-----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, CJFCA+cWDHV7omOlnXtnNGvclXW69JRS526pvcprSFU9j88mzwkH8863O3IwyqFv uFJb83fYoc6QMC/GVeKfVA== 0000887124-99-000006.txt : 19990503 0000887124-99-000006.hdr.sgml : 19990503 ACCESSION NUMBER: 0000887124-99-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NINE WEST GROUP INC /DE CENTRAL INDEX KEY: 0000887124 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 061093855 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-11161 FILM NUMBER: 99607381 BUSINESS ADDRESS: STREET 1: NINE WEST PLAZA STREET 2: 1129 WESTCHESTER AVE CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 3145798812 MAIL ADDRESS: STREET 1: NINE WEST PLAZA STREET 2: 1129 WESTCHESTER AVENUE CITY: WHITE PLAINS STATE: NY ZIP: 10604 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the 52 weeks ended January 30, 1999 Commission File No. 1-11161 Nine West Group Inc. (Exact name of Registrant as specified in its charter) Delaware 06-1093855 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) Nine West Plaza 1129 Westchester Avenue White Plains, New York 10604 (Address of Principal Executive Offices) (Zip Code) (314) 579-8812 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class: on Which Registered: - -------------------------------------- ----------------------- Common Stock, par value $.01 per share New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required 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: Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on April 16, 1999: $708,418,777. Total number of shares of Common Stock, $.01 par value per share, outstanding as of the close of business on April 16, 1999: 34,003,431. TABLE OF CONTENTS Page PART I Item 1 Business 3 Item 2 Properties 14 Item 3 Legal Proceedings 15 Item 4 Submission of Matters to a Vote of Security Holders 16 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6 Selected Financial Data 17 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 7A Quantitative and Qualitative Disclosures About Market Risk 28 Item 8 Financial Statements and Supplementary Data 30 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 65 PART III Item 10 Directors and Executive Officers of the Registrant 66 Item 11 Executive Compensation 67 Item 12 Security Ownership of Certain Beneficial Owners and Management 74 Item 13 Certain Relationships and Related Transactions 76 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 78 PART I ITEM 1. BUSINESS. GENERAL Nine West Group Inc. (together with its subsidiaries, the "Company") is a leading designer, developer and marketer of quality, fashionable women's footwear and accessories. The Company markets a full collection of casual, career and dress footwear and accessories under multiple brand names, each of which is targeted to a distinct segment of the women's footwear and accessories markets, from "fashion" to "comfort" styles and from "moderate" to "bridge" price points. The Company's footwear and accessories are sold to more than 7,000 department, specialty and independent retail stores and through 1,499 of its own retail locations operating as of January 30, 1999. In addition to its flagship Nine West label, the Company's internationally recognized brands include Amalfi, Bandolino, Calico, cK/Calvin Klein (under license), Easy Spirit, Enzo Angiolini, Evan-Picone (under license), 9 & Co., Pappagallo, Pied a Terre, Selby and Westies. The Company's Jervin private label division also arranges for the purchase of footwear by major retailers and other wholesalers for sale under the customers' own labels. The Company believes that its primary strengths are: (1) its widely-recognized brand names, (2) the high quality, value and styling of its products, (3) its ability to respond quickly to changing fashion trends, (4) its established sourcing relationships with efficient manufacturers in Brazil, China and other locations, (5) the broad distribution of its products through both wholesale and retail channels and (6) its ability to provide timely and reliable delivery to its customers. The Company believes that it is one of the few established footwear companies that offer a number of complete lines of well-known women's leather footwear in a wide variety of colors, styles and retail price points and that, as a result, it is able to capitalize on what the Company believes is a continuing trend among major wholesale accounts to consolidate footwear purchasing from among a narrowing group of vendors. In addition, the Company believes that the sale of footwear and accessories through its retail stores increases consumers' awareness of the Company's brands. On May 23, 1995, the Company consummated its acquisition (the "Acquisition") of the footwear business of The United States Shoe Corporation (the "Footwear Group"). Financial information for 1998, 1997 and 1996 is not comparable to 1995 and 1994, as Footwear Group results are included in the entire 1998, 1997 and 1996 periods and are included in 1995 for the 37-week period from May 23, 1995 through February 3, 1996. The Company, Jones Apparel Group, Inc. ("Jones") and Jill Acquisition Sub Inc. ("Merger Sub") have entered into an Agreement and Plan of Merger dated as of March 1, 1999 (the "Merger Agreement"), pursuant to which the Company will be merged with Merger Sub (the "Merger") and all outstanding shares of the Company's Common Stock, other than shares held by parties to the Merger Agreement or by dissenting shareholders who perfect their statutory appraisal rights under Delaware law, will be converted into the right to receive $13.00 in cash and a number of shares of common stock of Jones (the "Jones Common Stock") equal to the Exchange Ratio, subject to the terms and conditions of the Merger Agreement. The "Exchange Ratio" will be (i) .5011 if the average price of the Jones Common Stock for a 15-day period prior to the Closing (the "Jones Stock Price") is greater than or equal to $24.00 and less than or equal to $34.00; (ii) equal to $12.00 divided by the Jones Stock Price if the Jones Stock Price is greater than or equal to $21.00 and less than $24.00; (iii) .5714 if the Jones Stock Price is less than $21.00; (iv) equal to $17.00 divided by the Jones Stock Price if the Jones Stock Price is greater than $34.00 but less than or equal to $36.00; and (v) .4722 if the Jones Stock Price is greater than $36.00. Based on a value of Jones Common Stock of $29- 5/8 per share as of April 16, 1999, and including assumed debt, the transaction has a total value of approximately $1.5 billion. Jones is a designer and marketer of a broad array of products, including sportswear, jeanswear, suits and dresses. The Merger will be accounted for as a purchase for financial accounting purposes. The transaction is expected to close by the end of June 1999 and is subject to customary conditions, including approval by Company stockholders. OPERATING SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS, AND EXPORT SALES. The Company's operations are comprised of domestic wholesale, domestic retail and international segments. The Company identifies operating segments based on, among other things, the way that the Company's management organizes the components of the Company's business for purposes of allocating resources and assessing performance. Segment revenues are generated from the sale of footwear and accessories through wholesale channels and the Company's own retail locations and are recorded on the basis of customer location. See "Business Segment and Geographic Area Information" in the Notes to Consolidated Financial Statements. DOMESTIC WHOLESALE SEGMENT The Company's domestic wholesale operations include the sale of both brand name and private label footwear and/or accessories through 11 branded divisions, as well as the Jervin private label division and the Accessories division. The Jervin private label division earns commissions on an agency basis for arranging with manufacturers the production of footwear for sale under its customers' private labels. The Jervin division provides design expertise, selects the manufacturer, oversees the manufacturing process and arranges the sale of footwear to the customer. The Accessories division produces and sells handbags and small leather goods under the names "Nine West," "Easy Spirit" and "Enzo Angiolini" through the Company's retail stores and primarily under the name "Nine West" through wholesale channels. Additionally, the Company's licensees sell products, including belts, children's shoes, eyewear, jewelry, legwear, outerwear, slippers and watches, to wholesale customers primarily under the name "Nine West," with respect to which the Company earns licensing revenues. The following table summarizes selected aspects of the products sold by the domestic wholesale segment: Product Market Classification Segments Retail Price Range -------------- -------- ------------------- Footwear -------- Shoes Boots ----- ----- Nine West Contemporary Upper Moderate $49 to $75 $79 to $160 Amalfi Refined Classics Salon $110 to $140 $150 to $185 Bandolino Modern Classics Better $60 to $75 $80 to $160 Calico Value/Affordable Moderate $30 to $50 $60 to $65 Fashion cK/Calvin Dress Tailored Bridge $65 to $195 $115 to $295 Klein Casual Seasonal Sport Easy Spirit Comfort/Fit Upper Moderate $40 to $85 $70 to $125 Active Sport/Casuals Enzo Sophisticated Better $60 to $88 $100 to $165 Angiolini Classics Evan-Picone Contemporary Bridge $80 to $110 $120 to $150 9 & Co. Junior/Trend Moderate $30 to $60 $55 to $100 Selby Lifestyle Classics/ Upper Moderate $60 to $85 $95 to $150 Comfort Specialty Traditional/ Moderate/Lower $25 to $40 $40 to $50 Marketing/ Contemporary Moderate Westies Jervin All Moderate/Lower $20 to $50 $30 to $70 Private Label Moderate Accessories ----------- Accessories Handbags and Moderate/Better $30 to $100 small leather goods cK/Calvin Handbags and Bridge $35 to $200 Klein small leather goods
DOMESTIC RETAIL SEGMENT DOMESTIC SPECIALTY RETAIL OPERATIONS The Company's Nine West, Easy Spirit, Enzo Angiolini, 9 & Co. and cK/Calvin Klein Shoes and Bags divisions market footwear and accessories directly to consumers through the Company's domestic specialty retail stores operating in mall and urban retail center locations. Each of these stores sells footwear and accessories primarily under its respective brand name. The Company's Nine West, Easy Spirit and Enzo Angiolini retail stores offer a selection of exclusive products not marketed to the Company's wholesale customers. Certain of the Company's retail stores also sell products licensed by the Company, including belts, jewelry, legwear, outerwear and sunglasses. The Company plans to close up to 65 domestic specialty retail locations (net of openings) in 1999. Of these closings, approximately 50 are related to the Company's decision to close all 63 of its 9 & Co. stores in operation at January 30, 1999. The Company intends to close the remaining 9 & Co. stores in 2000. The following table summarizes selected aspects of the Company's domestic specialty retail stores: Enzo cK/Calvin Nine West Easy Spirit Angiolini 9 & Co. Klein --------- ----------- --------- ------- ---------- Number of 281 224 81 63 6 locations Brands offered Nine West Easy Spirit Enzo 9 & Co. cK/Calvin and, in Angiolini Klein selected and, in locations, selected Bandolino locations, Evan-Picone and Nine West Retail price $59 to $170 $45 to $125 $60 to $165 $30 to $89 $65 to $295 range of shoes and boots Retail price $18 to $79 $22 to $99 $15 to $200 $12 to $35 $20 to $200 range of handbags and small leather goods Type of Upscale and Upscale and Upscale malls Regional Upscale malls locations regional regional and urban malls and malls and malls and retail centers urban retail urban retail urban retail centers centers centers Average store size (in square 1,563 1,380 1,344 1,539 1,824 feet) Revenues per square foot $455 $422 $470 $306 $408 during 1998(a) (a) Revenues per square foot are determined by dividing total retail net revenues by the annual average gross retail square footage.
DOMESTIC VALUE-BASED RETAIL OPERATIONS The Company's domestic value-based retail stores are operated by the Company's Value-Based Retail Stores division under the following names: Nine West Outlet, Easy Spirit Outlet and Banister. This division also operates leased departments in Stein Mart stores. The outlet concept was implemented by the Company in order to target more value-oriented retail customers and to offer a distribution channel for its residual inventories. In 1998, 25% to 30% of the Nine West Outlet stores' merchandise consisted of discontinued styles from the Company's specialty retail stores and the Company's wholesale operations, with the remainder of the merchandise consisting of new production of current and proven prior season's styles. Banister and Stein Mart stores carry the Company's brands of women's footwear and a limited selection of other suppliers' women's and men's dress, casual and athletic footwear. The Easy Spirit Outlet stores sell primarily the Easy Spirit brand and focus on the size, width and comfort business with a selection of Selby styles in selected stores. The Company plans to close up to 10 domestic value-based retail locations (net of openings) in 1999. This division also operates the Company's temporary clearance centers. The following table summarizes selected aspects of the Company's domestic value-based retail stores: Nine Easy West Spirit Outlet(a) Outlet Banister Stein Mart ------ ------ -------- ---------- Number of 164 35 129 86 locations Brands offered Primarily Easy Spirit All Company All Company Nine West and Selby brands brands Retail price range $25 to $100 $25 to $80 $25 to $90 $25 to $90 of shoes and boots Type of locations Mfr's outlet Mfr's outlet Mfr's outlet Strip centers centers centers centers Average store size 2,645 2,432 4,553 2,794 (in square feet) Revenues per square $322 $259 $181 $174 foot during 1998 (b) (a) Includes 10 Enzo Angiolini Outlet stores in operation at January 30, 1999, which carry primarily the Enzo Angiolini brand at retail prices ranging from $25 to $100 and are located in manufacturers' outlet centers. The Company does not currently plan to expand the number of Enzo Angiolini Outlet stores. (b) Revenues per square foot are determined by dividing total retail net revenues by the annual average gross retail square footage.
DOMESTIC RETAIL OPENINGS The Company's ongoing evaluation of its retail operations has led to a decision to grow its retail network at a slower pace by applying rigorous standards to all retail location opening and closing decisions. As a result, the Company plans to open 25 to 30 domestic specialty and value-based retail locations in 1999 (excluding closings). Proposed sites for the Company's retail stores are selected based on location, including the area's population density and level of traffic, average sales per square foot of the shopping mall, urban retail center or manufacturers' outlet center locations, average household income and other local demographics. Outlet stores generally are located outside the shopping radius of the Company's wholesale customers and its specialty retail stores. The types of stores opened by the Company and the results generated by such stores depend on various factors, including, among others, general economic and business conditions affecting consumer spending, the performance of the Company's wholesale and retail operations, the acceptance by consumers of the Company's retail concepts, the availability of desirable locations and the ability of the Company to negotiate acceptable lease terms for new locations, hire and train personnel and otherwise manage such expansion. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for additional information regarding planned store openings and capital expenditures. INTERNATIONAL SEGMENT In 1995, the Company organized an international division for the purpose of promoting sales growth of the Company's products. The Company's international division derives its revenues primarily from the operation of retail locations, and sells footwear and, in some cases, accessories, under certain of the Company's brand names. Certain of the Company's Pied a Terre locations offer clothing. The Company currently markets its products to customers in more than 55 countries, including Australia, Canada, Chile, China, France, Hong Kong, Japan, Malaysia, Mexico, Singapore, Taiwan, Thailand and the United Kingdom. The Company operated 430 specialty retail locations internationally (146 specialty retail stores and 284 specialty retail concessions) at the end of 1998, including 228 in the United Kingdom, 25 in Canada and 8 in France. Of those 430 specialty retail locations, the Company operated 169 specialty retail locations through joint ventures in Australia (28), Japan (43), Hong Kong (25), Malaysia (3), Singapore (5), Taiwan (51) and Thailand (14). During 1998, the Company acquired 25 specialty retail stores in the United Kingdom and opened (net of closings) 57 specialty retail locations in Asia, Australia, Canada and Europe. As a result of the Company's decision to grow its retail network at a slower pace, the Company plans to open up to 15 additional international retail locations (net of closings) in 1999. Consistent with this policy, the Company intends to expand its international retail presence through both retail location openings and, subject to the Company's ability to find acceptable partners, various cooperative arrangements with established retailers. However, the Company presently has no commitments to expand into any country other than those in which it currently operates. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for additional information regarding planned store openings and capital expenditures. The following table summarizes selected aspects of the Company's international retail locations: Easy Enzo cK/Calvin Pied a Nine West Spirit Angiolini Klein Terre Shoe Studio --------- ------ --------- --------- ------ ----------- Number of 189 3 17 16 36 169 locations Brands Primarily Easy Primarily cK/Calvin Pied a Bertie, Roland offered Nine West Spirit Enzo Klein Terre and Cartier, Roberto and Selby Angiolini a selection Vianni, Vivaldi, of cK/Calvin Nine West and Klein a selection of other brands Retail price range of shoes $40 to $155 $80 to $130 $65 to $160 $90 to $240 $100 to $280 $35 to $92 and boots (in U. S. dollars) Type of Upscale and Regional Department Department Urban retail Department locations regional malls store store locations, store concessions malls, urban concession concessions regional malls retail and upscale and upscale and department locations and malls malls store concessions department store concessions Average store size (in 964 1,337 524 691 1,015 1,582 square feet) Revenues per square foot $517 $186 $474 $577 $777 $477 during 1998 (a) (a) Revenues per square foot are determined by dividing total retail net revenues by the annual average gross retail square footage.
DESIGN Separate design teams for each branded division (which are staffed with a line builder, one or two designers and, in some cases, a fashion director) develop the Company's brands by independently interpreting global lifestyle, clothing, footwear and accessories trends. To research and confirm such trends, the teams: (1) travel extensively in Asia, Europe and major American markets; (2) conduct extensive market research on retailer and consumer preferences; and (3) subscribe to fashion and color information services. Each team separately develops between 60 and 300 initial designs for each season and, working closely with senior management, selects 20 to 110 styles that maintain each brand's distinct personality. Samples are refined and then produced. After the samples are evaluated, lines are modified further for presentation at each season's shoe shows. MANUFACTURING The Company relies on its long-standing relationships with its Brazilian and Chinese manufacturers working through its independent buying agents, its own factories, and other third party manufacturers in other countries, to provide a steady source of inventory. Allocation of production among the Company's footwear manufacturing resources is determined based upon a number of factors, including manufacturing capabilities, delivery requirements and pricing. During 1998, approximately 50% of the Company's footwear products were manufactured by more than 15 independently owned footwear manufacturers in Brazil. As a result of the number of entrepreneurial factory owners, the highly skilled labor force, the modern, efficient vertically-integrated factories and the availability of high-quality raw materials, the Brazilian manufacturers are able to produce significant quantities of moderately priced, high-quality leather footwear. The largest of these Brazilian factories operate tanneries for processing leather and produce lasts, heels and other footwear components as well as finished goods, and source raw materials worldwide based on input from the Company. The Company believes that its relationships with its Brazilian manufacturers provide it with a responsive and active source of supply of its products and, accordingly, give the Company a significant competitive advantage. The Company also believes that purchasing a significant percentage of its products in Brazil allows it to maximize production flexibility while limiting its capital expenditures, work-in-process inventory and costs of managing a larger production work force. Because of the sophisticated manufacturing techniques and vertical integration of these manufacturers, individual production lines can be quickly changed from one style to another, and production of certain styles can be completed in as few as four hours, from uncut leather to boxed footwear. Historically, instability in Brazil's political and economic environment has not had a material adverse effect on the Company's financial condition or results of operations. The Company cannot predict, however, the effect that future changes in economic or political conditions in Brazil could have on the economics of doing business with its Brazilian manufacturers. Although the Company believes that it could find alternative manufacturing sources for those products which it currently sources in Brazil, the establishment of new manufacturing relationships would involve various uncertainties, and the loss of a substantial portion of its Brazilian manufacturing capacity before the alternative sourcing relationships were fully developed could have a material adverse effect on the Company's financial condition or results of operations. However, the Company has manufacturing operations in the United States and the Dominican Republic and additional relationships in China and other countries as potential alternative sources for its products. The Company currently owns and operates two domestic footwear manufacturing factories and one component factory which, during 1998, manufactured collectively approximately 8% of all footwear products sold by the Company. During 1998, as part of its continuing program of consolidating operations and optimizing its global sourcing activities in order to reduce overall product cost, the Company closed one domestic manufacturing factory and substantially completed the reconfiguration and integration of certain operations at its three remaining domestic factories, which reduced annual domestic footwear production capacity from approximately 5.0 million pairs to approximately 3.0 million pairs. See "Item 2 - Properties" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." The Company's footwear manufacturing factories can produce different styles on the same line to increase flexibility and respond to various demands. The domestic factories source raw materials worldwide, including from the Company's vendors in Brazil. These factories typically operate with two shifts but can expand to three when demand is high. The Company also leases and operates two factories in the Dominican Republic which produce primarily the upper components used by the Company's domestic factories. The Company discontinued use of a leased component factory in Honduras in February 1999. The Company's footwear is also manufactured by independent third parties located in China (approximately 26%) and, to a lesser extent, Korea and other countries in the Far East, and in Italy, Spain and Uruguay. The Company's accessories are sourced through the Company's own buying offices in Korea and Hong Kong, which utilize independent third party manufacturers in China and Indonesia. The price paid by the Company for any style of footwear is determined after a physical sample of the style is produced, and is dependent on, among other things, the materials used and the quantity ordered for such style of footwear. Once a price list by style has been prepared and agreed to with a manufacturer, changes in prices generally occur only as a result of substitution of materials at the request of the Company. During the past year, there have been moderate increases in the general price of leather, which have generally been reflected in the selling price of the Company's products. Products have historically been purchased from the Brazilian and Asian manufacturers in pre-set United States dollar prices, and therefore, the Company generally has not been adversely affected by fluctuations in exchange rates. However the Company anticipates that in 1999, it will benefit from the devaluation of the Brazilian real that began in January 1999. The Company places its projected orders for each season's styles with its manufacturers prior to the time the Company has received all of its customers' orders. Because of the Company's close working relationships with its third party manufacturers (which allow for flexible production schedules and production of large quantities of footwear within a short period of time), most of the Company's orders are finalized only after it has received orders from a majority of its customers. As a result, the Company believes that, in comparison to its competitors, it is better able to meet sudden demands for particular designs, more quickly exploit market trends as they occur, reduce inventory risk and more efficiently fill reorders booked during a particular season. The Company does not have any contracts with any of its manufacturers but, with respect to footwear imported from Brazil, relies on its long-standing relationships with its Brazilian manufacturers directly and through its independent buying agent, Bentley Services Inc. (the "Agent"). The Agent and its affiliates have overseen the activities of the Brazilian manufacturers for more than 15 years. In consultation with the Company, the Agent selects the proper manufacturer for the style being produced, monitors the manufacturing process, inspects finished goods and coordinates shipments of finished goods to the United States. The Company entered into a five-year contract with the Agent effective January 1, 1992, which has been extended for an additional five years, which provides that the Agent, its owners, employees, directors and affiliates will not act as a buying agent for, or sell leather footwear manufactured in Brazil to, other importers, distributors or retailers for resale in the United States, Canada or the United Kingdom. As compensation for services rendered, the Agent receives a percentage of the sales price of the merchandise shipped to the Company. Paramont Trading S.A., an affiliate of the Agent, serves as the Company's agent in China. In addition to the Agent and Paramont Trading S.A., the Company utilizes its own buying offices in Hong Kong, Italy, Korea and Spain. Neither the Agent or Paramont Trading S.A. nor any of their principals are affiliates of the Company. MARKETING The Company introduces new collections of footwear at industry-wide shoe shows, held four times yearly in New York City and twice yearly in Las Vegas, and at regional shoe shows throughout the year. The Company also introduces new accessory collections at market shows that occur four times each year in New York City. After each show, members of the Company's 127-person direct sales force visit customers to review the lines and take orders. The Company presently has footwear showrooms in New York City and Dallas, an accessories showroom in New York City, and a cK/Calvin Klein Shoes and Bags showroom in New York City, where buyers view and place orders for the Company's products. In addition, licensees show the licensed products within their own showrooms. The Company promotes its business with certain department and specialty retail stores through "concept marketing teams," enabling the Company to bring its retail and sales planning expertise to individual retailers. Concept marketing teams are comprised of members of branded division management who have extensive retail backgrounds and include field merchandising associates who monitor sales of the Company's products. Under this program, the concept marketing teams work with the retailer to create a "focus area" or "concept shop" within the store that displays the full collection of an entire brand in one area. The concept marketing team assists the department and specialty retail stores by: (1) recommending how to display the Company's products; (2) educating the store personnel about the Company and its products; (3) selecting the appropriate product assortment; (4) recommending when a product should be re-ordered or its retail price marked-down; (5) providing sales guidance, including the training of store personnel; and (6) developing advertising programs for the retailers to promote sales of the Company's products. The goal of the concept marketing teams is to promote high retail sell-throughs of the Company's products at attractive profit margins for its retail customers. Through this approach, customers are encouraged to devote greater selling space to the Company's products and the Company is better able to assess consumer preferences, the future ordering needs of its customers and inventory requirements. ADVERTISING AND PROMOTION The Company's brands are positioned and marketed through consistent, integrated communication programs, including national advertising, special events, product packaging and in-store visual support. The Easy Spirit brand is advertised on television and in lifestyle, health and fitness magazines. The Company's in-house creative services department works closely with senior management and oversees the conception, production and execution of virtually all aspects of these activities. The Company also participates in cooperative advertising programs in newspapers and magazines with its major wholesale customers and shares the cost of its wholesale customers' advertising based on total purchases. The Company produces national advertising campaigns for its Nine West, Enzo Angiolini, Easy Spirit, 9 & Co. and Pied a Terre brands in major fashion magazines, including Vogue, In Style, Marie Claire, Teen People, Vanity Fair and Elle. In 1998, 1997 and 1996, the Company incurred $42.2 million, $57.7 million and $45.2 million, respectively, of national, cooperative and other advertising expenses. The decrease in advertising expenses in 1998 is attributable primarily to decreased national advertising. Under the Company's license agreement with Calvin Klein, Inc. (the "License Agreement"), the Company has agreed to meet certain thresholds based on Revenues (as defined in the License Agreement) for cooperative, trade and local advertising for the cK/Calvin Klein retail locations, and consumer advertising and promotion of licensed products and the licensed trademark. The Company also believes that its retail network promotes brand name recognition and supports the merchandising of complete lines by, and the marketing efforts of, its wholesale customers. RESTRICTIONS ON IMPORTS Imports into the United States are affected by, among other things, the cost of transportation and the imposition of import duties. The United States, Brazil and other countries in which the Company's products might be manufactured may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duty or tariff levels, which could affect the Company's operations and its ability to import products at current or increased levels. The Company cannot predict the likelihood or frequency of any such events occurring. While the Company is subject to certain duties, it has not been subject to quotas or other import restrictions. The Company's imported products are subject to United States customs duties and, in the ordinary course of its business, the Company may from time to time be subject to claims for duties and other charges. United States customs duties currently incurred by the Company with respect to footwear are 10% of factory cost on footwear made principally of leather and between 6% and 37.5% of factory cost on synthetic footwear. United States customs duties currently incurred by the Company with respect to accessories are between 8% and 10% of factory cost on items made of leather, 19% and 20% of factory cost on items made of synthetic fibers and 7% and 19% of factory cost on items made of natural fibers. During 1998, approximately 86% of the Company's net revenues were derived from the sale of footwear and accessories principally made of leather. DISTRIBUTION The Company utilizes fully integrated information systems to facilitate the receipt, processing and distribution of its merchandise through its domestic distribution centers, which consist of two leased facilities located in West Deptford, New Jersey and one leased facility located in Cincinnati, Ohio. Upon completion of manufacturing, the Company's products are inspected, bar coded, packed and shipped from the manufacturing facilities to the distribution centers. In 1998, ocean freight of imported products manufactured overseas accounted for approximately 92% of the Company's shipments. Warehouse personnel log in shipments utilizing bar codes, which enable easy identification of products and allow the Company's wholesale customers to participate in its "open stock" and "quick response" inventory management programs. The Company's open stock inventory management program allows its wholesale customers to fill their smaller, single or multiple pair reorders in basic sizes and colors, rather than purchasing larger case good quantities. The quick response program generally allows for a 48-hour replenishment with open-stock inventories from the time the order is placed until it is shipped from one of the distribution centers, which utilize inventory sortation systems which enhance the quick response program. Orders for quick response shipments are typically received via electronic data interchange ("EDI"). Although the open stock and quick response programs require the Company to maintain more sizes and widths of footwear than are normally carried in the pre-packaged cases and, therefore, increased inventory levels, these programs give the customer the advantage of carrying smaller inventories and improving inventory turns and customer order fill rates. The Company believes its ability to offer this flexibility to its customers gives it a significant competitive advantage and reduces the incidence of mark-down allowances and returns. The Company utilizes various arrangements for the receipt, processing and distribution of its merchandise internationally. The Company's joint venture companies lease distribution facilities in Hong Kong, Taiwan, Thailand, Singapore and Australia. The Company also utilizes third party warehousing services in the Netherlands, the United Kingdom, Japan and Canada. MANAGEMENT INFORMATION SYSTEMS The Company's management information systems provide, among other things, comprehensive order entry/tracking, production, financial, EDI, distribution, and decision support information for the Company's marketing, manufacturing, importing, accounting and distribution functions. Additionally, the Company's retail information systems provide merchandising/planning, automated replenishment, inventory control, point-of- sale, store performance/tracking, and sales audit functions. The Company has undertaken a comprehensive analysis and remediation program with respect to its information technology systems and other systems and facilities in order to identify the systems that could be affected by the technical problems associated with the year 2000 and to ensure that they will function properly with respect to dates in the year 2000 and thereafter. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Year 2000 Compliance." COMPETITION Competition is intense in the women's footwear and accessories business. The principal elements of competition in the footwear and accessories markets include style, quality, price, comfort, brand loyalty and customer service. The location and atmosphere of retail stores are additional competitive factors affecting the Company's retail operations. The Company's competitors include numerous domestic and foreign manufacturers, importers and distributors of women's footwear and accessories. The Company's primary retail competitors are large national chains, department stores, specialty footwear stores and other outlet stores. The Company believes that its brand recognition, ability to respond quickly to fashion trends, expertise in style and color and understanding of consumer preferences are significant factors in its business. The Company also believes that its ability to deliver quality merchandise in a timely manner is a major competitive advantage. BACKLOG At January 30, 1999, the Company had unfilled wholesale customer orders of approximately $253.8 million compared to $298.8 million at January 31, 1998. The backlog at any particular time is affected by a number of factors, including the scheduling of product shipments and the mix of product and style (open stock or seasonal inventory) orders, as well as customer demand. Backlog is also affected by a continuing trend among customers to reduce the lead time on their orders. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments. CREDIT AND COLLECTION The Company, through its credit department, manages all of its customer credit functions, including extensions of credit, collections and investigations of accounts receivable and chargebacks, and the application of cash and credits. The Company's bad debt expense was 0.3% of net revenues for 1998. PRINCIPAL CUSTOMERS The Company's ten largest wholesale customers represented 37% of gross revenues for 1998. Certain of the Company's wholesale customers are under common ownership. When considered as a group under common ownership, sales to the department store divisions owned by Federated Department Stores, Inc. represented 11%, 12% and 13% of the Company's consolidated net revenues in 1998, 1997 and 1996, respectively. While the Company believes that purchasing decisions have generally been made independently by each department store customer, there is a trend among department stores toward more centralized purchasing decisions. TRADEMARKS AND PATENTS The Company owns federal registrations and/or pending federal applications in the United States Patent and Trademark Office for most of the trademarks and variations thereof that it uses, including Amalfi, Bandolino, Banister, Calico, Cloud 9 Nine West, Cobbie Cuddlers, Easy Spirit, Enzo Angiolini, Joyce, 9 & Co., Nine West, Nine West Kids, NW, Pappagallo, Pied a Terre, Red Cross, Selby, Westies and others. In addition, the Company has entered into worldwide license agreements granting it the exclusive right to produce and sell footwear under the Evan-Picone name (except in Japan), footwear and accessories under the cK/Calvin Klein name and women's footwear under the Capezio name and has been assigned rights under license agreements for the production of various other products under the Capezio name. In addition, the Company owns and/or has pending applications for certain of its trademarks in other countries, including, but not limited to, Australia, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Mexico and the United Kingdom. In the United Kingdom, the Company, through its subsidiary, The Shoe Studio Group Limited, owns registrations for certain trademarks, including Bertie, Roland Cartier, Roberto Vianni and Vivaldi, for use on footwear and/or accessories. The Company regards the trademarks and other proprietary rights that it owns and uses as valuable assets and intends to defend them vigorously against infringement. Most of the registrations for the Company's trademarks are currently scheduled to expire or be canceled at various times between 1999 and 2009; however, trademark registrations can be renewed and maintained if the marks are still in use for the goods and services covered by such registrations. The Company has granted licenses of certain of its trademarks to other companies with respect to the manufacture and marketing of footwear and non- footwear products, including legwear, eyewear, jewelry, children's shoes, outerwear, belts, slippers and watches. The Company also holds numerous patents and has several patent applications pending in the United States Patent and Trademark Office and in certain other countries. EMPLOYEES The Company employs approximately 8,900 full-time and 6,700 part-time employees, 11,800 of whom are employed in the Company's retail stores. Approximately 140 of the Company's 450 distribution employees are represented by labor unions. The Company considers its relationships with its employees and labor unions to be good. ITEM 2. PROPERTIES. The Company's principal executive offices are located in a 366,460 square foot facility in White Plains, New York. The White Plains facility is leased pursuant to a 25-year operating lease which expires in February 2022. The Company is actively seeking to assign or sublet approximately 25% of the space in the White Plains facility. The Company is a party to a lease with respect to 101,179 square feet of office space in Stamford, Connecticut, which served previously as the Company's principal executive offices. The initial term of this lease expires on December 31, 2002. The Company has sublet 45,080 square feet of this space pursuant to a sublease expiring on December 30, 2002 and is actively seeking to assign or sublet the remaining space. Certain of the Company's administrative functions are conducted in a 38,000 square foot facility in St. Louis, Missouri which is owned by the Company. The Company currently leases two distribution facilities in West Deptford, New Jersey comprising 719,466 square feet pursuant to leases having initial terms expiring in 2002 and 2016, and a distribution facility in Cincinnati, Ohio comprising 489,000 square feet pursuant to a lease with an initial term which expires in 2003. The West Deptford facility leases expiring in 2002 and 2016 and the Cincinnati facility lease are each subject to renewal options of one five-year term, six five-year terms and two five- year terms, respectively. The Company's joint venture companies lease distribution facilities in Hong Kong, Taiwan, Thailand, Singapore and Australia. The Company also utilizes third party warehousing services in the Netherlands, the United Kingdom, Japan and Canada for the receipt, processing and distribution of merchandise internationally. The Company believes that these facilities are suitable for its domestic and international distribution needs. The Company currently owns and operates two footwear manufacturing plants and one component plant, with an aggregate of approximately 170,000 square feet of space in Kentucky and Indiana. The Company also leases one machinery parts warehouse with approximately 20,000 square feet of space in Kentucky, an 88,000 square foot raw materials warehouse and product development center in Kentucky and two component plants with a total of approximately 102,000 square feet of space in the Dominican Republic. During 1998, the Company's manufacturing plants operated at approximately 88.0% of optimum production capacity. The Company believes that its manufacturing and component plants are suitable for its domestic production needs. The Company also owns three closed factories in Kentucky and Indiana with an aggregate of approximately 219,000 square feet of space, which the Company intends to sell. The Company operates two showrooms in New York, New York and one in Dallas, Texas with an aggregate of approximately 61,000 square feet of space under leases that expire in 2002, 2003 and 2005. The Company's domestic retail stores are leased pursuant to leases that extend for terms which average ten years. Certain leases allow the Company to terminate its obligations after three years in the event that a particular location does not achieve specified sales volume. Many leases include clauses that provide for contingent payments based on sales volumes, and many leases contain escalation clauses for increases in operating costs and real estate taxes. The Company's international retail locations consist of specialty retail stores and concessions. The retail stores are leased pursuant to leases that extend for terms which range from five to 25 years. The concessions are located in Europe and Asia and are operated pursuant to either leases with certain department stores or other arrangements with third parties which are generally cancelable upon between one to six months' notice by either party. Rental payments for certain specialty retail concessions are based solely on percentage of sales volume. ITEM 3. LEGAL PROCEEDINGS. The Federal Trade Commission is currently conducting an inquiry with respect to the Company's resale pricing policies to determine whether the Company violated the federal antitrust laws by agreeing with others to restrain the prices at which retailers sell footwear and other products marketed by the Company. In addition, Attorneys General from the States of Florida, New York, Ohio and Texas are conducting similar inquiries. Since January 13, 1999, more than 25 putative class actions have been filed on behalf of purchasers of the Company's footwear in three separate federal courts alleging that the Company violated Section 1 of the Sherman Act by engaging in a conspiracy with its retail distributors to fix the minimum prices at which the footwear marketed by the Company was sold to the public. All of these class action complaints have been consolidated into a single action in the United States District Court for the Southern District of New York and seek injunctive relief, unspecified compensatory and treble damages, and attorneys' fees. In addition, five putative class actions based on the same alleged conduct have been filed in state courts in New York, the District of Columbia, Wisconsin, California and Minnesota alleging violations of those states' respective antitrust laws. The five state actions likewise seek injunctive relief, unspecified compensatory and treble damages, and attorneys' fees. Based on the short period of time that has elapsed since the inception of the inquiries and the filing of the lawsuits, the Company's existing policies relating to resale pricing and the limited information available to the Company with respect to compliance with those policies, the Company does not anticipate that the inquiries or lawsuits will result in a material adverse financial effect on the Company. On March 3, 4 and 5, 1999, four purported stockholder class action suits were filed against the Company, the members of the Company's Board of Directors and Jones in the Delaware Court of Chancery. These complaints allege, among other things, that the defendants have breached their fiduciary duties to Company stockholders by failing to maximize stockholder value in connection with entering into the Merger Agreement. The complaints seek, among other things, an order enjoining completion of the merger. The Company and Jones believe that the complaints are without merit and plan to defend vigorously against the complaints. On May 1, 1997, the Company learned that on April 10, 1997, the United States Securities and Exchange Commission (the "SEC") entered a formal order of investigation of the Company. Based on conversations with the staff of the SEC, the Company believes that this investigation was primarily focused on the revenue recognition policies and practices of certain of the Company's divisions that were acquired from U.S. Shoe in 1995. On October 29, 1997, the Company received a subpoena issued by the SEC in connection with its investigation requesting the Company to produce certain documents relating to the purchase by the Company of products manufactured in Brazil from 1994 to date, including documents concerning the prices paid for such products and the customs duties paid in connection with their importation into the United States. On February 1, 1999, the SEC informed the Company that its investigation had been terminated with no enforcement action being recommended against the Company. In addition, on October 29, 1997, the Company learned that the United States Customs Service had commenced an investigation of the Company relating to the Company's importation of Brazilian footwear from 1995 to date. On April 14, 1998, the United States Customs Service informed the Company that such investigation had been terminated with no action taken against the Company. The Company has been named as a defendant in various actions and proceedings, including actions brought by certain terminated employees, arising from its ordinary business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse financial effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. COMMON STOCK PRICE RANGE AND DIVIDEND POLICY The common stock of the Company ( the "Common Stock") is listed and trades on the New York Stock Exchange ("NYSE"). The following table sets forth the high and low closing sales prices per share for the Common Stock, as reported on the NYSE Composite Tape, for the end of each quarter of the last two years. HIGH LOW ---- --- FIFTY-TWO WEEKS ENDED JANUARY 31, 1998 Thirteen weeks ended May 3, 1997................ $52-3/8 $39-1/4 Thirteen weeks ended August 2, 1997 .......... 41-3/4 32-1/2 Thirteen weeks ended November 1, 1997 ......... 43-5/16 34-5/16 Thirteen weeks ended January 31, 1998 ......... 35-3/4 25-5/8 FIFTY-TWO WEEKS ENDED JANUARY 30, 1999 Thirteen weeks ended May 2, 1998................ $29-7/16 $23-1/2 Thirteen weeks ended August 1, 1998 ......... 29 22-5/16 Thirteen weeks ended October 31, 1998 ......... 22-1/4 7-7/16 Thirteen weeks ended January 30, 1999 ......... 16 11-1/4 As of April 16, 1999, there were 225 holders of record of the Common Stock. The Company has not paid (since its initial public offering in February 1993 (the "Offering")), and does not currently intend to pay in the immediate future, cash dividends on its Common Stock. Subject to compliance with certain financial covenants set forth in the Company's credit agreement and the indentures with respect to the Company's outstanding debt securities (See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources") and restrictions contained in any future financing agreements, the payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. ITEM 6. SELECTED FINANCIAL DATA. The following selected balance sheet and income statement information for the last two and three years, respectively, has been derived from the Consolidated Financial Statements of the Company audited by Deloitte & Touche LLP, independent auditors, whose report thereon appears elsewhere in this report. The balance sheet information for 1996 and the selected financial data for 1995, for the transition period from January 1, 1995 through January 28, 1995 and for 1994 have been derived from the audited (unless noted otherwise) financial statements of the Company, not presented herein. This information should be read in conjunction with and is qualified by reference to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this report. Transition 52 Weeks 52 Weeks 52 Weeks 53 Weeks Period Ended Ended Ended Ended January 1 to Year Ended January 30 January 31 February 1 February 3 January 28 December 31 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- INCOME STATEMENT DATA (a) (in thousands except retail operating data and per share data) Net revenues..................................... $1,916,707 $1,865,318 $1,603,115 $1,258,630 $ 42,539 $652,457 Cost of goods sold............................... 1,126,860 1,063,581 913,946 720,963 24,582 364,533 Purchase accounting adjustments to cost of goods sold (b)....................................... - - - 34,864 - - ---------- ---------- ---------- --------- -------- -------- Gross profit................................... 789,847 801,737 689,169 502,803 17,957 287,924 Selling, general and administrative expenses (c). 651,601 609,991 479,284 381,021 16,402 178,916 Business restructuring expenses (d).............. 12,619 - 18,970 51,900 - - Amortization of acquisition goodwill and other intangibles.................................... 10,778 9,648 9,562 6,637 - - ---------- ---------- ---------- -------- -------- -------- Operating income from continuing operations.... 114,849 182,098 181,353 63,245 1,555 109,008 Interest expense................................. 53,467 54,014 41,947 29,611 - 2,199 ---------- ---------- ---------- -------- -------- -------- Income from continuing operations before income taxes................................. 61,382 128,084 139,406 33,634 1,555 106,809 Income tax expense............................... 23,937 49,953 55,762 14,658 614 42,919 ---------- ---------- ---------- -------- -------- -------- Income from continuing operations before extraordinary item........................... $ 37,445 $ 78,131 $ 83,644 $ 18,976 $ 941 $ 63,890 ========== ========== ========== ======== ======== ======== Net income (e)................................. $ 40,368 $ 78,131 $ 81,008 $ 18,976 $ 941 $ 63,890 ========== ========== ========== ======== ======== ======== Weighted average common shares: Basic shares outstanding..................... 35,159 35,836 35,647 35,011 34,655 34,555 Diluted shares outstanding................... 35,163 39,462 38,554 35,707 Earnings per share: (f) Basic income from continuing operations before extraordinary item.................. $ 1.07 $ 2.18 $ 2.35 $ 0.54 $ 0.03 $ 1.85 ========== ========== ========== ========= ========= ======== Basic net income............................. $ 1.15 $ 2.18 $ 2.27 $ 0.54 $ 0.03 $ 1.85 ========== ========== ========== ========= ========= ======== Diluted income from continuing operations before extraordinary item.................. $ 1.07 $ 2.15 $ 2.27 $ 0.53 ========== ========== ========== ========= Diluted net income........................... $ 1.15 $ 2.15 $ 2.21 $ 0.53 ========== ========== ========== ========= January 30 January 31 February 1 February 3 December 31 1999 1998 1997 1996 1994 BALANCE SHEET DATA ---- ---- ---- ---- ---- Working capital.................................. $ 450,211 $ 589,377 $ 491,674 $ 297,312 $170,015 Total assets..................................... 1,217,129 1,391,539 1,261,063 1,160,092 302,791 Long-term debt................................... 510,804 687,263 600,407 471,000 2,400 Stockholders' equity............................. $ 458,064 $ 438,848 $ 360,540 $ 328,326 $234,627 RETAIL OPERATING DATA (unaudited) Retail locations open at end of period: Nine West...................................... 281 293 285 268 229 Easy Spirit.................................... 224 219 167 131 - 9 & Co......................................... 63 74 79 63 43 Enzo Angiolini................................. 81 79 66 54 34 cK/Calvin Klein................................ 6 3 - - - ----- ----- ----- --- --- Total mall-based............................. 655 668 597 516 306 ----- ----- ----- --- --- Nine West outlet (g)........................... 164 158 141 123 100 Easy Spirit outlet............................. 35 35 19 11 - Banister....................................... 129 142 138 142 - Stein Mart..................................... 86 108 82 67 - ----- ----- ----- --- --- Total value-based............................ 414 443 380 343 100 ----- ----- ----- --- --- Total domestic............................. 1,069 1,111 977 859 406 International.............................. 430 348 84 29 4 ----- ----- ----- --- --- Total.................................... 1,499 1,459 1,061 888 410 ===== ===== ===== === === Revenues per square foot: (h) Nine West...................................... $ 455 $ 497 $ 529 $ 543 $ 581 Easy Spirit.................................... 422 487 538 495 - 9 & Co......................................... 306 319 308 322 293 Enzo Angiolini................................. 470 527 571 552 539 cK/Calvin Klein................................ 408 - - - - Nine West outlet (g)........................... 322 349 367 359 361 Easy Spirit outlet............................. 259 235 195 210 - Banister....................................... 181 178 162 166 - Stein Mart..................................... 174 176 171 179 - International.................................. $ 507 $ 602 $ 774 $ 842 $ - Square footage of gross space at end of period... 2,825,976 2,820,169 2,248,988 1,985,270 691,338 (footnotes follow)
NOTES: (a) On May 23, 1995, the Company consummated its acquisition (the "Acquisition") of the footwear business of The United States Shoe Corporation (the "Footwear Group"). Income statement data for 1998, 1997 and 1996 is not comparable to the prior years, as such information: (1) reflects 52-week periods (364 days) ended January 30, 1999, January 31, 1998 and February 1, 1997 while 1995 reflects a 53-week period (371 days) ended February 3, 1996 and 1994 is a 365-day period; and (2) includes the results of operations of the Footwear Group during the full 52-week period, while such Footwear Group results are only included in the 1995 period for the 37-week period from May 23, 1995 through February 3, 1996 and are excluded from all periods prior to the Acquisition. The transition period was created due to the change in the Company's fiscal year. (b) Reflects a $34.9 million pre-tax non-recurring increase in cost of goods sold, attributable to the fair value of inventory over FIFO cost, recorded as a result of the Acquisition. (c) The fourth quarters of 1998 and 1997 include pre-tax charges of $3.7 million and $6.3 million, respectively, for severance and other costs related to the reduction of corporate positions. Additionally, during the fourth quarter of 1998 the Company recognized a $12.3 million pre-tax curtailment gain under the provisions of SFAS No. 88, "Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and Termination Benefits." See "Employee Benefit Plans" in the Notes to Consolidated Financial Statements. (d) Represents business restructuring and integration expenses associated primarily with the restructuring of the Company's manufacturing operations and the decision to close the Company's 9 & Co. retail stores in 1998, the restructuring of North American manufacturing facilities in 1996 and with the integration of the Footwear Group into the Company in 1995. See "Business Restructuring Charges" in the Notes to Consolidated Financial Statements. (e) 1998 includes a $2.9 million after-tax extraordinary gain on early extinguishment of debt. See "Extraordinary Item" in the Notes to Consolidated Financial Statements. 1996 includes a $2.6 million after-tax loss on disposal of discontinued operation. See "Loss on Disposal of Discontinued Operation" in the Notes to Consolidated Financial Statements. (f) Diluted weighted average common shares and common share equivalents reflect the impact of common stock equivalents, including outstanding stock options and the convertible notes issued in June 1996. The calculation of diluted earnings per share excludes the impact of antidilutive common stock equivalents. (g) Includes 10 Enzo Angiolini Outlet stores in operation at January 30, 1999, which carry primarily the Enzo Angiolini brand. (h) Revenues per square foot are determined by dividing total retail net revenues by the annual average gross retail square footage. Revenues per square foot for 1995 with respect to those retail concepts operated by the Footwear Group (i.e., Easy Spirit, Easy Spirit Outlet, Banister and Stein Mart), are based upon pro forma revenues as though the Acquisition was consummated at the beginning of 1995. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the notes thereto contained elsewhere in this report. The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective for 1998. The Company's operations are comprised of domestic wholesale, domestic retail and international segments. The Company identifies operating segments based on, among other things, the way that the Company's management organizes the components of the Company's business for purposes of allocating resources and assessing performance. As a result, the following discussion and analysis of net revenues, gross profit and selling, general and administrative expenses is based on the operating results of those segments, and reclassifications have been made to certain prior year net revenues amounts to conform to the current year presentation. RESULTS OF OPERATIONS Net income for 1998 was $40.4 million, or $1.15 per share on a diluted basis, compared to net income of $78.1 million, or $2.15 per share on a diluted basis, for 1997 and $81.0 million, or $2.21 per share on a diluted basis, for 1996. Results for 1998 include an extraordinary after-tax gain of $2.9 million related to the Company's repurchase of $31.0 million face amount of its 9.0% Series B Senior Subordinated Notes due August 15, 2007 (the "Senior Subordinated Notes"), and $4.0 million face amount of its 8-3/8% Series B Senior Notes due August 15, 2005 (the "Senior Notes" and, together with the Senior Subordinated Notes, the "Notes"), at a discount (the "Note Repurchase Gain"). Results for 1996 include a $2.6 million after-tax loss on disposal of discontinued operation related to the Company's former Texas Boot division. Income from continuing operations before extraordinary gain for 1998 was $37.4 million, or $1.07 per share on a diluted basis and $83.6 million, or $2.27 per share on a diluted basis, for 1996. Over the past several years, the Company has undertaken a critical evaluation of all facets of its business and operations. Resulting from this ongoing evaluation were decisions that led to the following charges: (1) a pre-tax charge of $18.0 million recorded in the fourth quarter of 1998, including inventory write-downs of $5.4 million recorded as a component of cost of goods sold, related to the restructuring of the Company's manufacturing operations and the Company's decision to close its 9 & Co. retail stores (the "1998 Restructuring Charge"); and (2) pre-tax charges of $3.7 million and $6.3 million for severance and other costs related to the reduction of executive, administrative and staff positions during the fourth quarters of 1998 (the "1998 Severance Charge") and 1997 (the "1997 Severance Charge"), respectively. See "-- Liquidity and Capital Resources." The 1998 Restructuring Charge related to costs associated with: (1) the closure of one domestic manufacturing facility and one Caribbean-based component facility, and the reconfiguration and integration of certain operations at three other domestic manufacturing facilities (the "Manufacturing Restructuring"); and (2) the Company's decision to close all 63 9 & Co. stores in operation at January 30, 1999. The major components of the 1998 Restructuring Charge were: (1) asset write-downs of $12.9 million; (2) lease termination and facility closure costs of $3.5 million; and (3) severance and termination benefit costs of $1.6 million. During the fourth quarter of 1998, the Company substantially completed the activities associated with the Manufacturing Restructuring. The Company anticipates that it will close approximately 50 of the 63 9 & Co. stores during 1999, and close the remaining 9 & Co. stores during 2000. During the fourth quarter of 1998, charges against the 1998 Restructuring Charge accrual related to these actions included $12.9 million in asset write-downs and $0.2 million in severance and termination benefit payments. The initiatives outlined in the 1998 Restructuring Charge are expected to affect approximately 1,260 employees, of which 640 are manufacturing positions, 580 are 9 & Co. retail employees and 40 are managerial employees. Total severance and termination benefit costs associated with these initiatives are estimated to be $2.9 million, of which $1.6 million was included in the 1998 Restructuring Charge and $0.8 million was related to benefits provided by the Company's existing severance plans. The remaining $0.5 million is related to the 9 & Co. store closures and will be expensed as incurred. As of January 30, 1999, approximately 634 manufacturing and 36 managerial position eliminations were completed with $0.4 million in severance and termination benefit costs being charged against the existing severance plan liability. The severance and termination benefit payments associated with the 1998 Restructuring Charge will be substantially completed during 1999. NET REVENUES Net revenues were $1.92 billion in 1998, an increase of $51.4 million, or 2.8%, compared to net revenues of $1.87 billion in 1997. Domestic wholesale net revenues decreased by $29.7 million, or 3.3%, primarily due to heavy promotional pricing activity resulting from weakness in consumer demand in the domestic retail footwear market. This decrease was partially offset by an increase in net revenues from the Company's domestic wholesale accessories business of $37.3 million, or 63.0%. Net revenues from domestic retail operations decreased $0.5 million, or 0.1%, due primarily to a comparable store sales decrease of $47.1 million, or 6.7%, which reflects decreased net revenues for stores in operation during both 1998 and 1997, and by decreased net revenues from 99 and 46 retail locations closed in 1998 ($14.3 million) and 1997 ($14.5 million), respectively. Domestic comparable store sales decreased due to the weakness in consumer demand in the domestic retail footwear market noted above. These decreases were offset by an increase in net revenues attributable to increased net revenues from 57 and 180 stores opened in 1998 ($19.0 million) and 1997 ($48.6 million), respectively, and by additional net revenues from the Company's temporary clearance centers ($7.8 million). International net revenues, derived primarily in Western Europe, Asia, Canada and Australia, increased $81.6 million, or 37.8%, primarily due to increased net revenues from 82 retail locations opened or acquired (net of closings) in 1998 ($98.2 million). This increase was partially offset by a comparable store sales decrease of 9.2% ($15.1 million), and decreased international wholesale net revenues ($1.5 million) due to weakness in the international retail footwear market. Net revenues were $1.87 billion in 1997, an increase of $262.2 million, or 16.4%, compared to net revenues of $1.60 billion in 1996. Domestic wholesale net revenues increased by $22.7 million, or 2.6%, primarily due to the impact of the Company's cK/Calvin Klein Shoes and Bags division ($33.3 million), which did not have revenues during the comparable 1996 period, and increased net revenues from the Company's domestic wholesale accessories business of $16.5 million, or 38.6%. These increases were partially offset by net revenue decreases in certain of the Company's other domestic wholesale divisions, primarily due to weakness in consumer demand in the retail environment, which resulted in heavy promotional pricing activity. Additionally, during the second half of 1997, the Company's domestic wholesale net revenues were negatively impacted by untimely introduction of key fashion footwear styles, and selected styles within certain of the Company's key brands not being priced competitively. Net revenues from domestic retail operations increased $62.3 million, or 9.1%, primarily due to the opening (net of closings) of 134 retail locations in 1997 ($42.8 million) and increased net revenues from 143 stores opened (net of closings) in 1996 ($38.6 million). These increases were offset by a decrease in net revenues attributable to the closing of the Burlington Leased Departments and 25 Banister stores in 1996 ($13.7 million) and a 0.9% decrease in comparable store sales ($5.4 million) due to the same factors adversely affecting domestic wholesale revenues during the period. International net revenues increased $177.2 million, or 457.4%. This increase was primarily due to the opening or acquisition (net of closings) of 264 retail locations ($124.0 million), a comparable store sales increase of 8.2% ($7.5 million), and increased international wholesale net revenues ($45.7 million). During 1998, 1997 and 1996, retail net revenues accounted for 51.8%, 48.8% and 44.6% of the Company's consolidated net revenues, respectively, while wholesale net revenues accounted for the remaining 48.2%, 51.2% and 55.4%, respectively. International net revenues, which are included in the wholesale and retail percentages noted above, accounted for 15.5%, 11.6% and 2.4% of the Company's consolidated net revenues during 1998, 1997 and 1996, respectively. GROSS PROFIT 1998 gross profit was $789.8 million, a decrease of $11.9 million, or 1.5%, compared to gross profit of $801.7 million in 1997. Gross profit as a percentage of net revenues was 41.2% for 1998 and 43.0% for 1997. The decrease in gross profit as a percentage of net revenues was due primarily to decreased gross margins in the Company's domestic retail and domestic wholesale businesses resulting from the weakness in consumer demand in the domestic retail footwear market which resulted in excess inventory and heavy promotional pricing activity. The negative impact of these factors on gross profit margin was partially offset by a greater percentage of the Company's net revenues being derived from its retail operations, which produce greater gross profit margins than the Company's wholesale operations, due primarily to growth in the Company's international business, which is primarily retail. 1997 gross profit was $801.7 million, an increase of $112.5 million, or 16.3%, compared to gross profit of $689.2 million in 1996. Gross profit as a percentage of net revenues was 43.0% for both 1997 and 1996. 1997 gross profit margins were positively impacted by a greater percentage of the Company's net revenues being derived from its retail operations, including growth in the Company's international business. Gross profit margin was impacted negatively by heavy promotional pricing activity in both the Company's domestic wholesale and retail businesses as a result of overall softness in the domestic retail environment and by the downturn of the Asian economy. During 1998, 1997 and 1996, there were moderate increases in the general price of leather, which have generally been reflected in the selling price of the Company's products. While the Company is not in a position to reasonably anticipate or predict how changes in labor, leather, and other raw material prices will ultimately impact the Company's gross profit margins in the future, the Company anticipates that such increases will be reflected in the selling price of the Company's products, to the extent possible under economic and competitive conditions prevailing at the time. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A expenses were $651.6 million in 1998, compared to $610.0 million in 1997, an increase of $41.6 million, or 6.8%, and expressed as a percentage of net revenues, increased to 34.0% for 1998 from 32.7% in 1997. The increase in SG&A expenses as a percentage of net revenues is due primarily to the continued shift in the sales mix in both the Company's domestic and international businesses towards retail operations, which carry overall higher SG&A margins than wholesale operations, and higher domestic and international retail SG&A margins due to an increase in fixed costs as a percentage of net revenues resulting from the decrease in comparable store sales. The negative impact of these factors on SG&A margins was partially offset by reduced corporate compensation expense due primarily to a $12.3 million gain recognized as a result of the curtailment of the Company's pension plan and to the reduction of corporate staff associated with the 1997 Severance Charge, and reduced advertising and promotional expenses in both the Company's domestic wholesale and domestic retail segments. SG&A expenses were $610.0 million in 1997, compared to $479.3 million in 1996, an increase of $130.7 million, or 27.3%, and expressed as a percentage of net revenues, increased to 32.7% for 1997 from 29.9% in 1996. The increase in SG&A expenses as a percentage of net revenues is due primarily to a shift in the sales mix towards retail operations, which carry overall higher SG&A margins than wholesale operations. Additionally, during 1997 the Company incurred higher domestic wholesale SG&A margins due primarily to costs associated with the expansion of the Company's cK/Calvin Klein Shoes and Bags division and higher advertising and promotional expenses related to the Company's expanded marketing plan, partially offset by a reduction in bonus expense as compared to the prior period, and incurred higher domestic retail SG&A margins due to an increase in fixed costs as a percentage of net revenues resulting from the decrease in comparable store sales, and higher expenses associated with an expansion of the Company's marketing plan. The negative impact of these factors on SG&A margin was partially offset by reduced corporate compensation expense due primarily to activities associated with the 1996 Restructuring Charge and the Integration Charge. INTEREST EXPENSE Interest expense was $53.5 million in 1998 compared to $54.0 million in 1997, a decrease of $0.5 million, or 1.0%. This decrease relates primarily to the decrease in weighted average debt outstanding, partially offset by an increase in weighted average interest rates. Weighted average debt outstanding was approximately $620.0 million during 1998 and $690.0 million during 1997. The decrease in weighted average debt in 1998 is attributable primarily to the increase in cash provided by operating activities and to additional factors impacting working capital. Weighted average interest rates were 7.4% and 6.9% in 1998 and 1997, respectively. The increase in the weighted average interest rate in 1998 is primarily attributable to the refinancing of the Company's debt at the end of the second quarter of 1997. Interest expense was $54.0 million in 1997 compared to $41.9 million in 1996, an increase of $12.1 million, or 28.9%. This increase relates primarily to the increase in capital required to finance the expansion of the Company's domestic and international businesses, including expansion through acquisitions and opening of additional retail locations, in addition to higher interest rates during 1997. Weighted average debt outstanding was approximately $690.0 million during 1997 and $560.0 million during 1996. Weighted average interest rates were 6.9% and 6.5% in 1997 and 1996, respectively. The increase in the weighted average interest rate in 1997 is primarily attributable to the refinancing of the Company's $312.0 million quarterly amortizing term loan under the Company's previous credit facility with the net proceeds from the issuance of the Notes (defined below). LIQUIDITY AND CAPITAL RESOURCES The Company relies primarily upon cash flow from operating activities and borrowings under the Company's Credit Agreement (defined below) to finance operations and expansion. Cash provided by operating activities was $215.4 million in 1998, compared to $70.3 million in 1997 and cash used by operating activities of $87.9 million in 1996. The $145.1 million increase in 1998 cash flow from operations as compared to 1997 is due primarily to inventory management improvements, which resulted in a significant decrease in the Company's investment in inventory, and enhancements to the Company's accounts receivable securitization program. 1997 cash flow from operations increased $158.2 million as compared to 1996 due primarily to inventory management improvements, which resulted in a significant decrease in the Company's investment in inventory as compared to 1996, and decreases in cash used by accounts payable and accrued expenses and other liabilities. Working capital was $450.2 million at January 30, 1999, compared to $589.4 million at January 31, 1998, a decrease of $139.2 million. The decrease in working capital is due primarily to a $45.4 million decrease in accounts receivable, including securitized interest in accounts receivable, due primarily to enhancements to the Company's accounts receivable securitization program, an $83.1 million decrease in inventory due primarily to inventory management improvements, and a $32.6 million decrease in prepaid expenses and other current assets. These factors were partially offset by a $20.6 million decrease in accounts payable. Working capital may vary from time to time as a result of seasonal requirements, the timing of factory shipments and the Company's "open stock" and "quick response" wholesale programs. Total cash outlays related to the 1998 Severance Charge are estimated to be $3.7 million and are expected to be paid during 1999. Total cash outlays related to the 1997 Severance Charge are estimated to be $6.3 million, of which $4.9 million was paid during 1998 and $1.4 million will be paid in 1999. Total cash outlays related to the 1998 Restructuring Charge are estimated to be $5.1 million and are to be substantially paid through 2000, with certain lease terminations costs to be paid through 2002. During 1998, $0.2 million of severance and termination benefit costs were paid and recorded against the 1998 Restructuring Charge accrual. In the fourth quarter of 1996, the Company recorded a net pre-tax charge of $19.0 million (the "1996 Restructuring Charge") for costs associated with: (1) the restructuring of North American manufacturing facilities, which involved the closure of three domestic manufacturing facilities and discontinuation or reconfiguration of certain operations at two other domestic manufacturing facilities; (2) the consolidation and relocation of the Company's offices in Stamford, Connecticut and Cincinnati, Ohio to a new facility in White Plains, New York; and (3) the repositioning of the 9 & Co. brand, which involved the evaluation of retail site locations and the closure of fifteen 9 & Co. stores (the "1996 Restructuring Charge"). Total cash outlays related to the 1996 Restructuring Charge were estimated to be $7.5 million and are to be paid through 2000. As of January 30, 1999, total cash outlays recorded against the 1996 Restructuring Charge accrual were $5.6 million, of which $1.8 million and $3.8 million were paid and charged during 1998 and 1997, respectively. Total cash outlays for severance and termination benefit costs associated with the 1996 Restructuring Charge, which relate to benefits provided by the Company's severance plans, were $3.2 million and $5.1 million for 1998 and 1997, respectively. Cash used by investing activities was $25.9 million for 1998, compared to $105.3 million for 1997 and $0.9 million for 1996. Cash used by investing activities during 1998 includes $9.9 million for the purchase of Cable & Co. (UK) Limited, a United Kingdom-based footwear and accessories company, involving 25 retail locations situated primarily in the United Kingdom. Cash used by investing activities during 1997 includes $26.4 million for acquisitions, including the acquisition of The Shoe Studio Group Limited and 52 retail concessions from British Shoe Corporation. Proceeds from the sale of property and equipment during 1998 includes $16.4 million for the sale of certain office and warehouse facilities located in Cincinnati, Ohio, which the Company had acquired in connection with the Acquisition, and during 1996 includes $19.6 million related to the sale and leaseback of the Company's New Jersey distribution facility. Capital expenditures totaled $41.9 million in 1998, $76.2 million in 1997 and $42.8 million in 1996. Capital expenditures related primarily to the Company's retail store expansion and remodeling programs in 1998 ($26.2 million), 1997 ($39.1 million) and 1996 ($28.5 million), and in 1997 include the Relocation ($25.9 million). The Company estimates that its capital expenditures for 1999 will be approximately $30.0 million, relating primarily to the ongoing expansion of its domestic and international retail operations (approximately $15.0 million), and equipment for its distribution, manufacturing and management information systems (approximately $4.0 million). The actual amount of the Company's capital expenditures depends, in part, on the number of new retail locations opened, the number of retail locations remodeled, the amount of any construction allowances the Company may receive from the landlords of its new retail locations and any unexpected costs incurred in connection with year 2000 compliance (See "-- Year 2000 Compliance"). The Company's ongoing evaluation of its retail operations has led to a decision to grow its retail network at a slower pace by applying rigorous standards to all retail location opening and closing decisions. The opening and success of new retail locations will be dependent upon, among other things, general economic and business conditions affecting consumer spending, the availability of desirable locations and the negotiation of acceptable lease terms for new locations. Cash used by financing activities was $195.2 million for 1998, compared to cash provided by financing activities of $33.6 million for 1997 and $93.2 million for 1996. Cash used by financing activities during 1998 includes a $141.1 million reduction in borrowings under the Company's Credit Agreement (defined below). The decrease in borrowings is primarily attributable to the factors impacting cash provided by operating activities and to additional factors impacting working capital noted above. Cash used for repayments of long-term debt during 1998 includes $29.5 million related to the Note Repurchase Gain. Cash used for purchases of stock for treasury during 1998 relates to the Company's repurchase of approximately 2.0 million shares of its outstanding common stock for $20.0 million, which reflects the limitation currently imposed under the Company's Credit Agreement. In July 1997, the Company issued $200.0 million of its Senior Notes and $125.0 million of its Senior Subordinated Notes. The Notes are fully and unconditionally guaranteed on a senior basis with respect to the Senior Notes and on a senior subordinated basis with respect to the Senior Subordinated Notes by certain subsidiaries of Nine West Group Inc. The Senior Notes are not redeemable at the option of the Company prior to maturity. The Senior Subordinated Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after August 15, 2002, at declining redemption prices. Prior to August 15, 2000, the Company may redeem up to 30% of the Senior Subordinated Notes with the net proceeds of one or more public equity offerings at a redemption price of 109%, provided that at least $87.5 million of Senior Subordinated Notes remain outstanding after such redemption. Upon the occurrence of a change of control, each holder of the Notes may require the Company to purchase all or any portion of such holder's Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. There are no contractual restrictions on distributions from each of the guarantor subsidiaries to Nine West Group Inc. The proceeds from the issuance of the Notes were approximately $316.6 million (net of initial purchasers' discounts and offering expenses of $8.4 million) and were used to repay the quarterly amortizing term loan ($312.0 million) and a portion of revolving debt ($4.6 million) outstanding under the Company's previous credit facility. Effective December 1998, the Company voluntarily reduced the commitment under its amended and restated credit agreement (the "Credit Agreement") to $500.0 million from $600.0 million. Under the terms of the Credit Agreement, which expires in August 2002, up to $150.0 million may be utilized for letters of credit and up to $250.0 million may be in the form of multicurrency borrowings. Amounts outstanding under the Credit Agreement bear interest, at the Company's option, at rates based on Citibank, N.A.'s base rate or the Eurodollar rate, and are secured by substantially all assets of the Company and its domestic subsidiaries (excluding receivables transferred to the Trust (defined below) under the Receivables Facility). As of January 30, 1999, $32.0 million of borrowings and $58.3 million of letters of credit were outstanding on a revolving basis and $409.7 million was available for future borrowing. In June 1996, the Company issued $185.7 million of its 5-1/2% Convertible Subordinated Notes due July 15, 2003 (the "Convertible Notes"), which are convertible into Common Stock at a price of $60.76 per share, subject to adjustment in certain circumstances. The Convertible Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after July 16, 1999, at declining redemption prices plus any accrued interest. Upon the occurrence of a change of control, each holder of the Convertible Notes may require the Company to purchase all or any portion of such holder's Convertible Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. The Convertible Notes are subordinated in right of payment to all existing and future senior indebtedness of the Company. Proceeds from the issuance of the Convertible Notes were approximately $181.3 million (net of underwriters' discounts of $4.4 million) and were used to repay a portion of the indebtedness outstanding under the Company's previous credit facility. Provisions of the Notes, Credit Agreement and Convertible Notes contain various covenants which, among other things, limit the Company's ability to incur indebtedness, incur liens, declare or pay dividends or make restricted payments, consolidate, merge or sell assets. In December 1995, the Company entered into an agreement to create the five-year Receivables Facility, under which up to $115.0 million of funding may be obtained based on the sale, without recourse, of the accounts receivable of the Company. The principal benefit of the Receivables Facility is a reduction in the Company's cost of funding related to long-term debt. In July 1998, the Receivables Facility was amended to increase the funding availability to $132.0 million. As of January 30, 1999 and January 31, 1998, the Company had sold $186.0 million and $159.7 million, respectively, of outstanding trade accounts receivable to Nine West Funding Corporation ("Nine West Funding"), which were, in turn, transferred by Nine West Funding to a trust formed to purchase the accounts receivable (the "Trust"). As of January 30, 1999 and January 31, 1998, the Company had received proceeds of $100.0 million and $68.5 million, respectively, from the Trust, which were used to repay debt. On June 5, 1996, the Company made a net payment of $42.5 million to The United States Shoe Corporation, in connection with the settlement of the post- closing balance sheet dispute relating to the Acquisition and the repurchase by the Company of warrants issued in connection with the Acquisition, which was financed under the Company's Credit Agreement. The Company expects that its current cash balances, cash provided by operations and borrowings under the Credit Agreement will continue to provide the capital flexibility necessary to fund future opportunities and expansion as well as to meet existing obligations. The Company continuously evaluates potential acquisitions of businesses which complement its existing operations. Depending on various factors, including, among others, the cash consideration required in such potential acquisitions and the market value of the Company's Common Stock, the Company may determine to finance any such transaction with its existing sources of liquidity. The Company does not currently intend to pay cash dividends on its Common Stock in the immediate future. Subject to compliance with certain financial covenants set forth in the Notes, Credit Agreement, Convertible Notes and restrictions contained in any future financing agreements, the payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. The Company's computer equipment, software and devices with imbedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. The Company has undertaken a comprehensive analysis and remediation program (the "Year 2000 Program") with respect to its information technology ("IT") systems and other systems and facilities in order to identify the systems that could be affected by the technical problems associated with the year 2000 (the "Year 2000 Issue") and to ensure that they will function properly with respect to dates in the year 2000 and thereafter. If modifications and replacements are not made in a timely manner, the Company could experience a temporary inability to process transactions, send invoices or engage in other important business activities due to system failures or miscalculations, the impact of which cannot be quantified at this time. The Company's Year 2000 Program is divided into the following four phases with the following estimated time frames: (1) PLANNING - (fourth quarter of 1996 - second quarter of 1998) - Establishing a Year 2000 program team and developing a comprehensive strategy. (2) ASSESSMENT - (third quarter of 1997 - first quarter of 1999) - Assessing the Year 2000 impact on the Company through inventory and analysis of systems supporting the core business areas and processes, prioritizing their conversion or replacement and identifying and securing necessary resources to do so. This phase may include developing contingency plans, if necessary. (3) RENOVATION - (fourth quarter of 1997 - second quarter of 1999) - Converting, replacing, or eliminating selected platforms, applications, databases and utilities and modifying interfaces. (4) VALIDATION AND IMPLEMENTATION - (first quarter of 1998 - third quarter of 1999) - Testing, verifying and validating converted or replaced platforms, applications, databases and utilities in an operational environment and implementing contingency plans, if necessary. In the third quarter of 1997, the Company commenced the assessment of its domestic IT software and hardware. The Company expects to substantially complete the development, programming changes and unit testing including compatibility testing, with respect to its domestic IT systems in the second quarter of 1999. In the first quarter of 1998, the Company commenced the assessment of its international IT software and hardware. The Company expects to substantially complete the development, programming changes and unit testing, including compatibility testing with respect to its international IT systems in the second quarter of 1999. The Company plans to complete the assessment of its non-computer equipment that could be affected by the technical problems associated with the Year 2000 Issue by the first quarter of 1999 and to fully test such equipment by the end of the second quarter of 1999. As of March 30, 1999, the Company had completed approximately 75% of all phases of the Year 2000 Program, consistent with its timetable. Through January 30, 1999, the Company has expended approximately $4.5 million related to its global Year 2000 Program. The Company currently expects that the total costs of the Year 2000 Program, including both incremental spending and redeployed resources, will be approximately $6.0 million. The costs of the Year 2000 Program will be funded through existing sources of liquidity. Time and cost estimates are based on currently available information. Developments that could affect estimates include, but are not limited to, the availability and cost of trained personnel and the ability to locate and correct all relevant computer code and systems. The Company has been communicating, and continues to communicate, directly with selected key vendors, suppliers and customers regarding various critical systems. Additionally, to date the Company has mailed questionnaires to other identified significant third parties to determine the extent to which the Company is vulnerable to the failure of these third parties to become Year 2000 compliant. None of the third parties who have responded have disclosed Year 2000 issues which would have an adverse affect on the Company. However, third parties are under no contractual obligation to provide Year 2000 compliance information to the Company, and any failure of such third parties to become Year 2000 compliant involves risks and uncertainties. Based upon its assessment and remediation efforts to date, the Company is not aware of any material issues that would prevent it or its significant third party vendors, suppliers and customers from completing efforts necessary to achieve Year 2000 compliance on a timely basis. Accordingly, the Company has not developed a contingency plan for dealing with the most reasonably likely worst case scenario at this time. SEASONALITY The Company's footwear and accessories are marketed primarily for each of the four seasons, with the highest volume of products sold during the last three fiscal quarters. Because the timing of shipment of products for any season may vary from year to year, the results for any particular quarter may not be indicative of results for the full year. The Company has not had significant overhead and other costs generally associated with large seasonal variations. INFLATION The Company believes that the relatively moderate rate of inflation over the past few years has not had a significant impact on the Company's revenues or profitability. In the past, the Company has been able to maintain its profit margins during inflationary periods. FORWARD-LOOKING STATEMENTS Certain statements contained in this Report which are not historical facts contain forward-looking information with respect to the Company's plans, projections or future performance, the occurrence of which involve certain risks and uncertainties that could cause the Company's actual results or plans to differ materially from those expected by the Company. Certain of such risks and uncertainties relate to the overall strength of the general domestic and international retail environments; the continuation of certain trends in foreign currency exchange rates; the ability of the Company to predict and respond to changes in consumer demand and preferences in a timely manner; increased competition in the footwear and accessory industry and the Company's ability to remain competitive in the areas of style, price and quality; acceptance by consumers of new product lines; the ability of the Company to manage general and administrative costs; changes in the costs of leather and other raw materials, labor and advertising; the ability of the Company to secure and protect trademarks and other intellectual property rights; retail store construction delays; the availability of desirable retail locations and the negotiation of acceptable lease terms for such locations; and the ability of the Company to place its products in desirable sections of its department store customers. NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires an entity to recognize all derivative financial instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15,1999. Management is currently evaluating the effects of this change on the Company's future operating results and financial statement disclosures. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK SENSITIVE INSTRUMENTS The market risk inherent in the Company's financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in interest rates or foreign currency exchange rates. The Company manages this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Company policy allows the use of derivative financial instruments for identifiable market risk exposures, including interest rate and foreign currency fluctuations. The Company does not enter into derivative financial contracts for trading or other speculative purposes. The following quantitative disclosures were derived using quoted market prices, yields and theoretical pricing models obtained through independent pricing sources for the same or similar types of financial instruments, taking into consideration the underlying terms, such as the coupon rate, term to maturity and imbedded call options. Certain items such as lease contracts, insurance contracts, and obligations for pension and other post-retirement benefits were not included in the analysis. INTEREST RATES The Company's primary interest rate exposures relate to its fixed and variable rate debt and interest rate swaps. At January 30, 1999, the carrying value of amounts outstanding under the Company's borrowing arrangements approximated its fair value. The potential change in fair value resulting from a hypothetical 10% adverse change in interest rates was approximately $18.9 million at January 30, 1999. The Company employs an interest rate hedging strategy utilizing swaps and collars to effectively fix a portion of its interest rate exposure on its floating rate financing arrangements. The primary interest rate exposures on floating rate financing arrangements are with respect to United States, United Kingdom and Australian short-term local currency rates. The Company had $138.9 million in variable rate financing arrangements at January 30, 1999. As of January 30, 1999, a hypothetical immediate 10% adverse change in interest rates, as they relate to the Company's variable rate financial instruments, would have had a $0.7 million and $1.2 million unfavorable impact over a one-year period on the Company's earnings and cash flows, respectively. FOREIGN CURRENCY EXCHANGE RATES The Company's primary foreign currency exposures relate to its foreign debt and foreign currency exchange contracts. The Company employs a foreign currency hedging strategy to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. Foreign currency exposures arise from transactions, including firm commitments and anticipated transactions, denominated in a currency other than an entity's functional currency and from foreign-denominated revenues and profits translated into United States dollars. The primary currencies as to which the Company is exposed to exchange rate movements include the Italian Lire, Spanish Peseta, the Eurodollar and other European currencies, the Canadian dollar and certain Asian currencies. Exposures are hedged with foreign currency forward contracts with maturity dates of generally less than one year. The potential loss in fair value at January 30, 1999 for such net currency positions resulting from a hypothetical 10% adverse change in all foreign currency exchange rates is $5.7 million. As of January 30, 1999, a hypothetical immediate 10% adverse change in foreign currency exchange rates, as they relate to the Company's foreign debt and foreign currency exchange contracts, would have had a $2.2 million and $3.6 million unfavorable impact over a one- year period on earnings and cash flows, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management's Responsibility for Financial Statements.................. 31 Independent Auditors' Report.......................................... 32 Consolidated Statements of Income - Fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997........................... 33 Consolidated Balance Sheets - January 30, 1999 and January 31, 1998... 34 Consolidated Statements of Cash Flows - Fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997............... 35 Consolidated Statements of Stockholders' Equity - Fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997......... 36 Notes to Consolidated Financial Statements (includes certain supplemental financial information required by Item 8 of Form 10-K)..37-65 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The consolidated financial statements presented in this report are the responsibility of the Company's management and have been prepared in conformity with generally accepted accounting principles. Some of the amounts included in the consolidated financial information are necessarily based on estimates and judgments of management. The Company maintains accounting and related internal control systems designed to provide, among other things, reasonable assurance that transactions are executed in accordance with management's authorization and that they are recorded and reported properly. There are limitations inherent in all systems of internal control, and the Company weighs the cost of such systems against the expected benefits. The consolidated financial statements have been audited by the Company's independent auditors, Deloitte & Touche LLP. Their primary role is to render an independent professional opinion on the fairness of the financial statements taken as a whole. Their audit, which is performed in accordance with generally accepted auditing standards, includes a study and evaluation of the Company's accounting systems and internal controls sufficient to express their opinion on those financial statements. The Audit Committee of the Board of Directors, which is composed entirely of directors who are not employees of the Company, meets periodically with management and the independent auditors to review the results of their work and to satisfy itself that their responsibilities are being properly discharged. The independent auditors have full and free access to the Audit Committee and meet with it (with and without management present) to discuss appropriate matters. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Nine West Group Inc.: We have audited the accompanying consolidated balance sheets of Nine West Group Inc. and subsidiaries (the "Company") as of January 30, 1999 and January 31, 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 30, 1999 and January 31, 1998, and the results of their operations and their cash flows for the fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Deloitte & Touche LLP Deloitte & Touche LLP New York, New York March 16, 1999
NINE WEST GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share data) 1998 1997 1996 ---- ---- ---- Net revenues....................... $1,916,707 $1,865,318 $1,603,115 Cost of goods sold................. 1,126,860 1,063,581 913,946 ---------- ---------- ---------- Gross profit..................... 789,847 801,737 689,169 Selling, general and administrative expenses........... 651,601 609,991 479,284 Business restructuring expenses.... 12,619 - 18,970 Amortization of acquisition goodwill and other intangibles.... 10,778 9,648 9,562 ---------- ---------- ---------- Operating income from continuing operations...................... 114,849 182,098 181,353 Interest expense................... 53,467 54,014 41,947 ---------- ---------- ---------- Income from continuing operations before income taxes.. 61,382 128,084 139,406 Income tax expense................. 23,937 49,953 55,762 ---------- ---------- ---------- Income from continuing operations before extraordinary item....... 37,445 78,131 83,644 Loss on disposal of discontinued operation (net of tax benefits of $1,419)........... - - (2,636) Extraordinary gain (net of income taxes of $1,869).................. 2,923 - - ---------- ---------- --------- Net income....................... $ 40,368 $ 78,131 $ 81,008 ========== ========== ========= Weighted average shares outstanding: Basic............................ 35,159 35,836 35,647 Diluted.......................... 35,163 39,462 38,554 Basic earnings per share: Continuing operations before extraordinary item.............. $ 1.07 $ 2.18 $ 2.35 Loss on disposal of discontinued operation.......... - - (0.08) Extraordinary gain............... 0.08 - - ---------- ---------- --------- Basic earnings per share....... $ 1.15 $ 2.18 $ 2.27 ========== ========== ========= Diluted earnings per share: Continuing operations before extraordinary item.............. $ 1.07 $ 2.15 $ 2.27 Loss on disposal of discontinued operation.......... - - (0.06) Extraordinary gain............... 0.08 - - ---------- ---------- --------- Diluted earnings per share..... $ 1.15 $ 2.15 $ 2.21 ========== ========== ========= The accompanying Notes are an integral part of the Consolidated Financial Statements.
NINE WEST GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except share data) January 30 January 31 1999 1998 ---- ---- ASSETS Current Assets: Cash.............................................. $ 17,951 $ 23,674 Accounts receivable including securitized interest in accounts receivable - net................................ 86,494 131,923 Inventories....................................... 460,375 543,503 Prepaid expenses and other current assets......... 67,432 100,031 --------- --------- Total current assets............................ 632,252 799,131 Property and equipment - net...................... 164,006 172,795 Goodwill - net.................................... 230,237 231,130 Trademarks and trade names - net.................. 137,895 139,750 Other assets...................................... 52,739 48,733 ---------- ---------- Total assets................................... $1,217,129 $1,391,539 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.................................. $ 79,525 $ 100,075 Accrued expenses and other current liabilities.... 99,067 105,444 Current portion of long-term debt................. 3,449 4,235 ---------- ---------- Total current liabilities....................... 182,041 209,754 Long-term debt.................................... 510,804 687,263 Other non-current liabilities..................... 66,220 55,674 ---------- ---------- Total liabilities............................... 759,065 952,691 ---------- ---------- Stockholders' Equity: Preferred stock ($0.01 par value, 25,000,000 shares authorized; none issued and outstanding)..................................... - - Common stock ($0.01 par value, 100,000,000 shares authorized; 33,985,098 and 35,818,831 shares issued and outstanding, respectively)..... 359 358 Additional paid-in capital......................... 144,203 143,278 Retained earnings.................................. 338,286 297,918 Accumulated other comprehensive income............. (4,793) (2,706) ---------- ---------- 478,055 438,848 Less treasury stock, at cost (1,952,900 shares).. (19,991) - ---------- ---------- Total stockholders' equity...................... 458,064 438,848 ---------- ---------- Total liabilities and stockholders' equity..... $1,217,129 $1,391,539 ========== ========== The accompanying Notes are an integral part of the Consolidated Financial Statements.
NINE WEST GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 1998 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................ $ 40,368 $ 78,131 $ 81,008 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization....................... 49,021 39,952 32,983 Provision for losses on accounts receivable......... 5,080 6,826 6,797 Provision for losses on inventory................... 14,656 (492) 4,536 Extraordinary gain.................................. (4,792) - - Loss on disposal of discontinued operation.......... - - 2,636 Business restructuring and integration.............. 2,655 (18,966) (9,247) Deferred income taxes and other..................... 10,377 11,738 14,055 Changes in assets and liabilities excluding effects of acquisitions: Accounts receivable including securitized interest in accounts receivable.................. 41,191 (34,621) (29,165) Inventory......................................... 71,316 (15,545) (107,388) Prepaid expenses and other assets................. 8,647 (11,801) (19,893) Accounts payable.................................. (20,550) 2,534 (48,703) Accrued expenses and other liabilities............ (2,598) 12,532 (15,524) -------- --------- -------- Net cash provided (used) by operating activities....... 215,371 70,288 (87,905) -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.................... (41,895) (76,232) (42,806) Proceeds from sale of property and equipment........... 16,351 - 19,617 Business acquisitions - net of cash acquired........... (9,932) (26,394) (11,580) Acquisition purchase price settlement.................. - - 25,000 Proceeds from sale of discontinued operation........... 2,780 - 2,800 Other investing activities............................. 6,835 (2,714) 6,046 -------- --------- -------- Net cash used by investing activities.................. (25,861) (105,340) (923) -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) borrowings under financing agreements... (141,135) 49,376 128,000 Proceeds from issuance of long-term debt............... - 316,648 232,016 Repayments of long-term debt........................... (32,946) (332,295) (218,000) Repurchase of warrants................................. - - (67,500) Purchases of stock for treasury........................ (19,991) - - Net proceeds from issuance of stock and other.......... (1,161) (179) 18,706 -------- --------- -------- Net cash (used) provided by financing activities....... (195,233) 33,550 93,222 -------- --------- -------- NET (DECREASE) INCREASE IN CASH........................ (5,723) (1,502) 4,394 CASH, BEGINNING OF PERIOD.............................. 23,674 25,176 20,782 -------- --------- -------- CASH, END OF PERIOD.................................... $ 17,951 $ 23,674 $ 25,176 ======== ========= ======== The accompanying Notes are an integral part of the Consolidated Financial Statements.
NINE WEST GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands except share data) Common Stock ------------------- Accumulated Number of Additional Other Treasury Total Outstanding Paid-In Retained Comprehensive Stock Stockholders' Shares Amount Warrants Capital Earnings Income Amount Equity ----------- ------ -------- ---------- -------- ----------- -------- ------------- Balance at February 3, 1996...... 35,240,052 $352 $ 57,600 $131,595 $138,779 $ 0 $ 0 $328,326 Comprehensive income: Net income...................... 81,008 Adjustment for foreign currency translation.................... 7 Total comprehensive income....... 81,015 Shares issued under stock plans, including tax benefit.......... 552,561 6 18,693 18,699 Repurchase of warrants.......... (57,600) (9,900) (67,500) ---------- ------ -------- -------- -------- ------- -------- -------- Balance at February 1, 1997...... 35,792,613 358 0 140,388 219,787 7 0 360,540 Comprehensive income: Net income...................... 78,131 Adjustment for foreign currency translation.................... (2,713) Total comprehensive income....... 75,418 Shares issued under stock plans, including tax benefit.......... 26,218 - 2,890 2,890 ---------- ------ -------- -------- -------- ------- -------- -------- Balance at January 31, 1998...... 35,818,831 358 0 143,278 297,918 (2,706) 0 438,848 Comprehensive income: Net income...................... 40,368 Adjustment for foreign currency translation.................... (2,087) Total comprehensive income....... 38,281 Treasury stock transactions...... (1,952,900) (19,991) (19,991) Shares issued under stock plans, including tax benefit.......... 119,167 1 925 926 ---------- ------ -------- -------- -------- ------- -------- -------- Balance at January 30, 1999...... 33,985,098 $359 $ 0 $144,203 $338,286 $(4,793) $(19,991) $458,064 ========== ====== ======== ======== ======== ======= ======== ======== The accompanying Notes are an integral part of the Consolidated Financial Statements
. NINE WEST GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS The consolidated financial statements include the accounts of Nine West Group Inc. (the "Company"), its wholly-owned subsidiaries and its controlled- interest joint ventures. All intercompany transactions and balances have been eliminated from the consolidated financial statements for all periods presented. The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years 1998, 1997 and 1996 consisted of the 52-week periods which ended on January 30, 1999, January 31, 1998 and February 1, 1997, respectively. The Company designs, develops, manufactures and markets women's footwear and accessories. The Company operates in the footwear and accessories industry, marketing its products through wholesale and retail channels in the United States as well as other countries. The Company markets footwear under the Nine West, Amalfi, Bandolino, Calico, cK/Calvin Klein (under license), Easy Spirit, Enzo Angiolini, Evan-Picone (under license), 9 & Co., Pappagallo, Pied a Terre, Selby, Westies and The Shoe Studio Group Limited brands, and under private labels. The Company markets women's accessories under the Nine West, Easy Spirit, Enzo Angiolini and cK/Calvin Klein (under license) labels. Approximately 50% of the Company's footwear products are manufactured in Brazil. The Company's footwear products are also manufactured in China, Italy, Spain and other countries at independent factories not owned by the Company. The Company also manufactures footwear products at two domestic shoe factories and one domestic component factory owned by the Company and two foreign component factories which are leased and operated by the Company. The Company has entered into a long-term contract with its buying agent to oversee its third-party sourcing activities in Brazil. The Company does not have any contracts with its independent manufacturers, but relies on its long-standing relationship with the Brazilian factories and its buying agent, in addition to its own factories, to provide an uninterrupted source of inventory. The Company's accessories are manufactured by third party manufacturers in the Far East. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTS RECEIVABLE INCLUDING SECURITIZED INTEREST IN ACCOUNTS RECEIVABLE- NET The Company provides credit to and performs ongoing credit evaluations of its wholesale customers, many of which are major retailers. The Company had a significant customer in its domestic wholesale operating segment which accounted for approximately 11%, 12% and 13% of consolidated net revenues in 1998, 1997 and 1996, respectively. The Company believes that its broad customer base will reduce the impact that any financial difficulties of such retailers or loss of the customer might have on the Company's operating results. The Company maintains an allowance for potential credit losses and other allowances as necessary to properly reflect accounts receivable including securitized interest in accounts receivable at estimated fair value. INVENTORIES Inventories are valued at the lower of cost or market. Approximately 57% and 60% of inventories were determined by using the FIFO (first in, first out) method of valuation as of January 30, 1999 and January 31, 1998, respectively; the remainder were determined by the weighted average cost method. The Company makes provisions for obsolete or slow moving inventories as necessary to properly reflect inventory value. PROPERTY AND EQUIPMENT - NET Property and equipment are stated at cost and are depreciated on the straight-line method over their estimated useful lives which range from 2 to 30 years. Investments in property under lease are depreciated over the shorter of their useful lives or their related lease terms. GOODWILL - NET AND TRADEMARKS AND TRADE NAMES - NET Goodwill is the excess of purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method of accounting. Substantially all intangible assets are amortized on a straight-line basis over 40 years. Goodwill is presented in the consolidated balance sheet net of accumulated amortization of $22.4 million and $16.1 million as of January 30, 1999 and January 31, 1998, respectively. Trademarks and trade names are presented in the consolidated balance sheet net of accumulated amortization of $14.7 million and $10.0 million as of January 30, 1999 and January 31, 1998, respectively. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses are recognized in operating results in the event that the undiscounted expected future cash flows to be generated by the related asset are less than the carrying value of the asset. FOREIGN CURRENCY TRANSLATION Foreign currency financial statements of the Company's international subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and monthly average rates of exchange for revenues and expenses. The resulting translation adjustments are recorded as a separate component of stockholders' equity. NET REVENUES Wholesale revenues, including commissions received in conjunction with private label footwear, are recognized upon shipment of products to customers. Allowances for estimated discounts and returns are recognized when sales are recorded. Retail revenues are recognized when the payment is received from customers. Revenues are recorded net of returns and exclude sales tax. Licensing revenue is recognized on the basis of net sales by the licensee. ADVERTISING EXPENSE The Company records national advertising campaign costs as an expense when the advertising takes place and cooperative advertising costs as incurred. Advertising expense was $42.2 million, $57.7 million and $45.2 million in 1998, 1997 and 1996, respectively. INCOME TAXES Income taxes are based upon income for financial reporting purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. COMPREHENSIVE INCOME Effective with the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires the disclosure of comprehensive income and its components. Comprehensive income is generally defined as all changes in stockholders' equity exclusive of transactions with owners. EMPLOYEE BENEFIT PLANS The Company's employee benefit plans are presented in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," effective for 1998. SFAS No. 132 revised employers' disclosures about pension and other postretirement benefit plans. It did not change the measurement or recognition of those plans. STOCK-BASED COMPENSATION Stock-based compensation cost is accounted for under SFAS No. 123, "Accounting for Stock-Based Compensation," which permits continued application of the intrinsic value method of Accounting Principles Board ("APB") Opinion No. 25. Under the intrinsic value method, compensation cost represents the excess, if any, of the quoted market price of the Company's common stock (the "Common Stock") at the grant date over the amount the grantee must pay for the stock. The Company's policy is to grant stock options at option prices not less than the fair market value on the date of grant. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective for 1998. SFAS No. 131 requires the Company to report operating segment information based on the way that the Company's management organizes the components of the Company's business for purposes of allocating resources and assessing performance. ACQUISITIONS During the past three years, the Company has completed several small acquisitions, each of which has been accounted for in accordance with the purchase method of accounting. The consolidated financial statements include the operating results of each business acquired from its date of acquisition. Pro forma results of operations have not been presented as the effects of these acquisitions, both individually and in the aggregate, were not material to the financial statements taken as a whole. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires an entity to recognize all derivative financial instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management is currently evaluating the effects of this change on the Company's future operating results and financial statement disclosures. RECLASSIFICATIONS Reclassifications have been made to certain prior year amounts to conform to the current year presentation. 3. BUSINESS RESTRUCTURING CHARGES In the fourth quarter of 1998, the Company recorded a pre-tax charge of $18.0 million (the "1998 Restructuring Charge") related to the restructuring of the Company's manufacturing operations and the Company's decision to close its 9 & Co. retail stores. Inventory write-downs of $5.4 million associated with the charge are recorded as a component of costs of goods sold. The 1998 Restructuring Charge related to costs associated with: (1) the closure of one domestic manufacturing facility and one Caribbean-based component facility, and the reconfiguration and integration of certain operations at three other domestic manufacturing facilities (the "Manufacturing Restructuring") which reduced annual domestic footwear production capacity from approximately 5.0 million pairs to approximately 3.0 million pairs, as the Company pursues global sourcing opportunities in an effort to reduce overall product cost; and (2) the Company's decision to close all 63 9 & Co. stores in operation at January 30, 1999. The 9 & Co. retail stores had net revenues of $32.8 million, $38.0 million and $36.4 million, and operating losses, excluding restructuring charges, of $8.3 million, $3.8 million and $2.0 million for 1998, 1997 and 1996, respectively. The major components of the 1998 Restructuring Charge were: (1) asset write-downs of $12.9 million; (2) lease termination and facility closure costs of $3.5 million; and (3) severance and termination benefit costs of $1.6 million. During the fourth quarter of 1998, the Company substantially completed the activities associated with the Manufacturing Restructuring. The Company anticipates that it will close approximately 50 of the 63 9 & Co. stores during 1999, and close the remaining 9 & Co. stores during 2000. During the fourth quarter of 1998, charges against the 1998 Restructuring Charge accrual related to these actions included $12.9 million in asset write-downs and $0.2 million in severance and termination benefit payments. The remaining balance of the 1998 Restructuring Charge accrual of $4.9 million is recorded in the balance sheet within the captions "Accrued expenses and other current liabilities" ($4.3 million) and "Other non-current liabilities" ($0.6 million). Total cash outlays related to the 1998 Restructuring Charge are estimated to be $5.1 million and are to be substantially paid through 2000, with certain lease termination costs to be paid through 2002. The initiatives outlined in the 1998 Restructuring Charge are expected to affect approximately 1,260 employees, of which 640 are manufacturing positions, 580 are 9 & Co. retail employees and 40 are managerial employees. Total severance and termination benefit costs associated with these initiatives are estimated to be $2.9 million, of which $1.6 million was included in the 1998 Restructuring Charge and $0.8 million was related to benefits provided by the Company's existing severance plans. The remaining $0.5 million is related to the 9 & Co. store closures and will be expensed as incurred. As of January 30, 1999, approximately 634 manufacturing and 36 managerial position eliminations were completed with $0.4 million in severance and termination benefit costs being charged against the existing severance plan liability. The severance and termination benefit payments associated with the 1998 Restructuring Charge will be substantially completed during 1999. In the fourth quarter of 1996, the Company recorded a charge of $21.3 million, offset by the reversal of a $2.3 million excess of the restructuring and integration cost accrual associated with the acquisition (the "Acquisition") of the Footwear Division of The United States Shoe Corporation (the "Footwear Group"), resulting in a net pre-tax charge to earnings of $19.0 million (the "1996 Restructuring Charge"), for costs associated with: (1) the restructuring of North American manufacturing facilities which involved the closure of three domestic manufacturing facilities and discontinuation or reconfiguration of certain operations at two other domestic manufacturing facilities; (2) the consolidation and relocation of the Company's offices in Stamford, Connecticut and Cincinnati, Ohio to a new facility in White Plains, New York (the "Relocation"); and (3) the repositioning of the 9 & Co. brand, which involved the evaluation of retail site locations and the closure of fifteen 9 & Co. stores. The major components of the 1996 Restructuring Charge were: (1) write-down of assets of $13.8 million; (2) lease and other contract termination costs of $4.9 million; and (3) plant closing costs of $2.6 million. Total cash outlays related to the 1996 Restructuring charge were estimated to be $7.5 million and are to be paid through 2000. During 1997, the Company substantially completed the domestic manufacturing facility closures and reconfigurations, the Relocation and the 9 & Co. store closures. As of January 30, 1999, the charges recorded against the 1996 Restructuring Charge accrual included $13.8 million in asset write- downs, $3.4 million in lease and contract termination costs and $2.2 million in plant closing costs. As of January 30, 1999, total cash outlays recorded against the 1996 Restructuring Charge accrual were $5.6 million, of which $1.8 million and $3.8 million were paid and charged during 1998 and 1997, respectively. The remaining balance of the 1996 Restructuring Charge accrual is recorded in the balance sheet within the caption "Accrued expenses and other current liabilities" and consists primarily of cash outlays related to lease and contract termination costs. The initiatives outlined in the 1996 Restructuring Charge affected the employment of approximately 1,135 employees. Of these employees, 1,025 held manufacturing positions and represented approximately 50% of the Company's domestic manufacturing workforce, and 110 were corporate employees affected by the Relocation. Total severance and termination benefit costs associated with these initiatives were originally estimated at $9.6 million, which related to benefits provided by the Company's severance plans. See Note 16, "Employee Benefit Plans." As of January 30, 1999, substantially all severance and termination benefits associated with this action were charged against the severance plan liability. 4. LOSS ON DISPOSAL OF DISCONTINUED OPERATION On May 23,1995, the Company consummated the Acquisition. Included in the assets acquired was the Texas Boot division ("Texas Boot"). Upon acquisition, the Company determined that Texas Boot did not meet its long-term strategic objectives and decided to sell the business. Accordingly, the net assets of Texas Boot were accounted for as an asset held for sale. The results of operations related to these assets held for sale, subsequent to July 29, 1995, and interest expense on the allocated debt, have been excluded from the 1996 consolidated statement of income. During the second quarter of 1996, the holding period under Emerging Issues Task Force Issue Number 87-11 had expired, and the Company accounted for the expected loss from the disposal of net assets and anticipated operating losses from the measurement date through the estimated date of disposal as a discontinued operation, resulting in a charge of $2.6 million, net of income tax benefits of $1.4 million. The sale of Texas Boot was consummated on January 24, 1997. The Company received $2.8 million in cash and $5.2 million in notes and other financial instruments in connection with this disposition. 5. EXTRAORDINARY ITEM During the third quarter of 1998, the Company repurchased $31.0 million face amount of its 9% Series B Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes") and $4.0 million face amount of its 8-3/8% Series B Senior Notes due 2005 (the "Senior Notes" and, together with the Senior Subordinated Notes, the "Notes"), at a discount, resulting in a $4.8 million extraordinary gain ($2.9 million on an after-tax basis) on early extinguishment of debt (the "Note Repurchase Gain"). 6. EARNINGS PER SHARE Following is a reconciliation of the earnings and shares used in the basic and diluted per share computations for income from continuing operations before extraordinary item (in thousands): 1998 1997 1996 ---- ---- ---- Earnings: Income from continuing operations before extraordinary item (numerator for basic calculation)...................... $37,445 $78,131 $83,644 Effect of convertible notes.................. - 6,707 4,063 ------- ------- ------- Numerator for diluted calculation............ $37,445 $84,838 $87,707 ======= ======= ======= Shares: Weighted average common shares outstanding (denominator for basic calculation)......... 35,159 35,836 35,647 Effect of stock options...................... 4 570 1,052 Effect of convertible notes.................. - 3,056 1,855 ------- ------- ------- Denominator for diluted calculation.......... 35,163 39,462 38,554 ======= ======= ======= Earnings per share - continuing operations before extraordinary item: Basic ..................................... $ 1.07 $ 2.18 $ 2.35 ======= ======= ======= Diluted ................................... $ 1.07 $ 2.15 $ 2.27 ======= ======= ======= The impact of the convertible notes was excluded from the diluted earnings per share calculation for 1998 as its effect on the reported per share amounts was anti-dilutive. For 1998 and 1997, certain outstanding stock options were not included in the computation of diluted earnings per share because the respective exercise prices were greater than the average market price of the Common Stock. For 1998 and 1997, the number of stock options whose impact was not included in the diluted computation was 5.6 million and 1.3 million, respectively. These options were outstanding at the end of each of the respective years. 7. ACCOUNTS RECEIVABLE INCLUDING SECURITIZED INTEREST IN ACCOUNTS RECEIVABLE - NET Accounts receivable including securitized interest in accounts receivable consists of (in thousands): January 30 January 31 1999 1998 ---------- ---------- Securitized interest in accounts receivable...... $85,957 $ 91,208 Accounts receivable.............................. 51,153 91,682 Allowance for doubtful accounts and other allowances...................................... (50,616) (50,967) ------- ------- Accounts receivable including securitized interest in accounts receivable - net..... $86,494 $131,923 ======= ======== In December 1995, the Company entered into an agreement to create a five-year revolving accounts receivable securitization facility (the "Receivables Facility"), under which up to $115.0 million of funding may be obtained based upon the sale, without recourse, of the accounts receivable of the Company. The principal benefit of the Receivables Facility is a reduction in the Company's cost of funding related to long-term debt. In July 1998, the Receivables Facility was amended to increase funding availability to $132.0 million. As of January 30, 1999 and January 31, 1998, the Company had sold $186.0 million and $159.7 million, respectively, of outstanding trade accounts receivable to Nine West Funding Corporation ("Nine West Funding"), which were, in turn, transferred by Nine West Funding to a trust formed to purchase the accounts receivable (the "Trust"). As of January 30, 1999 and January 31, 1998, the Company had received proceeds of $100.0 million and $68.5 million, respectively, from the Trust, which were used to repay debt. Nine West Funding maintained a subordinated interest in the remaining assets of the Trust of $86.0 million and $91.2 million, which are recorded under the caption "Securitized interest in accounts receivable" on the Company's balance sheet as of January 30, 1999 and January 31, 1998, respectively. The effective interest rate incurred by the Company on amounts transferred by Nine West Funding to the Trust under the Receivables Facility was 5.9% as of January 30, 1999. 8. INVENTORIES Inventories consist of (in thousands): January 30 January 31 1999 1998 ---------- ---------- Raw materials............................ $ 16,967 $ 19,672 Work in process.......................... 1,403 1,987 Finished goods........................... 442,005 521,844 -------- -------- Total inventories..................... $460,375 $543,503 ======== ======== 9. PROPERTY AND EQUIPMENT - NET Property and equipment consists of (in thousands): January 30 January 31 1999 1998 ---------- ---------- Land........................................ $ 409 $ 525 Buildings and improvements.................. 6,510 9,438 Machinery, equipment and fixtures........... 126,940 130,351 Leasehold improvements...................... 118,095 109,935 Construction in progress.................... 4,873 8,826 -------- -------- 256,827 259,075 Accumulated depreciation and amortization... 92,821 86,280 -------- -------- Property and equipment - net...... $164,006 $172,795 ======== ======== 10. SALE/LEASEBACK TRANSACTIONS On April 1, 1998, the Company consummated the sale of certain office and warehouse facilities located in Cincinnati, Ohio (the "Cincinnati Facilities") and leaseback of the distribution center portion thereof, and received cash proceeds of $16.4 million. The lease has been classified as an operating lease. The net assets related to the Cincinnati Facilities of approximately $13.6 million were accounted for as an asset held for sale and have been removed from "Prepaid expenses and other current assets." The approximately $2.8 million (net of transaction costs ) net gain realized on the sale has been deferred and is being credited to income as a rent expense adjustment over the five-year term of the lease. Payments under the lease approximate $0.7 million annually. In May 1996, the Company consummated the sale (for $20.3 million) and leaseback of its distribution facility located in West Deptford, New Jersey. The lease has been classified as an operating lease. The cost and accumulated depreciation associated with this facility of approximately $16.4 million and $2.0 million, respectively, have been removed from the "Property and Equipment - - net". The approximately $5.3 million (net of transaction costs) net gain realized on the sale has been deferred and is being credited to income as a rent expense adjustment over the 20-year initial term of the lease. Payments under the lease approximate $2.0 million annually. 11. FINANCIAL INSTRUMENTS The Company, as a result of its global operating and financing activities, is exposed to changes in interest rates and foreign currency exchange rates which may adversely affect results of operations and financial condition. In seeking to minimize the risks and/or costs associated with such activities, the Company manages exposure to changes in interest rates and foreign currency exchange rates through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The instruments eligible for utilization include forward, option and swap agreements. The Company does not use financial instruments for trading or other speculative purposes. At January 30, 1999, the Company had outstanding an interest rate swap and collar with an aggregate notional principal amount of $200.0 million to effectively fix a portion of its interest rate exposure on its floating rate debt. The Company's 1998 and 1997 weighted average interest rates on long term debt of 7.4% and 6.9%, respectively, were not significantly impacted by outstanding financial instruments. Differentials which occur due to changes in interest rates are recognized in interest expense during the period to which the payment/receipt relates. The fair value of these instruments was an unfavorable $2.3 million, based on a commonly accepted pricing methodology using market prices as of January 30, 1999. The Company's interest rate swap and collar have expiration dates ranging from June to December 2000. The following table summarizes, by major currency, the outstanding contractual amounts of the Company's forward exchange contracts in U.S. dollars (in thousands). The forward exchange contracts outstanding as of January 30, 1999 mature on various dates through January 2000. January 30, 1999 January 31, 1998 ---------------- ------------------ BUY SELL BUY SELL --- ---- --- ---- Spanish Peseta................... $16,774 $ - $25,665 $ - Italian Lire..................... 20,065 - 19,518 - U.K. Pound Sterling.............. - - - 24,768 Japanese Yen..................... - 9,060 - - Eurodollar....................... 15,349 - - - ------- ------ ------- ------- Total................ $52,188 $9,060 $45,183 $24,768 ======= ====== ======= ======= Gains and losses arising from foreign currency exchange contracts are recorded when the related hedged transaction occurs. The fair value of foreign currency exchange contracts approximated the contract price as of January 30, 1999 based upon a commonly accepted pricing methodology using current market prices and forward rates to estimate the amount the Company would have to pay upon termination of the specific contracts. Financial instruments expose the Company to counterparty credit risk for nonperformance and to market risk for changes in interest and currency rates. The Company manages exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor the amount of credit exposure. The Company's financial instrument counterparties are substantial investment or commercial banks with significant experience with such instruments. The Company also has procedures to monitor the impact of market risk on the fair value and costs of its financial instruments considering reasonably possible changes in interest and currency rates. 12. INCOME TAXES The components of pre-tax income from continuing operations before extraordinary item are as follows (in thousands): 1998 1997 1996 ---- ---- ---- Domestic operations........ $54,019 $113,646 $132,063 Foreign operations......... 7,363 14,438 7,343 ------- -------- -------- Total.................. $61,382 $128,084 $139,406 ======= ======== ======== Income tax expense (benefit) consists of the following (in thousands): 1998 1997 1996 ---- ---- ---- Current provision: Federal.................. $14,043 $32,419 $36,122 State and local.......... 1,130 4,652 5,305 Foreign.................. 2,977 3,473 541 ------- ------- ------- Total.................. 18,150 40,544 41,968 ------- ------- ------- Deferred provision: Federal.................. 5,661 9,327 10,579 State and local.......... 1,274 2,099 3,364 Foreign.................. (1,148) (2,017) (149) ------- ------- ------- Total.................. 5,787 9,409 13,794 ------- ------- ------- Total provision........ $23,937 $49,953 $55,762 ======= ======= ======= The differences between income tax expense shown in the consolidated statements of income and the computed income tax expense based on the federal statutory corporate tax rate are (in thousands): 1998 1997 1996 ---- ---- ---- Computed income taxes based on federal statutory corporate tax rate of 35%............... $21,484 $44,829 $48,792 State and local income taxes, net of federal benefit........ 1,563 4,388 5,635 Earnings in jurisdictions taxed at rates different from U.S. statutory rate............... (748) (3,597) (2,206) Foreign dividends............... 2,632 3,720 2,288 Other........................... (994) 613 1,253 ------- ------- ------- Total income tax expense..... $23,937 $49,953 $55,762 ======= ======= ======= Appropriate U.S. and foreign taxes have been provided for earnings of subsidiary companies that are expected to be remitted to Nine West Group Inc. The cumulative amount of unremitted earnings from foreign subsidiaries that are expected to be indefinitely reinvested was $9.3 million on January 30, 1999. The taxes that would be paid upon the remittance of these indefinitely reinvested earnings are estimated to be $0.4 million based on current tax laws. The tax effects of significant items comprising the Company's net deferred tax asset are (in thousands): January 30 January 31 1999 1998 ---------- ---------- Deferred tax assets: Inventory allowances and capitalization....... $12,959 $ 6,158 Provision for losses on accounts receivable... 11,690 15,587 Business restructuring expense................ 8,709 5,823 Deferred compensation......................... 6,218 4,365 Deferred rent................................. 5,239 4,716 Employee benefit plans........................ 3,859 10,201 Insurance reserves............................ 2,945 2,326 Net operating loss carry forwards............. 1,550 1,162 Fixed assets.................................. 1,414 5,636 Other accruals not currently deductible....... 1,498 2,425 ------- ------- Gross deferred tax assets..................... 56,081 58,399 ------- ------- Deferred tax liabilities: Intangible assets............................. 17,032 12,325 ------- ------- Net deferred tax asset..................... $39,049 $46,074 ======= ======= Included in: Prepaid expenses and other current assets..... $38,506 $32,184 Other assets.................................. 543 13,890 ------- ------- Net deferred tax asset..................... $39,049 $46,074 ======= ======= For tax purposes, the Company had available at January 30, 1999 foreign net operating loss carry forwards of $6.4 million. Of this amount, $1.3 million will expire in 2003, $0.2 million will expire in 2004 and $4.9 million will be available indefinitely. 13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consists of (in thousands): January 30 January 31 1999 1998 ---------- ---------- Salaries, compensation and benefits.............. $26,811 $ 26,733 Interest payable................................. 12,233 17,741 Other accrued expenses and other current liabilities................................... 60,023 60,970 ------- -------- Accrued expenses and other current liabilities............................... $99,067 $105,444 ======= ======== 14. LONG-TERM DEBT Long-term debt includes (in thousands): January 30 January 31 1999 1998 ---------- ---------- Senior notes.................................... $191,999 $195,223 Senior subordinated notes....................... 92,081 122,014 Revolving credit facility....................... 32,000 175,000 Convertible notes............................... 182,665 182,031 Other debt obligations.......................... 15,508 17,230 -------- -------- 514,253 691,498 Less portion payable within one year......... 3,449 4,235 -------- -------- Total long-term debt.................. $510,804 $687,263 ======== ======== In July 1997, the Company issued $200.0 million of its Senior Notes and $125.0 million of its Senior Subordinated Notes. See Note 5, "Extraordinary Item." The Notes are fully and unconditionally guaranteed on a senior basis with respect to the Senior Notes and on a senior subordinated basis with respect to the Senior Subordinated Notes by certain subsidiaries of Nine West Group Inc. The Senior Notes are not redeemable at the option of the Company prior to maturity. The Senior Subordinated Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after August 15, 2002, at declining redemption prices. Prior to August 15, 2000, the Company may redeem up to 30% of the Senior Subordinated Notes with the net proceeds of one or more public equity offerings at a redemption price of 109%, provided that at least $87.5 million of Senior Subordinated Notes remain outstanding after such redemption. Upon the occurrence of a change of control, each holder of the Notes may require the Company to purchase all or any portion of such holder's Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. The Notes constitute unsecured obligations of the Company. In connection with the issuance of the Notes, on August 1, 1997, the Company amended and restated its credit agreement to permit the Company to borrow up to $600.0 million under a revolving credit facility which expires in July 2002. Effective December 15, 1998, the Company voluntarily reduced the commitment under its Amended and Restated Credit Agreement (the "Credit Agreement") to $500.0 million from $600.0 million. Under the terms of the Credit Agreement, up to $150.0 million may be utilized for letters of credit and up to $250.0 million may be in the form of multicurrency borrowings. Amounts outstanding under the Credit Agreement bear interest, at the Company's option, at rates based on Citibank, N.A.'s base rate or the Eurodollar rate, and are secured by substantially all assets of the Company and its domestic subsidiaries (excluding receivables transferred to the Trust under the Receivables Facility). Borrowings under the Credit Agreement will become unsecured once the Company reaches an "investment grade" rating on its long- term senior unsecured indebtedness. As of January 30, 1999, $32.0 million of borrowings and $58.3 million of letters of credit were outstanding on a revolving basis and $409.7 million was available for future borrowing. In June 1996, the Company issued $185.7 million of its 5-1/2% Convertible Subordinated Notes due July 15, 2003 (the "Convertible Notes") which are convertible into Common Stock at a price of $60.76 per share, subject to adjustment in certain circumstances. The Convertible Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after July 16, 1999, at declining redemption prices plus any accrued interest. Upon the occurrence of a change of control, each holder of the Convertible Notes may require the Company to purchase all or any portion of such holder's Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. The Convertible Notes are subordinated in right of payment to all existing and future senior indebtedness of the Company. Provisions of the Notes, Credit Agreement and Convertible Notes contain various covenants which, among other things, limit the Company's ability to incur indebtedness, incur liens, declare or pay dividends or make restricted payments, consolidate, merge or sell assets. The annual maturities of long-term debt are approximately $3.4 million, $5.2 million, $0.0 million, $38.9 million and $182.7 million for 1999 through 2003, respectively. The carrying value of the Company's long-term debt approximates its fair value, which was estimated based upon the current rates offered to the Company for debt with similar terms and remaining maturities. 15. LEASE COMMITMENTS The Company leases office, distribution center, factory and retail locations, and equipment under operating leases expiring at various dates through 2022 with renewal options for additional periods. Most retail store leases require both contingent payments based on sales volume and contain escalation clauses for increases in operating costs and real estate taxes. Rent expense for operating leases was $151.1 million, $120.7 million and $80.7 million for 1998, 1997 and 1996, respectively. Included in rent expense are minimum rent payments of $147.2 million, $114.5 million and $74.3 million for 1998, 1997 and 1996, respectively. Future minimum operating lease payments under noncancellable leases with initial or remaining terms of one year or more at January 30, 1999 consist of (in thousands): Fiscal Minimum Year Payments ------ -------- 1999........................... $ 95,551 2000........................... 90,638 2001........................... 82,897 2002........................... 75,440 2003........................... 66,690 2004 and thereafter............ 327,914 -------- Total minimum lease payments.. $739,130 ======== 16. EMPLOYEE BENEFIT PLANS Defined Benefit Plans - As of December 31, 1996, the Company amended its retirement plans to freeze benefits thereunder, and merged three defined benefit pension plans acquired in connection with the Acquisition into its previously existing plan (the "Plan"). As of January 1, 1997, the Plan was further amended to take the form of a cash balance plan (the Plan and amendments thereto are referred to herein as the "Cash Balance Plan"), which expressed the retirement benefit as an account balance which increased each year through a combination of interest and service credits to the account based on a percentage of compensation. On January 27, 1999, the Cash Balance Plan was further amended to eliminate future service credits. Primarily as a result of the latter amendment, during the fourth quarter of 1998, the Company recognized a $12.3 million curtailment gain (the "Curtailment Gain") under the provisions of SFAS No. 88, "Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and Termination Benefits." The Company's funding policy is to make the minimum annual contributions required by applicable regulations. The assets of the Cash Balance Plan have been invested in commingled funds which invest primarily in common stock and investment grade bonds. The Company provides a Supplemental Executive Retirement Plan ("SERP" and, together with the Cash Balance Plan, the "Pension Plans") in which certain key employees and officers are eligible to participate. In connection with the Acquisition, the Company acquired an additional SERP in which certain Footwear Group employees participate. The SERPs provide supplemental pension benefits that are not available under the defined benefit pension plan. Benefits paid under the SERPs are based on length of service and final compensation, without regard to the limitations of the Internal Revenue Code (the "Code"), and are reduced by the full amount of benefits payable under the Cash Balance Plan. The SERPs are unfunded, and benefits thereunder are paid from the general assets of the Company. Effective December 31, 1995, the SERPs were amended to freeze the total benefit payable to participants. As participants accrue future benefits in the qualified pension plan, the benefits payable under the SERPs decrease. Defined Contribution Plans - As of January 1, 1997, the 401(k) savings plan acquired by the Company in connection with the Acquisition was merged into the Company's preexisting 401(k) savings plan (the "Savings Plan"). Additionally, a non-qualified compensation plan, the Supplemental Savings Plan (the "Supplemental Plan" and, together with the Savings Plan, the "Savings Plans"), was established for employees designated by the Company's retirement committee (the "Retirement Committee"). The Savings Plan allows each participant to contribute up to 15.0% (limited to 6.0% for highly compensated employees) of his or her salary for the year. The Company makes matching contributions to the Savings Plan equal to 50.0% of the participants contribution up to 6.0% of his or her salary. The Supplemental Plan allows each participant to contribute up to 15.0% of his or her salary for the year. The Company makes matching contributions to the Supplemental Plan equal to 50.0% of the participant's contribution up to 6.0% of his or her salary, limited to a maximum of $5,000 in 1998. At the end of the plan year, discrimination testing will determine the amount of Supplemental Plan contributions, not to exceed 6.0%, that will be transferred into the Savings Plan. In addition to the Savings Plans, the Company's United Kingdom and Asian subsidiaries have defined contribution plans with terms similar to those of the Savings Plan. The cost of the defined contribution plans to the Company was $1.7 million, $2.0 million and $2.2 million for 1998, 1997 and 1996, respectively. The Company also maintains a non-qualified deferred compensation plan (the "Executive Deferred Compensation Plan"). The purpose of the Executive Deferred Compensation Plan is to provide to certain eligible employees of the Company the opportunity to: (1) defer elements of their compensation (including any investment income thereon) which might not otherwise be deferrable under the Savings Plans; and (2) receive the benefit of additions to their deferral comparable to those obtainable under the Savings Plans in the absence of certain restrictions and limitations in the Code. The Executive Deferred Compensation Plan is unfunded; benefits are paid from the general assets of the Company. The Company's liability under the Executive Deferred Compensation Plan as of January 30, 1999 and January 31, 1998 was $12.6 million and $9.5 million, respectively. Health Benefit Plans - In connection with the Acquisition, the Company acquired postretirement benefit plans that partially subsidize healthcare costs and provide life insurance for certain eligible retirees of the Footwear Group. The postretirement medical plan was amended on August 1, 1996 to eliminate coverage for those active employees who were under age 50 as of December 31, 1996. This amendment resulted in a curtailment gain of $0.5 million for 1996. The liability associated with the postretirement medical plan has been significantly reduced as the share of the premiums paid by participants has increased. Currently, medical benefits for post-age 65 retirees is maintained by the Company, but the full cost of these benefits is paid by the retiree. Net periodic pension costs related to the Pension Plans and net other benefits include the following components (in thousands): Pension Benefits Other Benefits ---------------------------- ------------------------ 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Service cost................. $ 3,861 $4,063 $3,280 $ 22 $ 20 $ 41 Interest cost................ 3,175 3,500 4,377 150 250 389 Actual return on plan assets...................... (5,299) (5,063) (5,417) - - - Amortization of unrecognized net (gain) loss............. (218) - (143) (1,194) (606) (447) Amortization of prior service costs....................... (1,120) (1,117) (53) - - - Amortization of unrecognized net transition obligation (asset)..................... (18) (19) (19) - - - Curtailment gain............. (12,259) - - - - (461) ------- ------ ------ ------ ----- ----- Net periodic benefit cost.. $(11,878) $1,364 $2,025 $(1,022) $(336) $(478) ======== ====== ====== ======= ===== =====
The assumptions used to develop accrued pension cost and other benefit costs at the end of the year, as well as costs in the following year, are: Pension Benefits Other Benefits ------------------------- ------------------------ Jan. 30 Jan. 31 Feb.1 Jan. 30 Jan.31 Feb. 1 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- Discount rate.......... 6.75% 7.0% 7.5% 6.5% 6.75% 7.25% Rate of increase in compensation levels... 4.5 4.5 4.5 5.5 5.5 5.5 Expected long-term rate of return on assets... 9.0 9.0 9.0 - - - The funded status and the related accrued pension costs for the Defined Benefit Plans and the postretirement benefit obligation are (in thousands): Pension Benefits Other Benefits ------------------- -------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Change in benefit obligation: Benefit obligation at beginning of year.......... $48,568 $ 49,656 $ 2,326 $ 4,812 Service cost................ 3,861 4,063 22 20 Interest cost............... 3,175 3,500 150 250 Actuarial (gain) loss....... 3,479 2,323 43 (2,756) Curtailments................ (1,105) - - - Benefits paid............... (9,130) (10,974) (91) - ------- -------- ------ ------- Benefit obligation at end of year............. $48,848 $ 48,568 $ 2,450 $ 2,326 ======= ======== ====== ======= Change in plan assets: Fair value of plan assets at beginning of year...... $61,483 $ 58,435 $ - $ - Actual return on plan assets.................... 4,554 13,684 - - Employer contributions..... 105 338 91 - Benefits paid.............. (15,261) (10,974) (91) - ------- -------- ------- ------- Fair value of plan assets at end of year............ $50,881 $ 61,483 $ - $ - ======= ======== ======= ======= Funded status.............. $ 2,033 $ 12,915 $(2,450) $(2,326) Unrecognized transition (asset) obligation........ (2,247) (1,672) - - Unrecognized prior service cost...................... 128 (13,251) - - Unrecognized net (gain) loss...................... 2,056 (8,005) (6,378) (7,615) ------- -------- ------ ------ Prepaid (accrued) benefit cost...................... $ 1,970 $(10,013) $(8,828) $(9,941) ======= ======== ======= ======= For 1998, an 11.5% and 9.0% increase in the cost of covered healthcare benefits was assumed in the pre- and post-age 65 categories, respectively. This rate was assumed to decrease gradually to 5.0% by 2006 and remain at that level thereafter. The healthcare cost trend rate assumption has a significant effect on the amounts reported. For example, a one-percentage point change in the assumed healthcare cost trend rate would have the following effects: 1-Percentage 1-Percentage Point Increase Point Decrease -------------- -------------- Percentage increase (decrease) in service and interest cost........................ 6.7% (5.9%) Percentage increase (decrease) in postretirement benefit obligation.................. 5.9% (5.2%) The Company funds covered healthcare benefits as claims are incurred. Severance Plans - The Company provides certain severance benefits for former employees of the Footwear Group. These plans give severance, health, placement and certain other benefits to former Footwear Group employees based on length of service, final compensation, and certain other factors. The Company's liability under such plans was $0.6 million and $4.5 million at January 30, 1999 and January 31, 1998, respectively. See Note 3, "Business Restructuring Charges." 17. STOCK OPTION PLANS The Company has three stock option plans which provide for the issuance of options and other stock-based awards to management, employees, directors and other persons performing significant services for the Company. Under these plans, the Company is authorized to issue up to an aggregate of 9.7 million shares of Common Stock, with vesting periods of up to five years at option prices not less than the fair market value on the date of grant. Outstanding options have terms up to 10 years and are exercisable in successive annual increments conditional upon active employment or service, except for periods following retirement, disability, death or change of control of the Company. The number of shares available for issuance under the plans and the number of shares issuable pursuant to exercise of the outstanding stock options is subject to adjustment upon certain changes in the Company's capitalization. Activity in the Company's stock option plans was (shares in thousands): Weighted Average Shares Exercise Price ------ ---------------- Outstanding at February 3, 1996... 3,788 $27.20 ====== Granted............................... 1,271 44.55 Exercised............................. (553) 25.28 Forfeited............................. (86) 29.57 ------ Outstanding at February 1, 1997... 4,420 $32.98 ====== Granted............................... 1,722 30.67 Exercised............................. (76) 27.10 Forfeited............................. (93) 37.58 ------ Outstanding at January 31, 1998... 5,973 $32.32 ====== Granted............................... 409 21.85 Exercised............................. (19) 26.16 Forfeited............................. (625) 36.78 ------ Outstanding at January 30, 1999... 5,738 $31.10 ====== Shares exercisable at February 1, 1997 921 28.20 Shares exercisable at January 31, 1998 2,198 29.96 Shares exercisable at January 30, 1999 3,382 $30.28 The weighted average range of options outstanding at January 30, 1999 are (shares in thousands): Options Outstanding Options Exercisable ----------------------------------- ---------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price -------- ----------- ----------- -------- ----------- -------- $10.00 to 16.99 124 10.0 $14.09 0 $ 0.00 17.00 to 26.99 1,741 4.7 24.89 1,386 25.07 27.00 to 36.99 2,823 7.2 29.94 1,514 29.92 $37.00 to 50.00 1,050 7.2 $46.51 482 $46.39
The Company applies APB Opinion No. 25 and related interpretations in accounting for its three stock-based compensation plans. Had compensation cost for the Company's three stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share on a pro forma basis would have been (in thousands, except per share amounts): 1998 1997 1996 ---- ---- ---- Pro forma net income.................... $33,443 $68,435 $73,866 Pro forma basic earnings per share...... 0.95 1.91 2.07 Pro forma diluted earnings per share.... $ 0.95 $ 1.90 $ 2.02 Assumptions: Risk-free interest rate................ 4.7% 5.5% 6.0% Volatility............................. 44% 29.0% 33.0% Expected life.......................... 5 years 5 years 3 years The weighted average grant date fair value of options granted was $9.39, $12.37 and $13.98 for 1998, 1997 and 1996, respectively. The fair value of each option grant was estimated using the Black-Scholes options-pricing model based on the assumptions noted above and an expected dividend yield of zero. Results can vary materially depending on the assumptions applied within the model, and the resulting compensation expense may not be representative of compensation expense to be incurred on a pro forma basis in future years. 18. SHAREHOLDER RIGHTS PLAN On February 17, 1998, the Company adopted a shareholder rights plan (the "Rights Plan") and designated 70,000 shares of its 25,000,000 authorized shares of preferred stock, par value $.01 per share, as Series A Junior Participating Preferred Stock (the "Series A Preferred Stock"). Pursuant to the Rights Plan, on March 4, 1998, the Company paid a dividend of one preferred share purchase right (a "Right") for each outstanding share of the Company's Common Stock. Generally, the Rights become exercisable (1) a specified period after a party acquires beneficial ownership of 20% or more of the Common Stock (an "Acquiring Person") or (2) following the commencement or public announcement of an offer for 20% or more of the Company's Common Stock. Each Right provides that, when exercisable, the holder may purchase one one- thousandth of a share of Series A Preferred Stock, at a price of $120, subject to adjustment. For purposes of this calculation, there shall be disregarded shares of Common Stock which either of two named principal shareholders of the Company or their respective estates had the right to acquire on February 17, 1998, or acquire or obtain the right to acquire subsequent to February 17, 1998, in either case under employee benefit plans of the Company. After a party becomes an Acquiring Person, each holder of a Right will have the right to exercise the Right to purchase the number of Shares of Common Stock or, in certain situations, common stock of the Acquiring Person, having a market value of two times the exercise price. Alternatively, the Company has the option to exchange the Rights for shares of Common Stock or Series A Preferred Stock, at an exchange ratio of one share of Common Stock, or fractional shares of Series A Preferred Stock equivalent in value thereto, per Right, at any time after a party has acquired at least 20% but less than 50% of the Common Stock. The Company may redeem each Right for $.01 per Right at any time after an Acquiring Person becomes such. In general, none of the benefits of the Rights will be available to an Acquiring Person. The Rights will expire on February 16, 2008, unless earlier exchanged or redeemed. On March 1, 1999, the Company amended the Rights Plan in connection with entering into an agreement to merge with Jill Acquisition Sub Inc. ("Merger Sub"), a Delaware corporation and a wholly owned subsidiary of Jones Apparel Group, Inc. ("Jones"), a Pennsylvania corporation. The amendment provides that none of Jerome Fisher, Vincent Camuto, Jones or any affiliate or associate of any of them will be deemed to be an Acquiring Person solely by reason of (1) the approval, execution, delivery or performance of the Agreement and Plan of Merger, dated as of March 1, 1999, among Jones, Merger Sub and the Company (the "Merger Agreement"), (2) the approval, execution, delivery or performance of the Stockholder Agreement, dated as of March 1, 1999, between Jones and Messrs. Fisher and Camuto (the "Stockholder Agreement") or (3) the consummation of the transactions contemplated by the Merger Agreement or the Stockholder Agreement. See Note 22, "Subsequent Event." 19. CASH FLOWS Cash paid for income taxes was $12.4 million, $39.7 million and $46.0 million for 1998, 1997 and 1996, respectively. Cash paid for interest was $56.3 million, $37.1 million and $39.0 million for 1998, 1997 and 1996, respectively. Excluded from the consolidated statement of cash flows for 1997 is a $15.4 million non-cash debt obligation incurred by the Company in conjunction with its acquisition of The Shoe Studio Group Limited. 20. RELATED PARTY TRANSACTIONS During 1997, the Company's principal executive offices were moved from Stamford, Connecticut, to White Plains, New York. The Company is a party to a lease with respect to its former executive offices with a partnership in which the Company's Chairman of the Board and Chief Executive Officer have a combined 10.3% limited partnership interest. The lease was renegotiated and extended at current market rates during 1993 and expires on December 31, 2002. Rent payments related to the Company's former executive offices for 1998, 1997 and 1996 were $1.6 million, $2.3 million and $2.1 million, respectively, net of sublease income for 1998 of $0.3 million. 21. STOCKHOLDERS EQUITY On February 17, 1998, the Company authorized a share buy-back program in an amount not to exceed $20.0 million, which reflected limits imposed under the Company's Credit Agreement. During 1998, the Company completed the share buy-back program by purchasing 1,952,900 outstanding shares of its Common Stock at an aggregate price of approximately $20.0 million. In connection with the Acquisition, the Company issued warrants (the "Warrants") to purchase 3.7 million shares of Common Stock. On June 5, 1996, the Company made a net payment of $42.5 million to U.S. Shoe, in connection with the settlement of a post-closing balance sheet dispute relating to the Acquisition and for the repurchase by the Company of the Warrants. 22. SUBSEQUENT EVENT The Company, Jones and Merger Sub have entered into the Merger Agreement, pursuant to which the Company will be merged with Merger Sub (the "Merger") and all outstanding shares of the Company's Common Stock, other than shares held by parties to the Merger Agreement or by dissenting shareholders who perfect their statutory appraisal rights under Delaware law, will be converted into the right to receive $13.00 in cash and a number of shares of common stock of Jones (the "Jones Common Stock") equal to the Exchange Ratio, subject to the terms and conditions of the Merger Agreement. The "Exchange Ratio" will be (i) .5011 if the average price of the Jones Common Stock for a 15-day period prior to the Closing (the "Jones Stock Price") is greater than or equal to $24.00 and less than or equal to $34.00; (ii) equal to $12.00 divided by the Jones Stock Price if the Jones Stock Price is greater than or equal to $21.00 and less than $24.00; (iii) .5714 if the Jones Stock Price is less than $21.00; (iv) equal to $17.00 divided by the Jones Stock Price if the Jones Stock Price is greater than $34.00 but less than or equal to $36.00; and (v) .4722 if the Jones Stock Price is greater than $36.00. Based on a value of Jones Common Stock of $29-5/8 per share as of April 16, 1999, and including assumed debt, the transaction has a total value of approximately $1.5 billion. Jones is a designer and marketer of a broad array of products, including sportswear, jeanswear, suits and dresses. The Merger will be accounted for as a purchase for financial accounting purposes. The transaction is expected to close by the end of June 1999 and is subject to customary conditions, including approval by Company stockholders. 23. COMMITMENTS AND CONTINGENCIES The Federal Trade Commission is currently conducting an inquiry with respect to the Company's resale pricing policies to determine whether the Company violated the federal antitrust laws by agreeing with others to restrain the prices at which retailers sell footwear and other products marketed by the Company. In addition, Attorneys General from the States of Florida, New York, Ohio and Texas are conducting similar inquiries. Since January 13, 1999, more than 25 putative class actions have been filed on behalf of purchasers of the Company's footwear in three separate federal courts alleging that the Company violated Section 1 of the Sherman Act by engaging in a conspiracy with its retail distributors to fix the minimum prices at which the footwear marketed by the Company was sold to the public. All of these class action complaints have been consolidated into a single action in the United States District Court for the Southern District of New York and seek injunctive relief, unspecified compensatory and treble damages, and attorneys' fees. In addition, five putative class actions based on the same alleged conduct have been filed in state courts in New York, the District of Columbia, Wisconsin, California and Minnesota alleging violations of those states' respective antitrust laws. The five state actions likewise seek injunctive relief, unspecified compensatory and treble damages, and attorneys' fees. Based on the short period of time that has elapsed since the inception of the inquiries and the filing of the lawsuits, the Company's existing policies relating to resale pricing and the limited information available to the Company with respect to compliance with those policies, the Company does not anticipate that the inquiries or lawsuits will result in a material adverse financial effect on the Company. On March 3, 4 and 5, 1999, four purported stockholder class action suits were filed against the Company, the members of the Company's Board of Directors and Jones in the Delaware Court of Chancery. These complaints allege, among other things, that the defendants have breached their fiduciary duties to Company stockholders by failing to maximize stockholder value in connection with entering into the Merger Agreement. See Note 22, "Subsequent Event." The complaints seek, among other things, an order enjoining completion of the merger. The Company and Jones believe that the complaints are without merit and plan to defend vigorously against the complaints. On May 1, 1997, the Company learned that on April 10, 1997, the United States Securities and Exchange Commission (the "SEC") entered a formal order of investigation of the Company. Based on conversations with the staff of the SEC, the Company believes that this investigation was primarily focused on the revenue recognition policies and practices of certain of the Company's divisions that were acquired from U.S. Shoe in 1995. On October 29, 1997, the Company received a subpoena issued by the SEC in connection with its investigation requesting the Company to produce certain documents relating to the purchase by the Company of products manufactured in Brazil from 1994 to date, including documents concerning the prices paid for such products and the customs duties paid in connection with their importation into the United States. On February 1, 1999, the SEC informed the Company that its investigation had been terminated with no enforcement action being recommended against the Company. In addition, on October 29, 1997, the Company learned that the United States Customs Service had commenced an investigation of the Company relating to the Company's importation of Brazilian footwear from 1995 to date. On April 14, 1998, the United States Customs Service informed the Company that such investigation had been terminated with no action taken against the Company. The Company has been named as a defendant in various actions and proceedings, including actions brought by certain terminated employees, arising from its ordinary business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse financial effect on the Company. 24. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the last two years appears below (in thousands, except per share data): First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1998 Net revenues...................... $448,282 $527,958 $485,720 $454,747 Gross profit...................... 191,060 214,376 208,523 175,888 Income (loss) before extraordinary item............................. 7,283 21,637 15,873 (7,348) Earnings (loss) per share before extraordinary item* Basic.......................... 0.20 0.60 0.46 (0.22) Diluted........................ $ 0.20 $ 0.60 $ 0.46 $ (0.22) 1997 Net revenues...................... $406,083 $495,684 $496,563 $466,988 Gross profit...................... 181,841 206,639 221,418 191,839 Net income (loss)................. 17,491 28,926 34,602 (2,888) Earnings (loss) per share* Basic.......................... 0.49 0.81 0.97 (0.08) Diluted........................ $ 0.48 $ 0.78 $ 0.92 $ (0.08) *The total of quarterly earnings per share does not equal the annual amount, as earnings per share is calculated independently for each quarter. The calculation of diluted earnings per share excludes the impact of antidilutive common stock equivalents. For the first, second and fourth quarters of 1998, net income, basic earnings per share and diluted earnings per share are equivalent to income before extraordinary item. Net income, basic earnings per share and diluted earnings per share for the third quarter of 1998 were $18.8 million, $0.54 and $0.54, respectively, which includes the Note Repurchase Gain. See Note 5, "Extraordinary Item." The fourth quarters of 1998 and 1997 include pre-tax charges of $3.7 million and $6.3 million, respectively, for severance and other costs related to the reduction of corporate positions. Additionally, the fourth quarter of 1998 includes the 1998 Restructuring Charge (see Note 3, "Business Restructuring Charges"), the Curtailment Gain (see Note 16, "Employee Benefit Plans") and a $3.2 million pre-tax charge for the write-down of receivables in connection with the discontinuation of a Far East distribution operation. 25. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company's operations are comprised of domestic wholesale, domestic retail and international segments. The Company identifies operating segments based on, among other things, the way that the Company's management organizes the components of the Company's business for purposes of allocating resources and assessing performance. Segment revenues are generated from the sale of footwear and accessories through wholesale channels and the Company's own retail locations and are recorded on the basis of customer location. The domestic wholesale segment includes wholesale operations with third party department and retail stores within the United States. The domestic retail segment includes retail operations by Company-owned retail stores located in the United States. The international segment includes retail and wholesale operations with third party customers in approximately 55 countries. No individual country other than the United States accounted for more that 10% of consolidated net revenues in 1998, 1997 or 1996. The Company defines segment profit as income from continuing operations before restructuring expenses, interest expense, income taxes, discontinued operations and extraordinary items. All inter-segment sales are accounted for at prices that provide a profit and are in accordance with the rules and regulations of the respective governing authorities. The Company does not include intercompany activity between segments in the measurement of segment profitability. Information on segments and a reconciliation to amounts disclosed within the consolidated financial statements are as follows (in thousands): Fiscal year ended January 30, 1999: Domestic Domestic Inter- Corporate Wholesale Retail national and other Consolidated --------- -------- -------- --------- ------------ Net revenues............. $874,714 $744,382 $297,611 $ - $1,916,707 Depreciation and amortization............ 4,323 13,062 7,331 24,305 49,021 Segment profit........... 173,945 46,483 (917) (86,629) 132,882 Business restructuring expenses................ 18,033 Interest expense......... 53,467 Income from continuing operations before income taxes................... 61,382 Capital expenditures..... 7,327 14,177 12,096 8,295 41,895 Total assets............. $508,532 $245,593 $159,059 $303,945 $1,217,129
Fiscal year ended January 31, 1998: Domestic Domestic Inter- Corporate Wholesale Retail national and other Consolidated --------- -------- -------- --------- ------------ Net revenues............. $904,455 $744,904 $215,959 $ - $1,865,318 Depreciation and amortization............ 3,170 11,961 3,597 21,224 39,952 Segment profit........... 194,382 75,045 7,615 (94,944) 182,098 Interest expense......... 54,014 Income from continuing operations before income taxes................... 128,084 Capital expenditures..... 3,501 27,067 12,160 33,504 76,232 Total assets............. $443,061 $214,718 $ 79,077 $654,683 $1,391,539
Fiscal year ended February 1, 1997: Domestic Domestic Inter- Corporate Wholesale Retail national and other Consolidated --------- -------- -------- --------- ------------ Net revenues............. $881,746 $682,626 $38,743 $ - $1,603,115 Depreciation and amortization............ 2,166 10,833 770 19,214 32,983 Segment profit........... 203,510 82,827 105 (86,119) 200,323 Business restructuring expenses................ 18,970 Interest expense......... 41,947 Income from continuing operations before income taxes................... 139,406 Capital expenditures..... $ 4,474 $ 26,078 $ 2,133 $ 10,121 $ 42,806
Long-lived assets excluding deferred taxes related to operations in the United States and foreign countries are as follows: 1998 1997 ---- ---- United States.......................... $522,264 $526,575 Foreign countries...................... 62,070 51,943 -------- -------- Total.......................... $584,334 $578,518 ======== ======== 26. CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Notes are fully and unconditionally guaranteed on a joint and several basis by certain wholly-owned domestic subsidiaries of Nine West Group Inc. Accordingly, condensed consolidating balance sheets as of January 30, 1999 and January 31, 1998, and condensed consolidating statements of income and cash flows for the 52-week periods ended January 30, 1999, January 31, 1998 and February 1, 1997, respectively, for such guarantor subsidiaries are provided. These condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that they are not material to investors. There are no contractual restrictions on distributions from each of the guarantor subsidiaries to Nine West Group Inc.
NINE WEST GROUP INC. CONDENSED CONSOLIDATING STATEMENTS OF INCOME 52 WEEKS ENDED JANUARY 30, 1999 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated -------- ------------ ------------- ----------- ------------ Net revenues......................... $923,219 $2,336,333 $ 329,033 $(1,671,878) $1,916,707 Cost of goods sold................... 506,276 1,973,743 170,485 (1,523,644) 1,126,860 -------- ---------- --------- ----------- ---------- Gross profit....................... 416,943 362,590 158,548 (148,234) 789,847 Selling, general and administrative expenses............. 402,701 256,375 140,759 (148,234) 651,601 Business restructuring expenses...... 7,573 5,046 0 0 12,619 Amortization of acquisition goodwill and other intangibles............... 5,647 3,716 1,415 0 10,778 -------- ---------- --------- ----------- ---------- Operating income................... 1,022 97,453 16,374 0 114,849 Interest expense..................... 14,798 30,306 8,363 0 53,467 Equity in net earnings of subsidiaries........................ 48,624 0 0 (48,624) 0 -------- ---------- --------- ----------- ---------- Income before income taxes......... 34,848 67,147 8,011 (48,624) 61,382 Income tax expense................... (2,597) 24,438 2,096 0 23,937 -------- ---------- --------- ----------- ---------- Income before extraordinary item.. 37,445 42,709 5,915 (48,624) 37,445 Extraordinary gain (net of income taxes of $1,869)................... 2,923 0 0 0 2,923 -------- ---------- --------- ----------- ---------- Net income......................... $ 40,368 $ 42,709 $ 5,915 $ (48,624) $ 40,368 ======== ========== ========= =========== ==========
NINE WEST GROUP INC. CONDENSED CONSOLIDATING STATEMENTS OF INCOME 52 WEEKS ENDED JANUARY 31, 1998 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated -------- ------------ ------------- ----------- ------------ Net revenues......................... $862,742 $2,259,029 $ 256,111 $(1,512,564) $1,865,318 Cost of goods sold................... 440,133 1,839,367 140,756 (1,356,675) 1,063,581 -------- ---------- --------- ----------- ---------- Gross profit....................... 422,609 419,662 115,355 (155,889) 801,737 Selling, general and administrative expenses............. 397,619 275,850 92,681 (156,159) 609,991 Amortization of acquisition goodwill and other intangibles............... 5,510 3,715 423 0 9,648 -------- ---------- -------- ----------- ---------- Operating income................... 19,480 140,097 22,251 270 182,098 Interest expense..................... 12,021 34,422 7,301 270 54,014 Equity in net earnings of subsidiaries........................ 79,467 (79,467) 0 -------- ---------- -------- ----------- ---------- Income before income taxes......... 86,926 105,675 14,950 (79,467) 128,084 Income tax expense................... 8,795 39,443 1,715 49,953 -------- ---------- -------- ----------- ---------- Net income......................... $ 78,131 $ 66,232 $13,235 $ (79,467) $ 78,131 ======== ========== ======== =========== ==========
NINE WEST GROUP INC. CONDENSED CONSOLIDATING STATEMENTS OF INCOME 52 WEEKS ENDED FEBRUARY 1, 1997 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated -------- ------------ ------------- ----------- ------------ Net revenues......................... $739,214 $2,001,125 $ 98,435 $(1,235,659) $1,603,115 Cost of goods sold................... 380,965 1,624,199 57,538 (1,148,756) 913,946 -------- ---------- --------- ----------- ---------- Gross profit....................... 358,249 376,926 40,897 (86,903) 689,169 Selling, general and administrative expenses............. 298,937 239,844 27,293 (86,790) 479,284 Business restructuring expenses...... 5,466 13,504 - - 18,970 Amortization of acquisition goodwill and other intangibles............... 7,704 1,858 9,562 -------- ---------- --------- ----------- ---------- Operating income................... 46,142 121,720 13,604 (113) 181,353 Interest expense..................... 11,824 24,466 5,770 (113) 41,947 Equity in net earnings of subsidiaries........................ 61,815 (61,815) 0 -------- ---------- --------- ----------- ---------- Income before income taxes......... 96,133 97,254 7,834 (61,815) 139,406 Income tax expense................... 15,125 40,035 602 55,762 -------- ---------- --------- ----------- ---------- Income from continuing operations. 81,008 57,219 7,232 (61,815) 83,644 Loss on disposal of discontinued operation - net..................... 2,636 2,636 -------- ---------- --------- ----------- ---------- Net income......................... $ 81,008 $ 57,219 $ 4,596 $ (61,815) $ 81,008 ======== ========== ========= =========== ==========
NINE WEST GROUP INC. CONDENSED CONSOLIDATING BALANCE SHEETS JANUARY 30, 1999 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated ---------- ------------ ------------- ----------- ------------ ASSETS Current Assets: Cash............................... $ 9,776 $ 26 $ 8,149 $ 0 $ 17,951 Accounts receivable including securitized interest in accounts receivable - net................. 34,363 (50,868) 102,999 0 86,494 Inventories........................ 140,112 246,634 73,629 0 460,375 Prepaid expenses and other current assets.................... 38,047 23,488 5,897 0 67,432 Due (to) from affiliates........... (285,991) 307,097 (21,106) 0 0 ---------- -------- -------- --------- ---------- Total current assets............. (63,693) 526,377 169,568 0 632,252 Property and equipment - net......... 118,345 17,588 28,073 0 164,006 Goodwill - net....................... 202,635 0 27,602 0 230,237 Trademarks and trade names - net..... 1,099 134,906 1,890 0 137,895 Other assets......................... 70,838 4,100 4,601 (26,800) 52,739 Investment in subsidiaries........... 783,782 0 0 (783,782) 0 ---------- -------- -------- --------- ---------- Total assets................... $1,113,006 $682,971 $231,734 $(810,582) $1,217,129 ========== ======== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................... $ 19,027 $ 46,712 $ 13,786 $ 0 $ 79,525 Accrued expenses and other current liabilities....................... 69,949 14,833 14,285 0 99,067 Current portion of long-term debt.. 0 0 3,449 0 3,449 ---------- -------- -------- --------- ---------- Total current liabilities........ 88,976 61,545 31,520 0 182,041 Long-term debt....................... 498,745 0 12,059 0 510,804 Other non-current liabilities........ 62,442 1 29,879 (26,102) 66,220 ---------- -------- -------- -------- ---------- Total liabilities.............. 650,163 61,546 73,458 (26,102) 759,065 ---------- -------- -------- -------- ---------- Stockholders' equity................. 462,843 621,425 158,276 (784,480) 458,064 ---------- -------- -------- -------- ---------- Total liabilities and stockholders' equity........ $1,113,006 $682,971 $231,734 $(810,582) $1,217,129 ========== ======== ======== ========= ==========
NINE WEST GROUP INC. CONDENSED CONSOLIDATING BALANCE SHEETS JANUARY 31, 1998 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated ---------- ------------ ------------- ---------- ------------ ASSETS Current Assets: Cash............................... $ 10,526 $ 39 $ 13,109 $ 0 $ 23,674 Accounts receivable including securitized interest in accounts receivable - net................. 44,723 (18,824) 106,584 (560) 131,923 Inventories........................ 174,674 305,180 63,649 0 543,503 Prepaid expenses and other current assets.................... 43,628 31,984 10,515 13,904 100,031 Due (to) from affiliates........... (72,262) 156,341 (83,803) (276) 0 ---------- -------- -------- --------- ---------- Total current assets............. 201,289 474,720 110,054 13,068 799,131 Property and equipment - net......... 123,945 23,701 38,738 (13,589) 172,795 Goodwill - net....................... 207,417 0 23,713 0 231,130 Trademarks and trade names - net..... 1,128 138,622 0 0 139,750 Other assets......................... 35,688 1,270 11,962 (187) 48,733 Investment in subsidiaries........... 719,273 0 0 (719,273) 0 ---------- -------- -------- --------- ---------- Total assets................... $1,288,740 $638,313 $184,467 $(719,981) $1,391,539 ========== ======== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................... $ 38,554 $ 52,723 $ 8,798 $ 0 $ 100,075 Accrued expenses and other current liabilities....................... 80,298 7,283 18,423 (560) 105,444 Current portion of long-term debt.. 0 0 4,235 0 4,235 ---------- -------- -------- --------- ---------- Total current liabilities........ 118,852 60,006 31,456 (560) 209,754 Long-term debt....................... 674,267 0 12,996 0 687,263 Other non-current liabilities........ 54,107 0 868 699 55,674 ---------- -------- -------- --------- ---------- Total liabilities.............. 847,226 60,006 45,320 139 952,691 ---------- -------- -------- --------- ---------- Stockholders' equity................. 441,514 578,307 139,147 (720,120) 438,848 ---------- -------- -------- --------- ---------- Total liabilities and stockholders' equity........ $1,288,740 $638,313 $184,467 $(719,981) $1,391,539 ========== ======== ======== ========= ==========
NINE WEST GROUP INC. CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS JANUARY 30, 1999 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Net cash provided by operating activities.......................... $ 210,888 $ 1,240 $ 3,243 $ 0 $ 215,371 --------- -------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.. (24,802) (4,914) (12,179) 0 (41,895) Proceeds from sale of property and equipment.......................... 16,351 0 0 0 16,351 Business acquisition - net of cash acquired............................ 0 0 (9,932) 0 (9,932) Proceeds from sale of discontinued operation........................... 0 0 2,780 0 2,780 Other investing activities........... (11,790) 3,252 15,373 0 6,835 --------- -------- -------- -------- --------- Net cash used by investing activities.......................... (20,241) (1,662) (3,958) 0 (25,861) --------- -------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under financing agreements................ (142,861) 0 1,726 0 (141,135) Repayments of long-term debt......... (29,497) 0 (3,449) 0 (32,946) Purchases of stock for treasury...... (19,991) 0 0 0 (19,991) Net proceeds from issuance of stock and other........................... 952 409 (2,522) 0 (1,161) --------- -------- -------- -------- --------- Net cash (used) provided by financing activities.......................... (191,397) 409 (4,245) 0 (195,233) --------- -------- -------- -------- --------- NET DECREASE IN CASH................. (750) (13) (4,960) 0 (5,723) CASH, BEGINNING OF PERIOD............ 10,526 39 13,109 0 23,674 --------- -------- -------- -------- --------- CASH, END OF PERIOD.................. $ 9,776 $ 26 $ 8,149 $ 0 $ 17,951 ========= ======== ======== ======== =========
NINE WEST GROUP INC. CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS JANUARY 31, 1998 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Net cash provided by operating activities.......................... $ 6,688 $ 9,045 $ 54,555 $ 0 $ 70,288 --------- -------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.. (58,379) (5,522) (12,331) 0 (76,232) Business acquisitions - net of cash acquired............................ (5,673) 0 (20,721) 0 (26,394) Other investing activities........... 2,240 (3,511) (1,443) 0 (2,714) --------- -------- -------- -------- --------- Net cash used by investing activities.......................... (61,812) (9,033) (34,495) 0 (105,340) --------- -------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under financing agreements................ 45,000 0 4,376 0 49,376 Proceeds from issuance of long-term debt................................ 316,648 0 0 0 316,648 Repayments of long-term debt......... (322,001) 0 (10,294) 0 (332,295) Net proceeds from issuance of stock and other........................... 2,498 1 (2,678) 0 (179) --------- -------- -------- -------- --------- Net cash provided (used) by financing activities.......................... 42,145 1 (8,596) 0 33,550 --------- -------- -------- -------- --------- NET (DECREASE) INCREASE IN CASH...... (12,979) 13 11,464 0 (1,502) CASH, BEGINNING OF PERIOD............ 23,505 26 1,645 0 25,176 --------- -------- -------- -------- --------- CASH, END OF PERIOD.................. $ 10,526 $ 39 $ 13,109 $ 0 $ 23,674 ========= ======== ======== ======== =========
NINE WEST GROUP INC. CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FEBRUARY 1, 1997 (in thousands) Nine West Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Net cash (used) provided by operating activities...........................$ (86,244) $(15,197) $ 13,536 $ 0 $ (87,905) --------- -------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment... (36,823) (2,626) (3,357) 0 (42,806) Proceeds from sale of property and equipment........................... 181 19,424 12 0 19,617 Business acquisitions - net of cash acquired............................. (2,197) 0 (9,383) 0 (11,580) Acquisition purchase price settlement. 25,000 0 0 0 25,000 Proceeds from sale of discontinued operation............................ 2,800 0 0 0 2,800 Other investing activities............ 9,220 (1,596) (1,578) 0 6,046 --------- -------- -------- -------- --------- Net cash (used) provided by investing activities........................... (1,819) 15,202 (14,306) 0 (923) --------- -------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under financing agreements................. 128,000 0 0 0 128,000 Proceeds from issuance of long-term debt................................. 232,016 0 0 0 232,016 Repayments of long-term debt.......... (218,000) 0 0 0 (218,000) Repurchases of warrants............... (67,500) 0 0 0 (67,500) Net proceeds from issuance of stock and other............................ 18,695 0 11 0 18,706 --------- -------- -------- -------- --------- Net cash provided by financing activities........................... 93,211 0 11 0 93,222 --------- -------- -------- -------- --------- NET INCREASE (DECREASE) IN CASH....... 5,148 5 (759) 0 4,394 CASH, BEGINNING OF PERIOD............. 18,357 21 2,404 0 20,782 --------- -------- -------- -------- --------- CASH, END OF PERIOD...................$ 23,505 $ 26 $ 1,645 $ 0 $ 25,176 ========= ======== ======== ======== =========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS The Company's Board of Directors is divided into three classes. The term of the current Class I directors, Messrs. Goldsmith and Pascarella, expires in 2000; the term of the current Class II directors, Messrs. Fisher and Camuto, expires in 2001; and the term of the current Class III director, Mr. Salibello, expires in 1999. Directors hold office until the annual meeting of stockholders of the Company in the year in which the term of their class expires and until their successors have been duly elected and qualified. At each annual meeting of stockholders of the Company, the successors to the class of directors whose term expires are elected for a three-year term. The following table sets forth certain information, as of April 16, 1999, with respect to each director. Unless noted otherwise, the business experience shown for each individual has been his principal occupation for at least the past five years. Name Age Business Director Since - ---- --- -------- -------------- Jerome Fisher 68 Chairman of the Board and a 1977 director of the Company since its organization. Mr. Fisher and Vincent Camuto founded the Company in 1977. Mr. Fisher is principally responsible for long-range corporate strategy, long-range financial planning, review and evaluation of potential mergers and acquisitions, and the Company's international expansion. Vincent Camuto 62 A director and head of product 1977 development of the Company since its organization. Prior to being named Chief Executive Officer of the Company in May 1995, Mr. Camuto served as President from February 1993 to May 1995. Mr. Camuto and Jerome Fisher founded the Company in 1977. Mr. Camuto is principally responsible for the day-to-day management of the Company, including supervising the design, manufacture, marketing and distribution of the Company's products. C. Gerald 70 Financial advisor. Mr. Goldsmith 1993 Goldsmith also serves as a director of American Banknote Corporation, American Bank Note Holographics, Inc., Palm Beach National Bank & Trust Company, Innkeepers USA Trust, The Meditrust Companies and Plymouth Rubber Company, Inc. Henry W. 65 Attorney; Senior Counsel, Tyler 1995 Pascarella Cooper & Alcorn. Salvatore M. 53 Managing partner of the accounting 1993 Salibello firm of Salibello & Broder. Mr. Salibello also serves as a director of Kasper A.S.L., Ltd. The Company and each of Messrs. Fisher and Camuto have entered into agreements with respect to the election of directors of the Company. See "Item 13 - Certain Relationships and Related Transactions." EXECUTIVE OFFICERS Jerome Fisher serves as Chairman of the Board and Vincent Camuto serves as Chief Executive Officer. See "-- Directors" above. Robert C. Galvin, age 39, has been Executive Vice President, Chief Financial Officer and Treasurer since April 30, 1996. From October 1995 to April 1996, Mr. Galvin served as Senior Vice President - Strategic Planning. Prior to October 1995, Mr. Galvin was a partner at Deloitte & Touche LLP in charge of the Connecticut retail and distribution practice of that firm and specialized in mergers and acquisitions. In that capacity, Mr. Galvin consulted with the Company beginning in 1987 and advised the Company with respect to acquisitions. Executive officers of the Company serve at the discretion of the Board of Directors, subject to contractual arrangements. There is no family relationship between any of the directors or executive officers of the Company. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires directors, executive officers and greater than 10% stockholders of the Company to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of equity securities of the Company. To the Company's knowledge, based solely on its review of the copies of such reports furnished to the Company and written representations that no other reports were required, all Section 16(a) filing requirements were complied with during fiscal 1998. ITEM 11. EXECUTIVE COMPENSATION. DIRECTOR COMPENSATION Nonemployee directors receive an annual retainer of $36,000 per year as compensation for their services and $3,000 for each Board or committee meeting attended. Each committee chairman receives an additional $3,000 per year. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with meetings of the Board or committees thereof. The Company's 1993 Directors' Stock Option Plan, as amended (the "Directors' Plan"), provides that stock options will be granted through the year 2003 to "Eligible Directors" (generally, nonemployee directors). An aggregate of 101,340 shares of Common Stock remains available for issuance pursuant to options not yet granted under the Directors' Plan, subject to adjustment upon certain changes in the Company's capitalization. All options granted under the Directors' Plan are granted as of the first business day after the annual stockholders' meeting. Each Eligible Director is entitled to receive an option on the grant date to acquire 5,000 shares of Common Stock at a price equal to the fair market value of the Common Stock on that date. The options become exercisable in successive annual increments of 33%, 34% and 33%, beginning on the first anniversary of the date the options were granted. SUMMARY COMPENSATION TABLE The following table sets forth compensation paid to the Company's Chairman of the Board, its Chief Executive Officer and an additional executive officer of the Company for the Company's last three fiscal years. Annual Compensation Long Term Compensation Awards --------------------------------- -------------------------------------------- Securities Name and Underlying Restricted All Other Principal Position Year Salary ($) Bonus($) (1) Options/SAR (#) Stock Awards ($) Compensations ($)(2) - ------------------ ---- --------- ------------ -------------- --------------- ------------------- Jerome Fisher 1998 $1,044,688 $300,000 0 $ 0 $ 0 Chairman of the Board 1997 1,035,000 0 125,000 0 0 1996 1,035,000 750,000 50,000 0 2,417 Vincent Camuto 1998 $1,044,688 $500,000 0 $ 0 $5,258 Chief Executive Officer 1997 1,035,000 0 125,000 0 4,750 and Director 1996 1,035,000 750,000 50,000 0 6,006 Robert C. Galvin (3) 1998 $ 440,486 $215,625 0 $255,000(4) $5,101(5) Executive Vice President, 1997 340,008 70,333 40,000 0 5,073(5) Chief Financial Officer, 1996 306,668 243,750 20,000 0 5,358 and Treasurer
(1) Except as otherwise noted, amounts shown represent bonus earned for the applicable fiscal year but paid during the first quarter of the subsequent fiscal year. (2) Except as otherwise noted, amounts shown represent matching contributions made by the Company under the Company's 401(k) Savings Plan, Executive Deferred Compensation Plan and/or Supplemental Savings Plan. (3) Mr. Galvin became the Company's Executive Vice President, Chief Financial Officer and Treasurer effective as of April 30, 1996; from October 2, 1995 to April 30, 1996, Mr. Galvin was Senior Vice President, Strategic Planning. (4) Based on a closing price of $25.50 on February 2, 1998 with respect to a total of 10,000 shares of restricted Common Stock granted to Mr. Galvin pursuant to a Restricted Stock Agreement between the Company and Mr. Galvin dated February 2, 1998. With certain exceptions, such 10,000 shares will vest on the date of the public release by the Company of its earnings as follows: (i) 1,666 shares will vest on fiscal year ending January 30,1999 if the Company meets or exceeds its targeted fully diluted earnings per share set forth in the Company's 1998 Budget; and (ii) with respect to any subsequent fiscal year, if the Company meets or exceeds the financial goals established with respect to the accelerated vesting of the restricted stock for such fiscal year, as determined by the Compensation Committee no later than 90 days after the commencement of the applicable fiscal year. For any fiscal year for which the applicable financial goal is not achieved, the period of restriction shall not be terminated until 6 years from the date of award. All shares of restricted stock vest upon a "change of control," as defined in the Restricted Stock Agreement. (5) Amount shown includes life insurance premiums of $335 and $323 in 1998 and 1997, respectively. OPTION GRANTS IN LAST FISCAL YEAR No stock options or stock appreciation rights were granted to the individuals named in the Summary Compensation Table during fiscal 1998. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following table sets forth information concerning option exercises during fiscal 1998 and options held at January 30, 1999 by the individuals named in the Summary Compensation Table, and the value of those options at such date. Only a portion of the options had exercise prices lower than the fair market value of the Common Stock on such date ("in-the-money" options). AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Shares Acquired No. of Securities Value of Unexercised on Value Underlying Unexercised "In-the-Money" Options/SARs Name Exercise (#) Realized($) Options/SARs at FY-End (#) at FY-End ($) (1) - ---- ------------- ----------- -------------------------- -------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Jerome Fisher 0 $0 245,000 146,666 $0 $0 Vincent Camuto 0 $0 291,900 146,666 0 0 Robert C. Galvin 0 $0 44,000 36,000 0 0
(1) Based upon a price of $13.75 per share (the closing price of the Common Stock on January 30, 1999) less the applicable option exercise price. PENSION PLAN Effective January 1, 1997, the Company established a defined benefit pension plan (the "Pension Plan") covering current employees of the Company and certain eligible employees who were previously employed by the Footwear Group. Prior to that time, these participants were covered under the Pension Plan for Employees of Nine West Group Inc. (the "Prior NWG Pension Plan"), the Nine West Group Inc. Pension Plan for Former Salaried Employees of U.S. Shoe Footwear (the "Prior U.S. Shoe Pension Plan") and two other defined benefit pension plans maintained by the Company. On January 27, 1999, the Company amended the Pension Plan to eliminate future service credits. Interest credits will continue to be credited to the account balance. The normal retirement benefit under the Pension Plan is equal to the participant's accumulated cash balance account at retirement. Prior to the Pension Plan amendment noted above and in accordance with the following schedule, each participant's cash balance account was credited annually with "service credits" equal to the applicable percentage, based on the participant's age and applicable years of service, times pensionable compensation. Pensionable compensation under the Pension Plan is cash compensation in the form of base pay and commissions paid, if any, including the amount of any reductions in a participant's compensation used for elective deferrals under a cash or deferred profit sharing plan or a cafeteria plan. All other compensation and benefits is excluded for purposes of determining pensionable compensation. The annual compensation of each employee taken into account in calculating pensionable compensation under the Pension Plan may not exceed $160,000, adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code of 1986, as amended (the "Code"). Participants only receive "service credits" prior to the Pension Plan amendment noted above, in years during which they work at least 1,000 hours, in accordance with the following schedule: Age and Years of Credited Service Applicable Percentage ------------------- --------------------- 30 and under 1.50% 30-39 2.00 40-49 2.50 50-59 3.25 60-69 4.25 70-79 5.50 80-89 7.00 90 and over 9.25 Cash balance accounts are credited monthly with interest, based on the monthly equivalent of the 5-year U.S. Treasury Bill rates in effect on December 1 of the preceding year, plus 0.25%. Former participants of the four predecessor defined benefit pension plans received an opening cash balance account equal to the present value of their December 31, 1996 accrued benefit under the predecessor plan in which they participated. In addition, participants of the Prior NWG Pension Plan and the Prior U.S. Shoe Pension Plan who were age 50 or older with at least five years of credited service on December 31, 1996 received an additional cash balance service credit of 3% per year of service at ages 50 through 59, and 4% per year of service at age 60 and older. The normal form of benefit under the Pension Plan for an unmarried participant is a single life annuity. The normal form of benefit under the Pension Plan for a married participant is a joint and 50% survivor annuity with his or her spouse, which is the actuarial equivalent of the cash balance account determined by the Pension Plan formula. In addition, a minimum guaranteed benefit was established for participants in the Company's supplemental executive retirement plan (the "SERP") and supplemental executive benefit plan for certain eligible employees of the Company who were previously employed by the Footwear Group (the "U.S. Shoe SERP") based on the participant's total accrued benefit as of December 31, 1995. Benefit accrual under these plans ceased effective January 1, 1996. Generally, the aggregate maximum retirement benefit payable to a participant in the Pension Plan and either the SERP or the U.S. Shoe SERP is the greater of (i) the aggregate amount accrued under both the Pension Plan and the SERP or the U.S. Shoe SERP, as of December 31, 1995, considering such participant's service and compensation only as of such date, or (ii) the benefit payable to the participant under the Pension Plan alone, considering all of such participant's service and pensionable compensation. The following table sets forth estimated total annual benefits payable under the Pension Plan and the SERP or the U.S. Shoe SERP, to each of the individuals named in the Summary Compensation Table upon retirement at normal retirement age. These estimates are calculated assuming each such individual will remain employed by the Company until retirement, and that all future pensionable compensation will be subject to the current limitation on compensation and certain other limitations under the Code. Estimated Total Annual Retirement Benefit at Normal Retirement Age ---------------------- Jerome Fisher $152,159 Vincent Camuto 93,538 Robert C. Galvin 2,911 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee of the Board of Directors during 1998 were Messrs. Pascarella and Goldsmith, both nonemployee directors. No member of the Compensation Committee has a relationship that would constitute an interlocking relationship with executive officers or other directors of the Company. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Effective February 9, 1993, the Company entered into employment agreements with each of Messrs. Fisher and Camuto. Each agreement has an initial term of five years, commencing as of February 9, 1993, and provides for two automatic one-year renewals. The initial term ended on February 8, 1998, and the second automatic one-year renewal term will end on February 8, 2000. Each agreement provides for a base salary of $1.0 million, with annual cost-of-living increases, bonuses in accordance with the Incentive Bonus Plan or in such other amount as the Board of Directors determines, and an annual $35,000 car allowance. The agreements also contain a covenant not to compete that prohibits Messrs. Fisher and Camuto, during the term of the agreement and for three years thereafter, from competing with the Company, assisting other persons or businesses that compete with the Company or inducing any employees of the Company or its affiliates to engage in any such activities or to terminate their employment. As of December 15, 1998, the Company entered into retention agreements with each of Messrs. Fisher and Camuto. These agreements require the Company to provide severance benefits to those officers under certain circumstances after a "change of control" of the Company. A "change of control" occurs upon: (1) the acquisition of 30% or more of the Company's Common Stock by any person or group of persons (excluding "non-control" acquisitions); (2) a change in a majority of members of the Company's Board of Directors unless each new director was elected by a vote of at least two-thirds of the incumbent directors; (3) the consummation of a merger, consolidation, reorganization or other business combination, unless after such transaction (a) the Company's stockholders continue to own at least 60% of the surviving entity, (b) the incumbent directions constitute at least two-thirds of the board of directors of the surviving entity, and (c) no person other than the Company, its affiliates and certain other stockholders own more than 30% of the outstanding voting securities of the surviving entity; (4) a liquidation or dissolution of the Company; or (5) a sale of all or substantially all of the assets of the Company. The consummation of the proposed merger with Jones will constitute a "change of control." Each retention agreement has an initial term which expires on December 31, 2001, which the Company may extend in one-year increments by written notice on or before January 1, 2000 and each January 1 thereafter. If a change of control occurs during the initial term or any extensions thereof, the retention agreements will remain in effect for at least 36 months thereafter. If either Mr. Fisher's or Mr. Camuto's employment is terminated during the 36-month period following a change of control and the termination is by the Company for "cause," "disability" or by reason of his death, or by Mr. Fisher or Mr. Camuto other than for "good reason," he (or his estate) will receive all accrued compensation due to him through the date of termination. If either Mr. Fisher's or Mr. Camuto's employment is terminated under any other circumstances, or if either terminates his employment during the first 30 days after the first anniversary of a change of control, he will receive: (1) payment of all accrued compensation plus a pro rata bonus based on 50% of his base salary; (2) payment of an amount equal to three times his then current base salary; (3) continuation of his employee benefits, including life insurance and medical and dental plans, for life; (4) payment of an amount equal to the excess of (A) the retirement benefits that he would have received if he had been employed at the Company for an additional three years following the date of termination of employment and had fully participated in all available retirements plans during that period and been fully vested in those plans, over (B) the amount of retirement benefits he is actually entitled to receive at the time of his termination; (5) payment of an amount equal to the present value of 36 monthly payments of his car allowance; and (6) continuation of payment of the portion of the premiums paid by the Company for his split-dollar life insurance policy for 36 months following termination of employment. Under the retention agreements, the term "cause" means any one of the following: (i) conviction of a felony; (ii) intentional and continual failure to perform reasonably assigned duties; and (iii) intentionally engaging in illegal conduct or willful misconduct that injures the Company. "Good reason" includes: (i) a material adverse change in the officer's responsibilities or job description; (ii) a reduction in the officer's base salary; (iii) a requirement that the officer conduct his duties in a manner substantially different from the manner in which he presently conducts those duties, including the location of performance, in the case of Mr. Fisher, and a relocation of the Company's offices of more than 50 miles from Columbus Circle in New York City, in the case of Mr. Camuto; and (iv) a reduction or nonpayment of any material benefit or compensation plan. The retention agreements further provide that upon a change of control, each officer's stock options will vest and become immediately exercisable, unless such accelerated vesting would preclude pooling treatment of a transaction approved by the Board of Directors. In addition, under certain circumstances, each officer is entitled to receive a "gross-up" payment to offset certain taxes that may be imposed on the severance payments and other benefits he will receive upon a change of control, and payment of legal fees incurred by him in connection with contesting or defending the basis for his termination of employment after a change of control or his assertion of his rights under the agreement. The retention agreements also contain a covenant not to compete that prohibits Messrs. Fisher and Camuto from competing with the Company, assisting other persons or businesses that compete with the Company, inducing employees of the Company or its affiliates to engage in any such activities or to terminate their employment, or hiring such employees. This covenant not to compete applies after a change of control if the Company terminates the officer's employment for cause, the officer terminates his employment for any reason, or a termination results in severance payments and other benefits to the officer in excess of accrued compensation. Each of the retention agreements provides that the respective employment agreements with Messrs. Fisher and Camuto shall remain effective following a change of control except that the provisions of the retention agreements relating to severance compensation and noncompetition following termination of employment shall supersede the employment agreements. The Company also entered into consulting agreements with Messrs. Fisher and Camuto dated as of December 15, 1998. The consulting agreements provide that if Mr. Fisher's or Mr. Camuto's employment with the Company terminates following a "change of control" for any reason other than for "cause" (each as defined in the retention agreements), the Company will engage such officer as a consultant for two years after the termination of his employment, for a fee of $1,250,000 for the first year and $750,000 for the second year, plus fringe benefits. The consulting agreements do not require Messrs. Fisher and Camuto to perform consulting services to the Company for more than 15 days each month. During the term of their consulting agreements, Messrs. Fisher and Camuto may not compete with the Company, assist other persons or businesses that compete with the Company, induce any employees of the Company or its affiliates to engage in any such activities or to terminate their employment with the Company, or hire such employees. As of December 15, 1998, the Company entered into an employment agreement with Mr. Galvin. Mr. Galvin's employment agreement has an initial term ending as of December 31, 2003, which will be renewed automatically for successive two-year terms unless either party gives 180 days' prior written notice that the agreement will not be renewed. The agreement provides that Mr. Galvin will serve as Executive Vice President, Chief Financial Officer and Treasurer of the Company, will receive a base salary of $450,000, with annual cost-of-living increases of at least 5% of base salary, four weeks of paid vacation, a $15,000 car allowance and other benefits that the Company normally provides to its officers, and will participate in the Incentive Bonus Plan with a 75% target level. If Mr. Galvin's employment is terminated by the Company without "cause" or by him for "good reason," he will receive: (1) payment of all accrued compensation plus a pro rata bonus based on 50% of his base salary; (2) payment of an amount equal to two times the sum of his then current base salary plus a bonus of 75% of his base salary; (3) continuation of his employee benefits, including life insurance and medical and dental plans, for 24 months following termination of employment; (4) payment of an amount equal to the excess of (A) the retirement benefits that he would have received if he had been employed at the Company for an additional two years following the date of termination of employment and had fully participated in all available retirements plans during that period and been fully vested in those plans, over (B) the amount of retirement benefits he is actually entitled to receive at the time of such termination; (5) payment of an amount equal to the present value of 24 monthly payments of his car allowance; and (6) continuation of payment of the portion of the premiums paid by the Company for his split- dollar life insurance policy for 24 months following termination of employment. The terms "cause" and "good reason" under Mr. Galvin's employment agreement have the same meanings ascribed to them under the retention agreements with Messrs. Fisher and Camuto (except with respect to the relocation provision of Mr. Galvin's agreement, which specifies a relocation of the Company's offices of more than 50 miles). If Mr. Galvin does not renew the agreement before December 31, 2003 or the expiration of any renewal term, the Company will pay him a non-competition payment equal to his then current salary plus the preceding year's bonus, payable in 12 equal monthly installments. If the Company releases Mr. Galvin from his covenant not to compete (described below), it will not be required to make the non-competition payment. If the Company does not renew the agreement as of December 31, 2003 or the expiration of any renewal term, the Company will pay him the non-competition payment; provided, that Mr. Galvin may elect to be released from his covenant not to compete, and if he accepts employment with a competitor, the Company is not required to make any unpaid installments of the non-competition payment. The employment agreement provides that Mr. Galvin may not compete with the Company, assist other persons or businesses that compete with the Company, induce any employees of the Company or its affiliates to engage in any such activities or to terminate their employment, or hire such employees. Subject to the exceptions discussed above, these restrictions apply during the term of the agreement and, if the Company terminates Mr. Galvin's employment for cause, Mr. Galvin terminates his employment without good reason or, following a change of control (as defined in the agreement), if Mr. Galvin's employment is terminated and the termination results in the termination payments to him described below, for a one-year period following such termination. Mr. Galvin's employment agreement also contains "change of control" provisions that require the Company to provide severance benefits to Mr. Galvin under certain circumstances after a change of control of the Company. "Change of control" has the same meaning ascribed to it under the retention agreements with Messrs. Fisher and Camuto. The change of control provisions have an initial term which expires on December 31, 2001, which the Company may extend in one-year increments by written notice on or before January 1, 2000 and each January 1 thereafter. If a change of control occurs during the initial term or any extension thereof, the change of control provisions will remain in effect for at least 36 months thereafter. If Mr. Galvin's employment is terminated during the 36-month period following a change of control and the termination is by the Company for cause, or by Mr. Galvin other than for good reason, then he will receive all compensation for services that is due to him through the date of termination. If the termination is due to a disability or his death, he (or his estate) will receive one year's base salary and bonus. If Mr. Galvin's employment is terminated under any other circumstances, he will receive: (1) payment of all accrued compensation plus a pro rata bonus based on 75% of his base salary; (2) payment of an amount equal to three times the sum of his then current base salary plus a bonus equal to 50% of his base salary; (3) continuation of his employee benefits, including life insurance and medical and dental plans, for 36 months following the date of termination of employment; (4) payment of an amount equal to the excess of (A) the retirement benefits that he would have received if he had been employed at the Company for an additional three years following the date of termination of employment and had fully participated in all available retirements plans during that period and been fully vested in those plans, over (B) the amount of retirement benefits he is actually entitled to receive at the time of such termination; (5) payment of an amount equal to the present value of 36 monthly payments of his car allowance; and (6) continuation of payment of the portion of the premiums paid by the Company for his split- dollar life insurance policy for 36 months following the termination of employment. The agreement further provides that upon a change of control, all of Mr. Galvin's stock options will vest and become immediately exercisable and all restrictions on his shares of restricted stock will lapse, unless such accelerated vesting would preclude pooling treatment of a transaction approved by the Board of Directors. In addition, under certain circumstances, he is entitled to receive a "gross-up" payment to offset certain taxes that may be imposed on the severance payments and other benefits he will receive upon a change of control, and payment of legal fees incurred by him in connection with contesting or defending the basis for his termination of employment before or after a change of control or his assertion of his rights under the agreement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth the beneficial ownership of Common Stock, as of the close of business on April 16, 1999, by each person known to the Company to be deemed to be the beneficial owner of more than 5% of the issued and outstanding shares of Common Stock; each director; the named executive officers; and all persons, as a group, who are currently directors and named executive officers of the Company. Each person named has sole voting and investment power over the shares listed opposite his name, except as set forth in the footnotes hereto. Amount and Nature of Name of Beneficial Owner Beneficial Ownership(1) Percent of Class(1) - ------------------------ ---------------------- ------------------- Jerome Fisher (2) 2,632,284 (3) 7.7% Vincent Camuto (2) 4,634,203 (4) 13.5% Robert C. Galvin 60,666 (5) * C. Gerald Goldsmith 20,000 (6) * Salvatore M. Salibello 29,000 (7) * Henry W. Pascarella 20,000 (8) * GSB Investment Management, Inc 2,766,882 (9) 8.1% 301 Commerce Street, Suite 2001 Fort Worth, TX 76102 The Prudential Insurance Company 2,906,588 (10) 8.5% of America 751 Broad Street Newark, NJ 07102-3777 All directors and executive 7,396,153 (11) 21.3% officers as a group (6 persons) _________________________ * Less than one percent. (1) Based upon 34,003,431 shares of Common Stock issued and outstanding as of April 16, 1999 plus, as to the holder thereof only, the number of shares (i) which underlie options held by the holder that are currently exercisable or exercisable within 60 days of April 16, 1999, and (ii) issuable upon conversion of the Convertible Notes. (2) The business address of such person is Nine West Plaza, 1129 Westchester Avenue, White Plains, New York 10604-3529. Such person shares voting power, but not dispositive power, with respect to an aggregate of 7,266,487 shares of Common Stock (including 590,232 shares issuable pursuant to stock options), pursuant to the Shareholders Agreement described herein under "Certain Relationships and Related Transactions" and pursuant to a Stockholder Agreement, dated as of March 1, 1999, among Jones Apparel Group, Inc., Vincent Camuto and Jerome Fisher. Each of such persons disclaims beneficial ownership of such shares other than the shares as to which such person has dispositive power, as set forth in notes (3) and (4) below. (3) Jerome Fisher and his wife, Anne Fisher, as joint tenants, beneficially own 2,359,787 of such shares, as to which they share dispositive power. Amount shown includes 271,666 shares issuable pursuant to stock options. (4) Mr. Camuto has sole dispositive power with respect to such shares. Amount shown includes 318,566 shares issuable pursuant to stock options. (5) Amount shown includes 50,666 shares issuable pursuant to stock options and 10,000 unvested shares of restricted stock, as to which Mr. Galvin has voting power. (6) Amount shown includes 19,000 shares issuable pursuant to stock options. (7) Amount shown includes 19,000 shares issuable pursuant to stock options. (8) Amount shown includes 15,000 shares issuable pursuant to stock options. (9) Based solely upon information presented in Amendment No. 1 to Schedule 13G, filed with the Securities and Exchange Commission on February 16, 1999, reporting beneficial ownership as of December 31, 1998. GSB Investment Management, Inc. has sole voting power over 770,575 of such shares, sole dispositive power over 2,707,957 of such shares, and shared dispositive power over 58,925 of such shares. (10) Based solely upon information presented in Schedule 13G, filed with the Securities and Exchange Commission on February 1, 1999, reporting beneficial ownership as of December 31, 1998. The Prudential Insurance Company of America has sole voting power as to 103,400 of such shares, shared voting power as to 2,796,241 of such shares, sole dispositive power as to 103,400 of such shares and shared dispositive power as to 2,802,941 of such shares. Includes unspecified number of shares issuable upon conversion of Convertible Notes. (11) Amount shown includes 693,898 shares issuable pursuant to stock options. CHANGES OF CONTROL The Company, Jones and Merger Sub have entered into the Merger Agreement, pursuant to which the Company will be merged with Merger Sub. See "Item 1 - Business - General." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. SHAREHOLDERS AGREEMENT. Messrs. Fisher and Camuto and the Company have entered into a Shareholders Agreement (the "Shareholders Agreement") pursuant to which Mr. Fisher and Mr. Camuto have each agreed to vote all of the respective shares of Common Stock owned by him for the other's nominee (which nominee may be himself) as director in one class of directors of the Company in all elections for such class. If either Mr. Fisher or Mr. Camuto desires a second nominee, then each will vote all his shares of Common Stock for the other's second nominee as director in one class of directors of the Company in all elections for such class. In addition, Mr. Fisher and Mr. Camuto have granted to the Company and each other rights of first refusal with respect to any sale of 5% or more of the Company's outstanding Common Stock, except sales in a registered public offering or made under Rule 144. Mr. Fisher and Mr. Camuto have agreed that in the event either of them desires to purchase additional shares of Common Stock, the other shall have the right to purchase up to 50% of the shares to be purchased by the other, at the same price, on the same terms and at the same time. The Shareholders Agreement also provides that at all meetings of stockholders of the Company, all of the shares of Common Stock held by Mr. Fisher and Mr. Camuto will be voted in such a manner that if either Mr. Fisher or Mr. Camuto is not in favor of the action to be taken, all of their shares will be voted against the proposed action or, in the case of the election of directors other than directors nominated by either of them, in a manner to ensure that an equal number of directors will be persons satisfactory to each of them. Messrs. Fisher and Camuto agreed to take all actions to increase or decrease the size of the Board as may be necessary or appropriate to carry out such intention. The Shareholders Agreement also provides that if the Company carries insurance on the life of Mr. Fisher or Mr. Camuto and it is determined that proceeds of such insurance will be used to redeem shares of Common Stock held by such person, the Company will carry the same amount of insurance on the life of the other for the purpose of redeeming shares of Common Stock held by such other person. In the event that the Company determines to use any such proceeds to purchase shares of Common Stock held by Mr. Fisher or Mr. Camuto upon his death, the purchase price per share of such Common Stock will be equal to the average of the daily closing prices of the Common Stock for the 20 trading days preceding the death of such person. The Company does not currently intend to procure any such insurance. The Shareholders Agreement terminates upon the earlier of (i) February 24, 2003 or (ii) the date Mr. Fisher or Mr. Camuto ceases to own and/or control at least 5% of the outstanding Common Stock. STOCKHOLDER AGREEMENT BETWEEN MESSRS. FISHER AND CAMUTO AND JONES. Concurrently with the execution of the Merger Agreement, Messrs. Fisher and Camuto entered into a Stockholders Agreement with Jones, whereby Messrs. Fisher and Camuto have each agreed, among other things, to vote their respective shares of Common Stock in favor of adoption of the Merger Agreement, against certain competing acquisition proposals from outside parties and against any amendment to the Company's certificate of incorporation or bylaws or other proposal, action or transaction involving the Company which would reasonably be expected to prevent or materially impede or delay the completion of the Merger. Messrs. Fisher and Camuto have each granted an irrevocable proxy and power of attorney to Jones to vote or act by written consent with respect to the shares of Common Stock held by each of them. OTHER TRANSACTIONS. Marc Fisher (Jerome Fisher's son) serves as the Group President of the Company's Jervin Private Label and Specialty Marketing divisions. He received cash compensation (including salary and bonus) from the Company of $957,426 for fiscal 1998. The Company has entered into an employment agreement with Marc Fisher which has an initial term of five years that expired February 9, 1998, and provides for two automatic one-year renewals, unless he gives prior notice to the Company that such agreement will not be renewed. The agreement has been automatically renewed until February 9, 2000. The agreement provides for a base salary of $500,000 with annual cost-of-living increases and bonuses in accordance with the Incentive Bonus Plan, which compensation will continue until the end of the renewal terms or any additional extended term if the Company terminates Marc Fisher's employment without cause. The agreement also provides that if Marc Fisher dies or becomes disabled during the initial term, his right to compensation will continue until the expiration of the initial term. The agreement also provides that during the term of this employment, and for a period of two years following termination of his employment if he had been offered continued employment by the Company, Marc Fisher will not compete with the Company in the United States or Canada in product planning, design or coordination with manufacturers with respect to women's shoes produced in Brazil, assist other persons or businesses in engaging in any such activities or induce any employees of the Company or its affiliates to engage in any such activities or to terminate their employment. Jones has entered into an employment agreement with Marc Fisher, dated as of March 1, 1999. The agreement provides that Nine West will continue Marc Fisher's employment after the Merger as Senior Executive Vice President - Product Development and Manufacturing and Group President of certain of Nine West's product lines. The agreement further provides Marc Fisher with total cash and incentive compensation that places him in a position comparable to that of other senior executives of the combined companies. For confidentiality reasons, Jones has been unwilling to provide the agreement to the Company. Jodi Fisher Horowitz (Jerome Fisher's daughter) serves as the Company's Director of Public Relations. She received cash compensation (including salary and bonus) from the Company of $94,008 for fiscal 1998. Prior to December 1997, the Company's principal executive offices were located in Stamford, Connecticut. Those offices are leased from a limited partnership in which Messrs. Fisher and Camuto own, in the aggregate, 10.3% of the limited partnership interests. The Company is currently seeking to terminate its rights under the lease by assignment or sublease. The lease expires on December 31, 2002. Rent payments were $1,859,711 for fiscal 1998. The Company believes that the terms of the lease are no less favorable than those that could have been obtained from unrelated parties. At various times during fiscal 1998, the Company made payments to American Express on behalf of Jerome Fisher for both business and non-business charges on his corporate American Express card. The advances for non-business charges outstanding as of January 30, 1999, and the maximum amount outstanding at any time during fiscal 1998 was $78,614, which will be repaid by Mr. Fisher without interest. Under the Merger Agreement, Jones has agreed that the Jones Board of Directors will take all action necessary to elect Mr. Camuto as a member of the Jones Board of Directors effective immediately after the Merger. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: The following financial statements of Nine West Group Inc. are included in Item 8 of this report: Independent Auditors' Report Consolidated Statements of Income - Fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997 Consolidated Balance Sheets - January 30, 1999 and January 31, 1998 Consolidated Statements of Cash Flows - Fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997 Consolidated Statements of Stockholders' Equity - Fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997 Notes to Consolidated Financial Statements (includes certain supplemental financial information required by Item 8 of Form 10-K) 2. Financial Statement Schedules: Schedule II - Valuation and qualifying accounts for the fifty-two weeks ended January 30, 1999, January 31, 1998 and February 1, 1997 All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, are shown in the financial statements or are inapplicable, and therefore have been omitted. (b) Reports on Form 8-K: None. (c) Exhibits: See Index to Exhibits INDEX TO EXHIBITS Exhibit Number Exhibit 2.1 Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of March 15, 1995, by and among the Registrant, Footwear Acquisition Corp. and The United States Shoe Corporation (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K dated March 15, 1995) 2.1.1 Amendment No. 1 to Asset Purchase Agreement, dated May 23, 1995 (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K dated May 23, 1995) 2.1.2 Amendment to Asset Purchase Agreement and Settlement Agreement, dated as of May 29, 1996, by and among the Registrant, Luxottica Group S.p.A. and The United States Shoe Corporation (incorporated by reference to Exhibit 2.1.2 to the Quarterly Report on Form 10-Q for the quarterly period ended May 4, 1996) 2.2 Form of Warrant Agreement (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K dated March 15, 1995) 2.3 Agreement and Plan of Merger, dated as of March 1, 1999, by and among the Registrant, Jones Apparel Group, Inc. and Jill Acquisition Sub Inc. (incorporated by reference to Exhibit 2 to the Current Report on Form 8-K dated March 1, 1999) 3.1 Form of Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Amendment No. 6 to the Registration Statement of the Registrant on Form S-1 (Registration No. 33-47556) filed on April 29, 1992 (the "First Registration Statement")) 3.2 Second Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated May 23, 1995) 4.1 Specimen stock certificate for shares of Common Stock, $.01 par value, of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the 52 weeks ended January 31, 1998) 4.2 Form of Definitive 5-1/2% Convertible Subordinated Note of the Registrant Due 2003 (incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q for the quarterly period ended August 3, 1996) 4.3 Form of Restricted Global 5-1/2% Convertible Subordinated Note of the Registrant Due 2003 (incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q for the quarterly period ended August 3, 1996) 4.4 Form of Regulation S Global 5-1/2% Convertible Subordinated Note of the Registrant Due 2003 (incorporated by reference to Exhibit 4.4 to the Quarterly Report on Form 10-Q for the quarterly period ended August 3, 1996) 4.5 Indenture, dated as of June 26, 1996, between the Registrant, as issuer, and Chemical Bank, as trustee, relating to the Registrant's 5-1/2% Convertible Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q for the quarterly period ended August 3, 1996) 4.6 Note Resale Registration Rights Agreement, dated as of June 26, 1996, by and among the Registrant and the Purchasers Named Therein (incorporated by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q for the quarterly period ended August 3, 1996) 4.7 Senior Note Indenture dated as of July 9, 1997 among the Registrant and Nine West Development Corporation, Nine West Distribution Corporation, Nine West Footwear Corporation and Nine West Manufacturing Corporation, as Guarantors, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.7.1 Supplemental Indenture, dated as of September 15, 1998, among the Registrant, Nine West Manufacturing II Corporation, a subsidiary of the Registrant, Nine West Development Corporation, Nine West Distribution Corporation, Nine West Footwear Corporation and Nine West Manufacturing Corporation (collectively, the "Existing Guarantors") and The Bank of New York, as trustee under the Senior Note Indenture dated as of July 9, 1997 (incorporated by reference to Exhibit 4.7.1 to the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998) 4.8 Senior Subordinated Note Indenture dated as of July 9, 1997 among the Registrant and Nine West Development Corporation, Nine West Distribution Corporation, Nine West Footwear Corporation and Nine West Manufacturing Corporation, as Guarantors, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.8.1 Supplemental Indenture, dated as of September 15, 1998, among the Registrant, Nine West Manufacturing II Corporation, the Existing Guarantors and the Bank of New York, as trustee under the Senior Subordinated Note Indenture dated as of July 9, 1997 (incorporated by reference to Exhibit 4.8.1 to the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998) 4.9 Registration Rights Agreement dated July 9, 1997 among the Registrant and Nine West Development Corporation, Nine West Distribution Corporation, Nine West Footwear Corporation and Nine West Manufacturing Corporation, as Guarantors, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., Citicorp Securities, Inc. and NationsBanc Capital Markets, Inc. (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.10 Form of Global 8-3/8% Senior Notes due 2005 (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.11 Form of Definitive 8-3/8% Senior Notes due 2005 (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.12 Form of 8-3/8% Series B Senior Notes due 2005 (incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.13 Form of 9% Senior Subordinated Notes due 2007 (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.14 Form of 9% Series B Senior Subordinated Notes due 2007 (incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-4 (Registration No. 333-34085) filed on August 21, 1997) 4.15 Form of Unrestricted Global 5-1/2% Convertible Subordinated Note Due 2003 (incorporated by reference to Exhibit 4.6 to Amendment No. 1 to the Registration Statement on Form S-3 (Registration No. 333-12545) filed on August 21, 1997) 4.16 Rights Agreement, dated as of February 17, 1998, between the Registrant and The Bank of New York which includes the form of Certificate of Designation for the Series A Junior Participating Preferred Stock as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Shares of Preferred Stock of the Registrant as Exhibit C (incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A filed on February 20, 1998) 4.16.1 Amendment No. 1 to Rights Agreement, dated as of March 1, 1999, between the Registrant and The Bank of New York (incorporated by reference to Exhibit 2 to Amendment No. 1 to the Registrant's Registration Statement on Form 8-A filed on March 5, 1999) 10.1 Registration Rights Agreement (the "Registration Rights Agreement") by and among the Registrant, Jerome Fisher, Vincent Camuto, and J. Wayne Weaver (incorporated by reference to Exhibit 10.1 to Amendment No. 2 to the First Registration Statement) 10.1.1 Amendment No. 1 to Registration Rights Agreement (incorporated by reference to Exhibit 10.1.1 to Amendment No. 6 to the First Registration Statement) 10.1.2 Amendment No. 2 to Registration Rights Agreement (incorporated by reference to Exhibit 10.1.2 to Amendment No. 2 to the Registration Statement of the Registrant on Form S-1 (Registration No. 33-65584) as filed on July 28, 1993 (the "Second Registration Statement")) 10.1.3 Amendment No. 3 to Registration Rights Agreement (incorporated by reference to Exhibit 4 to Amendment No. 2 to Schedule 13D filed by Jerome Fisher, Anne Fisher, Vincent Camuto and J. Wayne Weaver on January 4, 1994 ("Amendment No. 2 to Schedule 13D")) 10.1.4 Amendment No. 4 to Registration Rights Agreement by and among the Registrant, Jerome Fisher, Vincent Camuto and J. Wayne Weaver (incorporated by reference to Exhibit 10.1.4 to Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1994) 10.2 Piggyback Registration Rights Agreement (the "Piggyback Registration Rights Agreement") between the Registrant and Marc Fisher (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to the First Registration Statement) 10.2.1 Amendment No. 1 to Piggyback Registration Rights Agreement (incorporated by reference to Exhibit 10.2.1 to Amendment No. 6 to the First Registration Statement) 10.3 Agreement by and among J. Wayne Weaver, Jerome Fisher and The Jerome Fisher Trust, Vincent Camuto and the Registrant (incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the First Registration Statement)** 10.3.1 Amendment No. 1 to agreement by and among J. Wayne Weaver, Jerome Fisher and The Jerome Fisher Trust, Vincent Camuto and the Registrant (incorporated by reference to Exhibit 10.3.1 to Amendment No. 6 to the First Registration Statement)** 10.3.2 Amendment No. 2 to agreement by and among J. Wayne Weaver, Jerome Fisher and The Jerome Fisher Trust, Vincent Camuto and the Registrant (incorporated by reference to Exhibit 2 to Amendment No. 2 to Schedule 13D)** 10.4 Shareholders Agreement by and among the Registrant, Vincent Camuto and Jerome Fisher (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to the First Registration Statement)** 10.4.1 Amendment No. 1 to Shareholders Agreement (incorporated by reference to Exhibit 10.4.1 to Amendment No. 6 to the First Registration Statement)** 10.4.2 Amendment No. 2 to Shareholders Agreement (incorporated by reference to Exhibit 3 to Amendment No. 2 to Schedule 13D)** 10.5 Stockholder Agreement, dated as of March 1, 1999, among Jones Apparel Group, Inc., Vincent Camuto and Jerome Fisher (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K dated March 1, 1999) 10.6 Buying Agency Agreement between the Registrant and Bentley Services Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993 10-K"))*** 10.6.1 Agreement Regarding Extension of Term, dated March 3, 1997, between the Registrant and Bentley Services Inc. (incorporated by reference to Exhibit 10.5.1 to the Registrant's Annual Report on Form 10-K for the 52 weeks ended February 1, 1997 (the "1996 10-K")) 10.7 Summary Description of Incentive Bonus Program of the Registrant (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the First Registration Statement)** 10.8 Summary Description of Life Insurance and Medical Reimbursement Plan for Certain Officers of the Registrant (incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the First Registration Statement)** 10.9 Employment Agreement (the "Fisher Employment Agreement") between Jerome Fisher and the Registrant (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to the First Registration Statement)** 10.9.1 Amendment No. 1 to the Fisher Employment Agreement (incorporated by reference to Exhibit 10.8.1 to Amendment No. 6 to the First Registration Statement)** *10.10 Consulting Agreement, dated as of December 15, 1998, between Jerome Fisher and the Registrant** *10.11 Retention Agreement, dated as of December 15, 1998, between Jerome Fisher and the Registrant** 10.12 Employment Agreement (the "Camuto Employment Agreement") between Vincent Camuto and the Registrant (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to the First Registration Statement)** 10.12.1 Amendment No. 1 to the Camuto Employment Agreement (incorporated by reference to Exhibit 10.9.1 to Amendment No. 6 to the First Registration Statement)** *10.13 Consulting Agreement, dated as of December 15, 1998, between Vincent Camuto and the Registrant** *10.14 Retention Agreement, dated as of December 15, 1998, between Vincent Camuto and the Registrant** 10.15 Form of S Corporation Termination Agreement among the Registrant, Jerome Fisher, Vincent Camuto, J. Wayne Weaver, Marc Fisher, Robert V. Camuto, Andrea M. Camuto and John V. Camuto (incorporated by reference to Exhibit 10.13 to Amendment No. 7 to the First Registration Statement) 10.16 Second Amended and Restated Stock Option Plan of the Registrant (effective as of March 8, 1994) (incorporated by reference to Exhibit 10.14 to the 1993 10-K)** 10.17 Summary of Supplemental Executive Retirement Plan of the Registrant (incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 10-K"))** 10.17.1 Amendment and Restatement of The United States Shoe Corporation Supplemental Executive Salaried Employee Benefit Plan (incorporated by reference to Exhibit 10.15.1 to the Registrant's Annual Report on Form 10-K for the year ended February 3, 1996 (the "1995 10-K"))** 10.18 Deferred Compensation Plan of the Registrant (incorporated by reference to Exhibit 10.16 to the 1994 10-K)** 10.19 1993 Directors' Stock Option Plan of Registrant (incorporated by reference to Exhibit 10.18 to Amendment No. 1 to the Second Registration Statement)** 10.20 First Amended and Restated 1994 Long-Term Performance Plan (incorporated by reference to Exhibit 10.18 to the 1996 10-K)** 10.21 Credit Agreement (the "Credit Agreement"), dated as of May 23, 1995, among the Registrant, Citibank, N.A. and Merrill Lynch Capital Corporation, as Agents (incorporated by reference to Exhibit 10.21 to the Quarterly Report on Form 10-Q for the quarterly period ended July 29, 1995) 10.21.1 Amendment No. 1 to the Credit Agreement (incorporated by reference to Exhibit 10.19.1 to the 1995 10-K) 10.21.2 Amendment No. 2 to the Credit Agreement, dated as of May 29, 1996, among the Registrant, Citibank, N.A. and Merrill Lynch Capital Corporation, as agents (incorporated by reference to Exhibit 10.19.2 to the Quarterly Report on Form 10-Q for the quarterly period ended May 4, 1996) 10.21.3 Amended and Restated Credit Agreement, dated as of August 2, 1996, among the Registrant, the financial institutions listed on the signature pages thereof and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.19.3 to the Quarterly Report on Form 10-Q for the quarterly period ended August 3, 1996) 10.21.4 Amended and Restated Credit Agreement, dated as of August 1, 1997, among the Registrant, the subsidiaries of the Registrant named therein and from time to time party thereto as guarantors, the financial institutions listed on the signature pages thereof and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-3 (Registration No. 333-12545) filed on August 21, 1997) 10.22 Nine West Group Inc. First Amended and Restated Incentive Bonus Plan (incorporated by reference to Exhibit 10.21 to the 1996 10-K)** 10.23 Receivables Purchase Agreement, dated as of December 28, 1995, between Nine West Funding Corporation and the Registrant (incorporated by reference to Exhibit 10.23 to the 1995 10-K) 10.24 Nine West Trade Receivables Master Trust Pooling and Servicing Agreement (the "Pooling Agreement"), dated as of December 28, 1995, among Nine West Funding Corporation, The Bank of New York and the Registrant (incorporated by reference to Exhibit 10.24 to the 1995 10-K) 10.25 Series 1995-1 Supplement to Pooling Agreement, dated as of December 28, 1995, among Nine West Funding Corporation, The Bank of New York and the Registrant (incorporated by reference to Exhibit 10.25 to the 1995 10-K) 10.25.1 Amended and Restated Series 1995-1 Supplement to Pooling and Servicing Agreement, dated as of July 31, 1998, among Nine West Funding Corporation, The Bank of New York and the Registrant (incorporated by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998) 10.26 Class A Certificate Purchase Agreement, dated as of December 28, 1995, among Nine West Funding Corporation, Corporate Receivables Corporation, the Liquidity Providers Named Therein, Citicorp North America, Inc., and The Bank of New York (incorporated by reference to Exhibit 10.26 to the 1995 10-K) 10.26.1 Amended and Restated Series 1995-1 Certificate Purchase Agreement, dated as of July 31, 1998, among Nine West Funding Corporation, Corporate Receivables Corporation, the Liquidity Providers named therein, Citicorp North America, Inc. and The Bank of New York (incorporated by reference to Exhibit 10.26 to the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998) 10.27 Lease, dated February 28, 1997, between Westpark I LLC and the Registrant (incorporated by reference to Exhibit 10.28 to the 1996 10-K) *10.28 Employment Agreement, dated as of December 15, 1998, between Robert C. Galvin and the Registrant** *21 Subsidiaries of the Registrant *23 Consent of Deloitte & Touche LLP 24 Power of Attorney (contained herein on signature page) *27 1998 Financial Data Schedule *Filed herewith **Management contract or compensation plan arrangement ***Confidential treatment has been granted for marked portions of this exhibit SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 29, 1998. Nine West Group Inc. (Registrant) By: /s/ Robert C. Galvin ------------------------------ Robert C. Galvin Executive Vice President, Chief Financial Officer and Treasurer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on this page to this Annual Report on Form 10-K for the fiscal year ended January 30, 1999 (the "Form 10-K") constitutes and appoints Robert C. Galvin, Jeffrey K. Howald and Joel K. Bedol and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to Form 10-K, and file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might and could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Capacity Date /s/ Jerome Fisher Chairman of the Board April 29, 1999 - ----------------- and Director (Principal Jerome Fisher (Executive Officer) /s/ Vincent Camuto Chief Executive Officer April 29, 1999 - ------------------ and Director (Principal Vincent Camuto Executive Officer) /s/ Robert C. Galvin Executive Vice President, Chief April 29, 1999 - -------------------- Financial Officer and Treasurer Robert C. Galvin (Principal Financial Officer and Principal Accounting Officer) /s/ C. Gerald Goldsmith Director April 29, 1999 - ----------------------- C. Gerald Goldsmith Director - ----------------------- Henry W. Pascarella /s/ Salvatore M. Salibello Director April 29, 1999 - -------------------------- Salvatore M. Salibello SCHEDULE II
NINE WEST GROUP INC. AND SUBSIDIARIES Valuation and Qualifying Accounts For the years ended January 30, 1999, January 31, 1998 and February 1, 1997 (in thousands) Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions of Period ----------- --------- -------- ---------- --------- Year ended January 30, 1999: Allowance for doubtful accounts.... $ 5,530 $ 5,698 $5,431 (A) $ 5,797 Reserve for returns and allowances. 45,437 (618) - 44,819 ------- ------- ------ ------- $50,967 $ 5,080 $5,431 $50,616 ======= ======= ====== ======= Year ended January 31, 1998: Allowance for doubtful accounts.... $ 7,464 $ 1,275 $3,209 (A) $ 5,530 Reserve for returns and allowances. 39,886 5,551 - 45,437 ------- ------- ------ ------- $47,350 $ 6,826 $3,209 $50,967 ======= ======= ====== ======= Year ended February 1, 1997: Allowance for doubtful accounts.... $ 9,233 $ 1,830 $3,599 (A) $ 7,464 Reserve for returns and allowances. 33,519 6,367 - 39,886 ------- ------- ------ ------- $42,752 $ 8,197 $3,599 $47,350 ======= ======= ====== ======= (A) Represents accounts written off, net of recoveries.
EX-10 2 EXHIBIT 10.10 CONSULTING AGREEMENT BETWEEN NINE WEST GROUP INC. AND JEROME FISHER THIS CONSULTING AGREEMENT (the "Agreement") made as of the 15th day of December 1998, by and between Nine West Group Inc. (the "Company") and Jerome Fisher (the "Consultant"). WHEREAS, the Company and the Consultant have entered into a Retention Agreement, dated as of even date herewith (the "Retention Agreement"), to provide the Consultant with certain benefits in the event the Consultant's employment terminates as a result of, or in connection with, a Change of Control (as defined in the Retention Agreement); WHEREAS, the Company desires to continue to benefit from the experience and ability of the Consultant in the capacity of a consultant to the Company upon termination of his employment, and further desires to obtain certain covenants from the Consultant, as set forth in this Agreement; NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, the parties hereby agree as follows: 1. RETENTION AS CONSULTANT. The Company hereby agrees to engage the Consultant, and the Consultant hereby accepts the engagement with the Company, upon the terms set forth in this Agreement. 2. TERM. This Agreement shall commence upon the date following the termination of the Consultant's employment after a Change of Control for any reason, other than for "Cause" (as defined in the Retention Agreement); "Disability" (as defined in the Retention Agreement); or death (the "Effective Date"), and shall expire two (2) years from the Effective Date, unless earlier terminated by reason of the Consultant's Disability, death, for "Cause" (as defined in the Retention Agreement) or by the Consultant in accordance with the immediately following sentence (the "Consulting Period"). The Consultant may terminate this Agreement, in his sole discretion, at any time upon thirty (30) days prior written notice to the Company; PROVIDED, HOWEVER, that the consultant's covenants contained in Section 6 of this Agreement shall continue to apply until the expiration of a two (2) year period after the Effective Date. 3. DUTIES. During the Consulting Period, the Consultant shall render such consulting and advisory services to the Company as the Consultant and the Company agree upon from time to time, including, but not limited to, providing advice to the Company on corporate strategy, the design, manufacture, marketing and distribution of the Company's products and the coordination and planning between the Company's factories and its divisions (the "Consulting Services"); PROVIDED, HOWEVER, that the Consultant will not be required to, but may at his sole discretion and at the Company's request, devote more than fifteen (15) days per month to the performance of such services during the Consulting Period. In this regard, the Company shall provide the Consultant reasonable notice of such consulting obligations and the Consultant shall have the right to reschedule commitments to the Company to accommodate the requirements of his other outside interests. 4. PLACE OF PERFORMANCE. The Consultant shall perform his duties hereunder at such locations as are acceptable to him or by telephone consultation. To facilitate the Consultant's performance during the Consulting Period, the Company shall furnish the Consultant, at no more than a reasonable cost to the Company, an office and secretary reasonably satisfactory to the Consultant which is located on the premises of the Company's headquarters. The Consultant shall be allowed full use of facilities and other clerical assistance at the Company's offices of a quality, nature and to the extent made available to executive employees of the Company from time to time. 5. COMPENSATION AND RELATED MATTERS. As compensation for providing consulting services hereunder and for providing the covenants set forth in Section 6 hereof, the Company shall make the following payments and provide the following benefits to the Consultant: 5.1 PAYMENTS. The Company shall pay the Consultant as follows: (i) during the first year following the Effective Date, $1,250,000; and (ii) during the second year following the Effective Date, $750,000. Such annual fees shall be paid in 12 equal installments on the first day of each month. 5.2 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Consultant for reasonable business expenses incurred in the performance of the Consultant's duties hereunder, including, but not limited to, reasonable travel, entertainment or similar incidental expenses in connection with the provision of consulting services; PROVIDED, HOWEVER, that such expenses shall be incurred and accounted for in accordance with the policies and procedures established by the Company from time to time for its senior executives. 5.3 FRINGE BENEFITS. During the Consulting Period, the Consultant shall be entitled to participate in all benefit programs that the Company establishes and makes generally available to its Consultants. 5.4 AUTOMOBILE. During the Consulting Period, the Company shall provide the Consultant with the same automobile benefits provided to him by the Company immediately prior to the Effective Date. 6. COVENANTS OF THE CONSULTANT. 6.1 NON-COMPETITION AND NON-SOLICITATION. The Consultant acknowledges and recognizes (i) the highly competitive nature of the business of the Company, (ii) the importance to the Company of the Confidential Business Information and Trade Secrets (as defined herein) to which the Consultant will have access, (iii) the importance to the Company of the knowledge and experience possessed by it relating to sources of supply of footwear and accessories in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico and the United States, and its relationships with such sources of supply, developed by it or its predecessors over many years, and (iv) the position of responsibility which the Consultant will hold with the Company. Accordingly, the Consultant agrees that during the Consulting Period, the Consultant will not, directly or indirectly, (x) engage in the business activities engaged in by the Company on the date hereof and during the Consulting Period, such business activities being manufacturing, selling, producing, marketing, distributing, designing, line building and otherwise dealing in footwear and accessories, of the types in which the Company does business during the Consulting Period, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico or the United States, in any State of the United States in which the Company is then doing business, the District of Columbia, and any other country in which the Company is then doing business, whether such other engagement is as an officer, director, employee, proprietor, consultant, independent contractor, partner, advisor, agent or investor (other than as a passive investor in less than 5% of the outstanding capital stock of a publicly traded corporation); (y) assist other persons or businesses in engaging in any business activities prohibited under clause (x); or (z) induce any employees of the Company to engage in any such activities or to terminate their employment or hire or attempt to hire any employees of the Company. 6.2 NON-PUBLICATION. During the Consulting Period, the Consultant shall not publish any statement or make any statement (under circumstances reasonably likely to become public) critical of the Company or in any way adversely affecting or otherwise maligning the reputation of the Company, customers, suppliers, agents or subcontractors. In particular and without limitation of the foregoing, the Consultant shall not, in any circumstance likely to become public, discourage any person, firm, partnership, corporation, trust or any other entity or third party from selling any business or assets to the Company, entering into any joint venture or other business relationship with the Company, or investing in the Company. Any statements made by the Consultant in connection with legal, administrative or arbitration proceedings, or that are required to be made by the Consultant pursuant to applicable law, shall not be prohibited by this Section 6.2. 6.3 CONFIDENTIALITY. (a) The Consultant acknowledges that the Company is engaged in the highly competitive business of designing, developing, manufacturing, marketing and selling footwear and accessories. The Company's involvement in this business has required and continues to require the expenditure of substantial amounts of money and the use of skills developed over considerable time. As a result of these investments of money, skill and time, the Company has developed and will continue to develop certain valuable trade secrets and confidential business information that are peculiar to the Company's business and the disclosure of which would cause the Company great and irreparable harm. The Consultant acknowledges that, during the course of rendering services to the Company, he will receive and/or have access to "Trade Secrets" and/or "Confidential Business Information" (as defined herein), and that, had the Consultant not had the opportunity provide services to the Company, he would not have become privy to such information. (b) The term "Trade Secrets" means any technical or financial information, design, process, procedure, formula or improvement that is valuable and not generally known to the Company's competitors. To the fullest extent consistent with the foregoing, Trade Secrets shall include, without limitation, all information and documentation, whether or not subject to copyright, pertaining to product developments, methods of operation, cost and pricing structures, and other private, confidential business matters. (c) The term "Confidential Business Information" means any data or information and documentation, other than Trade Secrets, which is valuable to the Company and not generally known to the public, including but not limited to: i. Financial information, including but not limited to earnings, assets, debts, prices, cost information, sales and profit projections or other financial data; ii. Marketing information, including but not limited to details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, marketing forecasts, results of marketing efforts or information about impending transactions; iii. Product information, including but not limited to development plans, designs, and product costs; and iv. Product source and customer information, including but not limited to any data regarding actual or potential supply sources, agency agreements or arrangements and actual or potential customers. (d) The Consultant agrees that, except as required to fulfill his obligations during the course the Consulting Period, he will not, during or after the Consulting Period, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise employ any Trade Secrets or Confidential Business Information. Nothing in this paragraph shall preclude the Consultant from disclosing or using Trade Secrets or Confidential Business Information if (i) the Trade Secrets or Confidential Business Information have become generally known, at the time the Trade Secrets or Confidential Business Information are used or disclosed, to the public or to competitors of the Company except through or as a result of the Consultant's act or omission; or (ii) the disclosure of the Trade Secrets or Confidential Business Information is required to be made by any law, regulation, governmental body or authority, or court order, provided that the Consultant will give the Company prompt written notice of such requirement so that the Company may seek an appropriate protective order or similar remedy. The Consultant agrees to deliver to the Company all computer files and tapes, books, records and documents (whether maintained in paper, electronic or any other medium) relating to or bearing upon any Trade Secrets or Confidential Business Information, upon the cessation of the Consulting Period, and the Consultant agrees not to retain any copies or extracts thereof. Notwithstanding the foregoing, the Executive shall be entitled to retain such records as may be reasonably necessary for personal tax or legal compliance or planning. (e) It is expressly understood and agreed that, although the Consultant and the Company consider the restrictions contained in this Section 6 to be reasonable, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained this Section 6 is an unreasonable or an otherwise unenforceable restriction, it is the intention of the parties that the provisions of this Section 6 shall not be rendered void, but such court shall reduce the duration, area or activity covered by such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. 6.4 INJUNCTIVE RELIEF. The covenants set forth in this Section 6 shall be enforceable by a court of equity through the granting of a temporary restraining order, preliminary injunction and/or permanent injunction. In the event of a breach of Section 6 of this Agreement, the Consultant consents to the entry of an injunction, and the Consultant shall pay any reasonable fees and expenses incurred by the Company in enforcing such Sections. Such equitable enforcement shall be in addition to and shall not prejudice the right of the Company to an appropriate monetary award. 7. TERMINATION. Termination of this Agreement shall occur as provided by Section 2 hereof. Any intended termination of this Agreement by the Company shall be communicated by a Notice of Termination from the Company to the Consultant, and any intended termination of this Agreement by the Consultant shall be communicated by a Notice of Termination from the Consultant to the Company. Any termination for "Cause" shall be subject to the terms contained in Section 16.4 of the Retention Agreement. 8. EFFECT OF TERMINATION. In the event the Consulting Services are terminated for any reason whatsoever, the Company shall pay to the Consultant the compensation and related fees and expenses otherwise payable to him under this Agreement pro rata through the last day of his actual rendering of Consulting Services to the Company. 9. MISCELLANEOUS. 9.1 MODIFICATION; WAIVER; NO REPRESENTATIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Consultant and the Company. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 9.2 SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of the Company and its Successors and Assigns (as defined in the Retention Agreement). The Company shall require its Successors and Assigns, by agreement in form and substance reasonably satisfactory to the Consultant, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. 9.3 ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Consultant, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Consultant's legal personal representative. 9.4 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in New York County in the State of New York. 9.5. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 9.6 ENTIRE AGREEMENT. This Agreement, the Retention Agreement, and the Employment Agreement (as defined in the Retention Agreement) as amended, supplemented, or modified, from time to time, constitute the entire agreement between the parties hereto, and supersede all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof. 9.7 NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any notice of termination) shall be in writing, shall be signed by the Consultant if to the Company or by a duly authorized officer of the Company if to the Consultant, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof (whichever is earlier), except that notice of change of address shall be effective only upon receipt. 9.8 HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 9.9 FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Consultant or others. 9.10 INDEPENDENT CONTRACTOR STATUS. The parties hereto acknowledge that the Consultant is at all times acting and performing as an independent contractor and shall not be considered as an employee of the Company for any purpose whatsoever. Except for the benefits provided under this Agreement, the Consultant shall not be entitled to any benefits afforded by the Company to its employees. Except as expressly authorized by the Company in writing, the Consultant shall not have any authority, and shall not represent to any third party that the Consultant has the authority, to bind or commit the Company with respect to any matter. 9.11 SPECIFIC PERFORMANCE. The parties agree that irreparable damage would occur in the event that any of the provisions contained in Section 6 of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of Section 6 of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 9.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed an original, and all of which shall constitute the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Consultant has executed this Agreement as of the day and year first above written. NINE WEST GROUP INC. By: /s/ Vincent Camuto -------------------------- Name: Vincent Camuto Title: Chief Executive Officer /s/ Jerome Fisher ------------------------------- JEROME FISHER EX-10 3 EXHIBIT 10.11 JEROME FISHER RETENTION AGREEMENT THIS AGREEMENT made as of the 15th day of December, 1998, by and between Nine West Group Inc. (the "Company") and Jerome Fisher (the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as defined herein) exists and that the threat or the occurrence of a Change in Control can result in significant distraction of the Company's key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders, for the Company to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event his employment is terminated as a result of, or in connection with, a Change in Control. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. TERM OF AGREEMENT. This Agreement shall commence as of December 15, 1998, and shall continue in effect until December 31, 2001 (the "Term"); PROVIDED, HOWEVER, that if the Company gives written notice to the Executive on or before January 1, 2000, and on or before each January 1 thereafter, that it wishes to extend the Term for one (1) year beyond the date on which it would otherwise expire, the Term shall be so extended; PROVIDED, FURTHER, HOWEVER, that following the occurrence of a Change of Control, the Term shall not expire prior to the expiration of thirty-six (36) months after such occurrence. 2. TERMINATION OF EMPLOYMENT. If, during the Term, the Executive's employment with the Company shall be terminated on a date that falls within the thirty-six (36) month period following a Change of Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Company shall be terminated (1) by the Company for Cause (as defined herein) or Disability (as defined herein), (2) by reason of his death, or (3) by the Executive other than for Good Reason (as defined herein) (other than during the 30-day period following the first anniversary of a Change of Control), the Company shall pay to the Executive his Accrued Compensation (as defined herein). (b) If the Executive's employment with the Company shall be terminated (1) for any reason other than as specified in Section 2(a), or (2) by the Executive for any reason during the 30-day period following the first anniversary of a Change of Control, the Executive shall be entitled to the following: (1) the Company shall pay the Executive all Accrued Compensation and a Pro Rata Bonus (as defined herein); (2) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date (as defined herein), an amount equal to three (3) times his Base Amount (as defined herein); (3) for the remainder of his lifetime following the Executive's Termination Date (the "Continuation Period"), the Company shall continue on behalf of the Executive and his dependents and beneficiaries the life insurance, disability, medical, dental, prescription drug and hospitalization coverages and benefits provided to the Executive immediately prior to the Change of Control or, if greater, the coverages and benefits provided at any time thereafter. The coverages and benefits (including deductibles and costs to the Executive) provided in this Section 2(b)(3) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries than the most favorable of such coverages and benefits referred to above. The Company's obligation hereunder with respect to the foregoing coverages and benefits shall be reduced to the extent that the Executive obtains any such coverages and benefits pursuant to a subsequent employer's benefit plans, in which case the Company may reduce any of the coverages or benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits (including deductibles and costs to the Executive) of the combined benefit plans is no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 2(b)(3) shall not be interpreted so as to limit any benefits to which the Executive, his dependents or beneficiaries may be entitled under any of the Company's employee benefit plans, programs or practices following the Executive's termination of employment, including but not limited to retiree medical and life insurance benefits; (4) the Company shall pay in a single payment an amount in cash equal to the excess of (A) the Supplemental Retirement Benefit (as defined herein) had (w) the Executive remained employed by the Company for an additional three (3) complete years of credited service under each supplemental and other retirement plan in which the Executive was a participant on the Termination Date (or until his 65th birthday, if earlier), (x) his annual compensation during such period been equal to his Base Amount, (y) the Company made employer contributions to each defined contribution plan in which the Executive was a participant on the Termination Date (in an amount equal to the amount of such contribution for the plan year ending immediately preceding the Termination Date) and (z) the Executive become fully (100%) vested in his benefit under each supplemental and other retirement plan in which the Executive was a participant on the Termination Date, over (B) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such supplemental and other retirement plans. For purposes of this Section 2(b)(4), "Supplemental Retirement Benefit" shall mean the lump sum actuarial equivalent of the aggregate retirement benefit the Executive would have been entitled to receive under the Company's supplemental and other retirement plans including but not limited to The Pension Plan for Associates of Nine West Group Inc. (the "Pension Plan"). For purposes of this Section 2(b)(4), the "actuarial equivalent" shall be determined in accordance with the actuarial assumptions used for the calculation of benefits under the Pension Plan as applied prior to the Termination Date in accordance with the Pension Plan's past practices; (5) the Company shall pay the Executive a lump sum in cash equal to the present value (determined using a discount rate equal to one hundred twenty percent (120%) of the applicable mid-term Federal rate determined pursuant to Section 1274(d) of the Code (as defined herein), compounded semiannually) of thirty-six (36) monthly payments, each of which payments is equal to the monthly automobile allowance payable by the Company in respect of the Executive immediately prior to the Termination Date; and (6) for thirty-six (36) months following the Executive's Termination Date, the Company shall continue to pay the Company portion of premiums under the split-dollar life insurance policy maintained in respect of the Executive. (c) The amounts provided for in Sections 2(a) and 2(b)(1), (2), (4) and (5) shall be paid in a single lump sum cash payment within ten (10) days after the Executive's Termination Date (or earlier, if required by applicable law). (d) Upon the occurrence of a Change of Control, all options held by the Executive on the date of the Change of Control shall vest and become immediately exercisable and all restrictions on shares of restricted stock shall lapse; provided, however, such accelerated vesting and/or lapse of restrictions shall not be applicable if its implementation would preclude the application of pooling-of-interests accounting treatment to a transaction for which such treatment is to be adopted by the Company and which has been approved by the Board of Directors, and the holders of options and restricted stock shall not be entitled to any accelerated vesting in such event. (e) The severance pay and benefits provided for in this Section 2 shall be in lieu of any other severance pay to which the Executive may be entitled under any severance or employment agreement with the Company, PROVIDED HOWEVER, that the Executive shall receive compensation or benefits other than as provided herein to the extent that the Executive is entitled to receive such compensation or other benefits at the time of his termination, as determined in accordance with the employee benefit plans of the Company and other applicable agreements, programs and practices as in effect from time to time, including but not limited to the Consulting Agreement, dated as of even date herewith, between the Executive and the Company (the "Consulting Agreement"), a copy of which is attached as EXHIBIT A hereto. (f) If the Executive's employment is terminated by the Company without Cause prior to the date of a Change of Control but the Executive reasonably demonstrates that such termination (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control (a "Third Party") and who effectuates a Change of Control or (2) otherwise arose in connection with, or in anticipation of, a Change of Control which has been threatened or proposed and which actually occurs, such termination shall be deemed to have occurred after a Change of Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change of Control, shall be deemed to be in anticipation of a Change of Control provided such transaction is actually consummated. 3. EFFECT OF SECTION 280G OF THE INTERNAL REVENUE CODE. (a) Notwithstanding any other provision of this Agreement to the contrary, and except as provided in Section 3(b), to the extent that any payment or distribution of any type to or for the benefit of the Executive by the Company, any Person who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder), or any Affiliate of such Person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), is or will be subject to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Total Payments shall be reduced (but not less than zero) if and to the extent that a reduction in the Total Payments would result in the Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Executive received the entire amount of such Total Payments. Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce or eliminate the Total Payments, by first reducing or eliminating the portion of the Total Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as defined herein). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. (b) If the reduction of the Payments as provided in Section 3(a) would exceed $200,000, Section 3(a) shall not apply and the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. (c) The determination of whether the Payments shall be reduced pursuant to this Section 3 and the amount of such reduction, and the determination of whether a Gross-Up Payment is payable, shall be made at the Company's expense, by an accounting firm selected by the Company which is one of the five (5) largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Company and the Executive within ten (10) days of the Termination Date, if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax), and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to the Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payments. The Determination shall be binding, final and conclusive upon the Company and the Executive. (d) If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Company by the Accounting Firm. Any determination by the Accounting Firm shall be binding upon the Company and the Executive, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Company should have been made ("Underpayment"), or that Gross-Up Payments will have been made by the Company which should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment (including any applicable interest and penalties) shall be promptly paid by the Company to or for the benefit of the Executive. In the case of an Overpayment, the Executive shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment, PROVIDED, HOWEVER, that (i) the Executive shall not in any event be obligated to return to the Company an amount greater than the net after-tax portion of the Overpayment that he has retained or has recovered as a refund from the applicable taxing authorities and (ii) if a Gross-Up Payment is determined to be payable, this provision shall be interpreted in a manner consistent with an intent to make the Executive whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Executive repaying to the Company an amount which is less than the Overpayment. The cost of all such determinations made pursuant to this Section 3 shall be paid by the Company. 4. NOTICE OF TERMINATION. Following a Change in Control, any intended termination of the Executive's employment by the Company shall be communicated by a Notice of Termination from the Company to the Executive, and any intended termination of his employment by the Executive for Good Reason shall be communicated by a Notice of Termination from the Executive to the Company. 5. FEES AND EXPENSES. The Company shall pay, as incurred, all legal fees and related expenses (including the costs of experts, evidence and counsel) that the Executive may incur following a Change in Control as a result of or in connection with (a) the Executive's contesting, defending or disputing the basis for the termination of his employment, (b) the Executive's hearing before the Board of Directors of the Company as contemplated in Section 15.5 of this Agreement or (c) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits; PROVIDED, HOWEVER, that the Company shall not be required to pay the Executive's legal fees and related expenses if it is finally determined by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken) that the Executive's claims are frivolous. 6. COVENANTS OF THE EXECUTIVE 6.1. NON-COMPETITION AND NON-SOLICITATION The Executive acknowledges and recognizes (i) the highly competitive nature of the business of the Company, (ii) the importance to the Company of the Confidential Business Information and Trade Secrets (as defined herein) to which the Executive will have access, (iii) the importance to the Company of the knowledge and experience possessed by it relating to sources of supply of footwear and accessories in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico and the United States, and its relationships with such sources of supply, developed by it or its predecessors over many years, and (iv) the position of responsibility which the Executive will hold with the Company. Accordingly, the Executive agrees that during the Non-Compete Period (as defined herein), the Executive will not, directly or indirectly, (x) engage in the business activities engaged in by the Company on the date hereof and during the Executive's employment, such business activities being manufacturing, selling, producing, marketing, distributing, designing, line building and otherwise dealing in footwear and accessories, of the types in which the Company does business as of the date of such cessation of employment, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico or the United States, in any State of the United States in which the Company is then doing business, the District of Columbia, and any other country in which the Company is then doing business, whether such other engagement is as an officer, director, employee, proprietor, consultant, independent contractor, partner, advisor, agent or investor (other than as a passive investor in less than 5% of the outstanding capital stock of a publicly traded corporation); (y) assist other persons or businesses in engaging in any business activities prohibited under clause (x); or (z) induce any employees of the Company to engage in any such activities or to terminate their employment or hire or attempt to hire any employees of the Company. 6.2. APPLICATION AND PERIOD. (a) Application. Section 6.1 shall apply following a Change of Control if (i) the Company terminates the Executive's employment for Cause, (ii) the Executive voluntarily terminates his employment for any reason, including for Good Reason (as defined herein), or (iii) the employment of the Executive is terminated and such termination results in payments to the Executive under Section 2(b) hereof. (b) Period. The "Non-Compete Period" shall mean a period of two (2) years following the termination of the Executive's employment with the Company after a Change of Control. 6.3. NON-PUBLICATION. During the Non-Compete Period, the Executive shall not publish any statement or make any statement (under circumstances reasonably likely to become public) critical of the Company or in any way adversely affecting or otherwise maligning the reputation of the Company, customers, suppliers, agents or subcontractors. In particular and without limitation of the foregoing, the Executive shall not, in any circumstance likely to become public, discourage any person, firm, partnership, corporation, trust or any other entity or third party from selling any business or assets to the Company, entering into any joint venture or other business relationship with the Company, or investing in the Company. Any statements made by the Executive in connection with legal, administrative or arbitration proceedings, or that are required to be made by the Executive pursuant to applicable law, shall not be prohibited by this Section 6.3. 6.4. CONFIDENTIALITY. (a) The Executive acknowledges that the Company is engaged in the highly competitive business of designing, developing, manufacturing, marketing and selling footwear and accessories. The Company's involvement in this business has required and continues to require the expenditure of substantial amounts of money and the use of skills developed over considerable time. As a result of these investments of money, skill and time, the Company has developed and will continue to develop certain valuable trade secrets and confidential business information that are peculiar to the Company's business and the disclosure of which would cause the Company great and irreparable harm. The Executive acknowledges that, during the course of his employment by the Company, he will receive and/or have access to "Trade Secrets" and/or "Confidential Business Information" (as defined herein), and that, had the Executive not had the opportunity to work at the Company, he would not have become privy to such information. (b) The term "Trade Secrets" means any technical or financial information, design, process, procedure, formula or improvement that is valuable and not generally known to the Company's competitors. To the fullest extent consistent with the foregoing, Trade Secrets shall include, without limitation, all information and documentation, whether or not subject to copyright, pertaining to product developments, methods of operation, cost and pricing structures, and other private, confidential business matters. (c) The term "Confidential Business Information" means any data or information and documentation, other than Trade Secrets, which is valuable to the Company and not generally known to the public, including but not limited to: i. Financial information, including but not limited to earnings, assets, debts, prices, cost information, sales and profit projections or other financial data; ii. Marketing information, including but not limited to details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, marketing forecasts, results of marketing efforts or information about impending transactions; iii. Product information, including but not limited to development plans, designs, and product costs; and iv. Product source and customer information, including but not limited to any data regarding actual or potential supply sources, agency agreements or arrangements and actual or potential customers. (d) The Executive agrees that, except as required to fulfill his obligations during the course of his employment, he will not, during his employment with the Company or after such employment has ceased, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise employ any Trade Secrets or Confidential Business Information. Nothing in this paragraph shall preclude the Executive from disclosing or using Trade Secrets or Confidential Business Information if (i) the Trade Secrets or Confidential Business Information have become generally known, at the time the Trade Secrets or Confidential Business Information are used or disclosed, to the public or to competitors of the Company except through or as a result of the Executive's act or omission; or (ii) the disclosure of the Trade Secrets or Confidential Business Information is required to be made by any law, regulation, governmental body or authority, or court order, provided that the Executive will give the Company prompt written notice of such requirement so that the Company may seek an appropriate protective order or similar remedy. The Executive agrees to deliver to the Company all computer files and tapes, books, records and documents (whether maintained in paper, electronic or any other medium) relating to or bearing upon any Trade Secrets or Confidential Business Information, upon the cessation of his employment, and the Executive agrees not to retain any copies or extracts thereof. Notwithstanding the foregoing, the Executive shall be entitled to retain such records as may be reasonably necessary for personal tax or legal compliance or planning. (e) It is expressly understood and agreed that, although the Executive and the Company consider the restrictions contained in this Section 6 to be reasonable, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained this Section 6 is an unreasonable or an otherwise unenforceable restriction, it is the intention of the parties that the provisions of this Section 6 shall not be rendered void, but such court shall reduce the duration, area or activity covered by such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. 6.5. INJUNCTIVE RELIEF. The covenants set forth in this Section 6 are independent and shall be enforceable by a court of equity through the granting of a temporary restraining order, preliminary injunction and/or permanent injunction. In the event of a breach of Section 6 of this Agreement, the Executive consents to the entry of an injunction, and the Executive shall pay any reasonable fees and expenses incurred by the Company in enforcing such Sections. Such equitable enforcement shall be in addition to and shall not prejudice the right of the Company to an appropriate monetary award. 7. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof (whichever is earlier), except that notice of change of address shall be effective only upon receipt. 8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company, except as explicitly provided herein. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 9. (a) FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including but not limited to any set-off, counterclaim, defense, recoupment, or other claim, right or action which the Company may have against the Executive or others. (b) NO MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 2(b)(3). 10. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 11. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company and its Successors and Assigns. The Company shall require its Successors and Assigns, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 12. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in New York County in the State of New York. 13. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 14. ENTIRE AGREEMENT. This Agreement and the Consulting Agreement constitute the entire agreement between the parties hereto, and supersede all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof; PROVIDED, HOWEVER, that the employment agreement between the Company and the Executive, dated as of May 8, 1992, as amended on December 30, 1992 (the "Employment Agreement") shall apply, except with respect to Sections 2(e) and 6 of this Agreement, which shall supersede the Employment Agreement. 15. DEFINITIONS. 15.1. ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued Compensation" shall mean all amounts of compensation for services rendered to the Company that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date including, without limitation (a) base salary, (b) reimbursement for reasonable and necessary business expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date and (c) vacation pay. 15.2. AFFILIATE. For purposes of this Agreement, "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlled by, controlling or under common control with such Person. 15.3. BASE AMOUNT. For purposes of this Agreement, "Base Amount" shall mean annual base salary at the rate in effect as of the date of a Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Executive. 15.4. CAUSE. For purposes of this Agreement, a termination of employment is for "Cause" if the Executive (a) has been convicted of a felony (including a plea of nolo contendere), the time for appeal of which has elapsed; (b) intentionally and continually failed substantially to perform the Executive's reasonably assigned duties with the Company (other than a failure resulting from his incapacity due to physical or mental illness or from the assignment to the Executive of duties that would constitute Good Reason) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Company, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform; or (c) intentionally engaged in illegal conduct or willful misconduct which is demonstrably and materially injurious to the Company. For purposes of this Agreement, no act, nor failure to act, on his part, shall be considered "intentional" unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive's action or failure to act was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Company's Chairman of the Board, Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The termination of employment of the Executive shall not be deemed to be for Cause pursuant to subparagraph (b) or (c) above unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (b) or (c) above, and specifying the particulars thereof in detail. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Company by the Executive shall constitute Cause for purposes of this Agreement. The Company acknowledges that Mr. Fisher resides in Florida and spends a substantial amount of his time in Florida and other locations during the course of each year, and further agrees that, notwithstanding the terms of the Employment Agreement, Mr. Fisher may perform all of his duties from Florida and/or other remote locations. 15.5. CHANGE IN CONTROL. A "Change in Control" shall mean the occurrence during the term of the Agreement of: (a) An acquisition (other than directly from Nine West Group Inc.) of any common stock of Nine West Group Inc. ("Common Stock") or other voting securities of Nine West Group Inc. entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of the then outstanding shares of Common Stock or the combined voting power of Nine West Group Inc.'s then outstanding Voting Securities; PROVIDED, HOWEVER, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a Non-Control Acquisition (as defined herein) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) Nine West Group Inc. or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by Nine West Group Inc. (a "Subsidiary"), (ii) Nine West Group Inc. or its Subsidiaries, or (iii) any Person in connection with a Non-Control Transaction (as defined herein); (b) The individuals who, as of December 15, 1998, are members of the Board of Nine West Group Inc. (the "Incumbent Board") cease for any reason to constitute at least a majority of the members of the Board; PROVIDED, HOWEVER, that if the election, or nomination for election by Nine West Group Inc.'s shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (1) A merger, consolidation, reorganization or other business combination with or into Nine West Group Inc. or in which securities of Nine West Group Inc. are issued, unless such merger, consolidation, reorganization or other business combination is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation, reorganization or other business combination with or into Nine West Group Inc. or in which securities of Nine West Group Inc. are issued where: (A) the shareholders of Nine West Group Inc., immediately before such merger, consolidation, reorganization or other business combination own directly or indirectly immediately following such merger, consolidation, reorganization or other business combination, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation, reorganization or other business combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, reorganization, or other business combination, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, reorganization or other business combination constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Corporation, or a corporation beneficially directly or indirectly owning a majority of the combined voting power of the outstanding voting securities of the Surviving Corporation, and (C) no Person other than (i) Nine West Group Inc., (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation, reorganization or other business combination was maintained by Nine West Group Inc., the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation, reorganization or other business combination had Beneficial Ownership of thirty percent (30%) or more of the then outstanding Voting Securities or common stock of Nine West Group Inc., has Beneficial Ownership of thirty percent (30%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (2) A complete liquidation or dissolution of Nine West Group Inc.; or (3) The sale or other disposition of all or substantially all of the assets of Nine West Group Inc. to any Person (other than (i) any such sale or disposition that results in at least fifty percent (50%) of Nine West Group Inc.'s assets being owned by a subsidiary or subsidiaries or (ii) a distribution to Nine West Group Inc.'s stockholders of the stock of a subsidiary or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding common stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by Nine West Group Inc. which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by Nine West Group Inc., and after such share acquisition by Nine West Group Inc., the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increase the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 15.6. COMPANY. For purposes of this Agreement, all references to the Company shall be deemed to include the Company and any Affiliate of the Company, and any respective Successors and Assigns. 15.7. DISABILITY. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs his ability to substantially perform his duties with the Company for six (6) consecutive months and, within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty (30) days), the Executive shall not have returned to full-time performance of his duties; PROVIDED, HOWEVER, that if the Company's Long Term Disability Plan, or any successor plan (the "Disability Plan"), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for long-term disability benefits under the Disability Plan (or similar benefits in the event of a successor plan). 15.8. GOOD REASON. (a) For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (1) a change in the Executive's responsibilities or job description (including reporting responsibilities) that represents a material adverse change from the Executive's responsibilities or job description as in effect immediately prior thereto; (2) a reduction in the Executive's annual base salary below the Base Amount; (3) the requirement that the Executive conduct his duties in a manner substantially different from the manner in which he presently conducts those duties, including, without limitation, the location at which he performs his duties from time to time, or a requirement that the Executive report to work at the Company's headquarters or other designated Company location; (4) the failure by the Company to pay to the Executive any portion of his current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company in which the Executive participated, within seven (7) days of the date such compensation is due; (5) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities which with respect to the Incentive Plan shall include a reduction in the potential bonus entitlement for comparable corporate performance by the Company and its subsidiaries) any material compensation or employee benefit plan in which the Executive was participating immediately prior to the Change in Control unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation, employee benefit or fringe benefit plan, program or practice in which the Executive was participating immediately prior to the Change in Control; (6) the failure of the Company to obtain from its Successors or Assigns the express assumption and agreement required under Section 11(a) hereof; or (7) any purported termination of his employment by the Company which is not effected pursuant to a Notice of Termination satisfying the terms set forth in the definition of Notice of Termination (and, if applicable, the terms set forth in the definition of Cause). (b) Any event or condition described in Section 15.8(a)(1) through (8) which occurs prior to a Change in Control but which the Executive reasonably demonstrates (1) was at the request of a Third Party who effectuates a Change in Control or (2) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change in Control, shall be deemed to be in anticipation of a Change in Control provided such transaction is actually consummated. 15.9. INCENTIVE PLAN. For purposes of this Agreement, "Incentive Plan" shall mean the Company's First Amended and Restated Bonus Plan or any successor annual incentive plan, maintained by the Company. 15.10. NOTICE OF TERMINATION. For purposes of this Agreement, following a Change in Control, "Notice of Termination" shall mean a written notice of termination of the Executive's employment, signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of his employment under the provision so indicated. 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, Disability or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 15.11. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata Bonus" shall mean an amount equal to fifty percent (50%) of the Base Amount multiplied by a fraction the numerator of which is the number of days in the fiscal year in which the Executive's Termination Date occurs that have elapsed through the Termination Date and the denominator of which is 365. 15.12. SUCCESSORS AND ASSIGNS. For purposes of this Agreement, "Successors and Assigns" shall mean, with respect to the Company, a corporation or other entity acquiring all or substantially all the assets and business of the Company, as the case may be whether by operation of law or otherwise. 15.13. TERMINATION DATE. For purposes of this Agreement, "Termination Date" shall mean (a) in the case of the Executive's death, his date of death, (b) if his employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period) and (c) if his employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause shall not be less than thirty (30) days, and in the case of a termination for Good Reason shall not be more than sixty (60) days, from the date such Notice of Termination is given); PROVIDED, HOWEVER, that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken). Notwithstanding the pendency of any such dispute, the Company shall continue to pay the Executive his Base Amount and continue the Executive as a participant (at or above the level provided prior to the date of such dispute) in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, prescription drug, dental, life insurance and disability benefit plans in which he was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved (whether or not the dispute is resolved in favor of the Company); PROVIDED FURTHER, that if the dispute results in the payment by the Company to the Executive of the amounts contemplated under Section 2(b) hereof, the amount of such payments shall be reduced by any Base Amount paid to the Executive during the pendency of the dispute. Except as provided in the last proviso of the preceding sentence, notwithstanding the outcome of any dispute, the Executive shall not be obligated to repay to the Company or an Employing Affiliate any amounts paid or benefits provided pursuant to this sentence. The Executive's rights to receive payments under Section 2 of this Agreement shall survive the expiration of the Term during any dispute contemplated by this Section. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed an original, and all of which shall constitute the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officers and the Executive has executed this Agreement as of the day and year first above written. NINE WEST GROUP INC. /s/ Vincent Camuto ----------------------------- By: Vincent Camuto Its: Chief Financial Officer JEROME FISHER /s/ Jerome Fisher ---------------------------- ATTEST: /s/ Joel K. Bedol - ------------------------ By: Joel K. Bedol EX-10 4 EXHIBIT 10.13 CONSULTING AGREEMENT BETWEEN NINE WEST GROUP INC. AND VINCENT CAMUTO THIS CONSULTING AGREEMENT (the "Agreement") made as of the 15th day of December 1998, by and between Nine West Group Inc. (the "Company") and Vincent Camuto (the "Consultant"). WHEREAS, the Company and the Consultant have entered into a Retention Agreement, dated as of even date herewith (the "Retention Agreement"), to provide the Consultant with certain benefits in the event the Consultant's employment terminates as a result of, or in connection with, a Change of Control (as defined in the Retention Agreement); WHEREAS, the Company desires to continue to benefit from the experience and ability of the Consultant in the capacity of a consultant to the Company upon termination of his employment, and further desires to obtain certain covenants from the Consultant, as set forth in this Agreement; NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, the parties hereby agree as follows: 1. RETENTION AS CONSULTANT. The Company hereby agrees to engage the Consultant, and the Consultant hereby accepts the engagement with the Company, upon the terms set forth in this Agreement. 2. TERM. This Agreement shall commence upon the date following the termination of the Consultant's employment after a Change of Control for any reason, other than for "Cause" (as defined in the Retention Agreement); "Disability" (as defined in the Retention Agreement); or death (the "Effective Date"), and shall expire two (2) years from the Effective Date, unless earlier terminated by reason of the Consultant's Disability, death, for "Cause" (as defined in the Retention Agreement) or by the Consultant in accordance with the immediately following sentence (the "Consulting Period"). The Consultant may terminate this Agreement, in his sole discretion, at any time upon thirty (30) days prior written notice to the Company; PROVIDED, HOWEVER, that the consultant's covenants contained in Section 6 of this Agreement shall continue to apply until the expiration of a two (2) year period after the Effective Date. 3. DUTIES. During the Consulting Period, the Consultant shall render such consulting and advisory services to the Company as the Consultant and the Company agree upon from time to time, including, but not limited to, providing advice to the Company on corporate strategy, the design, manufacture, marketing and distribution of the Company's products and the coordination and planning between the Company's factories and its divisions (the "Consulting Services"); PROVIDED, HOWEVER, that the Consultant will not be required to, but may at his sole discretion and at the Company's request, devote more than fifteen (15) days per month to the performance of such services during the Consulting Period. In this regard, the Company shall provide the Consultant reasonable notice of such consulting obligations and the Consultant shall have the right to reschedule commitments to the Company to accommodate the requirements of his other outside interests. 4. PLACE OF PERFORMANCE. The Consultant shall perform his duties hereunder at such locations as are acceptable to him or by telephone consultation. To facilitate the Consultant's performance during the Consulting Period, the Company shall furnish the Consultant, at no more than a reasonable cost to the Company, an office and secretary reasonably satisfactory to the Consultant which is located on the premises of the Company's headquarters. The Consultant shall be allowed full use of facilities and other clerical assistance at the Company's offices of a quality, nature and to the extent made available to executive employees of the Company from time to time. 5. COMPENSATION AND RELATED MATTERS. As compensation for providing consulting services hereunder and for providing the covenants set forth in Section 6 hereof, the Company shall make the following payments and provide the following benefits to the Consultant: 5.1 PAYMENTS. The Company shall pay the Consultant as follows: (i) during the first year following the Effective Date, $1,250,000; and (ii) during the second year following the Effective Date, $750,000. Such annual fees shall be paid in 12 equal installments on the first day of each month. 5.2 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Consultant for reasonable business expenses incurred in the performance of the Consultant's duties hereunder, including, but not limited to, reasonable travel, entertainment or similar incidental expenses in connection with the provision of consulting services; PROVIDED, HOWEVER, that such expenses shall be incurred and accounted for in accordance with the policies and procedures established by the Company from time to time for its senior executives. 5.3 FRINGE BENEFITS. During the Consulting Period, the Consultant shall be entitled to participate in all benefit programs that the Company establishes and makes generally available to its Consultants. 5.4 AUTOMOBILE. During the Consulting Period, the Company shall provide the Consultant with the same automobile benefits provided to him by the Company immediately prior to the Effective Date. 6. COVENANTS OF THE CONSULTANT. 6.1 NON-COMPETITION AND NON-SOLICITATION. The Consultant acknowledges and recognizes (i) the highly competitive nature of the business of the Company, (ii) the importance to the Company of the Confidential Business Information and Trade Secrets (as defined herein) to which the Consultant will have access, (iii) the importance to the Company of the knowledge and experience possessed by it relating to sources of supply of footwear and accessories in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico and the United States, and its relationships with such sources of supply, developed by it or its predecessors over many years, and (iv) the position of responsibility which the Consultant will hold with the Company. Accordingly, the Consultant agrees that during the Consulting Period, the Consultant will not, directly or indirectly, (x) engage in the business activities engaged in by the Company on the date hereof and during the Consulting Period, such business activities being manufacturing, selling, producing, marketing, distributing, designing, line building and otherwise dealing in footwear and accessories, of the types in which the Company does business during the Consulting Period, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico or the United States, in any State of the United States in which the Company is then doing business, the District of Columbia, and any other country in which the Company is then doing business, whether such other engagement is as an officer, director, employee, proprietor, consultant, independent contractor, partner, advisor, agent or investor (other than as a passive investor in less than 5% of the outstanding capital stock of a publicly traded corporation); (y) assist other persons or businesses in engaging in any business activities prohibited under clause (x); or (z) induce any employees of the Company to engage in any such activities or to terminate their employment or hire or attempt to hire any employees of the Company. 6.2 NON-PUBLICATION. During the Consulting Period, the Consultant shall not publish any statement or make any statement (under circumstances reasonably likely to become public) critical of the Company or in any way adversely affecting or otherwise maligning the reputation of the Company, customers, suppliers, agents or subcontractors. In particular and without limitation of the foregoing, the Consultant shall not, in any circumstance likely to become public, discourage any person, firm, partnership, corporation, trust or any other entity or third party from selling any business or assets to the Company, entering into any joint venture or other business relationship with the Company, or investing in the Company. Any statements made by the Consultant in connection with legal, administrative or arbitration proceedings, or that are required to be made by the Consultant pursuant to applicable law, shall not be prohibited by this Section 6.2. 6.3 CONFIDENTIALITY. (a) The Consultant acknowledges that the Company is engaged in the highly competitive business of designing, developing, manufacturing, marketing and selling footwear and accessories. The Company's involvement in this business has required and continues to require the expenditure of substantial amounts of money and the use of skills developed over considerable time. As a result of these investments of money, skill and time, the Company has developed and will continue to develop certain valuable trade secrets and confidential business information that are peculiar to the Company's business and the disclosure of which would cause the Company great and irreparable harm. The Consultant acknowledges that, during the course of rendering services to the Company, he will receive and/or have access to "Trade Secrets" and/or "Confidential Business Information" (as defined herein), and that, had the Consultant not had the opportunity provide services to the Company, he would not have become privy to such information. (b) The term "Trade Secrets" means any technical or financial information, design, process, procedure, formula or improvement that is valuable and not generally known to the Company's competitors. To the fullest extent consistent with the foregoing, Trade Secrets shall include, without limitation, all information and documentation, whether or not subject to copyright, pertaining to product developments, methods of operation, cost and pricing structures, and other private, confidential business matters. (c) The term "Confidential Business Information" means any data or information and documentation, other than Trade Secrets, which is valuable to the Company and not generally known to the public, including but not limited to: i. Financial information, including but not limited to earnings, assets, debts, prices, cost information, sales and profit projections or other financial data; ii. Marketing information, including but not limited to details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, marketing forecasts, results of marketing efforts or information about impending transactions; iii. Product information, including but not limited to development plans, designs, and product costs; and iv. Product source and customer information, including but not limited to any data regarding actual or potential supply sources, agency agreements or arrangements and actual or potential customers. (d) The Consultant agrees that, except as required to fulfill his obligations during the course the Consulting Period, he will not, during or after the Consulting Period, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise employ any Trade Secrets or Confidential Business Information. Nothing in this paragraph shall preclude the Consultant from disclosing or using Trade Secrets or Confidential Business Information if (i) the Trade Secrets or Confidential Business Information have become generally known, at the time the Trade Secrets or Confidential Business Information are used or disclosed, to the public or to competitors of the Company except through or as a result of the Consultant's act or omission; or (ii) the disclosure of the Trade Secrets or Confidential Business Information is required to be made by any law, regulation, governmental body or authority, or court order, provided that the Consultant will give the Company prompt written notice of such requirement so that the Company may seek an appropriate protective order or similar remedy. The Consultant agrees to deliver to the Company all computer files and tapes, books, records and documents (whether maintained in paper, electronic or any other medium) relating to or bearing upon any Trade Secrets or Confidential Business Information, upon the cessation of the Consulting Period, and the Consultant agrees not to retain any copies or extracts thereof. Notwithstanding the foregoing, the Executive shall be entitled to retain such records as may be reasonably necessary for personal tax or legal compliance or planning. (e) It is expressly understood and agreed that, although the Consultant and the Company consider the restrictions contained in this Section 6 to be reasonable, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained this Section 6 is an unreasonable or an otherwise unenforceable restriction, it is the intention of the parties that the provisions of this Section 6 shall not be rendered void, but such court shall reduce the duration, area or activity covered by such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. 6.4 INJUNCTIVE RELIEF. The covenants set forth in this Section 6 shall be enforceable by a court of equity through the granting of a temporary restraining order, preliminary injunction and/or permanent injunction. In the event of a breach of Section 6 of this Agreement, the Consultant consents to the entry of an injunction, and the Consultant shall pay any reasonable fees and expenses incurred by the Company in enforcing such Sections. Such equitable enforcement shall be in addition to and shall not prejudice the right of the Company to an appropriate monetary award. 7. TERMINATION. Termination of this Agreement shall occur as provided by Section 2 hereof. Any intended termination of this Agreement by the Company shall be communicated by a Notice of Termination from the Company to the Consultant, and any intended termination of this Agreement by the Consultant shall be communicated by a Notice of Termination from the Consultant to the Company. Any termination for "Cause" shall be subject to the terms contained in Section 16.4 of the Retention Agreement. 8. EFFECT OF TERMINATION. In the event the Consulting Services are terminated for any reason whatsoever, the Company shall pay to the Consultant the compensation and related fees and expenses otherwise payable to him under this Agreement pro rata through the last day of his actual rendering of Consulting Services to the Company. 9. MISCELLANEOUS. 9.1 MODIFICATION; WAIVER; NO REPRESENTATIONS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Consultant and the Company. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 9.2 SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of the Company and its Successors and Assigns (as defined in the Retention Agreement). The Company shall require its Successors and Assigns, by agreement in form and substance reasonably satisfactory to the Consultant, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. 9.3 ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Consultant, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Consultant's legal personal representative. 9.4 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in New York County in the State of New York. 9.5. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 9.6 ENTIRE AGREEMENT. This Agreement, the Retention Agreement, and the Employment Agreement (as defined in the Retention Agreement) as amended, supplemented, or modified, from time to time, constitute the entire agreement between the parties hereto, and supersede all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof. 9.7 NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any notice of termination) shall be in writing, shall be signed by the Consultant if to the Company or by a duly authorized officer of the Company if to the Consultant, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof (whichever is earlier), except that notice of change of address shall be effective only upon receipt. 9.8 HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 9.9 FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Consultant or others. 9.10 INDEPENDENT CONTRACTOR STATUS. The parties hereto acknowledge that the Consultant is at all times acting and performing as an independent contractor and shall not be considered as an employee of the Company for any purpose whatsoever. Except for the benefits provided under this Agreement, the Consultant shall not be entitled to any benefits afforded by the Company to its employees. Except as expressly authorized by the Company in writing, the Consultant shall not have any authority, and shall not represent to any third party that the Consultant has the authority, to bind or commit the Company with respect to any matter. 9.11 SPECIFIC PERFORMANCE. The parties agree that irreparable damage would occur in the event that any of the provisions contained in Section 6 of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of Section 6 of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 9.12. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed an original, and all of which shall constitute the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Consultant has executed this Agreement as of the day and year first above written. NINE WEST GROUP INC. By: /s/ Joel K. Bedol ------------------------------- Name: Joel K. Bedol Title: Executive Vice President /s/ Vincent Camuto ----------------------------------- VINCENT CAMUTO EX-10 5 EXHIBIT 10.14 VINCENT CAMUTO RETENTION AGREEMENT THIS AGREEMENT made as of the 15th day of December, 1998, by and between Nine West Group Inc. (the "Company") and Vincent Camuto (the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change of Control (as defined herein) exists and that the threat or the occurrence of a Change of Control can result in significant distraction of the Company's key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders, for the Company to retain the services of the Executive in the event of a threat or occurrence of a Change of Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change of Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event his employment is terminated as a result of, or in connection with, a Change of Control. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. TERM OF AGREEMENT. This Agreement shall commence as of December 15, 1998, and shall continue in effect until December 31, 2001 (the "Term"); PROVIDED, HOWEVER, that if the Company gives written notice to the Executive on or before January 1, 2000, and on or before each January 1 thereafter, that it wishes to extend the Term for one (1) year beyond the date on which it would otherwise expire, the Term shall be so extended; PROVIDED, FURTHER, HOWEVER, that following the occurrence of a Change of Control, the Term shall not expire prior to the expiration of thirty-six (36) months after such occurrence. 2. TERMINATION OF EMPLOYMENT. If, during the Term, the Executive's employment with the Company shall be terminated on a date that falls within the thirty-six (36) month period following a Change of Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Company shall be terminated (1) by the Company for Cause (as defined herein) or Disability (as defined herein), (2) by reason of his death, or (3) by the Executive other than for Good Reason (as defined herein) (other than during the 30-day period following the first anniversary of a Change of Control), the Company shall pay to the Executive his Accrued Compensation (as defined herein). (b) If the Executive's employment with the Company shall be terminated (1) for any reason other than as specified in Section 2(a), or (2) by the Executive for any reason during the 30-day period following the first anniversary of a Change of Control, the Executive shall be entitled to the following: (1) the Company shall pay the Executive all Accrued Compensation and a Pro Rata Bonus (as defined herein); (2) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date (as defined herein), an amount equal to three (3) times his Base Amount (as defined herein); (3) For the remainder of his lifetime following the Executive's Termination Date (the "Continuation Period"), the Company shall continue on behalf of the Executive and his dependents and beneficiaries the life insurance, disability, medical, dental, prescription drug and hospitalization coverages and benefits provided to the Executive immediately prior to the Change of Control or, if greater, the coverages and benefits provided at any time thereafter. The coverages and benefits (including deductibles and costs to the Executive) provided in this Section 2(b)(3) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries than the most favorable of such coverages and benefits referred to above. The Company's obligation hereunder with respect to the foregoing coverages and benefits shall be reduced to the extent that the Executive obtains any such coverages and benefits pursuant to a subsequent employer's benefit plans, in which case the Company may reduce any of the coverages or benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits (including deductibles and costs to the Executive) of the combined benefit plans is no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 2(b)(3) shall not be interpreted so as to limit any benefits to which the Executive, his dependents or beneficiaries may be entitled under any of the Company's employee benefit plans, programs or practices following the Executive's termination of employment, including but not limited to retiree medical and life insurance benefits; (4) the Company shall pay in a single payment an amount in cash equal to the excess of (A) the Supplemental Retirement Benefit (as defined herein) had (w) the Executive remained employed by the Company for an additional three (3) complete years of credited service under each supplemental and other retirement plan in which the Executive was a participant on the Termination Date (or until his 65th birthday, if earlier), (x) his annual compensation during such period been equal to his Base Amount, (y) the Company made employer contributions to each defined contribution plan in which the Executive was a participant on the Termination Date (in an amount equal to the amount of such contribution for the plan year ending immediately preceding the Termination Date) and (z) the Executive become fully (100%) vested in his benefit under each supplemental and other retirement plan in which the Executive was a participant on the Termination Date, over (B) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such supplemental and other retirement plans. For purposes of this Section 2(b)(4), "Supplemental Retirement Benefit" shall mean the lump sum actuarial equivalent of the aggregate retirement benefit the Executive would have been entitled to receive under the Company's supplemental and other retirement plans including but not limited to The Pension Plan for Associates of Nine West Group Inc. (the "Pension Plan"). For purposes of this Section 2(b)(4), the "actuarial equivalent" shall be determined in accordance with the actuarial assumptions used for the calculation of benefits under the Pension Plan as applied prior to the Termination Date in accordance with the Pension Plan's past practices; (5) the Company shall pay the Executive a lump sum in cash equal to the present value (determined using a discount rate equal to one hundred twenty percent (120%) of the applicable mid-term Federal rate determined pursuant to Section 1274(d) of the Code (as defined herein), compounded semiannually) of thirty-six (36) monthly payments, each of which payments is equal to the monthly automobile allowance payable by the Company in respect of the Executive immediately prior to the Termination Date; and (6) for thirty-six (36) months following the Executive's Termination Date, the Company shall continue to pay the Company portion of premiums under the split-dollar life insurance policy maintained in respect of the Executive. (c) The amounts provided for in Sections 2(a) and 2(b)(1), (2), (4) and (5) shall be paid in a single lump sum cash payment within ten (10) days after the Executive's Termination Date (or earlier, if required by applicable law). (d) Upon the occurrence of a Change of Control, all options held by the Executive on the date of the Change of Control shall vest and become immediately exercisable and all restrictions on shares of restricted stock shall lapse; provided, however, such accelerated vesting and/or lapse of restrictions shall not be applicable if its implementation would preclude the application of pooling-of-interests accounting treatment to a transaction for which such treatment is to be adopted by the Company and which has been approved by the Board of Directors, and the holders of options and restricted stock shall not be entitled to any accelerated vesting in such event. (e) The severance pay and benefits provided for in this Section 2 shall be in lieu of any other severance pay to which the Executive may be entitled under any severance or employment agreement with the Company, PROVIDED HOWEVER, that the Executive shall receive compensation or benefits other than as provided herein to the extent that the Executive is entitled to receive such compensation or other benefits at the time of his termination, as determined in accordance with the employee benefit plans of the Company and other applicable agreements, programs and practices as in effect from time to time, including but not limited to the Consulting Agreement, dated as of even date herewith, between the Executive and the Company (the "Consulting Agreement"), a copy of which is attached as EXHIBIT A hereto. (f) If the Executive's employment is terminated by the Company without Cause prior to the date of a Change of Control but the Executive reasonably demonstrates that such termination (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control (a "Third Party") and who effectuates a Change of Control or (2) otherwise arose in connection with, or in anticipation of, a Change of Control which has been threatened or proposed and which actually occurs, such termination shall be deemed to have occurred after a Change of Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change of Control, shall be deemed to be in anticipation of a Change of Control provided such transaction is actually consummated. 3. EFFECT OF SECTION 280G OF THE INTERNAL REVENUE CODE. (a) Notwithstanding any other provision of this Agreement to the contrary, and except as provided in Section 3(b), to the extent that any payment or distribution of any type to or for the benefit of the Executive by the Company, any Person who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder), or any Affiliate of such Person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), is or will be subject to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Total Payments shall be reduced (but not less than zero) if and to the extent that a reduction in the Total Payments would result in the Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Executive received the entire amount of such Total Payments. Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce or eliminate the Total Payments, by first reducing or eliminating the portion of the Total Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as defined herein). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. (b) If the reduction of the Payments as provided in Section 3(a) would exceed $200,000, Section 3(a) shall not apply and the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. (c) The determination of whether the Payments shall be reduced pursuant to this Section 3 and the amount of such reduction, and the determination of whether a Gross-Up Payment is payable, shall be made at the Company's expense, by an accounting firm selected by the Company which is one of the five (5) largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Company and the Executive within ten (10) days of the Termination Date, if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax), and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to the Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payments. The Determination shall be binding, final and conclusive upon the Company and the Executive. (d) If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Company by the Accounting Firm. Any determination by the Accounting Firm shall be binding upon the Company and the Executive, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Company should have been made ("Underpayment"), or that Gross-Up Payments will have been made by the Company which should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment (including any applicable interest and penalties) shall be promptly paid by the Company to or for the benefit of the Executive. In the case of an Overpayment, the Executive shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment, PROVIDED, HOWEVER, that (i) the Executive shall not in any event be obligated to return to the Company an amount greater than the net after-tax portion of the Overpayment that he has retained or has recovered as a refund from the applicable taxing authorities and (ii) if a Gross-Up Payment is determined to be payable, this provision shall be interpreted in a manner consistent with an intent to make the Executive whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Executive repaying to the Company an amount which is less than the Overpayment. The cost of all such determinations made pursuant to this Section 3 shall be paid by the Company. 4. NOTICE OF TERMINATION. Following a Change of Control, any intended termination of the Executive's employment by the Company shall be communicated by a Notice of Termination from the Company to the Executive, and any intended termination of his employment by the Executive for Good Reason shall be communicated by a Notice of Termination from the Executive to the Company. 5. FEES AND EXPENSES. The Company shall pay, as incurred, all legal fees and related expenses (including the costs of experts, evidence and counsel) that the Executive may incur following a Change of Control as a result of or in connection with (a) the Executive's contesting, defending or disputing the basis for the termination of his employment, (b) the Executive's hearing before the Board of Directors of the Company as contemplated in Section 15.5 of this Agreement or (c) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits; PROVIDED, HOWEVER, that the Company shall not be required to pay the Executive's legal fees and related expenses if it is finally determined by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken) that the Executive's claims are frivolous. 6. COVENANTS OF THE EXECUTIVE. 6.1. NON-COMPETITION AND NON-SOLICITATION. The Executive acknowledges and recognizes (i) the highly competitive nature of the business of the Company, (ii) the importance to the Company of the Confidential Business Information and Trade Secrets (as defined herein) to which the Executive will have access, (iii) the importance to the Company of the knowledge and experience possessed by it relating to sources of supply of footwear and accessories in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico and the United States, and its relationships with such sources of supply, developed by it or its predecessors over many years, and (iv) the position of responsibility which the Executive will hold with the Company. Accordingly, the Executive agrees that during the Non-Compete Period (as defined herein), the Executive will not, directly or indirectly, (x) engage in the business activities engaged in by the Company on the date hereof and during the Executive's employment, such business activities being manufacturing, selling, producing, marketing, distributing, designing, line building and otherwise dealing in footwear and accessories, of the types in which the Company does business as of the date of such cessation of employment, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico or the United States, in any State of the United States in which the Company is then doing business, the District of Columbia, and any other country in which the Company is then doing business, whether such other engagement is as an officer, director, employee, proprietor, consultant, independent contractor, partner, advisor, agent or investor (other than as a passive investor in less than 5% of the outstanding capital stock of a publicly traded corporation); (y) assist other persons or businesses in engaging in any business activities prohibited under clause (x); or (z) induce any employees of the Company to engage in any such activities or to terminate their employment or hire or attempt to hire any employees of the Company. 6.2. APPLICATION AND PERIOD. (a) APPLICATION. Section 6.1 shall apply following a Change of Control if (i) the Company terminates the Executive's employment for Cause, (ii) the Executive voluntarily terminates his employment for any reason, including for Good Reason (as defined herein), or (iii) the employment of the Executive is terminated and such termination results in payments to the Executive under Section 2(b) hereof. (b) PERIOD. The "Non-Compete Period" shall mean a period of two (2) years following the termination of the Executive's employment with the Company after a Change of Control. 6.3. NON-PUBLICATION. During the Non-Compete Period, the Executive shall not publish any statement or make any statement (under circumstances reasonably likely to become public) critical of the Company or in any way adversely affecting or otherwise maligning the reputation of the Company, customers, suppliers, agents or subcontractors. In particular and without limitation of the foregoing, the Executive shall not, in any circumstance likely to become public, discourage any person, firm, partnership, corporation, trust or any other entity or third party from selling any business or assets to the Company, entering into any joint venture or other business relationship with the Company, or investing in the Company. Any statements made by the Executive in connection with legal, administrative or arbitration proceedings, or that are required to be made by the Executive pursuant to applicable law, shall not be prohibited by this Section 6.3. 6.4. CONFIDENTIALITY. (a) The Executive acknowledges that the Company is engaged in the highly competitive business of designing, developing, manufacturing, marketing and selling footwear and accessories. The Company's involvement in this business has required and continues to require the expenditure of substantial amounts of money and the use of skills developed over considerable time. As a result of these investments of money, skill and time, the Company has developed and will continue to develop certain valuable trade secrets and confidential business information that are peculiar to the Company's business and the disclosure of which would cause the Company great and irreparable harm. The Executive acknowledges that, during the course of his employment by the Company, he will receive and/or have access to "Trade Secrets" and/or "Confidential Business Information" (as defined herein), and that, had the Executive not had the opportunity to work at the Company, he would not have become privy to such information. (b) The term "Trade Secrets" means any technical or financial information, design, process, procedure, formula or improvement that is valuable and not generally known to the Company's competitors. To the fullest extent consistent with the foregoing, Trade Secrets shall include, without limitation, all information and documentation, whether or not subject to copyright, pertaining to product developments, methods of operation, cost and pricing structures, and other private, confidential business matters. (c) The term "Confidential Business Information" means any data or information and documentation, other than Trade Secrets, which is valuable to the Company and not generally known to the public, including but not limited to: i. Financial information, including but not limited to earnings, assets, debts, prices, cost information, sales and profit projections or other financial data; ii. Marketing information, including but not limited to details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, marketing forecasts, results of marketing efforts or information about impending transactions; iii. Product information, including but not limited to development plans, designs, and product costs; and iv. Product source and customer information, including but not limited to any data regarding actual or potential supply sources, agency agreements or arrangements and actual or potential customers. (d) The Executive agrees that, except as required to fulfill his obligations during the course of his employment, he will not, during his employment with the Company or after such employment has ceased, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise employ any Trade Secrets or Confidential Business Information. Nothing in this paragraph shall preclude the Executive from disclosing or using Trade Secrets or Confidential Business Information if (i) the Trade Secrets or Confidential Business Information have become generally known, at the time the Trade Secrets or Confidential Business Information are used or disclosed, to the public or to competitors of the Company except through or as a result of the Executive's act or omission; or (ii) the disclosure of the Trade Secrets or Confidential Business Information is required to be made by any law, regulation, governmental body or authority, or court order, provided that the Executive will give the Company prompt written notice of such requirement so that the Company may seek an appropriate protective order or similar remedy. The Executive agrees to deliver to the Company all computer files and tapes, books, records and documents (whether maintained in paper, electronic or any other medium) relating to or bearing upon any Trade Secrets or Confidential Business Information, upon the cessation of his employment, and the Executive agrees not to retain any copies or extracts thereof. (e) It is expressly understood and agreed that, although the Executive and the Company consider the restrictions contained in this Section 6 to be reasonable, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained this Section 6 is an unreasonable or an otherwise unenforceable restriction, it is the intention of the parties that the provisions of this Section 6 shall not be rendered void, but such court shall reduce the duration, area or activity covered by such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Notwithstanding the foregoing, the Executive shall be entitled to retain such records as may be reasonably necessary for personal tax or legal compliance or planning. 6.5. INJUNCTIVE RELIEF. The covenants set forth in this Section 6 are independent and shall be enforceable by a court of equity through the granting of a temporary restraining order, preliminary injunction and/or permanent injunction. In the event of a breach of Section 6 of this Agreement, the Executive consents to the entry of an injunction, and the Executive shall pay any reasonable fees and expenses incurred by the Company in enforcing such Sections. Such equitable enforcement shall be in addition to and shall not prejudice the right of the Company to an appropriate monetary award. 7. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof (whichever is earlier), except that notice of change of address shall be effective only upon receipt. 8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company, except as explicitly provided herein. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 9. (a) FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including but not limited to any set-off, counterclaim, defense, recoupment, or other claim, right or action which the Company may have against the Executive or others. (b) NO MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 2(b)(3). 10. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 11. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company and its Successors and Assigns. The Company shall require its Successors and Assigns, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 12. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in New York County in the State of New York. 13. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 14. ENTIRE AGREEMENT. This Agreement and the Consulting Agreement constitute the entire agreement between the parties hereto, and supersede all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof; PROVIDED, HOWEVER, that the employment agreement between the Company and the Executive, dated as of May 8, 1992, as amended on December 30, 1992 (the "Employment Agreement") shall apply, except with respect to Sections 2(e) and 6 of this Agreement, which shall supersede the Employment Agreement. 15. DEFINITIONS. 15.1. ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued Compensation" shall mean all amounts of compensation for services rendered to the Company that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date including, without limitation (a) base salary, (b) reimbursement for reasonable and necessary business expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date and (c) vacation pay. 15.2. AFFILIATE. For purposes of this Agreement, "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlled by, controlling or under common control with such Person. 15.3. BASE AMOUNT. For purposes of this Agreement, "Base Amount" shall mean annual base salary at the rate in effect as of the date of a Change of Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Executive. 15.4. CAUSE. For purposes of this Agreement, a termination of employment is for "Cause" if the Executive (a) has been convicted of a felony (including a plea of nolo contendere), the time for appeal of which has elapsed; (b) intentionally and continually failed substantially to perform the Executive's reasonably assigned duties with the Company (other than a failure resulting from his incapacity due to physical or mental illness or from the assignment to the Executive of duties that would constitute Good Reason) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Company, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform; or (c) intentionally engaged in illegal conduct or willful misconduct which is demonstrably and materially injurious to the Company. For purposes of this Agreement, no act, nor failure to act, on his part, shall be considered "intentional" unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive's action or failure to act was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Company's Chairman of the Board, Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The termination of employment of the Executive shall not be deemed to be for Cause pursuant to subparagraph (b) or (c) above unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (b) or (c) above, and specifying the particulars thereof in detail. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Company by the Executive shall constitute Cause for purposes of this Agreement. 15.5. CHANGE OF CONTROL. A "Change of Control" shall mean the occurrence during the term of the Agreement of: (a) An acquisition (other than directly from Nine West Group Inc.) of any common stock of Nine West Group Inc. ("Common Stock") or other voting securities of Nine West Group Inc. entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of the then outstanding shares of Common Stock or the combined voting power of Nine West Group Inc.'s then outstanding Voting Securities; PROVIDED, HOWEVER, in determining whether a Change of Control has occurred, Voting Securities which are acquired in a Non-Control Acquisition (as defined herein) shall not constitute an acquisition which would cause a Change of Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) Nine West Group Inc. or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by Nine West Group Inc. (a "Subsidiary"), (ii) Nine West Group Inc. or its Subsidiaries, or (iii) any Person in connection with a Non-Control Transaction (as defined herein); (b) The individuals who, as of December 15, 1998, are members of the Board of Nine West Group Inc. (the "Incumbent Board") cease for any reason to constitute at least a majority of the members of the Board; PROVIDED, HOWEVER, that if the election, or nomination for election by Nine West Group Inc.'s shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (1) A merger, consolidation, reorganization or other business combination with or into Nine West Group Inc. or in which securities of Nine West Group Inc. are issued, unless such merger, consolidation, reorganization or other business combination is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation, reorganization or other business combination with or into Nine West Group Inc. or in which securities of Nine West Group Inc. are issued where: (A) the shareholders of Nine West Group Inc., immediately before such merger, consolidation, reorganization or other business combination own directly or indirectly immediately following such merger, consolidation, reorganization or other business combination, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation, reorganization or other business combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, reorganization, or other business combination, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, reorganization or other business combination constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Corporation, or a corporation beneficially directly or indirectly owning a majority of the combined voting power of the outstanding voting securities of the Surviving Corporation, and (C) no Person other than (i) Nine West Group Inc., (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation, reorganization or other business combination was maintained by Nine West Group Inc., the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation, reorganization or other business combination had Beneficial Ownership of thirty percent (30%) or more of the then outstanding Voting Securities or common stock of Nine West Group Inc., has Beneficial Ownership of thirty percent (30%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (2) A complete liquidation or dissolution of Nine West Group Inc.; or (3) The sale or other disposition of all or substantially all of the assets of Nine West Group Inc. to any Person (other than (i) any such sale or disposition that results in at least fifty percent (50%) of Nine West Group Inc.'s assets being owned by a subsidiary or subsidiaries or (ii) a distribution to Nine West Group Inc.'s stockholders of the stock of a subsidiary or any other assets). Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding common stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by Nine West Group Inc. which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by Nine West Group Inc., and after such share acquisition by Nine West Group Inc., the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increase the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change of Control shall occur. 15.6. COMPANY. For purposes of this Agreement, all references to the Company shall be deemed to include the Company and any Affiliate of the Company, and any respective Successors and Assigns. 15.7. DISABILITY. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs his ability to substantially perform his duties with the Company for six (6) consecutive months and, within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty (30) days), the Executive shall not have returned to full-time performance of his duties; PROVIDED, HOWEVER, that if the Company's Long Term Disability Plan, or any successor plan (the "Disability Plan"), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for long-term disability benefits under the Disability Plan (or similar benefits in the event of a successor plan). 15.8. GOOD REASON. (a) For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the following events or conditions: (1) a change in the Executive's responsibilities or job description (including reporting responsibilities) that represents a material adverse change from the Executive's responsibilities or job description as in effect immediately prior thereto; (2) a reduction in the Executive's annual base salary below the Base Amount; (3) the relocation of the offices of the Company at which the Executive is principally employed to a location more than fifty (50) miles from Columbus Circle in New York City, except for required travel on the business of the Company to an extent substantially consistent with his business travel obligations at the time of the Change of Control; (5) the failure by the Company to pay to the Executive any portion of his current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company in which the Executive participated, within seven (7) days of the date such compensation is due; (6) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities which with respect to the Incentive Plan shall include a reduction in the potential bonus entitlement for comparable corporate performance by the Company and its subsidiaries) any material compensation or employee benefit plan in which the Executive was participating immediately prior to the Change of Control unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation, employee benefit or fringe benefit plan, program or practice in which the Executive was participating immediately prior to the Change of Control; (7) the failure of the Company to obtain from its Successors or Assigns the express assumption and agreement required under Section 11(a) hereof; or (8) any purported termination of his employment by the Company which is not effected pursuant to a Notice of Termination satisfying the terms set forth in the definition of Notice of Termination (and, if applicable, the terms set forth in the definition of Cause). (b) Any event or condition described in Section 15.8(a)(1) through (8) which occurs prior to a Change of Control but which the Executive reasonably demonstrates (1) was at the request of a Third Party who effectuates a Change of Control or (2) otherwise arose in connection with, or in anticipation of a Change of Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change of Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change of Control, shall be deemed to be in anticipation of a Change of Control provided such transaction is actually consummated. 15.9. INCENTIVE PLAN. For purposes of this Agreement, "Incentive Plan" shall mean the Company's First Amended and Restated Bonus Plan or any successor annual incentive plan, maintained by the Company. 15.10. NOTICE OF TERMINATION. For purposes of this Agreement, following a Change of Control, "Notice of Termination" shall mean a written notice of termination of the Executive's employment, signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of his employment under the provision so indicated. 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, Disability or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 15.11. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata Bonus" shall mean an amount equal to fifty percent (50%) of the Base Amount multiplied by a fraction the numerator of which is the number of days in the fiscal year in which the Executive's Termination Date occurs that have elapsed through the Termination Date and the denominator of which is 365. 15.12. SUCCESSORS AND ASSIGNS. For purposes of this Agreement, "Successors and Assigns" shall mean, with respect to the Company, a corporation or other entity acquiring all or substantially all the assets and business of the Company, as the case may be whether by operation of law or otherwise. 15.13. TERMINATION DATE. For purposes of this Agreement, "Termination Date" shall mean (a) in the case of the Executive's death, his date of death, (b) if his employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period) and (c) if his employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause shall not be less than thirty (30) days, and in the case of a termination for Good Reason shall not be more than sixty (60) days, from the date such Notice of Termination is given); PROVIDED, HOWEVER, that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken). Notwithstanding the pendency of any such dispute, the Company shall continue to pay the Executive his Base Amount and continue the Executive as a participant (at or above the level provided prior to the date of such dispute) in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, prescription drug, dental, life insurance and disability benefit plans in which he was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved (whether or not the dispute is resolved in favor of the Company); PROVIDED FURTHER, that if the dispute results in the payment by the Company to the Executive of the amounts contemplated under Section 2(b) hereof, the amount of such payments shall be reduced by any Base Amount paid to the Executive during the pendency of the dispute. Except as provided in the last proviso of the preceding sentence, notwithstanding the outcome of any dispute, the Executive shall not be obligated to repay to the Company or an Employing Affiliate any amounts paid or benefits provided pursuant to this sentence. The Executive's rights to receive payments under Section 2 of this Agreement shall survive the expiration of the Term during any dispute contemplated by this Section. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed an original, and all of which shall constitute the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officers and the Executive has executed this Agreement as of the day and year first above written. NINE WEST GROUP INC. /s/ Joel K. Bedol ------------------------------ By: Joel K. Bedol Its: Executive Vice President VINCENT CAMUTO /s/ Vincent Camuto ------------------------------ ATTEST /s/ Mary Rice - ------------------------- By: Mary Rice EX-10 6 EXHIBIT 10.28 ROBERT C. GALVIN EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 15th day of December, 1998, by and between Nine West Group Inc. (the "Company") and Robert C. Galvin (the "Executive"). WHEREAS, the Executive has been employed by the Company as its Executive Vice President, Chief Financial Officer and Treasurer pursuant to an employment agreement dated as of October 19, 1998 (the "Prior Agreement"); WHEREAS, the Company desires to provide for the continued employment of the Executive on terms competitive with those of other corporations, and the Executive is willing to rededicate himself and continue to serve the Company; WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change of Control (as defined herein) exists and that the threat or the occurrence of a Change of Control can result in significant distraction of the Company's key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders for the Company to retain the services of the Executive in the event of a threat or occurrence of a Change of Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change of Control, the Company desires to enter into this Agreement with the Executive. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. TERM. The Company shall employ the Executive for a period commencing as of December 15, 1998 and ending as of December 31, 2003, as renewed in accordance with the following sentence (the "Employment Period"). Thereafter, the Executive's employment with the Company will continue, and this Agreement will be automatically renewed, for successive two (2)-year terms, unless either party to this Agreement advises the other in writing, at least 180 days prior to the expiration of the initial Employment Period or any renewal term, that such party does not wish to renew. The Executive's employment may be terminated by the Company prior to the expiration of the Employment Period only for Cause (as defined herein) or by reason of the Executive's Disability (as defined herein), in which event no further payments shall be made to the Executive following such termination except amounts due and owing as of such date, and except as otherwise provided in Section 10.2 (a) of this Agreement in the event of Disability. The Executive's employment under this Agreement and his rights to compensation hereunder shall be deemed to cease as of the date of the Executive's death, except amounts due and owing as of such date and except as otherwise provided in Section 10.2 (a) of this Agreement. In the event the Executive's employment with the Company terminates prior to a Change of Control (as defined herein) either because his employment is terminated by the Company without Cause (as defined herein) or the Executive terminates his employment with the Company for Good Reason (as defined herein, except without regard, for purposes of this Section 1, to the fact that termination occurred prior to a Change of Control), the Executive shall be entitled to the sum of (A) all Accrued Compensation and a Pro Rata Bonus (as defined herein) and (B) two times the Executive's Base Amount (as defined herein, except with annual base salary being determined at the time of the termination of employment rather than with respect to a Change of Control) and two times the Executive's target bonus of 75% as contemplated in Section 3 (b) of this Agreement and shall also be entitled to the benefits referred to in Section 10.2 (b)(3), (4), (5) and (6) (without regard to the fact that no Change of Control has occurred) on the following basis: the benefits referred to in such sections shall continue as though, or be calculated as though, as the case may be, the period referred to in each such section was twenty four (24) months rather than thirty six (36) months (or, in the case of Section 10.2 (b)(4), with reference to two (2) complete years of credited service rather than three (3) complete years of credited service. 2. DUTIES. (a) The Executive shall render services to the Company on a full-time basis as its Executive Vice President, Chief Financial Officer and Treasurer. The Executive's services shall be rendered in accordance with such rules and instructions as the Company shall establish from time to time. (b) In the event that the Executive's duties, position or title undergo changes in the course of his employment with the Company in ways not expressly provided for in this Agreement, such changes shall not constitute a rescission of this Agreement, or of any other terms hereof, and the Agreement shall remain in full force and effect as to all terms not affected by such changes; PROVIDED, HOWEVER, that any such new duties, position or title shall be consistent with the Executive's current status and shall further be consistent with Section 21.9(a)(1). 3. COMPENSATION. (a) SALARY. The Executive's base salary will be $450,000 per annum, with such salary increased annually, commencing on or about May 1, 1999, by an amount at least equal to five percent (5%) or, if greater, the Cost-of-Living Factor multiplied by the Executive's then current salary. The Cost-of-Living Factor shall be a fraction (i) the numerator of which will be the Cost-of-Living Index at September 1 of the twelve (12)-month period immediately preceding the term for which the salary adjustment is being computed and (ii) the denominator of which will be the Cost-of-Living Index at September 1 in the twelve (12)-month period immediately preceding such twelve (12)-month period. The Cost-of-Living Index for purposes of this calculation will be the Consumer Price Index for all Urban Consumers, New York - Northern New Jersey - Long Island, NY-NJ-CT (1982-84 = 100), published by the Bureau of Labor Statistics, or if such Index shall cease to be published, then the Cost-of-Living Index shall be such fair equivalent index as the Company and the Executive select. (b) BONUS. The Executive shall be entitled to an annual bonus in accordance with the Incentive Plan (as defined herein) with a target level of 75%. (c) CAR ALLOWANCE. The Executive shall receive a car allowance of $15,000 per annum, payable in accordance with the Company's usual practice for such an allowance. (d) VACATION. The Executive shall receive four (4) weeks of paid vacation each year during the term hereof. The Executive shall be paid an amount in cash equal to the value of any vacation time remaining unused at the end of a given year during the term of this Agreement. 4. BENEFITS AND EXPENSES. (a) FRINGE BENEFITS. The Executive shall be eligible to participate in such medical and dental programs and other fringe benefits as the Company provides to other similarly situated employees. (b) EXPENSES. The Company will pay or reimburse all reasonable business expenses incurred by the Executive with respect to work performed by the Executive outside or inside the United States on our behalf. The Executive will promptly submit invoices or vouchers to us for all expenses incurred by the Executive or paid with Company credit cards. 5. NON-COMPETITION PAYMENT. (a) NONRENEWAL BY EMPLOYEE. If this Agreement expires pursuant to Section 1 hereof because the Executive elects not to renew this Agreement as of or, if applicable, as of the day immediately following the last day of any renewal term, then, except as provided otherwise in this Section 5, in consideration of the Executive's covenant not to compete set forth in Section 6 of this Agreement, the Company will pay the Executive a non-competition payment equal to his then current annual salary plus the amount of bonus paid to him with respect to the immediately preceding fiscal year (the "Non-Competition Payment"). The Non-Competition Payment shall be payable in twelve (12) equal monthly installments on the last day of each month beginning with the month immediately following nonrenewal of this Agreement, and the Executive shall not be required to seek or accept other employment while receiving such payment; PROVIDED, HOWEVER, that the Company may, in connection with such nonrenewal, elect at such time to release the Executive from the covenant not to compete, and the Company will thereupon be relieved of the obligation to make the Non-Competition Payment provided in this Section 5(a). (b) NONRENEWAL BY THE COMPANY. If this Agreement expires pursuant to Section 1 hereof because the Company elects not to renew this Agreement or, if applicable, as of the day immediately following the last day of any renewal term, then, except as provided otherwise in this Section 5, in consideration of the Executive's covenant not to compete set forth in Section 6 of this Agreement, the Company will pay the Executive the Non-Competition Payment. The Non-Competition Payment shall be payable in twelve (12) equal monthly installments on the last day of each month beginning with the month immediately following nonrenewal of this Agreement, and the Executive shall not be required to seek or accept other employment while receiving such payment; PROVIDED, HOWEVER, that the Executive may elect to be released from the covenant not to compete, and if the Executive accepts employment with a competitor (defined with reference to Section 6.1 of this Agreement) of the Company at any time when Non-Competition Payments are being made under this Section 5(b), the Company's obligation with respect to any further Non-Competition Payments shall cease. 6. COVENANTS OF THE EXECUTIVE 6.1. NON-COMPETITION AND NON-SOLICITATION The Executive acknowledges and recognizes (i) the highly competitive nature of the business of the Company, (ii) the importance to the Company of the Confidential Business Information and Trade Secrets (as defined herein) to which the Executive will have access, (iii) the importance to the Company of the knowledge and experience possessed by it relating to sources of supply of footwear and accessories in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico and the United States, and its relationships with such sources of supply, developed by it or its predecessors over many years, and (iv) the position of responsibility which the Executive will hold with the Company. Accordingly, the Executive agrees that during the Non-Compete Period (as defined herein), the Executive will not, directly or indirectly, (x) engage in the business activities engaged in by the Company on the date hereof and during the Executive's employment, such business activities being manufacturing, selling, producing, marketing, distributing, designing, line building and otherwise dealing in women's footwear and accessories, of the types in which the Company does business as of the date of such cessation of employment, and produced in Brazil, China, Europe, Hong Kong, Taiwan, Korea, Mexico or the United States, in any State of the United States in which the Company is then doing business, the District of Columbia, and any other country in which the Company is then doing business, whether such other engagement is as an officer, director, employee, proprietor, consultant, independent contractor, partner, advisor, agent or investor (other than as a passive investor in less than 5% of the outstanding capital stock of a publicly traded corporation); (y) assist other persons or businesses in engaging in any business activities prohibited under clause (x); or (z) induce any employees of the Company to engage in any such activities or to terminate their employment or hire or attempt to hire any employees of the Company. Notwithstanding anything in this Section 6.1 to the contrary, nothing shall prohibit the Executive from engaging in the business activities otherwise herein proscribed to the extent that the business activities are performed for an organization that derives forty percent (40%) or less of its consolidated gross revenues from the manufacture, sale, production, marketing or distribution of women's footwear. In no event shall the non-competition provisions of this Section 6.1 be deemed to apply to business activities relating to accessories produced and sold by licensees of the Company under prevailing license agreements with the Company unless the Company is itself also producing such merchandise. 6.2. APPLICATION AND PERIOD. (a) Before a Change of Control, and except as provided in Section 5 hereof, Section 6.1 shall apply ONLY if (i) the Company terminates the Executive's employment for Cause or (ii) the Executive voluntarily terminates his employment without Good Reason, as contemplated by Section 1 of this Agreement. (b) Following a Change of Control, Section 6.1 shall apply ONLY if (i) the Company terminates the Executive's employment for Cause, (ii) the Executive voluntarily terminates his employment without Good Reason (as defined herein) or (iii) the employment of the Executive is terminated and such termination results in payments to the Executive under Section 10.2(b) hereof. (c) The "Non-Compete Period" shall mean (i) the Employment Period plus a one (1) year term following nonrenewal of this Agreement under the circumstances described in Section 5(a) or 5(b), or (ii) a period of one (1) year following the termination of the Executive's employment with the Company under any other circumstances where the covenant not to compete applies under this Section 6.2. 6.3. NON-PUBLICATION. During the Non-Compete Period, neither the Executive nor the Company shall publish any statement or make any statement (under circumstances reasonably likely to become public) critical of the other or in any way adversely affecting or otherwise maligning the reputation of the other or its customers, suppliers, agents or subcontractors. In particular and without limitation of the foregoing, the Executive shall not, in any circumstance likely to become public, discourage any person, firm, partnership, corporation, trust or any other entity or third party from selling any business or assets to the Company, entering into any joint venture or other business relationship with the Company, or investing in the Company. Any statements made by either party in connection with legal, administrative or arbitration proceedings, or that are required to be made by the Executive pursuant to applicable law, shall not be prohibited by this Section 6.3. 7. CONFIDENTIALITY. (a) The Executive acknowledges that the Company is engaged in the highly competitive business of designing, developing, manufacturing, marketing and selling footwear and accessories. The Company's involvement in this business has required and continues to require the expenditure of substantial amounts of money and the use of skills developed over considerable time. As a result of these investments of money, skill and time, the Company has developed and will continue to develop certain valuable trade secrets and confidential business information that are peculiar to the Company's business and the disclosure of which would cause the Company great and irreparable harm. The Executive acknowledges that, during the course of his employment by the Company, he will receive and/or have access to "Trade Secrets" and/or "Confidential Business Information" (as defined herein), and that, had the Executive not had the opportunity to work at the Company, he would not have become privy to such information. (b) The term "Trade Secrets" means any technical or financial information, design, process, procedure, formula or improvement that is valuable and not generally known to the Company's competitors. To the fullest extent consistent with the foregoing, Trade Secrets shall include, without limitation, all information and documentation, whether or not subject to copyright, pertaining to product developments, methods of operation, cost and pricing structures, and other private, confidential business matters. (c) The term "Confidential Business Information" means any data or information and documentation, other than Trade Secrets, which is valuable to the Company and not generally known to the public, including but not limited to: i. Financial information, including but not limited to earnings, assets, debts, prices, cost information, sales and profit projections or other financial data; ii. Marketing information, including but not limited to details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, marketing forecasts, results of marketing efforts or information about impending transactions; iii. Product information, including but not limited to development plans, designs, and product costs; and iv. Product source and customer information, including but not limited to any data regarding actual or potential supply sources, agency agreements or arrangements and actual or potential customers. (d) The Executive agrees that, except as required to fulfill his obligations during the course of his employment, he will not, during his employment with the Company or after such employment has ceased, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise employ any Trade Secrets or Confidential Business Information. Nothing in this paragraph shall preclude the Executive from disclosing or using Trade Secrets or Confidential Business Information if (i) the Trade Secrets or Confidential Business Information have become generally known, at the time the Trade Secrets or Confidential Business Information are used or disclosed, to the public or to competitors of the Company except through or as a result of the Executive's act or omission; or (ii) the disclosure of the Trade Secrets or Confidential Business Information is required to be made by any law, regulation, governmental body or authority, or court order, provided that the Executive will give the Company prompt written notice of such requirement so that the Company may seek an appropriate protective order or similar remedy. The Executive agrees to deliver to the Company all computer files and tapes, books, records and documents (whether maintained in paper, electronic or any other medium) relating to or bearing upon any Trade Secrets or Confidential Business Information, upon the cessation of his employment, and the Executive agrees not to retain any copies or extracts thereof. Notwithstanding the foregoing, the Executive shall be entitled to retain such records as may be reasonably necessary for personal tax or legal compliance or planning. (e) It is expressly understood and agreed that, although the Executive and the Company consider the restrictions contained in Section 6 and this Section 7 to be reasonable, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 6 or this Section 7 is an unreasonable or an otherwise unenforceable restriction, it is the intention of the parties that the provisions of Section 6 and this Section 7 shall not be rendered void, but such court shall reduce the duration, area or activity covered by such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. 8. INJUNCTIVE RELIEF. The covenants set forth in Sections 6 and 7 are independent and shall be enforceable by a court of equity through the granting of a temporary restraining order, preliminary injunction and/or permanent injunction. In the event of a breach of Section 6 or Section 7 of this Agreement, the Executive consents to the entry of an injunction. Such equitable enforcement shall be in addition to and shall not prejudice the right of the Company to an appropriate monetary award. 9. REPRESENTATION AND WARRANTY. The Executive hereby represents and warrants to the Company that his entering into this Agreement will not result in the breach of, or constitute a violation of, any agreement, order or decree by which the Executive is bound, and that the Executive is not subject to any agreement, restriction or covenant, whether written or oral, which restricts his ability to enter into this Agreement or to perform his duties as set forth herein. 10. CHANGE OF CONTROL PROVISIONS. 10.1. TERM OF PROVISIONS. The provisions of this Section 10 shall take effect as of date of this Agreement, and shall continue in effect until December 31, 2001 (the "Change of Control Term"); PROVIDED, HOWEVER, that if the Company gives written notice to the Executive on or before January 1, 2000, and on or before each January 1 thereafter, that it wishes to extend the Change of Control Term for one (1) year beyond the date on which it would otherwise expire, the Change of Control Term shall be so extended; PROVIDED, FURTHER, HOWEVER, that following the occurrence of a Change of Control, the Change of Control Term shall not expire prior to the expiration of thirty-six (36) months after such occurrence. 10.2. TERMINATION OF EMPLOYMENT. If, during the Change of Control Term, the Executive's employment with the Company shall be terminated on a date that falls within the thirty-six (36) month period following a Change of Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Company shall be terminated (1) by the Company for Cause or (2) by the Executive other than for Good Reason, the Company shall pay to the Executive his Accrued Compensation (as defined herein). If the Executive's employment with the Company shall be terminated by the Company by reason of the Executive's Disability or death, the Company shall pay to the Executive (or, in the event of death, his estate) an amount equal to the Base Amount plus the amount of bonus paid to him with respect to the immediately preceding fiscal year. (b) If the Executive's employment with the Company shall be terminated for any reason other than as specified in Section 10.2(a), the Executive shall be entitled to the following: (1) the Company shall pay the Executive all Accrued Compensation and a Pro Rata Bonus (as defined herein); provided, however, that notwithstanding the definition of Pro Rata Bonus set forth in Section 21.12 of this Agreement, "Pro Rata Bonus" for purposes of this Section 10.2 (b) (1) shall be calculated as though the Bonus Amount (as defined herein) was 75% of the Executive's Base Amount (as defined herein). (2) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date (as defined herein) an amount equal to the sum of (A) three (3) times the Executive's Base Amount (as defined herein) and (B) three (3) times the Executive's Bonus Amount (as defined herein); (3) for thirty-six (36) months following the Executive's Termination Date (the "Continuation Period"), the Company shall continue on behalf of the Executive and his dependents and beneficiaries the life insurance, disability, medical, dental, prescription drug and hospitalization coverages and benefits provided to the Executive immediately prior to the Change of Control or, if greater, the coverages and benefits provided at any time thereafter. The coverages and benefits (including deductibles and costs to the Executive) provided in this Section 10.2(b)(3) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries than the most favorable of such coverages and benefits referred to above. The Company's obligation hereunder with respect to the foregoing coverages and benefits shall be reduced to the extent that the Executive obtains any such coverages and benefits pursuant to a subsequent employer's benefit plans, in which case the Company may reduce any of the coverages or benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits (including deductibles and costs to the Executive) of the combined benefit plans is no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 10.2(b)(3) shall not be interpreted so as to limit any benefits to which the Executive, his dependents or beneficiaries may be entitled under any of the Company's employee benefit plans, programs or practices following the Executive's termination of employment, including but not limited to retiree medical and life insurance benefits; (4) the Company shall pay in a single payment an amount in cash equal to the excess of (A) the Supplemental Retirement Benefit (as defined herein) had (w) the Executive remained employed by the Company for an additional three (3) complete years of credited service under each supplemental and other retirement plan in which the Executive was a participant on the Termination Date (or until his 65th birthday, if earlier), (x) his annual compensation during such period been equal to his Base Amount and the Bonus Amount, (y) the Company made employer contributions to each defined contribution plan in which the Executive was a participant on the Termination Date (in an amount equal to the amount of such contribution for the plan year ending immediately preceding the Termination Date) and (z) the Executive become fully (100%) vested in his benefit under each supplemental and other retirement plan in which the Executive was a participant on the Termination Date, over (B) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such supplemental and other retirement plans. For purposes of this Section 10.2(b)(4), "Supplemental Retirement Benefit" shall mean the lump sum actuarial equivalent of the aggregate retirement benefit the Executive would have been entitled to receive under the Company's supplemental and other retirement plans including but not limited to The Pension Plan for Associates of Nine West Group Inc. (the "Pension Plan"). For purposes of this Section 10.2(b)(4), the "actuarial equivalent" shall be determined in accordance with the actuarial assumptions used for the calculation of benefits under the Pension Plan as applied prior to the Termination Date in accordance with the Pension Plan's past practices; (5) the Company shall pay the Executive a lump sum in cash equal to the present value (determined using a discount rate equal to one hundred twenty percent (120%) of the applicable mid-term Federal rate determined pursuant to Section 1274(d) of the Code (as defined herein), compounded semiannually) of thirty-six (36) monthly payments, each of which payments is equal to the monthly automobile allowance payable by the Company in respect of the Executive immediately prior to the Termination Date; and (6) for thirty-six (36) months following the Executive's Termination Date, the Company shall continue to pay the Company portion of premiums under the split-dollar life insurance policy maintained in respect of the Executive. (c) The amounts provided for in Sections 10.2(a) and 10.2(b)(1), (2), (4) and (5) shall be paid in a single lump sum cash payment within ten (10) days after the Executive's Termination Date (or earlier, if required by applicable law). (d) Upon the occurrence of a Change of Control, all options held by the Executive on the date of the Change of Control shall vest and become immediately exercisable and all restrictions on shares of restricted stock shall lapse; PROVIDED, HOWEVER, such accelerated vesting and/or lapse of restrictions shall not be applicable if its implementation would preclude the application of pooling-of-interests accounting treatment to a transaction for which such treatment is to be adopted by the Company and which has been approved by the Board of Directors, and the holders of options and restricted stock shall not be entitled to any accelerated vesting in such event. (e) The severance pay and benefits provided for in this Section 10.2 shall be in lieu of any other pay to which the Executive may be entitled under this Agreement or any other severance or employment agreement with the Company; PROVIDED, HOWEVER, that the Executive shall receive compensation or benefits other than as provided herein to the extent that the Executive is entitled to receive such compensation or other benefits at the time of his termination, determined in accordance with the employee benefit plans of the Company and other applicable agreements, programs and practices as in effect from time to time. (f) If the Executive's employment is terminated by the Company without Cause prior to the date of a Change of Control but the Executive reasonably demonstrates that such termination (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control (a "Third Party") and who effectuates a Change of Control or (2) otherwise arose in connection with, or in anticipation of, a Change of Control which has been threatened or proposed and which actually occurs, such termination shall be deemed to have occurred after a Change of Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change of Control, shall be deemed to be in anticipation of a Change of Control provided such transaction is actually consummated. 10.3 EFFECT OF SECTION 280G OF THE INTERNAL REVENUE CODE. (a) Notwithstanding any other provision of this Agreement to the contrary, and except as provided in Section 10.3(b), to the extent that any payment or distribution of any type to or for the benefit of the Executive by the Company, any Person who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder), or any Affiliate of such Person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), is or will be subject to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Total Payments shall be reduced (but not less than zero) if and to the extent that a reduction in the Total Payments would result in the Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Executive received the entire amount of such Total Payments. Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce or eliminate the Total Payments, by first reducing or eliminating the portion of the Total Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as defined herein). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. (b) If the reduction of the Payments as provided in Section 10.3(a) would exceed $25,000, Section 10.3(a) shall not apply and the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. (c) The determination of whether the Payments shall be reduced pursuant to this Section 10.3 and the amount of such reduction, and the determination of whether a Gross-Up Payment is payable, shall be made at the Company's expense, by an accounting firm selected by the Company which is one of the five (5) largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Company and the Executive within ten (10) days of the Termination Date, if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax), and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to the Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payments. The Determination shall be binding, final and conclusive upon the Company and the Executive. (d) If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Company by the Accounting Firm. Any determination by the Accounting Firm shall be binding upon the Company and the Executive, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Company should have been made ("Underpayment"), or that Gross-Up Payments will have been made by the Company which should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment (including any applicable interest and penalties) shall be promptly paid by the Company to or for the benefit of the Executive. In the case of an Overpayment, the Executive shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment, PROVIDED, HOWEVER, that (i) the Executive shall not in any event be obligated to return to the Company an amount greater than the net after-tax portion of the Overpayment that he has retained or has recovered as a refund from the applicable taxing authorities and (ii) if a Gross-Up Payment is determined to be payable, this provision shall be interpreted in a manner consistent with an intent to make the Executive whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Executive repaying to the Company an amount which is less than the Overpayment. The cost of all such determinations made pursuant to this Section 10.3 shall be paid by the Company. 11. NOTICE OF TERMINATION. Any intended termination of the Executive's employment by the Company shall be communicated by a Notice of Termination from the Company to the Executive, and any intended termination of the Executive's employment following a Change of Control by the Executive for Good Reason shall be communicated by a Notice of Termination from the Executive to the Company. 12. FEES AND EXPENSES. The Company shall pay, as incurred, all legal fees and related expenses (including the costs of experts, evidence and counsel) that the Executive may incur as a result of or in connection with (a) the Executive's contesting, defending or disputing the basis for the termination of the Executive's employment, (b) the Executive's hearing before the Board of Directors of the Company as contemplated in Section 21.5 of this Agreement or (c) the Executive seeking to obtain or enforce any right or benefit provided by Section 10 of this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits; PROVIDED THAT, with respect to (a), (b) and (c), the legal fees and expenses relate to the Executive's assertion of his rights under Section 10 of this Agreement; PROVIDED FURTHER, that, in the case of (a), (b) and (c), the Company shall not be required to pay the Executive's legal fees and related expenses if it is finally determined by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken) that the Executive's claims are frivolous. 13. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof (whichever is earlier), except that notice of change of address shall be effective only upon receipt. 14. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company, except as explicitly provided herein. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 15. (a) FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including but not limited to any set-off, counterclaim, defense, recoupment, or other claim, right or action which the Company may have against the Executive or others. (b) NO MITIGATION. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Sections 5(c) and 10.2(b)(3). 16. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 17. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company. The Company shall require its Successors and Assigns, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 18. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in New York County in the State of New York. 19. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 20. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements, including but not limited to the Prior Agreement, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof. 21. DEFINITIONS. 21.1. ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued Compensation" shall mean all amounts of compensation for services rendered to the Company that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date including, without limitation (a) base salary, (b) reimbursement for reasonable and necessary business expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date and (c) vacation pay. 21.2. AFFILIATE. For purposes of this Agreement, "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlled by, controlling or under common control with such Person. 21.3. BASE AMOUNT. For purposes of this Agreement, "Base Amount" shall mean the Executive's annual base salary at the rate in effect as of the date of a Change of Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Executive. 21.4. BONUS AMOUNT. For purposes of this Agreement, "Bonus Amount" shall mean 50% of the Executive's Base Amount. 21.5. CAUSE. For purposes of this Agreement, a termination of employment is for "Cause" if the Executive (a) has been convicted of a felony (including a plea of nolo contendere), the time for appeal of which has elapsed; (b) intentionally and continually failed substantially to perform his reasonably assigned duties with the Company (other than a failure resulting from the Executive's incapacity due to physical or mental illness or from the assignment to the Executive of duties that would constitute Good Reason) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Company, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform; or (c) intentionally engaged in illegal conduct or willful misconduct which is demonstrably and materially injurious to the Company. For purposes of this Agreement, no act, nor failure to act, on the Executive's part, shall be considered "intentional" unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive's action or failure to act was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Company's Chairman of the Board, Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The termination of employment of the Executive shall not be deemed to be for Cause pursuant to subparagraph (b) or (c) above unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (b) or (c) above, and specifying the particulars thereof in detail. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Company by the Executive shall constitute Cause for purposes of this Agreement. 21.6. CHANGE OF CONTROL. A "Change of Control" shall mean the occurrence during the term of the Agreement of: (a) An acquisition (other than directly from Nine West Group Inc.) of any common stock of Nine West Group Inc. ("Common Stock") or other voting securities of Nine West Group Inc. entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of the then outstanding shares of Common Stock or the combined voting power of Nine West Group Inc.'s then outstanding Voting Securities; PROVIDED, HOWEVER, in determining whether a Change of Control has occurred, Voting Securities which are acquired in a Non-Control Acquisition (as defined herein) shall not constitute an acquisition which would cause a Change of Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) Nine West Group Inc. or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by Nine West Group Inc. (a "Subsidiary"), (ii) Nine West Group Inc. or its Subsidiaries, or (iii) any Person in connection with a Non-Control Transaction (as defined herein); (b) The individuals who, as of December 15, 1998, are members of the Board of Nine West Group Inc. (the "Incumbent Board"), cease for any reason to constitute at least a majority of the members of the Board; PROVIDED, HOWEVER, that if the election, or nomination for election by Nine West Group Inc.'s shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (1) A merger, consolidation, reorganization or other business combination with or into Nine West Group Inc. or in which securities of Nine West Group Inc. are issued, unless such merger, consolidation, reorganization or other business combination is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation, reorganization or other business combination with or into Nine West Group Inc. or in which securities of Nine West Group Inc. are issued where: (A) the shareholders of Nine West Group Inc., immediately before such merger, consolidation, reorganization or other business combination own directly or indirectly immediately following such merger, consolidation, reorganization or other business combination, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation, reorganization or other business combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, reorganization, or other business combination, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, reorganization or other business combination constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Corporation, or a corporation beneficially directly or indirectly owning a majority of the combined voting power of the outstanding voting securities of the Surviving Corporation, and (C) no Person other than (i) Nine West Group Inc., (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation, reorganization or other business combination was maintained by Nine West Group Inc., the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation, reorganization or other business combination had Beneficial Ownership of thirty percent (30%) or more of the then outstanding Voting Securities or common stock of Nine West Group Inc., has Beneficial Ownership of thirty percent (30%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (2) A complete liquidation or dissolution of Nine West Group Inc.; or (3) The sale or other disposition of all or substantially all of the assets of Nine West Group Inc. to any Person (other than (i) any such sale or disposition that results in at least fifty percent (50%) of Nine West Group Inc.'s assets being owned by a subsidiary or subsidiaries or (ii) a distribution to Nine West Group Inc.'s stockholders of the stock of a subsidiary or any other assets). Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding common stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by Nine West Group Inc. which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by Nine West Group Inc., and after such share acquisition by Nine West Group Inc., the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increase the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change of Control shall occur. 21.7. COMPANY. For purposes of this Agreement, all references to the Company shall be deemed to include the Company and any Affiliate of the Company, and any respective Successors and Assigns. 21.8. DISABILITY. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs the Executive's ability to substantially perform his duties with the Company for six (6) consecutive months and, within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty (30) days), the Executive shall not have returned to full-time performance of his duties; PROVIDED, HOWEVER, that if the Company's Long Term Disability Plan, or any successor plan (the "Disability Plan"), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for long-term disability benefits under the Disability Plan (or similar benefits in the event of a successor plan). 21.9. GOOD REASON. (a) For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change of Control of any of the following events or conditions: (1) a change in the Executive's responsibilities or job description (including reporting responsibilities) that represents a material adverse change from the Executive's responsibilities or job description as in effect immediately prior thereto; (2) a reduction in the Executive's annual base salary below the Base Amount; (3) the relocation of the offices of the Company at which the Executive is principally employed to a location more than fifty (50) miles from the location of such offices prior to the Change of Control, except required travel on the business of the Company to an extent substantially consistent with the Executive's business travel obligations at the time of the Change of Control; (4) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company in which the Executive participated, within seven (7) days of the date such compensation is due; (5) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities which with respect to the Incentive Plan shall include a reduction in the potential bonus entitlement for comparable corporate performance by the Company and its subsidiaries) any material compensation or employee benefit plan in which the Executive was participating immediately prior to the Change of Control, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation, employee benefit or fringe benefit plan, program or practice in which the Executive was participating immediately prior to the Change of Control; (6) the failure of the Company to obtain from its Successors or Assigns the express assumption and agreement required under Section 17(a) hereof; or (7) any purported termination of the Executive's employment by the Company which is not effected pursuant to a Notice of Termination satisfying the terms set forth in the definition of Notice of Termination (and, if applicable, the terms set forth in the definition of Cause). (b) Any event or condition described in Section 21.9(a)(1) through (7) which occurs prior to a Change of Control but which the Executive reasonably demonstrates (1) was at the request of a Third Party who effectuates a Change of Control or (2) otherwise arose in connection with, or in anticipation of a Change of Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change of Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change of Control, shall be deemed to be in anticipation of a Change of Control provided such transaction is actually consummated. 21.10. INCENTIVE PLAN. For purposes of this Agreement, "Incentive Plan" shall mean the Company's First Amended and Restated Bonus Plan or any successor annual incentive plan, maintained by the Company. 21.11. NOTICE OF TERMINATION. For purposes of this Agreement, "Notice of Termination" shall mean a written notice of termination of the Executive's employment, signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 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, Disability or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 21.12. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied by a fraction the numerator of which is the number of days in the fiscal year in which the Executive's Termination Date occurs that have elapsed through the Termination Date and the denominator of which is 365. 21.13. SUCCESSORS AND ASSIGNS. For purposes of this Agreement, "Successors and Assigns" shall mean, with respect to the Company, a corporation, individual, person or other entity acquiring all or substantially all the assets and business of the Company, as the case may be, whether by operation of law or otherwise. 21.14. TERMINATION DATE. For purposes of this Agreement, "Termination Date" shall mean (a) in the case of the Executive's death, his date of death, (b) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period) and (c) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause shall not be less than thirty (30) days, and in the case of a termination for Good Reason following a Change of Control shall not be more than sixty (60) days, from the date such Notice of Termination is given); PROVIDED, HOWEVER, that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken). Notwithstanding the pendency of any such dispute, the Company shall continue to pay the Executive his Base Amount and continue the Executive as a participant (at or above the level provided prior to the date of such dispute) in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, prescription drug, dental, life insurance and disability benefit plans in which he was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved (whether or not the dispute is resolved in favor of the Company); PROVIDED FURTHER, that if the dispute results in the payment by the Company to the Executive of the amounts contemplated under Section 10.2(b) hereof, the amount of such payments shall be reduced by any Base Amount paid to the Executive during the pendency of the dispute. Except as provided in the last proviso of the preceding sentence, notwithstanding the outcome of any dispute, the Executive shall not be obligated to repay to the Company any amounts paid or benefits provided pursuant to this sentence. 22. SURVIVAL. The Executive's rights to receive payments under Sections 5 and 10.2 of this Agreement shall survive any termination of this Agreement and termination of the Change of Control Term that may occur during the pendency of a dispute as contemplated by Section 21.14. 23. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed an original, and all of which shall constitute the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officers and the Executive has executed this Agreement as of the day and year first above written. NINE WEST GROUP INC. /s/Vincent Camuto ------------------------------- By: Vincent Camuto Its: Chief Executive Officer ROBERT C. GALVIN /s/Robert C. Galvin ------------------------------- ATTEST /s/Joel K. Bedol - ---------------------------- By: Joel K. Bedol EX-21 7 EXHIBIT 21 JURISDICTION OF SUBSIDIARIES INCORPORATION _________________________________________________________________ Cable & Co (UK) Limited United Kingdom Compania de Calzados de Exportacion, S.L. Spain Conca Del Sol International Cayman Islands Nine West Accessories (HK) Limited Hong Kong Nine West Asia Ltd. Bermuda Nine West Boot Corporation Delaware Nine West Canada Corporation Ontario Nine West Development Corporation Delaware Nine West Distribution Corporation Delaware Nine West Footwear Corporation Delaware Nine West France S.A.R.L. France Nine West Funding Corporation Delaware Nine West Group Italy S.r.l. Italy Nine West - Honduras Cayman Islands Nine West Hong Kong Limited Hong Kong Nine West Japan Co., Ltd. Japan Nine West (Malaysia) Sdn Bhd Malaysia Nine West Manufacturing Corporation Delaware Nine West Manufacturing II Corporation Delaware Nine West Melbourne Pty Ltd Australia Nine West Servicos de Assessoria de Compras Ltda. Brazil Nine West Singapore Pte Ltd Singapore Nine West UK Holdings Limited United Kingdom Nine West UK Limited United Kingdom Pied a Terre Group Limited United Kingdom Rayne Shoes (1994) Limited United Kingdom The Shoe Studio Group Limited United Kingdom The Shops for Pappagallo, Inc. Ohio Vivaldi Shoes Limited United Kingdom EX-23 8 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-72746 and 333-2262) of Nine West Group Inc. of our reports dated March 16, 1999, appearing in the Annual Report on Form 10-K of Nine West Group Inc. and subsidiaries for the fiscal year ended January 30, 1999. /s/Deloitte & Touche LLP Deloitte & Touche LLP New York, New York April 30, 1999 EX-27 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE WEST GROUP INC. CONSOLIDATED BALANCE SHEET AS OF JANUARY 30, 1999 AND THE CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FIFTY-TWO WEEKS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-30-1999 FEB-01-1998 JAN-30-1999 17,951 0 137,110 50,616 460,375 632,252 256,827 92,821 1,217,129 182,041 510,804 0 0 359 457,705 1,217,129 1,916,707 1,916,707 1,126,860 1,126,860 669,300 5,698 53,467 61,382 23,937 37,445 0 2,923 0 40,368 1.15 1.15
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