-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S0ZnCrHBoTvp1PMKK/UMf45YzFFsxxhGlNxlzz1Ij5Mvfg46kcsAxrc0L9PMz0vU AaccaGWC55LpQknSE5tFYw== /in/edgar/work/0000049401-00-000056/0000049401-00-000056.txt : 20001114 0000049401-00-000056.hdr.sgml : 20001114 ACCESSION NUMBER: 0000049401-00-000056 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000929 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAUCONY INC CENTRAL INDEX KEY: 0000049401 STANDARD INDUSTRIAL CLASSIFICATION: [3021 ] IRS NUMBER: 041465840 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05083 FILM NUMBER: 760163 BUSINESS ADDRESS: STREET 1: 13 CENTENNIAL DR STREET 2: CENTENNIAL INDUSTRIAL PK CITY: PEABODY STATE: MA ZIP: 01961 BUSINESS PHONE: 5085329000 MAIL ADDRESS: STREET 1: 13 CENTENNIAL DRIVE STREET 2: CENTENNIAL INDUSTRIAL PARK CITY: PEABODY STATE: MA ZIP: 01960 FORMER COMPANY: FORMER CONFORMED NAME: HYDE ATHLETIC INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HYDE A R & SONS CO DATE OF NAME CHANGE: 19701030 10-Q 1 0001.txt 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) {x} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 2000 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 000-05083 SAUCONY, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-1465840 (State or other jurisdiction of (I.R.S. employer identification number) incorporation or organization) 13 Centennial Drive, Peabody, MA 01960 (Address of principal executive offices) 978-532-9000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Class Outstanding as of November 8, 2000 Class A Common Stock-$.33 1/3 Par Value 2,591,227 Class B Common Stock-$.33 1/3 Par Value 3,584,269 --------- 6,175,496 SAUCONY, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of September 29, 2000 and December 31, 1999..................................................3 Condensed Consolidated Statements of Income for the thirteen weeks and thirty-nine weeks ended September 29, 2000 and October 1, 1999.....4 Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 29, 2000 and October 1, 1999.......5-6 Notes to Condensed Consolidated Financial Statements - September 29, 2000..................................................................7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................11-18 Item 3. Quantitative and Qualitative Disclosure About Market Risk..........19 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K...................................20 Signature...................................................................21 SAUCONY, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets
(in thousands) ASSETS (Unaudited) September 29, December 31, 2000 1999 ---- ---- Current assets: Cash and cash equivalents....................................................$ 1,932 $ 3,515 Accounts receivable.......................................................... 36,330 23,968 Inventories.................................................................. 35,906 35,270 Prepaid expenses and other current assets.................................... 3,225 3,727 --------- ---------- Total current assets....................................................... 77,393 66,480 --------- ---------- Property, plant and equipment, net.............................................. 7,288 8,279 --------- ---------- Other assets.................................................................... 2,030 2,422 --------- ---------- Total assets....................................................................$ 86,711 $ 77,181 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable................................................................$ 7,607 $ 1,928 Current maturities of long term debt......................................... 275 375 Accounts payable............................................................. 3,791 5,897 Accrued expenses and other current liabilities............................... 7,573 7,203 --------- ---------- Total current liabilities.................................................. 19,246 15,403 --------- ---------- Long-term obligations: Long-term debt............................................................... 41 292 Deferred income taxes........................................................ 2,042 2,045 Other long-term obligations.................................................. 183 171 --------- ---------- Total long-term obligations................................................ 2,266 2,508 --------- ---------- Minority interest in consolidated subsidiaries.................................. 368 308 --------- ---------- Stockholders' equity: Common stock, $.33 1/3 par value............................................. 2,243 2,222 Additional paid-in capital................................................... 17,107 16,815 Retained earnings............................................................ 51,040 42,679 Accumulated other comprehensive income....................................... (884) (564) ---------- ----------- Total...................................................................... 69,506 61,152 Less: Common stock held in treasury, at cost....................................... (4,392) (2,179) Notes receivable............................................................. (276) 0 Unearned compensation........................................................ (7) (11) ---------- ----------- Total stockholders' equity................................................. 64,831 58,962 --------- ---------- Total liabilities and stockholders' equity......................................$ 86,711 $ 77,181 ========= ========== See notes to condensed consolidated financial statements
SAUCONY, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income For the Thirteen Weeks and Thirty-Nine Weeks Ended September 29, 2000 and October 1, 1999
(Unaudited) (in thousands, except per share data) Thirteen Thirteen Thirty-Nine Thirty-Nine Weeks Weeks Weeks Weeks Ended Ended Ended Ended September 29, October 1, September 29, October 1, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales.......................................................$ 44,790 $ 43,454 $ 134,645 $123,566 Other revenue................................................... 113 137 375 419 --------- --------- --------- -------- Total revenue................................................... 44,903 43,591 135,020 123,985 --------- --------- --------- -------- Costs and expenses Cost of sales................................................ 27,455 26,083 83,161 76,637 Selling expenses............................................. 6,551 6,895 20,558 18,236 General and administrative expenses.......................... 4,293 4,932 13,463 13,486 Loss on disposition of cycling division...................... 0 0 2,944 0 --------- --------- --------- -------- Total costs and expenses................................... 38,299 37,910 120,126 108,359 --------- --------- --------- -------- Operating income................................................ 6,604 5,681 14,894 15,626 Non-operating income (expense) Interest, net................................................ (201) (201) (563) (593) Foreign currency............................................. 55 (44) 9 (29) Other........................................................ 21 6 65 43 --------- --------- --------- -------- Income before income taxes and minority interest................ 6,479 5,442 14,405 15,047 Provision for income taxes...................................... 2,659 2,322 5,971 6,295 Minority interest in income of consolidated subsidiaries........ 40 26 73 68 --------- --------- --------- -------- Net income......................................................$ 3,780 $ 3,094 $ 8,361 $ 8,684 ========= ========= ========= ======== Per share amounts: Earnings per common share - basic: .............................$ 0.61 $ 0.49 $ 1.34 $ 1.38 ========== ========== ========== ========= Earnings per common share - diluted:............................$ 0.60 $ 0.47 $ 1.31 $ 1.32 ========== ========== ========== ========= Weighted average common shares and equivalents outstanding...... 6,347 6,639 6,381 6,571 ========= ========= ========= ======== Cash dividends per share of common stock........................ 0 0 0 0 ========= ========= ========= ======== See notes to condensed consolidated financial statements
SAUCONY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (in thousands) (Unaudited) September 29, October 1, 2000 1999 ---- ---- Cash flows from operating activities: Net income...................................................................$ 8,361 $ 8,684 -------- --------- Adjustment to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization.............................................. 1,455 1,394 Provision for bad debts and discounts...................................... 4,493 3,947 Loss on sale of cycling division........................................... 2,944 0 Deferred income tax expense (benefit)...................................... 73 (749) Other...................................................................... 80 143 Changes in operating assets and liabilities, net of effects of acquisitions, dispositions and foreign currency adjustments: Decrease (increase) in assets: Marketable securities.................................................... (93) (39) Accounts receivable...................................................... (17,313) (15,928) Inventories.............................................................. (3,808) (427) Prepaid expenses and other current assets................................ 155 (293) Increase (decrease) in liabilities: Accounts payable......................................................... (2,028) (2,825) Accrued expenses......................................................... (101) 3,116 --------- --------- Total adjustments.......................................................... (14,143) (11,661) --------- ---------- Net cash used by operating activities........................................... (5,782) (2,977) --------- ---------- Cash flows from investing activities: Purchases of property, plant and equipment................................... (938) (1,305) Increase in deferred charges, deposits and other............................. 61 (62) Proceeds from sale of equipment.............................................. 1 3 Proceeds from sale of cycling division....................................... 1,350 0 -------- --------- Net cash provided (used) by investing activities................................ 474 (1,364) -------- ---------- Cash flows from financing activities: Net short-term borrowings.................................................... 5,912 3,269 Repayment of long-term debt and capital lease obligations.................... (282) (310) Common stock repurchased..................................................... (2,213) 0 Issuances of common stock.................................................... 38 424 -------- --------- Net cash provided by financing activities....................................... 3,455 3,383 -------- --------- Effect of exchange rate changes on cash and cash equivalents............................................................. 270 99 -------- --------- Net decrease in cash and cash equivalents....................................... (1,583) (859) Cash and equivalents at beginning of period..................................... 3,515 5,495 -------- --------- Cash and equivalents at end of period...........................................$ 1,932 $ 4,636 ======== ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes, net of refunds...............................................$ 5,233 $ 5,914 ======== ========= Interest...................................................................$ 543 $ 561 ======== ========= Non-cash investing and financing activities: Property purchased under capital leases......................................$ 0 $ 160 ======== ========= See notes to condensed consolidated financial statements
SAUCONY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 29, 2000 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation have been included. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes, thereto, included in the Company's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the fiscal year ended December 31, 1999. Operating results for thirty-nine weeks ended September 29, 2000, are not necessarily indicative of the results for the entire year. NOTE 2 - INVENTORIES Inventories at September 29, 2000 and December 31, 1999 consisted of the following (in thousands): September 29, December 31, 2000 1999 ---- ---- Finished goods................$ 30,086 $ 30,067 Work in progress.............. 324 920 Raw materials................. 5,496 4,283 ----------- ----------- $ 35,906 $ 35,270 =========== =========== NOTE 3 - EARNINGS PER SHARE
(Unaudited) (in thousands, except per share amounts) Thirteen Weeks Ended Thirteen Weeks Ended September 29, 2000 October 1, 1999 --------------------------- -------------------------- Earnings Earnings Earnings Earnings per per per per Common Common Common Common Share - Share - Share - Share - Basic Diluted Basic Diluted Net income available for common shares and assumed conversions....................$ 3,780 $ 3,780 $ 3,094 $ 3,094 ========== ========= ========== ========== Weighted-average common shares and equivalents outstanding....................... 6,204 6,204 6,336 6,336 Effect of dilutive securities: Employee stock options............................ 0 143 0 303 ---------- --------- ---------- ---------- Weighted-average common shares and equivalents outstanding....................... 6,204 6,347 6,336 6,639 ========== ========= ========== ========== Earnings per share...................................$ 0.61 $ 0.60 $ 0.49 $ 0.47 ========== ========= ========= ========== Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended September 29, 2000 October 1, 1999 --------------------------- -------------------------- Earnings Earnings Earnings Earnings per per per per Common Common Common Common Share - Share - Share - Share - Basic Diluted Basic Diluted Net income available for common shares and assumed conversions....................$ 8,361 $ 8,361 $ 8,684 $ 8,684 ========== ========= ========== ========== Weighted-average common shares outstanding....................................... 6,221 6,221 6,293 6,293 Effect of dilutive securities: Employee stock options............................ 0 160 0 278 ---------- --------- ---------- ---------- Weighted-average common shares and equivalents outstanding....................... 6,221 6,381 6,293 6,571 ========== ========= ========== ========== Earnings per share...................................$ 1.34 $ 1.31 $ 1.38 $ 1.32 ========== ========= ========= ==========
NOTE 4 - STATEMENT OF COMPREHENSIVE INCOME
(in thousands) Thirteen Thirteen Thirty-Nine Thirty-Nine Weeks Weeks Weeks Weeks Ended Ended Ended Ended September 29, October 1, September 29, October 1, 2000 1999 2000 1999 ---- ---- ---- ---- Net income.......................................$ 3,780 $ 3,094 $ 8,361 $ 8,684 Other comprehensive income: Foreign currency translation adjustment........ (172) 216 (371) (145) = Income tax (expense) benefit related to other comprehensive expense......................... 78 (37) 156 117 --------- ---------- --------- -------- = Other comprehensive income, net of tax........... (94) 179 (215) (28) ---------- --------- ---------- --------- Comprehensive income.............................$ 3,686 $ 3,273 $ 8,146 $ 8,656 ========= ========= ========= ========
NOTE 5 - OPERATING SEGMENT DATA The Company's operating segments are organized based on the nature of products and consist of the Saucony Segment and Other Products Segment. The determination of the reportable segments for the thirteen and thirty-nine weeks ended September 29, 2000 and October 1, 1999, as well as the basis of measurement of segment profit or loss, is consistent with the segment reporting disclosed in the Company's Annual Report on Form 10-K as filed for the fiscal year ended December 31, 1999.
(in thousands) Thirteen Thirteen Thirty-Nine Thirty-Nine Weeks Weeks Weeks Weeks Ended Ended Ended Ended September 29, October 1, September 29, October 1, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues: Saucony..............................$ 39,518 $ 37,164 $ 119,916 $ 107,597 Other products....................... 5,385 6,427 15,104 16,388 --------- ---------- ---------- ---------- $ 44,903 $ 43,591 $ 135,020 $ 123,985 ========= ========== ========== ========== Income (loss) before income taxes and minority interest: Saucony..............................$ 5,856 $ 5,695 $ 17,997 $ 15,929 Other products....................... 623 (253) (3,592) (882) --------- ----------- ----------- ----------- $ 6,479 $ 5,442 $ 14,405 $ 15,047 ========= ========== ========== ==========
NOTE 6 - LOSS ON SALE OF CYCLING DIVISION AND RELATED EXPENSES On June 29, 2000, the Company sold substantially all of the assets and business of its cycling division, consisting of inventory, prepaid expenses, equipment and tradenames to QR Merlin Acquisition LLC for $1,350 in cash and the assumption of $39 in liabilities. In connection with the sale, the Company recorded a pre-tax loss of $2,944, inclusive of $1,240 of expenses associated with the transaction and resulting from the exit of the cycling business, or $1,727 after-tax or $0.27 per diluted share. As a result of the transaction, a majority of the cycling division employees were severed and certain long-lived assets used exclusively in the cycling business were deemed impaired. Expenses associated with the sale and exit of the cycling division are as follows: Transaction costs.............................................$ 444 Costs to exit facility and equipment leases and other non-cancelable contractual commitments...................... 251 Employee severance and termination benefits................... 243 Writeoff leasehold improvements............................... 84 Writeoff goodwill and other deferred charges.................. 218 -------- Total.........................................................$ 1,240 ======== Included in accrued expenses at September 29, 2000 are $452 of costs associated with the sale and exit of the cycling business, which the Company expects will be paid by the end of fiscal 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Dollar amounts throughout this Item 2 are in thousands, except per share amounts. HIGHLIGHTS Thirteen Weeks and Thirty-Nine Weeks Ended September 29, 2000 Compared to Thirteen Weeks and Thirty-Nine Weeks Ended October 1, 1999
Percent Change Increase (Decrease) Thirteen Thirty-Nine Weeks Weeks Net sales...................................................... 3.1% 9.0% Gross profit...................................................(0.2) 9.7 Selling, general and administrative............................(8.3) 7.2
$ Change Thirteen Thirty-Nine Weeks Weeks Operating income............................................. $ 923 ($ 733) Income before tax............................................ 1,037 (643) Net income................................................... 686 (323)
Percent of Net Sales Thirteen Weeks Thirty-Nine Weeks 2000 1999 2000 1999 ---- ---- ---- ---- Gross profit....................................... 38.7% 40.0% 38.2% 38.0% Selling, general and administrative................ 24.2 27.3 25.3 25.7 Operating income................................... 14.7 13.1 11.1 12.6 Income before tax.................................. 14.5 12.5 10.7 12.2 Net income......................................... 8.4 7.0 6.2 7.0
The following table sets forth the approximate contribution to net sales (in dollars and as a percentage of consolidated net sales) attributable to our Saucony product line and our other product lines for the thirteen weeks and thirty-nine weeks ended September 29, 2000 and October 1, 1999:
Thirteen Weeks Ended September 29, 2000 and October 1, 1999 2000 1999 -------------------------- -------------------------- Saucony........................$ 39,394 88.0% $ 37,075 85.3% Other.......................... 5,396 12.0% 6,379 14.7% ----------- --------- ----------- -------- Total..........................$ 44,790 100.0% $ 43,454 100.0% =========== ========= =========== ======== Thirty-Nine Weeks Ended September 29, 2000 and October 1, 1999 2000 1999 -------------------------- -------------------------- Saucony........................$ 119,503 88.8% $ 107,328 86.9% Other.......................... 15,142 11.2% 16,238 13.1% ----------- --------- ----------- -------- Total..........................$ 134,645 100.0% $ 123,566 100.0% =========== ========= =========== ========
THIRTEEN WEEKS ENDED SEPTEMBER 29, 2000 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER 1, 1999 CONSOLIDATED NET SALES Net sales increased $1,336, or 3%, to $44,790 in the thirteen weeks ended September 29, 2000 from $43,454 in the thirteen weeks ended October 1, 1999. At constant currency exchange rates, the net sales increase for the thirteen weeks ended September 29, 2000 would have been 4%. Excluding cycling division sales in the prior period, the net sales increase for the thirteen weeks ended September 29, 2000 was 7% over the comparable prior period. On a geographic basis, domestic net sales increased $107, or .3%, to $38,497 in the thirteen weeks ended September 29, 2000 from $38,390 in the thirteen weeks ended October 1, 1999. International net sales increased $1,229, or 24%, to $6,293 in the thirteen weeks ended September 29, 2000 from $5,064 in the thirteen weeks ended October 1, 1999. SAUCONY BRAND SEGMENT Worldwide net sales of Saucony-branded footwear and apparel increased $2,319, or 6%, to $39,394 in the thirteen weeks ended September 29, 2000 from $37,075 in the thirteen weeks ended October 1, 1999, primarily due to higher domestic and international average unit sell prices and increased international footwear unit volume, offset somewhat by lower domestic Originals product lines unit volume. Overall average selling prices increased 12% in the thirteen weeks ended September 29, 2000 due to a shift in the domestic product unit volume sales mix from lower priced Originals products to higher priced technical footwear as compared to the comparable prior period and a change in the Originals product mix to higher priced footwear. On a geographic basis, domestic net sales increased $828, or 3%, to $33,466 in the thirteen weeks ended September 29, 2000 from $32,638 in the thirteen weeks ended October 1, 1999 due primarily to an increase in the average per unit sell prices resulting from a shift in the domestic product sales mix to increased technical footwear unit volume. In the thirteen weeks ended September 29, 2000, domestic technical footwear unit volume increased 29%, while Originals footwear unit volume decreased 27%. In the thirteen weeks ended September 29, 2000 average per pair sell prices increased 12% as compared to the thirteen weeks ended October 1, 1999. Sales of discontinued footwear accounted for approximately 5% of domestic Saucony net sales in the thirteen weeks ended September 29, 2000 as compared to 1% in the thirteen weeks ended October 1, 1999. Originals unit volume accounted for 53% of domestic unit volume in the thirteen weeks ended September 29, 2000 compared to 67% of domestic unit volume in the thirteen weeks ended October 1, 1999. International net sales increased $1,491, or 34%, to $5,928 in the thirteen weeks ended September 29, 2000 from $4,437 in the thirteen weeks ended October 1, 1999 due primarily to increased distributor footwear unit volume, increased unit shipment volume in Canada and in Benelux, and higher average per pair sell prices, offset somewhat by the impact of currency exchange. OTHER PRODUCTS SEGMENT Net sales of Other Products decreased $983, or 15%, to $5,396 in the thirteen weeks ended September 29, 2000 from $6,379 in the thirteen weeks ended October 1, 1999, due primarily to the elimination of sales resulting from the cycling division divestiture, offset in part by increased Hind-branded apparel sales, due to increased unit volumes and, to a lesser extent, by increased sales by our factory outlet division resulting from the addition of two factory outlet stores. COST AND EXPENSES Our gross profit decreased to $17,335 in the thirteen weeks ended September 29, 2000 from $17,371 in the thirteen weeks ended October 1, 1999 due primarily to increased domestic sales of discontinued footwear and the negative impact of the comparatively stronger U.S. dollar on European margins. Gross margin decreased 1.3% to 38.7% in the thirteen weeks ended September 29, 2000 from 40.0% in the thirteen weeks ended October 1, 1999 due to an increase in sales of discontinued footwear, which accounted for approximately 4% of consolidated net sales in the quarter, the negative impact of the comparatively stronger U.S. dollar on European margins and domestic pricing pressures. Selling, general and administrative expenses decreased in absolute dollars to $10,844 in the thirteen weeks ended September 29, 2000 from $11,827 in the thirteen weeks ended October 1, 1999. As a percent of net sales, selling, general and administrative expenses decreased to 24.2% of net sales, in the thirteen weeks ended September 29, 2000 from 27.3% of net sales, in the thirteen weeks ended October 1, 1999. The decrease in selling, general and administrative expenses was due to spending reductions, which amounted to approximately $2,250, resulting from both the divestiture of the cycling division and lower provisions for doubtful accounts, offset somewhat by increased print media advertising, administrative staffing increases, increased professional fees and increased costs associated with the addition of two factory outlet stores. The increased provision for doubtful accounts in the thirteen weeks ended October 1, 1999 was due primarily to the pending bankruptcy filing by Just for Feet, Inc., which occurred on November 4, 1999. Selling expenses as a percent of net sales decreased to 14.6% in the thirteen weeks ended September 29, 2000 from 15.9% in the thirteen weeks ended October 1, 1999, while general and administrative expenses decreased to 9.6% of net sales in the thirteen weeks ended September 29, 2000 from 11.4% in the thirteen weeks ended October 1, 1999. Net interest expense of $201 in the thirteen weeks ended September 29, 2000 was consistent with net interest expense in the thirteen weeks ended October 1, 1999, due to lower average debt levels in the thirteen weeks ended September 29, 2000, offset by higher borrowing rates. INCOME BEFORE TAX AND MINORITY INTEREST Thirteen Weeks Ended September 29, October 1, 2000 1999 ---- ---- Segment Saucony Brand..................$ 5,856 $ 5,695 Other Products................. 623 (253) --------- --------- Total..........................$ 6,479 $ 5,442 ========= ======== Consolidated income before tax and minority interest increased to $6,479 in the thirteen weeks ended September 29, 2000 from $5,442 in the thirteen weeks ended October 1, 1999 due primarily to the lower provisions for doubtful accounts and the elimination of operating losses incurred at our cycling division in the thirteen weeks ended October 1, 1999, due to the divestiture of the division. INCOME TAXES The provision for income taxes increased to $2,659 in the thirteen weeks ended September 29, 2000 from $2,322 in the thirteen weeks ended October 1, 1999, due primarily to the increased domestic pre-tax income due in large part to the divestiture of the cycling division. The effective tax rate decreased to 41.0% in the thirteen weeks ended September 29, 2000 from 42.7% in the thirteen weeks ended October 1, 1999 due primarily to a shift in the composition of domestic and foreign pre-tax earnings. NET INCOME Net income increased to $3,780 in the thirteen weeks ended September 29, 2000 from $3,094 in the thirteen weeks ended October 1, 1999. Diluted earnings per share increased to $0.60 in the thirteen weeks ended September 29, 2000 compared to $0.47 in the thirteen weeks ended October 1, 1999. Weighted average common shares and equivalent shares used to calculate diluted earnings per share were 6,347 and 6,639, respectively, in the thirteen weeks ended September 29, 2000 and October 1, 1999. THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2000 COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 1, 1999 CONSOLIDATED NET SALES Net sales increased 9% to $134,645 in the thirty-nine weeks ended September 29, 2000 from $123,566 in the thirty-nine weeks ended October 1, 1999. At constant currency exchange rates, the net sales increase for the thirteen weeks ended September 29, 2000 would have been 10%. Excluding cycling division sales in the thirty-nine weeks ended September 25, 2000 and October 1, 1999, the net sales increase was 12% in the thirty-nine weeks ended September 29, 2000 over the comparable prior period. On a geographic basis, domestic net sales increased $8,734, or 8%, to $117,281 in the thirty-nine weeks ended September 29, 2000 from $108,547 in the thirty-nine weeks ended October 1, 1999. International net sales increased $2,345, or 16%, to $17,364 in the thirty-nine weeks ended September 29, 2000 from $15,019 in the thirty-nine weeks ended October 1, 1999. SAUCONY BRAND SEGMENT Worldwide net sales of Saucony-branded footwear and apparel increased $12,175, or 11%, to $119,503 in the thirty-nine weeks ended September 29, 2000 from $107,328 in the thirty-nine weeks ended October 1, 1999, primarily due to a 7% increase in footwear unit volume and higher average unit sell prices. Overall average selling prices increased 5% in the thirty-nine weeks ended September 29, 2000 due to a shift in the domestic product unit volume sales mix from lower priced Originals products to higher priced technical footwear as compared to the comparable prior period and a change in the Originals product mix to higher priced footwear. On a geographic basis, domestic net sales increased $9,692, or 10%, to $103,678 in the thirty-nine weeks ended September 29, 2000 from $93,986 in the thirty-nine weeks ended October 1, 1999 due primarily to higher average per pair sell prices and, to a lesser extent, a 4% increase in footwear unit volumes. In the thirty-nine weeks ended September 29, 2000 average per pair sell prices increased 6% as compared to the thirty-nine weeks ended October 1, 1999. Domestic technical footwear unit volume and Original footwear unit volume increased 8% and 1%, respectively, in the thirty-nine weeks ended September 29, 2000 as compared to the prior year. Sales of discontinued footwear accounted for approximately 4% of domestic Saucony net sales in the thirty-nine weeks ended September 29, 2000 as compared to 3% in the thirty-nine weeks ended October 1, 1999. Originals unit volume accounted for 57% of domestic unit volume in the thirty-nine weeks ended September 29, 2000 compared to 58% of domestic unit volume in the thirty-nine weeks ended October 1, 1999. International net sales increased $2,483, or 19%, to $15,825 in the thirty-nine weeks ended September 29, 2000 from $13,342 in the thirty-nine weeks ended October 1, 1999 due primarily to increased distributor footwear unit volume, increased unit shipment volume in Canada and in Benelux, and, to a lesser extent, higher average per pair sell prices, offset somewhat due to the impact of currency exchange. OTHER PRODUCTS SEGMENT Net sales of Other Products decreased $1,096, or 7%, to $15,142 in the thirty-nine weeks ended September 29, 2000 from $16,238 in the thirty-nine weeks ended October 1, 1999, due primarily to the elimination of sales as a result of the divestiture of our cycling division, offset in part by increased sales at our factory outlet division stores, due to the addition of two factory outlet stores, and increased unit volume shipments of Hind-branded apparel. COST AND EXPENSES Our gross profit increased 10% to $51,484 in the thirty-nine weeks ended September 29, 2000 from $46,929 in the thirty-nine weeks ended October 1, 1999 due primarily to higher domestic and international footwear unit volumes. Gross margin improved .2% to 38.2% in the thirty-nine weeks ended September 29, 2000 from 38.0% in the thirty-nine weeks ended October 1, 1999 due to a change in our product mix, lower levels of product returns and discounts resulting from the product mix changes, offset in part by domestic pricing pressures and, to a lesser extent, the negative impact of the comparatively stronger U.S. dollar on European margins. Selling, general and administrative expenses increased in absolute dollars to $34,021 in the thirty-nine weeks ended September 29, 2000 from $31,722 in the thirty-nine weeks ended October 1, 1999. As a percent of net sales, selling, general and administrative expenses decreased to 25.3% of net sales, in the thirty-nine weeks ended September 29, 2000 from 25.7% of net sales, in the thirty-nine weeks ended October 1, 1999. The increase in selling, general and administrative expenses was due to increased television and print media advertising, increased event sponsorship, increased variable selling expenses, administrative staffing increases, increased costs associated with the addition of two factory outlet stores and increased professional fees, offset in part by lower provisions for doubtful accounts. The increased provision for doubtful accounts in the thirty-nine weeks ended October 1, 1999 was due primarily to the pending bankruptcy filing by Just for Feet, Inc., which occurred on November 4, 1999. Selling expenses as a percent of net sales increased to 15.3% in the thirty-nine weeks ended September 29, 2000 from 14.8% in the thirty-nine weeks ended October 1, 1999, while general and administrative expenses decreased to 10.0% of net sales in the thirty-nine weeks ended September 29, 2000 from 10.9% in the thirty-nine weeks ended October 1, 1999. On June 29, 2000, we sold substantially all of the assets and business of our cycling division, consisting of inventory, prepaid expenses, equipment and tradenames to QR Merlin Acquisition LLC for $1,350 in cash and the assumption of $39 in liabilities. In connection with the sale, we recorded a pre-tax loss of $2,944, inclusive of $1,240 of expenses associated with the transaction and expenses resulting from our exit of the cycling business, or $1,727 after-tax or $0.27 per diluted share. As a result of the transaction, a majority of the cycling division employees were severed and assets used exclusively in the cycling business were deemed impaired and have been written off. Expenses associated with the sale and exit of the cycling division are as follows: Transaction costs.........................................$ 444 Costs to exit facility and equipment leases and other non-cancelable contractual commitments........ 251 Employee severance and termination benefits............... 243 Writeoff leasehold improvements........................... 84 Writeoff goodwill and other deferred charges.............. 218 --------- Total.....................................................$ 1,240 ========= Included in accrued expenses at September 29, 2000 are $452 of costs associated with the sale and the exit of the cycling business, which we expect will be paid by the end of fiscal 2000. Net interest expense decreased 5% to $563 in the thirty-nine weeks ended September 29, 2000 from $593 in the thirty-nine weeks ended October 1, 1999 due to lower average debt levels in the thirteen weeks ended September 29, 2000, offset in part by higher interest rates. INCOME BEFORE TAX AND MINORITY INTEREST Thirty-Nine Weeks Ended September 29, October 1, 2000 1999 ---- ---- Segment Saucony Brand.................$ 17,997 $ 15,929 Other Products................ (3,592) (882) ---------- --------- Total.........................$ 14,405 $ 15,047 ========= ======== Consolidated income before tax and minority interest decreased to $14,405 in the thirty-nine weeks ended September 29, 2000 from $15,047 in the thirty-nine weeks ended October 1, 1999 due primarily to the loss on the sale of the cycling division and, to a lesser extent, operating losses incurred at our cycling division due to lower unit volume offset somewhat by increased pre-tax income for both domestic and international Saucony businesses. INCOME TAXES The provision for income taxes decreased to $5,971 in the thirty-nine weeks ended September 29, 2000 from $6,295 in the thirty-nine weeks ended October 1, 1999, due primarily to the loss on the sale of the cycling division which reduced domestic pre-tax income. The effective tax rate decreased to 41.5% in the thirty-nine weeks ended September 29, 2000 from 41.8% in the thirty-nine weeks ended October 1, 1999 due primarily to a shift in the composition of domestic and foreign pre-tax earnings. NET INCOME Net income decreased to $8,361 in the thirty-nine weeks ended September 29, 2000 from $8,684 in the thirty-nine weeks ended October 1, 1999. Diluted earnings per share decreased to $1.31 in the thirty-nine weeks ended September 29, 2000 compared to $1.32 in the thirty-nine weeks ended October 1, 1999. The loss on the sale of the cycling division reduced net income and diluted earnings per share by $1,727 and $0.27, respectively in the thirty-nine weeks ended September 29, 2000. Weighted average common shares and equivalent shares used to calculate diluted earnings per share were 6,381 and 6,571, respectively, in the thirty-nine weeks ended September 29, 2000 and October 1, 1999. LIQUIDITY AND CAPITAL RESOURCES As of September 29, 2000, our cash and cash equivalents totaled $1,932, a decrease of $1,583 from December 31, 1999. The decrease is due primarily to an increase in accounts receivable of $12,820, net of the provision for bad debt and discounts and, to a lesser extent, an increase in inventory of $3,808, offset somewhat by an increase in borrowings against our domestic and foreign credit facilities of $5,912. The increase in accounts receivable is due to increased net sales of our Saucony footwear products in the thirty-nine weeks ended September 29, 2000. Our days sales outstanding for accounts receivable increased to 74 days in the thirty-nine weeks ended September 29, 2000 from 69 days in the thirty-nine weeks ended October 1, 1999 due to the timing of shipments in the in the thirty-nine weeks ended September 29, 2000. Inventories increased $3,808 in the thirty-nine weeks September 29, 2000 due to near-term shipment requirements. As a consequence of the increased inventory level, our inventory turns ratio decreased to 3.1 turns in the thirty-nine weeks ended September 29, 2000 from 3.3 turns in the thirty-nine weeks ended October 1, 1999. The number of days sales in inventory increased 6% to 118 days in the thirty-nine weeks ended September 29, 2000 from 111 days in the thirty-nine weeks ended October 1, 1999. For the thirty-nine weeks ended September 29, 2000, we used $5,782 of net cash in operating activities, expended $938 to acquire capital assets, borrowed $5,912 under our credit facilities, expended $282 to reduce long-term debt and $2,213 to repurchase 207,400 shares of our Common Stock, received $1,350 from the sale of the cycling division and received $38 from the issuance of shares of our Common Stock. Additional factors (other than net income, accounts receivable, provision for bad debts and discounts and inventory) affecting the operating cash flows in the thirty-nine weeks ended September 29, 2000 included a decrease of $2,028 in accounts payable (due to the timing of inventory purchases), a decrease of $101 in accrued expenses (due primarily to decreased incentive compensation accruals) and a decrease of $155 in prepaid expenses (due to reduced prepayments for administrative expenses). OVERALL LIQUIDITY Our liquidity is contingent upon a number of factors, principally our future operating results. Management believes that our current cash and cash equivalents, credit facilities and internally generated funds are adequate to meet our working capital requirements and to fund our capital investment needs and debt service payments. INFLATION AND CURRENCY RISK The effect of inflation on our results of operations over the past three years has been minimal. The impact of currency fluctuation on our purchase of inventory from foreign suppliers has been non-existent as all transactions were denominated in U.S. dollars. We are, however, subject to currency fluctuation risk with respect to the operating results of our foreign subsidiaries and certain foreign currency denominated payables. We have entered into forward foreign exchange contracts to minimize certain transaction currency risk. ACCOUNTING PRONOUNCEMENTS SFAS 133 and SFAS 137 In June 1998, the Financial Accounting Standards Board issued Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133) (as amended by Financial Accounting Standards No. 137, a deferral of the effective date of FASB statement No. 133 (SFAS 137)), which is effective for fiscal quarters of fiscal years commencing after June 15, 2000, with early adoption permitted. SFAS 133 defines the accounting for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. Upon adoption of SFAS 133, all derivatives must be recognized on the balance sheet at their then fair value and any deferred gains or losses remaining on the balance sheet under previous hedge-accounting rules must be removed from the balance sheet. In the period of adoption, the transition adjustments may effect current earnings and may effect other comprehensive income. SFAS 133 requires companies to recognize adjustments to the fair value of derivatives that are not hedges currently in earnings when they occur. For derivatives that qualify as hedges, changes in the fair value of the derivatives can be recognized currently in earnings, along with an offsetting adjustment against the basis of the underlying hedged item or be deferred in other comprehensive income. We will be adopting SFAS 133 in the fourth quarter of fiscal 2000, the initial application of which will not have a material effect on earnings or on our financial position. Staff Accounting Bulletin No. 101 On December 8, 1999 the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance on properly applying Generally Accepted Accounting Principles to revenue recognition in financial statements. In March and June 2000 the SEC issued Staff Accounting Bulletins No. 101A and No. 101B, respectively, to delay the implementation date of SAB 101 until the fourth quarter of fiscal years beginning after December 15, 1999. We will be adopting SAB 101 in the fourth quarter of fiscal 2000, the initial application of which will not have a material effect on earnings or on our financial position. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. For this purpose, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would," or similar words that convey uncertainty of future events or outcomes. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those listed under "CERTAIN OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS" in the Company's Annual Report on Form 10-K for the period ended December 31, 1999, which are hereby incorporated by reference into this Quarterly Report on Form 10-Q and attached hereto as Exhibit 99.1, as well as any other cautionary language in this Quarterly Report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We have performed an analysis to assess the potential effect of reasonably possible near-term changes in inflation and foreign currency exchange rates. The effect of inflation on our results of operations over the past three years has been minimal. The impact of currency fluctuation on the purchase of inventory by us from foreign suppliers has been non-existent as all transactions were denominated in U.S. dollars. However, we are subject to currency fluctuation risk with respect to the operating results of our foreign subsidiaries and certain foreign currency denominated payables. We have entered into certain forward foreign exchange contracts to minimize certain transaction currency risk. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits 10.1 - Employment Agreement dated as of August 17, 2000 by and between the Company and John H. Fisher. 10.2 - Executive Retention Agreement dated as of August 17, 2000 by and between the Company and John H. Fisher. 10.3 - Employment Agreement dated as of August 17, 2000 by and between the Company and Charles A. Gottesman. 10.4 - Executive Retention Agreement as of August 17, 2000 by and between the Company and Charles A. Gottesman. 27.0 - Financial Data Schedule 99.1 - Certain Other Factors that May Affect Future Results, incorporated by reference to pages 19 - 21 of the Company's Annual Report on Form 10-K for the period ended December 31, 1999. b. Reports on Form 8-K On July 13, 2000, the Company filed a Current Report on Form 8-K, dated June 29, 2000, pursuant to which the Company reported that it sold substantially all of the assets and business of its cycling and wetsuit division. SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SAUCONY, INC. By: /s/ Michael Umana Michael Umana Vice President, Finance Chief Financial Officer (Duly authorized officer and principal financial officer) Date: November 13, 2000 EX-10 2 0002.txt EMPLOYMENT AGREEMENT EXHIBIT 10.1 - 1 - EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of August 17, 2000, is entered into by Saucony, Inc., a Massachusetts corporation with its principal place of business at Centennial Industrial Park, 13 Centennial Drive, Peabody, Massachusetts 01961 (the "Company"), and John H. Fisher (the "Employee"), with an address care of Saucony, Inc., Centennial Industrial Park, 13 Centennial Drive, Peabody, Massachusetts 01961. The Company desires to continue to employ the Employee, and the Employee desires to continue to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows: 1. Term of Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on August 17, 2000 (the "Commencement Date") and ending on the third anniversary of the Commencement Date, unless sooner terminated in accordance with the provisions of Section 4 (such period, as it may be extended as hereinafter provided, the "Employment Period"). On the third anniversary of the Commencement Date and each subsequent anniversary of the Commencement Date, the period of employment of the Employee by the Company specified in the preceding sentence shall automatically be extended for one additional year unless, not later than 90 days prior to such anniversary, the Company shall have given the Employee written notice, or the Employee shall have given the Company written notice, that the Employment Period shall not be so extended. 2. Title; Capacity. During the Employment Period, the Employee shall serve as the President and Chief Executive Officer of the Company. The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Board of Directors of the Company (the "Board") shall from time to time reasonably assign to him. As Chief Executive Officer and President, the Employee shall be in charge of all business of the Company and shall direct all such business, subject only to the supervision and direction of the Company's Board of Directors. It is contemplated that, as Chief Executive Officer and President, the Employee will at all times serve on the Company's Board of Directors, and be its Chairman. The Company shall at all times during the term of this Agreement take all such action as may be available to it to cause the election of the Employee as Chairman of the Board and a Director of the Company and his maintenance in said offices at all times during the term of this Agreement, so long as he consents thereto. During the Employment Period, the Employee agrees to devote his full business time, to the advancement of the Company and its interests and to the discharge of his duties and responsibilities hereunder, subject to illness, vacation and normal executive employment practices of the Company. The Employee shall not engage in any other business activity, except as may be approved by the Board in advance. Notwithstanding the requirements of the previous two sentences, the Employee shall be permitted to engage in the following activities to the extent that such activities do not unreasonably interfere with his duties hereunder: (i) to make and maintain passive personal investments for himself, his spouse, his parents, his siblings, or his children or for any trust or custodial account for his or their benefit and (ii) to participate in the management of not-for-profit organizations and in the organization of not-for-profit activities. The Employee agrees to abide by the reasonable rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. 3. Compensation and Benefits. ------------------------- 3.1 Salary. The Company shall pay the Employee, in accordance with the Company's normal payroll practices, an annual base salary of $500,000 (the "Base Salary"), subject to upward adjustment by the Board. Commencing with the calendar year which begins on January 1, 2001, the Base Salary shall be increased for each calendar year over the Base Salary in effect as of the end of the preceding calendar year by the same percentage as that by which the "Consumer Price Index-Urban Wage Earners and Clerical Workers, U.S. city average, all items, 1982-84=100", published by the United States Department of Labor, Bureau of Statistics, (or its successor equivalent index) as of January 1st of the year for which such increase is being determined, has increased over the said Index as of January 1st of the preceding calendar year. 3.2 Bonus. With respect to each fiscal year of the Company during the Employment Period, the Company shall pay the Employee a cash bonus equal to three percent (3%) of the consolidated pre-tax income of the Company for such fiscal year; provided, however, that nothing contained herein shall preclude the Board, in its sole discretion, from awarding the Employee a larger bonus for such fiscal year. The determination of the Company's consolidated pre-tax income shall be made by the Company's independent auditors, whose determination shall be final and binding on all parties. The Company shall pay the Employee any bonus due under this Section 3.2 as to any fiscal year by the 90th day after the end of such fiscal year; provided that if the bonus to be paid exceeds three (3) times the Employee's Base Salary in effect on the last day of such fiscal year, the excess shall be credited to an account established for the Employee under the Company's Non-Qualified Retirement Plan. 3.3 Fringe Benefits; Vacation. The Employee shall be entitled to participate in all benefit programs that the Company establishes and makes available to its employees, if any, to the extent that the Employee's position, tenure, salary, health and other qualifications make him eligible to participate; such fringe benefits shall include medical benefit coverage, pension or profit-sharing plan participation, disability insurance coverage and participation in a deferred compensation plan. The Employee shall be entitled to four weeks paid vacation per calendar year. 3.4 Life Insurance. During the Employment Period, the Company shall obtain so-called whole life insurance coverage on the life of the Employee on such terms as are acceptable to the Board and the Employee providing for a death benefit of not less than three times the Base Salary as in effect from time to time, the beneficiary to be selected by the Employee. 3.5 Reimbursement of Expenses. Subject to Company policy as in effect at the applicable time, the Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. 3.6 Automobile. The Company shall make an automobile available to the Employee which is satisfactory to the Employee and shall bear all costs related thereto. 3.7 Club Memberships. The Company shall pay up to $2,500 per year for club memberships for the Employee as requested by the Employee. In addition, the Company shall obtain for the Employee a lifetime membership in the CEO Group. 3.8 Other Perquisites. The Company shall pay up to $10,000 per year for suitable financial or legal counseling services for the Employee as requested by the Employee. - 4. Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 Expiration of the Employment Period in accordance with Section 1. 4.2 At the election of the Company, by action of a majority of the members of the Board after reasonable notice to the Employee and an opportunity for the Employee to address the Board in person concerning the matter, for cause, immediately upon written notice by the Company to the Employee (following the opportunity by the Employee to address the Board if requested by the Employee). For the purposes of this Section 4.2, "cause" for termination shall be deemed to exist solely upon (a) the occurrence of knowing dishonesty or gross or reckless misconduct by the Employee relating to his duties as an executive of the Company which results in material harm to the Company or (b) the conviction of the Employee of, or the entry of a pleading of guilty or nolo contendere by the Employee to, any crime involving moral turpitude or any felony. For purposes of clause (a) of the previous sentence, "misconduct" shall include without limitation alcoholism and drug abuse if not cured within 30 days following notice from the Company. 4.3 Upon the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of 180 consecutive days to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company, provided that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. 5. Effect of Termination. --------------------- 5.1 Expiration of Employment Period. If the Employee's employment is terminated as a result of the expiration of the Employment Period pursuant to Section 4.1, the Company shall pay to the Employee (a) the compensation and benefits otherwise payable to him under Section 3 (including a pro rata bonus under Section 3.2 as to the fiscal year in which the Employment Period expires based on the number of days in such fiscal year prior to the termination, but not payable until after the end of such fiscal year as provided in Section 3.2) through the last day of his actual employment by the Company and (b) an amount equal to his Base Salary as then in effect. Notwithstanding the preceding provisions of this Section 5.1, no payment shall be made under this Section 5.1 in the event the Employee is entitled to receive severance benefits under the Executive Retention Agreement between the Employee and the Company dated August 17, 2000 (the "Executive Retention Agreement"). 5.2 Termination for Cause. If the Employee's employment is terminated for cause pursuant to Section 4.2, the Company shall pay to the Employee the compensation and benefits otherwise payable to him under Section 3 (other than Section 3.2) through the last day of his actual employment by the Company. 5.3 Termination for Death or Disability. If the Employee's employment is terminated by death or because of disability pursuant to Section 4.3, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, the compensation and benefits otherwise payable to him under Section 3 (other than Section 3.2) through the last day of his actual employment by the Company. 5.4 Survival. The provisions of Sections 5, 6, 7, 12, 13 and 14 shall survive the termination of this Agreement. 6. Non-Compete. ----------- (a) So long as the Employee is employed by the Company, and for a period of two years after the termination or expiration of such employment (even if such employment extends beyond the Employment Period), provided the Company is not in default hereof at the time of termination, the Employee will not, directly or indirectly: (i) as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than five percent (5%) of the total outstanding stock of a publicly held company), engage in the business of developing, producing, marketing or selling products or performing services competitive with the products or services developed or being developed, produced, marketed, sold or performed by the Company, or under active consideration by the Company for development, production, marketing, selling or performing, while the Employee was employed by the Company; or (ii) recruit, solicit or induce, or attempt to induce, any employee or employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company; or (iii) solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served by the Employee while employed by the Company or known to the Employee as a result of his employment by the Company; or (iv) interfere in any manner in the relationships between the Company and its affiliates, on the one hand, and their suppliers on the other. (b) If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. (c) The restrictions contained in this Section 6 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for such purpose. The Employee agrees that any breach of this Section 6 will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief. (d) If at any time or from time to time during the noncompetition period provided for in Section 6(a) hereof the Employee accepts new employment with a third party, the Employee immediately shall notify the Company of the identity and business of the new employer. Without limiting the foregoing, the Employee's obligation to give notice under this Section 6(d) shall apply to any business ventures in which the Employee proposes to engage even if not with a third-party employer (such as, without limitation, a joint venture, partnership or sole proprietorship). The Employee hereby consents to the Company notifying any such new employer of the terms of this Agreement. (e) For purposes of Sections 6 and 7 of this Agreement, the term "Company" includes Saucony, Inc. and its subsidiaries. 7. Inventions and Proprietary Information. -------------------------------------- 7.1 Inventions. ---------- (a) All inventions, discoveries, computer programs, data, technology, designs, innovations and improvements (whether or not patentable and whether or not copyrightable) related to the business of the Company which are made, conceived, reduced to practice, created, written, designed or developed by the Employee, solely or jointly with others and whether during normal business hours or otherwise, during his employment by the Company pursuant to this Agreement ("Inventions"), shall be the sole property of the Company. However, the provisions of this Section 7.1 do not apply to Inventions which do not relate to the present or planned business or research of the Company and which are made and conceived by the Employee not during normal working hours, not on the Company's premises and not using the Company's tools, devices, equipment or Proprietary Information (as defined in Section 7.2, below). The Employee hereby assigns to the Company all such Inventions and any and all related patents, copyrights, trademarks, trade names and other industrial and intellectual property rights and applications therefor, in the United States and elsewhere, and appoints any officer of the Company as his duly authorized attorney to execute, file, prosecute and protect the same before any government agency, court or authority. The Employee also hereby waives all claims to moral rights in any Invention. Upon the request of the Company, the Employee shall execute such further assignments, documents and other instruments as may be necessary or desirable to fully and completely assign all such Inventions to the Company and to assist the Company in applying for, obtaining and enforcing patents or copyrights or other rights in the United States and in any foreign country with respect to any such Invention. (b) The Employee shall promptly disclose to the Company all such Inventions and will maintain adequate and current written records (in the form of notes, sketches, drawings and as may be reasonably specified by the Company) to document the conception and/or first actual reduction to practice of any such Invention. Such written records shall be available to and remain the sole property of the Company at all times. 7.2 Proprietary Information. ----------------------- (a) The Employee acknowledges that his relationship with the Company is one of high trust and confidence and that in the course of his employment by the Company he will have access to and contact with Proprietary Information. The Employee agrees that he will not, during the Employment Period or at any time thereafter, disclose to others, or use for his benefit or the benefit of others, any Proprietary Information or any Invention. (b) For purposes of this Agreement, "Proprietary Information" shall mean all information (whether or not patentable and whether or not copyrightable) owned, possessed or used by the Company, including, without limitation, any Invention, formula, formulation, vendor information, customer information, apparatus, equipment, trade secret, process, research, report, technical data, know-how, computer program, software, software documentation, technology, marketing or business plan, forecast, budget or employee list that is communicated to, learned of, developed or otherwise acquired by the Employee in the course of his employment by the Company. (c) The Employee's obligations under this Section 7.2 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by the Employee of the terms of this Section 7.2, (ii) is generally disclosed to third parties by the Company without restriction on such third parties, (iii) is approved for release by written authorization of the Board, or (iv) is communicated to the Employee by a third party under no duty of confidentiality to the Company. (d) Upon termination of this Agreement or at any other time upon request by the Company, the Employee shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. (e) The Employee represents that the Employee's employment by the Company and the performance by the Employee of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Employee shall not disclose to the Company any trade secrets or confidential or proprietary information of any other party. 8. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or three days after deposit in the United States mail, by registered or certified mail, postage prepaid, return receipt requested, addressed to the other party at the address shown above (and, in the case of any notice to the Company, with a copy to David E. Redlick, Esq., Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109), or at such other address or addresses as either party shall designate to the other in accordance with this Section 8. 9. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. Notwithstanding the preceding sentence, the Executive Retention Agreement shall not be superseded by this Agreement. 11. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 12. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of law. 13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to substantially all of its assets or business, provided, however, that the obligations of the Employee are personal and shall not be assigned by him. 14. Miscellaneous. 14.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 14.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 14.3 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 14.4 This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.5 All payments provided for in this Agreement shall be subject to such tax withholding and other governmental contributions as are required under applicable law. 14.6 Each of the parties hereto (a) submits to the jurisdiction of any state or federal court sitting in Massachusetts in any action or proceeding arising out of or relating to this Agreement and (b) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the parties hereto waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto. Any party may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for giving of notices in Section 8. Nothing in this Section 14.6, however, shall affect the right of any party to serve legal process in any other manner permitted by law. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 14.7 The Employee acknowledges that any breach of the provisions of Section 6 or Section 7 shall result in serious and irreparable injury to the Company for which the Company cannot be adequately compensated by monetary damages alone. The Employee agrees, therefore, that in addition to any other remedy it may have, the Company shall be entitled to seek to enforce the specific performance of this Agreement by the Employee and to seek both temporary and permanent injunctive relief (to the extent permitted by law) without the necessity of proving actual damages. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and year set forth above. SAUCONY, INC. /s/ Michael Umana By: ____________________________ Title: Chief Financial Officer EMPLOYEE /s/ John H. Fisher -------------------------------- John H. Fisher EX-10 3 0003.txt RETENTION AGREEMENT EXHIBIT 10.2 - 1 - SAUCONY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Saucony, Inc., a Massachusetts corporation (the "Company"), and John H. Fisher (the "Executive") is made as of August 17, 2000 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection). (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1, or (v) any acquisition of common stock of the Company by the Executive or any ancestor, descendent, spouse, sibling or spouse of a sibling of the Executive (each such individual is referred to hereunder as an "Exempt Person"); or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation, any Exempt Person, or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "Cause" means: ----- (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties as an officer of the Company (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date"), or any other action or omission by the Company which results in a material diminution in such position, authority or responsibilities; (b) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date, (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance, or (iv) continue to provide any material fringe benefit enjoyed by Executive immediately prior to the Measurement Date; (d) a change by the Company in the location at which the Executive performs his principal duties for the Company to a new location that is both (i) outside a radius of 35 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 20 miles from the location at which the Executive performed his principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (f) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (g) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. In addition, the termination of employment by the Executive for any reason or no reason during the 30-day period beginning on the first anniversary of the Change in Control Date shall be deemed to be termination for Good Reason for all purposes under this Agreement. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the date 36 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 36 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2003; provided, however, that commencing on January 1, 2004 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. ---------------------------------------------------------- 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 Termination of Employment. ------------------------- (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 36 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. 4. Benefits to Executive. --------------------- 4.1 Stock Acceleration. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (b) each outstanding restricted stock award shall be deemed to be fully vested and will no longer be subject to a right of repurchase by the Company. 4.2 Compensation. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 36 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death), including without limitation a termination occurring by reason of the prevention by the Company of the renewal of the Executive's employment contract, or by the Executive for Good Reason within 36 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) three multiplied by (B) the sum of (x) the Executive's highest annual base salary during the five-year period prior to the Change in Control Date and (y) the Executive's highest annual bonus during the five-year period prior to the Change in Control Date. (ii) for 36 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (iv) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 36 months after the Date of Termination. (b) Resignation without Good Reason; Termination for Death or Disability. If the Executive voluntarily terminates his employment with the Company within 36 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 36 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Termination for Cause. If the Company terminates the Executive's employment with the Company for Cause within 36 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.3 Taxes. ----- (a) In the event that the Company undergoes a "Change in Ownership or Control" (as defined below) , the Company shall, within 30 days after each date on which the Executive becomes entitled to receive (whether or not then due) a Contingent Compensation Payment (as defined below) relating to such Change in Ownership or Control, determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which of the payments or benefits due to the Executive (under this Agreement or otherwise) following such Change in Ownership or Control constitute Contingent Compensation Payments, (ii) the amount, if any, of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), by the Executive with respect to such Contingent Compensation Payments and (iii) the amount of the Gross-Up Payment (as defined below) due to the Executive with respect to such Contingent Compensation Payments. Within 30 days after delivery of such notice to the Executive, the Executive shall deliver a response to the Company (the "Executive Response") stating either (A) that he agrees with the Company's determination pursuant to the preceding sentence or (B) that he disagrees with such determination, in which case he shall indicate which payment and/or benefits should be characterized as a Contingent Compensation Payment, the amount of the Excise Tax with respect to such Contingent Compensation Payment and the amount of the Gross-Up Payment due to the Executive with respect to such Contingent Compensation Payment. If the Executive states in the Executive Response that he agrees with the Company's determination, the Company shall make the Gross-Up Payment to the Executive within three business days following delivery to the Company of the Executive Response. If the Executive states in the Executive Response that he disagrees with the Company's determination, then, for a period of 60 days following delivery of the Executive Response, the Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such dispute shall be settled exclusively by arbitration in Boston, Massachusetts , in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to the Executive those Gross-Up Payments as to which there is no dispute between the Company and the Executive regarding whether they should be made. The balance of the Gross-Up Payments shall be made within three business days following the resolution of such dispute. The amount of any payments to be made to the Executive following the resolution of such dispute shall be increased by amount of the accrued interest thereon computed at the prime rate as published from time to time in the WALL STREET JOURNAL, compounded monthly from the date that such payments originally were due. In the event that the Executive fails to deliver an Executive Response on or before the required date, the Company's initial determination shall be final. (b) For purposes of this Section 4.3, the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change of Ownership or Control of the Company. (iii) "Gross-Up Payment" shall mean an amount equal to the sum of (i) the amount of the Excise Tax payable with respect to a Contingent Compensation Payment and (ii) the amount necessary to pay all additional taxes imposed on (or economically borne by) the Executive (including the Excise Taxes, state and federal income taxes and all applicable withholding taxes) attributable to the receipt of such Gross-Up Payment. For purposes of the preceding sentence, all taxes attributable to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rates provided by law. 4.4 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 4.5 Outplacement Services. In the event the Executive is terminated by the Company (other than for Cause, Disability or Death), or the Executive terminates employment for Good Reason, within 36 months following the Change in Control Date, the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate of $40,000, with such services to extend until the earlier of (I) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. 5. Disputes. -------- 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. Successors. ---------- 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at Centennial Industrial Park, Centennial Drive, Peabody, MA 01961, and to the Executive at 30 Catlin Road, Brookline, MA 02146 (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, the provisions of the Employment Agreement between the Executive and the Company dated August 17, 2000 shall not be superseded by this Agreement. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. SAUCONY, INC. /s/ Michael Umana By:________________________________ Title: Chief Financial Officer EXECUTIVE /s/ John H. Fisher ----------------------------------- John H. Fisher EX-10 4 0004.txt EMPLOYMENT AGREEMENT EXHIBIT 10.3 - 1 - EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of August 17, 2000, is entered into by Saucony, Inc., a Massachusetts corporation with its principal place of business at Centennial Industrial Park, 13 Centennial Drive, Peabody, Massachusetts 01961 (the "Company"), and Charles A. Gottesman (the "Employee"), with an address care of Saucony, Inc., Centennial Industrial Park, 13 Centennial Drive, Peabody, Massachusetts 01961. The Company desires to continue to employ the Employee, and the Employee desires to continue to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows: 1. Term of Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on August 17, 2000 (the "Commencement Date") and ending on the third anniversary of the Commencement Date, unless sooner terminated in accordance with the provisions of Section 4 (such period, as it may be extended as hereinafter provided, the "Employment Period"). On the third anniversary of the Commencement Date and each subsequent anniversary of the Commencement Date, the period of employment of the Employee by the Company specified in the preceding sentence shall automatically be extended for one additional year unless, not later than 90 days prior to such anniversary, the Company shall have given the Employee written notice, or the Employee shall have given the Company written notice, that the Employment Period shall not be so extended. 2. Title; Capacity. During the Employment Period, the Employee shall serve as the Executive Vice President, Chief Operating Officer and Treasurer of the Company. The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Chief Executive Officer of the Company or the Board of Directors of the Company (the "Board") shall from time to time reasonably assign to him. It is contemplated that, as Executive Vice President, Chief Operating Officer and Treasurer, the Employee will at all times serve on the Company's Board of Directors. The Company shall at all times during the term of this Agreement take all such action as may be available to it to cause the election of the Employee as a Director of the Company and his maintenance in said offices at all times during the term of this Agreement, so long as he consents thereto. During the Employment Period, the Employee agrees to devote his full business time, to the advancement of the Company and its interests and to the discharge of his duties and responsibilities hereunder, subject to illness, vacation and normal executive employment practices of the Company. The Employee shall not engage in any other business activity, except as may be approved by the Board in advance. Notwithstanding the requirements of the previous two sentences, the Employee shall be permitted to engage in the following activities to the extent that such activities do not unreasonably interfere with his duties hereunder: (i) to make and maintain passive personal investments for himself, his spouse, his parents, his siblings, or his children or for any trust or custodial account for his or their benefit and (ii) to participate in the management of not-for-profit organizations and in the organization of not-for-profit activities. The Employee agrees to abide by the reasonable rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. 3. Compensation and Benefits. ------------------------- 3.1 Salary. The Company shall pay the Employee, in accordance with the Company's normal payroll practices, an annual base salary of $425,000 (the "Base Salary"), subject to upward adjustment by the Board. Commencing with the calendar year which begins on January 1, 2001, the Base Salary shall be increased for each calendar year over the Base Salary in effect as of the end of the preceding calendar year by the same percentage as that by which the "Consumer Price Index-Urban Wage Earners and Clerical Workers, U.S. city average, all items, 1982-84=100", published by the United States Department of Labor, Bureau of Statistics, (or its successor equivalent index) as of January 1st of the year for which such increase is being determined, has increased over the said Index as of January 1st of the preceding calendar year. 3.2 Bonus. With respect to each fiscal year of the Company during the Employment Period, the Company shall pay the Employee a cash bonus equal to two percent (2%) of the consolidated pre-tax income of the Company for such fiscal year plus one percent (1%) of the consolidated pre-tax income of the Company if the performance of such division or divisions of the Company as selected by the Board equals or exceeds such performance levels as established by the Board for such fiscal year for such divisions; provided, however, that for the 2000 fiscal year the bonus shall be two percent (2%) of the consolidated pre-tax income of the Company for such fiscal year plus one-half percent (0.5%) of the consolidated pre-tax income of the Company if the performance of the textile division of the Company equals or exceeds such performance levels as established by the Board for such fiscal year; and further provided that nothing contained herein shall preclude the Board, in its sole discretion, from awarding the Employee a larger bonus for such fiscal year. The determination of the Company's consolidated pre-tax income shall be made by the Company's independent auditors, whose determination shall be final and binding on all parties. The Company shall pay the Employee any bonus due under this Section 3.2 as to any fiscal year by the 90th day after the end of such fiscal year; provided that if the bonus to be paid exceeds three (3) times the Employee's Base Salary in effect on the last day of such fiscal year, the excess shall be credited to an account established for the Employee under the Company's Non-Qualified Retirement Plan. 3.3 Fringe Benefits; Vacation. The Employee shall be entitled to participate in all benefit programs that the Company establishes and makes available to its employees, if any, to the extent that the Employee's position, tenure, salary, health and other qualifications make him eligible to participate; such fringe benefits shall include medical benefit coverage, pension or profit-sharing plan participation, disability insurance coverage and participation in a deferred compensation plan. The Employee shall be entitled to four weeks paid vacation per calendar year. 3.4 Life Insurance. During the Employment Period, the Company shall obtain so-called whole life insurance coverage on the life of the Employee on such terms as are acceptable to the Board and the Employee providing for a death benefit of not less than three times the Base Salary as in effect from time to time, the beneficiary to be selected by the Employee. 3.5 Reimbursement of Expenses. Subject to Company policy as in effect at the applicable time, the Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. 3.6 Automobile. The Company shall make an automobile available to the Employee which is satisfactory to the Employee and shall bear all costs related thereto. 3.7 Club Memberships. The Company shall pay up to $2,500 per year for club memberships for the Employee as requested by the Employee. 3.8 Other Perquisites. The Company shall pay up to $10,000 per year for suitable financial or legal counseling services for the Employee as requested by the Employee. - 4. Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 Expiration of the Employment Period in accordance with Section 1. 4.2 At the election of the Company, by action of a majority of the members of the Board after reasonable notice to the Employee and an opportunity for the Employee to address the Board in person concerning the matter, for cause, immediately upon written notice by the Company to the Employee (following the opportunity by the Employee to address the Board if requested by the Employee). For the purposes of this Section 4.2, "cause" for termination shall be deemed to exist solely upon (a) the occurrence of knowing dishonesty or gross or reckless misconduct by the Employee relating to his duties as an executive of the Company which results in material harm to the Company or (b) the conviction of the Employee of, or the entry of a pleading of guilty or nolo contendere by the Employee to, any crime involving moral turpitude or any felony. For purposes of clause (a) of the previous sentence, "misconduct" shall include without limitation alcoholism and drug abuse if not cured within 30 days following notice from the Company. 4.3 Upon the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of 180 consecutive days to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company, provided that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. 5. Effect of Termination. --------------------- 5.1 Expiration of Employment Period. If the Employee's employment is terminated as a result of the expiration of the Employment Period pursuant to Section 4.1, the Company shall pay to the Employee (a) the compensation and benefits otherwise payable to him under Section 3 (including a pro rata bonus under Section 3.2 as to the fiscal year in which the Employment Period expires based on the number of days in such fiscal year prior to the termination, but not payable until after the end of such fiscal year as provided in Section 3.2) through the last day of his actual employment by the Company and (b) an amount equal to his Base Salary as then in effect. Notwithstanding the preceding provisions of this Section 5.1, no payment shall be made under this Section 5.1 in the event the Employee is entitled to receive severance benefits under the Executive Retention Agreement between the Employee and the Company dated August 17, 2000 (the "Executive Retention Agreement"). 5.2 Termination for Cause. If the Employee's employment is terminated for cause pursuant to Section 4.2, the Company shall pay to the Employee the compensation and benefits otherwise payable to him under Section 3 (other than Section 3.2) through the last day of his actual employment by the Company. 5.3 Termination for Death or Disability. If the Employee's employment is terminated by death or because of disability pursuant to Section 4.3, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, the compensation and benefits otherwise payable to him under Section 3 (other than Section 3.2) through the last day of his actual employment by the Company. 5.4 Survival. The provisions of Sections 5, 6, 7, 12, 13 and 14 shall survive the termination of this Agreement. 6. Non-Compete. ----------- (a) So long as the Employee is employed by the Company, and for a period of two years after the termination or expiration of such employment (even if such employment extends beyond the Employment Period), provided the Company is not in default hereof at the time of termination, the Employee will not, directly or indirectly: (i) as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than five percent (5%) of the total outstanding stock of a publicly held company), engage in the business of developing, producing, marketing or selling products or performing services competitive with the products or services developed or being developed, produced, marketed, sold or performed by the Company, or under active consideration by the Company for development, production, marketing, selling or performing, while the Employee was employed by the Company; or (ii) recruit, solicit or induce, or attempt to induce, any employee or employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company; or (iii) solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served by the Employee while employed by the Company or known to the Employee as a result of his employment by the Company; or (iv) interfere in any manner in the relationships between the Company and its affiliates, on the one hand, and their suppliers on the other. (b) If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. (c) The restrictions contained in this Section 6 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for such purpose. The Employee agrees that any breach of this Section 6 will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief. (d) If at any time or from time to time during the noncompetition period provided for in Section 6(a) hereof the Employee accepts new employment with a third party, the Employee immediately shall notify the Company of the identity and business of the new employer. Without limiting the foregoing, the Employee's obligation to give notice under this Section 6(d) shall apply to any business ventures in which the Employee proposes to engage even if not with a third-party employer (such as, without limitation, a joint venture, partnership or sole proprietorship). The Employee hereby consents to the Company notifying any such new employer of the terms of this Agreement. (e) For purposes of Sections 6 and 7 of this Agreement, the term "Company" includes Saucony, Inc. and its subsidiaries. 7. Inventions and Proprietary Information. -------------------------------------- 7.1 Inventions. ---------- (a) All inventions, discoveries, computer programs, data, technology, designs, innovations and improvements (whether or not patentable and whether or not copyrightable) related to the business of the Company which are made, conceived, reduced to practice, created, written, designed or developed by the Employee, solely or jointly with others and whether during normal business hours or otherwise, during his employment by the Company pursuant to this Agreement ("Inventions"), shall be the sole property of the Company. However, the provisions of this Section 7.1 do not apply to Inventions which do not relate to the present or planned business or research of the Company and which are made and conceived by the Employee not during normal working hours, not on the Company's premises and not using the Company's tools, devices, equipment or Proprietary Information (as defined in Section 7.2, below). The Employee hereby assigns to the Company all such Inventions and any and all related patents, copyrights, trademarks, trade names and other industrial and intellectual property rights and applications therefor, in the United States and elsewhere, and appoints any officer of the Company as his duly authorized attorney to execute, file, prosecute and protect the same before any government agency, court or authority. The Employee also hereby waives all claims to moral rights in any Invention. Upon the request of the Company, the Employee shall execute such further assignments, documents and other instruments as may be necessary or desirable to fully and completely assign all such Inventions to the Company and to assist the Company in applying for, obtaining and enforcing patents or copyrights or other rights in the United States and in any foreign country with respect to any such Invention. (b) The Employee shall promptly disclose to the Company all such Inventions and will maintain adequate and current written records (in the form of notes, sketches, drawings and as may be reasonably specified by the Company) to document the conception and/or first actual reduction to practice of any such Invention. Such written records shall be available to and remain the sole property of the Company at all times. 7.2 Proprietary Information. ----------------------- (a) The Employee acknowledges that his relationship with the Company is one of high trust and confidence and that in the course of his employment by the Company he will have access to and contact with Proprietary Information. The Employee agrees that he will not, during the Employment Period or at any time thereafter, disclose to others, or use for his benefit or the benefit of others, any Proprietary Information or any Invention. (b) For purposes of this Agreement, "Proprietary Information" shall mean all information (whether or not patentable and whether or not copyrightable) owned, possessed or used by the Company, including, without limitation, any Invention, formula, formulation, vendor information, customer information, apparatus, equipment, trade secret, process, research, report, technical data, know-how, computer program, software, software documentation, technology, marketing or business plan, forecast, budget or employee list that is communicated to, learned of, developed or otherwise acquired by the Employee in the course of his employment by the Company. (c) The Employee's obligations under this Section 7.2 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by the Employee of the terms of this Section 7.2, (ii) is generally disclosed to third parties by the Company without restriction on such third parties, (iii) is approved for release by written authorization of the Board, or (iv) is communicated to the Employee by a third party under no duty of confidentiality to the Company. (d) Upon termination of this Agreement or at any other time upon request by the Company, the Employee shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. (e) The Employee represents that the Employee's employment by the Company and the performance by the Employee of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Employee shall not disclose to the Company any trade secrets or confidential or proprietary information of any other party. 8. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or three days after deposit in the United States mail, by registered or certified mail, postage prepaid, return receipt requested, addressed to the other party at the address shown above (and, in the case of any notice to the Company, with a copy to David E. Redlick, Esq., Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109), or at such other address or addresses as either party shall designate to the other in accordance with this Section 8. 9. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. Notwithstanding the preceding sentence, the Executive Retention Agreement shall not be superseded by this Agreement. 11. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 12. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of law. 13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to substantially all of its assets or business, provided, however, that the obligations of the Employee are personal and shall not be assigned by him. 14. Miscellaneous. ------------- 14.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 14.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 14.3 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 14.4 This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.5 All payments provided for in this Agreement shall be subject to such tax withholding and other governmental contributions as are required under applicable law. 14.6 Each of the parties hereto (a) submits to the jurisdiction of any state or federal court sitting in Massachusetts in any action or proceeding arising out of or relating to this Agreement and (b) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the parties hereto waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto. Any party may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for giving of notices in Section 8. Nothing in this Section 14.6, however, shall affect the right of any party to serve legal process in any other manner permitted by law. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 14.7 The Employee acknowledges that any breach of the provisions of Section 6 or Section 7 shall result in serious and irreparable injury to the Company for which the Company cannot be adequately compensated by monetary damages alone. The Employee agrees, therefore, that in addition to any other remedy it may have, the Company shall be entitled to seek to enforce the specific performance of this Agreement by the Employee and to seek both temporary and permanent injunctive relief (to the extent permitted by law) without the necessity of proving actual damages. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and year set forth above. SAUCONY, INC. /s/ Michael Umana By: ____________________________ Title: Chief Financial Officer EMPLOYEE /s/ Charles A. Gottesman -------------------------------- Charles A. Gottesman EX-10 5 0005.txt RETENTION AGREEMENT EXHIBIT 10.4 - 1 - SAUCONY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Saucony, Inc., a Massachusetts corporation (the "Company"), and Charles A. Gottesman (the "Executive") is made as of August 17, 2000 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection). (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1, or (v) any acquisition of common stock of the Company by the Executive or any ancestor, descendent, spouse, sibling or spouse of a sibling of the Executive (each such individual is referred to hereunder as an "Exempt Person"); or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation, any Exempt Person, or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "Cause" means: ----- (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties as an officer of the Company (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date"), or any other action or omission by the Company which results in a material diminution in such position, authority or responsibilities; (b) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date, (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance, or (iv) continue to provide any material fringe benefit enjoyed by Executive immediately prior to the Measurement Date; (d) a change by the Company in the location at which the Executive performs his principal duties for the Company to a new location that is both (i) outside a radius of 35 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 20 miles from the location at which the Executive performed his principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (f) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (g) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. In addition, the termination of employment by the Executive for any reason or no reason during the 30-day period beginning on the first anniversary of the Change in Control Date shall be deemed to be termination for Good Reason for all purposes under this Agreement. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the date 36 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 36 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2003; provided, however, that commencing on January 1, 2004 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. ---------------------------------------------------------- 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 Termination of Employment. ------------------------- (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 36 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. 4. Benefits to Executive. --------------------- 4.1 Stock Acceleration. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (b) each outstanding restricted stock award shall be deemed to be fully vested and will no longer be subject to a right of repurchase by the Company. 4.2 Compensation. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 36 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death), including without limitation a termination occurring by reason of the prevention by the Company of the renewal of the Executive's employment contract, or by the Executive for Good Reason within 36 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) three multiplied by (B) the sum of (x) the Executive's highest annual base salary during the five-year period prior to the Change in Control Date and (y) the Executive's highest annual bonus during the five-year period prior to the Change in Control Date. (ii) for 36 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (iv) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 36 months after the Date of Termination. (b) Resignation without Good Reason; Termination for Death or Disability. If the Executive voluntarily terminates his employment with the Company within 36 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 36 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Termination for Cause. If the Company terminates the Executive's employment with the Company for Cause within 36 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.3 Taxes. ----- (a) In the event that the Company undergoes a "Change in Ownership or Control" (as defined below) , the Company shall, within 30 days after each date on which the Executive becomes entitled to receive (whether or not then due) a Contingent Compensation Payment (as defined below) relating to such Change in Ownership or Control, determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which of the payments or benefits due to the Executive (under this Agreement or otherwise) following such Change in Ownership or Control constitute Contingent Compensation Payments, (ii) the amount, if any, of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), by the Executive with respect to such Contingent Compensation Payments and (iii) the amount of the Gross-Up Payment (as defined below) due to the Executive with respect to such Contingent Compensation Payments. Within 30 days after delivery of such notice to the Executive, the Executive shall deliver a response to the Company (the "Executive Response") stating either (A) that he agrees with the Company's determination pursuant to the preceding sentence or (B) that he disagrees with such determination, in which case he shall indicate which payment and/or benefits should be characterized as a Contingent Compensation Payment, the amount of the Excise Tax with respect to such Contingent Compensation Payment and the amount of the Gross-Up Payment due to the Executive with respect to such Contingent Compensation Payment. If the Executive states in the Executive Response that he agrees with the Company's determination, the Company shall make the Gross-Up Payment to the Executive within three business days following delivery to the Company of the Executive Response. If the Executive states in the Executive Response that he disagrees with the Company's determination, then, for a period of 60 days following delivery of the Executive Response, the Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such dispute shall be settled exclusively by arbitration in Boston, Massachusetts , in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to the Executive those Gross-Up Payments as to which there is no dispute between the Company and the Executive regarding whether they should be made. The balance of the Gross-Up Payments shall be made within three business days following the resolution of such dispute. The amount of any payments to be made to the Executive following the resolution of such dispute shall be increased by amount of the accrued interest thereon computed at the prime rate as published from time to time in the WALL STREET JOURNAL, compounded monthly from the date that such payments originally were due. In the event that the Executive fails to deliver an Executive Response on or before the required date, the Company's initial determination shall be final. (b) For purposes of this Section 4.3, the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change of Ownership or Control of the Company. (iii) "Gross-Up Payment" shall mean an amount equal to the sum of (i) the amount of the Excise Tax payable with respect to a Contingent Compensation Payment and (ii) the amount necessary to pay all additional taxes imposed on (or economically borne by) the Executive (including the Excise Taxes, state and federal income taxes and all applicable withholding taxes) attributable to the receipt of such Gross-Up Payment. For purposes of the preceding sentence, all taxes attributable to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rates provided by law. 4.4 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 4.5 Outplacement Services. In the event the Executive is terminated by the Company (other than for Cause, Disability or Death), or the Executive terminates employment for Good Reason, within 36 months following the Change in Control Date, the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate of $40,000, with such services to extend until the earlier of (I) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. 5. Disputes. -------- 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. Successors. ---------- 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at Centennial Industrial Park, Centennial Drive, Peabody, MA 01961, and to the Executive at 30 Catlin Road, Brookline, MA 02146 (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, the provisions of the Employment Agreement between the Executive and the Company dated August 17, 2000 shall not be superseded by this Agreement. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. SAUCONY, INC. /s/ Michael Umana By:________________________________ Title: Chief Financial Officer EXECUTIVE /s/ Charles A. Gottesman ----------------------------------- Charles A. Gottesman EX-27 6 0006.txt FDS
5 This schedule contains summary financial information extracted from Saucony, Inc's. Industries, Inc. Form 10-Q for the period ended September 29, 2000 and is qualified in its entirety by reference to such 10-Q. 0000049401 Saucony, Inc. 1000 US Dollars 9-Mos JAN-05-2001 Jan-01-2000 Sep-29-2000 1 1932 0 36330 1576 35906 77393 19146 11858 86711 19246 41 0 0 2243 62588 86711 134645 135020 83161 83161 36965 748 563 14405 5971 8361 0 0 0 8361 1.34 1.31
EX-99 7 0007.txt RISK FACTORS FROM FORM 10-K Exhibit 99.1 The following is incorporated by reference into this Quarterly Report on Form 10-Q from the Company's Annual Report on Form 10-K for the period ended December 31, 1999: CERTAIN OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS WE FACE INTENSE COMPETITION Competition is intense in the markets in which we sell our products. We compete with a large number of other companies, both domestic and foreign, several of which have diversified product lines, well-known brands and financial, distribution and marketing resources substantially greater than ours. The principal competitors for our Saucony products are Nike, New Balance and ASICS. The principal competitors for our Hind products are Nike, Pearl Izumi and TYR. The principal competitors for our Quintana Roo, Merlin and Real Design products are Cannondale, Trek and Litespeed. We compete based on a variety of factors, including price, quality, product design, brand image, marketing and promotion and ability to meet delivery commitments to retailers. A technological breakthrough or marketing or promotional success by one of our competitors could adversely affect our competitive position. The intensity of the competition that we face constitutes a significant risk to our business. WE DEPEND ON FOREIGN SUPPLIERS A number of manufacturers located in Asia, primarily in China, Taiwan and Thailand, supply products and product components to us. During fiscal 1999, one of our suppliers, located in China, accounted for approximately 62% of our total purchases by dollar volume. We are subject to the usual risks of a business involving foreign suppliers, such as currency fluctuations, government regulation of fund transfers, export and import duties, trade limitations imposed by the United States or foreign governments and political and labor instability. In particular, there are a number of trade-related and other issues creating significant friction between the governments of the United States and China and the imposition of punitive import duties on certain categories of Chinese products has been threatened in the past and may be implemented in the future. In addition, we have no long-term manufacturing agreements with our foreign suppliers and compete with other athletic shoe, apparel and bicycle companies, including companies that are much larger than us, for access to production facilities. WE NEED TO ANTICIPATE AND RESPOND TO CONSUMER PREFERENCES AND MERCHANDISE TRENDS The footwear and apparel industries are subject to rapid changes in consumer preferences. Demand for our products, particularly our Originals line, may be adversely affected by changing fashion trends and consumer style preferences. We believe that our success depends in substantial part on our ability to anticipate, gauge and respond to changing consumer demands and fashion trends in a timely manner. In addition, our decisions concerning new product designs often need to be made several months before we can determine consumer acceptance. As a result, our failure to anticipate, identify or react appropriately to changes in styles or features could lead to problems such as excess inventories and higher markdowns, lower gross margins due to the necessity of providing discounts to retailers, as well as the inability to sell such products through our own factory stores. OUR QUARTERLY RESULTS MAY FLUCTUATE Our revenues and quarterly operating results may vary significantly depending on a number of factors, including: - - the timing and shipment of individual orders; - - market acceptance of footwear and other products offered by us; - - changes in our operating expenses; - - personnel changes; - - mix of products sold; - - changes in product pricing; and, - - general economic conditions. In addition, a substantial portion of our revenue is realized during the last few weeks of each quarter. As a result, any delays in orders or shipments are more likely to result in revenue not being recognized until the following quarter, which could adversely impact the results of operations for a particular quarter. Our current expense levels are based in part on our expectations of future revenue. As a result, net income for a given period could be disproportionately affected by any reduction in revenue. It is possible that in some future quarter our revenue or operating results will be below the expectations of stock market securities analysts and investors. If that were to occur, the market price of our common stock could be materially adversely affected. OUR REVENUES ARE SUBJECT TO FOREIGN CURRENCY EXCHANGE FLUCTUATIONS We conduct operations in various international countries and a portion of our sales is transacted in local currencies. As a result, our revenues are subject to foreign exchange rate fluctuations. From time to time, our financial results have been adversely affected by fluctuations in foreign currency exchange rates. We enter into forward currency exchange contracts to protect us from the effect of changes in foreign exchange rates. However, our efforts to reduce currency exchange losses may not be successful and currency exchange rates may have an adverse impact on our future operating results and financial condition. OUR BUSINESS IS AFFECTED BY SEASONAL CONSUMER BUYING PATTERNS The footwear, apparel and bicycle industries are generally characterized by significant seasonality of sales and results of operations. Sales of our Saucony brand products have historically been seasonal in nature, with the strongest sales generally occurring in the first and third quarters. In addition, sales of our Hind brand products are generally strongest in the third and fourth quarters due to the popularity of the Hind winter apparel collection. We believe that sales of our products will continue to follow this seasonal cycle. Therefore, our results of operations for any one quarter may not necessarily be indicative of the results that we may achieve for a full fiscal year or any future quarter. WE ARE SUSCEPTIBLE TO FINANCIAL DIFFICULTIES OF RETAILERS We sell our products primarily to major retailers, some of whom have experienced financial difficulties, including bankruptcy. We cannot predict what effect the future financial condition of such retailers will have on our business. In particular, we cannot guarantee that our bad debt expenses may be material in future periods. WE NEED EFFECTIVE MARKETING AND ADVERTISING PROGRAMS Because consumer demand for our products is heavily influenced by brand image, our business requires substantial investments in marketing and advertising. Failure of such investments to achieve the desired effect in terms of increased retailer acceptance or consumer purchase of our products could adversely affect our financial results. In addition, we believe that our success depends in part upon our ability to periodically launch new marketing and advertising programs. If we are unable to successfully design or execute new marketing and advertising, or if such programs are ineffective, our business will suffer. WE DEPEND ON CERTAIN KEY CUSTOMERS During 1999, we derived approximately 15% of our consolidated revenue from sales to a single major customer, Venator, which operates Foot Locker, Lady Foot Locker, Kids Foot Locker and Eastbay Running stores. We anticipate that our results of operations in any given period will depend to a significant extent upon sales to major customers. The loss of or a reduction in the level of sales to one or more major customers could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if a major customer were unable or unwilling to proceed with a large order or to pay us for a large order on a timely basis, our business, financial condition and results of operations could be materially adversely affected. CHANGES IN GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR BUSINESS Our business is sensitive to consumers' spending patterns, which in turn are subject to prevailing regional and national economic conditions, such as interest and taxation rates, employment levels and consumer confidence. Adverse changes in these economic factors may restrict consumer spending, thereby negatively affecting our growth and profitability. -----END PRIVACY-ENHANCED MESSAGE-----