including Federated Department Stores (Bloomingdales, Burdines, Macy's and
Rich's), May Department Stores (Hecht's, Filene's and Robinsons May), Dillard's,
Dayton-Hudson and Nordstrom and approximately fifty percent (50%) to specialty
stores, including shoe stores such as Edison Brothers (Wild Pair, Bakers and
Leeds) and juniors ready-to-wear stores such as Urban Outfitters. Federated
Department Stores presently accounts for approximately sixteen (16%) of the
Company's sales.
DISTRIBUTION CHANNELS
The Company sells it products principally through its eighteen (18)
Company-owned retail stores, better department stores and specialty shoe stores
in the United States and abroad. Retail stores and wholesale sales account for
approximately twenty-two percent (22%) and seventy six percent (76%) of total
sales, respectively. The following paragraphs describe each of these
distribution channels.
RETAIL STORES
The Company currently operates seventeen (17) Company-owned retail stores
under the Steve Madden(R) name and one (1) under the David Aaron(R) name. The
Company believes that its retail stores will continue to enhance overall sales,
profitability, and its ability to react to changing consumer trends. The design,
format and environment of the Steve Madden(R) retail stores resemble a
"nightclub" type atmosphere which has become a popular destination and gathering
place for young women. The David Aaron(R) store has a more sophisticated design
and format styled to appeal to its more mature target audience. These stores are
a powerful marketing tool which allow the Company to strengthen brand
recognition and to showcase certain of its full line of branded and licensed
products. Furthermore, the retail stores provide the Company with a venue to
test and introduce new products and merchandising strategies. Specifically, the
Company often tests new designs at its Steve Madden(R) retail stores before
scheduling them for mass production and wholesale distribution. In addition to
these test marketing benefits, the Company has been
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able to leverage sales information gathered at Steve Madden(R) retail stores to
assist its wholesale accounts in order placement and inventory management.
The Company's prototype Steve Madden(R) store is approximately 1,400 to
1,600 square feet and is located in malls and street locations which attract the
highest concentration of the Company's core demographic --style-conscious women
ages 16 to 25 years. In addition to carefully analyzing mall demographics, the
Company also sets profitability guidelines for each potential store site.
Specifically, the Company targets sites at which the demographics fit the
consumer profile, the positioning of the site is well trafficked and the
projected fixed annual rent expense does not exceed a specified percentage of
sales over the life of the lease. By setting these standards, the Company
believes that each store will contribute to the Company's overall profits both
in the near- and longer-terms.
The Company currently sells to over 1,200 doors in twenty five (25) better
department stores throughout the United States and Canada. The Company's top
accounts include Federated Department Stores (Bloomingdale's, Burdine's, Macy's
and Rich's), May Department Stores (Hecht's, Filene's and Robinsons May),
Dillard's, Dayton-Hudson and Nordstrom.
The Company offers its department store accounts extensive merchandising
support which includes in-store fixtures and signage, supervision of displays
and merchandising of the Company's various product lines. An important new
aspect of the Company's wholesale merchandising efforts is the creation of
in-store concept shops, where a broad collection of the Company's branded
products are showcased. These in-store concept shops create an environment that
is consistent with the Company's image and enable the retailer to display and
stock a greater volume of the Company's products per square foot of retail
space. In addition, these in-store concept shops encourage longer term
commitment by the retailer to the Company's products and enhance consumer brand
awareness. Currently, the Steve Madden(R) brand is featured in over fifty (50)
in-store concept shops in its leading department and specialty store accounts.
In addition to merchandising support, the Company's customer service
representatives maintain weekly communications with its accounts to guide them
in placing orders to assist them in managing sell-through and inventory. The
Company leverages its sell-through data gathered at its retail stores to assist
department stores in allocating their open-to-buy dollars to the most popular
styles in the product line and to phase out styles with poor sales records. In
addition to this account order support, in 1997, the Company initiated an
electronic data interchange ("EDI") program which allows top accounts rapid size
replenishment of twelve style/color combinations of CORE products within one to
two weeks. EDI is offered to a small number of accounts; however, recently the
Company has expanded this program to add additional accounts and include a new
core style for March 1998.
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SPECIALTY SHOE STORES
The Company currently sells to one thousand (1,000) specialty shoe doors
located throughout the United States and Canada. The Company's top specialty
shoe accounts include Edison Brothers (Wild Pair, Precis, Baker's and Leed's)
and juniors ready-to-wear stores such as Urban Outfitters, Gadzook's, Journeys,
and The Buckle. The Company offers specialty shoe accounts the same
merchandising, sell-through and inventory tracking support offered to its
department store accounts.
COMPETITION
The fashionable footwear industry is highly competitive. The Company's
competitors include specialty shoe companies as well as companies with
diversified footwear 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, DKNY, Esprit, Reebok, Nike, Zodiac and Guess,
have significantly greater financial and other resources than the Company. The
Company believes effective advertising and marketing, fashionable styling, high
quality and value are the most important competitive factors and intends to
employ these elements as it develops its products.
MARKETING AND SALES
Prior to 1997, the Company's marketing plans relied heavily on its few
Steve Madden(R) retail store locations and word-of-mouth referrals. In 1997,
the Company began to focus on creating a more integrated brand building program
to establish Steve Madden as the leading designer of contemporary shoes for
style-conscious young women. As a result, the Company developed a national
advertising campaign for lifestyle and fashion magazines which was also used in
regional marketing programs such as radio advertisements and billboards. The
Company also continues to promote its website (WWW.STEVEMADDEN.COM) where
consumers can purchase Steve Madden(R) products and interact with both the
Company and other customers. Going forward, the Company has similar plans to
launch a comprehensive brand building marketing plan for the David Aaron(R)
brand.
In order to service its wholesale accounts, the Company employs a sales
force of eleven (11) independent sales representatives. These sales
representatives work on a commission basis and are responsible for placing the
Company's products with its principal customers, including better department and
specialty stores. The sales representatives are supported by the Vice President
- - -- National Sales Manager, a staff of three (3) merchandise coordinators and
thirteen (13) customer service representatives who continually cultivate
relationships with wholesale customers. This staff assists accounts in
merchandising, assessing customer preferences and inventory requirements, which
ultimately serves to increase sales and profitability.
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MANAGEMENT INFORMATION SYSTEMS (MIS) OPERATIONS
Sophisticated information systems are essential to the Company's ability to
maintain its competitive position and to support continued growth. The Company
operates on a dual AS/400 system which provides system support for all aspects
of its business including manufacturing purchase orders; customer purchase
orders; order allocations; invoicing; accounts receivable management; real time
inventory management; quick response replenishment; point-of-sale support; and
financial and management reporting functions. The Company has installed a PKMS
bar coded warehousing system which is integrated with the wholesale system in
order to provide accurate inventory positions and quick response size
replenishment for its customers. In addition, the Company has installed an EDI
system which provides a computer link between the Company and certain wholesale
customers that enables both the customer and the Company to monitor purchases,
shipments and invoicing. The EDI system also improves the Company's ability to
respond to customer inventory requirements on a weekly basis. Anticipating
continued growth, the Company recently strengthened its systems by adding an
AS/400, model 620.
RECEIVABLES FINANCING
The Company finances its receivables through the use of a factor. The
Company's present relationship with Capital Factors, Inc. permits the Company to
draw down eighty (80%) percent of its invoiced receivables at an interest rate
of the greater of six percent (6%) or prime plus (1%), whichever is greater. The
agreement provides that Capital Factors is not required to purchase all the
Company's receivables. The Company has utilized several other factors in the
past and periodically explores alternative factoring relationships in order to
obtain such receivables financing on terms which are more favorable to the
Company.
TRADEMARKS
The Steve Madden(R) trademark has been registered in two International
Classes (Int'l Cl. 18 - leather goods, handbags, wallets and Int'l Cl. 25 for
clothing) in the United States Patent and Trademark Office ("PTO") and the
Company has numerous applications for registration in other International
Classes (such as sunglasses, jewelry, cosmetics, and fragrances) pending in the
PTO. The Company also has a service mark registration in the PTO for the Steve
Madden(R) mark in Int'l Cl. 35 for retail store services. Through the Company's
seven (7) year long use of the Steve Madden(R) trademark in the United States in
connection with shoes, the Company has also acquired common law trademark rights
in the Steve Madden(R) trademark. The Company also has pending trademark
applications for the Steve Madden(R) 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(R) mark throughout all the
countries of 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.
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The Company also owns a federal trademark registration in the PTO for the
David Aaron(R) 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(R) trademark and service mark. The Company
believes that the David Aaron(R) trademark has a significant value and is
important to the marketing of the Company's products.
EMPLOYEES
At February 28, 1998, the Company employed three hundred and sixty (360)
persons, of whom approximately two hundred and ten (210) work on a full-time
basis and approximately one hundred and fifty (150) work on a part-time basis.
The Company employees include eighteen (18) persons in accounting, twenty four
(24) in production and design, sixteen (16) in customer service and merchandise
coordinating, six (6) in marketing, five (5) in MIS, twenty five (25) in
warehouse and shipping, with the balance of the employees in operations, retail
sales, and support positions. The management of the Company considers relations
with its employees to be good. See "Management".
ITEM 2. PROPERTIES.
The Company maintains its principal executive offices and a wholesale
warehouse at 52-16 Barnett Avenue, Long Island City, NY 11104, a wholesale
warehouse at 3400 McIntosh Rd., Ft. Lauderdale, FL 33316 and a retail warehouse
at 43-15 38th Street, Long Island City, New York 11101. The Barnett Avenue
premises in Long Island City consist of approximately 8,500 square feet of
administrative office space and approximately 2,500 square feet of wholesale
warehouse space with an inventory capacity of 35,000 pairs of shoes. The
premises in Ft. Lauderdale consist of approximately 2,000 sq. ft. of office
space and approximately 21,600 sq. ft. of wholesale warehouse space with an
inventory capacity of 325,000 pairs of shoes. The 38th Street premises in Long
Island City consist of approximately 6,000 sq.ft. of retail warehouse space with
an inventory capacity of 100,000 pairs of shoes.
The Company has a retail store at 540 Broadway in New York's Soho district
(the "Soho Store") consisting of 1,500 square feet of retail space and
approximately 2,500 square feet of warehouse with an inventory capacity 8,000
pairs of shoes. The Soho Store provides the Company with an opportunity to test
new products, judge consumer preferences and market its footwear.
On November 1, 1995, the Company opened its distribution facility at 3400
Macintosh Road, Fort Lauderdale, FL 33316. The premises are divided into office
space (2,000 square feet) and warehouse space (21,600 square feet). The lease
for this facility terminates on September 30, 1998.
All of the Company's retail stores are leased pursuant to leases that
extend for terms which average ten years in length. A majority of the leases
include clauses that provide for
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contingent rental payments if gross sales exceed certain targets. In addition, a
majority of the leases enable the Company and/or the landlord to terminate the
lease in the event that the Company's gross sales do not achieve certain minimum
levels during a prescribed period. Many of the leases contain rent escalation
clauses to compensate for increases in operating costs and real estate taxes.
The current terms of the Company's retail store leases expire as follows:
YEARS LEASE TERMS EXPIRE NUMBER OF STORES
------------------------ ----------------
2003 3
2004 1
2005 1
2007 4
2008 8
2009 1
ITEM 3. LEGAL PROCEEDINGS.
Except as set forth below, no material legal proceedings are pending to
which the Company or any of its property is subject.
On or about March 13, 1998, the Company, its wholly owned subsidiary, Diva
Acquisition Corp. ("Diva"), and its Chief Executive Officer were sued by Yves
Levenson, the former President of Diva, as a result of the termination of Mr.
Levenson's employment on March 5, 1998. In this action, entitled YVES LEVENSON
V. STEVE MADDEN, STEVE MADDEN, LTD. AND DIVA ACQUISITION CORP., which is pending
in the Supreme Court of New York, County of New York, Mr. Levenson alleges that
(i) Diva has breached the terms of his employment agreement by improperly
terminating his employment without cause, (ii) the restrictive covenant
contained in his employment contract should be declared unenforceable because it
improperly restricts his ability to earn a living, and (iii) the Company and
Steve Madden tortiously interfered with Mr. Levenson's economic expectations. In
his lawsuit, Mr. Levenson seeks damages in an amount based on his prospective
compensation under his employment agreement, plus punitive damages and an
injunction barring Diva's enforcement of the restrictive convenant. The Company
believes that Mr. Levenson's claims are completely without merit, and intends to
vigorously contest his lawsuit.
On or about March 13, 1998, the Company, its wholly owned subsidiary,
Steven Madden Retail, Inc. and Stav Efrat were sued by Ooga Associates Corp.
("Ooga"), a design and construction firm previously engaged by the Company to
design and construct certain of the Company's retail shoe stores. In this
action, entitled OOGA ASSOCIATES CORP. V. STEVEN MADDEN, INC., STEVEN MADDEN
RETAIL, INC., STEVEN MADDEN, LTD. AND STAV EFRAT, which is pending in the
Supreme Court of New York, County of New York, Ooga principally alleges that (i)
the Company breached an oral contract pursuant to which it engaged Ooga to
exclusively design and build the Company's retail shoe stores, (ii) the Company
induced Mr. Efrat, an officer and director of Ooga, to breach his fiduciary
duties to Ooga by improperly employing his services, and (iii) the Company
misappropriated Ooga's trade secrets by impermissibly using store designs and
concepts owned by Ooga. In its lawsuit, Ooga seeks damages consisting of amounts
based on its prospective earnings under the alleged oral contract with the
Company, its lost earnings on certain projects it claims to have abandoned or
forgone in reliance on the alleged oral contract with the Company, and on the
value of the designs and concepts allegedly misappropriated by the Company, and
also seeks an injunction prohibiting the Company from using Ooga's designs or
other proprietary information, from employing any Ooga employees or interfering
with Ooga's contractual relationships with its customers. The Company believes
that Ooga's claims are completely without merit, and intends to vigorously
contest its lawsuit.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the holders of the Company's Common
Stock during the last quarter of its fiscal year ended December 31, 1997.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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.
The following table sets forth the range of high and low bid quotations for
the Common Stock, Class A Warrants, Class B Warrants for the two year period
ended December 31, 1997, as reported by The Nasdaq SmallCap Market and The
Nasdaq National Market. The quotes represent inter-dealer prices without
adjustment or mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions. The trading volume of the Company's securities
fluctuates and may be limited during certain periods. As a result, the liquidity
of an investment in the Company's securities may be adversely affected.
Common Stock Class B Warrants
High Low High Low
---- --- ---- ---
1996
----
Quarter ended
March 31, 1996 8-3/8 5-5/8 3-15/16 2-3/8
Quarter ended
June 30, 1996 7-3/4 4-9/16 3 1-3/8
Quarter ended
September 30, 1996 4-13/16 2-7/8 1-5/16 15/16
Quarter ended
December 31, 1996 5-13/16 3-1/4 1-11/16 1-1/8
1997
----
Quarter ended
March 31, 1997 6-3/8 3-1/2 2-7/16 15/16
Quarter ended
June 30, 1997 6-3/16 3-1/4 2 11/16
Quarter ended
September 30, 1997 8-13/16 5-7/16 3-7/16 1-9/16
Quarter ended
December 31, 1997 8-1/4 6-1/8 3-3/16 1-21/32
On March 16, 1998, the final quoted prices as reported by The Nasdaq
National Market were $9.3125 for the Common Stock and $4.0625 for the Class B
Warrants. As of March 16, 1998, there were 8,571,073 shares of Common Stock
outstanding, held of record by approximately 89 record holders and 2,710
beneficial owners.
14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this document.
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
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 which 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 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.
The following table sets forth information on operations for the periods
indicated:
PERCENTAGE OF NET REVENUES
YEARS ENDED
DECEMBER 31
-----------
CONSOLIDATED: 1997 1996
------------ ---- ----
Net Sales $59,311,000 100% $45,823,000 100%
Cost of Sales 34,744,000 59 31,343,000 68
Other Operating Revenue 2,321,000 4 951,000 2
Operating Expenses 22,262,000 38 13,998,000 31
Income from Operations 4,626,000 8 1,433,000 3
Interest Income (Expense) Net -27,000 0 160,000 0
Income Before Income Taxes 4,599,000 8 1,593,000 3
Net Income 2,700,000 5 1,059,000 2
15
PERCENTAGE OF NET REVENUES
YEARS ENDED
DECEMBER 31
-----------
By Segment 1997 1996
---- ----
WHOLESALE DIVISIONS:
STEVEN MADDEN, LTD.
-------------------
Net Sales $38,487,000 100% $36,464,000 100%
Cost of Sales 23,385,000 61 24,887,000 68
Other Operating Revenue 129,000 0 -- --
Operating Expenses 13,348,000 35 10,675,000 29
Income from Operations 1,883,000 5 902,000 3
DIVA ACQUISITION CORP.
----------------------
Net Sales $6,447,000 100% $3,013,000 100%
Cost of Sales 4,086,000 63 2,241,000 74
Operating Expenses 2,207,000 34 1,147,000 38
Income (Loss) from Operations 154,000 2 -375,000 -12
STEVEN MADDEN RETAIL INC.:
-------------------------
Net Sales $13,249,000 100% $3,805,000 100%
Cost of Sales 6,143,000 46 1,871,000 49
Operating Expenses 5,501,000 42 1,385,000 36
Income from Operations 1,605,000 12 549,000 14
ADESSO MADDEN INC.:
------------------
(FIRST COST)
Net Sales $1,128,000 -- $2,541,000 --
Cost of Sales 1,130,000 -- 2,344,000 --
Commission Revenue 2,192,000 -- 951,000 --
Total Operating Income 2,190,000 100% 1,148,000 100%
Operating Expenses 1,206,000 55 791,000 69
Income from Operations 984,000 45 357,000 31
16
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
CONSOLIDATED:
Sales for the year ended December 31, 1997 were $59,311,000, or 29% higher than
the $45,823,000 recorded in the comparable period of 1996. The increase in sales
is due to several factors including additional wholesale accounts, increased
reorders, increased retail sales due to the opening of two retail stores in
fourth quarter of 1996 and thirteen retail stores during 1997 and increased
sales from the David Aaron brand (acquired April 1996). As a result of
additional distribution , management feels that "Steve Madden" as a brand name
has increased in popularity nationwide. In turn, increased sales have enabled
the Company to expand its advertising and in store concept efforts, all of which
have contributed to the continuing increase in sales.
Cost of sales percentage decreased 9% from 68% in 1996 to 59% in 1997. Increased
sales volume has allowed the Company to purchase in larger volume, resulting in
a lower cost per pair. Also, the purchase of a higher percentage of shoes from
overseas suppliers, resulted in a lower cost per pair as compared to 1996. Gross
profit as a percentage of sales increased 9% from 32% in 1996 to 41% in 1997.
Selling, general and administrative (SG&A) expenses increased by 59% to
$22,262,000 in 1997 from $13,998,000 in 1996. The increase in the year ended
December 31, 1997 reflects the costs incurred in implementing the Company's
strategic plan to strengthen its management team and infrastructure, thereby
laying the foundation for future growth. The increase in SG&A is due primarily
to a 67% increase in payroll, bonuses and related expenses from $5,010,000 in
1996 to $8,358,000 in 1997. Additionally, the Company focused its efforts on
selling, advertising, marketing and designing thus increasing those expenses by
61% from $4,660,000 in 1996 to $7,517,000 in 1997. Also, the increase in the
number of retail outlets and expanded office facilities resulted in an increase
in occupancy, telephone, utilities, computer, legal, printing/supplies and
depreciation expenses by 150% from $1,507,000 in 1996 to $3,763,000 in 1997.
Income from operations for 1997 was $4,626,000 which represents an increase of
$3,193,000 or 223% over the income from operations of $1,433,000 in 1996. Net
income increased by 155% to $2,700,000 in 1997 from $1,059,000 in 1996.
WHOLESALE DIVISIONS:
Sales from the Steve Madden Wholesale Division ("Madden Wholesale"), accounted
for $38,487,000 or 65% and $36,464,000 or 80% of total sales in 1997 and 1996,
respectively. Cost of sales as a percentage of sales has decreased by 7% from
68% in 1996 to 61% in 1997 in Madden Wholesale. Gross profit as a percentage of
sales increased 7% from 32% in 1996 to 39%
17
in 1997. Operating expenses increased by 25%, from $10,675,000 in 1996 to
$13,348,000 in 1997. This increase is due to an increase in advertising
expenses, payroll and payroll related expenses principally due to the hiring of
additional management personnel and an increase in occupancy expenses due to
additional warehouse space needed for expanding EDI size replenishment
inventory. Operating expenses have also increased due to the development of a
new line of sneakers and the hiring of additional personnel to facilitate future
growth of footwear classifications/extensions. Wholesale income from operations
for the year ended December 31, 1997 was $1,883,000 compared to income from
operations of $902,000 for the year ended December 31, 1996.
Sales from the Diva Acquisition Corp. Wholesale Division ("Diva
Wholesale"-acquired April 1, 1996) which markets the "David Aaron" brand name in
footwear accounted for $6,447,000 or 11%, and $3,013,000 or 7%, of total sales
in 1997 and 1996, respectively. Gross profit as a percentage of sales increased
from 26% in 1996 to 37% in 1997. Operating expenses increased by 92% from
$1,147,000 in 1996 to $2,207,000 in 1997 due to increases in payroll and payroll
related expenses, computer, printing, and depreciation expenses. Income from
operations from Diva was $154,000 in 1997 compared to a loss of $375,000 in
1996.
RETAIL DIVISION:
Sales from the Retail Division accounted for $13,249,000 or 22% and $3,805,000
or 8% of total revenues in 1997 and 1996, respectively. The comparable stores
sales for the year end increased 17% over the same period of 1996. The increase
in Retail Division sales is primarily due to the Company's opening of retail
stores in Roosevelt Field in Garden City, NY and Garden State Plaza in Paramus,
NJ, in the fourth quarter of 1996, Queens Center Mall in Elmhurst, NY and Lenox
Square Mall in Atlanta, GA, in the second quarter of 1997, Willowbrook Mall in
Wayne, NJ; Cherry Hill Mall in Cherry Hill, NJ; Staten Island Mall in Staten
Island, NY; Glendale Galeria in Glendale, CA and Montgomery Mall in Bethesda MD,
in the third quarter of 1997 and Southshore Plaza in Braintree, MA; David Aaron
in New York, NY; Smithhaven Mall in Lakegrove, NY; Coconut Grove Mall in Coconut
Grove, FL; Broward Mall in Plantation, FL; Valleyfair Shopping Center in Santa
Clara, CA, in the fourth quarter of 1997 all of which generated aggregate sales
of $8,782,000. Selling, general and administrative expenses for the Retail
Division increased to $5,501,000 or 42% of sales in 1997 from $1,385,000 or 36%
of sales in 1996. This increase is due to increases in payroll and related
expenses, occupancy, printing, computer and depreciation expenses as a result of
opening thirteen additional stores in 1997 and the addition of a retail
warehouse at 43-15 38th Street, Long Island City, NY. Income from operations
from the retail division was $1,605,000 in 1997 compared to income from
operations of $549,000 in 1996.
18
OTHER:
Adesso-Madden , a wholly owned subsidiary of the Company, generated sales of
$1,128,000 in 1997 compared to revenue of $2,541,000 in 1996. This decrease in
sales in the year ended December 31, 1997 reflects the change in how
Adesso-Madden sells its products or services. The private label business
currently provides design and sourcing services to its customers and records
commission income. Adesso-Madden generated commission revenues of $2,192,000 for
the year ended December 31, 1997 which represents an increase of $1,241,000 or
130% over the commission income of $951,000 in 1996. Operating expenses
increased by 52% from $791,000 in 1996 to $1,206,000 in 1997 due to increases in
selling and commission, payroll and payroll related expenses, and telephone
expenses. Income from operations from Adesso-Madden was $984,000 in 1997
compared to an income of $357,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has working capital of $16,545,000 at December 31, 1997 which
represents an increase of $2,825,000 in working capital from December 31,1996.
During the year ended December 31, 1997 the Company received proceeds of
$1,339,000 from the exercise of options.
In November 1997, Steven Madden, Ltd., engaged Hambrecht & Quist, LLC as its
exclusive placement agent in connection with a potential private placement of
convertible securities. while Hambrecht & Quist has agreed to use their best
efforts to place the securities (which are expected to be convertible into the
Company's common stock at a premium to the current market price), there is no
commitment to provide financing to the Company and the engagement may be
terminated by either party. As of March 13, 1998, the Company has not received
any funds from the private placement of its securities.
The Company's customers consist principally of department stores and specialty
stores, including shoe boutiques. Presently, the Company sells approximately
fifty percent (50%) of its products to department stores, including Federated
Department Stores (Bloomingdales, Burdines, Macy's East, Macy's West and Rich's)
May Department Stores, Dillards, Nordstorm's, Dayton Hudson and approximately
fifty percent (50%) to specialty stores, including shoe stores such as Edison
(Wild Pair, Precis, Bakers/Leeds) and junior clothing stores such as Urban
Outfitters. Federated Department Stores presently accounts for approximately 16%
of the Company's sales.
OPERATING ACTIVITIES
During the year ended December 31, 1997, cash provided by operating activities
was $2,405,000. Uses of cash arose principally from an increase in accounts
receivable of $966,000, an increase in inventories of $2,324,000 and an increase
in prepaid expenses and other assets of $680,000. Cash was provided principally
by an increase in accounts payable and accrued expenses of $1,144,000.
19
The Company has lease agreements for office, warehouse, and retail space,
expiring at various times through 2007. Future obligations under these lease
agreements total $17,355,000.
The Company has employment agreements with various officers currently providing
for aggregate annual salaries of approximately $1,400,000, subject to annual
bonuses and annual increases as may be determined by the Company's Board of
Directors. In addition, as part of the employment agreements, the Company is
committed to pay incentive bonuses based on sales, net income, or net income
before interest and taxes to three officers.
One of such officers, Steve Madden, Chairman, President and Chief Executive
Officer of the Company, has entered into an amended employment agreement which
eliminates the sales based bonus effective January, 1998. Mr. Madden's bonus, if
any, is left to the discretion of the Board of Directors. The amended employment
agreement provided a signing bonus of $200,000.
The Company continues to increase its supply of products from foreign
manufacturers, the majority of which are located in Brazil and Mexico. Although
the Company has not entered into long-term manufacturing contracts with any of
these foreign companies, the Company believes that a sufficient number of
alternative sources exist outside of the United States for the manufacture of
its products if current suppliers need to be replaced. In addition, because the
Company deals with U.S. currency for all transactions and intends to continue to
do so, the Company believes there should be no foreign currency transaction
losses.
INVESTING ACTIVITIES
During the year ended December 31, 1997, the Company used cash of $3,686,000 to
acquire computer equipment and make leasehold improvements on new retail stores,
warehouse space and office space.
FINANCING ACTIVITIES
During the year ended December 31, 1997, the Company received $1,339,000 from
the exercise of options. In March 1997, the Company issued 85,979 shares of
common stock in payment of the note payable of $645,000 issued in connection
with the acquisition of Diva and subsequently issued 22,500 shares of common
stock as additional purchase price.
LICENSE AGREEMENTS
During the second quarter of 1997, the Company entered into three license
agreements for hosiery, jewelry and ready-to-wear, bringing the total number of
license agreements to six, including three license agreements entered into
during the year ended December 31, 1997 for handbags, sunglasses and outerwear.
Although such agreements did not generate substantial revenue in the twelve
month period ended December 31, 1997, the Company expects to receive royalties
as early as the third quarter of 1998.
20
INFLATION
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past several years. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual Report on Form
10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT.
The names and ages of the directors and executive officers of the Company
are set forth below:
NAME AGE POSITION(S) WITH THE COMPANY
- - ---- --- ----------------------------
Steven Madden 40 Chairman of the Board, Chief Executive
Officer and President
Rhonda Brown 42 Chief Operating Officer and Director
Arvind Dharia 48 Chief Financial Officer, Director and
Secretary
John Basile 46 Executive Vice President and Director
Gerald Mongeluzo 57 President of Adesso-Madden, Inc.
John L. Madden 51 Director
Peter Migliorini 49 Director
Les Wagner 57 Director
21
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
STEVEN MADDEN has been since the Company's inception, the Chairman of the
Board, Chief Executive Officer and President. In 1980, Mr. Madden joined L.J.
Simone, a domestic footwear manufacturer, as an Account Executive. At that time,
L.J. Simone had annual sales of approximately $800,000. Mr. Madden was promoted
to Sales Manager and Director of Product Development and was instrumental in the
company's growth to $28 million in annual sales. After leaving L.J. Simone in
1988, Mr. Madden joined M.C.M. Footwear, where he commenced the design,
development and marketing of the "Souliers" line of footwear for women. In 1990,
Mr. Madden founded the Company.
RHONDA J. BROWN has been the Chief Operating Officer of the Company since
July 1996 and a director of the Company since November 1996. Prior to joining
the Company, Ms. Brown served as President and Chief Executive Officer of Icing,
Inc. from May 1995 to December 1995. Previously, from August 1992 to December
1994, Ms. Brown served as Merchandise President of Macy's East, a division of
R.H. Macy & Co., Inc. From July 1988 to July 1992. Ms. Brown served as Senior
Vice-President and General Merchandise Manager to Lord & Taylor, a division of
the May Company. Ms. Brown attended the American University, receiving a BS in
Marketing and Public Communications in 1976.
ARVIND DHARIA has been the Chief Financial Officer of the Company since
October 1992 and a Director since December 1993. From December 1988 to September
1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp.
JOHN BASILE has been the Director of Operations of the Company since June
1994 and a Director of the Company since November 1996. From 1990 to 1994, Mr.
Basile was Executive Vice President of Cougar U.S.A. responsible for the United
States Division of Susan Shoes of Canada. Previously, Mr. Basile was a Sales
Manager at Bellini Imports from 1980 to 1990.
GERALD MONGELUZO has been President of Adesso-Madden, Inc., a wholly owned
subsidiary of the Company, since September 1995. Previously, Mr. Mongeluzo was
the founder and President of Adesso Shoes, Inc., a buying agent of private label
shoes. From 1987-1991, Mr. Mongeluzo was the President of the Prima Barabaro
Division of Cells Enterprise, Inc. Mr. Mongeluzo founded Prima Shoes, Inc., a
buying agent of private label shoes, and served as President from 1984 to 1987.
JOHN L. MADDEN has been a Director of the Company since the Company's
inception. From February 1990 to April 1992, Mr. Madden served as a Branch
Office Manager for Biltmore Securities Corp. From April 1992 until August 1993,
Mr. Madden was associated with GKN Securities, Inc. as a Senior Account
Executive. From August 1993 to April 1994, Mr. Madden returned to Biltmore
Securities as a Managing Director and registered sales representative. From May
1994 to May 1996 Mr. Madden served as Vice President of Investments for GKN
Securities,
22
Inc. From May 1996 through December 1996, Mr. Madden was associated with Kenny
Securities, Inc. As of January 1997, Mr. Madden has been associated with Merit
Capital, Corp. Mr. Madden is the brother of Steven Madden, the Company's
Chairman of the Board, Chief Executive Officer and President.
PETER MIGLIORINI has been a Director of the Company since October 1996.
From 1994 to present, Mr. Migliorini has served as Sales Manager for Greschlers,
Inc., a major supply company located in Brooklyn, New York. From 1987 to 1994
Mr. Migliorini served as Director of Operations for Mackroyce Group. Mr.
Migliorini has previously served in a number of capacities, ranging from
Assistant Buyer to Chief Planner/Coordinator for several shoe companies
including Meldico Shoes, Perry Shoes, and Fasco Shoes.
LES WAGNER has been a Director of the Company since October 1996. From 1993
to 1996, Mr. Wagner served as the President of Baker/Leeds Shoe Store, a
Division of Edison Brothers Stores, Inc. Mr Wagner has served in a number of
other capacities for Baker/Leeds from 1963 to 1993 which included, General
Merchandise Manager from 1989 to 1993; Vice President Real Estate Northeast Area
from 1988 to 1989; and President, Gussini Discount Shoe Division from 1987 to
1988. Mr. Wagner attended Harvard University, completing the Advanced Management
Program (AMP 100). Mr. Wagner performs consulting services for the Company from
time to time.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company during the year ended December 31, 1997,
all Section 16(a) filing requirements applicable to its officers and directors
and greater than ten percent beneficial owners were satisfied.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.
23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.
24
PART IV
ITEM 13. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 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.
4.03* Form of Warrant Agreement by and among the Company, the Underwriter
and American Stock Transfer & Trust Company including Form of Class A
Warrant Certificate and Form of Class B Warrant Certificate.
4.04* Form of Underwriter's Unit Purchase Option.
5.01* Opinion of Bernstein & Wasserman, as counsel to the Company.
10.01*** Amended Employment Agreement between the Company and Steven Madden,
as amended.
10.02*** Employment Agreement between the Company and Arvind Dharia.
10.03** Lease for 52-16 Barnett Avenue, Long Island City, New York.
10.04** Lease for 86th Street, New York, New York.
10.05* Lease for 540 Broadway, New York, New York.
10.06** Employment Agreement of Edward L. Weitz.
10.07** Employment Agreement of John Basile.
10.08* Form of Bridge Loan Documents.
10.09** Accounts Receivable Factoring Agreement
10.10** Consulting Agreement with BOCAP Corp.
25
10.11** Purchase Agreement dated as of April 1, 1994, by and between the
Company and Marlboro Leather, Inc.
10.12*** Consulting Agreement with Gary DeLuca.
10.13*** Letter Agreement with Sam Schwarz.
10.14+ Employment Agreement of Gerald Mongeluzo.
10.15++ Assignment and Assumption Agreement among BOCAP Corp., Steven Madden
and Steven Madden, Ltd.
10.16++ Guarantee issued by Steven Madden, Ltd. with respect to Employment
Agreement of Gerald Mongeluzo.
10.17+++ Letter Agreement between the Registrant and Stratton Oakmont, Inc.,
pursuant to which Stratton Oakmont has waived its solicitation fee.
10.18-- Employment Agreement of Rhonda Brown.
10.19-- Employment Agreement of Yves Levenson.
10.20-- Agreement and Plan of Merger between the Company, Diva Acquisition
Corp., and Diva International, Inc.
10.21-- Certificate of Merger between Diva International, Inc. and Diva
Acquisition Corp.
10.22 License Agreement between Steven Madden, Ltd. and Winer Industries,
Inc. dated as of June 1, 1997.
10.23 Amended Employment Agreement of Steven Madden.
10.24 Employment Agreement of Arvind Dharia.
21.01 Subsidiaries of Registrant
26
* Previously filed with and incorporated hereby with reference to the
Registrant's Registration Statement on Form SB-2 (No.3367162-NY, as
amended, declared effective on December 10, 1994.)
** Previously filed with and incorporated hereby with reference to the
Registrant's Amendment No. 1 to Post Effective Amendment No. 1 to the
Registration Statement on Form SB-2 (No. 33-67162-NY, as amended) filed on
August 31, 1995.
*** Previously filed with and incorporated hereby with reference to the
Registrant's Amendment No. 2 to Post Effective Amendment No. 1 to the
Registration Statement on Form SB-2 (No. 33-671632-NY) filed on September
25, 1995.
+ Previously filed with and incorporated hereby with reference to the
Registrant's Post Effective Amendment No. 5 to the Registration Statement
on Form SB-2 (No. 33-671632-NY) filed on October 25, 1995.
++ Previously filed with and incorporated hereby with reference to the
Registrant's Post Effective Amendment No. 6 to the Registration Statement
on Form SB-2 (No. 33-671632-NY) filed on October 27, 1995.
+++ Previously filed with and incorporated hereby with reference to the
Registrant's Post Effective Amendment No. 7 to the Registration Statement
on Form SB-2 (No. 33-671632-NY) filed on October 31, 1995.
- - -- Previously filed with and incorporated hereby with reference to the
Company's Form 10-KSB for the year ended December 31, 1996.
(b) REPORTS ON FORM 8-K.
None.
27
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: New York, New York
March 24, 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 Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- - --------- ----- ----
/s/ STEVEN MADDEN Chairman of the Board, President
- - -------------------- and Chief Executive Officer March 24, 1998
Steven Madden
/s/ ARVIND DHARIA Chief Financial Officer
- - -------------------- and Director March 24, 1998
Arvind Dharia
/s/ JOHN L. MADDEN Director March 24, 1998
- - --------------------
John L. Madden
/s/ LES WAGNER Director March 24, 1998
- - --------------------
Les Wagner
/s/ RHONDA BROWN Chief Operating Officer March 24, 1998
- - -------------------- and Director
Rhonda Brown
/s/ JOHN BASILE Director of Operations March 24, 1998
- - -------------------- and Director
John Basile
/s/ PETER MIGLIORINI Director March 24, 1998
- - --------------------
Peter Migliorini
28
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Independent auditors' report F-2
Consolidated balance sheet F-3
Consolidated statements of operations F-4
Consolidated statements of changes in stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to financial statements F-7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Steven Madden, Ltd.
New York, New York
We have audited the accompanying consolidated balance sheet of Steven Madden,
Ltd. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two-year period then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Steven Madden, Ltd.
and subsidiaries as of December 31, 1997, and the consolidated results of their
operations and their consolidated cash flows for each of the years in the
two-year period then ended in conformity with generally accepted accounting
principles.
Richard A. Eisner & Company, LLP
New York, New York
February 6, 1998
F-2
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Current assets:
Cash and cash equivalents (Note A[3]) $ 3,887,000
Investments (Note A[4]) 1,991,000
Accounts receivable - (net of allowances of $351,000) 1,127,000
Due from factor (net of allowances of $335,000) (Note C) 4,821,000
Inventories (Note A[5] 5,081,000
Prepaid advertising (Note I) 441,000
Prepaid expenses and other current assets 1,698,000
Prepaid taxes (Note F) 624,000
------------
Total current assets 19,670,000
Property and equipment, net (Notes A[6] and B) 5,931,000
Prepaid advertising, less current portion (Note I) 1,041,000
Deferred taxes (Note F) 401,000
Deposits and other 258,000
Cost in excess of fair value of net assets acquired (net of accumulated amortization
of $170,000) (Note A[7]) 1,976,000
------------
$ 29,277,000
============
LIABILITIES
Current liabilities:
Current portion of lease payable (Note E) $ 105,000
Accounts payable and accrued expenses 2,032,000
Accrued bonuses 593,000
Other current liabilities 395,000
------------
Total current liabilities 3,125,000
Lease payable, less current portion (Note E) 359,000
------------
3,484,000
------------
Commitments and contingencies (Note G)
STOCKHOLDERS' EQUITY (NOTE D)
Common stock - $.0001 par value, 60,000,000 shares authorized, 8,429,073 issued
and outstanding 1,000
Additional paid-in capital 21,721,000
Unearned compensation (1,281,000)
Retained earnings 5,809,000
Treasury stock at cost (101,800 shares) (457,000)
------------
25,793,000
------------
$ 29,277,000
============
SEE NOTES TO FINANCIAL STATEMENTS F-3
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
------------ ------------
Net sales $ 59,311,000 $ 45,823,000
Cost of sales 34,744,000 31,343,000
------------ ------------
Gross profit 24,567,000 14,480,000
Other revenue 2,321,000 951,000
Operating expenses (22,262,000) (13,998,000)
------------ ------------
Income from operations 4,626,000 1,433,000
Other income (expenses):
Interest income 312,000 322,000
Interest expense (339,000) (162,000)
------------ ------------
Income before provision for income taxes 4,599,000 1,593,000
Provision for income taxes 1,899,000 534,000
------------ ------------
NET INCOME $ 2,700,000 $ 1,059,000
============ ============
BASIC INCOME PER SHARE $ 0.33 $ 0.14
============ ============
DILUTED INCOME PER SHARE $ 0.30 $ 0.13
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC INCOME PER SHARE 8,064,604 7,689,848
EFFECT OF POTENTIAL COMMON SHARES 848,462 737,232
------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED INCOME PER SHARE 8,913,066 8,427,080
============ ============
SEE NOTES TO FINANCIAL STATEMENTS F-4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(NOTE D)
COMMON STOCK ADDITIONAL
------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- --------- ------------ -----------
BALANCE - DECEMBER 31, 1995 6,415,776 $ 1,000 $ 11,179,000 $ 2,050,000
Exercise of stock options and warrants 1,417,818 6,342,000
Common stock purchased for treasury
Costs incurred in connection with registration (40,000)
Tax benefit from exercise of options 288,000
Net income 1,059,000
Amortization of unearned compensation
--------- ---------- ------------ -----------
BALANCE - DECEMBER 31, 1996 7,833,594 1,000 17,769,000 3,109,000
Exercise of stock options 487,000 1,339,000
Common stock issued in connection with purchase
of subsidiary 108,479 809,000
Compensation in connection with issuance of stock
options 39,000
Tax benefit from exercise of options 420,000
Net income 2,700,000
Unearned compensation relating to issuance
of stock options 1,345,000
Amortization of unearned compensation
--------- ---------- ------------ -----------
BALANCE - DECEMBER 31, 1997 8,429,073 $ 1,000 $ 21,721,000 $ 5,809,000
========= ========== ============ ===========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(NOTE D)
TREASURY STOCK TOTAL
------------------ UNEARNED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION EQUITY
-------- ---------- ------------ ------------
BALANCE - DECEMBER 31, 1995 $ (464,000) $ 12,766,000
Exercise of stock options and warrants 6,342,000
Common stock purchased for treasury 101,800 $ (457,000) (457,000)
Costs incurred in connection with registration (40,000)
Tax benefit from exercise of options 288,000
Net income 1,059,000
Amortization of unearned compensation 144,000 144,000
------- ---------- ----------- ------------
BALANCE - DECEMBER 31, 1996 101,800 (457,000) (320,000) 20,102,000
Exercise of stock options 1,339,000
Common stock issued in connection with purchase
of subsidiary 809,000
Compensation in connection with issuance of stock
options 39,000
Tax benefit from exercise of options 420,000
Net income 2,700,000
Unearned compensation relating to issuance
of stock options (1,345,000) 0
Amortization of unearned compensation 384,000 384,000
------- ---------- ----------- ------------
BALANCE - DECEMBER 31, 1997 101,800 $ (457,000) $(1,281,000) $ 25,793,000
======= ========== =========== ============
SEE NOTES TO FINANCIAL STATEMENTS F-5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,700,000 $ 1,059,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Options issued for consulting services 39,000
Depreciation and amortization 774,000 368,000
Deferred taxes 50,000 (233,000)
Deferred compensation 384,000 144,000
Tax benefit from exercise of options 420,000 288,000
Provision for bad debts 361,000 714,000
Deferred rent expense (36,000)
Changes in:
Accounts receivable (966,000) 326,000
Due from factor 41,000 (876,000)
Inventories (2,324,000) (1,381,000)
Prepaid expenses and other assets (680,000) (199,000)
Accounts payable and accrued expenses 1,144,000 280,000
Accrued bonuses 160,000 (163,000)
Other current liabilities 303,000 (11,000)
Tax liability (1,000) (1,154,000)
----------- -----------
Net cash provided by (used in) operating activities 2,405,000 (874,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,686,000) (1,180,000)
Acquisition of lease rights (235,000) (200,000)
Acquisition of subsidiary (1,076,000)
Repayment of debt assumed in acquisition (476,000)
Purchase of investment securities (1,991,000)
----------- -----------
Net cash used in investing activities (5,912,000) (2,932,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from options and warrants exercised - net 1,339,000 6,302,000
Purchase of treasury stock (457,000)
Repayments of lease obligations (96,000) (11,000)
----------- -----------
Net cash provided by financing activities 1,243,000 5,834,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,264,000) 2,028,000
Cash and cash equivalents - beginning of year 6,151,000 4,123,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 3,887,000 $ 6,151,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of leased assets $ 358,000 $ 194,000
Note issued in connection with acquisition $ 645,000
Common stock issued in payment of acquisition note and
additional acquisition cost $ 809,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 339,000 $ 162,000
Income taxes $ 1,351,000 $ 1,116,000
SEE NOTES TO FINANCIAL STATEMENTS F-6
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] ORGANIZATION:
Steven Madden, Ltd. (the "Company") was incorporated on July 9, 1990, in
the state of New York and is engaged primarily in the business of
designing, wholesaling and retailing women's shoes. Substantially all of
the Company's revenues are generated through wholesale and retail shoe
sales. Domestic retail revenues are generated predominately through the
sale of the Company's brand name merchandise. Such revenues are subject
to seasonal fluctuations.
[2] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[3] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. The Company
purchases inventory utilizing letters of credit.
[4] INVESTMENTS:
Investments are stated at fair value and consist primarily of corporate
commercial paper with maturities of less than one year.
[5] INVENTORIES:
Inventories, which consist of finished goods, are stated at the lower of
cost (first-in, first-out method) or market.
[6] PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is computed
utilizing the straight-line method based on estimated useful lives
ranging from five to ten years. Leasehold improvements are amortized
utilizing the straight-line method over the shorter of their estimated
useful lives or the lease term. Depreciation and amortization include
amounts relating to property and equipment under capital leases.
[7] COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED:
Cost in excess of fair value of net assets acquired (arising from the
acquisition of Diva International, Inc. ("DIVA")), is being amortized
over 15 years.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of" ("SFAS 121") during the year ended
December 31, 1996. SFAS 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable assets, and
goodwill related to those assets. There was no effect of adoption of SFAS
121 on the financial statements.
F-7
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] NET INCOME PER SHARE OF COMMON STOCK:
The Company adopted SFAS No. 128 "Earnings Per Share" in the period ended
December 31, 1997 and has retroactively applied the effects thereof for
all periods presented. Accordingly, the presentation of per share
information includes calculations of basic and diluted income per share.
The impact on the per share amounts previously reported was not
significant.
[9] CONCENTRATION OF CREDIT RISK:
The Company has amounts on deposit with financial institutions in excess
of the amount insured.
The Company purchases approximately 35% of their inventory from two
suppliers in Brazil and Mexico.
The Company has sales to a customer which represents approximately 11%
and 17% of sales and 13% and 28% of accounts receivable at December 31,
1997 and 1996, respectively.
[10] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of the Company's financial instruments approximate
fair value due to their short term nature or their underlying terms.
[11] STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Acounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation". SFAS 123 encourages, but does
not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has elected to
continue to account for its stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and
disclose the pro forma effects on net income and earnings per share had
the fair value of options been expensed. Under the provisions of APB No.
25, compensation arising from the grant of stock options is measured as
the excess, if any, of the quoted market price of the Company's common
stock at the date of the grant over the amount an employee must pay to
acquire the stock (see Note D[9]).
[12] RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure", No. 130, "Reporting Comprehensive Income", and
No. 131, "Disclosure about Segments of an Enterprise and Related
Information". The Company believes that the above pronouncements will not
have a significant effect on the information presented in the financial
statements.
F-8
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE B - PROPERTY AND EQUIPMENT
The major classes of assets and accumulated depreciation and amortization at
December 31, 1997 are as follows:
Leasehold improvements $ 4,660,000
Machinery and equipment 323,000
Furniture and fixtures 325,000
Computer equipment 1,419,000
Equipment under capital lease 217,000
------------
6,944,000
Less accumulated depreciation and amortization (1,013,000)
------------
Property and equipment - net $ 5,931,000
============
NOTE C - DUE FROM FACTOR
Under the terms of a factoring agreement, the Company can borrow up to 80
percent of aggregate receivables purchased by the factor at an interest rate of
prime plus 1%. (The minimum interest rate cannot go below 6%). The Company also
pays a fee equal to .75% of the gross invoice amount of each receivable
purchased with a minimum annual fee of $150,000. The Company sells and assigns a
substantial portion of its receivables principally without recourse, to the
factor. The factor assumes the credit risk to all assigned accounts approved by
it, but maintains liens on all trade receivables (whether or not assigned) and
the goods represented thereby. Pursuant to accounting standards for transfer of
receivables without recourse, these transfers are recognized as sales.
NOTE D - STOCKHOLDERS' EQUITY
[1] THE 1993 INCENTIVE STOCK OPTION PLAN:
The Company has a 1993 Incentive Stock Option Plan (the "1993 Plan")
under which options to purchase up to 100,000 shares of common stock may
be granted to key employees and directors. The plan provides that the
option price shall not be less than the fair market value of the common
stock on the date of grant and that no portion of the option may be
exercised beyond ten years from that date. No option may be granted after
August 2003, and no incentive stock option can be granted for more than
five years to a stockholder owning 10% or more of the Company's
outstanding common stock.
At December 31, 1997 and December 31, 1996, no shares were available for
the granting of additional options under the 1993 Plan.
[2] THE 1995 STOCK PLAN:
The Company has a 1995 Stock Plan (the "1995 Plan") under which options
to purchase up to 330,000 shares of common stock may be granted to
employees and directors. The plan provides that the option price shall
not be less than the fair market value of the common stock on the date of
grant and that no portion of the option may be exercised beyond ten years
from that date. No option may be granted after May 2005, and no incentive
stock option can be granted for more than five years to a stockholder
owning 10% or more of the Company's outstanding common stock.
F-9
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE D - STOCKHOLDERS' EQUITY (CONTINUED)
[2] THE 1995 STOCK PLAN: (CONTINUED)
During 1997 and 1996, 7,500 and 300,000 options were granted and at
December 31, 1997 22,500 options were available for grant.
[3] THE 1996 STOCK PLAN:
The Company has a 1996 Stock Plan (the "1996 Plan") under which options
to purchase up to 375,000 shares of common stock may be granted to
employees and directors. The Plan provides that the option price shall
not be less than the fair market value of the common stock on the date of
grant and that no portion of the option may be exercised beyond ten years
from that date. No incentive stock option can be granted for more than
five years to a stockholder owning 10% or more of the Company's
outstanding common stock.
During 1997, 375,000 options were granted and at December 31, 1997, no
shares were available for the granting of additional options under the
1996 Plan.
[4] THE 1997 STOCK PLAN:
The Company has a 1997 Stock Plan (the "1997 Plan") under which options
to purchase up to 1,000,000 shares of common stock may be granted to
employees and directors. The Plan provides that the option price shall
not be less than the fair market value of the common stock on the date of
grant and that no portion of the option may be exercised beyond ten years
from that date. No incentive stock option can be granted for more than
five years to a stockholder owning 10% or more of the Company's
outstanding common stock.
During 1997, 990,000 options were granted and at December 31, 1997 10,000
options were available for grants.
[5] OTHER STOCK OPTIONS:
In March 1995, the Company issued options to purchase 1,000,000 shares of
its common stock to a company wholly owned by the Company's President,
Chief Executive Officer and a stockholder. The options were subsequently
transferred to the President. The options which are fully exercisable,
have an exercise price of $1.75 and an exercise period of 10 years.
Unearned compensation was recorded in the amount of $575,000, which
represented the difference between the exercise price and the fair value
of the stock on the date of grant, and is classified as a component of
stockholders' equity. The unearned compensation was being amortized over
four years, however, there was no net charge to earnings since the amount
which would otherwise have been recorded as compensation reduced the
President's bonus. If such bonus was not sufficient to offset the
amortization in any of the four years, the President was required to pay
to the Company an amount equal to the shortage. The unamortized portion
was charged to operations in the current year in connection with the
President's amended employment agreement (see Note G[1]).
In connection with the amended employment agreement the Company issued
the President options to purchase 500,000 shares of its common stock. The
options, which vest in August of 1998, have an exercise price of $3.31
and an exercise period of 10 years. Unearned compensation was recorded in
the amount of $1,345,000 which represents the difference between the
exercise price and the fair value of the stock on the date of grant, and
is classified as a component of stockholders equity. The unearned
F-10
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE D - STOCKHOLDERS' EQUITY (CONTINUED)
[5] OTHER STOCK OPTIONS: (CONTINUED)
compensation is being amortized over the ten year life of the amended
agreement and charged to compensation expense.
The Company issued options to purchase 1,500,000 shares of its common
stock to its President in 1995 with an exercise price of $7.00 (market
price on date of grant) and an exercise period of 10 years. The options
were to have vested equally over a period of three years beginning
January 1, 1997. No compensation was recorded in connection with the
issuance of these options. Subsequently, in January 1996, these options
were returned to the Company.
During 1995 the Company issued options to purchase 200,000 shares of its
common stock at $7.50 to a financial consultant.
[6] STOCK OPTIONS:
Information relating to stock options is as follows:
1997 1996
------------------------- ------------------------
NUMBER NUMBER
OF AVERAGE OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
Outstanding at January 1 1,718,500 $3.93 2,963,500 $5.06
Granted 1,152,500 $4.70 510,000 $5.86
Exercised (487,000) $2.75 (165,000) $2.37
Cancelled (84,000) $4.67 (1,590,000) $6.80
--------- ----- --------- -----
Outstanding at December 31 2,300,000 $4.54 1,718,500 $3.93
========= ===== ========= =====
Shares exercisable 1,296,780 $4.53 1,718,500 $3.93
========= ===== ========= =====
[7] WARRANTS:
In connection with the initial public offering, the Company granted to
the underwriter an option to purchase an aggregate of 150,000 units
exercisable for four years commencing December 10, 1995 (one year after
the effective date) at an exercise price of $5.80 per unit. Each unit
consists of one share of common stock, one Class A warrant and one Class
B warrant.
The Company has no outstanding Class A warrants and 1,875,000 Class B
warrants exercisable through December 10, 1998. Each Class B warrant
entitles the holder to purchase one share of common stock at a price of
$5.50 per share. The warrants are redeemable by the Company, under
certain conditions. The Company issued 1,252,818 and 616,472 shares of
its common stock in 1996 and 1995 resulting from the exercise of Class A
warrants. In connection therewith, the Company received proceeds of
approximately $5,950,000 and $2,928,000, respectively.
The Company also has outstanding 150,000 Class C warrants issued in
connection with bridge financing. Each Class C warrant is exercisable
through December 10, 1998 and entitles the holder to purchase one share
of common stock at a price of $15.00 per share.
F-11
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE D - STOCKHOLDERS' EQUITY (CONTINUED)
[7] STOCK-BASED COMPENSATION:
The Company applies APB 25 in accounting for its stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the grant price
of the option at the date of grant. The effect of applying SFAS No. 123
on 1997 and 1996 pro forma net income as stated above is not necessarily
representative of the effects on reported net income for future years due
to, among other things (1) the vesting period of the stock options and
(2) the fair value of additional stock options in future years. The
average fair value of options granted in 1997 and 1996 was approximately
$3.25 and $3.06, respectively. The following pro forma information gives
effect to the fair value of the options on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
dividend yield of 0%, volatility of 56% for 1997 and 73% for 1996, risk
free interest rates of 5.80% - 6.17% for 1997 and 5.98% - 6.82% for 1996,
and expected life of 3 to 5 years for 1997 and 1 1/2 to 5 years for 1996.
1997 1996
----------- ------------
Net income:
As reported $ 2,650,000 $ 1,059,000
Pro forma 504,000 135,000
Basic income per share:
As reported .33 .14
Pro forma .06 .02
Diluted income per share:
As reported .30 .13
Pro forma .06 .02
NOTE E - LEASES
[1] CAPITAL LEASES:
The Company leases certain equipment under capital leases. Future minimum
lease payments consist of the following:
1998 $ 140,000
1999 140,000
2000 138,000
2001 131,000
2002 38,000
---------
Total minimum lease payments 587,000
Less amounts representing interest 123,000
---------
Present value of minimum lease payments 464,000
Less current maturities 105,000
---------
Capital lease obligation, less current maturities $ 359,000
==========
F-12
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE E - LEASES (CONTINUED)
[1] OPERATING LEASES:
Future minimum annual lease payments under noncancelable operating leases
consist of the following at December 31, 1997:
1998 $ 2,249,000
1999 2,115,000
2000 1,915,000
2001 1,996,000
2002 2,035,000
Thereafter 7,045,000
------------
$ 17,355,000
============
Rent expense for the years ended December 31, 1997 and 1996 was
approximately $1,434,000 and $626,000, respectively.
NOTE F - INCOME TAXES
The 1997 and 1996 income tax provisions consist of the following:
1997 1996
----------- -----------
Current:
Federal $ 1,318,000 $ 510,000
State and city 531,000 257,000
----------- -----------
1,849,000 767,000
----------- -----------
Deferred:
Federal (16,000) (101,000)
State and city 66,000 (132,000)
----------- -----------
50,000 (233,000)
----------- -----------
$ 1,899,000 $ 534,000
=========== ===========
A reconciliation between taxes computed at the federal statutory rate and the
effective tax rate is as follows:
DECEMBER 31,
-------------
1997 1996
---- ----
Income taxes at federal statutory rate 34.0% 34.0%
State income taxes - net of federal income tax benefit 7.7 5.9
Nondeductible items 3.7 1.6
Net operating loss carryforward benefit (.4) (4.6)
Other (3.8) (3.4)
---- ----
Effective rate 41.2% 33.5%
==== ====
F-13
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE F - INCOME TAXES (CONTINUED)
The Company applies the asset and liability method in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
The components of deferred taxes are as follows at December 31, 1997 and 1996:
1997 1996
--------- ---------
Deferred tax liabilities:
Accelerated depreciation $ (94,000) $ (22,000)
Deferred tax assets:
Accounts receivables allowances 356,000 169,000
Capitalization of inventory 139,000
Deferred compensation 230,000
Net operating loss benefit 74,000
--------- ---------
$ 401,000 $ 451,000
========= =========
NOTE G - COMMITMENTS AND CONTINGENCIES
[1] EMPLOYMENT AGREEMENTS:
The Company has an employment agreement with its President/Chief
Executive Officer which was amended in July 1997 to extend the term
through January 2008. The employment agreement provides for salary
commitments of $3,980,000 over the next ten years. Additionally, the
agreement provides for a discretionary bonus in cash, capital stock
or other property as the board may determine from time to time. The
prior agreement provided for a bonus plan based on graduated rates at
specified levels of net revenue. The bonus was payable in cash or in
the Company's stock at the option of the officer. Bonus payable in
stock was to be based on 2/3 of the market price on the date of
election. Bonuses payable for the years ended December 31, 1997 and
1996 have each been reduced by $144,000 for the amortization of the
unearned compensation discussed in Note D[5].
In June 1994, the Company entered into a two-year employment
agreement which automatically extended for an additional one year
period with its Director of Operations. The agreement provided for an
annual salary of $135,000 and a bonus based on specified earnings. As
of August 1996, the agreement was amended to increase the salary to
$250,000. The agreement has expired and the Company is currently
negotiating a new agreement.
In September 1996, the Company's newly formed wholly-owned
subsidiary, Adesso-Madden, Inc., entered into a two-year employment
agreement with its President which provides for an annual salary of
$208,000 and a cash bonus based on the subsidiary's pretax income.
In July 1997, the Company entered into a three-year employment
agreement with its Chief Operating Officer. The agreement provides
for an annual salary of $200,000 increasing by 10% each year and a
bonus based upon the Company's consolidated earnings before the
payment of interest or taxes or deduction for depreciation.
F-14
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED)
[1] EMPLOYMENT AGREEMENTS: (CONTINUED)
At December 31, 1997 and December 31, 1996, the Company accrued
$593,000 and $433,000, respectively, in bonuses to officers. For the
years ended December 31, 1997 and 1996, the Company has included in
its operating expenses, bonuses to officers of approximately
$1,146,000 and $552,000, respectively.
[2] LETTERS OF CREDIT:
Open letters of credit at December 31, 1997 and 1996 amounted to
approximately $3,550,000.
[3] PENDING LITIGATION
(a) On or about March 13, 1998, the Company, its wholly owned
subsidiary, Diva Acquisition Corp. ("Diva"), and its Chief
Executive Officer were sued by Yves Levenson, the former
President of Diva, as a result of the termination of Mr.
Levenson's employment on March 5, 1998. In this action,
entitled YVES LEVENSON V. STEVE MADDEN, STEVEN MADDEN, LTD.
AND DIVA ACQUISITION CORP., which is pending in the Supreme
Court of New York, County of New York, Mr. Levenson alleges
that (i) Diva has breached the terms of his employment
agreement by improperly terminating his employment without
cause, (ii) the restrictive covenant contained in his
employment contract should be declared unenforceable because
it improperly restricts his ability to earn a living, and
(iii) the Company and Steve Madden tortiously interfered with
Mr. Levenson's economic expectations. In his lawsuit, Mr.
Levenson seeks damages in an amount based on his prospective
compensation under his employment agreement, plus punitive
damages and an injunction barring Diva's enforcement of the
restrictive convenant. The Company believes that Mr.
Levenson's claims are completely without merit, and intends to
vigorously contest his lawsuit.
(b) On or about March 13, 1998, the Company, its wholly owned
subsidiary, Steven Madden Retail, Inc. and Stav Efrat were
sued by Ooga Associates Corp. ("Ooga"), a design and
construction firm previously engaged by the Company to design
and construct certain of the Company's retail shoe stores. In
this action, entitled OOGA ASSOCIATES CORP. V. STEVEN MADDEN,
INC., STEVEN MADDEN RETAIL, INC., STEVEN MADDEN, LTD. AND STAV
EFRAT, which is pending in the Supreme Court of New York,
County of New York, Ooga principally alleges that (i) the
Company breached an oral contract pursuant to which it engaged
Ooga to exclusively design and build the Company's retail shoe
stores, (ii) the Company induced Mr. Efrat, an officer and
director of Ooga, to breach his fiduciary duties to Ooga by
improperly employing his services, and (iii) the Company
misappropriated Ooga's trade secrets by impermissibly using
store designs and concepts owned by Ooga. In its lawsuit, Ooga
seeks damages consisting of amounts based on its prospective
earnings under the alleged oral contract with the Company, its
lost earnings on certain projects it claims to have abandoned
or forgone in reliance on the alleged oral contract with the
Company, and on the value of the designs and concepts
allegedly misappropriated by the Company, of a material
amount, and also seeks an injunction prohibiting the Company
from using Ooga's designs or other proprietary information,
from employing any Ooga employees or interfering with Ooga's
contractual relationships with its customers. The Company
believes that Ooga's claims are completely without merit, and
intends to vigorously contest its lawsuit.
These actions are in the preliminary stages. Therefore, the financial
statements do not include any provisions with respect to these
actions.
F-15
NOTE H - BUSINESS SEGMENT INFORMATION
The nature of products classified in the business segments presented herein is
described in Note A.
Intersegment sales are not material. "Other" includes revenues, expenses and
identifiable assets of the Company's wholly-owned subsidiary, Adesso-Madden,
Inc., which was formed in September 1995.
"Wholesale" includes the revenues, expenses and identifiable assets of Steven
Madden wholesale and Diva International, Inc. which was acquired in April 1996.
WHOLESALE RETAIL OTHER CONSOLIDATED
---------- ------ ----- ------------
Year ended December 31, 1997:
Net sales $44,934,000 $13,249,000 $ 1,128,000 $59,311,000
Operating earnings 1,946,000 1,605,000 1,075,000 4,626,000
Identifiable assets 20,424,000 8,341,000 512,000 29,277,000
Depreciation and amortization 371,000 401,000 2,000 774,000
Capital expenditures 640,000 3,038,000 8,000 3,686,000
Year ended December 31, 1996:
Net sales 39,477,000 3,805,000 2,541,000 45,823,000
Operating earnings 527,000 549,000 357,000 1,433,000
Identifiable assets 19,184,000 2,293,000 546,000 22,023,000
Depreciation and
amortization 293,000 75,000 368,000
Capital expenditures 379,000 795,000 6,000 1,180,000
F-16
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE I - BARTER TRANSACTION
In 1995, the Company sold inventory (which had a cost of $1,560,000) in exchange
for advertising credits. The Company recorded a sale in the amount of $2,300,000
(the estimated fair market value of the merchandise sold) and accordingly,
recognized a gross profit of approximately $740,000 on the transaction. The
credits received may be applied towards future advertising at the rate of 60%;
the remaining 40% is to be paid by the Company. The advertising credits were to
expire in December 1998 but the agreement was extended through 1999. The Company
estimates that it will utilize the credits prior to their expiration.
NOTE J - SUBSEQUENT EVENT
LOAN GUARANTEE:
The Company provided a short-term guarantee of a $2,900,000 loan from the
company's factor to a company wholly-owned by the Company's president. The loan
is collateralized by the assets of the Company. The Board voted to grant the
corporate guarantee because (i) it would settle litigation that may be
negatively impacting the view of the Company by various securities analysts and
market makers, (ii) the shares of the Company's stock in the hands of the
company related to the President are the subject of the litigation which if
settled adversely could materially adversely affect the Company, and (iii) the
pending litigation has created an unwanted distraction for the Company's
Chairman of the Board, CEO and President. The guarantee was in effect until a
registration statement covering the sale of shares held by the President's
company was declared effective on March 5, 1998.
F-17
- - --------------------------------------------------------------------------------
LICENSE AGREEMENT
BETWEEN
STEVEN MADDEN, LTD.
AND
WINER INDUSTRIES, INC.
DATED AS OF
JUNE 1, 1997
- - --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
1. GRANT OF LICENSE..................................................1
a. GRANT:...................................................1
b. TERM:....................................................2
c. TERRITORY:...............................................3
d. CHANNELS OF DISTRIBUTION:................................3
e. MINIMUM NET SALES: .....................................3
2. COVENANTS OF LICENSEE.............................................3
a. USE:.....................................................3
b. EFFORTS..................................................4
c. REPRESENTATIONS AND WARRANTIES OF LICENSEE...............5
3. COVENANTS OF LICENSOR.............................................6
4. TRADEMARK ROYALTY.................................................7
a. GUARANTEED ROYALTY:......................................7
b. RENEWAL TERM:............................................7
c. EARNED ROYALTY:..........................................7
d. STATEMENTS: ............................................8
5. BOOKS AND RECORDS; AUDITS.........................................8
6. LICENSING MEETINGS................................................9
7. APPROVAL OF ARTICLES AND PACKAGING AND RELATED MATERIALS..........9
8. THE LICENSED MARK................................................10
9. RIGHT TO SUBCONTRACT AND LISTS OF SOURCES AND CUSTOMERS:.........11
10. COMPETITIVE BRANDS:..............................................12
11. ADVERTISING......................................................12
a. ADVERTISING FEE:........................................12
b. COOPERATIVE ADVERTISING:................................12
12. INDEMNITY; INSURANCE.............................................13
13. DEFAULT..........................................................13
14. RIGHTS ON EXPIRATION OR TERMINATION..............................15
15. FORCE MAJEURE....................................................16
16. NOTICE...........................................................16
17. ASSIGNABILITY....................................................17
18. NO JOINT VENTURE.................................................17
19. BINDING EFFECT...................................................17
20. ARBITRATION......................................................17
21. FUTURE LICENSES..................................................18
22. APPLICABLE LAW...................................................18
23. NO WAIVER........................................................18
24. INVALIDITY.......................................................19
25. ENTIRE AGREEMENT.................................................19
26. CONFIDENTIALITY..................................................19
THE SCHEDULE REFERRED TO IN THE AGREEMENT DATED AS OF JUNE 1, 1997.
S.1. THE LICENSOR: STEVEN MADDEN, LTD.
52-16 BARNETT AVENUE
LONG ISLAND CITY, NY 11104
S.2. THE LICENSEE: WINER INDUSTRIES, INC.
404 GRAND STREET
PATERSON, NJ 07505
S.3. THE LICENSED MARK: STEVE MADDEN
S.4. THE TYPE OF LICENSE: EXCLUSIVE
S.5. THE USE OF THE TRADEMARKS: DESIGN, MANUFACTURE, ADVERTISE, SELL AND
DISTRIBUTE.
S.6. THE PRODUCTS: JUNIOR AND YOUNG CONTEMPORARY SPORTSWEAR, ALL KNIT AND
WOVEN TOPS, BOTTOMS, AND DRESSES OF ALL FABRICATIONS AND CONSTRUCTIONS,
INCLUDING JEANSWEAR (EXCLUDING OUTERWEAR AND BODYWEAR SOLD TO THE
BODYWEAR DEPARTMENT)
S.7. THE TERRITORY: THE UNITED STATES, ITS POSSESSIONS AND TERRITORIES
S.8. THE COMMENCEMENT DATE: 6/1/97
THE EXPIRATION DATE: 9/30/00
RENEWAL: TWO ADDITIONAL THREE (3) YEAR TERMS; AUTOMATIC OPTION TO RENEW
IF LICENSEE HAS MINIMUM NET SALES OF $4,000,000 DURING THE SIX MONTH
PERIOD COMMENCING OCTOBER 1, 1999 AND ENDING MARCH 31, 2000; AUTOMATIC
OPTION TO RENEW IF LICENSEE HAS MINIMUM NET SALES OF $6,000,000 DURING
THE SIX MONTH PERIOD COMMENCING OCTOBER 1, 2002 AND ENDING MARCH 31,
2003
S.9. THE GUARANTEED ROYALTY:
LICENSE YEAR 1 $150,000
(16 MONTHS)
ADVANCE UPON EXECUTION: $15,000
FOUR CALENDAR QUARTERLY PAYMENTS OF $33,750, BEGINNING 1/1/98
LICENSE YEAR 2 $225,000
FOUR QUARTERLY PAYMENTS OF $56,250
LICENSE YEAR 3 $300,000
FOUR QUARTERLY PAYMENTS OF $75,000
LICENSE YEAR 4 $350,000
FOUR QUARTERLY PAYMENTS OF $87,500
LICENSE YEAR 5 $450,000
FOUR QUARTERLY PAYMENTS OF $112,000
LICENSE YEAR 6 $500,000
FOUR QUARTERLY PAYMENTS OF $125,000
LICENSE YEAR 7 $750,000
FOUR QUARTERLY PAYMENTS OF $187,500
LICENSE YEAR 8 $750,000
FOUR QUARTERLY PAYMENTS OF $187,500
LICENSE YEAR 9 $750,000
FOUR QUARTERLY PAYMENTS OF $187,500
S.10. THE EARNED ROYALTY: FIVE PERCENT (5%) OF NET SALES
S 11. THE MINIMUM NET SALES:
LICENSE YEAR 1 $ 3,000,000
LICENSE YEAR 2 $ 4,500,000
LICENSE YEAR 3 $ 6,000,000
LICENSE YEAR 4 $ 7,000,000
LICENSE YEAR 5 $ 9,000,000
LICENSE YEAR 6 $ 10,000,000
LICENSE YEAR 7 $ 15,000,000
LICENSE YEAR 8 $ 15,000,000
S.12. THE ADVERTISING ROYALTY: TWO (2%) OF NET SALES
STEVEN MADDEN, LTD.
BY:_____________________________
NAME:
TITLE:
WINER INDUSTRIES, INC.
BY:_____________________________
NAME:
TITLE:
LICENSE AGREEMENT
BETWEEN
STEVEN MADDEN, LTD.
AND
WINER INDUSTRIES, INC.
This Agreement is made as of the 1st day of May 1997, between
Steven Madden, Ltd., a New York corporation, with offices at 52-16 Barnett
Avenue, Long Island City, NY 11104 (hereinafter called "Licensor") and Winer
Industries, Inc., a Delaware corporation, with offices at 404 Grand Street,
Paterson, NJ 07505 (hereinafter called "Licensee").
WHEREAS, Licensor has certain rights to the trademark
identified in Paragraph S.3. of the schedule attached hereto and made a part
hereof (the "Schedule"; such trademark, including all rights associated
therewith shall hereinafter be referred to as the "Licensed Mark"); and
WHEREAS, Licensee recognizes that the Licensed Mark has
acquired notoriety and goodwill with the general public by virtue of its use in
connection with the manufacture, advertisement, distribution and sales of
footwear products and accessories; and
WHEREAS, Licensee desires to obtain an exclusive right to use
the Licensed Mark in connection with the design, manufacture and sale of the
Articles (as hereinafter defined), and Licensor is willing to grant to Licensee
such license under the terms and conditions hereinafter specifically set forth;
and
WHEREAS, Licensee acknowledges that the Licensed Mark and its
related goodwill and business are of great significance and value to Licensor
and the Licensee's strict adherence to the quality control standards and other
requirements provided in this Agreement are essential to the maintenance of the
significance and value of the Licensed Mark and related goodwill and business;
and
WHEREAS, Licensee pledges its cooperation in the maintenance
and enhancement of the value and significance of the Licensed Mark throughout
the world.
NOW, THEREFORE, in consideration of the mutual promises
herein, it is mutually agreed as follows:
1. GRANT OF LICENSE.
a. GRANT:
1
(i) Upon and subject to the terms and conditions
hereinafter set forth, Licensor hereby grants to Licensee, and
Licensee hereby accepts, the right, license and privilege
specified in Paragraph S.4. of the Schedule to use the
Licensed Mark in connection with, and only with, the use,
specified in Paragraph S.5. of the Schedule of specifically
the designated and approved products specified in Paragraph
S.6. of the Schedule (such products hereinafter shall be
called the "Products" and Products bearing the Licensed Mark
hereinafter are collectively called "Articles") in the
territory specified in Paragraph S.7. of the Schedule
(hereinafter called the "Territory"). It is understood and
agreed that while the manufacture of the Articles may take
place outside the Territory, no Articles may be advertised or
sold outside the Territory. Advertisements within the
Territory that are subject to incidental dissemination outside
the Territory, such as newspapers delivered at resorts, shall
not be deemed a violation so long as all advertising has
received prior written approval of Licensor in accordance with
paragraph 7 and all sales are strictly limited to the
Territory by Licensor.
(ii) Except as set forth in paragraph 21, nothing
contained in this Agreement shall prevent Licensor from (a)
using or granting others the right or license to use the
Licensed Mark or any other marks owned by Licensor or its
affiliates on or in connection with Products in any area of
the world (other than the Territory with respect to Articles)
or on or in connection with any goods other than Products in
any area of the world including the Territory, or (b)
manufacturing or having manufactured in the Territory Products
bearing any mark, including the Licensed Mark, for sale
outside the Territory.
b. TERM:
(i) The term of this Agreement shall commence on the
date specified in Paragraph S.8. of the Schedule (hereinafter
called "Commencement Date") and shall expire on the date
specified in Paragraph S.8. of the Schedule as the "Expiration
Date," unless sooner terminated as provided under this
Agreement or renewed as hereinafter provided.
(ii) This Agreement shall be renewed automatically
for one (1) additional term of three (3) years (the "First
Renewal Term") unless Licensee gives Licensor written notice
not later than six (6) months prior to the end of the initial
term, that it does not wish the Agreement to be renewed;
provided, however, that the renewal of this Agreement shall be
effective only if Licensee is not in default hereunder on the
last day of the initial term and Licensee's Net Sales (as
defined in paragraph 4.c (iii) below) for the six (6) month
period commencing on October 1, 1999 and ending on March 31,
2000 are not less than $4,000,000. This Agreement shall be
renewed automatically for one (1) additional term of three (3)
years (the "Second Renewal Term") unless Licensee gives
Licensor written notice not later than six (6) months prior to
the end of the First Renewal Term, that it does not wish the
Agreement to be renewed; PROVIDED, HOWEVER, that the renewal
of this Agreement shall be effective only if Licensee is not
in default hereunder on the last day of the First Renewal Term
and Licensee's Net Sales for the six (6) month period
commencing on October 1, 2002 and ending on March 31, 2003 are
not less than
2
$6,000,000. The sixteen (16) month period commencing on
Commencement Date and each twelve (12) month period commencing
on each July 1 thereafter during the term of this Agreement
shall constitute and shall be referred to herein as a "License
Year."
c. TERRITORY:
This Agreement shall cover only the Territory and the
use by Licensee of the Licensed Mark shall be confined to the
Territory, except as provided in the last sentence of
Paragraph 1.a.(i) hereof.
d. CHANNELS OF DISTRIBUTION:
Licensee may, without the prior written consent of
Licensor, sell the Articles only through the following
channels of distribution: better department stores, better
speciality and junior chains, duty-free stores, better
catalogs, college campus stores, direct sales from cable
television advertising, Licensee's retail stores and web site,
and discontinued and closeout merchandise only to Off-Price
Retailers (as hereinafter defined) (collectively, the
"Channels of Distribution"). "Off-Price Retailers" shall mean
any major retail store which sells national name brand
products for substantially less than the prices charged by
major department stores. In the event that Licensor commences
the sale of its footwear products to retailers outside the
Channels of Distribution on a regular and on-going basis,
Licensee shall be permitted to sell the Articles to the same
retailers on a regular and on-going basis.
e. MINIMUM NET SALES:
Anything in this Agreement to the contrary
notwithstanding, if Licensee's Net Sales in any License Year
shall be less than ninety five percent (95%) of the Minimum
Net Sales as provided in paragraph S.11 of the Schedule for
such License Year, then Licensor shall have the right to
terminate this Agreement by notifying Licensee of its election
to terminate within thirty (30) days after Licensor's receipt
of the final quarterly statement for such License Year for
which Minimum Net Sales were not attained. Such termination
shall have no effect upon the amounts due and payable to
Licensor for periods prior to or after termination.
2. COVENANTS OF LICENSEE.
a. USE:
(i) Subject to Licensor's prior approval as
hereinafter provided, Licensee shall commence the manufacture,
sale and distribution of all of the various types of Products
as soon as practicable after the Commencement Date. If
Licensee has not commenced and is not continuing the sale of
each such type of Products by May 31, 1998 (subject to
temporary discontinuation of some Articles resulting from
seasonal changes in the business), Licensor may delete such
type of Products from the definition of "Products" hereunder
upon written notice thereof
3
to Licensee. If, during any License Year, Licensee has not
offered for sale any specific type of Products, Licensor may
delete any such type of Products from the definition of
"Products" hereunder upon written notice to Licensee given
within thirty (30) days after the end of any such License
Year. In addition, if Licensee fails to generate at least
$500,000 in Net Sales from the sale of jeanswear products by
the end of License Year 2, jeanswear may be deleted from the
definition of Products. If Licensee fails to have Net Sales of
at least $1,000,000 from the sale of dresses during any
License Year, then Licensor may delete dresses from the
definition of Products. If any type of Products is so deleted
from the definition of "Products," all rights with respect to
the use of the Licensed Mark in connection with such Products
shall revert to Licensor which then may exercise such rights
in any manner it desires.
(ii) Within the Channels of Distribution, Licensee
shall sell the Articles to retailers for sale or resale and
distribution directly to the public. If Licensee sells or
distributes the Articles at a special price, directly or
indirectly, to itself, including without limitation, any
subsidiary of Licensee or to any other person, firm, or
corporation affiliated with Licensee or its officers,
directors or major stockholders, for ultimate sale to
unrelated third parties, Licensee shall pay royalties with
respect to such sales or distribution, based upon the price
generally charged to the trade by Licensee. Licensee shall not
cause or authorize any use of the Licensed Mark in any area of
the world outside the Territory and shall not knowingly
manufacture, sell or otherwise deal with or distribute any of
the Articles on behalf of, or to, any person, firm or
corporation that Licensee believes or has reason to believe
intends, or is likely, to deal with the same in any way
outside the Territory.
(iii) Licensee, hereby acknowledges that due to the
nature of the industry, precise definition of Products is
sometimes not possible. Accordingly, in the event of any
dispute between Licensee and any other licensee of Licensor in
the Territory with respect to the products covered by their
respective licenses, such dispute shall be mediated in good
faith by Licensor. Licensor's determination shall be final and
binding; provided however, that the definition of "Products"
shall not be amended or modified without Licensee's prior
written consent which consent will not be unreasonably
withheld or delayed.
b. EFFORTS.
(i) Licensee shall, throughout the term of the
Agreement and as permitted by this Agreement, constantly use
its best efforts in the selling, distributing and promoting
and any other dealing with or disposal of Articles to protect
the good name and goodwill associated with the Licensed Mark
and Licensor and to obtain the greatest number of sales of
Articles throughout the Territory during the entire term of
this Agreement. Licensee shall be responsible for and shall
assume and pay for all costs and expenses related to the
design, manufacture, advertising, promotion and sale of
Articles.
(ii) Licensee shall use its best efforts to solicit
sales from a broad and varied account base during the term of
this Agreement, and in no event shall
4
Licensee sell on an exclusive basis to one retailer without
first obtaining Licensor's written permission.
(iii) Upon request by Licensor, Licensee shall supply
Articles and displays to Licensor for sale by Licensor (or an
Affiliate thereof) in retail stores. In allocating Articles
and displays, Licensee shall provide Articles and displays to
Licensor as if Licensor was a best, or most favored customer
account of Licensee. Such Articles and displays shall be sold
to Licensor (or an Affiliate thereof) at a price equal to
Licensee's wholesale price for such Articles and/or displays
less twenty five percent (25%) of such price. All such sales
shall be credited against the Minimum Net Sales requirements
as if sold without the twenty five percent (25%) discount.
Licensor agrees to pay for Articles within thirty (30) days
following receipt by Licensor of an invoice therefor. No
Earned Royalty or Advertising Royalty shall be due with
respect to sales to Licensor. Licensor agrees that it shall
not sell any Products, other than the Articles in its retail
or any outlet stores.
c. REPRESENTATIONS AND WARRANTIES OF LICENSEE.
Licensee represents and warrants to Licensor that
during the term of this Agreement and thereafter:
(i) It has, and will continue to have throughout the
entire term of this Agreement, the legal right to enter into
this Agreement and to assume the obligations hereunder and
that there are no, and Licensee shall not enter into during
the term hereof, contracts, agreements or understandings with
anyone which would in any way restrict or prevent it from
performing its obligations under this Agreement.
(ii) It will not attack the title of Licensor in and
to the Licensed Mark or any copyright or trademark pertaining
thereto, nor will it attack the validity of the license
granted hereunder;
(iii) It will not harm, misuse or bring into
disrepute the Licensed Mark, but on the contrary, will
maintain the value and reputation thereof to the best of its
ability;
(iv) It will manufacture, sell, promote and
distribute the Articles in an ethical manner and in accordance
with the terms and intent of this Agreement, and in compliance
with all applicable material government regulations and
industry standards;
(v) It will not create any expenses chargeable to
Licensor without the prior written approval of Licensor;
(vi) It will at all times comply with all material
government laws and regulations, including but not limited to
product safety, food, health, drug, cosmetic, sanitary or
other similar laws, and all industry standards relating or
pertaining to the
5
manufacture, sale, advertising or use of the Articles, and
shall maintain its appropriate customary high quality
standards. It shall comply with all material regulations of
regulatory agencies which shall have jurisdiction over the
Articles and shall procure and maintain in force any and all
permissions, certifications and/or other authorizations from
governmental and/or other official authorities that may be
required in relation thereto. Each Article and component
thereof distributed hereunder shall comply with all material
applicable laws, regulations and industry standards. Licensee
shall follow reasonable and proper procedures for testing that
all Articles comply with such laws, regulations and standards.
Upon reasonable notice, Licensee shall permit Licensor or its
designees to inspect testing records and procedures with
respect to the Articles for compliance. Articles that do not
comply with all material applicable laws, regulations and
standards shall automatically be deemed unapproved and
Licensee shall upon notification of noncompliance immediately
cease manufacturing distributing, selling and marketing such
Articles until Licensee and/or the Articles complies with such
laws, regulations and standards;
(vii) It will provide Licensor with the date(s) of
first use of the Articles in interstate and intrastate
commerce, where appropriate;
(viii) It will, pursuant to Licensor's instructions,
duly take any and all necessary steps to secure execution of
all necessary documentation for the recordation of itself as
user of the Property in any jurisdiction where this is
required or where Licensor reasonably requests that such
recordation shall be effected. Licensee further agrees that it
will at its own expense cooperate with Licensor in
cancellation of any such recordation at the expiration of this
Agreement or upon termination of Licensee's right to use the
Property. Licensee hereby appoints Licensor its
Attorney-in-fact for such purpose and for no other purpose;
and
(ix) It will not deliver or sell Articles outside the
Territory or knowingly sell Articles to a third party for
delivery outside the Territory.
(x) Licensee agrees to attend at its sole expense and
participate at the annual tradeshows in Las Vegas, known as
the Magic Show, with Licensor for promotion of the Articles.
Further, Licensee agrees to pay Licensor charges and expenses
related to the booth space used to promote the Articles.
(xi) Licensee shall at it's sole expense launch the
introduction of the Articles with a fashion show reasonably
acceptable to Licensor and at a cost reasonably acceptable to
Licensee.
(xii) Licensee shall hire or retain sales executives
and fashion designers exclusively for the sale and design of
the Articles. Prior to hiring fashion designer(s), Licensee
shall confer with Licensor. Nothing herein shall limit
Licensee's right to direct its regular sales personnel and
designers from participating in the sale and design of the
Articles, where appropriate.
6
(xiii) Licensee shall maintain a separate showroom
for the Articles which maintains the image of the Licensed
Mark and is reasonably acceptable to the Licensor.
3. COVENANTS OF LICENSOR. Licensor represents and warrants to
Licensee that, during the term of this Agreement:
(i) It has, and will continue to have, the legal
right to enter into this Agreement and to assume the
obligations hereunder and that there are no, and Licensor
shall not enter into during the term hereof, contracts,
agreements or understandings with anyone which would in any
way restrict or prevent it from performing its obligations
under this Agreement, including without limitation, any
agreement pursuant to which Licensor grants with respect to
the Products a license for a trademark to a third party which
is confusingly similar to the Licensed Mark;
(ii) It will not harm, misuse or bring into disrepute
the Licensed Mark, but on the contrary, will maintain the
value and reputation thereof to the best of its ability;
(iii) It will not create any expenses chargeable to
Licensee without the prior written approval of Licensee,
except for expenses incurred pursuant to paragraph 2.c.(x) by
Licensor for tradeshows which Licensee shall promptly
reimburse Licensor for Licensee's proportionate share of such
expenses;
(iv) To the best of its knowledge (i) it is the sole
and exclusive owner of and has good title to the Licensed Mark
with respect to the Articles, it has the full and sufficient
right and authority to grant to Licensee the rights and
privileges granted hereby; (ii) the Licensed Mark with respect
to the Articles has not been used under circumstances that
have caused the loss of the rights therein; (iii) the Licensed
Mark with respect to Articles does not infringe upon or
interfere with any trademark, trade dress, trade secret or
other intellectual property right of any third party; (iv)
Licensor is not aware of any claim or assertion that the
Licensed Mark with respect to Articles infringes upon or
interferes with any trade dress, trade secret or other
intellectual property right of any third party, and in the
event that a material claim is asserted, Licensor agrees to
vigorously defend such claim; and (v) it has not granted any
option, right, privileges or license to any third parties
which interfere or conflict with the rights and privileges
granted to Licensee hereby;
(v) During the term of this Agreement, it shall not
market, sell or distribute, nor license any third party to
market, sell or distribute, the Products to retail customers
in the Territory bearing the Licensed Mark, except as provided
in this Agreement; and
(vi) A breach of a material covenant contained in
this Section 3 shall entitle Licensee to terminate this
Agreement upon thirty (30) days prior written notice to
Licensor. In the event that Licensor fails to cure such breach
within such thirty (30) day period, this Agreement shall
terminate and Licensor shall indemnify Licensee for all costs
and expenses actually incurred by Licensee resulting from
7
Licensor's breach under this paragraph 3. In no event shall
Licensee be entitled to receive special or consequential
damages (including lost profits) for Licensor's breach
hereunder.
4. TRADEMARK ROYALTY.
a. GUARANTEED ROYALTY:
The first term of this Agreement will consist of one
(1) sixteen (16) month and two twelve (12) month periods.
Licensee shall pay a guaranteed minimum trademark royalty
("Guaranteed Royalty") of $150,000 for the first License Year
as follows: $15,000 upon the signing of this Agreement; and
$135,000 in four (4) consecutive equal quarterly installments
of $33,750 payable on the first day of each calender quarter
commencing January 1, 1998. The Guaranteed Royalty for each
subsequent License Year shall be payable in four (4)
consecutive equal quarterly installments on the first day of
each calender quarter during each such License Year as set
forth in paragraph S.9 of the Schedule.
b. RENEWAL TERMS:
Licensee shall pay a guaranteed minimum trademark
royalty for License Years 4 through 7 as set forth in
Paragraph S.11 of the Schedule. The Guaranteed Royalty for a
License Year will credited only against Earned Royalty during
the same License Year.
c. EARNED ROYALTY:
(i) In consideration of the license granted and the
marketing services to be performed by Licensor hereunder,
Licensee shall pay to Licensor a royalty equal to five percent
(5%) of Net Sales ("Earned Royalty").
(ii) The Earned Royalty hereunder shall be accounted
for and paid quarterly within thirty (30) days after the close
of each quarter during each term of this Agreement (or portion
thereof in the event of prior termination for any reason). The
Earned Royalty payable for each quarter during each License
Year shall be computed on the basis of Net Sales during such
quarter, with a credit for any Guaranteed Royalty and Earned
Royalty payments theretofore made to Licensor for said License
Year. No payment of Earned Royalty for any License Year in
excess of payments of Guaranteed Royalty for the same License
Year shall be credited against the Guaranteed Royalty due to
Licensor for any other License Year.
(iii) As used in this Agreement, the term "Net Sales"
means the invoice price charged by Licensee for Articles
shipped by Licensee less (w) refunds, credits and allowances
actually allowed to customers for returned Articles unrelated
to mark-downs and advertising, (x) customary and usual trade
discounts (including volume discounts, warehouse allowances,
new store discounts, but excluding anticipation discounts,
which shall not exceed eight (8%) percent of the
8
wholesale price, (y) discounts resulting from requests by
retailers to increase the wholesale price typically charged to
similar customers (the "Wholesale Price") so that a discount
can be given off such increased wholesale price (an "Inflated
Discount"), such Inflated Discount not to exceed 8% of the
Wholesale Price) afforded to and actually taken by customers
against payment for Articles, and (z) taxes and freight
separately listed.
d. STATEMENTS:
Within thirty (30) days after the end of each quarter
during each License Year, Licensee shall furnish to Licensor
or its nominee a complete and accurate statement as identified
in Exhibit "A" in a form acceptable to Licensor and certified
to be true by the Chief Financial Officer of Licensee showing
for the preceding quarter and the License Year through such
quarter: a listing of Licensee's accounts in the Territory and
the units and description of all of Articles distributed and
sold to each such account or otherwise disposed of by
Licensee; the computation of Net Sales on all such sales; and
the amount of Earned Royalties due and payable thereon in
accordance with the provisions of Paragraph 4.c. hereof.
5. BOOKS AND RECORDS; AUDITS.
a. Licensee shall prepare and maintain complete and
accurate books of account and records covering all
transactions arising out of or relating to this Agreement.
Licensor and its duly authorized representatives have the
right, during regular business hours but not more often than
twice during any License Year for the duration of this
Agreement and for three (3) years thereafter, to audit said
books of account and records and examine all other documents
and material in the possession or under the control of
Licensee with respect to the subject matter and the terms of
this Agreement. Licensor shall use its best efforts to conduct
such audit in manner as not to interfere with Licensee's
normal business activities. Licensor and each auditor acting
on its behalf shall treat all information as confidential.
b. If, as a result of any audit of Licensee's books
and records, it is shown that Licensee's payments to Licensor
were less than the amount which should have been paid,
Licensee shall make all payments required to be made to
eliminate any discrepancy revealed by said audit within thirty
(30) days after Licensor's demand therefor and, if the
shortfall for any License Year is shown to be in an amount
equal to five percent (5%) or more of the payments actually
made with respect to sales occurring during such License Year,
Licensee shall reimburse Licensor for the cost of such audit.
6. LICENSING MEETINGS.
Licensee agrees to attend licensing meetings at Licensee's
cost and expense which will be held no more than four times a year.
7. APPROVAL OF ARTICLES AND PACKAGING AND RELATED MATERIALS.
9
a. The contents and workmanship of Articles shall be
at all times of High Quality (as hereinafter defined) and
Articles shall be distributed and sold with packaging and
sales promotion materials appropriate for such Products. The
styles, designs, packaging, contents, workmanship and quality
of all Articles must be approved by Licensor in writing prior
to the distribution or sale thereof, unless such styles,
designs, packaging, contents, workmanship and quality do not
vary materially from styles, designs, packaging, contents,
workmanship and quality previously approved in writing by
Licensor. Licensor has the right to take all reasonable
actions which it deems necessary to ensure that Articles
manufactured or sold hereunder are consistent with the
reputation and prestige of the Licensed Mark as a designation
for high quality products. "High Quality" means the highest
quality available given the price point of the Articles. In
order to insure that the Articles are of a High Quality,
Licensee shall deliver one (1) garment from each style to
Licensor.
b. Licensee understands and agrees that all Articles
and other items bearing the Licensed Mark or intended for use
in connection with Articles (including, but not limited to,
cartons, containers, labels, wrappers, packages and other
inner and outer packaging materials, fixtures, displays,
artwork, printing, advertising, sales, marketing and
promotional materials - collectively hereinafter called
"Packaging and Related Materials") must be approved in writing
in advance by Licensor or its nominee which approval shall not
be unreasonably withheld or delayed. Licensee shall submit or
make available to Licensor, for Licensor's review all initial
sketches or photographs and for Licensor's prior written
approval, samples, prototypes or equivalents of the Articles
and Packaging and Related Materials and actual manufactured or
produced Articles and Packaging and Related Materials in its
final form (collectively, "Final Goods") as intended to be
sold or used by Licensee in connection with Articles, as the
case may be; provided however, that Licensor may not withhold
its approval of Final Goods in the event that they are
substantially similar to the prototypes previously submitted
to Licensor. In the event Licensor fails to signify its
approval or disapproval of any Article or Packaging and
Related Material within five (5) days of Licensor's receipt of
same, Licensor shall be deemed to have approved same.
Nonmaterial changes to previously approved Articles (such as
the addition of a new color) shall not require the prior
written approval of Licensor.
c. To ensure that all Articles and Packaging and
Related Materials are constantly maintained in conformance
with the previously approved samples, Licensee shall, within
seven (7) days of a demand from Licensor, dispatch to
Licensor, at Licensee's expense, for inspection, reasonably
representative samples of Articles and Packaging and Related
Materials that Licensee is using, manufac turing, selling,
distributing or otherwise disposing of under the terms of this
Agreement. In addition, Licensee shall take such action as may
be reasonably required to ensure that Licensor and its
designated agents and representatives shall have the right to
enter upon and inspect, at all reasonable hours in the day but
upon reasonable advance notice, any office, factory, warehouse
or other facility where any Articles or Packaging and Related
Materials are designed, manufactured, stored or otherwise
dealt with and to take, without payment, such samples of
10
Articles and Packaging and Related Materials as Licensor
reasonably requires for the purpose of inspection.
d. Articles and Packaging and Related Materials that
are not approved by Licensor shall not be sold, distributed or
otherwise dealt with by Licensee unless the Licensed Mark is
removed to the satisfaction of Licensor. If the Licensed Mark
cannot be removed to the reasonable satisfaction of Licensor,
all such Articles and Packaging and Related Materials shall be
destroyed by Licensee with, if Licensor so requests, an
appropriate certificate of destruction provided to Licensor.
Sales or use by Licensee of unapproved Articles or Packaging
and Related Materials shall constitute an incurable event of
default by Licensee under this Agreement.
8. THE LICENSED MARK.
a. Licensee shall not use the Licensed Mark, in whole
or in part, as a corporate name or trade name. Licensee shall
not join any name or names with the Licensed Mark so as to
form a new mark, except that during the term of this Agreement
Licensee may conduct business contemplated by this Agreement
under the name "Steve Madden Sportswear". Except as provided
herein, Licensee shall not use any name or names in connection
with the Licensed Mark in any advertising, publicity,
labeling, packaging or printed matter of any kind utilized by
Licensee in connection with Articles, unless and until
Licensor consents thereto in writing.
b. Licensee shall:
(i) use the Licensed Mark in the Territory strictly
in accordance with the legal requirements obtaining therein.
Licensee shall cooperate fully with Licensor in preparing and
causing to be recorded in every jurisdiction where applicable
Registered User agreements and all other documents which may
be necessary or desirable to evidence, protect and implement
the rights of Licensor pursuant to this Agreement. Upon
expiration or termination of this Agreement for any reason
whatsoever, Licensee shall execute and file documents, as
required by Licensor, terminating any and all Registered User
agreements and other documents regarding the Licensed Mark or,
at Licensor's option shall, and hereby does, authorize and
empower Licensor to terminate all Registered User or other
documents regarding the Licensed Mark on Licensee's behalf and
in Licensee's name.
(ii) in the event any designs developed by Licensor
for Articles may be made the subject of patent, trademark or
copyright protection, Licensor shall have the right, at its
own expense, to file applications therefor, and shall be the
exclusive owner of such rights. Licensee shall cooperate with
Licensor or its designers in obtaining and perfecting such
rights including providing Licensor or its designers with
copies of documents, sketches, renderings or the like normally
prepared by Licensee in connection with the manufacture of
Articles and executing such documents as may reasonably be
required.
11
(iii) affix to all Articles and Packaging and Related
Material such trademark and copyright notices as Licensor
reasonably may direct;
(iv) manufacture, sell, distribute or otherwise deal
with Packaging and Related Materials solely in connection with
Articles; and
(v) not cause or grant permission to any third
parties to acquire any copyright or other proprietary right in
connection with any word, device, design or symbol used by
Licensee in connection with any Articles or Packaging and
Related Materials.
c. Licensee acknowledges that, as between Licensor
and Licensee, Licensor is the owner of all right, title and
interest in and to the Licensed Mark in the Territory in any
form or embodiment thereof and is also the owner of the
goodwill attached or which shall become attached to the
Licensed Mark in connection with the business and goods in
relation to which the same has been, is or shall be used.
Sales by Licensee shall be deemed to have been made by
Licensor for purposes of trademark registration and all uses
of the Licensed Mark by Licensee shall inure to the benefit of
Licensor. Licensee shall not, at any time, do or suffer to be
done any act or thing which may in any way adversely affect
any rights of Licensor in and to the Licensed Mark or any
registrations thereof or which, directly or indirectly, may
reduce the value of the Licensed Mark or detract from its
reputation.
d. Licensee never shall challenge Licensor's
ownership of or the validity of the Licensed Mark or any
application for registration thereof, or any trademark
registration thereof, or any rights of Licensor therein.
9. RIGHT TO SUBCONTRACT AND LISTS OF SOURCES AND CUSTOMERS:
a. Licensee may subcontract the manufacture of any
Article (or portion of any Article) provided Licensee obtains
in writing from any and all such subcontractors an agreement
in writing, as attached hereto in Exhibit "B" and with a copy
to Licensor, that no use of the Licensed Mark will be made for
any purpose other than supplying Articles solely to Licensee.
b. Together with the final quarterly statement
submitted for each License Year pursuant to Paragraph 4.d.
hereof and at any other time so requested by Licensor,
Licensee shall provide Licensor with an updated list of the
names and addresses of all manufacturing sources,
subcontractors, suppliers, dealers, wholesalers, retailers and
customers who have been engaged in the manufacture, sale,
distribution or other dealings with the Articles or Packaging
and Related Materials during the term of the Agreement. Such
list shall include customers to whom Articles or Packaging and
Related Materials have been delivered after the expiration or
termination of this Agreement.
c. It is the intent of this Agreement that, insofar
as practical, Licensee shall use its best efforts to at all
times be able to fulfill its orders for Articles
12
promptly and yet not have an excessive inventory at the time
of the termination or expiration of the License. Within ten
(10) days after a request by Licensor, which request may not
be made with unreasonable frequency during each License Year,
Licensee will furnish Licensor with a statement signed by the
Chief Financial Officer of Licensee, setting forth in detail
the quantities of finished Articles then on hand and work in
progress inventories of Articles.
10. COMPETITIVE BRANDS:
a. Licensee and any affiliates thereof shall not
during the term of this Agreement enter into any other license
which would grant Licensee or any affiliate the right to
manufacture, distribute, advertise, promote, sell or deal with
in any way in the Territory any Products marketed,
merchandised, distributed and known to the general public as a
junior or contemporary fashion brand within the Channel of
Distribution without Licensor's prior written consent. Subject
to paragraph 10(b) below, nothing herein shall limit the right
of Licensee to continue to manufacture retailer owned or
licensed products so long as Licensee serves only as the
manufacturer of such products.
b. Within one hundred five (105) days following the
date on which Licensee ships new Articles introduced to the
retail market, Licensee shall not use designs or styles unique
to such Articles on or in connection with any other brand or
product which consumers identify or associate with Licensor
and/or the Licensed Mark on or in connection with any other
brand or product. In addition, Licensee shall not during or
after the terms of this Agreement use Protected Designs on or
in connection with any other brand or product. Also, upon
expiration or termination of this Agreement, Licensee will
assign to Licensor the beneficial ownership of all rights that
Licensee has acquired or may acquire in such designs or
styles. "Protected Designs" shall mean any designs or styles
that are not within the public domain or which would not be
entitled to legal protection against use by other
manufacturers or distributors of apparel, other than Licensee.
11. ADVERTISING.
a. ADVERTISING FEE:
Licensee shall pay to Licensor an amount (the
"Advertising Fee") equal to two percent (2%) of Net Sales
during the term of the Agreement, as specified in Paragraph
S.12. of the Schedule, which Advertising Fee shall be used by
Licensor in connection with its national and regional
advertising and promotion of the Licensed Mark. The
Advertising Fee shall be paid to Licensor at the time
quarterly statements are to be delivered to Licensor in
accordance with provisions of Paragraph 3.c. hereof and shall
be based on Net Sales during the quarter to be covered by each
such statement. Licensor shall use the Articles in its
national advertising campaigns subject to the creative and
marketing discretion of Licensor and its advertising advisors.
13
b. COOPERATIVE ADVERTISING:
Licensee agrees to offer and pay one percent (1.0%)
of its Net Sales for cooperative advertising to major
retailers and provide Licensor with proof of such payments and
copies of the actual cooperative advertising materials and/or
advertisements.
12. INDEMNITY; INSURANCE.
a. Licensee hereby saves and holds Licensor harmless
of and from and indemnifies it against any and all losses,
liability, damages and expenses (including reasonable
attorneys' fees and expenses) which Licensor may incur or be
obligated to pay, or for which it may become liable or be
compelled to pay in any action, claim or proceeding against
it, for or by reason of any acts, whether of omission or
commission, that may be committed or suffered by Licensee or
any of its servants, agents or employees in connection with
Licensee's performance of this Agreement. The provisions of
this paragraph and Licensee's obligations hereunder shall
survive the expiration or termination of this Agreement.
b. Licensor hereby saves and holds Licensee harmless
of and from and indemnifies it against any and all losses,
liability, damages and expenses (including reasonable
attorneys' fees and expenses) which Licensee may incur or be
obligated to pay or for which it may become liable or be
compelled to pay in any action, claim or proceeding against
it, for or by reason of any acts, whether of omission or
commission, that may be committed or suffered by Licensor or
any of its servants, agents or employees in connection with
Licensor's performance of this Agreement. The provisions of
this paragraph and Licensor's obligations hereunder shall
survive the expiration or termination of this Agreement.
c. The indemnified party shall give the indemnifying
party prompt notice of, and full cooperation with respect to,
the alleged claim brought or asserted in request of which
indemnification under this Agreement is sought; PROVIDED,
HOWEVER, that any delay or failure to provided the
indemnification notice shall relieve the indemnified party of
its obligations hereunder only in the event, and to the
extent, that a court of competent jurisdiction shall finally
determine that the indemnifying party shall have been
materially prejudiced by reason of such failure or delay.
d. Licensee shall procure and maintain at its own
expense in full force and effect at all times during which
Articles are being sold, a public liability insurance policy
including product liability coverage with respect to Articles,
as well as contractual liability coverage with respect to this
Agreement, with a limit of liability of not less than
$2,000,000.00. Such insurance policy shall be written for the
benefit of both Licensee and Licensor and shall provide for at
least ten (10) days prior written notice to said parties of
the cancellation or substantial modification thereof. Nothing
contained in this Paragraph 12.d. shall deemed to limit in any
way the indemnification provisions of Paragraph 12 hereof.
14
13. DEFAULT.
(a) The occurrence of any of the following events
shall constitute an event of default by Licensee under this
Agreement, subject to the procedures and remedies set forth
herein:
(i) If Licensee defaults in the performance of
any of its material obligations provided for
in this Agreement and such failure continues
for a period of ten (10) days after receipt
of written notice thereof; or
(ii) If Licensee shall have failed to deliver to
Licensor or to maintain in full force and
effect the insurance referred to in
Paragraph 12 d. hereof and such failure
continues for a period of ten (10) days
after receipt of written notice thereof; or
(iii) If Licensee shall fail to make any payments
due hereunder and such failure continues for
a period of seven (7) days after receipt of
written notice thereof; or
(iv) If Licensee shall fail to deliver any of the
statements hereinabove referred to when due
hereunder and such failure continues for a
period of fifteen (15) days after receipt of
written notice thereof; or
(v) If Licensee shall materially fail to comply
with any laws, regulations or voluntary
industry standards or if any governmental
agency or other body, office or official
vested with appropriate authority finds that
the Product(s) are harmful or defective in
any way, manner or form, or are being
manufactured, sold or distributed in
contravention of applicable laws,
regulations or standard, or in a manner
likely to cause harm, and such failure could
have a material adverse effect on the value
of the Licensed Mark and such failure
continues for a period of ten (10) days
after receipt of written notice thereof; or
(vi) If Licensee shall be unable to pay its debts
when due, or shall make any assignment for
the benefit of creditors, or shall file any
petition under the bankruptcy or insolvency
laws or any jurisdiction, county or place,
or shall have or suffer a receiver or
trustee to be appointed for its business or
property and such receiver or trustee, if
involuntarily appointed, shall not be
removed by an order within thirty (30) days
following the date of appointment, or be
adjudicated a bankrupt or an insolvent; or
(vii) If Licensee shall manufacture, sell or
distribute, whichever first occurs, any of
the Articles without the prior written
approval of Licensor; or
(viii) If Licensee undergoes a substantial change
in management which is not reasonably
acceptable to Licensee; or
15
(ix) If Licensee delivers or sells Articles
outside the Territory or knowingly sells
Articles to a third party for delivery
outside the Territory.
(b) In the event any of these defaults occur,
Licensor shall give notice of termination in writing to
Licensee by certified mail. Licensee shall have ten (10) days
from the date of receiving notice in which to correct any of
these defaults (except subdivisions (vi) (except for the
thirty (30) day cure period in the event of an involuntary
bankruptcy proceeding), (vii), (viii) and (ix) above which are
not curable), and failing such, this Agreement shall thereupon
immediately terminate, and any and all payments then or later
due from Licensee hereunder shall then be promptly due and
payable and no portion of prior payments shall be repayable to
Licensee.
Further, if Licensee fails to make any payment due
hereunder, Licensee shall pay interest on the unpaid balance
thereof from and including the date such payment becomes due
until the date the entire amount is paid in full at a rate
equal one percent (1%) per month.
14. RIGHTS ON EXPIRATION OR TERMINATION.
a. In the event of termination in accordance with
Paragraph 13 hereof, (except for a default arising from a
breach of paragraph 13(a)(viii)) Licensee shall pay to
Licensor, (i) the Earned Royalty and the Guaranteed Royalty
then owed to it and (ii) the lesser of (x) the Guaranteed
Royalty remaining unpaid for the balance of the then current
term of this Agreement (y) the Guaranteed Royalty for the two
(2) year period following the date of termination and (z) the
Guaranteed Royalty for the period of time following commencing
of the date of termination and ending on the date on which
Licensor receives the first payment from a subsequent licensee
with respect to the sale of the Articles. In addition,
Licensee shall be liable for an amount equal to any other
actual damages Licensor may have suffered on account of such
termination or the acts or omissions from which it resulted.
In the event that this Agreement is terminated by Licensor
pursuant to paragraph 13(a)(viii), Licensee shall not be
required to make any payments to Licensor contemplated by this
paragraph 14(a).
b. Notwithstanding any termination in accordance with
Paragraph 13 hereof, Licensor shall have and hereby reserves
all rights and remedies which it has, or which are granted to
it by operation of law, to enjoin the unlawful or unauthorized
use of the Licensed Mark (any of which injunctive relief may
be sought in the courts, notwithstanding the arbitration
provisions of this Agreement, and also may be sought prior to
or in lieu of termination), to collect royalties payable by
Licensee pursuant to this Agreement and to be compensated for
damages for breach of this Agreement.
c. If this Agreement expires or is terminated other
than by Licensor pursuant to Paragraph 13 hereof, Licensee
shall be entitled, for an additional period of six (6) months
only, on a non-exclusive basis, to sell and dispose of its
16
inventory of Articles in the Territory. Such sales shall be
made subject to all of the provisions of this Agreement and to
an accounting for and the payment of Earned Royalties thereon.
Such accounting and payments shall be due within twenty (20)
days after the close of each month during the said six (6)
month period.
d. Except as specifically provided in Paragraph 14c.
hereof, on the expiration or termination of this Agreement,
all of the rights of Licensee under this Agreement shall
terminate forthwith and shall revert immediately to Licensor,
all Earned Royalties on sales theretofore made shall become
immediately due and payable and Licensee shall discontinue
forthwith all use of the Licensed Mark or any variation or
simulation thereof and promptly shall transfer to Licensor,
free of charge, all registrations, filings and rights with
regard to the Licensed Mark which it may have possessed at any
time. In addition, Licensee thereupon shall deliver to
Licensor, free of charge, all samples of Articles and all
sketches and other material in its possession which were used
in connection with Articles and all Packaging and Related
Material in its possession with the Licensed Mark thereon.
After the expiration or termination of this Agreement and
subject to the provisions of paragraph 10(b), Licensee shall
not use or permit others to use any of said sketches and other
material, or any variations or simulations thereof, in
connection with Products or any other merchandise.
15. FORCE MAJEURE
Neither party hereto shall be liable to the other for
delay in any performance or for the failure to render any
performance under the Agreement when such delay or failure is
by reason of any cause or causes beyond its control,
including, without limitation, any present or any future
statute, law, ordinance, regulation, order, judgment or
decree, whether legislative, executive or judicial (whether or
not constitutional), act of God, earthquake, flood, fire,
epidemic, accident, explosion, casualty, lockout, boycott,
strike, labor controversy (including but not limited to threat
of lockout, boycott or strike), riot, civil disturbance, war
or armed conflict (whether or not there has been an official
declaration of war or official statement as to the existence
of a state of war), act of a public enemy, embargo or delay of
a common carrier, or, in the case of Licensee, the inability
without fault on Licensee's part to obtain sufficient
material, labor, transportation, power or other essential
commodity required in the conduct of Licensee's business. The
party claiming to be so effected shall give notice to the
other party promptly after it learns of the occurrence of said
event and of the adverse results thereof. Such notice shall
set forth the nature and extent of the event. The delay or
failure shall not be excused unless such notice is so given.
Notwithstanding any other provision of this Agreement, either
party may terminate the Agreement if the other party is unable
to perform any or all of its obligations hereunder for a
period of three (3) months by reason of said event.
17
16. NOTICE
Any notice, communication or legal service of process
required or permitted under this Agreement shall be effective
when personally delivered in writing; or on the date when the
notice, service or communication is telexed or telecopied
(with a confirmation copy to be sent by mail); or the day
after the notice, service or communication is sent by
overnight air courier service (e.g., Federal Express); or
three (3) days after the date of mailing. All notices shall be
sent to the parties at the notice addresses listed below or to
such other persons and notice addresses as may be designated
in writing by the parties to each other.
TO LICENSOR: Steven Madden, Inc.
52-16 Barnett Avenue
Long Island City, NY 1104
Attention: President
Telephone: (718) 446-1800
Facsimile: (718) 446-5599
with a copy to: Bernstein & Wasserman, LLP
950 Third Avenue
New York, NY 10022
Attention: Alan N. Forman, Esq.
Telephone: (212) 826-0730
Facsimile: (212) 371-4730
TO LICENSEE: Winer Industries, Inc.
404 Grand Street
Paterson, NJ 07505
Telephone: (973) 684-0800
Facsimile: (973) 684-7424
with a copy to: Schiffman, Berger, Abraham,
Kaufman & Ritter, P.C.
Three University Plaza, Suite 410
P.O. Box 568
Hackensack, N.J. 07602-0568
Attn: Richard G. Berger, Esq.
Telephone: (201) 488-2600
Facsimile: (201) 488-5059
17. ASSIGNABILITY
The performance of Licensee hereunder is of a
personal nature and, therefore, neither this Agreement nor the
license or other rights granted hereunder may be assigned,
sublicensed or transferred by Licensee without Licensee's
prior written consent which consent shall not be unreasonably
withheld or delayed. Any attempted assignment, sublicense or
transfer, whether voluntary or by operation
18
of law, directly or indirectly, without such prior written
consent of Licensor shall be void and of no force or effect.
18. NO JOINT VENTURE
Nothing herein contained shall be construed to place
the parties in the relationship of partners or joint
venturers, and Licensee shall have no power to obligate or
bind Licensor, its subsidiaries and affiliates in any manner
whatsoever.
19. BINDING EFFECT
This Agreement shall inure to the benefit of and
shall be binding upon the parties, their respective
successors, Licensor's transferees and assigns and Licensee's
permitted transferees and assigns.
20. ARBITRATION
Except as specifically set forth in this Agreement,
any and all disputes, controversies and claims arising out of
or relating to this Agreement or concerning the respective
rights or obligations hereunder of the parties hereto except
disputes, controversies and claims relating to or affecting in
any way Licensor's ownership of or the validity of the
Licensed Mark or any registration thereof, or any application
for registration thereof (hereinafter referred to as "Licensed
Mark Disputes") shall be settled and determined by arbitration
in New York, New York before the Commercial Panel of the
American Arbitration Association in accordance with and
pursuant to the then existing Commercial Arbitration Rules.
The arbitrators shall have the power to award specific
performance or injunctive relief and reasonable attorneys'
fees and expenses to any party in any such arbitration and the
courts shall have similar power with regard to that injunctive
relief sought by Licensor pursuant to Paragraph 14.b. hereof
and with regard to Licensed Mark Disputes. However, in any
arbitration proceeding arising under this Agreement, the
arbitrators shall not have the power to change, modify or
alter any express condition, term or provision hereof, and to
that extent the scope of their authority is limited. The
arbitration award shall be final and binding upon the parties
and judgment thereon may be entered in any court having
jurisdiction thereof. The service of any notice, process,
motion or other document in connection with an arbitration
under this Agreement or for the enforcement of any arbitration
award hereunder may be effectuated in the manner in which
notices are to be given to a party pursuant to Paragraph 16
hereof.
21. FUTURE LICENSES
Except as may otherwise be provided, in this
Agreement, Licensor shall have the right, exercisable at any
time, to negotiate and enter into agreements with third
parties pursuant to which it may grant a license to use the
Licensed Mark in connection with the manufacture, distribution
and sale of Products in the Territory or provide consultation
and design and marketing services with respect to Products in
the Territory, but only if, pursuant to such third party
agreements, the
19
collections of such Products are not shipped prior to the
termination of this Agreement. Nothing herein contained shall
be construed to prevent any such third party licensee from
showing such Products and accepting orders therefor prior to
the termination hereof. However, the first seasonal collection
of Products bearing the Licensed Mark sold by any such third
party licensee shall be a collection after the final
collection sold by Licensee hereunder. Licensor hereby grants
Licensee a right of first negotiation with respect to a
license of the Articles in and for the territory of Canada,
and the parties agree that they will negotiate the terms of a
licensing agreement in good faith with respect to such
territory. In addition, in the event that Licensor elects to
sell "missy" styles or sizes under the Licensed Mark, Licensor
hereby grants Licensee a right of first negotiation with
respect to a license of the Licensed Mark for the sale of such
"missy" products in the Territory.
22. APPLICABLE LAW
This Agreement shall be construed and interpreted in
accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State.
23. NO WAIVER
No waiver by either party, whether express or
implied, of any provision of this Agreement, or of any breach
default thereof, shall constitute a continuing waiver of such
provision or of any other provision of this Agreement.
Acceptance of payments by Licensor shall not be deemed a
waiver by Licensor of any violation of or default under any of
the provisions of this Agreement by Licensee.
24. INVALIDITY
If any provision or any portion of any provision of
this Agreement shall be held to be void or unenforceable, the
remaining provisions of this Agreement and the remaining
portion of any provision held void or unenforceable in part
shall continue in full force and effect.
25. ENTIRE AGREEMENT
This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the
subject matter hereof, supersedes all prior oral or written
understandings and agreements relating thereto and may not be
modified, discharged or terminated, nor may any of the
provisions hereof be waived, orally. This Agreement shall be
construed without regard to any presumption or other rule
requiring construction against the party causing this
Agreement to be drafted. If any words or phrases in this
Agreement shall have been stricken out or otherwise
eliminated, whether or not any other words or phrases have
been added, this Agreement shall be construed as if those
words or phrases were never included in this Agreement, and no
implication or inference shall be drawn from the fact that the
words or phrases were so stricken out or otherwise eliminated.
20
26. CONFIDENTIALITY
A confidential relationship is created by this
Agreement. Except in connection with their respective rights
and obligations under this Agreement, Licensor, Licensee and
their respective affiliates, employees, attorneys, and
accountants shall keep confidential and not take or use for
its or their own purpose confidential and proprietary business
information of the other and terms of this Agreement, unless
with the prior written consent of the other parties hereto or
pursuant to, or as may be required by law, or in connection
with regulatory or administrative proceedings and only then
with reasonable advance notice of such disclosure to the other
parties thereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
STEVEN MADDEN, LTD.
By: /s/ RHONDA J. BROWN
--------------------------------------
Name: Rhonda J. Brown
Title: Chief Operating Officer
WINER INDUSTRIES, INC.
By: /s/ ROBERT S. WINER
--------------------------------------
Name: Robert S. Winer
Title: President
21
EXHIBIT "A"
QUARTERLY LICENSEE TRADEMARK ROYALTY
AND ADVERTISING FEE REPORT
Licensee: Winer Industries, Inc.
For Quarter ending: _______________
Gross Sales _______________
Discounts: _______________
Allowances: _______________
Credits: _______________
Returns: _______________
Net Sales: ===============
Guaranteed Minimum Payment: _______________
Sales Royalty @ 5% _______________
Advertising Fee @ 2% _______________
Total Payment Due: _______________
Total Payment Remitted: _______________
Authorized Signature:______________ Date:___________________
22
EXHIBIT "B"
Dated ___________, 199_
Gentlemen:
This letter will serve as notice to you that pursuant to the License
Agreement dated as of ______________, between you and ______________, we have
been engaged as the manufacturer for the connection with the manufacture of the
Articles defined in the aforesaid License Agreement. We hereby acknowledge that
we have received a copy of the quality, trademark notice, and other relevant
terms and conditions set forth in said License Agreement which are applicable to
our function as manufacturer of the Articles(s), and we agree to only dispose of
the Articles to _________________. It is understood that this engagement is on a
royalty free basis.
Sincerely,
23
AMENDED EMPLOYMENT AGREEMENT
AMENDED EMPLOYMENT AGREEMENT, dated as of July 29, 1997, by and
between STEVEN MADDEN, LTD., a New York corporation with offices at 52-16
Barnett Avenue, Long Island City, N.Y. 11104 (the "Corporation"), and STEVEN
MADDEN, an individual residing at 300 Mercer Street New York, New York 10003
(the "Executive").
WITNESSETH
WHEREAS, Corporation has entered into an employment agreement with
Executive dated as of September 1, 1993 (the "Prior Employment Agreement"),
which Corporation and Executive desire to amend;
WHEREAS, Corporation desires to secure the services of Executive upon
the terms and conditions hereinafter set forth;
WHEREAS, Executive desires to continue to render services to
Corporation upon the terms and conditions hereinafter set forth; and
WHEREAS, in partial consideration of the execution of this Agreement
and the performance by Executive of his duties hereunder, the Corporation has
granted the Executive options to purchase up to 500,000 shares of Common Stock
of the Corporation par value $.000l per share.
NOW, THEREFORE, the parties mutually agree as following:
Section 1. EMPLOYMENT. Corporation hereby employs Executive and
Executive hereby accepts such employment, as an executive of Corporation,
subject to the terms and conditions set forth in this Agreement
Section 2. DUTIES. Executive shall serve as the President, Chief
Executive Officer and Chairman of the Board of Directors of Corporation and
shall properly perform such duties as may be assigned to him from time to time
by the Board of Directors of the Corporation. If requested by Corporation,
Executive shall serve on any committee of Corporation's Board of Directors
without additional compensation. During the term of this Agreement, Executive
shall devote substantially all of his business time to the performance of his
duties hereunder unless otherwise authorized by the Board of Directors.
Section 3. TERM OF EMPLOYMENT.
(a) The term of Executive's employment, unless sooner
terminated as provided herein, shall be for a period of ten (10)
years commencing January 1, 1998 (the "Term").
Section 4. COMPENSATION OF EXECUTIVE.
4.1 SIGNING BONUS; SALARY. Upon execution of this
Agreement, Corporation shall pay to Executive a signing bonus of $200,000.
Corporation shall pay to Executive the following base salary ("Base Salary") for
his services hereunder, less such deductions as shall be required to
1
be withheld by applicable law and regulations: Two Hundred Seventy-Five Thousand
($275,000) Dollars for each twelve (12) month period commencing January 1, 1998
and ending December 31, 1999; Three Hundred Thousand ($300,000) Dollars for the
twelve (12) month period commencing January 1, 2000; and, for each 12-month
period thereafter, an amount equal to the Base Salary for the previous 12-month
period plus ten percent (10%) of such Base Salary.
4.2 TIME OF PAYMENT. All salaries payable to Employee shall
be paid at such regular weekly, biweekly or semi-monthly time or times as the
Corporation makes payment of its regular payroll in the regular course of
business.
4.3 DISCRETIONARY BONUS. Executive shall be entitled to such
Bonus[es](in cash, capital stock or other property) (the "Discretionary Bonus")
as the Board of Directors of the Corporation may determine from time to time in
its sole discretion.
4.4 EXPENSES. In addition to those expenses expressly set
forth herein, Corporation shall provide to Executive a Fifty Thousand Dollar
($50,000) annual non-accountable expense allowance. Additionally, Corporation
shall, at the direction of Executive, either reimburse Executive for, or
directly pay the costs of, membership dues for any professional organizations
that Executive chooses to join.
4.5 AUTOMOBILE ALLOWANCE. With respect to Executive's use of
an automobile in connection with the performance of his duties hereunder,
Corporation shall, at the direction of Executive, either reimburse Executive
for, or directly pay the costs of, the use of an automobile during the Term of
this Agreement and all usual expenditures in connection therewith; i.e., fuel,
insurance, parking, customary maintenance and repairs, etc. The type of
automobile, which may be changed during the Term and shall not have a suggested
retail selling price in excess of Fifty Thousand Dollars ($50,000), shall be
selected by Executive.
4.6 BENEFITS. Executive shall be entitled to participate in
such pension, profit sharing, group insurance, option plans, hospitalization,
and group health and benefit plans and all other benefits and plans as
Corporation provides to its senior executives.
Section 5. TERMINATION.
5.1 DEATH. This Agreement shall terminate upon the death of
Executive; PROVIDED, HOWEVER, that Corporation shall continue to pay to the
estate of Executive the appropriate salary as set forth in Section 4.1 hereof
for the twelve (12) month period immediately subsequent to the date of
Executive's death.
5.2 TERMINATION FOR CAUSE OR TOTAL DISABILITY; RESIGNATION.
In the event Executive is discharged "For Cause" or due to his "Total
Disability" (as those terms are defined below) or in the event Executive resigns
(other than pursuant to Section 5.5 hereof), then upon such occurrence, this
Agreement shall be deemed terminated and Corporation shall be released from all
obligations to Executive with respect to this Agreement, except obligations
accrued prior to such termination date and as provided in Section 6.2 hereof.
5.3 TERMINATION OTHER THAN FOR CAUSE OR TOTAL DISABILITY. In
the event Executive
2
is discharged other than "For Cause" or due to his "Total Disability," then such
termination shall only be effective if prior to the date hereof, the Corporation
shall have delivered to Executive the balance of his salary that would have been
paid by the Corporation pursuant to Section 4.1 hereof over the full Term of the
Agreement if the Corporation had not terminated this Agreement. Such amount
shall be payable in two (2) installments as follows: (i) fifty (50%) percent of
the amount due pursuant to the terms of this Section 5.3 upon termination of the
Agreement and (ii) fifty (50%) percent in equal annual installments beginning on
the January 1 immediately following such termination and each January 1 thereof
until January 1, 2008.
5.4 "FOR CAUSE". As used herein, the term "For Cause" shall
mean:
(a) a deliberate and material breach by Executive of his
duties and responsibilities under this Agreement that results in
material harm to Corporation which breach is committed without
reasonable belief that such breach is in, or not contrary to, the
best interests of Corporation, and is not remedied within thirty (30)
days after receipt of written notice from Corporation specifying such
breach; or
(b) Executive's plea of guilty or nolo contendere to, or
non-appealable conviction of, a felony, which conviction or plea
causes material damage to the reputation or financial position of
Corporation.
5.5 TERMINATION UPON CHANGE OF CONTROL.
(a) If a Change of Control (as defined below) occurs
without Executive's prior written consent, Executive shall have the
right to terminate this Agreement. At least ten (10) days prior to
any such proposed Change of Control, Corporation shall notify
Executive of its intention to effect such Change of Control, and
Executive shall thereupon have five (5) days from the actual receipt
of such notice to give notice of his intention to terminate this
Agreement in the event of the Change of Control. If, notwithstanding
such notice by Executive, Corporation proceeds with such Change of
Control, this Agreement shall be deemed terminated as of the
effective date of the event constituting the Change of Control and
Executive shall receive in cash, within ten (10) days of termination,
(i) any compensation accrued and unpaid pursuant to Section 4 of this
Agreement, (ii) an amount equal to the balance of Executive's salary
that would have been paid by Corporation pursuant to Section 4.1
hereof over the full Term of this Agreement if the Agreement had not
been terminated, and (iii) an amount equal to Executive's bonus, if
any, for the preceding 12-month period ended December 31, multiplied
by the remaining years (including any fractional years) left under
this Agreement since the date such bonus was determined by the Board
of Directors. In the event that any payment (or portion thereof) to
Executive under this Section 5.5 is determined to constitute an
"excess parachute payment," under Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended, the following calculations
shall be made:
(i) The after-tax value to Executive of the payments
under this Section 5.5 without any reduction; and
3
(ii) the after-tax value to Executive of the
payments under this Section 5.5 as reduced to the maximum amount (the "Maximum
Amount") which may be paid to Executive without any portion of the payments
constituting an "excess parachute payment".
If after applying the agreed upon calculations set forth above, it is determined
that the after-tax value determined under clause (ii) above is greater than the
after-tax value determined under clause (i) above, the payments to Executive
under this Section 5.5 shall be reduced to the Maximum Amount.
(b) If a Change of Control occurs, regardless of whether
Executive has consented to such Change of Control, Executive shall
have the right to resign for Good Reason (as defined below).
5.6 "CHANGE OF CONTROL". As used herein, the term "Change of
Control" shall mean:
(a) When any "person" as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
as used in Section 13(d) and 14(d) thereof including a "group" as
defined in Section 13(d) of the Exchange Act, but excluding
Corporation or any subsidiary or any affiliate of Corporation or any
employee benefit plan sponsored or maintained by Corporation or any
subsidiary of Corporation (including any trustee of such plan acting
as trustee), becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of securities of Corporation representing 20%
or more of the combined voting power of Corporation's then
outstanding securities; or
(b) When, during any period of twenty-four (24)
consecutive months, the individuals who, at the beginning of such
period, constitute the Board of Directors (the "Incumbent Directors")
cease for any reason other than death to constitute at least a
majority thereof provided, however, that a director who was not a
director at the beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who
then qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or through
the operation of this proviso; or
(c) The occurrence of a transaction requiring stockholder
approval for the acquisition of Corporation by an entity other than
Corporation or a subsidiary or an affiliated company of Corporation
through purchase of assets, or by merger, or otherwise.
5.7 "GOOD REASON" As used herein, the term "Good Reason" shall
mean the occurrence of any of the following:
(a) the assignment to Executive of any duties
inconsistent with his positions, duties,
responsibilities and status with
Corporation as contemplated hereunder, or
any removal of Executive from any positions
or offices Executive held as contemplated
hereunder, except in connection with the
termination of Executive's employment by
Corporation For Cause or on account of
Total Disability pursuant to
4
the requirements of this Agreement;
(b) a reduction by Corporation of Executive's
Base Salary as in effect as contemplated
hereunder, except in connection with the
termination of the Executive's employment
by Corporation For Cause or due to Total
Disability pursuant to the requirements of
this Agreement;
(c) any termination of Executive's employment
by Corporation during the Term that is not
effected pursuant to the requirements of
this Agreement;
(d) any material breach by Corporation of the
terms of this Agreement;
(e) the relocation of Executive's work location
from the location set forth herein; or
(f) failure by any successor to Corporation
expressly to assume all obligations of
Corporation under this Agreement.
Section 6. DISABILITY.
6.1 TOTAL DISABILITY. In the event that after Executive has failed to
have performed his regular and customary duties for a period of one hundred and
eighty (180) consecutive days or for any two hundred and seventy (270) days out
of any three hundred and sixty (360) day period, and before Executive has become
"Rehabilitated" (as hereinbelow defined) a majority of the members of the Board
of Directors of the Corporation, exclusive of Executive, may vote to determine
that Executive is mentally or physically incapable or unable to continue to
perform such regular and customary duties of employment and upon the date of
such majority vote, Executive shall be deemed to be suffering from a "Total
Disability." As used herein, the term "Rehabilitated" shall mean such time as
Executive is willing, able and commences to devote his time and energies to the
affairs of Corporation to the extent and in the manner that he did so prior to
his disability.
6.2 PAYMENT DURING DISABILITY. In the event Executive is unable to
perform his duties hereunder by reason of a disability, prior to the time such
disability is deemed a Total Disability in accordance with the provisions of
Section 6.1 above, Corporation shall continue to pay Executive his appropriate
Base Salary pursuant to Section 4.1 during the continuance of any such
disability. Upon a determination of any Total Disability pursuant to the
provisions of Section 6.1 above, Corporation shall pay to Executive his
appropriate Base Salary pursuant to Section 4.1 for the twelve (12) month period
immediately subsequent to the date of determination of Total Disability.
Section 7. VACATIONS. Executive shall be entitled to a vacation of four (4)
weeks per year, during which period his Base Salary shall be paid in full.
Executive shall take his vacation at such time or times as Executive and
Corporation shall determine is mutually convenient.
Section 8. DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive recognizes that
he has had and will continue to have access to secret and confidential
information regarding Corporation,
5
including but not limited to its customer list, products, know-how, and business
plans. Executive acknowledges that such information is of great value to
Corporation, is the sole property of Corporation, and has been and will be
acquired by him in confidence. In consideration of the obligations undertaken by
Corporation herein, Executive will not, at any time, during or after his
employment hereunder, reveal, divulge or make known to any person, any
information acquired by Executive during the course of his employment, which is
treated as confidential by Corporation, including but not limited to its
customer list, and not otherwise in the public domain. The provisions of this
Section 8 shall survive Executive's employment hereunder.
Section 9. COVENANT NOT TO COMPETE.
(a) Executive recognizes that the services to be performed
by him hereunder are special, unique and extraordinary. The parties
confirm that it is reasonably necessary for the protection of
Corporation that Executive agree, and accordingly, Executive does
hereby agree, that he shall not, directly or indirectly, at any time
during the "Restricted Period" within the "Restricted Area" (as those
terms are defined in Section 9(e) below):
(i) except as provided in Subsection (c) below,
engage in the business of manufacturing,
designing or marketing shoes either on his
own behalf or as an officer, director,
stockholder, partner, consultant,
associate, employee, owner, agent,
creditor, independent contractor, or
co-venturer of any third party; or
(ii) employ or engage, or cause or authorize,
directly or indirectly, to be employed or
engaged, for or on behalf of himself or any
third party, any non-secretarial employee
or agent of Corporation.
(b) Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any
time during the Term and during the Restricted Period solicit any
customers of Corporation.
(c) If any of the restrictions contained in this Section 9
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.
(d) This Section 9 shall not be construed to prevent
Executive from owning, directly and indirectly, in the aggregate, an
amount not exceeding five percent (5%) of the issued and outstanding
voting securities of any class of any corporation whose voting
capital stock is traded on a national securities exchange or in the
over-the-counter market.
(e) The term "Restricted Period," as used in this Section 9,
shall mean the period of Executive's actual employment hereunder
plus: (i) twelve (12) months after the date Executive is actually no
longer employed by Corporation in the event this Agreement expires or
Executive's termination For Cause; and, (ii) twenty-four (24) months
after the date Executive is actually no longer employed by
Corporation in the event that Executive resigns,
6
except if Executive resigns pursuant to Section 5.5 hereof. The term
"Restricted Area" as used in this Section 9 shall mean the seventy-five
(75) mile radius from Corporation's principal executive offices.
(f) The provisions of this Section 9 shall survive the
termination of Executive's employment hereunder and until the end of
the Restricted Period as provided in Section 9(e) hereof.
Section 10. MISCELLANEOUS.
10.1 INJUNCTIVE RELIEF. Executive acknowledges that the
services to be rendered under the provisions of this Agreement are of a special,
unique and extraordinary character and that it would be difficult or impossible
to replace such services. Accordingly, Executive agrees that any breach or
threatened breach by him of Sections 8 or 9 of this Agreement shall entitle
Corporation, in addition to all other legal remedies available to it, to apply
to any court of competent jurisdiction to seek to enjoin such breach or
threatened breach. The parties understand and intend that each restriction
agreed to by Executive hereinabove shall be construed as separable and divisible
from every other restriction, that the unenforceability of any restriction shall
not limit the enforceability, in whole or in part, of any other restriction, and
that one or more or all of such restrictions may be enforced in whole or in part
as the circumstances warrant. In the event that any restriction in this
Agreement is more restrictive than permitted by law in the jurisdiction in which
Corporation seeks enforcement thereof such restriction shall be limited to the
extent permitted by law.
10.2 ASSIGNMENTS. Neither Executive nor Corporation may assign
or delegate any of their rights or duties under this Agreement without the
express written consent of the other.
10.3 ENTIRE AGREEMENT. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties with respect to
Executive's employment by Corporation, supersedes all prior understandings and
agreements, whether oral or written, between Executive and Corporation,
including but not limited to the Prior Employment Agreement, and shall not be
amended, modified or changed except by an instrument in writing executed by the
party to be charged. The invalidity or partial invalidity of one or more
provisions of this Agreement shall not invalidate any other provision of this
Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
10.4 BINDING EFFECT. This Agreement shall inure to the benefit
of, be binding upon and enforceable against, the parties hereto and their
respective successors, heirs, beneficiaries and permitted assigns.
10.5 HEADING. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.6 NOTICES. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage prepaid, or by
private overnight mail service (e.g. Federal Express) to the party at the
address set
7
forth above or to such other address as either party may hereafter give notice
of in accordance with the provisions hereof. Notices shall be deemed given on
the sooner of the date actually received or the third business day after
sending.
10.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to such State's conflicts of 1aws provisions and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the federal and
state courts located in the State of New York, County of New York.
10.8 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10.9 TERMINATION OF CONSULTING AGREEMENT PROVISION. Reference
is made to the Consulting Agreement (the "Consulting Agreement"), dated as of
March 23, 1995, between BOCAP Corp., a Florida corporation ("BOCAP"), and
Corporation, and the Assignment and Assumption Agreement, dated as of May 26,
1995, among BOCAP, Executive and Corporation, pursuant to which Executive
assumed the rights and duties of BOCAP under the Consulting Agreement. The
second paragraph of Section 3 of the Consulting Agreement is hereby terminated
and shall be of no further force and effect as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
STEVE MADDEN LTD.
By: /s/ Steve Madden
------------------------------
Steve Madden
/s/ Steve Madden
------------------------------
Steve Madden
8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1998 by and between STEVEN
MADDEN, LTD., a New York corporation with offices at 52-16 Barnett Avenue, Long
Island City, N.Y. 11104 (the "Company"), and ARVIND DHARIA, an individual
residing at 1001 Fifth Avenue, New Hyde Park, NY 11040 (the " Executive").
W I T N E S S E T H
WHEREAS, the Company desires to secure the continued services of
Executive upon the terms and condition hereinafter set forth; and
WHEREAS, Executive desires to continue to render services to the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, the parties mutually agree as follows;
SECTION 1. EMPLOYMENT. The Company hereby employs Executive and
Executive hereby accepts such employment, as an executive of the Company,
subject to the terms and conditions set forth in this Agreement.
SECTION 2. DUTIES. Executive shall serve as the Company's Chief
Financial Officer until such time as the Company hires an individual in such
capacity and thereafter, Executive shall for the remainder of the Term (as
hereinafter defined) serve as the Treasurer and Controller of the Company. The
Executive shall perform such duties as may reasonably be assigned to him from
time to time by the Chief Executive Officer of the Company. During the term of
this Agreement, Executive shall devote all of his business time to the
performance of his duties hereunder unless otherwise authorized by the Board of
Directors.
SECTION 3. TERM OF EMPLOYMENT. The term of Executive's employment,
unless sooner terminated in accordance with the provisions set forth herein,
shall be for a period of four (4) years commencing January 1, 1998 (the "Term").
The terms of this Agreement shall be automatically extended for one additional
term of one year unless either parties notifies the other in writing by
certified mail return receipt requested at least 90 days prior to the expiration
of the Term, of its, intention not to extend the Term. If the Executive advises
the Company of his intent not to extend the Term in writing by certified mail
return receipt requested, he shall not be entitled to any additional
compensation. [However, if the Company advises the Executive of its intent not
to extend the Term (other than for Cause or Total Disability solely as set forth
in Sections 5 and 6), then Executive shall be entitled to receive severance
compensation equal to the then applicable Base Salary for three month period
commencing on the expiration of the Term, to be paid in accordance with the
Company's customary payroll practices, as long as Executive continues to be in
compliance with Section 8 hereof.]
SECTION 4.1 SALARY. The Company shall pay to Executive a base salary of
One Hundred and Forty Thousand Dollars ($140,000) per annum, subject to
increases in accordance with the terms of the last sentence of this Section 4.1
(the "Base Salary"), less such deductions as shall be required to be withheld by
applicable law and regulations. All salaries payable to Executive shall be paid
at such regular weekly, biweekly or semi-monthly time or times as the Company
make payment of its regular payroll in the regular course of business.
Commencing on the third anniversary of the date hereof, and on each anniversary
thereafter during the Term, the Base Salary shall be increased by 10% of the
then Base Salary.
SECTION 4.2 BONUSES. Subject to the approval of the Company's 1998
Stock Plan by the stockholders of the Company, the Executive shall receive an
option to purchase 25,000 shares of Common Stock on June 30 of each year during
the Term. The options comprising the option shall vest quarterly (6,250 shares)
over a one (1) year period commencing on June 30, 1998 and be exercisable at a
price equal to the average closing bid price of the Company's shares of Common
Stock on June 30. The Company agrees to reserve under a stock plan approved by
its stockholders 100,000 shares of the Company's Common Stock for issuance upon
the exercise of such option. The Company shall use its best efforts to obtain
approval by the Company's stockholders of the 1998 Stock Plan so that the
Company may lawfully issue the options contemplated by this Section 4.2.
SECTION 4.3 AUTOMOBILE ALLOWANCE. The Company shall, at the direction
of Executive, either reimburse Executive for, or directly pay the cost of, the
use of an automobile during the Term and all usual expenditures in connection
therewith; i.e. fuel, insurance, parking, customary maintenance and repairs,
etc. in an amount not to exceed $500 per month.
SECTION 4.4 BENEFITS. Executive shall be entitled to participate in
such pension, profit sharing, group insurance, options plans, hospitalization,
and group health and benefit plans and all other benefits and plans as the
Company provides to its senior Executives except current benefits and plans may
not be removed or altered to the determent of Executive.
SECTION 5 TERMINATION.
SECTION 5.1 DEATH. This Agreement shall terminate upon the death of
Executive; provided however, that the Company shall continue to pay to the
estate of Executive the salary and all other benefit as set forth herein for the
twelve (12) months period immediately subsequent to the date of Executive's
death.
SECTION 5.2 TERMINATION DUE TO TOTAL DISABILITY.
Resignation. In the event Executive is discharged due to
his "Total Disability" (as those terms are defined below) or in the event
Executive resigns, then upon such occurrence, this Agreement shall be deemed
terminated and the Company shall be released from all obligations to Executive
with respect to this Agreement, except obligations accrued prior to
2
such termination date and as provided herein.
SECTION 5.3 "FOR CAUSE". As used herein, the term "For Cause" shall
only mean: (i) a deliberate and intentional breach by Executive of a substantial
and material duty and responsibility under the Agreement that results in
material harm to the Company unless such breach is committed with reasonable
belief that such breach was not contrary to the best interests of the Company,
and is not remedied, if capable of being remedied, within thirty (30) days after
receipt of written notice by certified mail return receipt requested from the
Company specifying such breach; or (ii) Executive's plea of guilty or nolo
contendere to, or conviction of, a felony, which conviction or plea causes
material damage to the reputation or financial position of the Company.
In the event that the Executive is discharged for Cause, then upon such
occurrence, this Agreement shall be deemed terminated and the Company shall be
released from all obligations to the Executive with respect to this Agreement,
except obligations which accrue prior to such termination date and as provided
herein.
SECTION 5.4 TERMINATION OTHER THAN FOR TOTAL DISABILITY. In the event
Executive is discharged other than for Cause or due to his "Total Disability",
then such termination shall only be effective if he receives written notice
thereof by certified mail return receipt requested which notice properly sets
forth the Company's agreement to pay to Executive the balance of his benefit
including salary that would have been paid by the Company pursuant to this
Agreement, over the full Term of the Agreement if the The Company had not
terminated this Agreement. Such amount shall be payable in two (2) installment
as follows (i) Fifty (50%) percent on January 1 immediately following such
termination and the balance of fifty (50%) percent one year after.
SECTION 5.5 TERMINATION UPON CHANGE OF CONTROL.
(a) If a Change of Control (as defined below) occurs without the
Executive's prior written consent, the Executive shall have the right to
terminate this Agreement. At least ten (10) days prior to any such proposed
Change of Control, the Company shall notify Executive of its intention to effect
such Change of Control, and the Executive shall thereupon have five (5) days
from the actual receipt of such notice to give notice of his intention to
terminate this Agreement in the event of the Change of Control. If,
notwithstanding such notice by the Executive, the Company proceeds with such
Change of Control, this Agreement shall be deemed terminated as of the effective
date of the event constituting the Change of Control and the Executive shall
receive in cash, within ten (10) days of termination, (i) any compensation
accrued and unpaid pursuant to Section 4 of this Agreement, (ii) an amount equal
to the balance of Executive's salary that would have been paid by the Company
pursuant to Section 4.1 hereof over the full Term of this Agreement as if the
Agreement had not been terminated, (iii) an amount equal to Executive's bonus,
if any, for the preceding 12-month period ended December 31, multiplied by the
remaining years (including any fractional years) left under this Agreement since
the date such
3
bonus was determined by the Board of Directors plus (iv) an amount equal to
$200,000 as severance under this Agreement. In the event that any payment (or
portion thereof) to the Executive under this Section 5.5 is determined to
constitute an "excess parachute payment," under Sections 28OG and 4999 of the
Internal Revenue Code of 1986, as amended, the following calculations shall be
made:
(i) The after-tax value to the Executive of the payments under this
Section 5.5 without any reduction; and
(ii) The after-tax value to the Executive of the payments under
this Section 5.5 as reduced to the maximum amount (the "Maximum Amount") which
may be paid to the Executive without a portion of the payments constituting an
"excess parachute payment".
If, after applying the agreed upon calculations set forth above, it
is determined that the after-tax value determined under clause (ii) above is
greater than the after-tax value determined under clause (i) above, the payments
to Executive under this Section 5.5 shall be reduced to the Maximum Amount.
(b) If a Change of Control occurs, regardless of whether the Executive
has consented to such Change of Control, Executive shall have the right to
resign.
SECTION 5.6 "CHANGE OF CONTROL". As used herein, the term "Change of
Control" shall mean:
(a) When any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934. as amended (the "Exchange Act"), and as used in Section
13(d) and 14(d) thereof. including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Company or any subsidiary or any affiliate of
the Company or any employee benefit plan sponsored or maintained by the Company
or any subsidiary of the Company (including any trustee of such plan acting as
trustee). becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities; or
(b) When, during any period of twenty-four (24) consecutive months, the
individuals who, at the beginning of such period, constitute the Board of
Directors (the "Incumbent Directors") cease for any reason other than death to
constitute at least a majority thereof, provided, however, that a director who
was not a director at the beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such 24-month
period) or through the operation of this proviso; or
4
(c) The occurrence of a transaction requiring stockholder approval for
the acquisition of the Company by an entity other than the Company or a
subsidiary or an affiliate of the Company through purchase of assets, or by
merger, or otherwise.
SECTION 6 DISABILITY
SECTION 6.1 TOTAL DISABILITY. In the event that after Executive has
failed to have performed his regular and customary duties for a period of ninety
(90) consecutive days or for any one hundred and eighty (180) days out of any
three hundred and sixty (360) days period. And before Executive has become
"Rehabilitated" (as hereinbelow defined) a majority of the members of the Board
of Directors of the Company, exclusive of Executive may vote to determine that
Executive is mentally or physically incapable or unable to continue to perform
such regular and customary duties of employment and upon the date of written
notice to Executive by certified mail return receipt requested of such majority
vote, Executive shall be deemed to be suffering from a "Total Disability". As
used herein, the term "Rehabilitated" shall mean such time as Executive is
willing, able and commences to devote his time and energies to the affairs of
the Company to a reasonable extent and in a similar manner that he did prior to
this disability.
SECTION 6.2 PAYMENT DURING DISABILITY. In the event Executive is unable
to perform his duties hereunder by reason of a disability, prior to the time
such disability is deemed by a Total Disability in accordance with the
provisions of Section 6.1 above, the Company shall continue to pay Executive his
benefit including salary pursuant to this Agreement for the twelve (12) month
period immediately subsequent to the date of determination of Total Disability.
SECTION 7. VACATION. Executive shall be entitled to a vacation for four
(4) weeks per year during which period all benefits including salary shall be
paid in full. Executive shall take his vacation at such time as Executive and
the Company shall determine is mutually convenient said vacation shall be
cumulative or taken in extra pay.
SECTION 8. DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive recognizes
that he has had and will continue to have access to secret and confidential
information regarding the Company, including but not limited to its customer
list, products, know-how, and business plans. Executive acknowledges that such
information is of great value to the Company, is the sole property of the
Company, and has been and will be acquired by him in confidence. In
consideration of the obligations undertaken by the Company herein, Executive
will not, at any time, during his employment hereunder, reveal, divulge or make
known to any person, any information concerning the Company acquired by
Executive during the course of his employment, which is treated as confidential
by the Company. Provided same is not otherwise in the public domain or
information that Executive could have and did learned separate and apart from
his duties set forth herein, provided said information would not be detrimental
to the Company this provision shall survive Executive's employment hereunder for
a period of six months.
5
SECTION 9.1 ASSIGNMENTS. Neither Executive nor the Company may assign
or delegate any of their rights or duties under this Agreement without the
express written consent of the other.
SECTION 9.2 ENTIRE AGREEMENT. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties with respect to
Executive's employment by the Company, supersedes all prior understanding and
agreements, whether oral or written, between Executive and the Company,
including by not limited to the prior Employment Agreement, and shall not be
amended, modified or changed except by an instrument in writing executed by the
party to be charged. The invalidity of one or more provisions of this Agreement
shall not invalidate any other provision of this Agreement. No waiver by either
party of any provision or condition to be performed shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or any prior or
subsequent time.
SECTION 9.3 BINDING EFFECT. This Agreement shall inure to the benefit
of, be binding upon and enforceable against, the parties hereto and their
respective successors, heirs, beneficiaries and permitted assigns.
SECTION 9.4 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect any way the meaning or
interpretation of this Agreement.
SECTION 9.5 NOTICES. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given when delivered, sent by registered
or certified mail, return receipt requested, postage prepaid or by private
overnight mail service (e.g. Federal Express) to the party at the address set
forth above or to such other address as either party may hereafter given notice
of accordance with provision hereof. Notice shall be deemed given on the sooner
of the date actually received or the third business day after sending.
SECTION 9.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to such State's conflicts of laws provisions and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the federal and
state courts located in the Sate of New York, County of New York.
SECTION 9.7 COUNTERPARTS. This Agreement may be executed simultaneously
into two or more counterparts, each of which shall be deemed and original, but
all of which together shall constitute one of the same instrument.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
STEVEN MADDEN, LTD
BY: /s/ STEVEN MADDEN
-----------------
Steven Madden
Chief Executive Officer and President
BY: /s/ ARVIND DHARIA
-----------------
Arvind Dharia
7
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
NAME STATE OF INCORPORATION
---- ----------------------
Diva Acquisition Corp. Delaware
Steven Madden Retail, Inc. Delaware
Adesso-Madden, Inc. Delaware
5
0000913241
Steven Madden, Ltd.
1
USD
YEAR
DEC-31-1997
JAN-01-1997
DEC-31-1997
1
3,887,000
1,991,000
1,478,000
351,000
5,081,000
19,670,000
6,944,000
1,013,000
29,277,000
3,125,000
0
0
0
1,000
25,792,000
29,277,000
59,311,000
61,632,000
34,744,000
22,262,000
0
0
339,000
4,599,000
1,899,000
4,599,000
0
0
0
2,700,000
0.330
0.300
