-----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, QmxQPoINVQz2H9Q1X3FYHqTgMf2d+7V4Md2HxiLOVjVZWNTR6VboIOoOSezVSgcY 7Lwq6RNpCFmRX9HY+hv0/A== 0000897069-99-000187.txt : 19990331 0000897069-99-000187.hdr.sgml : 19990331 ACCESSION NUMBER: 0000897069-99-000187 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LACROSSE FOOTWEAR INC CENTRAL INDEX KEY: 0000919443 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 391446816 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23800 FILM NUMBER: 99578259 BUSINESS ADDRESS: STREET 1: 1319 ST ANDREW ST CITY: LACROSSE STATE: WI ZIP: 54603 BUSINESS PHONE: 6087823020 MAIL ADDRESS: STREET 1: 1319 ST ANDREW ST CITY: LA CROSSE STATE: WI ZIP: 54603 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to __________________ Commission file number: 0-238001 LACROSSE FOOTWEAR, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-1446816 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1319 St. Andrew Street La Crosse, Wisconsin 54603 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (608) 782-3020 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, $.01 par value 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 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. |_| Aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant at February 26, 1999: $21,079,885. Number of shares of the registrant's common stock outstanding at February 26, 1999: 6,634,827 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1998 (incorporated by reference into Parts I, II and IV) Portions of the Proxy Statement for 1999 Annual Meeting of Shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year and, upon such filing, to be incorporated by reference into Part III) PART I Item 1. Business General LaCrosse Footwear, Inc. ("LaCrosse" or the "Company") is a leader in the design, development, marketing and manufacturing of premium quality protective footwear and clothing for the sporting and outdoor, farm and general utility, occupational and children's markets. The Company markets its products primarily under the LACROSSE(R), RED BALL(R), LAKE OF THE WOODS(R), RAINFAIR(R) and DANNER(R) brands through an employee sales force and also through selected distributors and independent representatives. It also manufactures private label footwear, footwear components and protective clothing. LaCrosse's products are characterized by innovative design, performance features and durability, and are relatively unaffected by changing fashion trends. Historically, LaCrosse has produced footwear primarily of rubber or vinyl, some of which includes leather or fabric uppers. In March 1994, the Company acquired the business of Danner Shoe Manufacturing Co. ("Danner"), a producer of premium quality leather footwear for the sporting and occupational markets, which is sold primarily under the DANNER(R) brand. To broaden the base of business in the protective clothing area, in May 1996, a 50%-owned subsidiary of the Company purchased the assets of Rainfair, Inc. ("Rainfair") of Racine, Wisconsin. Rainfair designs and markets rainwear and other protective clothing generally for the occupational markets, which are sold primarily under the RAINFAIR(R) brand. Operations of Rainfair have been included in the Company's financial statements since the date of acquisition. In January 1998, the Company acquired the remaining 50% of Rainfair that it did not own, thereby making it a 100%-owned subsidiary. Also in May 1996, the Company acquired certain operating assets and trademarks of Red Ball, Inc. ("Red Ball"). Red Ball historically sold products which competed in many of the same product categories as the LACROSSE(R) brand. In July 1997, the Company acquired all of the outstanding shares of Pro-Trak Corporation, the company that operated under the Lake of the Woods tradename. Lake of the Woods is a designer, manufacturer and marketer of branded leather footwear for both the outdoor and occupational markets. The Company was incorporated in Wisconsin in 1983 but traces its history to 1897 when La Crosse Rubber Mills Company was founded. Current management purchased LaCrosse's predecessor from the heirs of the founding family and other shareholders in 1982. Strategy The Company's business strategy is to continue to (i) build, position and capitalize on the strength of established brands, (ii) extend its offerings of footwear, rainwear and other complementary products under the established brands and (iii) expand and enhance its strong distribution network of sales representatives, customer service and retail and industrial customers. -2- Brand Positioning Within the retail channels of distribution, the Company markets footwear and rainwear under the well-established DANNER(R), LACROSSE(R), RED BALL(R) and LAKE OF THE WOODS(R) brands. Each brand is positioned differently in the marketplace in order to capitalize on differences in end user expectations for performance. The DANNER(R) brand represents the highest level of performance, with a select line of high quality, feature driven leather footwear products at premium prices. The LACROSSE(R) brand has a more extensive product line including rubber, vinyl and leather footwear and rainwear, distributed to a broad base of independent retailers. The RED BALL(R) and LAKE OF THE WOODS(R) brands offer a more narrow line of lower price and performance footwear directed to a broad consumer market. The Company sells products through the industrial distributor channel principally under the LACROSSE(R) and RAINFAIR(R) brands. The brands are positioned as complementary, with the LACROSSE(R) brand including a full performance range of rubber and vinyl footwear, while the RAINFAIR(R) brand includes an extensive line of rainwear and protective clothing. Products The Company's brand product offering includes these major categories: Rubber/Vinyl Footwear The Company's rubber/vinyl footwear line is the most extensive of the product categories with product offerings covering the sporting, recreational and occupational markets. The Company markets rubber/vinyl footwear mainly under the LACROSSE(R) and RED BALL(R) brands. The product line ranges from low cost vinyl-molded products to high performance, hand-crafted rubber products directed to specific occupational market niches. In addition, the Company is a leader in rubber/vinyl bottom, leather/fabric upper footwear for extreme cold and other high performance applications. A rubber bottom boot with a leather or fabric upper combines the waterproofness and flexibility of rubber footwear with the fit and support of a laced leather boot. Leather Footwear The Company markets leather footwear under three brand names, DANNER(R), LACROSSE(R) and LAKE OF THE WOODS(R). The DANNER(R) products consist of premium quality sporting, occupational and recreational boots available in numerous styles and usually featuring the stitch-down manufacturing process which provides outstanding built-in comfort for the owner. Danner was the first footwear manufacturer to include a waterproof, breathable GORE-TEX(R) bootie in leather boots, and it continues to include that bootie in over 90% of its products. The LACROSSE(R) brand markets a focused line of indoor and outdoor work boots appealing to consumers who desire durability and comfort. The LAKE OF THE WOODS(R) brand markets a broad line of utility, steel toe and sporting boots and recreational hikers. -3- Rainwear and Protective Clothing Rainwear and footwear are complementary products in many occupational and outdoor environments. Rainfair offers a broad line of quality rainwear and protective clothing appealing to those workers in utility, construction, chemical processing, law enforcement and other groups traditionally purchasing through industrial distributors. While most of the garments are developed for general workwear, a number are constructed for specific applications such as acid environments and flame environments. The RAINFAIR(R) brand is recognized in the industry for its durability, quality and heritage. In recent years, the brand name has been extended to include other protective garments such as aprons and extreme cold weather clothing. Recently, a limited line of occupational and sporting rainwear was introduced under the LACROSSE(R) brand. LaCrosse also sells footwear accessories such as liners, wader suspenders and socks. During 1998, the Company offered approximately 500 styles of footwear and rainwear. Product Design and Development The Company's product design and development ideas originate within the Company and through communication with its customers and suppliers based upon perceived customer or consumer needs or new technological developments in footwear, rainwear and materials. Consumers, sales personnel and suppliers provide information to the Company's marketing division, which interacts with product development during the development and testing of new product. New product needs generally can be related to functional or technical characteristics which are addressed by the Company's pattern, design and chemistry lab staffs. The final aesthetics of the product are determined by marketing personnel, at times in conjunction with outside design consultants. Once a product design is approved for production, responsibility shifts to manufacturing for pattern development and commercialization. Customers, Sales and Distribution The Company markets its brands and associated products through two separate channels of distribution: retail and industrial. Within the retail market, the LACROSSE(R), RED BALL(R) and LAKE OF THE WOODS(R) brands are marketed through a sales force comprised of 17 Company-employed sales people and six independent sales representative groups. The DANNER(R) brand is marketed through independent sales representative groups, some of which are dedicated independent agents and some of which are multi-line representative groups. A national account sales team complements the sales activities for the brands. The Company's industrial products are distributed through the LaCrosse Rainfair Safety Products Division using a combination of Company employed field sales persons, independent representatives and a national account team. -4- The Company's products are sold directly to more than 5,500 accounts, including sporting goods/outdoor retailers, general merchandise and independent shoe stores, wholesalers, industrial distributors, catalog operations and the United States government. The Company's customer base is also diversified as to size and location of customer and markets served. As a result, the Company is not dependent upon a few customers, and adverse economic conditions or mild or dry weather conditions in a specific region are less likely to have a material effect on the Company's results of operations. The Company operates three factory outlet stores whose primary purpose is disposal of slow moving, factory seconds and obsolete merchandise. Two of these stores are located at the manufacturing facilities in La Crosse, Wisconsin and Portland, Oregon. The Company also derives royalty income from Danner Japan Ltd., a Japanese joint venture in which the Company has a 10% ownership interest, on Danner Japan Ltd.'s distribution of products in Japan under the DANNER(R) brand that are manufactured by others overseas. Advertising and Promotion Because a majority of the Company's marketing expenditures are for promotional materials, cooperative advertising and point-of-sale advertising designed to assist dealers and distributors in the sale of the Company's products, the Company is able to customize advertising and marketing for each of its brands in each of its distribution channels. The Company's marketing strategy allows it to emphasize those features of its products that have special appeal to the applicable targeted consumer. The Company advertises and promotes its products through a variety of methods including national and regional print advertising, public relations, point-of-sale displays, catalogs and packaging. Manufacturing The Company produces the majority of its rubber, leather and vinyl products in its United States manufacturing facilities in La Crosse, Wisconsin, Portland, Oregon and Claremont, New Hampshire. The Company's Hillsboro, Wisconsin facility manufactures a line of waders with nylon uppers and rubber or vinyl boot bottoms, using a heat-sealing process. Leather tops and liners for the LACROSSE(R) brand rubber bottom/leather top pac boots and some leather boots are produced at the Company's Clintonville, Wisconsin facility. The Company manufactures a majority of its LACROSSE(R) and DANNER(R) brand footwear in the United States because the Company believes it is able to maintain better control over quality, inventory production scheduling and inventory levels. "Made in the USA" is prominently displayed in the Company's advertising, promotion and marketing materials for the LACROSSE(R) and DANNER(R) brands. The RAINFAIR(R), RED BALL(R) and LAKE OF THE WOODS(R) brands, which the Company started distributing during 1996 and 1997, source a substantial portion of their product offshore, primarily in the Pacific Rim. The Company also sources a portion of the -5- LACROSSE(R) brand leather products and rubber bottom/leather upper pac boots from the Pacific Rim. The Company intends to continue to outsource these products. The Company believes that there are adequate sources of supply for these imported products. Suppliers The Company's three principal raw materials used in the production of the Company's products, based upon dollar value, are leather, crude rubber and oil-based vinyl compounds for vinyl footwear and rainwear products. While the Company saw price increases during 1995 for all three of these raw materials, prices have since stabilized at lower levels and the Company has no reason to believe that all three of these raw materials will not continue to be available at competitive prices. The Company also uses technical components in the Company's products including THINSULATE(R), GORE-TEX(R), CORDURA(R), DRI-LEX(R), POLARTEC(R) and VIBRAM(R). No interruption in the supply of any of these components is anticipated. The Company purchases GORE-TEX(R) waterproof fabric directly from W.L. Gore & Associates ("Gore"), for both LaCrosse and Danner footwear. Gore has traditionally been Danner's single largest supplier, in terms of dollars spent on raw materials. Approximately 90% of Danner's footwear, in terms of number of pairs produced, incorporates GORE-TEX(R) waterproof fabric. Agreements with Gore may be terminated by either party upon 90 days' written notice. The Company considers its relationships with Gore to be good. Effective January 1, 1997, the majority of Danner's GORE-TEX(R) footwear is guaranteed to be waterproof for one year from the date of purchase compared to two years previously. Quality Assurance The Company's quality control programs are important to its reputation for manufacturing superior footwear. The Company is currently in the process of becoming ISO 9001 certified, with certification planned for the fourth quarter of 1999. The Company's La Crosse, Wisconsin plant has a chemistry lab which is responsible for incoming raw material and in-process quality testing. All crude rubber is tested to assure that each batch meets the high values specified by the Company for range of plasticity and rate of cure, both of which have a direct relationship to the ultimate quality of the product. Fabrics are sample tested to meet LaCrosse's requirements for strength and weight. Incoming leather skins are inspected for color, brand and weight. The Company's Danner operation tests 100% of all GORE-TEX(R) bootie liners for leaks prior to sewing them into boots. At least 10% of all completed waterproof boots are filled with water for testing. Leather is tested for lasting ability, tear strength, finish and thickness. -6- Backlog At December 31, 1998, the Company had unfilled orders from its customers in the amount of approximately $13.7 million compared to $14.2 million at December 31, 1997. The decrease in backlog is primarily the result of a consumer rainwear order from a large mass merchant which was included in the December 31, 1997 backlog. All orders at December 31, 1998 are expected to be filled during 1999. Because a major portion of the Company's orders are placed in January through July for delivery in June through October, the Company's backlog is lowest during the fourth quarter and peaks during the second quarter. Factors other than seasonality, such as pending large national account orders or United States government orders, could have a significant impact on the Company's backlog. Therefore, backlog at any one point in time may not be indicative of future results. Generally, orders may be cancelled by customers prior to shipment without penalty. Competition The various categories of the protective footwear, rainwear and protective clothing markets in which the Company operates are highly competitive. The Company competes with numerous other manufacturers, many of whom have substantially greater financial, distribution and marketing resources than the Company. Because the Company has a broad product line, its competition varies by product category. The Company has two to three major domestic competitors in most of its rubber and vinyl product lines, at least four major competitors in connection with the Company's sporting footwear, at least six major competitors in connection with hiking boots and at least four major competitors in connection with its occupational footwear, rainwear and protective clothing. The Company also faces competition from offshore manufacturers, particularly in the occupational and children's markets. LaCrosse believes it maintains a competitive position compared to its competitors through its attention to quality and the delivery of value, its position as an innovator in common product segments, its above-average record of delivering products on a timely basis, its strong customer relationships and, in some cases, the breadth of its product line. Some of the Company's competitors compete mainly on the basis of price. Offshore manufacturers offer significantly lower labor costs to produce rubber and vinyl products. However, shipping costs and times, requirements for short runs on some items, and unpredictable weather patterns that would force offshore manufacturers or their distributors to store large inventories in the United States to be able to meet sudden increases in demand are some disadvantages the offshore manufacturers face. Further, because the manufacturing process for vinyl footwear products is much less labor intensive than for rubber footwear, lower offshore labor rates are less of a competitive advantage in the production of vinyl footwear. Moreover, the Company's vinyl footwear products enable the Company to compete more effectively against offshore manufacturers of rubber footwear. Leather boot manufacturers and suppliers, some of which have strong brand name recognition in the markets they serve, are the major competitors of the Company's Danner and LaCrosse leather product line. These competitors manufacture domestically and/or import -7- products from offshore. Danner products effectively compete with domestically produced products, but are generally at a price disadvantage against lower cost imported products, because offshore manufacturers generally pay significantly lower labor costs. Danner focuses on the premium quality, premium price segment of the market in which product function, design, comfort and quality, continued technological improvements, brand awareness, timeliness of product delivery and product pricing are all important. The Company believes, by attention to these factors, the Danner protective footwear line has maintained a strong competitive position in its current market niches. In leather boots, the LACROSSE(R) and LAKE OF THE WOODS(R) brands, because of their market position, source product both domestically and from offshore. Therefore, they compete with other distributors with products sourced from offshore locations. Employees As of December 31, 1998, the Company had approximately 1,250 employees, all located in the United States. Approximately 450 of the Company's employees at the La Crosse, Wisconsin facility are represented by the United Steel Workers of America under a three-year collective bargaining agreement which expires in September 2001, approximately 180 of the Company's employees at the Portland, Oregon facility are represented by the United Food & Commercial Workers Union under a collective bargaining agreement which expires in January 2002 and approximately 55 of the Company's employees at the Racine, Wisconsin facility are represented by the International Ladies Garment Workers Union under a collective bargaining agreement which expires in July 2000. The Company has approximately 260 employees at manufacturing facilities located outside of La Crosse, Wisconsin, Portland, Oregon and Racine, Wisconsin. None of these employees are represented by a union. The Company considers its employee relations to be good. Trademarks and Trade Names; Patents The Company owns United States federal registrations for several of its marks, including LACROSSE(R), DANNER(R), RED BALL(R), LAKE OF THE WOODS(R), RAINFAIR(R), LACROSSE and stylized Indianhead design that serve as the Company's logo, RAINFAIR and stylized horse design that serve as Rainfair's logo, ALLTEMP(R), DURALITE(R), FIRETECH(R), FLY-LITE(R), ICE KING(R), ICECUBE(R), ICEMAN(R), TERRAIN KING(R), AIRTHOTIC(R), CROSS-HIKER(R), THERMONATOR(R) and RED BALL JETS(R). The Company also has registrations for the "L" shape design associated with the lacing system on the Alltemp Boot Systems, and the stylized Indianhead design associated with the Company's logo. In addition, the Company owns registrations in Canada for its marks ALLTEMP(R), ICEMAN(R), AIRBOB(R) and stylized Indianhead design and in Mexico for its mark LACROSSE and stylized Indianhead design. The Company generally attempts to register a trademark relating to a product's name only where the Company intends to heavily promote the product or where the Company expects to sell the product in large volumes. The Company defends its trademarks and trade names against infringement to the fullest extent practicable under the law. Other than registrations relating to the LACROSSE(R), DANNER(R), RED BALL(R), LAKE OF THE -8- WOODS(R) and RAINFAIR(R) names, the Company does not believe any trademark is material to its business. Prior to 1999, the Company paid a royalty on sales of products carrying the DANNER(R) name equal to 0.5% of the price of products sold that applies to net sales in excess of $4.0 million annually. The royalty agreement expired on December 31, 1998. The Company is not aware of any material conflicts concerning its marks or its use of marks owned by other companies. The Company owns several patents that improve its competitive position in the marketplace, including patents for a cold cement process for affixing varying outsole compositions to a rubber upper; a method of manufacture for attaching a nylon upper to a rubber bottom; a rubber footwear product in which a heel counter is trapped or embedded within the rubber boot to improve the support provided to the wearer's foot; the DANNER BOB(R) outsole; a neoprene wader upper with an expandable chest; and a patent for its AIRTHOTIC(R), which is a ventilated arch support that fits under the heel. Seasonality/Working Capital As has traditionally been the case, the Company's sales in 1998 were higher in the last two quarters of the year than in the first two quarters and, in order to satisfy shipping requirements, the Company builds inventory during the first half of the year and offers customers price discounts and extended terms during such time. The Company expects these trends to continue. Additional information about the seasonality and working capital requirements of the Company's business is contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" on page 5 of the Company's 1998 Annual Report to Shareholders and such information is hereby incorporated herein by reference. Foreign Operations and Export Sales Other than the Company's 10% equity interest in Danner Japan, Ltd., the Company does not have any foreign operations. International sales accounted for less than 5% of the Company's net sales in 1998. Environmental Matters The Company and the industry in which it competes are subject to environmental laws and regulations concerning emissions to the air, discharges to waterways and the generation, handling, storage, transportation, treatment and disposal of waste materials. The Company's policy is to comply with all applicable environmental, health and safety laws and regulations. These laws and regulations are constantly evolving and it is difficult to predict accurately the effect they will have on the Company in the future. Compliance with applicable environmental regulations and controls has not had, nor are they expected to have in 1999, any material impact on the capital expenditures, earnings or competitive position of the Company. -9- Executive Officers of the Registrant The following table sets forth certain information, as of March 15, 1999, regarding the executive officers of the Company. Name Age Position ---- --- -------- George W. Schneider 76 Chairman of the Board and Director Frank J. Uhler, Jr. 68 Vice Chairman of the Board and Director Patrick K. Gantert 49 President, Chief Executive Officer and Director Wayne L. Berger 52 Vice President - Purchasing Stephen F. Bonner 45 Vice President - Claremont Operations Kenneth F. Ducke 55 Treasurer and Assistant Secretary Joseph F. Fahey 44 Vice President - Retail Sales and Marketing Peter V. Fiorini 61 Vice President - Special Markets David F. Flaschberger 40 Vice President - Human Resources David R. Llewellyn 61 Vice President - Marketing and Business Development Robert G. Rinehart, Jr. 46 Vice President - Product Development Joseph P. Schneider 39 Vice President of the Company and President and Chief Executive Officer of Danner Robert J. Sullivan 52 Vice President - Finance and Administration and Chief Financial Officer John A. Tadewald 60 Vice President - Engineering George W. Schneider was elected to the Board of Directors of the Company's predecessor in 1968 and was the principal investor and motivating force behind the management buyout of the Company's predecessor in 1982. Since 1982, Mr. Schneider also has served as Chairman of the Board of the Company. Frank J. Uhler, Jr., has served as Vice Chairman of the Board of the Company since December 31, 1994 and as a director since he joined the Company in June 1978. From June 1978 until 1982, Mr. Uhler served as President and from 1982 until December 31, 1994 he served as President and Chief Executive Officer of the Company. Along with Mr. George W. -10- Schneider, Mr. Uhler was the other principal member of the management group that acquired the Company's predecessor in 1982. Patrick K. Gantert has served as President, Chief Executive Officer and as a director of the Company since December 31, 1994. Prior thereto, Mr. Gantert served as Executive Vice President and Chief Operating Officer of the Company since August 1993 and as Executive Vice President since June 1992. From March 1985, when he joined the Company, until June 1992, Mr. Gantert was Vice President-Finance. Wayne L. Berger joined the Company in 1974 and has held various positions in finance and administration since that time. In June 1988, Mr. Berger was elected Vice President - Purchasing. Stephen F. Bonner joined the Company in 1983 and has held various positions in manufacturing since that time. In June 1991, Mr. Bonner was elected Vice President - Claremont Operations. Kenneth F. Ducke joined the Company in 1974 and has held various positions in finance and administration since that time. In 1982, Mr. Ducke was elected Treasurer and Assistant Secretary. Joseph F. Fahey has served as Vice President - Retail Sales and Marketing since he joined the Company in October 1996. From 1993 until 1996, Mr. Fahey served as Vice President of Sales and Marketing for Stihl, Incorporated, a manufacturer of premium hand-held power equipment and from 1989 through 1993, Mr. Fahey was the Manager of Dealer Development and Research for the Power Equipment Division of American Honda Motor Company. Peter V. Fiorini joined the Company in July 1991 as Vice President - Industrial Sales. He served in such capacity until May 1998, when he was elected Vice President - Special Markets. David F. Flaschberger joined the Company in May 1993 as Human Resources Manager. He served in such capacity until November 1995, when he was elected Vice President - Human Resources. From 1990 until joining the Company, Mr. Flaschberger was the Director of Human Resources of The Company Store, Inc., a direct mail marketer and manufacturer of down-filled bedding products. David R. Llewellyn has served as Vice President - Marketing and Business Development since he joined the Company in April 1994. From 1989 until joining the Company, Mr. Llewellyn was an independent marketing and business consultant. -11- Robert G. Rinehart, Jr. joined the Company in January 1990 as a territory salesperson. In July 1991, Mr. Rinehart was appointed as the National Accounts Manager. He served in such capacity until October 1992, when he was appointed Senior Marketing Manager, and in March 1994 he was elected Vice President - Product Development. Joseph P. Schneider has served as a Vice President of the Company since June 1996 and as President and Chief Executive Officer of Danner since October 1998. Prior thereto, Mr. Schneider served as President and Chief Operating Officer of Danner since December 1997, as Executive Vice President and Chief Operating Officer of Danner since June 1996 and as Vice President - Retail Sales of the Company from January 1993 until June 1996. From 1985, when he joined the Company, until January 1993, Mr. Schneider held various sales management positions. Robert J. Sullivan joined the Company in November 1992 as Manager of Finance and Administration, was elected Vice President - Finance and Administration in March 1994 and was given the additional title of Chief Financial Officer in March 1997. From 1987 until joining the Company, Mr. Sullivan was Vice President-Finance of Skipperliner Industries, Inc., a manufacturer of houseboats. John A. Tadewald has served as Vice President - Engineering since he joined the Company in October 1987. From 1963 until joining the Company, Mr. Tadewald held engineering positions with several industrial companies. Joseph P. Schneider is the son of George W. Schneider. None of the other directors or executive officers are related to each other. The term of office of each of the executive officers expires at the annual meeting of directors. Item 2. Properties The following table sets forth certain information, as of December 31, 1998, relating to the Company's principal facilities.
Properties Owned Approximate Floor or Area in Square Location Leased Feet Principal Uses La Crosse, WI Leased(1) 212,000(1) Principal sales, marketing and executive offices and warehouse space La Crosse, WI Owned 400,000 Manufacture rubber boots -12- La Crosse, WI Leased(2) 264,000 Main warehouse and distribution facility La Crosse, WI Owned 11,000 Retail outlet store Clintonville, WI Owned 42,500 Manufacture leather components and construct rubber boots Clintonville, WI Leased 4,000 Warehouse and raw material storage Hillsboro, WI Leased(3) 40,000 Manufacture component parts Kenosha, WI Leased 3,000 Retail outlet store Claremont, NH Owned 150,000 Manufacture vinyl injection-molded products Claremont, NH Leased(4) 68,000 Warehouse and distribution facility Portland, OR Leased(5) 36,000 Manufacture DANNER(R)products, offices, retail outlet store and warehouse space Portland, OR Leased(6) 16,000 Warehouse and distribution facility Prentice, WI Leased(7) 24,000 Warehouse and distribution facility Racine, WI Leased(8) 104,700 Manufacturing, warehousing and offices for Rainfair - ------------------------- (1) The lease for this 212,000 square foot building adjacent to the Company's manufacturing plant in La Crosse, Wisconsin expires in 2007. Approximately 50% of this building is currently sublet to the former owner. Of the portion occupied by the Company, 6,600 square feet is used for office space and the balance is used for warehouse space. (2) The lease for 183,000 square feet of this facility expires in 2000. The Company leases the balance of the space on short-term leases. -13- (3) There are two facilities leased by the Company in Hillsboro, Wisconsin with approximately 40,000 square feet. (4) The lease of this facility expires in 2000. This space is leased in a facility adjacent to the Company's manufacturing plant in Claremont, New Hampshire. (5) The lease for this facility expires in March 2009, but the Company has the option to extend the term for an additional five years. (6) The lease for this facility expires in December 2000. (7) The lease for this facility expires in 1999. (8) The lease for this facility was entered into in May 1996 and expires in May 2001.
Based on present plans, management believes that the Company's current facilities will be adequate to meet the Company's anticipated needs for production of LaCrosse products for at least the next two years. Once the manufacturing facilities have reached capacity, the Company can expand further by leasing or purchasing facilities or by outsourcing products or components. Item 3. Legal Proceedings In November 1993, the Company, in order to preserve its legal rights, instituted litigation against the United States Government in the United States Court of Federal Claims ("USCFC") seeking a refund of amounts previously paid to the Internal Revenue Service ("IRS") relating to the Company's treatment of its LIFO inventory stemming from the Company's 1982 leveraged buyout. If the Government prevails in this litigation, the IRS has indicated an intention to assess the Company for additional tax, penalties, interest and other amounts for prior periods as a result of recalculating the Company's LIFO inventory reserve. The Company received a favorable decision, dated May 15, 1998, from the USCFC, which resulted in a judgment awarded to the Company. However, the Government appealed the decision and the appeal is currently being heard in the U.S. Federal Circuit Court of Appeals. The Company is not currently in a position to predict the outcome of the appeal. However, a decision by the U.S. Federal Circuit Court of Appeals in another case (Kohler Co. v. United States, Case No. 96-5043, September 17, 1997) supports one of the principal positions taken by the IRS and the Government in the USCFC litigation. The Company believes that its total current exposure to the IRS with respect to this matter is not material to the Company's financial position or results of operations. From time to time, the Company, in the normal course of business, is also involved in various other claims and legal actions arising out of its operations. The Company does not believe that the ultimate disposition of any currently pending claims or actions would have a material adverse effect on the Company or its financial condition. -14- Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of shareholders during the quarter ended December 31, 1998. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The portions of page 20 which describe the market for and dividends declared on the Company's Common Stock and Note 5 of Notes to Consolidated Financial Statements which describe restrictions on dividends and which are contained in the Company's 1998 Annual Report to Shareholders are hereby incorporated herein by reference in response to this Item. Item 6. Selected Financial Data The information set forth in the table on page 4 of the Company's 1998 Annual Report to Shareholders under the caption "Five Year Summary of Selected Financial Data" is hereby incorporated herein by reference in response to this Item. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth on pages 5 through 8 in the Company's 1998 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is hereby incorporated herein by reference in response to this Item. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company enters into interest rate swap agreements ("Swap Agreements") to reduce its exposure to interest rate fluctuations on its floating rate debt. The Swap Agreements exchange floating rate for fixed rate interest payments periodically over the life of the agreements without exchange of the underlying notional amounts. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent an amount of exposure to credit loss. For interest rate instruments that effectively hedge interest rate exposures, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. As of December 31, 1998, the Company had Swap Agreements in effect totaling $11.0 million notional amount, of which $7.0 million will mature in 2002 with another $4.0 million maturing in 2003. The variable rate borrowings not offset by Swap Agreements at December 31, 1998 totaled $9.4 million. Swap Agreement rates are based on the three-month LIBOR rate. Based on average floating rate borrowings outstanding throughout fiscal year 1998, a 100-basis point change in LIBOR would have caused the Company's monthly interest expense to change by approximately -15- $16,000. The Company believes that these amounts are not material to the earnings of the Company. Item 8. Financial Statements and Supplementary Data The consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998, and the related consolidated balance sheets of the Company as of December 31, 1998 and 1997, together with the related notes thereto and the independent auditor's report, and the Company's unaudited quarterly results of operations for the two-year period ended December 31, 1998, all set forth on pages 9 through 20 of the Company's 1998 Annual Report to Shareholders, are hereby incorporated herein by reference in response to this Item. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. -16- PART III Item 10. Directors and Executive Officers of the Registrant The information required by this Item with respect to directors and Section 16 compliance is included under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the Company's definitive Proxy Statement for its 1999 Annual Meeting of Shareholders ("Proxy Statement") and is hereby incorporated herein by reference. Information with respect to the executive officers of the Company appears in Part I, pages 10 through 12, of this Annual Report on Form 10-K. Item 11. Executive Compensation The information required by this Item is included under the captions "Board of DirectorsCDirector Compensation" and "Executive Compensation" in the Proxy Statement and is hereby incorporated herein by reference; provided, however, that the subsection entitled "Executive CompensationCReport on Executive Compensation" shall not be deemed to be incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is included under the caption "Principal Shareholders" in the Proxy Statement and is hereby incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required by this Item is included under the captions "Certain Transactions" and "Executive CompensationCCompensation Committee Interlocks and Insider Participation" in the Proxy Statement and is hereby incorporated herein by reference. -17- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial statements - The financial statements listed in the accompanying index to financial statements and financial statement schedules are incorporated by reference in this Annual Report on Form 10-K. 2. Financial statement schedules - The financial statement schedules listed in the accompanying index to financial statements and financial statement schedules are filed as part of this Annual Report on Form 10-K. 3. Exhibits - The exhibits listed in the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1998. -18- 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 this 29th day of March, 1999. LACROSSE FOOTWEAR, INC. By /s/ Patrick K. Gantert Patrick K. Gantert President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/George W. Schneider Chairman of the Board and March 29, 1999 - ------------------------ Director George W. Schneider /s/ Patrick K. Gantert President, Chief Executive March 29, 1999 - ------------------------ Officer and Director (Principal Patrick K. Gantert Executive Officer) /s/ Robert J. Sullivan Vice President-Finance and March 29, 1999 - ------------------------ Administration and Chief Financial Robert J. Sullivan Officer (Principal Financial and Accounting Officer) /s/ Frank J. Uhler, Jr. Vice Chairman of the Board March 29, 1999 - ------------------------ and Director Frank J. Uhler, Jr. -19- Signature Title Date --------- ----- ---- /s/ Craig L. Leipold Director March 29, 1999 - ------------------------ Craig L. Leipold /s/ Richard A. Rosenthal Director March 29, 1999 - ------------------------ Richard A. Rosenthal /s/ Luke E. Sims Director March 29, 1999 - ------------------------ Luke E. Sims /s/ John D. Whitcombe Director March 29, 1999 - ------------------------ John D. Whitcombe -20- INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page -------------------------------- Annual Report Form 10-K to Shareholders Consolidated Balance Sheets at December 31, 1998 and 1997 - 9 Consolidated Statements of Income for each of the three years in the period ended December 31, 1998 - 10 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1998 - 11 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998 - 12 Notes to Consolidated Financial Statements - 13-19 Independent Auditor's Report - 19 Independent Auditor's Report on Financial Statement Schedule 22 - Financial Statement Schedule: II - Valuation and Qualifying Accounts 23-24 - All other financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto. -21- INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders LaCrosse Footwear, Inc. La Crosse, Wisconsin Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated supplemental schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 5, 1999 -22- LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions ------------------------------------- Balance at Beginning Balance of Period Charged To Costs Charged To at End Description And Expenses Other Accounts Deductions of Period Year ended December 31, 1996: Accounts receivable allowances: Allowance for returns $ 280,000 $ 1,234,556 $ -- $ 947,556 $ 567,000 Allowance for cash discounts 114,000 90,496 -- 15,496 189,000 Allowance for doubtful accounts 381,700 167,655 335,000 178,855 705,500 Allowance for uncollectible interest 37,560 92,268 -- 84,026 45,802 ----------- ---------- ----------- ---------- --------- Total $ 813,260 $ 1,584,975 $ 335,000 $ 1,225,933 $1,507,302 =========== ========== =========== ========== ========= Inventory allowances: Allowance for obsolescence $ 813,428 $ 272,904 $ 350,000 $ 235,332 $1,201,000 =========== ========== =========== ========== ========= Warranty allowance: Allowance for warranties $ 840,000 $ 1,057,730 $ -- $ 972,730 $ 925,000 =========== ========== =========== ========== ========= [continued] -23- Additions ------------------------------------- Balance at Beginning Balance of Period Charged To Costs Charged To at End Description And Expenses Other Accounts Deductions of Period Year ended December 31, 1997: Accounts receivable allowances: Allowance for returns $ 567,000 $ 1,142,866 $ 280,700 $ 1,152,866 $ 837,700 Allowance for cash discounts 189,000 63,345 65,000 217,345 100,000 Allowance for doubtful accounts 705,500 161,524 -- 292,069 574,955 Allowance for uncollectible interest 45,802 106,290 -- 95,631 56,461 ---------- ---------- ---------- ---------- ---------- Total $ 1,507,302 $ 1,474,025 $ 345,700 $ 1,757,911 $ 1,569,116 ========== ========== ========== ========== ========== Inventory allowances: Allowance for obsolescence $ 1,201,000 $ 586,560 $ -- $ 561,140 $ 1,226,420 ========== ========== ========== ========== ========== Warranty allowance: Allowance for warranties $ 925,000 $ 769,322 $ -- $ 1,084,197 $ 610,125 ========== ========== ========== ========== ========== Year ended December 31, 1998: Accounts receivable allowances: Allowance for returns $ 837,700 $ 961,211 $ -- $ 1,290,911 $ 508,000 Allowance for cash discounts 100,000 470,090 -- 482,090 88,000 Allowance for doubtful accounts 574,955 91,562 -- 289,517 377,000 Allowance for uncollectible interest 56,461 131,812 -- 128,624 59,649 ---------- ---------- ---------- ---------- ---------- Total $ 1,569,116 $ 1,654,675 $ -- $ 2,191,142 $ 1,032,649 ========== ========== ========== ========== ========== Inventory allowances: Allowance for obsolescence $ 1,226,420 $ 607,472 $ -- $ 533,892 $ 1,300,000 ========== ========== ========== ========== ========== Warranty allowance: Allowance for warranties $ 610,125 $ 866,268 $ -- $ 1,004,952 $ 471,441 ========= ========== ========== ========== ========== The accounts receivable and inventory allowances above were deducted from the applicable asset account.
-24- EXHIBIT INDEX Sequential Exhibit Page Number Exhibit Description Number (2.1) Asset Purchase Agreement, dated as of February 11, -- 1994, between LaCrosse Footwear, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (2) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (2.2) Asset Purchase Agreement, dated May 16, 1996, -- by and among Rainco, Inc., LaCrosse Footwear, Inc., Rainfair, Inc. and Craig L. Leipold [Incorporated by reference to Exhibit (2.1) to LaCrosse Footwear, Inc.'s Current Report on Form 8-K dated May 31, 1996 and filed June 14, 1996] (3.1) Restated Articles of Incorporation of LaCrosse -- Footwear, Inc. [Incorporated by reference to Exhibit (3.0) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (3.2) By-Laws of LaCrosse Footwear, Inc., as amended -- to date [Incorporated by reference to Exhibit (3.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (4.1) Credit Agreement, dated as of May 31, 1996, by -- and among LaCrosse Footwear, Inc., Firstar Bank Milwaukee, N.A., The Northern Trust Company, Harris Trust and Savings Bank and Firstar Bank Milwaukee, N.A., as Agent for the Banks [Incorporated by reference to Exhibit (4.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 29, 1996] (4.2) Note Purchase Agreement, dated as of June 1, 1990, -- between LaCrosse Footwear, Inc. and Teachers Insurance and Annuity Association of America [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (4.3) Amendment to Note Purchase Agreement, dated as of -- October 7, 1994, between LaCrosse Footwear, Inc. and Teachers Insurance and Annuity Association of America [Incorporated by reference to Exhibit (10.3) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended October 1, 1994] (9.1) Voting Trust Agreement, dated as of June 21, 1982, -- as amended [Incorporated by reference to Exhibit (9) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] -25- Sequential Exhibit Page Number Exhibit Description Number (9.2) Amendment No. 9 to Voting Trust Agreement, dated -- June 30, 1997. [Incorporated by reference to Exhibit (9.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997] (10.1) Lease, dated as of January 7, 1991, between -- LaCrosse Footwear, Inc. and Central States Warehouse, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.2) Amendment, dated as of June 29, 1995, to Lease -- between LaCrosse Footwear, Inc. and Central States Warehouse, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995] (10.3)* Employment and Consulting Agreement, dated as of -- October 1, 1990 and as amended as of October 31, 1992, between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.4) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.4)* Amendment No. 1, dated as of December 31, 1994, -- to Employment and Consulting Agreement between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.5) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.5)* Employment Agreement, dated as of July 1, 1992, -- and amended as of May 28, 1993, between Patrick K. Gantert and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.8) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.6)* Employment Agreement, dated as of March 14, 1994, -- between LaCrosse Footwear, Inc. and Eric E. Merk, Sr. [Incorporated by reference to Exhibit (10.12) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] - ------------ * A management contract or compensatory plan or arrangement. -26- Sequential Exhibit Page Number Exhibit Description Number (10.7) Amendment No. 1, dated as of June 1, 1995, to -- Employment Agreement between LaCrosse Footwear, Inc. and Eric E. Merk, Sr. [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995] (10.8)* Employment Agreement, dated as of June 9, 1994, -- between David Llewellyn and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 2, 1994] (10.9)* LaCrosse Footwear, Inc. Deferred Compensation Plan -- for Key Employees, as amended and restated. [Incorporated by reference to Exhibit (10.9) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997] (10.10)* LaCrosse Footwear, Inc. Deferred Compensation -- Plan for Directors [Incorporated by reference to Exhibit (10.15) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.11)* LaCrosse Footwear, Inc. Retirement Plan -- [Incorporated by reference to Exhibit (10.18) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.12)* LaCrosse Footwear, Inc. Employees' Retirement -- Savings Plan [Incorporated by reference to Exhibit (10.19) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.13)* LaCrosse Footwear, Inc. 1993 Employee Stock -- Incentive Plan [Incorporated by reference to Exhibit (10.20) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.14)* LaCrosse Footwear, Inc. 1997 Employee Stock -- Incentive Plan [Incorporated by reference to Exhibit (10.17) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996] (10.15) Agreement, dated as of September 15, 1998, between Local No. 14L, United Steel Workers of America, AFL-CIO, and LaCrosse Footwear, Inc. - ------------ * A management contract or compensatory plan or arrangement. -27- Sequential Exhibit Page Number Exhibit Description Number (10.16) Lease, dated as of March 14, 1994, between -- JEPCO Development Co. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.22) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.17) Amendment, dated as of March 17, 1998, to Lease between JEPCO Development Co., LLC and LaCrosse Footwear, Inc. (10.18) Manufacturing Certification Agreement, dated as -- of October 19, 1993, between W.L. Gore & Associates, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.23) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.19) Trademark License, dated as of October 19, 1993, -- between W.L. Gore & Associates, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.24) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.20) Registration Rights Agreement, dated as of March -- 14, 1994, between LaCrosse Footwear, Inc., Danner Shoe Manufacturing Co. and the shareholders of Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.25) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.21) Guarantee Agreement, dated as of March 14, 1994, -- between LaCrosse Footwear, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.26) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.22) Form of Indemnification and Investment Agreement -- to be entered into between LaCrosse Footwear, Inc. and the shareholders of Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.27) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] -28- Sequential Exhibit Page Number Exhibit Description Number (10.23)* Employment Agreement, dated as of May 31, 1996, -- by and between Craig L. Leipold, Rainco, Inc. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.22) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997] (10.24)* Amendment Agreement, dated as of August 23, 1997, -- by and between LaCrosse Footwear, Inc., Rainfair, Inc. (f/k/a Rainco, Inc.) and Craig L. Leipold [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 27, 1997] (13) Portions of the 1998 Annual Report to Shareholders that are incorporated by reference herein (21) List of subsidiaries of LaCrosse Footwear, Inc. (23) Consent of McGladrey & Pullen, LLP (27.1) Financial Data Schedule (EDGAR version only) (99) Proxy Statement for the 1999 Annual Meeting -- of Shareholders [The Proxy Statement for the 1999 Annual Meeting of Shareholders will be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the Company's fiscal year. Except to the extent specifically incorporated by reference, the Proxy Statement for the 1999 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K.] - ------------ * A management contract or compensatory plan or arrangement. -29- EX-10.15 2 AGREEMENT AGREEMENT Local No. 14L UNITED STEELWORKERS OF AMERICA AND LA CROSSE FOOTWEAR, INC. LA CROSSE, WISCONSIN September 1998 TABLE OF CONTENTS AGREEMENT 1 ARTICLE I ESTABLISHMENT 1 ARTICLE II MANAGEMENT'S RIGHT CLAUSE 1 ARTICLE III RECOGNITION 2 Section 1 - Bargaining Unit...........................................2 Section 2 - Union Security and Dues Check Off.........................2 Section 3 - Probationary Period.......................................4 ARTICLE IV GRIEVANCE AND ARBITRATION PROCEDURE 4 Section 1 - First Step................................................4 Section 2 - Current Grievances........................................5 Section 3 - Second Step, Etc..........................................5 Section 4 - Time Extension............................................7 Section 5 - Time Extension Agreement..................................7 Section 6 - Meeting Arrangements......................................7 Section 7 - Interruption of Work......................................7 Section 8 - Union Representation......................................7 ARTICLE V HOURS OF WORK, OVERTIME PAY, HOLIDAY PAY 8 Section 1 - Regular Work Week.........................................8 Section 2 - Overtime..................................................8 Section 3 - Overtime Distribution.....................................9 Section 4 - Holiday Pay..............................................11 ARTICLE VI WAGES.13 Section 1 - Incentive Emissions......................................13 Section 2 - Incentive Standards......................................15 Section 3 - Miscellaneous Wage Policies..............................18 Section 4 - Wage Increase............................................20 ARTICLE VII SENIORITY 21 Section 1 - Departments..............................................21 Section 2 - Master Seniority List....................................21 Section 3 - Qualifications...........................................21 Section 4 - Employee Placement.......................................22 Section 5 - Job Openings.............................................22 Section 6 - Shift Preference.........................................24 Section 7- Transfers..................................................26 Section 8- Interruption of Work.......................................28 Section 9- Elimination of Departments.................................29 Section 10- Disability Transfers......................................29 Section 11- Temporary Layoff..........................................29 Section 12 - Short Term Layoff........................................30 Section 13 - RegularLayoff and Long Term Layoff.......................32 Section 14- Home Department...........................................34 Section 15- Recall....................................................34 Section 16- Promotions................................................36 Section 17- Loss of Seniority.........................................36 ARTICLE VIII LEAVE OF ABSENCE 38 Section 1 - Retention of Rights......................................38 Section 2 - Eligibility for Leaves...................................38 i Section 3 - Return From Leave........................................38 Section 4 - Military Service.........................................39 ARTICLE IX SANITATION AND SAFETY 39 Section 1 - Reasonable Measures......................................39 Section 2 - Medical Care.............................................40 ARTICLE X MISCELLANEOUS 41 Section 1 - Replacing Tools..........................................41 Section 2 - Clothing Provision.......................................41 Section 3 - Drinking Water...........................................42 Section 4 - Union Posting............................................42 Section 5 - Supervisor Working.......................................42 Section 6 - Rest Period..............................................42 Section 7 - Absenteeism..............................................43 Section 8 - Suspension...............................................43 Section 9 - Jury Duty................................................43 Section 10 - Funeral Pay..............................................43 Section 11 - Paid Meetings............................................44 Section 12 - Derogatory Notations.....................................45 ARTICLE XI VACATIONS/ANNIVERSARY PAY 46 Section 1 - Vacations................................................46 Section 2 - Anniversary Pay..........................................47 CONCLUSION 49 EXHIBITS 54 LETTERS OF AGREEMENT 61 INSURANCE AGREEMENT 66 MEMORANDUM PENSION AGREEMENT 74 Section I - Agreement Clarification................................74 Section II - Pension Plan...........................................74 Section III - Retirement Savings Plan - 401K.........................77 Section IV - Administration.........................................79 Section V - Amendment or Termination...............................79 Section VI - Agreement and Approval.................................79 Section VII - Effective Date.........................................80 BY-LAWS.....84 ARTICLE I - Principles.............................................84 ARTICLE II - Objectives.............................................84 ARTICLE III - Officers...............................................85 ARTICLE IV - Committees.............................................87 ARTICLE V - Grievance Procedure....................................89 ARTICLE VI - Standing Committees....................................89 ARTICLE VII - Finances...............................................89 ARTICLE VIII - Membership Dues........................................90 ARTICLE IX - Meetings...............................................90 ARTICLE X - Delegates and Directors................................91 ARTICLE XI - Convention Delegates Pay...............................91 ARTICLE XII - Amendments.............................................92 ii AGREEMENT This agreement is made and entered into this fifteenth day of September, 1998, by and between LaCrosse Footwear, Inc., of La Crosse, Wisconsin, hereinafter referred to as the Company and the United Steelworkers of America, AFL-CIO, on behalf of Local No. 14L, La Crosse, Wisconsin, hereinafter referred to as the Union. ARTICLE I ESTABLISHMENT All previous agreements and contracts are hereby revoked by this agreement. This agreement must be honored for its duration by any successor to the owners of LaCrosse Footwear, Inc., which occupies the property owned by the Company on, October, 1998, in La Crosse County, and primarily engages in substantially the same type of manufacturing business. ARTICLE II MANAGEMENT'S RIGHT CLAUSE The Company's right, in its discretion to direct and control its employees, to locate production and facilities and to introduce new and improved methods of production and any matters within the responsibility of management or relating to the general business or operating practices of the Company shall not be arbitrated. However, this will not be used in any manner inconsistent with the provisions of this Agreement. ARTICLE III RECOGNITION Section 1. Bargaining Unit Local 14L of the United Steel Workers of America is recognized as the sole collective bargaining agent for all production and maintenance employees of the Company, in respect to rates of pay, wages, hours of employment or other conditions of employment not including executives, their assistants, foremen, foreladies, office clerical help, sales persons and watchmen. Section 2. Union Security and Dues Checkoff 1. Each employee who on the effective date of this provision is a member of the Union and each employee who becomes a member after that date shall, as a condition of employment, maintain membership in the Union to the extent of tendering the uniform initiation fee (if any) and periodic dues. Each employee who is not a member of the Union on the effective date of this provision and each employee who is hired thereafter shall, as a condition of employment, beginning with the conclusion of their probationary period, or beginning on the 30th day following the beginning of such employment or the effective date of this provision, whichever is later, acquire and maintain membership in the Union to the extent of tendering the uniform initiation fee (if any) and periodic dues. 2. The Union may demand the discharge of any employee who, as of the tender date specified in (1), is delinquent in payments required under that Section by serving written notice of such demand on the Employer, provided that the Union has provided the employee at least thirty (30) days written notice of the delinquency. Promptly after receipt of such demand from the International Union Secretary-Treasurer, including verification of notice to the employee, the Employer shall discharge the 2 employee for failure to comply with the obligations set forth in (1). 3. Upon receipt by the Employer of a checkoff authorization form, dated and executed by the employee, and in conformity with law, the Employer will deduct each week from the wages of each bargaining unit employee who has a current valid authorization, the Union dues as specified in writing to the Employer by the International Secretary-Treasurer. Such authorization shall be irrevocable for one year from the date of authorization, and revocable during the period commencing fifteen (15) days before and ending on the anniversary date of the authorization. The International Secretary-Treasurer will certify to the Employer, in writing, the amount of dues, and that the dues have been properly established by the Union in accordance with applicable law and the Union's constitution and bylaws as required of all employees as a condition of acquiring or retaining membership in the Union. The total of such sums so deducted will be remitted with appropriate forms to the International Secretary-Treasurer of the Union and copies to the Local Financial Secretary no later than the 15th of the month following the month in which each deduction is made. In addition, the International Secretary-Treasurer may designate to the Employer periodic assessments, which shall be deducted by the Employer and remitted to the International Secretary-Treasurer only for those employees who execute individual assignments to such effect. 4. Within seven (7) days of hiring, the Employer will notify the financial secretary of the Local Union of the name and hiring date of the employee. 5. The Union shall comply with all obligations under federal law and adopt appropriate procedures for members and non- 3 members with respect to union security and dues checkoff. The Union shall defend, indemnify, and hold the Employer harmless against any and all legal claims or actions relating to the union security and dues checkoff provisions of this Agreement. "IN WITNESS WHEREOF I have hereunto set my hand and seal this ___ day of _____. ___________________________________ (SEAL) Employee's Signature ___________________________________ Witness Section 3. Probationary Period . In order to secure the increased production which will result from greater harmony between workers and employers in the interest of increased cooperation between Union and Management, which cannot exist without a stable and responsible Union, the parties hereto agree as follows: A probationary period of sixty working days (60 working days) is established for all new employees. During this probationary period, all new employees shall be judged for aptness and fitness for employment and only at the end of this period shall they exercise any seniority rights. There will be a joint Union/Company advisory committee formed to review the performance of probationary employees in the skilled trades area. ARTICLE IV GRIEVANCE AND ARBITRATION PROCEDURE Section 1. First Step: Any aggrieved employee shall, with or without the Department Steward, present their grievance at any time to their foreperson, provided such grievance does not affect other employees. 4 Section 2. Current Grievances: Only current grievances may be submitted to the grievance procedure. A grievance submitted fifteen (15) working days after the date of the grievance arose shall not be deemed current. Section 3. Second Step, Etc.: All grievances and complaints not settled by application of Section 1 above, shall be presented through the Union in the following order: First: By the chief shop steward to the department Foreperson. Second: By the employee accompanied by the chief shop steward to Human Resources. Grievances or complaints submitted to Human Resources must be reduced to writing and signed by the aggrieved employee if the grievance is individual and does not affect others or signed by the chief shop steward if affecting a group of two or more employees. Grievances submitted to the Human Resources Department must be answered within five working days following submission. Third: By the bargaining committee to top management or its designated representatives. Fourth: In the case of a grievance or grievances which concern more than one department, the bargaining committee shall take the matter up directly with top management or its designated representative. Fifth: Any grievance by the Company shall be submitted directly to the bargaining committee by top management or its designated representatives. Sixth: Any grievance not appealed within five (5) working days after answer, if given in the preceding step, shall be deemed settled and further appeal waived. Seventh: Any grievance involving a discharge must be presented to the Company in writing within five (5) successive working days after discharge. If it is determined that such employee was unjustly discharged they will be reinstated without loss of seniority and with back pay less the aggregate of any compensation received during the period of the discharge. The union will be notified in writing with reason at the time of either suspension or discharge. On any discharge the Company 5 shall meet with the Bargaining Committee if requested within one working day after the request. Eighth: Should the Company and the Union fail to settle a grievance, either party may, not later than thirty (30) days after submission of said grievance under this Section 3, refer said grievance to arbitration by notifying the other party in writing setting forth in detail the matter to be arbitrated. If a monthly Union Bargaining Committee/Company meeting (Step #3) is not held within 30 days of the date of the written grievance, then any grievance except discharge, shall remain open until the next Union Bargaining Committee/Company meeting. Discharge grievances shall be handled within contractual time limits unless extended per Article 3, Section 5. Within five (5) days after receipt of notice to arbitrate, the parties shall jointly request the American Arbitration Association to submit a panel of five names from which the parties will make a selection of one arbitrator in the following manner: The Union shall strike out two names and the Company shall strike out two names, and the one remaining shall be designated as the arbitrator and the arbitrators decision shall be binding upon all parties. Costs associated with the selection of the arbitrator shall be paid by the Company. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association then applicable insofar as such rules are not inconsistent with the provisions of this Agreement. All cost and expenses of arbitration shall be paid in equal proportions by the Union and the Company. The only grievances which may be submitted for arbitration are those confined to the meaning and interpretation of this agreement, and the Arbitrator may only rule on the specific issue or issues presented to it. The Arbitrator shall have no authority to rule on any questions not specifically covered by this Agreement and they shall not add to, subtract from or otherwise modify the terms of the Agreement. The terms of any contract or agreement to be entered into upon the termination, expiration, renewal or reopening of this agreement or the terms of any insurance pension or welfare agreement entered into by the Company and the Provider of the 6 benefits will not be arbitrated. The determination of a general wage increase or general wage decrease or general hours of work will not be arbitrated. Section 4. Time Extension Grievances in connection with an indefinite layoff must be presented within 24 hours. Grievances in connection with a recall following the layoff must be presented within 48 hours. Section 5. Time Extension Agreement The parties may upon mutual consent extend the time limit specified in any of the above steps of the grievance and arbitration procedure. Section 6. Meeting Arrangement Meetings between the Company and the Union will be held at mutually agreeable times. Section 7. Interruption of Work In the event there is an interruption in plant operations because of a strike, slow down, picketing or other action in violation of this Agreement, no arbitration procedure shall be instigated or continued regarding the dispute that caused the interruption until such time as the interruption has been terminated. Section 8. Union Representation The Union shall designate to the Company the representatives which are to represent the Union in the presentation of any grievance. It is understood that said representatives shall have the right to bring into the conference with top management the aggrieved person or persons and a representative of the international union. ARTICLE V HOURS OF WORK, OVERTIME PAY, HOLIDAY PAY Section 1. Regular Work Week (a) The regular work week shall begin at 11:00 P.M. Sunday and ending at 11:00 P.M. the following Sunday, and shall be continuous except for recognized or agreed holidays. This shall not be construed so as to prevent 7 adjustment of schedules of firepersons and general help employees for the purpose of getting their assistance on production jobs. (b) Eight hours shall constitute a regular day's work and five days shall constitute a regular week's work. All hours in any one day shall be consecutive except a lunch period shall be provided of not less than thirty minutes nor more than one hour. All work days shall be consecutive except in case of breakdown, shortage of stock, damage from storm or other emergency over which the Company has no control or except by weeks broken by recognized holidays, unless otherwise agreed by the Union and Company. (c) It is agreed that the time for starting of the employees' shift may be changed at any time by the Company. However, employees shall be given twenty-four (24) hours' notice in cases where regular starting hours are changed. It is understood that the present working hours will be maintained insofar as possible. (d) The Company will try to maintain a forty (40) hour week as far as it is practical to maintain. In case the hours are to be reduced, a twenty-four (24) hour's advance notice will be given. Section 2. Overtime (a) Any time work in excess of eight hours in any one day or forty (40) in any one week, shall be paid at the rate of time and one-half. (b) Time and one-half compensation shall be paid for work performed on any Saturday worked in any regularly scheduled work week, regardless of the total number of hours worked the preceding five days, provided, however, that the employee affected has not had an unexcused absence during the work week. When the third shift work week begins at 11:00 P.M. Monday, the hours worked on the shift beginning 11:00 P.M. Friday, will not be counted as Saturday in that week for the purpose of paying overtime. Third shift regular hours on Sunday will not be considered overtime. (c) Time and one-half will not be paid for hours worked in excess of eight, when the hours worked were caused by a permanent shift change for employee's convenience. 8 (d) All Sunday work shall be paid for at the rate of double time. The present boilerperson's schedule will be maintained as is (Monday through Friday). Boilerpersons will be paid the appropriate overtime rate for Saturday, Sunday and Holiday work. (e) Time lost by a designated Union Representative during his regular shift for authorized union business, shall be considered as hours worked for the purpose of computing overtime payment. Section 3. Overtime Distribution (a) Overtime (includes double time and triple time pay) will be distributed as equally as possible among employees who are qualified and who want overtime work in the following manner: (1) To the employee on their own job which overtime is required. All hours worked or refused will be accounted for. (2) To the employee who has signed the voluntary department overtime sheet. Said overtime sheet will be posted on the 15th day of the last month of the quarter. An employee may remove their name from the list at anytime by informing their foreperson. An employee may add their name only while the overtime sheet is posted (except for employees called back from layoff, returned from leave or transferred from another department). (3) When a department has need for overtime help and if it cannot fill its requirements from its own overtime lists, then the overtime lists of other departments may be used, based on the similarity of the work involved. Offer or work outside home department will be charged. (4) Overtime charts will be posted within the department weekly. (5) In the application of paragraph one where overtime is assigned to the wrong employee, the Company, when notified of the error, shall pay the affected employee equivalent wages for the overtime 9 lost. Overtime will not be paid when the proper employee wasn't available when the overtime was assigned. (b) In the event of Saturday overtime the Company reserves the right to combine operations of less than 4 hours within the department. (c) Those employees who voluntarily accept Saturday overtime must notify the Company prior to the overtime if they cannot work the overtime, or they will be given an unexcused absence, unless they provide a legitimate reason why they could not notify the Company. If they don't show up and did not have a legitimate reason, they will be ineligible for overtime for two (2) Saturdays. (d) If an employee is scheduled by the Company to work overtime, by starting work before their normal starting time, and if for reasons within the control of the Company, the employee is sent home before the end of their normal shift (and not offered other work) then the employee will be paid time and one half for the period of time worked prior to their normal starting time. (6.) All overtime hours worked for each employee will be charged and recorded. Employee overtime accounts will start over every calendar quarter (3 months). Section 4. Holiday Pay (a) The Company recognizes the following holidays: New Year's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, the day after Thanksgiving, Christmas Day, the day before Christmas, and December 31, the day before New Year's Day, and one floating holiday. The date for the floating holiday to be mutually agreed to between the Company, and the Union Bargaining Committee on a yearly basis. When Christmas or New Year's Day falls on Sunday or Monday, the one-day Holiday before Christmas and the one-day holiday before New Year's Day shall be considered the Friday preceding Christmas or New Year's Day and shall be observed on said Friday. All employees who work on 10 above Holidays will be paid holiday pay plus earnings accumulated for that day at the rate of double time. (b) Any employee shall be paid for holidays listed in Section 4 provided: 1. The Employee has completed their probationary period as of the date of the holiday and worked their last scheduled shift immediately prior to, and their first scheduled shift immediately following such holiday. 2. An employee who is laid off for lack of work within ten (10) working days prior to a holiday, or is called back from lay-off within five (5) working days of the holiday will receive holiday pay provided they work their last scheduled shift prior to said holiday. 3. An employee who is out for sickness (Doctor's Slip) and has worked within ten (10) working days prior to or ten (10) working days after the holiday will receive holiday pay on an approved sick leave (Doctor's Slip). The holiday will not be counted in the count of ten. 4. Any employee who is out on a leave of absence or not on approved sick leave, or who did not work their last scheduled shift prior to, or their first scheduled shift following a holiday is not eligible for holiday pay. 5. Any active employee who is required to go on active duty in a military reserve or National Guard training period will receive holiday pay if a holiday falls during the training period provided that they make proper application to the Company and work the scheduled work day prior to and the scheduled work day following the training period and providing further that such training period is not less than two consecutive weeks or more than four weeks in any year. 6. An employee who can give sufficient proof that there has been a death in their immediate family 11 which necessitated them to be out the day before or the day after and returns to work within ten (10) days after date of funeral shall receive holiday pay. By "immediate family" is meant, father and mother of the employee and father and mother of the wife or husband of the employee, sons and daughters of the employee, and spouse, brothers and sisters and grandchildren, step-brother, step-sister, sons-in-law, daughters-in-law, step-mother, step-fathers, grandparents, and dependents who live in the household of the employees. 7. If any of the above holidays fall within the vacation period, an employee will receive holiday pay, provided they worked their last scheduled shift prior to said vacation period and their first scheduled shift following the end of the vacation period. 8. If a holiday falls within a planned vacation shutdown, the Company and the Union Bargaining Committee can by mutual agreement transfer that holiday to a different date; exceptions can be made, by mutual agreement. 9. Any employee who has been injured in the plant and is out on compensation shall receive holiday pay. 10. Holiday pay shall be computed as follows: All employees shall receive eight (8) hours' pay based on their average hourly earnings (exclusive of overtime) for the weekly payroll period ending prior to the holiday. 11. An employee who has accepted a holiday work assignment and then fails to report and perform such work without reasonable cause acceptable to the management shall not receive pay for the holiday. 12. Hours not worked on any of the eleven (11) designated holidays, but compensated under the holiday provision shall be considered as hours of work when computing overtime in excess of forty (40) 12 hours per week providing such holidays fall within the first five (5) days of the work week. ARTICLE VI WAGES Section 1. Incentive Emissions (a) Under certain conditions, experienced employees normally working on an incentive operation may be limited for temporary periods in their opportunity to maintain their normal incentive earnings. Whenever employees continue to put forth additional effort for which incentive payment is designed to compensate, they shall be paid as provided herein. (b) In the event of absenteeism or unexpected openings, the Company will fill the job openings in the following order: 1. (a) By the most senior qualified employee without a job (on the floor) provided that the employee is not the only qualified employee for another unfilled job. (b) By an employee without a job (on the floor) with previous satisfactory experience. 2. By the most senior qualified volunteer with a job. These volunteer employees will be paid their average pay or the rate of the job, whichever is higher, plus $.20 per hour. 3. If items No. 1 and No. 2 have not filled the open job, the Company will temporarily transfer the least senior qualified employee (by department or plant wide). The transferred employee will be paid their average wage or the rate of the job, whichever is higher, plus $.20 per hour. The employees involved in this provision No. 3 can be transferred no more than 8 working days in a twenty day period or not more than 5 consecutive working days within a 20 working day period or no more than 20 working days within a 120 working day period. When an employee is temporarily transferred by provision No. 3 to another department, the Union Shop Steward will be notified. Any exceptions required for Item No. 1 through 3 can 13 be mutually agreed between the Company and the Union Bargaining Committee. (c) If a Unit is shut down by the Company to allow for the transfer of a member of that unit to another job to fill in for absenteeism, the unit thus shut down by such transfer will receive their average hourly earnings, for the period of shutdown. (d) If an employee is assigned to a different job due to lack of work, they shall receive the rate of pay in effect on the job assigned to them. (e) Payment for Lost Time will be made in the following manner: their average rate not less than 16 percent over base nor more than 30 percent over base. It is understood and agreed that an employee who experiences any of the delays mentioned above, must notify their forepersons immediately when such delay period begins and ends as a condition to their receiving their wage allowance. The Company reserves the right to utilize lost time with work wherever practicable. Lost time due directly to work stoppage, slow down or strikes with the plant shall not be paid for by the Company. (f) All employees who are currently being paid incentive wages and who bid for jobs which presently are not incentive, will receive 120 percent of the base rate of that job until new incentives are set or it is determined that the job shall be a day work job in which event day work rates only shall be paid. While this rate is being established, all employees on this job will be paid in a like manner. This has no bearing on incentive workers who accept regular day work jobs. Section 2. Incentive Standards (a) When new jobs are developed, old jobs revised, or jobs are consolidated, the Industrial Engineering Department will take time studies, and evaluate the jobs to determine whether the job will be on an incentive basis or fixed rate. When new or revised jobs are being established, the company's job evaluation procedure will be used. The Union has a right to review and challenge the new rate within 60 days. 14 Each party shall have five (5) evaluators on their job evaluation committee. The parties agree to continue the current job evaluation process in which each committee's high and low score is disregarded. Grievances challenging a rate established through the job evaluation procedure shall be resolved as follows: 1. The parties' job evaluation committees shall meet and review each factor of the disputed job to determine the areas of disagreement. 2. The job evaluation committees shall pursue resolution for each disputed factor. 3. In the event the job evaluation committees are unable to agree at which degree each disputed factor should be evaluated, the parties agree to engage a mutually agreeable third party selected for their ability to evaluate jobs. 4. The third party shall mediate the differences on the disputed factor only. 5. In the event the third party is unable to obtain agreement between the committees through mediation, the third party shall serve as arbitrator and render a final and binding decision as to which degree each disputed factor shall be evaluated. 6. The scope of the third party's authority shall be limited to selecting either party's position on each (as opposed to all) of the disputed factors. The cost of the third party shall be shared equally by the parties to this agreement. 15 Employees shall be encouraged to develop a natural job rotation. When consolidating jobs or developing new ones, the company may elect to use a temporary rate not to exceed six months. When a permanent rate has been developed, the company will make up any difference, if the rate is higher than the temporary rate. If the rate is lower, the new rate will become the rate of pay. Temporary rates can not be grieved. (b) When a piecework rate is instituted, the union will be advised in writing of the standard for load factors for each operator. It is understood in the event of only partial loading, the realignment job duties may be made to more fully utilize the employee's work day. In the event of such realignment, the union will be notified in writing, of this change. In all cases, time study records will be made available in writing to the Union if requested. (c) It is agreed that present incentive standards on a job will not be changed unless there is a change in the elements resulting from such things as a change in method, material, operation or equipment on such job. Then the incentive standard shall be increased or decreased only to the extent of such changes in the element or elements. When piecework jobs are revised, existing elemental time may not be combined with other elements except by mutual consent and only when the time is too small to read using acceptable time study standards. If changes are made, the employees so affected may exercise their seniority rights after a 3 day trial period. (d) When a job content change is made, the union will be notified in writing, specifying the change made. In such event the Company will endeavor to install piecework rates covering this change, as in accordance with Section 2.(c) within 60 days following such change. In the event of intermittent jobs, the Company would install a piecework rate within 60 days of actual operation of the intermittent job. This period may be extended because of extenuating circumstances by mutual agreement. 16 (1) When a job content is changed and it affects the peak load, the persons affected will be paid their average pay until the new rate is set. (2) Employees currently working on incentive operations undergoing construction or method change will be guaranteed their average wage until new piece work rates are set. (e) When new or revised jobs are studied and incentive standards are set, an average qualified operator working at a normal incentive pace shall have the opportunity of earning twenty-five percent (25%) over the established base rate for the actual hours worked on incentive. This paragraph is a guarantee of earnings opportunity only and shall not in any way be construed as to the amount or rate of piecework earnings. It is understood that employee's performance will vary with effort and proficiency and some will perform at greater than the above percentage and some at less. (f) When new incentive rates are established, the only guarantee is the base rate of the operation. A protest period of six days will begin after a 6 day trial period. If protested during this time and an adjustment is made it will be made retroactive to the date the new rates were set. If a protest is made after the six day period and an adjustment is made it will be retroactive to the date the protest was filed. If not protested within six (6) days after trial period, the rate will be considered as acceptable provided all elements of the job remain unchanged. If the jobs are not on for the full six days after the rate is set, the days will be accumulated and the union can use these days in the six day trial period when the job appears on the schedule again. In the event of a grievance concerning new or changed rates, the Company will excuse the Local Union Time Study person from their job at mutually convenient times to time study the job or jobs in question. (g) All rates shall be available to workers on their respective jobs. Any new rates not in the department at time 17 employees start to work shall not be in effect until the next day. (h) Average hourly earnings will be determined in the following manner: 1. Dayworker - Daywork rate. 2. Combination Daywork-Piecework - All daywork hours and piecework hours with all cards having more than 10 percent downtime excluded. 3. Pieceworkers - All time worked with cards having more than 10 percent downtime excluded. All calculations will be made on cards from the previous week that contain no more than 10 percent downtime. In those instances where a rate is being protested, the calculation will be made on the week immediately prior to the week in which the rate was effective. Section 3. Miscellaneous Wage Policies (a) Any employee who reports for work and is willing and able to perform any work assigned to him but is sent home because no work is available, shall be paid four (4) hours' time at his average pay unless such employee has been previously notified not to report for duty. This shall not apply if such lack of work is beyond the control of the Company. Lack of work will be defined as follows: Major electrical, or mechanical failures, floods, snowstorms, etc., affecting the majority of the operations of the plant. If the employee has started to work, such employee shall be paid four (4) hours' time at his average pay provided such employee shall perform such work as may be assigned to them. In the event an employee lays off without notice for any cause, said employee shall not be entitled to resume work except on a call in to the Company before 1:30 P.M. the day prior to resuming work. However, if employee fails to call in and reports to work, the foreperson will place worker on job if work is available, otherwise employee will be sent home. Employees scheduled on 2nd and 3rd shifts will be expected where possible to report off 3 hours prior to their scheduled starting time. In any event, employees are expected to report off by notice to the Human Resources Department. 18 (b) A job will be held for tardy employees for one hour after their normal shift starting time, provided they call prior to the start of the shift. (c) All production employees, except maintenance, who are called back to work after completing their scheduled day's work, and have left the plant, shall be paid a minimum of four (4) hours at a base rate of the job. Time and one half shall be paid for hours actually worked over eight hours. (d) Maintenance employees who are called back after completing their scheduled day's work and have left the plant, shall be paid a minimum of three (3) hours at straight time for each call back. Time and one half shall be paid for hours actually worked over eight hours. Maintenance employees who are called in on days they are not scheduled, will be paid a minimum of four (4) hours. (e) In the event of industrial accident, an employee will receive immediate medical attention. An employee with time lost while receiving medical care for an industrial accident will receive make up pay for the day of the accident for his full eight (8) hours at average hourly earnings. Any subsequent visits for further medical attention in connection with this Industrial Accident will be compensated for at the employees average hourly earnings. Each employee should attempt to make their additional visits as near to the end of their shift as possible. (f) Any employee who starts work on the second shift, shall be paid twenty cents ($.20) per hour additional shift differential. (g) Any employee who starts to work on the third shift shall be paid twenty-five cents ($.25) per hour additional shift differential. The shift schedule will be designated by the Company and notification will be given to the Union. (h) Differential will be paid for overtime hours directly involved with regular scheduled second or third shift operations. Differential will be paid if overtime hours are for four (4) or more hours. 19 Section 4. Wage Increase The following wage increases will be "placed on the outside": Wage Increase 9/14/1998 9/13/1999 9/11/2000 0.15/hr. 0.10/hr. 0.10/hr. ARTICLE VII SENIORITY Section 1. Departments Seniority shall be according to the departments as now established and as follows: 10. Mixing, Milling and Calendering. 11. Gum and Fabric Cutting. 16. Quarter and Stitching. 60. Shoe Making. 20. Last and Lacquer, Stripping and Vulcanizing. 14. Inspecting, Cartoning and Packing. 19. Shipping. 17. General Plant. 18. Engineering and Power Plant. 24. Plastics. Seniority rights begin as of last entry into respective departments and such rights hold only in the respective departments except as hereafter set forth. Section 2. Master Seniority List The Company will maintain a copy of the master (plant wide) seniority list, with one copy given to the Shop Steward. The Company will maintain copies of the department seniority lists and will furnish copies to the Foreperson. These copies will be available for inspection by employees, and these copies will be posted and will be subject to correction only in case of typographical error. 20 The master seniority list will be posted in the following group departments: Mill and Fabric Cutting, Gum Cutting, Quarter and Stitching, Shoe Room, Last and Lacquer, Packing, Maintenance, Shipping and Plastics. Section 3. Qualifications In the operation of all seniority provisions in this contract, these qualifications shall be considered namely: 1. Length of service. 2. Skill. 3. Ability. Length of service shall control in all cases as between employees, unless one of the employees clearly has greater skill and ability than the other, in which case the employee with such clearly greater skill and ability may be given preference over the other employee. Skill and ability shall be based upon a standard production of quality work within a standard production day. Section 4. Employee Placement Every effort will be made to place employees on jobs for which they are qualified in line with their seniority. In the event an employee is or has been assigned to any job and such employee believes that the assignment is unjust, they shall perform the job assigned to the best of their ability. However, upon making a complaint the department steward and department forepersons shall immediately undertake to satisfactorily settle the complaint. Upon failure to satisfactorily settle the complaint, Human Resources and the Chief Steward shall immediately undertake to resolve the complaint satisfactorily before referring it to the regular grievance procedure. Section 5. Job Openings When new jobs or vacancies occur they will be posted if they are scheduled for more than 5 days. All job postings will be up by 11:00 A.M. and remain up until 3:00 P.M. the following work day. Senior employees who have applied shall be given first consideration in selection of such jobs or vacancies. It is understood that such jobs or vacancies may be temporarily filled pending permanent assignment. 21 Job postings will be filled in the following manner: (a) By the successful bidder. (b) In the event of no bidder, by a qualified employee without a job. (c) If an unfilled job posting cannot be filled by a qualified person without a job then the least senior employee with previous satisfactory experience, whose job can be filled by a qualified person without a job, will be assigned to train the least senior employee that is without a job for a period of up to 10 working days. These employees will be paid the rate of the job or their previous average, whichever is greater. (d) If there is no qualified employee available, employees who have transferred departments and have special skills may be assigned work to use their skills for a short duration not to exceed 25 work days in a 6 month period. Employees so transferred will get the rate of the job or their average earnings, whatever is higher, plus $.30/hr. providing the employee is making an adequate effort to maintain average efficiency and quality. (e) In the event of a shift change, by the least senior employee in that department that is without a job. An employee will leave for their new job when a trained replacement is available. The maximum time allowed to get a trained replacement will be five (5) working days in all departments except in the Cutting, Mill, and Pedatainer Carton Unit in Packing which will be 7 days; Leather Sewing will be 20 days and Wader Production 30 days. Those so affected will be paid average or the rate of the job, whichever is higher. Employees on jobs requiring 6 or more days training, who have abnormal absenteeism records, may after reasonable counseling and at least one written warning, be assigned work until they have demonstrated for at least 3 calendar months, the ability to be at work the same as an average employee. (For purposes of this provision only, abnormal absenteeism shall mean at least 30 days absence from 8 different occasions within a 1 year period.) 22 When an employee has established themselves on a job in accordance with the above procedure, they shall not be removed from that job except upon their own request, or upon permanent elimination of the job, except as otherwise provided for in this contract. The Company will provide 24 hours written notice to employees whose jobs will be eliminated. Employees who are not given 24 hours notice will be paid 8 hours at their average hourly earnings, provided they work. Employees whose jobs are eliminated for any reason must apply themselves to another job within twenty-four (24) hours after their jobs are terminated. In the event that it is impossible to make application to the new job within twenty-four (24) hours, such application must be made as soon as possible. An employee who fails to make application shall be placed on any job available or sent home pending permanent assignment. These employees may be assigned work in another department on a temporary basis. Employees with seniority will have unlimited job bidding rights (postings) provided they have had previous satisfactory experience on the job they are applying for. Employees with seniority will have unlimited bumping rights if (1) their job is eliminated, (2) they are bumped or (3) if the job move is caused by sickness or accident, providing they have had previous satisfactory experience on the job they are applying for. Employees whose jobs have been eliminated, due to a category change, will be given their option, by seniority, to exercise their job movement rights or stay within their making unit. Job categories are attached and are a part of this agreement but are subject to revision and change from time to time upon mutual consent of the parties. All employees may sign job postings for which they are not experienced and wish to be trained. The number of trainees, per this section, will not exceed two (2) per schedule, per department except that the Mixing, Milling and Calendering Department and Fabric Cutting Department will not exceed three (3) per schedule and the Shoe Making Department will not exceed 23 five (5) per schedule. Employees with previous satisfactory experience on a job will be given up to 2 working days to refamiliarize themselves with the elements of the job. Section 6 - Shift Preference Employees shall be allowed to align shifts according to departments. Procedures will be followed as listed below: Manufacturing & Distribution o Two shift change alignments per calendar year. o All alignments must be within their home department. o May be exercised on people who have less seniority. o The shift change will not take affect until ten days after the notice is submitted and will take affect at the beginning of the following workweek. The ten days maybe extended upon mutual agreement for operational needs. Maintenance o Two shift change alignments per calendar year. o All alignments must be within their home department. o May be exercised on people who have less seniority. o The shift change will not take affect until ten days after the notice is submitted and will take affect at the beginning of the following workweek. The ten days maybe extended upon mutual agreement for operational needs. o Exception to the ten-day notice would be for the training and orientation of new employees who can be held until they complete the following schedule: o Training and orientation: Grade 1 & Master - 20 working days 24 Grades 2-3 - 40 working days Grade 4 - 60 working days Helper - 60 working days o Grades 1 - 4 may displace one grade up or one grade down. o Masters may only displace Masters. o Helpers may only displace Helpers. o Management shall determine maintenance labor grade level shift needs. If after posting, the position remains unfilled the least senior employee in the labor grade or adjacent labor grade shall be assigned the shift. (Electro-mechanical and Maintenance Machinist shall be considered separate classifications for this provision until such time as the number of employees in either classification falls below five.) Section 7. Transfers 1. Requested transfers from one department to another by employees who are full time permanent employees (except those on leave of absence) shall be done in the following manner: a. Employees shall sign the requested transfer slip and return it to Human Resources where the transfer list will be maintained. b. Employees shall be given the opportunity of a 1st and 2nd choice of departments. c. Requested transfers will be effective for the balance of the year in which signed, plus one year. d. Transferred employees will carry their full seniority and retain no further seniority in the department from which they transfer. This provision will be retroactive to cover any previously made transfers. 25 e. Employees may change their departmental preference on the transfer list twice in regard to paragraph 1.c. 2. When there is a permanent opening in a department caused through death, discharge, quit, retirement, hiring new employees, or new machinery, the first requested employee (plant seniority) who requested a transfer to this department will be given the opportunity to fill the opening. (Openings created by personal leaves, sick leaves, military leaves, and time lost by union personnel shall not be considered a permanent opening.) New Machinery means a new process. It does not include replacement or modification of current equipment or additions of the same or similar equipment already in use. a. Transferred employees must attain satisfactory quality and efficiency standards within a reasonable training period. If the employee is disqualified by the above sentence, they will return to their previous department by replacing the least senior employee in that department, but will carry their full seniority. b. Transfers shall be based on date and time of request. If this employee turns the job down, the next oldest request, and so on, until the list is exhausted or the opening is filled. c. Employees turning down their first and second choice transfers must wait one year from date of refusal before signing job transfer slips. Employees transferring to a department which they have had previous experience shall be allowed to use their seniority rights to sign or bump for a job. However, such employees who exercise their seniority shall not be allowed to use the provision of #3. 3. Employees may elect to return to their previous home department within ten (10) working days. The employee will replace the least senior employee in that department. The next senior employee on the transfer list shall be given the opportunity to fill this opening. 26 4. A person can make one transfer per year. Items No. 2(a) and No. 3 shall be considered a transfer. 5. Employees who have completed more than one year of their skilled trades apprenticeship program can request a job transfer, but such transfer will not be valid until one year after such transfer is requested. The one year waiting period may be waived upon mutual agreement between both the Company and the Union. 6. Female employees will be given the opportunity for at least 50 percent of the job openings in the skilled trades apprenticeship program. 7. The employee must have more than 12 months seniority to be eligible for a transfer request. 8. The open job created by a requested transfer shall be posted and filled as provided for in the present contract. 9. Requested transfers must be on file in the Human Resources Office for 60 calendar days before they become valid. 10. The department to which the employee is transferred is considered the employee's "home department" if the employee accepts and qualifies for the job. Section 8. Interruption of Work Employees whose jobs are shut down or scheduled off for more than three days, but less than six days, will be given the option of exercising their job movement rights as per terms of this contract, electing temporary layoff, or accepting a temporary job. Employees accepting a temporary job will be paid the rate of the job or 130 percent of base rate, whichever is higher. This shall not apply to temporary production requirements or temporary lack of work, in which case employee may be assigned to a different job. The employees affected by such a temporary production requirement or temporary lack of work and so assigned shall be paid their average hourly earnings or the rate of the job to which they are assigned, whichever is the higher. When an employee is off work due to a medical leave, personal leave, leave for Union business, Military Reserve or National Guard training, trying a new job and vacations, they 27 will have their job filled on a temporary basis (up to a period of 2 weeks). Upon their return from such leave (within the temporary period), they shall return to their respective job if available. When an employee is off over 5 days due to a suspension, their job will be posted on a permanent basis. Upon their return, they may sign a job posting after which they follow the provisions of the contract. When an employee returns from sick leave or injury with a doctor's slip to do light work if available for a given time, and when the doctor O.K.'s employee to return to their regular job or comparable job, employee shall exercise his or her seniority. Employees who are on light duty work because of illness or injury and cannot find work in the home department can displace a less senior employee on a job that they are medically qualified for starting with the least senior employee plant wide. This employee cannot be replaced as long as they are medically restricted except by a more senior employee on light duty or a more senior employee being laid off when the medically restricted employee is the least senior in the plant. Section 9. Elimination of Departments In the event of a termination of a department or the transfer of jobs out of a department, the employees so affected in that department will be transferred to other departments into such jobs as they are qualified to handle, and will carry their established seniority into their new department. Section 10. Disability Transfers Employees who have given faithful service to the Company and who has become incapacitated on any operation due to injury, sickness or any cause not the result of misconduct of such employee, will be entitled to special consideration for lighter or more suitable work in any department and if transferred will carry their established seniority. Section 11. Temporary Layoff In the event of a temporary layoff no longer than one day in any one week caused by breakdown of equipment, shortages of raw materials or other matters beyond the control of the Company, only those affected by such conditions shall be so temporarily laid off. The Company will 28 make every effort in scheduling to maintain equal hours of work among the employees. Any employee who has accumulated a total of one day lost time in any one week, as a result of the operation of the above paragraph, will be given preference for overtime of other scheduling in order that an equality of hours and/or earnings can be maintained. Employees whose jobs are shut down or scheduled off for more than three days, but less than six days, may elect a temporary layoff in accordance with Section 8 of this Article. Section 12. Short Term Layoff (six months or less) If it is determined the layoff will be short term, employees in the department with less than one year of seniority will be first laid off. If such layoff exceeds the number of employees in the department with less than one year of seniority, the senior employees in the department may elect a voluntary layoff. An employee can take one voluntary layoff and voluntary return during the term of this contract unless there are voluntary layoff positions open, which no one wants. Total time off not to exceed 6 months, during the term of this contract unless at a later date voluntary layoff positions again open, and no one else wants a voluntary layoff. Employees recalled from voluntary layoff prior to completion of six months shall be allowed to elect voluntary layoff on any subsequent layoff. Any employee electing voluntary layoff must notify their department foreperson no later than 1:00 P.M. three days prior to the date of the layoff. Senior employees accepting a voluntary layoff would remain on the job until a satisfactory replacement has been trained. When an employee wants to return to work, they must give the Company four (4) week's notice. Once they give notice, they can not change it. Employee must be out on voluntary layoff before 29 they notify the Company of their intent to return to work. Employees returning can exercise their seniority. Employees electing to return to work from voluntary short-term layoff may be replaced on voluntary layoff by other eligible department employees provided the voluntary layoff positions do not exceed six months. Employees on voluntary layoff must return to work before the Company hires any new employees in their home department. Employees who do not return to work after notification of a job opening or expiration of the six (6) month layoff period will be considered a quit. Any voluntary laid off employee who returns to work by Company request, can subsequently use, if eligible, the remainder of the allowed maximum 6 month layoff period, per terms of this contract. If it is determined during any short term layoff that such layoff will exceed six months, employees on voluntary layoff from the department who have been on voluntary layoff in excess of two months will be returned to work and a regular layoff procedure will be instituted. If it is determined during any short term layoff that such layoff will exceed six months, employees on voluntary layoff from the department who have been on voluntary layoff less than two months shall upon completion of two months on voluntary layoff be returned to work and a regular layoff procedure will be instituted. When a short-term layoff is converted to a long-term layoff, it shall not be considered a new layoff unless additional positions are reduced. If additional positions are reduced employees shall be allowed to exercise their rights to select 30 voluntary layoff, but only with respect to the additional positions being reduced. Section 13. Regular Layoff and Long Term (six months or longer) Layoff If it is determined the layoff will be long term, employees in the department with less than one year of seniority will be first laid off. If such layoff exceeds the number of employees in the department with less than one year of seniority, the senior employees in the department may elect a voluntary layoff not to exceed two months. All time spent on voluntary layoff shall count towards that employees six months allowed on voluntary layoff under Section 11. With each layoff, management shall designate the number of positions that shall be considered short term and the number of positions that shall be considered long term. When a long-term layoff is converted during the first sixty days to a short-term layoff, the employee currently on the long-term voluntary layoff shall be given the option of converting to a short-term voluntary layoff. In the event of a layoff for the purpose of reducing the work force, a list of those to be laid off shall be posted in each department at least three days prior to the layoff and such layoff shall become effective at the end of the work shift on the day set forth in the notice or at the end of the work shift expiring three days after posting of such notice, whichever occurs later. The above three days notification requirement shall not apply where indefinite layoffs are caused by machinery breakdown, 31 act of God, or other emergency conditions beyond the control of the Company. Employees with the least seniority shall be the first to be laid off from the affected departments. 1. Employees being laid off may sign a job posting in any department (limit one posting bid/employee) consistent with the provisions of this contract or 2. Employees being laid off may displace a less senior employee, in any department, if they have previous satisfactory experience on that job or 3. Employees being laid off may elect to apply for transfer to any other department or departments and will be immediately eligible for subsequent job openings based on their seniority and the department transfer provisions of this contract. After all requests of laid off employees, made at the time of layoff, by those employees electing to transfer departments, have been honored, a department's layoff list will have first priority to fill subsequent openings in that department. 4. If no work is available under the forenamed provision (1, 2, and 3), then the employee will be laid off. 5. Management will displace the least senior employee in the plant with the most senior laid off employee who has elected to work elsewhere when the layoff is for an indefinite duration or will exceed 10 working days. The displacement procedure will be made in the shortest possible time but generally should not exceed 3 workdays per department per employee. 6. When a laid off employee elects to work only in a specific department or departments, their displacement procedure would apply when the specific department or departments of their choice has the least senior plant employee. 7. When the least senior employee has a job which will be eliminated in next month's schedule or the training 32 time exceeds 5 working days according to the category book, the next least senior employee in the plant will be displaced in the application of paragraph 5 and 6. Section 14. Home Department 1. The department to which the employee displaces a less senior employee or the department to which an employee is recalled to, shall be the employee's home department if the employee qualifies by attaining satisfactory quality and efficiency standards in a reasonable training period. If disqualified, they will either be asked by the Human Resources Department to work in another department or may be laid off. 2. Employees who replace the least senior employees in the plant or employees who elect to be recalled into another department will be returned to their original department if that department recalls or hires, and the job opening is not temporary. (Temporary means 20 work days or less.) 3. The employee after 10 working days, paragraphs 1 and 2, has the option to return to their original home department, if employee elects not to do so then the current department will become the home department. Section 15. Recall Seniority for employees who have not completed their probationary period and are recalled shall, upon completion of the probationary period, revert to the original date of hire. Employees with seniority shall have recall rights for a period equal to 1/2 their seniority, but no less than 48 months. Employees will be recalled to their home department according to seniority unless there is a valid reason for their not being able to perform the available job or jobs. A constant effort will be made to get the senior employee back to work. A copy of all call backs and comments of all call backs will be given to the union upon a reasonable request. Before any new 33 employees are hired, laid off employees shall fill open jobs unless they have a legitimate reason. 1. In the event of recall the Union shall be given a list of those intended to be recalled at least twenty-four (24) hours prior to recall. An employee shall be notified by telephone of the date they are to return. In the event Management is unable to contact the employee by telephone, a written notice shall be mailed to the employee not less than forty-eight (48) hours before resumption of work to the last address listed by said employee with the Company. A copy of said notice shall be delivered to or mailed to the Union at the time of mailing. If an employee fails to return following such notice, a second 48 hour notice shall be mailed and a copy provided to the Union. The Company shall have the right to call another available worker; provided, however, the person by passed shall have the right to return to work if they give the Company notice of their intention to return within twenty-four (24) hours of their receipt of notice. 2. In the event it is necessary to recall immediately from the laid off list because of a change in schedule, absenteeism, leave of absence, etc., employees will be recalled in line of seniority within their department. If it is impossible for the one with the greatest seniority to report for immediate work, the next in line shall be called. If a department has temporary need for employees, this department's employees on lay-off shall have priority to fill these temporary jobs (temporary means 20 work days or less). 3. Employees on voluntary layoff will be subject to recall to their home department in reverse order of seniority on three (3) days notice. In cases of production necessity, employees on voluntary layoff may be recalled out of line of seniority because of their skill and ability. Employees on voluntary layoff must return to work before the Company hires any new employees in their home department. Employees who have exhausted their six months or two months of voluntary layoff under the short term or long term layoff provision, may, at the conclusion of their 34 voluntary period, elect to move to the regular layoff list and await recall in accordance with their seniority. Section 16. Promotions Employees assigned a non-bargaining unit job, on a involuntary basis because of medical restrictions shall retain their union seniority. Employees accepting non-bargaining unit jobs, on a voluntary basis may return one time to their former department within a 30 day period. There will be no accumulation of seniority beyond the 30 day period. Management may return a non-bargaining unit employee to the bargaining unit within 12 months. Employees who have been out of the bargaining unit in excess of 12 months may not be returned. On return to the Bargaining Unit, said employees will return to their former department and will displace the least senior in the department. Exceptions by mutual agreement with the Union Bargaining Committee. There will be established a four-person committee (two from the Company and two from the Union) to investigate complaints concerning supervisors. Such four-person committee will meet within 7 calendar days following the Company receiving such a written complaint. The four person committee can request that both the employee and supervisor meet with the committee. This committee would obtain facts concerning any supervisory problems and report them to both the Union Committee and to Company Management. Section 17. Loss of Seniority An employee shall lose their seniority if: a. They quit. b. They are discharged for just cause. c. If an employee is absent four consecutive working days and fails to notify the Company as to the reason of absence. The employee will be given a chance to explain why they did not notify the Company. d. Failure to return from layoff. e. Failure to return from leave of absence. 35 f. Employees who are eligible for work but who are not working because of work restrictions must initiate a review of their potential job opportunities by a visit to the Human Resources Office at least once every 60 calendar days. The lack of a visit for a 120 calendar day period may be cause for termination unless WAIVED by mutual agreement. These employees will be notified by registered mail. 36 ARTICLE VIII LEAVE OF ABSENCE Section 1. Retention of Rights Employees given leave of absence by the Company will not lose any rights during such leave of absence except as otherwise set forth herein. Section 2. Eligibility for Leaves The Company shall grant leaves of absence in the following cases: (a) Maternity cases will be treated as any other illness. This will include the provision to grant a maternity leave for up to one year if circumstances so warrant. (b) Incapacitation by illness or injury. (c) Serving as full-time office of Local No. 14L, or as representatives of the International Union with which the Local is affiliated, where such office entails responsibilities in labor relations. (d) Full-time employees of the AFL-CIO-CLC Building Association (not to exceed two in number) for the duration of this agreement, but in no case to exceed two years. (e) Serving in political or public office, appointed or elective shall retain seniority during term of office. (f) To qualify for Civil Service positions, such leave being of same length of time as qualifying period specified by law for such positions, but not to exceed ninety (90) days. (g) A two week leave of absence will be granted to an employee in order to take a new job outside of the Company provided that prior approval and satisfactory arrangements have been made with the Human Resources Department. Upon returning from a leave of absence, employees must verify the taking of a new job or they will be considered a quit. An employee will be granted only one leave of absence in each three year period under this subparagraph (g). Section 3. Return From Leave In all cases leave of absence shall be granted and allowed only upon prior notice to the Company. In the event of illness or injury, any employee unable to report for work shall notify the Company as soon as possible, they do not need a leave of absence to retain their 37 rights. In case of absence for other causes, they must give satisfactory explanation acceptable to the Company. Employees granted a leave of absence shall be permitted to return to work before the expiration of such period, if agreeable to the Company. A person who requests an indefinite leave of absence for medical reasons and who has received a doctor's slip for such indefinite leave, will be granted a sixty day leave. Thereafter a written medical extension will be needed every thirty days, unless waived by mutual agreement. Section 4. Military Service Any employee who is called into service or in time of war or a state of emergency as per Selective Training Service Act volunteers their service in the Armed Forces of the United States shall be given a leave of absence and will continue to accumulate seniority during such period of service and upon termination of such service will be reinstated to their former position or to a position of like seniority status and pay, unless the Company's circumstances have so changed as to make it impossible or unreasonable to do so and providing, further that such employee makes application for reemployment within ninety (90) days after they are relieved from such training service. Any employee who is suffering from a service incurred disability may (in order to rehabilitate themselves) have an additional leave of absence of at least one year from date of discharge. ARTICLE IX SANITATION AND SAFETY Section 1. Reasonable Measures The employer agrees to adopt all reasonable measures to insure safe and sanitary conditions in the factory. The Union and Management agree to cooperate to that end. Section 2. Medical Care (a) In case of serious injury an employee shall have prompt medical attention by a qualified physician of their own choosing listed on the Physicians' panel 38 as published by the La Crosse County Medical Society. It shall not be necessary for the employee to secure an accident report before receiving medical attention, but such report shall be furnished the Company as soon as circumstances permit. (b) The Company shall make every effort to get an injured person to medical attention as soon as possible. (c) One employee shall be assigned from management and one employee from union to constitute a safety committee, which shall meet once a month (approximately two hours in the week prior to the local union's regular business meeting), in which they shall review and make recommendations for safety standards. Management and the Union may each assign alternate employees to the Safety Committee. (d) In the event of an accident which required medical emergency outside medical attention, the SafetyCommittee shall make a personal inspection of the equipment and area prior to the resumption of work. (e) In compliance with the Occupational Safety and Health Act of 1970, the Union will keep on file in the Personnel Office the name of their representative who will accompany the OSHA inspector during any of their plant tours. (f) During the term of this contract the Company and the Local Union Bargaining Committee may by mutual agreement develop and implement programs that strive to improve qualify, safety and attendance. (g) If an identified problem related to health and safety remains unresolved for more than 30 days, the Union may request the assistance of the USWA Industrial Hygiene Department, provided the Company is given 1 weeks notice prior to the request. 39 ARTICLE X MISCELLANEOUS Section 1. Replacing Tools The Company will pay the following amounts each year toward the replacement of broken or worn out tools for the following maintenance employees: Grade 4 technician to Master ($200.00), Apprentices $150.00, and Maintenance Helper $110.00. This will be paid on the first Friday in October. Tools purchased with these monies will be registered with the Maintenance Supervisor. During the next three years (October 1998 through October 2001) all Maintenance Personnel will be required to build their tool set to the basic required tools which includes those listed as metric. By the first day of November thereafter, each employee of the Machine Shop will be evaluated. At that time, they will be told what training or work experience will be provided in order to reach the next grade level. The Company will pay a bonus of $160.00 at the end of the employee apprenticeship period or promotion to Grade 4. Section 2. Clothing Provision The Company will provide a change of clothing each working day for the three compounders and banbury operators, rubber knife operator and upper calendar operators. The dirty clothing must be returned to the Company before new ones are issued. The Company will provide ten (10) T-shirts per year to each of the permanent full time calendar operators, extruder operators, millmen, and pedatainer carton machine operators. Eye glasses broken on the job if not covered under Workmen's Compensation will be replaced in kind at company expense upon application to either the Safety Department or the Plant Nurse. The glasses must be repaired with prescription Safety Lens to be eligible for this benefit. Prescription safety glasses will be replaced when broken, damaged on the job or for correction of eye sight, for those employees who are required to wear them. Section 3. Drinking Water Good, cool drinking water shall be furnished in sufficient quantities. Section 4. Union Posting A bulletin board shall be provided in each department for the use of the Union. All bulletins must be approved by the Company before posting. 40 Section 5. Supervisor Working The Company shall designate in writing who are supervisors. No supervisors are permitted to do any work. Work performed by supervisors who would take away employment from an employee or affect the employees' earnings in any manner is prohibited. The only work the supervisor can do is instruction, experimental work, or in case of extreme emergency (extreme emergency shall be defined as follows): 1. A. Absenteeism, the period of time not to exceed one hour at the beginning of each shift, unless the replacement is in route, then the time allowed will be extended 1/2 hours. B. Sickness, the period of time not to exceed one-half hour. C. Bathroom, telephone calls, nurses office, etc. 2. Absenteeism coverage by supervision will be paid to the called in employee, but not to the tardy employee. Instructors shall not do production or service work other than what is required for the teaching process. Section 6. Rest Period REST PERIOD SCHEDULE Work Time Min # Max # Total Time 8 Hours 2 3 25 10 Hours 3 4 30 12 Hours 4 5 37 The time between rest breaks shall be reasonable. The rest period time to be determined by management to eliminate lost production time and other conflicts. Employees on continuous operation will receive one (1) 10 minute paid break during the forepart of their shift, and an eighteen (18) minute paid lunch break. Section 7. Absenteeism It is the employee's responsibility to maintain regular attendance. Employees will be eligible for a bonus for perfect attendance and tardiness. The employee will earn a bonus of 1-1/3 hours per month for perfect 41 attendance and not being tardy. The bonus may be used in two hour increments and must be scheduled and approved in advance. Section 8. Suspension An individual who fails to report to their job following their lunch hour, without proper notification to their foreperson, plant nurse, or Human Resources Department shall be subject to the following disciplinary procedure. a. 1/2 day off - 1 week's suspension and a warning in the event of repetition, the next action would be discharge. b. 1-1/2 days off - 30 days suspension and a warning that in the event of a repeated violation, the result would be discharge. c. More than 1-1/2 days off - discharge. The Company will provide adequate means for reporting. Violation of a and b above not repeated within 9 months, will not be used in determining the penalty under this policy. Section 9. Jury Duty Employees who lose time from their regular shift hours due to required jury duty will be paid for such time lost at average pay less amount received for such required jury duty. Section 10. Funeral Pay In the event of the death of an employee's mother, father, child, spouse, brothers and sisters, step mother, step father, step brothers, step sisters, or step children, funeral pay will be awarded in the following manner: 1. Three consecutive working days will be paid for eight hours at the employee's straight time average hourly earnings. 2. Payment will be made for Saturday and Sunday at straight time average hourly earnings only in cases where the employee would have been scheduled to work. The day of the funeral will be paid for eight (8) hours at the employee's average hourly earnings for the following: grandparents, grandchildren, mother-in-law, father-in-law, son-in-law, daughter-in-law. If a funeral occurs during the vacation shutdown: 42 A. Employees ineligible for vacation pay will, upon proper notification, receive funeral pay in accordance with the current contract language (employees are not eligible for unemployment benefits when paid for funeral days). B. Employees eligible for vacation pay will be able to take three (3) additional paid days at the end of the annual vacation shut down. Section 11. Paid Meetings and Reimbursed Union Business a). The Company will pay 85% and the Union 15% of the cost of the contract books. b). The Company will pay for 24 hours per year for each member of the Local Union Bargaining Committee to cover union called meetings (not to exceed 7 members). c). There will be one member from Management and one member from the Union who will meet once every 2 months for 1 hour to review the apprenticeship training program. The Company will pay the one-hour for the Union Representative. d). Hours eligible for reimbursement by the Union are those additional hours incurred by Bargaining Committee Members, Union Stewards, Executive Board Members, Job Evaluation Committee Members, and other Union members who have Union approval due to special situations. The amount of time incurred by the above will not be more than has been normal and customary. e). The Union will reimburse the Company for all wages and benefits paid relating to "Reimbursed Union Business". This includes wages, 401K employer match, employer share of Medicare and FICA, associated vacation pay, overtime premium if incurred, and any other benefits, which may be incurred. f). The Company will provide the Union Bargaining Committee with a copy of the Master Insurance Policies. 43 g). The Company and the Union Bargaining Committee can mutually agree to special conditions that will facilitate new processes, products or special situations. h). The Company agrees to pay the Shop Steward one hour per day at their average pay. Section 12. Derogatory Notations The Company will remove and destroy all derogatory notations from an employee's file, if not repeated within a 12 month period, except for notations related to: - Substance Abuse. - Fighting. - Gross Insubordination (time off). - Sexual Harassment. - Work Place Discrimination. - Permanent Disqualification. The following items will be removed after a 24 month period: - Fighting. - Gross Insubordination (time off). ARTICLE XI VACATIONS/ANNIVERSARY PAY Section 1. Vacations (a) The general policy will continue to be that all employees will be paid their total vacation pay immediately prior to the annual summer shutdown. The vacation period shall be between June 15 and September 15 of each year. The exact date 44 shall be determined by negotiations between the Company and the Union. (b) An employee with one (1) through two (2) years service with the Company on May 31st of any year shall be entitled to one weeks' vacation with pay during the vacation period for such year. Pay for such vacation, shall be equal to 2 percent of the employee's earnings for the twelve month period ending May 31st of such year. (c) An employee with three (3) through six (6) years of service with the Company on May 31st of any year, shall be entitled to two (2) weeks' vacation with pay during the vacation period for such year. Pay for such vacation shall be equal to 4 percent of the employee's earnings for the twelve month period ending May 31st of such year. (d) An employee with seven (7) through eleven (11) years of service with the Company on May 31st of any year, shall be entitled to three (3) weeks' vacation with pay during the vacation period for such year. Pay for such vacation shall be equal to 6 percent of the employee's earnings for the twelve month period ending May 31st of such year. (e) An employee with twelve (12) through fifteen (15) years of service with the Company on May 31st of any year, shall be entitled to three and one half (3 1/2) weeks' vacation period for such year. Pay for such vacation shall be equal to 7 percent of the employee's earnings for the 12 month period ending May 31st of such year. (f) An employee with sixteen (16) through twenty-one (21) years of service with the Company on May 31st of any year, shall be entitled to four (4) weeks' vacation period for such year. Pay for such vacation shall be equal to 8 percent of the employee's earnings for the twelve month period ending May 31st of such year. (g) An employee with twenty-two (22) through twenty-nine (29) years of service with the Company on May 31st of any year, shall be entitled to five (5) weeks' vacation pay during the vacation period for such year. Pay for such vacation shall be equal to 10 percent of the employee's earnings for the twelve month period ending May 31st of such year. 45 (h) An employee with thirty (30) years of service with the Company on May 31st of any year, shall be entitled to six (6) week's vacation pay during the vacation period for such year. Pay for such vacation shall be equal to 12 percent of the employee's earnings for the twelve month period ending May 31st of such year. It is agreed, however, that the third, fourth, fifth, and sixth week of time off for employees with seven or more years of service shall be granted only if production necessities permit, or may be granted at the Company's discretion on a staggered basis, or if there is a plant shutdown, at the time of such shutdown. In any event, the vacation pay to which an employee with seven or more years of service is entitled under this section shall be paid to such employee on or before September 15th of the year in which they are entitled to receive such vacation pay, regardless of whether the third, fourth, fifth, and sixth weeks of time off has been granted or not. Employees with more than 3 weeks of vacation may take a maximum of ten (10) vacation days, one day at a time, providing prior and satisfactory mutual agreeable arrangements have been made. Section 2. Anniversary Pay Anniversary pay is to be based on an employee's anniversary date, as follows: An employee hired subsequent to May 31st in any year will be eligible to receive anniversary pay equal to 2 percent of their earnings from the date of their employment to the following May 31st. This amount shall be calculated for the employee on May 31st following their first anniversary date and shall be in addition to the regular vacation pay. In like manner, an employee will be eligible to receive anniversary pay equal to 2 percent of their earnings from their second anniversary to the following May 31st, and this amount shall be calculated on May 31st following their third anniversary. An employee will be eligible also to receive anniversary pay equal to 2 percent of their earnings from their sixth anniversary 46 date to the following May 31st, and this amount shall be calculated on May 31st following their seventh anniversary. An employee will be eligible also to receive anniversary pay equal to 1 percent of their earnings from their eleventh anniversary date to the following May 31st, and this amount shall be calculated on May 31st following their twelfth anniversary. An employee also will be eligible to receive anniversary pay equal to 1 percent of their earnings from their fifteenth anniversary date to the following May 31st and this amount shall be calculated on May 31st, following their sixteenth anniversary. An employee also will be eligible to receive anniversary pay equal to 2 percent of their earnings from their twenty-first anniversary date to the following May 31st and this amount shall be calculated on May 31st following their twenty-second anniversary. An employee also will be eligible to receive anniversary pay equal to 2 percent of their earnings from their twenty-ninth anniversary date to the following May 31st, and this amount shall be calculated on May 31st following their thirtieth anniversary. An employee retired under the Pension Plan or on leave or laid off and maintaining or accumulating service on the payable date above referred to will be paid their anniversary pay for which they are eligible. Employees retiring with less than 5 years of service will be eligible for accumulated vacation pay. The estate or the heirs of an employee who is eligible and who dies before the payable date will be paid their anniversary pay. An employee who quits or is discharged prior to the payable dates will be paid anniversary pay, or regular vacation pay. An employee who dies or retired (under the Company's Pension Plan) prior to May 31st is eligible to receive vacation pay for the year in which they die or retire. Payment for the vacation time shall be paid to the employee or their heirs. An employee who is on leave of absence or laid off, and is maintaining or accumulating service, is eligible for vacation pay. Employees who work during the summer shutdown period and employees with more than 3-1/2 weeks vacation pay may request to 47 their department foreperson 15 working days prior to the summer shutdown, that all or a portion of their vacation pay be held for distribution to them at a later date. Thereafter, they will receive their held vacation pay in minimum of one day increments by notifying their foreperson one week in advance of when they want their vacation pay. Vacation pay will be included in the employees regular paycheck following the vacation day. This exception to the general vacation pay policy will not apply if it would generate unemployment or workmens' compensation payments. CONCLUSION The Company and the Union agree that there shall be no lockouts, strikes, slowdowns, or other interferences with production during the life of this Agreement. In the event of any interference with production by individual employees or groups of employees, the local Union and the International Union, their officers, Stewards, and other representatives will immediately cooperate with the Company to their full effort and ability and take every possible means to correct the situation and to cause the employees to return or remain at work. In any such cases the Union recognizes the Company's right to take disciplinary action against any employee participating in such interference with production. In consideration of this agreement, the union, on behalf of themselves, their members, officers, agents, and representatives agree not to sue the Company, its officers or representatives, and the Company agrees not to sue the Union or their respective officers, agents, or representatives in any court of law or equity for any act or omission of the other party or its agents or representatives which occurs during the life of the Agreement. The parties agree to the principle that there will be no discrimination in regard to wage rates or working condition by reason of sex, color, race, veterans, handicap, religion or national origin. 48 It is further understood that where the masculine pronoun is used in this agreement, it shall refer to both genders. There shall be no wage reopening during the life of this Agreement. This Agreement shall become effective September 14, 1998, and shall remain in effect until 11:59 P.M., September 15, 2001. Thereafter it shall renew itself for yearly periods unless written notice is given by either party to the other not less than sixty (60) days but not more than seventy-five (75) days prior to the expiration date or any extension thereof that it is desired to terminate or amend the Agreement. Effective Date: September 14, 1998 LOCAL NO. 14L UNITED STEELWORKERS OF AMERICA /s/Harold Geary /s/Sue Ames Harold Geary Sue Ames President Secretary /s/Rita Christianson /s/Donna Coady Rita Christianson Donna Coady Bargaining Committee Bargaining Committee 49 /s/Randy Sharp /s/Thomas Sullivan Randy Sharp Thomas Sullivan Bargaining Committee Bargaining Committee /s/Karen Fisher /s/David Martin Karen Fisher David Martin Bargaining Committee International Rep. Countersigned at Pittsburgh, PA this _____________day of ________________, 1998. /s/George Becker /s/Leo Gerard George Becker Leo Gerard President Secretary-Treasurer /s/Richard Davis /s/Leon Lynch Richard Davis Leon Lynch Vice President Vice President 50 /s/Harry E. Lester Harry E. Lester District 2 Director LA CROSSE FOOTWEAR, INC. /s/Patrick Gantert /s/David Flaschberger Patrick Gantert David Flaschberger President & C.E.O. V.P. Human Resources /s/Edward F. Mettille /s/Ronald Dalton Edward F. Mettille Ronald Dalton Human Resources Manager V.P. Manufacturing 51 /s/Wayne Lorek /s/Darla Bingham Wayne Lorek Darla Bingham Plant Manager Payroll/Retirement Administrator 52 EXHIBIT 1 To: Local 14L Bargaining Committee As agreed during the 1980 contract negotiations, the Company and the Union Bargaining Committee will review and can mutually agree to increase base rates for certain key or critical jobs. LA CROSSE FOOTWEAR, INC. EXHIBIT 2 To: Local 14L Bargaining Committee In the event the Company proposes to terminate its total operations for economic reasons, not associated with the relationship between the Company and the Union, acts of God, or other events or factors beyond its control, the company will, in good faith, attempt to give the Union a six (6) month notice of such termination so as to allow the Union to suggest alternative remedies to such termination; provided, that neither said notice nor such suggestions will necessarily require the Company to continue its operations, extend said termination date, or accept any suggestion nor in any manner to effect its responsibilities and right to manage or terminate its business. This letter may not be used in any manner involving any dispute, whether in arbitration or otherwise arising under the Contract between the Company and the Union. LA CROSSE FOOTWEAR, INC. EXHIBIT 3 To: Local 14L Bargaining Committee Red Circling - Fixed Hourly Wage Rates We would "red circle" those employees who are currently working on jobs designated for "red circling" as long as they continue to demonstrate similar levels of performance (within 10% over a four week average and anything outside of an employee's 53 control would not be held against them). A six month average will be used to establish the "red circle" rate (1/1/95 - 6/30/95). An employee who is eliminated, bumped or is transferred because of a work related or non-work related injury/illness from his/her "red circled" job will be paid the rate of the job they go on and if they return to their original "red circled" job within a 12 month period, they once again will be paid the "red circle" hourly wage. Returning after a 12 month period would result in their being paid at the current hourly rate of the job. Employees who voluntarily sign off their "red circled" job will not be paid the "red circled" hourly rate if they return to the original "red circled" job. If an employee is place back on a job they have signed off from, refer to paragraph 2. The amount that an employee would be "red circled" at would be the efficiency the machine is capable of producing (if operation is machine controlled) or the employee's six month average hourly earnings, which ever is less unless other circumstances, issues or variables exist. If it can be determined the efficiency of the job/operation is inflated, the company will use the efficiency the machine or operation is capable of doing. An employee's "red circled" rate shall be increased by the amount of any general wage increase. The conversion from a piece rate to fixed rate system is intended to be accomplished by 9/30/96. LA CROSSE FOOTWEAR, INC. EXHIBIT 4 To: Local 14L Bargaining Committee 54 Drug and Alcohol Testing LaCrosse Footwear recognizes that the wide spread use of illegal drugs and abuse of alcohol in today's society poses a very serious problem. Since our employees are our most valuable resource and the safety and well-being of our employees and the general public are of paramount concern to us, we have developed a Substance Abuse Policy to help us contribute to the solution of this very difficult health and social problem. I. Voluntary Rehabilitation The Company/Union encourages employees who have a problem with substance abuse, including alcoholism, to come forward confidentially and work to resolve the problem before it leads to disciplinary action. Such employees will be evaluated by the Employee Assistance Program and are encouraged to comply with any recommendations of the program and successfully complete any recommended treatment and continue with an after-care program where recommended. II. Circumstances For Testing 1. Random testing will start 1/1/96. 2.5% of all LaCrosse Footwear employees will be tested annually divided over a 12 month period. 2. Accident/Injuries on the job. When there is a work related injury that requires outside medical attention, the health and safety department will determine whether testing is appropriate. In most cases, all involved in the accident/injury will be tested. 3. Probable Cause. As a means to detect probable cause as accurately as possible, training will be provided for both management and stewards to help detect probable cause situations. 4. Referral Agreement. In a probable cause situation, management and the appropriate steward are encouraged 55 to agree upon referral to the Safety Manager. If agreement cannot be reached, two members of management must agree upon referral to the Safety Manager. The Safety Manager or Company nurse may refer a probable cause case without any such agreement. The Chief Union Steward or Union President will be notified of all retests to Bargaining Unit members. III. Confidentiality The Company respects the confidentiality and privacy rights of all of its employees. Accordingly, the results of any tests administered under this policy or the identities of any employee participating in a rehabilitation program will not be revealed to anyone without the express written consent of the employee, except where otherwise privileged. Any employee desiring to obtain and/or review the results of any drug/alcohol screen required by the company of that employee may do so by making a written request for the same within sixty (60) days of the employee's receipt of the notification of the test results. All such requests must be in writing and signed by the employee tested. Any such request may only be made by the employee tested. IV. Drug/Alcohol Testing 1. Union/Management joint drawing for random testing. A. Split Samples 1. Urine test will be the testing method. 2. Independent testing at employee's expense for a second opinion. 3. If the second test is negative, the employee will be given the benefit of the doubt and reimbursement for the test. B. Drug/Alcohol Levels 1. Certified standards for minimum levels. a. Alcohol - .10 56 b. Drugs - Federal Standards. C. Employees will be paid for lost time when testing. D. To offset the feelings of invasion of privacy, those randomly tested will receive a $50.00 bonus if tested negative. V. Discipline 1. Refusal will be treated as an offense. 2. First Offense - Discharge or treatment (employee's choice). 3. Second Offense - Discharge (if within 3 years). If not within 3 years, it will be considered, on a one time basis, a first offense. VI. Rehabilitation 1. If after evaluation by the Company-approved program, following an employee's positive test result, the program representative determines that treatment is required, a medical leave of absence will be granted pending proof of the following: (1) admission into the program; (2) regular attendance in the program; and (3) successful completion of the program. If after evaluation by the Company-approved program, the program representative determines that treatment is required but need not be on an inpatient basis, and it is determined by the company that an employee's chemical dependency does not render the employee unqualified to perform his/her job, the employee may be allowed to return to work with no loss in seniority. The employee will be expected to meet existing performance levels and established work rules and policies while participating in the program. 2. In any situation, upon successful participation in and completion of recommended treatment, the employee will be required to undergo an additional drug/alcohol screen. If the confirmed test results are negative, the 57 employee will be returned to work, if on leave of absence and if work is available, or allowed to continue working if not on leave of absence. Additionally, employees not on leave of absence and undergoing treatment will be required to submit to a reasonable number of drug/alcohol screens without notice and without cause. [An employee having participated in and successfully completing recommended treatment, will be required, without notice, to undergo up to four (4) additional drug/alcohol screens in a three (3) year period following successful completion of recommended treatment.] If the results of the screens are negative, the employee will not be required to undergo any additional test, except in instances covered by this substance abuse program. If the results are positive, the employee will be discharged. LaCrosse Footwear, Inc. Exhibit 5 (Fixed Hourly Wage Rates - Pay Policy For Average Pay) We will pay employees their current employee fixed hourly wage rate for all situations that were paid at their "average" under the incentive (piecework) pay system. The current employee fixed hourly wage rate is the one assigned to the employee at the time the special pay situation occurred. This provision will supercede other provisions in this contract that concern "average" wage payments as long as employees are paid based on a fixed hourly wage rate system. Should we return to an incentive (piecework) pay system, we would return to "average" wage payments on the operations affected. Special wage payment issues included in the provision include: Holiday Pay Temporary Work Safety Inspections 58 Funeral Pay Quality Meetings No Work Union Business Safety Meetings Attendance Bonus Factory Mtgs. Shop Steward Samples Drug Testing Sent to Nurse Reimbursed Union Hrs Training Factory Mgr.'s Mtg. Fire Ext. Training 59 LETTERS OF AGREEMENT o Supervisory Personnel Returning to the Bargaining Unit Management and the Union agree with respect to the changes made in Article VII, Section 16, "Current non-bargaining unit personnel who were once members of the bargaining unit shall be allowed to return to the bargaining unit provided they have not exhausted their rights which were contained in the 1991 collective bargaining agreement." o Continuous Improvement Because there is a mutual interest in the La Crosse facility remaining a viable facility built upon a quality heritage, and because there is a mutual interest in utilizing employee input to achieve productivity and quality gains, the following initiatives are endorsed; Quality o Support ISO registration o Support of a Quality Standard o Union involvement in ISO project o Improved communication of quality levels Productivity o Support education in productivity measurement o Union /management participation in productivity improvement o Joint union/management development of system for utilizing employee ideas o Improved communication of productivity levels 60 Modular manufacturing o Continued efforts toward modular manufacturing with fixed pay rates o Continued consolidation of jobs and natural job rotation in order to meet safety, productivity, and quality objectives o Continued movement toward a self-managed workforce The continued effort in the areas of quality, productivity, and modular manufacturing will improve the long term viability of the facility, enhance long term security for all employees, and provide opportunities for employees to share in the benefits of cost reduction. o Safety The present test used for assessing the skills needed to handle electrical power of 150 volts or more will be evaluated for it's adequacy by all parties involved. o Fixed Hourly Rates - --------------------------------------------------------------------------- Fixed Hourly Fixed Hourly Rate Fixed Hourly Rate as of as of Rate as of Point Range 9/14/98 9/13/99 9/11/00 - --------------------------------------------------------------------------- 514 to 536 $11.00 $11.10 $11.20 - --------------------------------------------------------------------------- 475 to 513 $10.75 $10.85 $10.95 - --------------------------------------------------------------------------- 385 to 474 $10.50 $10.60 $10.70 - --------------------------------------------------------------------------- 343 to 384 $10.25 $10.35 $10.45 - --------------------------------------------------------------------------- 297 to 342 $10.00 $10.10 $10.20 - --------------------------------------------------------------------------- 257 to 296 $9.75 $9.85 $9.95 - --------------------------------------------------------------------------- 223 to 256 $9.50 $9.60 $9.70 - --------------------------------------------------------------------------- 197 to 222 $9.25 $9.35 $9.45 - --------------------------------------------------------------------------- 61 The above point range shall be used in the establishment of fixed hourly rates using the job evaluation procedure referred to in Article VI, Section 2, Paragraph (a) of the agreement. o Shop Steward Pay and Company/Union Meetings The Company agrees to pay the Shop Steward one hour per day at their average pay. The Company agrees to pay the Bargaining Committee for all lost time for Union Business and the Union shall reimburse the Company for this payment. (This will enable the employees who are Union Representatives to maintain their 401K contribution rate.) o Safety Footwear Reimbursement Program Where safety footwear is required by the Company and/or the Occupation Safety Health Administration (OSHA) guidelines, the following reimbursement program shall be available to employees: - LaCrosse branded leather safety footwear ANSI/steel toe approved - Fifty (50) percent off of the standard cost. - Leather safety footwear eligible for reimbursement will not be unreasonably restricted by the Company - Purchased through Retail Outlet Store - Non-LaCrosse branded leather safety footwear ANSI/steel toe approved - Reimbursement of twenty-five percent to a maximum of $20.00 off of retail cost. Documentation required. 62 - Eligible employees are eligible for one pair of leather safety footwear ANSI/steel toe approved on an annual (calendar) basis. o Gainsharing LaCrosse Footwear, Inc. and the United Steelworkers Of America, Local 14L recognize that the long term viability of the La Crosse operations, depends on our ability to remain competitive and cost effective in the changing global market. Gainsharing is a system that shares with employees the benefits of improved performance, productivity, quality and material usage. DISRAT (Design, Implementation, Steering, Review, Appeals, Training) Team. The team will be comprised of equal members of management and union. The team has the responsibility to oversee the gainsharing program. Key Elements of Gainsharing: o Any gains achieved through this program will be shared on a 50/50 basis with the employees. o Gainsharing performance will be determined by an actual to standard ratio using predetermined elements. The baseline productivity level will be 1.3250. o Actual productivity levels will be calculated every six (6) months using a twelve (12) month rolling average. 63 o Payouts will be calculated by matching the actual productivity level to the gainsharing table, and multiplying the hourly savings by the compensated hours each employee was paid during the preceding six (6) month period. o Payouts will be made within 60 days of the end of the six (6) month period. o The Company will continue to make standards changes as in the past, but such changes shall not adversely impact gains achieved through the gainsharing program. o The Union will have the right to bring in a third party auditor to review gainsharing calculations. o Red Circle - An employee whose job has been eliminated through Gainsharing and is currently red circled can carry their red circle rate to their next direct labor job. Also any employee who has a red circle rate and is displaced by another employee whose job was eliminated through the Gainsharing process can carry their red circle rate to their next direct labor job. o Ideas should be submitted to your immediate supervisor in writing. A copy will be given to the DISRAT team and the employee. The DISRAT team and supervision will be responsible for communicating responses back to the employee. o Two Year Gainsharing Guarantee Minimum guaranteed per hour payouts. These amounts are minimum payouts in lieu of real gainsharing improvements and are not to be added to real gainshare amounts. Period 9/14/98 - End of June 1999 Accounting Period .20 End of December 1999 - Six Month Accounting Period .15 64 End of June 2000 - Six Month Accounting Period .10 End of December 2000 - Six Month Accounting Period .05 o Sub-Committee on Health Care The parties agreed that a sub-committee would be formed on health care and consist of 3 Union representatives and 3 Management representatives. The purpose of the committee is to review the performance and the projected costs for the duration of the contract on a quarterly basis. The sub-committee shall act in an advisory capacity in the selection of third party administrators, health care insurance carriers and meet with the parties as needed. The group would attempt to identify changes to the existing health care plan that would result in reducing health care costs. Any changes to the plan would need to result in more health care cost savings not merely the transfer of costs to another area. INSURANCE AGREEMENT This agreement made and entered into this 14th day of September, 1998 by and between Local No. 14L, United Steelworkers of America, hereinafter referred to as the Union, and LaCrosse Footwear, Inc., hereinafter referred to as the Company, witnesseth: It is agreed that the Company will provide employees who are actively employed and covered by this agreement with Group Health Insurance (Company may be self insured), benefits in accordance with those contained in the summary GROUP BENEFIT PLAN booklet. Employees may elect annually either of the following Provider Plans: 65 PLAN 1 - (Traditional Health Care Plan) The plan allows the employee full choice of physicians and providers (clinics, hospitals). The employee contribution is: PER WEEK Single $19.08 Family $48.15 PLAN II - (Managed Health Care Plan) The plan requires that primary initial care be delivered by specified primary care specialists. The employee contribution is: PER WEEK Single $12.62 Family $30.53 Employees are entitled to change their selection one time during each calendar year. It is further agreed that the Company will provide employees who are actively employed and covered by this agreement with a Prescription Drug Plan (Company may be self insured) effective as of the contract date, benefits as contained in the summary GROUP BENEFIT PLAN booklet. Non-working employees for whom the Company is paying medical insurance (except retirees) will have their insurance paid for the first 60 days. Thereafter, they will pay the current working employee's contribution. Eligibility for said plan will be based on the active employee's qualifications for either a single or a family plan. The coordination or non-duplication of benefit clause will become a part of this insurance agreement. If an employee's status changed during the term of the agreement, then upon their given written notice to the Company of 66 such changed status, such employee will be eligible for coverage in the appropriate category. Group Health Insurance shall cover employees while actively employed: provided, however, that in cases where sick leave has been granted (doctor's slip), Group Health Insurance will be extended by 180 days from the last day of the month that active employment occurred. Other benefits and coverages provided under the program shall be, namely for all employees actively employed. GROUP DEATH AND LIFE DISMEMBERMENT INSURANCE INSURANCE ---------------- ------------------- Effective 10-1-98 $ 20,000.00 $ 20,000.00 ----------------- ---------------- -------------------- Accidental Disability Coverage will be effective the first day of the period and the sickness disability will be effective either the first day of hospitalization or the eighth day of the period, whichever occurs first in the following amount per week: Effective 10/1/98 - Increased from $150.00 to $175.00 per week Effective 10/1/00 - Increased from $175.00 to $200.00 per week Coverage is up to 26 weeks for those on Accidental Disability and recognized sick leave as well as for those on sickness leave for nervous or mental disorders. One period per 12 months. Employees laid off, who have one or more years seniority, will have their Hospital and Surgical Insurance extended 30 days from the last day of the month that active employment occurred; not to exceed one in each twelve month period. A. An employee who is laid off may continue in the group plan for Hospitalization for a period of 18 months provided they pay the group insurance rate each month in the Human Resources Department and the first payment is made before the first of the month after the month in which they are laid off. 67 B. An employee who is out on leave of absence may continue their Hospitalization Surgical and Group Life Insurance for a period of 18 months provided they pay the group insurance rate each month in the Human Resources Department and the first payment is made before the first of the month after the month in which leave begins. C. Persons who retire under I.B. of the current Pension Agreement will be carried under this Insurance Agreement at Company expense, for a period of 180 days past the day on which they retire. Employees retiring under the Pension Plan between the ages of 55 to 65 may stay under the Group Health Insurance Plan at their own expense, at the present rate in effect at that time. D. In the event of total disability prior to age 60, the waiver of premium provision of the current Group Life Policy contract or similar policy contract will apply. If disability continues after an employee retires under the Pension Plan, then such employee will receive coverage under the $3,500.00 Special Retirement Death Benefit. Employees, who retired prior to October 1, 1998, would have received the benefit at the rate, which was in effect at the time of their retirement. Disability will be subject to proof satisfactory to the Company and the insurer at periodic times. E. The following death benefit shall be payable to the designated beneficiary of former members of the bargaining unit who retired under the Pension Plan: 1. If after having thirteen years of service an EMPLOYEE'S service is terminated after September 30, 1998 - $3,500.00 2. EMPLOYEES who retired prior to October 1, 1998 would receive benefits at the rate which was in effect at the time of their retirement. F. In addition to other rights described above, employees and dependents who lose group health benefits will have 68 the right to continue coverage (at their own expense) if and to the extent provided by State or Federal Law. The Company will establish a medical reimbursement plan and/or a dependent care reimbursement plan as defined by Section 105 and 129 of the Internal Revenue Code. After the reimbursement plan is established, individual health care RA's and dependent care RA's will be set up for participating employees. This agreement shall continue in force until 11:59 P.M. September 15, 2001. This Agreement shall thereafter renew itself for yearly periods unless a written notice of desire to amend or terminate the Agreement is given by either the Union or the Company to the other not less than sixty (60) days nor more than seventy-five (75) days prior to the expiration date, unless otherwise mutually agreed. If negotiations are not satisfactorily concluded prior to the expiration date, nevertheless this Agreement may, by mutual consent, continue in full force and effect subject to the right of either the Union or the Company after the expiration date, to terminate. It is agreed that the insurance program, date effective September 14, 1998, and expiring September 15, 2001, shall continue in force for a period of 60 days beyond expiration date. IN WITNESS WHEREOF this Agreement has been signed the day and year above written. This agreement is subject to the approval of the International Union in accordance with U.S.W.A. Constitution. 69 LOCAL NO. 14L UNITED STEELWORKERS OF AMERICA /s/Harold Geary /s/Sue Ames Harold Geary Sue Ames President Secretary /s/Rita Christianson /s/Donna Coady Rita Christianson Donna Coady Bargaining Committee Bargaining Committee /s/Randy Sharp /s/Thomas Sullivan Randy Sharp Thomas Sullivan Bargaining Committee Bargaining Committee /s/Karen Fisher /s/David Martin Karen Fisher David Martin Bargaining Committee International Rep. 70 Countersigned at Pittsburgh, PA this ___________day of __________________, 1998. /s/George Becker /s/Leo Gerard George Becker Leo Gerard President Secretary-Treasurer /s/Richard Davis /s/Leon Lynch Richard Davis Leon Lynch Vice President Vice President /s/Harry E. Lester Harry E. Lester District 2 Director 71 LA CROSSE FOOTWEAR, INC. /s/Patrick Gantert /s/David F. Flaschberger Patrick Gantert David F. Flaschberger President & C.E.O. V.P. Human Resources /s/Edward F. Mettille /s/Ronald Dalton Edward F. Mettille Ronald Dalton Human Resources Manager V.P. Manufacturing /s/Wayne Lorek /s/Darla Bingham Wayne Lorek Darla Bingham Plant Manager Payroll/Benefits Administrator 72 BRIEF DESCRIPTION OF THE LACROSSE FOOTWEAR, INC. PENSION PLAN AND UNION EMPLOYEES' RETIREMENT SAVINGS PLAN (401K PLAN) AGREEMENT It is agreed that the Company will provide eligible employees covered by this agreement with a benefit under both the LaCrosse Footwear, Inc. Pension Plan and the LaCrosse Footwear, Inc. Union Employees' Retirement Savings Plan (401k Plan) in accordance with the official Plan documents. Section I. Agreement Clarification The Plans are summarized here to provide generalized information. A summary cannot deal with every possible future set of circumstances. It is the formal Plan documents that control all of the rights of Participants and Beneficiaries. If the summary is inconsistent with the Plan documents, the documents will control. Section II. LaCrosse Footwear, Inc. Pension Plan A. Eligibility. An employee is eligible to participate in the Pension Plan once employed by the Company and becoming a member of the Union. B. Benefits. 1. Normal Retirement Benefit. Participants retiring on or after normal retirement age (age 65) will receive a monthly benefit amount equal to his or her years of credited service times the benefit rate. 2. Early Retirement Benefit. 73 Vested participants who have reached age 55 may retire and begin receiving a monthly benefit based on his or her years of credited service times the benefit rate. Retirement benefits are reduced for those electing this option. 3. Disability Benefit. A participant who becomes disabled (as defined by the terms of the Plan document) while employed by the Company, who is at least age 40 and fully vested, will be entitled to a disability benefit based on his or her years of credited service at the time his or her disability was incurred times the benefit rate. 4. Death Benefit. A spouse of a participant who is vested will be entitled to survivor benefits under the Pension Plan unless such benefit is waived by the spouse. The spouse will be entitled to 50% of the benefit based on his or her years of credited service times the benefit rate reduced for Joint and Survivor Coverage. 5. Benefits upon Termination of Employment for Reasons other than Retirement, Death or Disability. A vested participant terminating employment prior to Retirement, Death or Disability will be eligible for a deferred vested benefit at normal retirement age based on his or her years of credited service at the time his or 74 her service is terminated times the benefit rate. C. Pension Benefit Rates. 1. Effective benefit rate for those retiring or terminating employment after: September 30, 1998 $11.25 2. Employees who have retired or terminated under the Pension Plan prior to October 1, 1998, shall receive benefits at the rate and in accordance with the provisions of the Pension Plan which was in effect at the time of the person's retirement or termination. D. Commencement of Benefit. Provided the Company is timely notified, a participant's benefit will begin the first day of the month following his or her termination date. In general, benefits will be paid monthly. E. Funding. 1. The Pension Plan is funded by the Company. 2. The Company will contribute to the Pension Plan an amount certified by a qualified actuary engaged by the Company, to be not less than that required to maintain the Plan as a qualified retirement plan under the Internal Revenue Code. F. Credited Service/Vesting. 75 1. Service. After December 31, 1975, an employee will receive one year's credited service if the Employee works 1200 hours (as defined by the Plan document) or more in the year. If the Employee works less than 1200 hours, the employee will receive credit for 1/12th of the year for each 100 hours of work up to a maximum of 1 year per calendar year. 2. Vesting. After December 31, 1975, an employee will receive one year's service towards vesting if the Employee works 1000 hours or more. If the Employee works less than 1000 hours, the Employee will receive credit towards vesting of 1/12th of a year for 100 hours worked up to a maximum of 1 year per calendar year. To be 100% vested a participant must have 5 years of vested service. 3. Prior to January 1, 1976, credited service and vesting will be credited according to provisions in effect at such time. Section III. LaCrosse Footwear, Inc. Union Employees' Retirement Savings Plan (401k Plan) A. Eligibility. 76 An employee is eligible to participate in the Union 401k Plan on the first day of the calendar quarter following the first anniversary of his or her start date, provided that the employee became a member of the Union in good standing and was still employed as of such date. B. Funding. The 401k Plan enables eligible participants to save a portion of his or her current wages, on a tax deferred basis, in order to supplement his or her retirement income. 1. A participant is eligible to defer between 1% and 15% of his or her eligible compensation through salary reduction. 2. Effective January 1, 1999, the Company will increase the matching contribution from 40% of the first 1% to 50% of the first 2% contributed by the participant. C. Vesting. A participant will always be 100% vested in the amount deferred through salary reduction. However, not until a participant has attained 5 years of vested service (refer to vesting under Section I. F. 2 of this Agreement) will a participant be 100% vested in the employer match contribution. D. Benefits. A participant will be eligible to receive a benefit upon retirement, death, 100% disability, or termination of employment. 77 E. Investment Election Changes. 401k Plan participants have the ability to change their investment elections effective the first of any calendar quarter. F. Administration Fees. Effective January 1, 1997, all administrative fees will be paid by the 401k Plan. Section IV. Administration The Plans are sponsored and administered by the Company, LaCrosse Footwear, Inc. Section V. Plan Amendment or Termination It is understood and agreed that the Plans shall not be amended or terminated for the duration of this Agreement with the exception of Section VI. Although these Plans have been established with the expectation that the Plans will be permanent, circumstances may arise not now foreseen, and make it impossible or inadvisable to continue the Plans, and the Company therefore reserves the right to amend or terminate the Plans at any time after the expiration of the term of this Agreement. Section VI. Agreement Approval It is understood that this Agreement is subject to approval of the Board of Directors of the Company. The Company shall have the right to make such changes in the Plans as may be required during the term hereof to continue the Plans as qualified 78 retirement plans. The Company shall provide the Union thirty (30) days advance copy of any Plan amendments. No amendments can be made to the Plans which will result in changes in benefits or funding status without the agreement of the Union. Section VII. Effective Date This Agreement as amended shall become effective September 14, 1998, and shall constitute a settlement for the duration of this Agreement of all issues with respect to the subject matters covered hereby; while this Agreement continues in effect, the Company shall have no obligation to negotiate or bargain with the Union with respect to any such matter covered hereby. This Agreement supersedes all former Agreements and all such former Agreements are hereby terminated. 79 LOCAL NO. 14L UNITED STEELWORKERS OF AMERICA /s/Harold Geary /s/Sue Ames Harold Geary Sue Ames President Secretary /s/Rita Christianson /s/Donna Coady Rita Christianson Donna Coady Bargaining Committee Bargaining Committee /s/Randy Sharp /s/Thomas Sullivan Randy Sharp Thomas Sullivan Bargaining Committee Bargaining Committee /s/Karen Fisher /s/David Martin Karen Fisher David Martin Bargaining Committee International Rep. 80 Countersigned at Pittsburgh, PA this ___________day of __________________, 1998. /s/George Becker /s/Leo Gerard George Becker Leo Gerard President Secretary-Treasurer /s/Richard Davis /s/Leon Lynch Richard Davis Leon Lynch Vice President Vice President /s/Harry E. Lester Harry E. Lester District 2 Director 81 LA CROSSE FOOTWEAR, INC. /s/Patrick Gantert /s/David LFlaschberger Patrick Gantert David Flaschberger President & C.E.O. V.P. Human Resources /s/Edward F. Mettille /s/Ronald Dalton Edward F. Mettille Ronald Dalton Human Resources Manager V.P. Manufacturing /s/Wayne Lorek /s/Darla Bingham Wayne Lorek Darla Bingham Plant Manager Payroll/Retirement Administrator 82 BY-LAWS OF LOCAL 14L United Steelworkers Of America A.F.L. - C.I.O. - C.L.C. La Crosse, Wisconsin 1995 FOREWORD Local No. 14L, United Steel Workers of America pledges itself to labor united to cultivate industrial solidarity and good fellowship among it's members, and all other members of organized Labor, to bring a higher standard of living for the working masses. ARTICLE I The intent of principles is to bring about a better understanding of organization work and duties of Union Members. These principles shall not in any way conflict with the laws in the International Constitution of the United Steel Workers of America. ARTICLE II The objectives of Local Union No. 14L are: (a) To organize all production workers employed by LaCrosse Footwear, Inc. 83 (b) To cooperate with other Labor organizations in securing the rights of Labor. (c) To work for the establishment of Legislation beneficial to the protection of all labor. (d) To insure all members have the opportunity to vote in the ratification of the contract. ARTICLE III Section 1. Officers (a) The officers of Local 14L shall be President, Vice President, Secretary, Treasurer, three Trustees and an Executive Board of eleven members including the first four Executive Officers first named above. (b) The Executive Board shall hold regular meetings on the third Saturday of each month. (c) A majority of its Members shall constitute a quorum. (d) The Executive Board shall not spend more than $60.00 for any one purpose without approval of the Membership. Section 2. Nominations and elections. (a) Nominations and election of Union Officers shall be conducted at the regular union meeting in the month of October. (b) Nominations and elections of Officers shall be conducted according to International Constitution. (c) Vacancies in office shall be filled in accordance with the Constitution. (d) No member shall hold office until he or she has been a member in good standing for at least one year. (e) No member shall hold office unless he or she has attended at least three regular meetings in the twelve months previous to the election period. This includes all Elective Officers, Department Stewards, Bargaining Committee Members, AFL-CIO-CLC Council Members. (f) All Elective Officers, Department Stewards, Bargaining Committee Members, and AFL-CIO-CLC Council Members must be 84 present at Regular Meetings when roll call is taken, or he/she shall be considered absent, unless an excuse has been given. (g) Any elected Officer who misses two consecutive regular meetings without a valid excuse shall be subject to removal. All excuses shall be reviewed by the Executive Board. The Board shall recommend what action is to be taken. All excuses shall be in writing. (h) Representatives who accept a job in a supervisory capacity shall forfeit his office upon acceptance of this kind of a job from the company. Section 3. Duties of Officers (a) The duties of all elective Officers shall be as set forth in the International Constitution. Section 4. Salaries (a) The monthly salary of the Local Union Officers and Committeemen shall be as follows: (1) President $105.00 per month. (2) Vice President $60.00 per month. (3) Secretary $105.00 per month. (4) Treasurer $160.00 per month. (5) Trustees $25.00 per month plus $5.00 per meeting for auditing Treasurer's books each quarter. (6) Guide and Sentinel $25.00 per month, plus $5.00 per meeting for work performed at the regular and special membership meetings. (7) Shop Steward $75.00 per month, plus pay for working time lost. (8) Department Stewards $35.00 per month. (9) Executive Board Members $25.00 per month. (10) Bargaining Board Members $25.00 per month. (11) AFL-CIO-CLC Council Members $25.00 per month. (12) Safety Committee $25.00 per month. (13) Rapid Response Coordinator $25.00 per month 85 (b) An additional $5.00 per meeting will be allowed for regular and special meetings for Officers and Committeemen above, not to exceed two special meetings per month. (c) All Committee and Delegate meetings held, shall be paid at the rate of $5.00 per meeting, not to exceed two meetings per month. (d) All Executive Officers and Stewards who serve on other committees or in other capacities are to receive a salary for each office, but only $5.00 per pay meeting is allowed for attendance at meetings. (e) No Officer or Committeemen is to receive $5.00 pay for attending regular or special membership meetings; Guide and Sentinel excepted as stated above. (f) Any member appointed to take the place of an Officer or Committeemen shall be paid the salary of the office he or she fills for the actual time spent on the job. (g) All lost time shall be paid by the Local 14L when properly authorized. ARTICLE IV Section 1. Stewards and Bargaining Committees. (a) All Officers and Committees will be elected every three (3) years. (b) A Shop Steward shall be selected by the membership at the regular election of officers to serve for three (3) years. (c) The Shop Steward shall use his/her best effort to settle grievances and perform other duties assigned to him or her by the Local Union. (d) The Shop Steward shall be chairman at all Department Steward meetings, and shall make a report to the Membership at regular meetings. (e) The Bargaining Committee minutes shall be taken by the Secretary. (f) A record shall be kept on how individual members of the Executive Board and Bargaining Committee vote on all issues except where a secret ballot is involved. 86 Section 2. Stewards (a) Each Department shall elect a Department Steward. Department Stewards are to serve for a term of three years. Elections are to take place in the Departments in the same month in which we hold our regular election of Officers. (b) The Steward shall represent his or her department in all grievances, and assist in other Union activities. (c) Each Department Steward shall make a daily report to the Shop Steward. (d) The Shop Steward shall call meetings of Department Stewards to discuss matters pertaining to their respective Departments. (e) Department Stewards shall meet with the Bargaining Committee before they enter into Contract negotiations with the Company. Section 3. Bargaining Committee. (a) Five members shall constitute the Bargaining Committee, including the Shop Steward. (b) They shall do the bargaining and settle grievances with the Management, pertaining to Local 14L, in accordance with the wishes of the Membership and Executive Board. (c) Members to serve on the Bargaining Committee shall be elected at the regular election of Officers. They shall serve for a 3 year term. ARTICLE V Section 1. Grievance Procedure (a) Grievance procedure shall be carried out in accordance with procedure outlined in the agreement between the Management and Local No. 14L. 87 (b) All lost time shall be paid by the Local when properly authorized. ARTICLE VI Section 1. Committees. (a) The President shall appoint all committees not otherwise provided for by the virtue of their office. (b) The Auditing Committee shall consist of three Trustees. (c) The Trustees shall audit the books of Local 14L every three months, and present to the Membership a written report of their findings at the next regular meeting following the audit. (d) They shall be responsible for all property belonging to Local 14L, and keep a complete record of same. Any known irregularities must be reported to the Executive Board. Section 2. By-Laws Committee. (a) Five members will constitute the by-laws committee. (b) Changes or additions proposed by Local Union Members shall be referred to the By-Laws Committee for their consideration. (c) Upon membership approval of a by-laws change, they shall be submitted to the International for their approval. ARTICLE VII Section 1. Finances. (a) The elected Treasurer shall handle all monies belonging to Local 14L, in accordance with the International Constitution. ARTICLE VIII Section 1. Membership Dues. (a) Membership dues shall be set forth by the Local Union in accordance with the International Constitution. 88 Section 2. Membership Standing. (a) No member shall be considered to be in good standing when his or her dues are more than 3 months in arrears. (b) A Member not in good standing shall be considered delinquent, and subject to suspension. (c) A suspended Member shall be required to pay a rejoining fee in accordance with the International Constitution. ARTICLE IX Section 1. Regular Meetings. (a) Local 14L shall convene for the purpose of transacting business on the 3rd Saturday of each month. (b) The meeting date may be changed by action of the Membership and the Executive Board. Section 2. Special Meetings (a) Should any business or action require special attention of the Membership, a Special Meeting may be called by the President or the Executive Board, or by the majority of the Members present at any Regular Meeting. (b) Notice of Special meetings must be given to the Membership at least 24 hours before such Meeting convenes. Notice must state clearly the purpose of said Meeting. No other business shall be transacted at said Meeting. Section 3. Quorum (a) Nineteen Members shall constitute a quorum at any Regular or Special Meeting. All business transacted shall be considered legal and binding upon the Membership. (b) Meetings maybe adjourned to a later date should the Members present deem it advisable due to lack of Members present. (c) It is the duty of the President to maintain order at all meetings. No Member shall be permitted to leave a Meeting before receiving permission from the President. Members leaving shall be stopped by the Sentinel. 89 (d) Members attending Regular Meetings shall be required to sign the register book provided at the door of the Meeting Place. (e) Members signing the register book and then leaving the Meeting without securing permission from the President, shall not be considered as being present at the meeting. ARTICLE X Section 1. Local Deligates. (a) Five members shall be elected by the Membership to serve as Delegates to the La Crosse AFL-CIO-CLC Council. They shall also serve as the Local's COPE Delegates. ARTICLE XI Section 1. Convention Delegates Pay. (a) Members of Local 14L, chosen as Delegates to attend the Conventions of the International Union and conferences, etc., shall receive $40.00 per day, plus pay for itemized and receipted hotel or motel bills, plus transportation by rail or air, to the Convention or Conference city and return. It is permissible to by car as long as no more expenses or lost time are claimed than would be involved by going by train. (b) Delegates attending a Convention or Conference within the City, shall be compensated for time lost, and expenses incurred. These expenses are not to exceed $15.00 per day. ARTICLE XII Section 1. By-Laws Amendments (a) These By-Laws may be amended by a two-thirds majority vote of the Members present at the Meeting. (b) Amendments must be read at two consecutive Meetings. (c) Amendments shall be voted on by Members present at the second Meeting. 90 President: Harold Geary Vice-President: Randy Sharp Bargaining Board Committee: Tom Sullivan Sue Ames Karen Fisher Rita Christianson Paula Craig EX-10.17 3 AMENDMENT This AGREEMENT made and entered into as of this 17th day of March, 1998, by and between JEPCO Development Co., LLC, an Oregon Limited Liability Corporation as Lessor (herein called "Lessor"), and LaCrosse Footwear, Inc., a Wisconsin Corporation, as Lessee (herein called "Lessee"): WITNESSETH 1. ORIGINAL LEASE. Lessor is the successor in interest to JEPCO Development Co., an Oregon General Partnership ("JEPCO Partnership"), the lessor under a lease dated the 14th day of March, 1994, between Lessee and JEPCO Partnership ("Lease"). The Lease covers the Danner building and grounds at 12722 N.E. Airport Way, Portland, Oregon. 2. EXERCISE OF OPTION. The Lessee hereby exercises its option under the Lease to extend the lease five years from March 13, 2004, until March 13, 2009. Lessor hereby accepts the exercise of such option. The parties acknowledge that the term of the lease has now been extended until March 13, 2009. 3. RENTAL a) Parking Lot Improvement. Lessor agrees to expand the parking lot in accordance with the drawings of V8LMK engineering firm, attached hereto as Exhibit A. The parking lot improvement shall be undertaken in accordance with applicable zoning and land use regulations. It is currently estimated that the cost will be $120,000 excluding the Code Updates described in "C" below. The useful life is assumed to be 15 years. b) Basic Rental Adjustment. On substantial completion of the parking lot, or upon its first use by Lessee, whichever first occurs, the annual rent shall be increased by the Amortizable Cost of Parking Lot, as defined below. The Amortizable Cost shall be the Total Actual Cost divided by 15. The Total Actual Cost shall be the sum of all monies spent on building and developing the Parking Lot, including but not limited to engineering fees, permit fees, and amounts paid to contractors and subcontractors for actually building and landscaping the parking lot. c) Code Updated. Lessee will, in the process of making the currently planned internal tenant improvements on the Danner Building, work with Lessor so that these improvements will be counted as the 1020 code updates required by the government as part of the Parking Lot Improvement. 4. ORIGINAL LEASE TERMS. All other terms of conditions of the original Lease shall remain in full force and effect. IN WITNESS WHEREOF, Lessor and Lessee have executed this instrument under seal, as of the day and year first above written. LESSOR: JEPCO DEVELOPMENT CO. LESSEE: LACROSSE FOOTWEAR, INC. By: /s/John H. Herman By: /s/ Patrick K. Gantert John H. Herman Patrick K. Gantert Exhibit A [Drawing of Parking lot] EX-13 4 PORTIONS OF ANNUAL REPORT Exhibit 13 Five-Year Summary of Selected Financial Data
Selected Income Statement Data - ------------------------------------------------------------------------------------------------------------------- In Thousands - Year Ended December 31 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Net sales $133,405 $145,503 $121,997 $98,571 $108,319 Operating income 5,598 13,156 10,088 6,662 11,230 Net income 2,260 6,779 5,386 3,328 6,152 Selected Balance Sheet Data - ------------------------------------------------------------------------------------------------------------------- In Thousands - Year Ended December 31 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Working capital $44,801 $48,413 $46,811 $34,537 $35,382 Total assets 98,615 101,920 92,286 74,862 74,822 Long-term obligations 9,827 12,499 16,002 4,893 7,340 Shareholders' equity 63,035 61,848 55,936 51,322 49,154 Selected Share Data - ------------------------------------------------------------------------------------------------------------------- Year Ended December 31 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Basic earnings per share $.34 $1.02 $.80 $.48 $.98 Diluted earnings per share $.34 $1.01 $.80 $.48 $.98 Dividends per share $.13 $.13 $.11 $.09 $.09 Shares used in basic per share calculation (000's) 6,662 6,668 6,668 6,680 6,158 Shares used in diluted per share calculation (000's) 6,676 6,713 6,674 6,680 6,158
4 Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain matters discussed below in this 1998 Annual Report (and, thereby, the 1998 Form 10-K) are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company "believes," "expects" or other words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals, as well as the estimated costs and timetable for Year 2000 compliance, are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include, without limitation, adverse weather conditions, dealer inventory levels, actions of companies that compete with the Company, changes in consumer buying patterns, loss of a material customer and the success of third parties regarding compliance with Year 2000 issues. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included are only made as of the date of this 1998 Annual Report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Overview Net sales generated during the last five months of the year can account for over 55% of the Company's net sales and have a significant impact on the Company's results of operations. Because consumers generally purchase a large percentage of the Company's products from September through January, retail dealers generally want delivery of products from June through October for advance orders and from October through December for restocking (or "fill-in") orders. Generally, mild or dry weather during the late fall and early winter has a negative impact on the Company's net sales for the current year, while cold or wet weather during such time has a favorable impact. Further, weather conditions in one season can affect future net sales, particularly where weather contributes to high or low dealer inventory levels at the season's end. To satisfy demands for its products and to provide for uniform production levels, the Company generally manufactures its footwear products year-round. To assist in production scheduling, the Company's sales force calls on retail dealers from January to June to present the product line, review inventory levels and prepare an advance order. The Company offers price discounts for orders placed prior to July, although advance orders may be canceled at any time. To attempt to balance the flow of shipments and the need for warehouse space, the Company offers extended terms on receivables relating to advance orders to induce retail dealers to allow some shipments of seasonal products prior to the peak shipment period. The advance order terms provide for payment by December 1 (January 1 in the case of Southern dealers). Because of seasonal fluctuations, inventory levels are highest at mid-year and accounts receivable levels are highest during the fourth quarter. The Company is gradually shifting its retail product mix to become less dependent on winter weather. This is being accomplished through the growth of the Danner leather product line and the addition of leather and protective clothing product offerings under the LaCrosse brand. The Company markets and distributes its products through both the industrial and retail channels of distribution. The less weather-sensitive industrial distribution accounts for approximately 30% of total net sales and serves the food processing, mining, construction and industrial end use markets with protective footwear and clothing. In order to build the less weather-dependent industrial business, the Company in 1996 acquired Rainfair, Inc., a manufacturer and marketer of rainwear and protective clothing. Each year, the Company introduces a number of new products. A new product, if successful, can generate growing amounts of net sales during the first two to four years. In some cases, net sales of new products will help to offset adverse factors, such as mild or dry weather or adverse economic conditions. 5 Results of Operations The following table shows the percentage relationship to net sales of items derived from the Consolidated Statements of Income and the percentage change from year to year.
Percentage of Net Sales Percentage of Increase (Decrease) - ------------------------------------------------------------------------------------------------------------------- Year Ended December 31 1998 1997 1996 1998 vs. 1997 1997 vs. 1996 - ------------------------------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% (8)% 19% Cost of goods sold 74.1 72.0 72.3 (6) 19 Gross profit 25.9 28.0 27.7 (15) 21 Selling and administrative expenses (21.7) (19.0) (19.4) 5 17 Operating income 4.2 9.0 8.3 (57) 30 Interest expense (1.7) (1.4) (1.4) 11 22 Other income .3 .4 .3 (36) 64 Income before income taxes 2.8 8.0 7.2 (68) 33 Income taxes (1.1) (3.1) (2.8) (68) 33 Minority interest - (.2) - Net income 1.7% 4.7% 4.4% (67)% 26%
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Net Sales. Net sales in 1998 decreased $12.1 million, or 8.3%, to $133.4 million from $145.5 million in 1997. The mild winter weather across most of the country from December 1997 through the first quarter of 1998 significantly reduced fill-in orders in early 1998 and reduced advance orders for shipment in the third quarter. In addition, the extremely warm and dry weather from mid-November through December 1998 lowered retail demand and nearly eliminated late 1998 fill-in orders. While the Company's dealers ended 1998 with excessive inventory, it is believed the favorable weather conditions in January 1999 reduced inventory levels below last year's levels. Shipments to L.L. Bean were also down approximately $1.3 million as compared to 1997, the result of a decision by L.L. Bean effective July 1998 to replace their handcrafted rubber bottoms purchased from the Company with molded bottoms from another vendor. A full year impact of the L.L. Bean decision will reduce 1999 net sales an additional $.7 to $1.0 million. Further, consumer rainwear shipments were down approximately $1.0 million, primarily as a result of lower shipments to a large discount mass merchant. These decreases were partially offset by a 10% increase in shipments of our less weather-sensitive Danner brand leather products, largely as a result of new products. Gross Profit. Gross profit as a percentage of net sales decreased to 25.9% in 1998 from 28.0% in 1997. Gross profit margins were adversely affected by unabsorbed factory overhead (the result of lower production levels in response to lower demand), a higher level of closeout sales (primarily related to the transition of the Lake of the Woods(R) brand product line to the LaCrosse(R) brand) and a reduced volume of higher margin fill-in orders in both the first and fourth quarters. The Company believes that shipments of discontinued products will be lower in 1999 and that reserves are adequate to cover any potential losses on discontinued products. In addition, production was discontinued at the Company's factory in Virginia, and transferred to another Company facility, which negatively impacted margins by approximately .2%. Selling and Administrative Expenses. Selling and administrative expenses increased $1.3 million, or 5%, in 1998 as compared to 1997. The increase in selling and administrative expenses was a result of a planned increase in consumer advertising, increased selling and marketing expenses in support of the growth of the Danner brand, increased spending on product development and increased warehousing costs to support the Lake of the Woods brand and as a result of the consolidation of the Company's industrial warehousing. These increases more than offset sales volume related decreases in variable expense. As a percent of net sales, selling and administrative expenses increased from 19.0% in 1997 to 21.7% in 1998, largely as a result of higher planned expenses and lower sales volume. Interest Expense. Interest expense increased $220,000, or 11%, in 1998 as compared to 1997. The increase was primarily the result of $2.4 million in additional short-term borrowings for the January 1998 purchase of all Rainfair, Inc. common stock held by the former principal owner. In addition, higher inventory levels throughout the year, primarily the result of lower fill-in sales during the winter of 1997-98, contributed to increased borrowings. Income Tax Expense. The Company's effective income tax rate in 1998 was 39.2%, the same as the 1997 income tax rate. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net Sales. Net sales in 1997 increased $23.5 million, or 19%, to $145.5 million from $122.0 million in 1996. The increase in net sales was largely attributable to the July 1997 acquisition of the Lake of the Woods product line, which added 6 approximately $5.2 million in net sales, along with an additional $15.2 million of net sales contributed by Rainfair and Red Ball, mainly as a result of including a full year of sales in 1997 as compared to 1996 when sales were included from their May acquisition dates. Danner net sales increased $2.7 million in 1997 compared to 1996 mainly due to increased sales of hiking boots and work boots, due in part to new product introductions. Net sales of LaCrosse products were up less than 1% with increased sales in injection molded vinyl knee boots largely offset by a weather-related decrease in cold weather pac boot sales, the result of the mild weather in December 1997. This mild weather in December 1997, coupled with mild weather during the first quarter of 1998, resulted in dealers having excess inventories in certain product categories. Gross Profit. Gross profit as a percentage of net sales increased to 28.0% in 1997 from 27.7% in 1996. The improvement in gross margins as a percentage of net sales was due to more favorable pricing on key raw materials, a lower defective return rate on Danner and Red Ball products and improved margins on the Rainfair business, primarily due to increased volume. Selling and Administrative Expenses. As a percent of net sales, selling and administrative expenses decreased from 19.4% of net sales in 1996 to 19.0% of net sales in 1997. The ability to leverage the LaCrosse operating expenses across a greater sales base was the primary reason for the reduction in operating expenses as a percent of net sales. Expenses increased $3.9 million, or 17%, in 1997 as compared to 1996, partially due to a $1.4 million increase in expenses reported for Rainfair in 1997 as compared to 1996 when expenses were included from the date of acquisition in May 1996. The balance of the increase in spending was largely driven by the increase in net sales. Interest Expense. Interest expense increased $363,000, or 22%, in 1997 as compared to 1996. The increase was a result of a higher level of average borrowings needed to provide the working capital in support of the increased sales of Lake of the Woods, Rainfair and the Red Ball product lines, which were acquired in July 1997, May 1996 and May 1996, respectively. Income Tax Expense. The Company's effective income tax rate in 1997 was 39.2%, the same as the 1996 income tax rate. Liquidity and Capital Resources The Company has historically financed its operations with cash generated from operations, long-term lending arrangements and short-term borrowings under its line of credit. The Company requires working capital primarily to support fluctuating accounts receivable and inventory levels caused by the Company's seasonal business cycle. The Company's working capital needs are lowest in the first quarter and highest from August through October. The Company invests excess cash balances in short-term investment grade securities or money market investments. In May 1996, the Company renegotiated its unsecured credit agreement with Firstar Bank Milwaukee, N.A. as the lead bank. Under the terms of the revised agreement, the maximum amount of borrowings were increased to $62.5 million, including a $12.5 million term loan, from the previous maximum level of $30.0 million. The $12.5 million term loan, which was primarily used to fund acquisitions, is due December 31, 2001 and requires quarterly payments of $.4 million which commenced in March 1998. The credit agreement expires on May 31, 1999. In July 1997, the Company acquired all of the outstanding shares of capital stock of Pro-Trak Corporation, the company that operated under the Lake of the Woods tradename. The purchase price, including the assumption of liabilities, was approximately $7.3 million. Lake of the Woods was a designer, manufacturer and marketer of branded leather footwear for both the outdoor and occupational segment of the market. During 1998, the Company began the transition of the Lake of the Woods brand product line to the LaCrosse brand, which has broader market recognition. Cash generated by operations in 1998 amounted to $5.5 million compared to $2.1 million in 1997. Net income in 1998 decreased $4.5 million from the 1997 level, however this was more than offset by a $4.2 million reduction in receivables (as compared to a $4.0 million increase in 1997). The reduction in receivables as of December 31, 1998 was primarily the result of a 25% reduction in sales in December 1998 as compared to the prior year. During 1998, inventories increased $.6 million, primarily as a result of lower than anticipated net sales during November and December 1998. Accounts payable decreased $2.9 million from the 1997 level, reflecting lower production levels during December 1998. In 1997, cash generated by operations amounted to $2.1 million as compared to $9.7 million in 1996. Despite a $1.4 million increase in net income in 1997 as compared to 1996, cash generated by operating activities was down $7.6 million from 1996. An increase in accounts receivable, primarily as a result of changing the terms on fill-in orders, and a $3.3 million increase in inventories compared to a $2.1 million decrease in 1996 were the primary reasons for the reduction in cash generated by operations. Inventories increased primarily as a result of an increase in Red Ball inventories to support the anticipated increase in Red Ball sales. Net cash used in investing activities during 1998 was $6.6 million, up from $3.7 million in 1997. During 1998, spending on property and equipment was up approximately $.9 million from the prior year primarily as a result of the construction of a product design/development center 7 and the purchase of Enterprise Resource Planning (ERP) software. The ERP software will be installed during 1999 and 2000, replacing the Company's existing operating software. It is anticipated that capital expenditures in 1999 will be at approximately the same level as in 1998. Also contributing to the 1998 increase in cash used in investing activities was the January 1998 purchase of all of the Rainfair, Inc. common stock held by the former principal owner for approximately $2.4 million, which made Rainfair, Inc. a 100% owned subsidiary of the Company. During 1997, net cash used in investing activities was $3.7 million, down significantly from $14.2 million in 1996. During 1996, over $11.0 million of cash was invested in the Rainfair acquisition and the purchase of the Red Ball trademarks. The only acquisition during 1997 was the purchase of Pro-Trak Corporation for approximately book value, which did not result in a significant use of cash for investing activities. Purchases of property and equipment, which accounted for the bulk of the cash used in investing activities during 1997, were $3.4 million in 1997 as compared to $3.1 million in 1996. Net cash provided by financing activities was $1.1 million in 1998 as compared to a usage of $4.7 million in 1997. During 1998, additional short-term borrowings provided $5.5 million of cash, which was primarily used to repay $3.3 million of long-term debt. Cash dividends of $.9 million and the repurchase of $.2 million of common stock used an additional $1.1 million of cash in 1998. During 1997, $8.0 million of debt was repaid and $.7 million of dividends were paid, which were partially offset by $4.0 million of additional short-term borrowings. In March 1995, the Company announced plans to repurchase up to 130,000 shares of common stock in the open market. During the third and fourth quarters of 1998, the Company repurchased 25,000 shares at a cost of $227,000. This brings the total shares repurchased to 75,000 shares. The Company's debt to total capital ratio was 25.9% at December 31, 1998, 24.3% at December 31, 1997 and 24.2% at December 31, 1996. In March 1994, the Company acquired substantially all of the assets of Danner Shoe Manufacturing Co., in part by issuing 277,778 shares of common stock as a portion of the purchase price. In the acquisition, the Company guaranteed the holders of this common stock a market price of at least $16.20 per share by March 1, 1999. If the market price of the remaining 135,178 shares subject to this guarantee is less than $16.20 per share, the Company will be required to make a cash payment equal to the difference shortly after March 1, 1999. As of December 31, 1998, the common stock of the Company closed at $9.25 per share which would indicate an obligation of the Company to such shareholders of $939,000. Currently available funds, including the line of credit, together with the anticipated cash flows generated from future operations, are believed to be adequate to cover the Company's anticipated capital and working capital needs during 1999. From time to time, the Company evaluates acquisitions of businesses or product lines that could complement the Company's business. The Company has no present understandings, commitments or agreements with respect to any acquisition. However, if the Company makes significant future acquisitions, it may be required to raise funds through additional bank financing or the issuance of debt or equity securities. Year 2000 The Year 2000 (Y2K) issue is the result of computer programs using a two digit format, as opposed to four digits, to indicate the year. Such computer systems may be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to a disruption in operations. The Company began work on Y2K issues in early 1997. In early 1998, the Company established a team of people (Y2K team) to evaluate whether, and to what extent, the Year 2000 issue would impact the Company's business. While the Company sells no products which are impacted by the Y2K issue, the team did review application programs, operating systems and equipment used in operations. A vendor contact program was established which to date has uncovered no material issues. The Y2K team is monitoring the Company's progress in resolving all Y2K issues. To date, the Company is not aware of any Y2K issues which cannot be resolved in a timely manner. The Company is using outside consultants to address the Y2K issue for the application programs at one subsidiary, otherwise all work is being done internally. The Company believes it will be Y2K compliant by the second quarter of 1999, except for one subsidiary which is scheduled to be compliant during the third quarter of 1999. The Company currently estimates that it will spend approximately $300,000 during the years 1997 through 1999 to address the Y2K issue, with approximately $125,000 of these funds to be expended during 1999. These costs include the use of outside consultants, the purchase of new and/or updated software where required, the purchase of new equipment and the internal costs to change application programs. The estimated costs of Y2K compliance do not give effect to any future corporate acquisitions made by the Company or its subsidiaries. The Company does not believe that the implementation of its Y2K compliance plan will have a material effect on the Company's business operations, financial condition, liquidity or capital resources. Management of the Company believes it has an effective program in place to address the Y2K issue in a timely manner. As a component of the Company's Y2K compliance plan, the Company will be developing contingency plans to mitigate the effects of potential problems experienced by it or its key vendors or suppliers in the timely implementation of its Y2K compliance plan. Nevertheless, since it is not possible to anticipate all future outcomes, especially when third parties are involved, there could be circumstances in which the Company's operations would be adversely affected. 8
Consolidated Balance Sheets December 31, 1998 and 1997 (In Thousands) - ----------------------------------------------------------------------------------------------- Assets 1998 1997 - ----------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $364 $426 Trade accounts receivable, less allowances of $1.0 and $1.6 million 23,151 27,390 Inventories (Note 3) 39,698 39,073 Prepaid expenses and deferred tax assets (Note 4) 4,289 4,670 ------- ------- Total current assets 67,502 71,559 ------- ------- Property and Equipment Land and land improvements and buildings 7,997 6,678 Machinery and equipment 29,389 26,896 ------- ------- 37,386 33,574 Less accumulated depreciation 23,384 20,299 ------- ------- 14,002 13,275 ------- ------- Other Assets Goodwill, net of amortization of $2.6 and $1.9 million (Note 2) 14,125 13,946 Deferred tax and other assets (Note 4) 2,986 3,140 ------- ------- 17,111 17,086 ------- ------- $98,615 $101,920 ======= ======= Liabilities and Shareholders' Equity - ---------------------------------------------------------------------------------------------- Current Liabilities Current maturities of long-term obligations (Note 5) $2,669 $3,349 Notes payable, bank (Note 5) 9,500 4,000 Accounts payable 3,469 6,385 Accrued expenses (Note 7) 7,063 9,412 ------- ------- Total current liabilities 22,701 23,146 ------- ------- Long-Term Obligations (Note 5) 9,827 12,499 Compensation and Benefits (Note 9) 3,052 2,921 Commitments and Contingencies (Notes 6, 8, 9 and 10) Minority Interest in Subsidiary (Note 2) - 1,506 Shareholders' Equity Common stock, par value $.01 per share; authorized 50,000,000 shares; issued and outstanding, 6,717,627 shares (Note 8) 67 67 Additional paid-in capital (Note 10) 27,582 27,579 Retained earnings (Note 5) 36,041 34,645 Less - cost of 73,200 and 49,900 shares of treasury stock (655) (443) ------- ------- Total shareholders' equity 63,035 61,848 ------- ------- $98,615 $101,920 ======= ======= See Notes to Consolidated Financial Statements.
9
Consolidated Statements of Income Years Ended December 31, 1998, 1997 and 1996 (In Thousands, except for share and per share data) - ---------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Net sales $133,405 $145,503 $121,997 Cost of goods sold 98,829 104,692 88,176 ------- ------- ------- Gross profit 34,576 40,811 33,821 Selling and administrative expenses 28,978 27,655 23,733 ------- ------- ------- Operating income 5,598 13,156 10,088 Non-operating income (expense): Interest expense (2,263) (2,043) (1,680) Miscellaneous 381 593 361 ------- ------- ------- (1,882) (1,450) (1,319) ------- ------- ------- Income before income taxes 3,716 11,706 8,769 Provision for income taxes (Note 4) 1,456 4,588 3,440 ------- ------- ------- Net income before minority interest 2,260 7,118 5,329 Minority interest in net (income) loss of subsidiary - (339) 57 ------- ------- ------- Net income $2,260 $6,779 $5,386 ======= ======= ======= Basic earnings per share $0.34 $1.02 $.80 ======= ======= ======= Diluted earnings per share $0.34 $1.01 $.80 ======= ======= ======= Weighted average shares outstanding: Basic earnings per share 6,661,683 6,667,702 6,667,627 Diluted earnings per share 6,675,708 6,712,975 6,673,539 See Notes to Consolidated Financial Statements.
10
Consolidated Statements of Shareholders' Equity Years Ended December 31, 1998, 1997 and 1996 (In Thousands, except for share and per share data) - ----------------------------------------------------------------------------------------------------------------------- Additional Total Common Paid-In Retained Treasury Shareholders' Stock Capital Earnings Stock Equity - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 $67 $27,579 $24,119 $(443) $51,322 Net income - - 5,386 - 5,386 Common stock dividends ($.11 per share) - - (733) - (733) 6% preferred stock dividends - - (39) - (39) ---------------------------------------------------------------- Balance, December 31, 1996 67 27,579 28,733 (443) 55,936 Net income - - 6,779 - 6,779 Common stock dividends ($.13 per share) - - (867) - (867) ---------------------------------------------------------------- Balance, December 31, 1997 67 27,579 34,645 (443) 61,848 Net income - - 2,260 - 2,260 Common stock dividends ($.13 per share) - - (864) - (864) Purchase of 25,000 shares of treasury stock - - - (227) (227) Issuance of 1,700 shares of treasury stock - 3 - 15 18 ---------------------------------------------------------------- Balance, December 31, 1998 $67 $27,582 $36,041 $(655) $63,035 ================================================================ See Notes to Consolidated Financial Statements.
11
Consolidated Statements of Cash Flows Years Ended December 31, 1998, 1997 and 1996 (In Thousands) - ------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $2,260 $6,779 $5,386 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,437 3,180 2,925 Amortization 680 572 513 Other 126 386 (34) Deferred income taxes 207 86 (62) Change in assets and liabilities, net of effects from acquisitions in 1997 and 1996: Trade accounts receivable 4,239 (4,033) (2,145) Inventories (625) (3,316) 2,136 Accounts payable (2,916) (1,065) 279 Accrued expenses and other (1,900) (462) 712 ------- ------ ------- Net cash provided by operating activities 5,508 2,127 9,710 Cash Flows from Investing Activities Purchase of the minority interest in Rainfair, Inc. (2,365) - - Acquisition of Rainfair, Inc., net of cash acquired - - (9,597) Acquisition of Pro-Trak Corporation, net of cash acquired - 77 - Purchase of property and equipment (4,288) (3,364) (3,060) Purchase of trademarks - - (1,439) Other 11 (416) (67) - ------------------------------------------------------------------------------------------------------------------- Net cash (used in) investing activities (6,642) (3,703) (14,163) Cash Flows from Financing Activities Proceeds from long-term obligations - - 12,500 Principal payments on long-term obligations (3,352) (7,981) (1,742) Net proceeds from short-term borrowings 5,500 4,000 - Cash dividends paid (867) (733) (668) Purchase of redeemable preferred stock - - (1,957) Other (209) - - - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 1,072 (4,714) 8,133 Increase (decrease) in cash and cash equivalents (62) (6,290) 3,680 Cash and cash equivalents: Beginning 426 6,716 3,036 - ------------------------------------------------------------------------------------------------------------------- Ending $364 $426 $6,716 - ------------------------------------------------------------------------------------------------------------------- Supplemental Information Cash payments for: Interest $2,178 $1,891 $1,594 Income taxes $2,101 $4,055 $2,939 See Notes to Consolidated Financial Statements.
12 Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies Nature of business: The Company designs, manufactures and markets premium quality protective footwear and clothing for sale principally throughout the United States. Significant accounting policies: Principles of consolidation: The 1998 consolidated financial statements include the accounts of LaCrosse Footwear, Inc. and its wholly owned subsidiaries (the "Company"). The 1997 and 1996 consolidated financial statements include a 50% owned subsidiary where the Company had board, operating and financial control. The Company acquired 100% ownership of its 50% owned subsidiary in January 1998 (Note 2). All material intercompany accounts and transactions have been eliminated in consolidation. Use of estimates in the preparation of financial statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those investments. The carrying amount of long-term debt approximates fair value based on the interest rates, maturities and collateral requirements currently available for similar financial instruments. Concentrations of credit risk: The Company grants credit to its customers, who are primarily domestic retail stores, direct mail catalog merchants and wholesalers, based on an evaluation of the customer's financial condition. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains an allowance for anticipated losses. Cash and cash equivalents: The Company considers all highly liquid debt instruments (including short-term investment grade securities and money market instruments) purchased with maturities of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts. Inventories: Inventories are stated at the lower of cost or market. All inventories, except for vinyl products, boot liners, leather boots, leather boot components and rainwear, are valued using the last-in, first-out (LIFO) method. Vinyl products, boot liners, leather boots, leather boot components and rainwear are valued using the first-in, first-out (FIFO) method. Property and equipment: Property and equipment are carried at cost and are being depreciated using straight-line and accelerated methods over their estimated useful lives as follows: land improvements, 15 years; buildings and improvements, 20 to 39 years; and machinery and equipment, 3 to 7 years. Intangible assets: Goodwill, representing the excess of cost over net assets acquired, is being amortized on a straight-line basis over periods of 8 to 30 years. Trademarks are being amortized on a straight-line basis over 15 years. 13 Impairment of long-lived assets: The Company reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of these assets with expected future net cash flows provided by operating activities of the business. Should the sum of the expected future net cash flows be less than the carrying value, the Company would determine whether an impairment loss should be recognized. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles based on appraised market value. Revenue recognition and product warranty: Revenue is recognized at the time products are shipped to customers. Revenue is recorded net of freight, estimated discounts and returns. The Company warrants its products against defects in design, materials and workmanship generally for one year. A provision for estimated future warranty costs is recorded when products are shipped. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Advertising and promotion: The Company advertises and promotes its products through national and regional media, displays, catalogs and through cooperative advertising programs with retailers. Costs for these advertising and promotional programs are generally charged to expense as incurred. Advertising and promotional expense included in the consolidated statements of income for the years ended December 31, 1998, 1997 and 1996 is approximately $2.9, $2.2, and $2.1 million, respectively. Stock-based compensation: The Company accounts for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, since the Company grants options where the exercise price is equal to the market price at the date of the grant, no compensation costs have been recognized. Disclosures about the fair value of outstanding stock options are contained in Note 8. Earnings per share: Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," requires the presentation of earnings per share by all entities that have common stock or potential common stock (such as options and convertible securities) outstanding that trade in a public market. Because the Company has potential common stock outstanding, as discussed in Note 8, the Company is required to present basic and diluted earnings per share. Diluted per share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce the loss or increase the income per common share from continuing operations. The numerators are the same for the basic and diluted earnings per share computations for all years presented. The impact of the stock options on the denominators of the diluted earnings per share computation was to increase the shares outstanding by 14,025 shares, 45,273 shares, and 5,912 shares for the years ended December 31, 1998, 1997 and 1996, respectively. Recent accounting pronouncements: The Company adopted SFAS No. 132, "Employers Disclosures about Pensions and Other Postretirement Benefits," as of January 1, 1998. SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans, however, it does require additional information on changes in the benefit obligations and fair values of plan assets in order to facilitate financial analysis. 14 Note 2. Acquisitions In July 1997, the Company acquired all of the outstanding shares of capital stock of Pro-Trak Corporation, which operated under the Lake of the Woods trade name. The total purchase price was approximately $7.3 million which included the immediate paydown of liabilities of $6.6 million. The acquisition has been accounted for as a purchase. Accordingly, the purchase price has been allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. In May 1996, the Company and the former principal owner of Rainfair, Inc. established a new corporation and each purchased one-half of the new corporation's common stock for $1,250,000. The Company also purchased all of the new corporation's outstanding preferred stock for $500,000. On May 31, 1996, this 50% owned subsidiary of the Company purchased substantially all of the assets of Rainfair, Inc. for approximately $10.9 million in cash and approximately $1.4 million in assumed liabilities for an aggregate purchase price of approximately $12.3 million. The name of the subsidiary was changed to Rainfair, Inc. ("Rainfair") in June 1996 after the completion of the acquisition. The Company loaned Rainfair approximately $8.0 million (secured by all assets of Rainfair) to fund the portion of the purchase price which was not funded by the initial capital contributions. The acquisition has been accounted for as a purchase. Accordingly, the purchase price was allocated to assets and liabilities based on 50% of their estimated fair values and 50% of the predecessor's historical cost as of the date of acquisition. In January 1998, the Company purchased all Rainfair common stock of the former principal owner for approximately $2.4 million. The purchase price resulted in a decrease in minority interest of approximately $1.5 million and an increase in goodwill of approximately $.9 million. Note 3. Inventories A summary of inventories is as follows: (In Thousands) December 31, 1998 1997 Finished goods $29,622 $28,889 Work in process 1,536 1,967 Raw materials 8,540 8,217 -------- -------- Total inventories $39,698 $39,073 ======== ======== If all inventories were valued on the FIFO method, total inventories for 1998 and 1997 would have been $42.5 and $42.2 million, respectively. Note 4. Income Tax Matters Net deferred tax assets and liabilities consist of the following components: (In Thousands) December 31, 1998 1997 Deferred tax assets: Receivable allowances $455 $531 Inventory differences 324 365 Compensation and benefits 1,997 1,969 Insurance reserves and other 453 416 ------- ------- 3,229 3,281 Deferred tax liabilities, principally intangibles 819 664 ------- ------- $2,410 $2,617 ======= ======= The components giving rise to the net deferred tax assets described above have been included in the accompanying consolidated balance sheets as follows: (In Thousands) December 31, 1998 1997 Current assets $1,993 $2,132 Noncurrent assets 417 485 ------- ------- $2,410 $2,617 ======= ======= The provision for income taxes consists of the following: (In Thousands) Years Ended December 31, 1998 1997 1996 Current: Federal $892 $3,684 $2,947 State 357 818 555 Deferred 207 86 (62) ------ ------ ------ $1,456 $4,588 $3,440 ====== ====== ====== 15 The differences between statutory federal tax rates and the effective tax rates are as follows: Years Ending December 31, 1998 1997 1996 Statutory federal tax rate 35.0% 35.0% 35.0% State taxes, net of federal tax benefit and other 4.2 4.2 4.2 ---- ---- ---- Effective tax rate 39.2% 39.2% 39.2% ==== ==== ==== Note 5. Financing Arrangements Credit agreement: The Company has a $62.5 million unsecured credit agreement. Under the agreement, the Company has (1) a $50 million revolving line of credit which expires on May 31, 1999 ($10 million of which can be used to support letters of credit) and (2) a $12.5 million term loan due December 31, 2001. At the Company's option, the interest rate is either the bank's prime rate or LIBOR plus .75% or 1% for the revolving line of credit and LIBOR plus 1% or 1.25% for the term loan, depending upon the Company's leverage ratio (LIBOR plus .75% and LIBOR plus 1% for the revolving line of credit and term loan, respectively, as of December 31, 1998). The credit agreement contains various covenants, including minimum consolidated tangible net worth, sale of assets, indebtedness, current ratio, interest coverage ratio and leverage ratio. The revolving line of credit is used to finance peak inventory and accounts receivable levels and commitments for letters of credit. At December 31, 1998 and 1997, there was $9.5 million and $4.0 million outstanding under the revolving line of credit and there were letter of credit commitments outstanding of $3.7 million and $2.9 million, respectively. In 1998, the Company entered into interest rate swap agreements to manage its exposure to interest rate fluctuations on its floating rate debt. As of December 31, 1998, the Company had swap agreements in effect totaling $11.0 million, of which $7.0 million will mature in 2002 with $4.0 million maturing in 2003. The variable rate borrowings not offset by swap agreements at December 31, 1998, totaled $9.4 million. Long-term obligations: (In Thousands) December 31, 1998 1997 Term loan under credit agreement, due in quarterly payments of $.4 million through December 31, 2001, interest payable monthly $10,900 $12,500 10.26% and 10.73% unsecured notes payable, due in annual installments of $1.7 million excluding interest, interest payable semi-annually(a) 1,028 2,743 Other 568 605 ------- ------- 12,496 15,848 Less current maturities 2,669 3,349 ------- ------- $9,827 $12,499 ======= ======= (a) The loan agreement contains various covenants, including minimum tangible net worth, working capital, current ratio, permitted indebtedness, net income before income taxes to interest expense and total permitted investments and restricted payments. Retained earnings available for dividends under these agreements amount to approximately $12.8 million at December 31, 1998. Maturities of long-term obligations for the next five years are as follows (in millions): 1999, $2.7; 2000, $1.7; 2001, $7.8; 2002, $0; 2003, $0 and $.3 thereafter. Note 6. Lease Commitments and Total Rental Expense The Company leases office space, retail stores, manufacturing facilities, equipment and warehouse space under non-cancelable agreements which expire on various dates through 2009 and are recorded as operating leases. The total rental expense included in the consolidated statements of income for the years ended December 31, 1998, 1997 and 1996 is approximately $1.9, $1.8, and $1.6 million, respectively. Approximate future minimum lease payments are as follows (in millions): 1999, $1.7; 2000, $1.6; 2001, $.7, 2002, $.5; 2003, $.5 and $1.9 thereafter. 16 Note 7. Accrued Expenses Accrued expenses are comprised of the following: (In Thousands) December 31, 1998 1997 Compensation $3,000 $4,311 Workers' compensation insurance 665 824 Income taxes payable 662 1,514 Other, including dividends 2,736 2,763 ------ ------ Total accrued expenses $7,063 $9,412 ====== ====== Note 8. Stock Options The Company has granted stock options to officers and key employees under its 1993 and 1997 stock option plans pursuant to which options for up to 550,000 shares of common stock may be granted. The option price per share shall not be less than 100% of the fair market value at the date of grant and the options expire 10 years after grant or such shorter period as the compensation committee of the Board so determines. Substantially all of the options vest in equal increments over a five-year period. The following summarizes all stock options granted under the plans: Common Per Share Shares Option Price December 31, 1995 129,000 $10.25-13.00 Granted 89,125 9.06-10.38 Canceled (10,000) 9.06-13.00 ------- December 31, 1996 208,125 9.06-13.00 Granted 63,500 10.88-14.50 Canceled (3,300) 9.06 Exercised (100) 9.06 -------- December 31, 1997 268,225 9.06-14.50 Granted 58,563 8.75-14.25 Canceled (23,275) 9.06-14.25 Exercised (1,700) 9.06-10.88 -------- December 31, 1998 301,813 9.06-14.50 Options for approximately 128,000 shares were exercisable at December 31, 1998. Compensation expense under the plans is accounted for following the provisions of APB Opinion No. 25 and its related interpretations. Accordingly, no compensation cost has been recognized for grants made to date. If the Company had elected to recognize compensation cost based on the fair value of the options granted at the grant date as provided by SFAS No. 123, pro forma net income would have been reduced by $.1 million and $.1 million and the pro forma diluted earnings per share would have been $.32 and $.99 for the years ended December 31, 1998 and 1997, respectively. The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions: 1998 1997 Expected dividend yield 1% 1% Expected stock price volatility 25% 25% Risk-free interest rate 6.5% 6.5% Expected life of options 7 years 8 years The weighted average exercise price of the options granted during 1998 is $13.84 per share. Note 9. Compensation and Benefit Agreements The Company has defined benefit pension plans covering a majority of its employees. Eligible employees are entitled to monthly pension benefits beginning at normal retirement age (65). The monthly benefit payable at the normal retirement date under the Company's pension plans is equal to a specified dollar amount or percentage of average monthly compensation, as defined in the plans, multiplied by years of benefit service (maximum of 38 years). The Company's funding policy is to make not less than the minimum contribution that is required by applicable regulations, plus such amounts as the Company may determine to be appropriate from time to time. In 1998, the Company's union pension plan was amended to increase the benefit rate for participants retiring or terminating after September 30, 1998. The amendment resulted in increases of approximately $1.0 million in both unrecognized prior service cost and projected benefit obligation as of December 31, 1998. The Company sponsors an unfunded defined benefit postretirement medical and life insurance plan that covers a majority of its employees until they qualify for Medicare. The plan is contributory for retirees with contributions established annually as a specified dollar amount. The Company funds the postretirement benefit obligation as the costs are incurred. 17 Information relative to the Company's defined pension and other postretirement benefit plans is presented below.
Pension Benefits Other Benefits (In Thousands) (In Thousands) December 31, December 31, 1998 1997 1998 1997 Changes in benefit obligations: Obligations at beginning of year $ 12,568 $ 12,574 $ 797 $ 1,328 Service cost 443 471 74 22 Interest cost 856 844 89 60 Plan amendment 996 -- -- -- Benefits paid (603) (685) (34) (112) Actuarial losses (gains) (308) (636) 469 (501) -------- -------- -------- -------- Obligations at end of year $ 13,952 $ 12,568 $ 1,395 $ 797 ======== ======== ======== ======== Changes in plan assets: Fair value of assets at beginning of year $ 14,719 $ 12,948 $ -- $ -- Actual return on assets 1,977 2,410 -- -- Company contributions 34 46 34 112 Participant contributions -- -- 27 41 Benefits paid (603) (685) (61) (153) -------- -------- -------- -------- Fair value of assets at end of year $ 16,127 $ 14,719 $ - $ - ======== ======== ======== ======== Funded status at end of year: Plan assets in excess of (less than) obligations $ 2,175 $ 2,151 $ (1,395) $ (797) Unrecognized gains (4,267) (3,244) (914) (1,484) Unrecognized prior service cost 1,291 342 -- -- Unrecognized transition obligation 112 163 847 917 -------- -------- -------- -------- Accrued benefit cost $ (689) $ (588) $ (1,462) $ (1,364) ======== ======== ======== ======== Cost recognized during the year: Service cost $ 443 $ 471 $ 74 $ 22 Interest cost 856 844 89 60 Expected return on plan assets (1,156) (1,017) -- -- Amortization of prior losses (gains) (106) 30 (101) (66) Amortization of prior service cost 47 31 -- -- Amortization of transition obligation 51 51 70 70 -------- -------- -------- -------- Net periodic benefit cost $ 135 $ 410 $ 132 $ 86 ======== ======== ======== ======== Assumptions used in computations: Discount rate 7.0% 7.0% 7.0% 7.0% Rate of compensation increase 4.5% 4.5% N/A N/A Expected return on plan assets 8.0% 8.0% * * * This plan does not have separate assets, so there is no actual or expected return on plan assets.
For measurement purposes, a 6 percent annual rate of increase in the cost of covered health care benefits was assumed for 1998 and 1997. A one-percentage-point change in the assumed rates of health care cost increase would have the following effects relative to 1998 amounts included above for the other benefit plans (in thousands): Increase Decrease - -------------------------------------------------------------------------------- Effect on total of service and interest cost components $18 $(16) Effect on postretirement benefit obligation 108 (96) 18 Note 10. Commitments In March 1994, the Company acquired substantially all of the assets of Danner Shoe Manufacturing Co. in part by issuing common stock as a portion of the purchase price. In the acquisition, the Company guaranteed the holders of this common stock a market price of at least $16.20 per share by March 1, 1999. If the market price of the remaining 135,178 shares subject to the guarantee is less than $16.20 per share, the Company will be required to make a cash payment equal to the difference shortly after March 1, 1999. Based on the December 31, 1998 closing market price, the Company's obligation would be approximately $939,000. Note 11. Enterprise-wide Disclosures Segment information is not presented since all of the Company's revenue is attributed to a single reportable segment. Information about the Company's groups of products within its one segment is presented below. (In Thousands) Years Ending December 31, 1998 1997 1996 Footwear $115,643 $126,750 $112,164 Protective clothing 17,762 18,753 9,833 -------- -------- -------- $133,405 $145,503 $121,997 ======== ======== ======== The following table presents information about the Company's revenue attributed to countries based on the location of the customer. (In Thousands) Years Ending December 31, 1998 1997 1996 United States $128,570 $142,459 $119,705 Foreign Countries 4,835 3,044 2,292 -------- -------- -------- $133,405 $145,503 $121,997 ======== ======== ======== All long-lived assets are located in the United States. No single customer provided revenue of 10% or more of consolidated revenues in any of the years presented. Independent Auditors' Report To the Board of Directors and Shareholders of LaCrosse Footwear, Inc. We have audited the accompanying consolidated balance sheets of LaCrosse Footwear, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaCrosse Footwear, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 5, 1999 19 Quarterly Results of Operations (Unaudited) The Company reports its quarterly results of operations on the basis of 13-week periods for each of the first three quarters with the year ending on December 31st. The following tabulation presents the Company's unaudited quarterly results of operations for 1998 and 1997.
Thousands of dollars except per share data - 1998 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $29,936 $29,461 $37,506 $36,502 Gross profit 7,767 7,689 10,160 8,960 Operating income 633 483 2,836 1,646 Net income 189 12 1,321 738 Basic earnings per share .03 .00 .20 .11 Diluted earnings per share $.03 $.00 $.20 $.11 Thousands of dollars except per share data - 1997 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $32,698 $28,421 $41,884 $42,500 Gross profit 8,286 7,652 12,422 12,451 Operating income 1,565 1,101 5,152 5,338 Net income 545 539 2,933 2,762 Basic earnings per share .08 .08 .44 .41 Diluted earnings per share $.08 $.08 $.44 $.41
Market Information The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol BOOT. The following table shows the high and low transaction prices by calendar quarter for the past three years. On March 26, 1999, there were approximately 325 shareholders of record and approximately 2,400 beneficial owners of the Company's common stock.
1st 2nd 3rd 4th Year-end 1996 $8 3/4 - 12 $9 1/4 - 11 3/4 $9 1/2 - 10 3/4 $10 - 12 1/4 $10 3/4 1997 $10 3/4 - 14 3/8 $11 - 13 1/2 $12 1/2 - 17 1/4 $14 - 16 $14 1/2 1998 $11 1/2 - 14 1/8 $11 3/8 - 12 1/2 $7 3/4 - 11 1/2 $7 3/4 - 10 $9 1/4
Cash Dividends Declared Per Share It is the Company's policy to pay annual cash dividends. The chart below shows annual cash dividends declared per share for the past three years: 1998 1997 1996 Dividends declared per share $.13 $.13 $.11 Market Risk Management The Company enters into interest rate swap agreements ("Swap Agreements") to reduce its exposure to interest rate fluctuations on its floating rate debt. The Swap Agreements exchange floating rate for fixed rate interest payments periodically over the life of the agreements without exchange of the underlying notional amounts. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent an amount of exposure to credit loss. For interest rate instruments that effectively hedge interest rate exposures, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. As of December 31, 1998, the Company had Swap Agreements in effect totaling $11.0 million notional amount, of which $7.0 million will mature in 2002 with another $4.0 million maturing in 2003. The variable rate borrowings not offset by Swap Agreements at December 31, 1998 totaled $9.4 million. Swap Agreement rates are based on the three-month LIBOR rate. Based on average floating rate borrowings outstanding throughout fiscal year 1998, a 100-basis point change in LIBOR would have caused the Company's monthly interest expense to change by approximately $16,000. The Company believes that these amounts are not material to the earnings of the Company. 20 EX-21 5 SUBSIDIARY LIST EXHIBIT (21) SUBSIDIARIES OF LACROSSE FOOTWEAR, INC. Jurisdiction Name of Incorporation Percent Ownership Direct Indirect Clintonville Products, Inc. Wisconsin 100% Hillsboro Footwear, Inc. Wisconsin 100% Danner Shoe Manufacturing Co. Wisconsin 100% Rainfair, Inc. Wisconsin 100% Pro-Trak Corporation Wisconsin 100% Pro-Trak of Virginia, Inc. Virginia 100% 1 - --------------- 1 Direct percent ownership by Pro-Trak Corporation. EX-23 6 CONSENT Exhibit (23) CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in this Annual Report on Form 10-K of LaCrosse Footwear, Inc. of our report dated February 5, 1999, included in the 1998 Annual Report to Shareholders of LaCrosse Footwear, Inc. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-77516, 33-77518 and 333-2702) pertaining to the LaCrosse Footwear, Inc. Employees' Retirement Savings Plan, the LaCrosse Footwear, Inc. Union Employees' Retirement Savings Plan and the LaCrosse Footwear, Inc. 1993 Employee Stock Incentive Plan of our report dated February 5, 1999, with respect to the consolidated financial statements incorporated herein by reference, and our report dated February 5, 1999, with respect to the financial statement schedule included in this Annual Report on Form 10-K of LaCrosse Footwear, Inc. for the year ended December 31, 1998. McGLADREY & PULLEN, LLP La Crosse, Wisconsin March 29, 1999 EX-27 7 FDS -- LACROSSE FOOTWEAR, INC.
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF LACROSSE FOOTWEAR, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 364 0 24,184 377 39,698 67,502 37,386 23,384 98,615 22,701 9,827 0 0 67 62,968 98,615 133,405 133,405 98,829 28,886 0 92 2,263 3,716 1,456 2,260 0 0 0 2,260 .34 .34
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