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<SEC-DOCUMENT>0000950123-05-004625.txt : 20050418
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<ACCEPTANCE-DATETIME>20050418161245
ACCESSION NUMBER: 0000950123-05-004625
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20050131
FILED AS OF DATE: 20050418
DATE AS OF CHANGE: 20050418
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MOVADO GROUP INC
CENTRAL INDEX KEY: 0000072573
STANDARD INDUSTRIAL CLASSIFICATION: WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS [3873]
IRS NUMBER: 132595932
STATE OF INCORPORATION: NY
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-16497
FILM NUMBER: 05756765
BUSINESS ADDRESS:
STREET 1: 650 FROM ROAD
CITY: PARAMUS
STATE: NJ
ZIP: 07652
BUSINESS PHONE: 201-267-8000
MAIL ADDRESS:
STREET 1: 650 FROM ROAD
CITY: PARAMUS
STATE: NJ
ZIP: 07652
FORMER COMPANY:
FORMER CONFORMED NAME: NORTH AMERICAN WATCH CORP
DATE OF NAME CHANGE: 19930916
</SEC-HEADER>
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<TYPE>10-K
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<FILENAME>y07454ke10vk.txt
<DESCRIPTION>10-K
<TEXT>
<PAGE>
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended January 31, 2005,
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 1-16497
MOVADO GROUP, INC.
(Exact name of registrant as specified in its charter)
<Table>
<S> <C>
New York 13-2595932
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
650 From Road, 07652
Paramus, New Jersey (Zip Code)
(Address of Principal Executive Offices)
</Table>
Registrant's Telephone Number, Including Area Code:(201) 267-8000
Securities Registered Pursuant to Section 12(b) OF THE ACT:
<Table>
Name of Each Exchange
Title of Each Class on which Registered
- ---------------------------------------- ----------------------------------------
<S> <C>
Common stock, par value $0.01 per share New York Stock Exchange
</Table>
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of July 31, 2004 was approximately $297,563,403 (based on the
closing sale price of the registrant's Common Stock on that date as reported on
the New York Stock Exchange). For purposes of this computation, each share of
Class A Common Stock is assumed to have the same market value as one share of
Common Stock into which it is convertible and only shares of stock held by
directors and executive officers were excluded.
The number of shares outstanding of the registrant's Common Stock and Class
A Common Stock as of March 31, 2005 were 18,303,621 and 6,801,812, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to registrant's 2005
annual meeting of shareholders (the "Proxy Statement") are incorporated by
reference in Part III hereof.
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<PAGE>
PART I
FORWARD-LOOKING STATEMENTS
Statements in this annual report on Form 10-K, including, without limitation,
statements under Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report, as well as
statements in future filings by the Company with the Securities and Exchange
Commission ("SEC"), in the Company's press releases and oral statements made by
or with the approval of an authorized executive officer of the Company, which
are not historical in nature, are intended to be, and are hereby identified as,
"forward-looking statements" for purposes of the safe harbor provided by the
Private Securities Litigation Reform Act of 1995. These statements are based on
current expectations, estimates, forecasts and projections about the Company,
its future performance, the industry in which the Company operates and
management's assumptions. Words such as "expects", "anticipates", "targets",
"goals", "projects", "intends", "plans", "believes", "seeks", "estimates",
"may", "will", "should" and variations of such words and similar expressions are
also intended to identify such forward-looking statements. The Company cautions
readers that forward-looking statements include, without limitation, those
relating to the Company's future business prospects, projected operating or
financial results, revenues, working capital, liquidity, capital needs, plans
for future operations, expectations regarding capital expenditures and operating
expenses, effective tax rates, margins, interest costs, and income as well as
assumptions relating to the foregoing. Forward-looking statements are subject to
certain risks and uncertainties, some of which cannot be predicted or
quantified. Actual results and future events could differ materially from those
indicated in the forward-looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the SEC including, without
limitation, the following: general economic and business conditions which may
impact disposable income of consumers in the United States and the other
significant markets where the Company's products are sold, general uncertainty
related to possible terrorist attacks and the impact on consumer spending,
changes in consumer preferences and popularity of particular designs, new
product development and introduction, competitive products and pricing,
seasonality, availability of alternative sources of supply in the case of the
loss of any significant supplier, the loss of significant customers, the
Company's dependence on key employees and officers, the ability to successfully
integrate the operations of acquired businesses without disruption to other
business activities, the continuation of licensing arrangements with third
parties, ability to secure and protect trademarks, patents and other
intellectual property rights, ability to lease new stores on suitable terms in
desired markets and to complete construction on a timely basis, continued
availability to the Company of financing and credit on favorable terms, business
disruptions, disease, general risks associated with doing business outside the
United States including, without limitation, import duties, tariffs, quotas,
political and economic stability, and success of hedging strategies with respect
to currency exchange rate fluctuations.
Item 1. Business
CORPORATE ORGANIZATION
Movado Group, Inc. is a designer, manufacturer, retailer and distributor of
quality watches as well as proprietary jewelry, tabletop and accessory products,
with prominent watch brands sold in almost every major category comprising the
watch industry. Unless the context indicates otherwise, all references to the
"Company" or "MGI" include Movado Group, Inc. and its subsidiaries. The Company
was incorporated in New York in 1967 under the name North American Watch
Corporation to acquire Piaget Watch Corporation and Corum Watch Corporation,
which had been, respectively, the exclusive importers and distributors of Piaget
and Corum watches in the United States since the 1950's. The Company changed its
name to Movado Group, Inc. in 1996. The Company sold its Piaget and Corum
distribution businesses in 1999 and 2000, respectively.
1
<PAGE>
In 1970, the Company acquired the Swiss manufacturer of Concord watches, which
had been manufacturing Concord watches since 1908, and in 1983, the Company
acquired the U.S. distributor of Movado watches and substantially all the assets
related to the Movado watch brand from the Swiss manufacturer of Movado watches.
The Movado brand, which was established in 1881, has become the Company's
largest brand.
On October 7, 1993, the Company completed a public offering of 2,666,667 shares
of common stock, par value $.01 per share (the "Common Stock"). On October 21,
1997, the Company completed a secondary stock offering in which 1,500,000 shares
of Common Stock were issued. On May 21, 2001, the Company moved from the NASDAQ
National Market to the New York Stock Exchange ("NYSE"). The Common Stock is
traded on the NYSE under the trading symbol MOV.
On December 22, 2003, the Company signed a definitive agreement with LVMH Moet
Hennessy Louis Vuitton ("LVMH") to acquire Ebel S.A. and the worldwide business
related to the Ebel brand. On March 1, 2004, the Company completed the
acquisition of Ebel with the exception of Ebel's business in Germany, which was
completed on July 30, 2004. The Ebel brand, one of the world's premier luxury
watch brands, was established in La Chaux-de-Fonds, Switzerland in 1911.
The Company operates internationally through wholly-owned subsidiaries in
Switzerland, France, Germany, United Kingdom, Hong Kong, Canada, Japan,
Singapore and Bermuda. Its executive offices are located in Paramus, New Jersey.
INDUSTRY OVERVIEW
The largest markets for watches are North America, Western Europe and Asia. The
Company's watch brands include Movado, Ebel, Concord, ESQ, Coach, Tommy Hilfiger
and as of March 21, 2005, Hugo Boss.
The Company divides the watch market into six principal categories as set forth
in the following table:
<TABLE>
<CAPTION>
Primary Category of
Suggested Retail Movado Group, Inc.
Market Category Price Range Brands
- --------------- ------------------ ------------------------
<S> <C> <C>
Exclusive $10,000 and over Ebel and Concord
Luxury $1,500 to $9,999 Ebel, Concord and Movado
Premium $500 to $1,499 Movado
Moderate $100 to $499 ESQ, Coach and Hugo Boss
Fashion Market $55 to $99 Tommy Hilfiger
Mass Market Less than $55 -
</TABLE>
The Company's Ebel and Concord watches compete primarily in the Luxury category
of the market, although certain Ebel and Concord watches compete in the
Exclusive category. The Company's Movado watches compete primarily in the
Premium category of the market, although certain Movado watches compete in the
Luxury category. The Company's Coach, ESQ and Hugo Boss brands compete in the
Moderate category. The Company's Tommy Hilfiger brand competes in the Fashion
category.
Exclusive Watches
Exclusive watches are usually made of precious metals, including 18 karat gold
or platinum, and may be set with precious gems, including diamonds, emeralds,
rubies and sapphires. These watches are primarily mechanical or quartz-analog
watches. Mechanical watches keep time with intricate mechanical movements
consisting of an arrangement of wheels, jewels and winding and regulating
mechanisms. Quartz-analog
2
<PAGE>
watches have quartz movements in which time is precisely calibrated to the
regular frequency of the vibration of quartz crystal. Exclusive watches are
manufactured almost entirely in Switzerland. In addition to the Company's
Concord and Ebel watches, well-known brand names of Exclusive watches include
Audemars Piguet, Patek Philippe, Piaget and Vacheron Constantin.
Luxury Watches
Luxury watches are either quartz-analog watches or mechanical watches. These
watches typically are made with either 14 or 18 karat gold, stainless steel or a
combination of gold and stainless steel, and are occasionally set with precious
gems. Luxury watches are primarily manufactured in Switzerland. In addition to a
majority of the Company's Concord and Ebel watches and certain Movado watches,
well-known brand names of Luxury watches include Baume & Mercier, Breitling,
Cartier, Omega, Rolex and TAG Heuer.
Premium Watches
The majority of Premium watches are quartz-analog watches. These watches
typically are made with gold finish, stainless steel or a combination of gold
finish and stainless steel. Premium watches are manufactured primarily in
Switzerland, although some are manufactured in Asia. In addition to a majority
of the Company's Movado watches, well-known brand names of Premium watches
include Gucci, Rado and Raymond Weil.
Moderate Watches
Most Moderate watches are quartz-analog watches. Moderate watches are
manufactured primarily in Asia and Switzerland. These watches typically are made
with gold finish, stainless steel, brass or a combination of gold finish and
stainless steel. In addition to the Company's ESQ, Coach and Hugo Boss brands,
well-known brand names of watches in the Moderate category include Anne Klein,
Bulova, Citizen, Gucci, Guess, Seiko and Wittnauer.
Fashion Market Watches
Watches comprising the Fashion Market are primarily quartz-analog watches but
also include some digital watches. Digital watches, unlike quartz-analog
watches, have no moving parts. Instead, time is kept by electronic microchips
and is displayed as discrete Arabic digits illuminated on the watch face by
light emitting diodes (LED's) or liquid crystal displays (LCD's). Watches in the
Fashion Market category are generally made with stainless steel, gold finish,
brass and/or plastic and are manufactured primarily in Asia. Fashion Market
watches are based on designs and use features that attempt to reflect current
and emerging fashion trends. Many are sold under licensed designer and brand
names that are well-known principally in the apparel industry. In addition to
the Company's Tommy Hilfiger brand, other well-known brands of Fashion Market
watches include Anne Klein II, DKNY, Fossil, Guess, Kenneth Cole and Swatch.
Mass Market Watches
Mass Market watches typically consist of digital watches and analog watches made
from stainless steel, brass and/or plastic and are manufactured in Asia.
Well-known brands include Casio, Citizen, Pulsar, Seiko and Timex.
3
<PAGE>
PRODUCTS
During fiscal 2005, the Company marketed six distinctive brands of watches:
Movado, Ebel, Concord, ESQ, Coach and Tommy Hilfiger, which compete in the
Exclusive, Luxury, Premium, Moderate and Fashion Market categories. The Company
designs, manufactures and contracts for the assembly of Movado, Ebel and Concord
watches primarily in Switzerland for sale throughout the world. ESQ and Tommy
Hilfiger watches are manufactured to the Company's specifications by independent
contractors located in Asia. ESQ watches are presently sold primarily in North
America and the Caribbean. Tommy Hilfiger watches are presently sold throughout
the world. Coach watches are assembled in Switzerland by independent contractors
and sold primarily in North America and Japan.
Movado
Founded in 1881 in La Chaux-de-Fonds, Switzerland, the Movado brand today
includes a line of watches based on the design of the world famous Movado Museum
watch and a number of other watch collections with more traditional dial
designs. The design for the Movado Museum watch was the first watch design
chosen by the Museum of Modern Art for its permanent collection. It has since
been honored by other museums throughout the world. All Movado watches have
Swiss movements and are made with 14 or 18 karat gold, 18 karat gold finish,
stainless steel or a combination of 18 karat gold finish and stainless steel.
The majority of Movado watches have suggested retail prices between $495 and
$4,000.
Ebel
The Ebel brand, one of the world's premier luxury watch brands, was established
in La Chaux-de-Fonds, Switzerland in 1911. All Ebel watches feature Swiss
movements and are made with solid 18 karat gold, stainless steel or a
combination of 18 karat gold and stainless steel. The majority of Ebel watches
have suggested retail prices between $2,100 and $26,000.
Concord
Concord was founded in 1908 in Bienne, Switzerland. All Concord watches have
Swiss movements and are made with solid 18 karat or 14 karat gold, stainless
steel or a combination of 18 karat gold and stainless steel. The majority of
Concord watches have suggested retail prices between $1,700 and $16,500.
Coach
During fiscal 1999, the Company introduced Coach watches under an exclusive
license with Coach, Inc. The majority of Coach watches contain Swiss movements
and are made with stainless steel, gold finish or a combination of stainless
steel and gold finish with leather straps, stainless steel bracelets or gold
finish bracelets. The majority of Coach watches have suggested retail prices
ranging from $230 to $600.
ESQ
ESQ was launched in the second half of fiscal 1993 under an exclusive license
agreement with The Hearst Corporation. All ESQ watches contain Swiss movements
and are made with stainless steel, gold finish or a combination of stainless
steel and gold finish, with leather straps, stainless steel bracelets or gold
finish bracelets. The ESQ brand consists of sport and fashion watches with
features and styles comparable to more expensive watches. The majority of ESQ
watches have suggested retail prices ranging from $175 to $325.
4
<PAGE>
Tommy Hilfiger
The Company launched Tommy Hilfiger watches in March 2001, under an exclusive
agreement with Tommy Hilfiger Licensing, Inc., marketed under the TOMMY
HILFIGER(R) and TOMMY(R) labels. Tommy Hilfiger watches feature quartz, digital
or analog-digital movements, with stainless steel, titanium, aluminum,
silver-tone, two-tone or gold-tone cases and bracelets, and leather, fabric,
plastic or rubber straps. The line includes fashion and sport models with the
majority of Tommy Hilfiger watches having suggested retail prices ranging from
$65 to $95.
RETAIL OPERATIONS
The Company operates in two retail sectors, the luxury boutique market and the
outlet market. At January 31, 2005, the Company's retail operations consisted of
24 Movado Boutiques and 27 outlet stores. Three additional Movado Boutiques and
one outlet are scheduled to open in the first half of fiscal year 2006. The
Movado Boutiques, the first of which opened in 1998, sell selected models of
Movado watches as well as proprietary jewelry, tabletop and accessory products.
The outlet stores serve as an effective vehicle to sell discontinued models and
factory seconds of all of the Company's watches, jewelry, tabletop and accessory
products.
WARRANTY AND REPAIR
The Company has service facilities around the world including five Company-owned
service facilities and 266 authorized independent service centers worldwide. In
addition, as part of the acquisition of the Ebel business on March 1, 2004, the
Company acquired the after-sale service operations of Ebel S.A. located in La
Chaux-de-Fonds, Switzerland, those of its French subsidiary and contracts with
approximately 70 independent Ebel service centers worldwide. The Company
conducts training sessions for and distributes technical information and updates
to repair personnel in order to maintain consistency and quality at its service
facilities and authorized independent service centers. The Company's products
are covered by limited warranties against defects in materials and workmanship
for periods ranging from two to three years from the date of purchase for
movements and up to five years for the gold plating on Movado watch casings and
bracelets. Products that are returned under warranty to the Company are
generally serviced by the Company's employees at its service facilities.
The Company retains adequate levels of component parts to facilitate after-sales
service of its watches for an extended period of time after the discontinuance
of such watches.
ADVERTISING
Advertising is important to the successful marketing of the Company's watches.
Hence, the Company devotes significant resources to advertising. Since 1972, the
Company has maintained its own in-house advertising department which today
focuses primarily on the implementation and management of global marketing and
advertising strategies. The Company utilizes the creative development of
advertising campaigns from outside agencies. Advertising expenditures totaled
approximately 16.2%, 16.1% and 16.8% of net sales in fiscal 2005, 2004 and 2003,
respectively. Advertising is developed individually for each of the Company's
watch brands as well as Movado Boutique jewelry products, and is directed
primarily to the end consumer rather than to trade customers. In addition,
advertising is developed by targeting consumers with particular demographic
characteristics appropriate to the image and price range of the brand.
Advertisements are placed predominantly in magazines and other print media, but
are also created for radio and television campaigns, catalogs, outdoor and
promotional materials.
5
<PAGE>
BACKLOG
At March 31, 2005, the Company had unfilled orders of approximately $21.4
million compared to $20.2 million and $15.0 million at March 31, 2004 and 2003,
respectively. The unfilled orders include both confirmed orders and orders the
Company believes will be confirmed based on the historic experience with the
customers. It is customary for many of the Company's customers not to confirm
their future orders with a formal purchase order until shortly before their
desired delivery.
SOURCES AND AVAILABILITY OF SUPPLIES
Movado, Ebel and Concord watches are generally assembled in Switzerland by
independent third party subcontract assemblers with some in-house assembly in
Bienne, Switzerland and in La Chaux-de-Fonds, Switzerland. Movado, Ebel and
Concord watches are assembled using Swiss movements and other components
obtained from third party suppliers. Additionally, the Company manufactures some
movements for the Ebel brand. The majority of Coach watches are assembled in
Switzerland by independent assemblers using Swiss movements and other components
obtained from third party suppliers in Switzerland and elsewhere. ESQ and Tommy
Hilfiger watches are assembled by independent contractors in Asia. ESQ watches
are manufactured using Swiss movements and other components purchased from third
party suppliers principally located in Asia. Tommy Hilfiger watches are
manufactured using movements and other components purchased from third party
suppliers located in Asia.
A majority of the watch movements used in the manufacture of Movado, Ebel,
Concord and ESQ watches are purchased from two suppliers. The Company obtains
other watch components for all of its manufactured brands, including movements,
cases, hands, dials, bracelets and straps from a number of other suppliers.
Precious stones used in the Company's watches are purchased from various
suppliers and are set in Switzerland. The Company does not have long-term supply
contract commitments with any of its component parts suppliers.
COMPETITION
The markets for each of the Company's watch brands are highly competitive. With
the exception of the Swatch Group, Ltd., a large Swiss-based competitor, no
single company competes with the Company across all of its brands. Certain
companies, however, compete with Movado Group, Inc. with respect to one or more
of its watch brands. Certain of these companies have, and other companies that
may enter the Company's markets in the future may have, substantially greater
financial, distribution, marketing and advertising resources than the Company.
The Company's future success will depend, to a significant degree, upon its
continued ability to compete effectively with regard to, among other things, the
style, quality, price, advertising, marketing, distribution and availability of
supply of the Company's watches and other products.
TRADEMARKS, PATENTS AND LICENSE AGREEMENTS
The Company owns the trademarks MOVADO(R), EBEL(R) and CONCORD(R), as well as
trademarks for the Movado Museum dial design, and related trademarks for watches
and jewelry in the United States and in numerous other countries.
The Company licenses ESQUIRE(R), ESQ(R) and related trademarks on an exclusive
basis for use in connection with the manufacture, distribution, advertising and
sale of watches pursuant to an agreement with The Hearst Corporation ("Hearst
License Agreement"). The current term of the Hearst License Agreement expires
December 31, 2006, but contains options for renewal at the Company's discretion
through December 31, 2018.
6
<PAGE>
The Company licenses the trademark COACH(R) and related trademarks on an
exclusive basis for use in connection with the manufacture, distribution,
advertising and sale of watches pursuant to an agreement with Coach, Inc.
("Coach License Agreement"). The Coach License Agreement expires on January 31,
2008.
Under an agreement with Tommy Hilfiger Licensing, Inc. ("THLI"), the Company has
been granted the exclusive license to use the trademark TOMMY HILFIGER(R) and
related trademarks in connection with the manufacture of watches worldwide and
in connection with the marketing, advertising, sale and distribution of watches
at wholesale (and at retail through its outlet stores) in the Western
Hemisphere, Europe, Pan Pacific, Latin America and Korea. The initial term of
the license agreement with THLI expires December 31, 2006, but can be extended
at the request of the Company through December 31, 2011, if the Company is in
compliance with all material terms of the agreement.
The Company also owns, and has pending applications for, a number of design
patents in the United States and internationally for various watch designs, as
well as designs of watch cases, bracelets and jewelry.
The Company actively seeks to protect and enforce its intellectual property
rights by working with industry associations, anti-counterfeiting organizations,
private investigators and law enforcement authorities, including the United
States Customs Service and, when necessary, sues infringers of its trademarks
and patents. Consequently, the Company is involved from time to time in
litigation or other proceedings to determine the enforceability, scope and
validity of these rights. With respect to the trademarks MOVADO(R), EBEL(R),
CONCORD(R) and certain other related trademarks, the Company has received
exclusion orders that prohibit the importation of counterfeit goods or goods
bearing confusingly similar trademarks into the United States. In accordance
with Customs regulations, these exclusion orders, however, cannot cover the
importation of gray-market Movado, Ebel and Concord watches because the Company
is the manufacturer of such watches. All of the Company's exclusion orders are
renewable.
On December 15, 2004, the Company entered into a License Agreement with Hugo
Boss Trademark Management GmbH & Co ("Hugo Boss"). The Company received a
worldwide exclusive license to use the trademark "HUGO BOSS" and any other
trademarks of Hugo Boss containing the names HUGO or BOSS, in connection with
the production, promotion and sale of watches. The Company is permitted to
assign its rights and sublicense the trademarks to its affiliates (although the
Company will remain liable after such assignment or sublicense under the License
Agreement). The term of the license is March 21, 2005 through December 31, 2013,
with an optional five-year renewal period.
EMPLOYEES
As of January 31, 2005, the Company had 1,219 full-time employees in its
domestic and international operations. No employee of the Company is represented
by a labor union or is subject to a collective bargaining agreement. The Company
has never experienced a work stoppage due to labor difficulties and believes
that its employee relations are good.
7
<PAGE>
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS AND SEASONALITY
Overview
The Company conducts its business primarily in two operating segments: Wholesale
and Retail. The Company's Wholesale segment includes the designing,
manufacturing and distribution of quality watches, in addition to revenue
generated from after-sales service activities and shipping. The Retail segment
includes the Company's Movado Boutiques and its outlet stores.
The Company divides its business into two major geographic segments: Domestic,
which includes the results of the Company's North American, Caribbean and Tommy
Hilfiger South American operations, and International, which includes the
results of all other Company operations. The Company's International operations
are principally conducted in Europe, the Middle East and Asia. The Company's
International assets are substantially located in Europe.
For operating segment data and geographic segment data for the years ended
January 31, 2005, 2004 and 2003, see Note 14 of the Form 10-K on Segment
Information.
Domestic Wholesale
The Company sells all of its brands in the domestic market primarily through
major jewelry store chains such as Helzberg Diamonds Corp., Sterling, Inc. and
Zales Corporation; department stores, such as Macy's, Neiman-Marcus, Saks Fifth
Avenue and in other department stores through Finlay Fine Jewelry; and
independent jewelers. Sales to trade customers in the United States, Canada and
the Caribbean are made directly by the Company's sales organization of
approximately 130 employees. Of these employees, sales representatives are
responsible for a defined geographic territory, specialize in a particular brand
and sell to and service the independent jewelers within their territory. Their
compensation is based on salary plus commission. The sales force also consists
of account executives and account representatives who, respectively, sell to and
service the chain and department store accounts. The latter typically handle
more than one of the Company's brands and are compensated based on salary and
incentives. In South America, the Company primarily sells Tommy Hilfiger watches
through independent distributors.
The Company's domestic sales are traditionally greater during the Christmas and
holiday season. Consequently, the Company's net sales historically have been
higher during the second half of the fiscal year. The second half of each year
accounted for approximately 58.7%, 58.6% and 56.8% of the Company's net sales
for the fiscal years ended January 31, 2005, 2004 and 2003, respectively. The
amount of net sales and operating income generated during the second half of
each fiscal year depends upon the general level of retail sales during the
Christmas and holiday season, as well as economic conditions and other factors
beyond the Company's control. The Company does not expect any significant change
in the seasonality of its domestic business in the foreseeable future.
International Wholesale
The Company sells Movado, Concord and Coach watches and, as of March 1, 2004,
Ebel watches, internationally through its own sales force of approximately 100
employees operating from the Company's sales and distribution offices in China,
France, Germany, Hong Kong, Japan, Singapore, Switzerland, the UK and the United
Arab Emirates. In addition, the Company sells Movado, Ebel, Concord, Coach and
Tommy Hilfiger watches through a network of independent distributors operating
in numerous countries around the world. A majority of the Company's arrangements
with its international distributors are long-term, generally require certain
minimum purchases and restrict the distributor from selling competitive
products. Major selling seasons in certain international markets center on
significant local holidays that occur in late winter or early spring.
8
<PAGE>
Retail
The Company operates in two retail markets, the luxury boutique market and the
outlet market. The Company operates 24 Movado Boutiques in the luxury boutique
market, where Movado watches are sold as well as Movado jewelry, tabletop,
accessories and other product line extensions. In the outlet market the Company
operates 27 outlet stores, which sell the Company's discontinued models and
factory seconds, and provide the Company with an organized and efficient method
of reducing inventory without competing directly with trade customers.
AVAILABLE INFORMATION
The Company's Internet address is www.movadogroupinc.com and it makes available
through that website its annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after the same are
electronically filed with, or furnished to, the Securities and Exchange
Commission. The public may read any materials filed by the Company with the SEC
at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains reports, proxy and information statements, and other information
regarding the Company at www.sec.gov.
The Company has adopted and posted on its website at www.movadogroupinc.com a
Code of Business Conduct and Ethics that applies to all directors, officers and
employees, including the Company's Chief Executive Officer, Chief Financial
Officer and principal accounting and financial officers. The Company will post
any amendments to the Code of Business Conduct and Ethics and any waivers that
are required to be disclosed by SEC regulations on the Company's website. In
addition, the Company's audit committee charter, compensation committee charter,
nominating/corporate governance committee charter and corporate governance
guidelines have been posted on the Company's website.
9
<PAGE>
Item 2. Properties
The Company leases various facilities in the North America, Europe, the Middle
East and Asia for its corporate, manufacturing, distribution and sales
operations. As of January 31, 2005, the Company's leased facilities were as
follows:
<TABLE>
<CAPTION>
Square Lease
Location Function Footage Expiration
- ----------------------------- ------------------------------------ ------- -------------
<S> <C> <C> <C>
Moonachie, New Jersey Watch assembly, distribution 100,000 May 2010
and repair
Paramus, New Jersey Executive offices 80,400 June 2013
Bienne, Switzerland Corporate functions, watch sales, 53,600 January 2007
distribution, assembly and repair
Villers le Lac, France European service and watch 12,800 January 2006
distribution
Markham, Canada Office, distribution and repair 11,200 June 2007
Kowloon, Hong Kong Watch sales, distribution and repair 9,200 June 2007
ChangAn Dongguan, China Quality control and engineering 7,800 March 2009
Hackensack, New Jersey Warehouse 6,600 July 2007
Munich, Germany Watch sales 3,300 August 2008
Grenchen, Switzerland Watch sales 2,800 December 2005
New York, New York Public relations office 2,700 April 2008
Coral Gables, Florida Caribbean office and watch sales 1,500 November 2006
Shanghai, China Market research 1,100 July 2006
Singapore Watch sales, distribution and repair 1,100 August 2006
Dubai, United Arab Emirates Watch sales 730 July 2007
Richmond-Upon-Thames, England Watch sales 500 June 2005
Tokyo, Japan Watch sales 240 July 2007
</TABLE>
The Company also leases retail space averaging 1,600 square feet per store with
leases expiring from July 2005 to January 2015 for the operation of the
Company's 27 outlet stores. In addition, the Company leases retail space for the
operation of its Movado Boutiques, each of which averages 2,200 square feet
(with the exception of the Company's Soho Boutique in New York City which is
4,700 square feet) under leases expiring from March 2006 to January 2016.
With the acquisition of the Ebel worldwide business on March 1, 2004, the
Company acquired two properties totaling 16,000 square feet located in La
Chaux-de-Fonds, Switzerland used for manufacturing, storage and public
relations. In addition, the Company acquired an architecturally significant
building in La Chaux-de-Fonds.
The Company also owns approximately 2,400 square feet of office space in Hanau,
Germany, which it previously used for sales, distribution and watch repair
functions. The Company is currently leasing out this facility.
The Company believes that its existing facilities are suitable and adequate for
its current operations.
10
<PAGE>
Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the normal
course of its business. The Company believes that none of these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's operating results, liquidity or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company during the
fourth quarter of fiscal 2005.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
As of March 31, 2005, there were 50 holders of record of Class A Common Stock
and, the Company estimates 3,682 beneficial owners of the Common Stock
represented by 409 holders of record. The Common Stock is traded on the New York
Stock Exchange under the symbol "MOV" and on March 31, 2005, the closing price
of the Common Stock was $18.50. The quarterly high and low split-adjusted
closing prices for the fiscal years ended January 31, 2005 and 2004 were as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
January 31, 2005 January 31, 2004
----------------- -----------------
Quarter Ended Low High Low High
------ ------ ------ ------
<S> <C> <C> <C> <C>
April 30 $12.63 $15.31 $ 8.55 $ 9.98
July 31 $14.30 $17.24 $ 9.68 $11.91
October 31 $13.02 $17.81 $10.11 $11.87
January 31 $17.16 $18.95 $12.36 $15.49
</TABLE>
In connection with the October 7, 1993 public offering, each share of the then
currently existing Class A Common Stock was converted into 10.46 shares of new
Class A Common Stock, par value of $.01 per share (the "Class A Common Stock").
Each share of Common Stock is entitled to one vote per share and each share of
Class A Common Stock is entitled to 10 votes per share on all matters submitted
to a vote of the shareholders. Each holder of Class A Common Stock is entitled
to convert, at any time, any and all such shares into the same number of shares
of Common Stock. Each share of Class A Common Stock is converted automatically
into Common Stock in the event that the beneficial or record ownership of such
shares of Class A Common Stock is transferred to any person, except to certain
family members or affiliated persons deemed "permitted transferees" pursuant to
the Company's Amended Restated Certificate of Incorporation. The Class A Common
Stock is not publicly traded and consequently, there is currently no established
public trading market for these shares.
During the fiscal year ended January 31, 2004, the Board of Directors approved a
$0.03 per share dividend in the first quarter and a $0.06 per share dividend in
the second, third and fourth quarters on the Common Stock and Class A Common
Stock. On March 10, 2004, the Board approved an increase in the quarterly cash
dividend rate from $0.06 to $0.08 per share and approved a 2 for 1 stock split
to be effected by means of a stock dividend distributable on June 25, 2004, to
shareholders of record as of June 11, 2004, with shareholder approval of an
increase in the number of authorized shares of Common Stock and Class A Common
Stock at the annual shareholders meeting. During the fiscal year ended January
31, 2005, the Board of Directors approved four $0.04 per share quarterly cash
dividends, which reflects the effect of the fiscal 2005 2 for 1 stock split. On
March 23, 2005, the Board approved an increase in the quarterly cash dividend
rate from $0.04 to $0.05 per share. The declaration and payment of future
dividends, if any, will be at the sole discretion of the Board of Directors and
will depend upon the Company's profitability, financial condition, capital and
surplus requirements, future prospects, terms of indebtedness and other factors
deemed relevant by the Board of Directors. See Notes 5 and 6 to the Consolidated
Financial Statements regarding contractual restrictions on the Company's ability
to pay dividends.
12
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below has been derived from the
Consolidated Financial Statements. This information should be read in
conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this report. Amounts
are in thousands except per share amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
------------------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $ 418,966 $ 330,214 $ 300,077 $ 299,725 $ 320,841
Cost of sales 168,818 129,908 115,907 115,653 123,392
--------- --------- --------- --------- ---------
Gross profit 250,148 200,306 184,170 184,072 197,449
Selling, general and administrative (1) (2) 215,072 165,525 152,394 157,799 163,317
--------- --------- --------- --------- ---------
Operating income 35,076 34,781 31,776 26,273 34,132
Income from litigation settlement, net 1,444 - - - -
Interest expense, net 3,430 3,044 3,916 5,415 6,443
--------- --------- --------- --------- ---------
Income before taxes and cumulative
effect of a change in accounting
principle 33,090 31,737 27,860 20,858 27,689
Provision for income taxes (3) (4) 6,783 8,886 7,801 3,735 6,922
--------- --------- --------- --------- ---------
Income before cumulative effect of a
change in accounting principle 26,307 22,851 20,059 17,123 20,767
Cumulative effect of a change in
accounting principle - - - (109) -
--------- --------- --------- --------- ---------
Net income $ 26,307 $ 22,851 $ 20,059 $ 17,014 $ 20,767
========= ========= ========= ========= =========
Net income per share-Basic (5) $ 1.06 $ 0.95 $ 0.84 $ 0.73 $ 0.89
Net income per share-Diluted (5) $ 1.03 $ 0.92 $ 0.82 $ 0.71 $ 0.88
Basic shares outstanding (5) 24,708 24,101 23,739 23,366 23,302
Diluted shares outstanding (5) 25,583 24,877 24,381 24,014 23,733
Cash dividends declared per share (5) $ 0.16 $ 0.105 $ 0.06 $ 0.06 $ 0.0525
Balance Sheet Data (End of Period):
Working capital (6) $ 303,696 $ 252,883 $ 219,420 $ 153,932 $ 154,637
Total assets $ 476,950 $ 390,967 $ 345,154 $ 290,676 $ 290,405
Total long-term debt $ 45,000 $ 35,000 $ 35,000 $ 40,000 $ 45,000
Shareholders' equity $ 316,558 $ 274,713 $ 236,212 $ 172,470 $ 159,470
</TABLE>
(1) Fiscal 2005 includes a non-cash impairment charge of $2.0 million recorded
in accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144").
(2) Fiscal 2002 includes a one-time severance and early retirement charge of
$2.7 million.
(3) The effective tax rate for fiscal 2005 was reduced to 20.5% principally as
the result of adjustments in the fourth quarter relating to refunds from a
retroactive Swiss tax ruling, a favorable U.S. tax accrual adjustment, and
the recording of the tax benefit from an asset impairment in the U.S.
(4) The fiscal 2002 effective tax rate of 17.9% reflects a decrease in the
Company's U.S. source earnings as a percentage of the overall earnings mix
as compared to a fiscal 2001 effective rate of 25.0%.
(5) For all periods presented, basic and diluted shares outstanding, and the
related "per share" amounts reflect the effect of the fiscal 2005
two-for-one stock split.
(6) The Company defines working capital as current assets less current
liabilities.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Wholesale Sales. The primary factors that influence annual sales are general
economic conditions in the Company's domestic and international markets, new
product introductions, the level and effectiveness of advertising and marketing
expenditures and product pricing decisions.
Approximately 21.2% of the Company's total sales are from international markets
and therefore reported sales made in those markets are affected by foreign
exchange rates. Significant portions of the Company's international sales are
billed in Swiss francs and translated to U.S. dollars at average exchange rates
for financial reporting purposes. With the acquisition of Ebel in March of 2004
and the introduction of Hugo Boss watches, the Company expects that a
slightly higher percentage of its total sales will be derived from international
markets in the future.
The Company's business is seasonal. There are two major selling seasons in the
Company's markets: the spring season, which includes school graduations and
several holidays and, most importantly, the Christmas and holiday season. Major
selling seasons in certain international markets center on significant local
holidays that occur in late winter or early spring. The Company's net sales
historically have been higher during the second half of the fiscal year. The
second half of the fiscal year accounted for approximately 58.7%.
Retail Sales. The Company's retail operations consist of 24 Movado Boutiques and
27 outlet stores located throughout the United States. The Company does not have
any retail operations outside of the United States.
The significant factors that influence annual sales volumes in the Company's
retail operations are similar to those that influence domestic wholesale sales.
In addition, many of the Company's outlet stores are located near vacation
destinations and, therefore, the seasonality of these stores is driven by the
peak tourist seasons associated with these locations.
Gross Margins. The Company's overall gross margins are primarily affected by
four major factors: brand and product sales mix, product pricing strategy,
manufacturing costs and the U.S. dollar/Swiss franc exchange rate. Gross margins
for the Company may not be comparable to those of other entities, since some
entities include all the costs related to its distribution network in cost of
sales whereas the Company does not include the costs associated with the U.S.
warehousing and distribution facility nor the occupancy costs for the retail
segment in the cost of sales line item.
Gross margins vary among the brands included in the Company's portfolio and also
among watch models within each brand. Watches in the luxury and premium price
point categories generally earn lower gross margin percentages than moderate
price models. Gross margins in the Company's outlet business are lower than
those of the wholesale business since the outlets primarily sell seconds and
discontinued models that generally command lower selling prices. Gross margins
from the sale of watches in the Movado Boutiques exceed those of the wholesale
business since the Company earns margins from manufacture to point of sale to
the consumer.
All of the Company's brands compete with a number of other brands on the basis
of not only styling but also wholesale and retail price. The Company's ability
to improve margins through price increases is therefore, to some extent,
constrained by competitors' actions.
Costs of sales of the Company's products consist primarily of component costs,
internal assembly costs and unit overhead costs associated with the Company's
supply chain operations in Switzerland and Asia. The Company's supply chain
operations consist of logistics management of assembly operations and product
14
<PAGE>
sourcing in Switzerland and Asia and assembly in Switzerland. Through
productivity improvement efforts, the Company has controlled the level of
overhead costs and maintained flexibility in its cost structure by outsourcing a
significant portion of its component and assembly requirements and expects to
extend this strategy over the near term.
Since a substantial amount of the Company's product costs are incurred in Swiss
francs, fluctuations in the U.S. dollar/Swiss franc exchange rate can impact the
Company's production costs and, therefore, its gross margins. The Company hedges
its Swiss franc purchases using a combination of forward contracts, purchased
currency options and spot purchases. The Company's hedging program had the
effect of minimizing the exchange rate impact on product costs and gross
margins.
Selling, General and Administrative ("SG&A") Expenses. The Company's SG&A
expenses consist primarily of advertising, selling, distribution and general and
administrative expenses. Annual advertising expenditures are based principally
on overall strategic considerations relative to maintaining or increasing market
share in markets that management considers to be crucial to the Company's
continued success as well as on general economic conditions in the various
markets around the world in which the Company sells its products.
Selling expenses consist primarily of salaries, sales commissions, sales force
travel and related expenses, expenses associated with the Basel Watch and
Jewelry Fair and other industry trade shows and operating costs incurred in
connection with the Company's retail business. Sales commissions vary with
overall sales levels. Retail selling expenses consist primarily of salaries and
store rents.
Distribution expenses consist primarily of salaries of distribution staff,
rental and other occupancy costs, security, depreciation and amortization of
furniture and leasehold improvements and shipping supplies.
General and administrative expenses consist primarily of salaries and other
employee compensation, employee benefit plan costs, office rent, management
information systems costs, bad debts, patent and trademark expenses and various
other general corporate expenses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and those
significant policies are more fully described in Note 1 to the Company's
consolidated financial statements. The preparation of these financial statements
and the application of certain critical accounting policies require management
to make judgments based on estimates and assumptions that affect the information
reported. On an on-going basis, management evaluates its estimates and
judgments, including those related to sales discounts and markdowns, product
returns, bad debt, inventories, income taxes, financing operations, warranty
obligations, and contingencies and litigation. Management bases its estimates
and judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources on historical experience, contractual
commitments and on various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. Management believes the following are the
critical accounting policies requiring significant judgments and estimates used
in the preparation of its consolidated financial statements.
15
<PAGE>
Revenue Recognition
In the wholesale segment, the Company recognizes its revenues upon transfer of
title and risk of loss in accordance with its FOB shipping point terms of sale
and after the sales price is fixed and determinable and collectibility is
reasonably assured. In the retail segment, transfer of title and risk of loss
occurs at the time of register receipt. The Company records estimates for sales
returns, volume-based programs and sales and cash discount allowances as a
reduction of revenue in the same period that the sales are recorded. These
estimates are based upon historical analysis, customer agreements and/or
currently known factors that arise in the normal course of business.
Allowance for Doubtful Accounts
Accounts receivable are reduced by an allowance for amounts that may be
uncollectible in the future. Estimates are used in determining the allowance for
doubtful accounts and are based on the Company's on-going credit evaluations of
the customers and customer payment history and account aging. While the actual
bad debt losses have historically been within the Company's expectations and the
allowances established, there can be no guarantee that the Company will continue
to experience the same bad debt loss rates. As of January 31, 2005, the Company
knew of no situations with any of the Company's major customers which would
indicate the customer's inability to make their required payments.
Inventories
The Company values its inventory at the lower of cost or market using the
first-in, first-out (FIFO) method. The cost of finished goods and component
inventories, held by overseas subsidiaries, are determined using average cost.
The Company's management regularly reviews its sales to customers and customers'
sell through at retail to evaluate the adequacy of inventory reserves. Inventory
with less than acceptable turn rates is classified as discontinued and, together
with the related component parts which can be assembled into saleable finished
goods, is sold through the Company's outlet stores. When management determines
that finished product and components are unsaleable in the Company's outlet
stores, a reserve is established for the cost of those products and components.
These estimates could vary significantly, either favorably or unfavorably, from
actual requirements depending on future economic conditions, customer inventory
levels or competitive conditions which may differ from the Company's
expectations.
Long-Lived Assets
The Company periodically reviews the estimated useful lives of its depreciable
assets based on factors including historical experience, the expected beneficial
service period of the asset, the quality and durability of the asset and the
Company's maintenance policy including periodic upgrades. Changes in useful
lives are made on a prospective basis unless factors indicate the carrying
amounts of the assets may not be recoverable and an impairment write-down is
necessary.
The Company reviews its long-lived assets for impairment when events or changes
in circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable in accordance with Statement of Financial
Accounting Standards No. 144. "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"). When such a determination has been made,
management compares the carrying value of the assets with their estimated future
undiscounted cash flows. If it is determined that an impairment loss has
occurred, the loss is recognized during that period. The impairment loss is
calculated as the difference between asset carrying values and the present value
of estimated future cash flows or comparable market values, giving consideration
to recent operating performance and pricing trends.
16
<PAGE>
During the fourth quarter of fiscal 2005, the Company determined that the
carrying value of its long-lived assets in the Movado Boutique located in the
Soho section of New York City, might not be recoverable. The impairment review
was performed pursuant to SFAS No. 144 because of an economic downturn affecting
the Soho Boutique operations and revenue forecasts. As a result, the Company
recorded a non-cash pretax impairment charge of $2.0 million consisting of
property, plant and equipment of $0.8 million and other assets of $1.2 million.
The entire impairment charge is included in the selling, general and
administrative expenses in the fiscal 2005 Consolidated Statements of Income.
The Company will continue to operate this boutique. There were no impairment
losses related to long-lived assets in fiscal 2004 or 2003.
Warranty
All watches sold by the Company are covered by limited warranties against
defects in material and workmanship for periods ranging from two to three years
from the date of purchase for movements and up to five years for the gold
plating for Movado watch cases and bracelets. The Company records an estimate
for future warranty costs based on historical repair costs. Warranty costs have
historically been within the Company's expectations and the provisions
established. If such costs were to substantially exceed estimates, this could
have an adverse affect on the Company's operating results.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax laws and tax rates, in each jurisdiction the Company operates, and
applied to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities due to a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, the amounts of any future tax
benefits are reduced by a valuation allowance to the extent such benefits are
not expected to be realized on a more-likely-than-not basis. The Company
calculates estimated income taxes in each of the jurisdictions in which it
operates. This process involves estimating actual current tax expense along with
assessing temporary differences resulting from differing treatment of items for
both book and tax purposes.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for fiscal 2005
compared to fiscal 2004 and fiscal 2004 compared to fiscal 2003 along with a
discussion of the changes in financial condition during fiscal 2005.
The following are net sales by business segment (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
---------------------------------------------
2005 2004 2003
--------- --------- ---------
<S> <C> <C> <C>
Wholesale:
Domestic $ 256,331 $ 224,866 $ 207,819
International 88,697 44,475 38,376
Retail 73,938 60,873 53,882
--------- --------- ---------
Net Sales $ 418,966 $ 330,214 $ 300,077
========= ========= =========
</TABLE>
17
<PAGE>
The following table presents the Company's results of operations expressed as a
percentage of net sales for the fiscal years indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
----------------------------------------------------------------
2005 2004 2003
-------------- -------------- --------------
% of net sales % of net sales % of net sales
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 40.3% 39.3% 38.6%
Selling, general and administrative expenses 51.3% 50.1% 50.8%
Interest expense, net 0.8% 0.9% 1.3%
Net income 6.3% 6.9% 6.7%
</TABLE>
Fiscal 2005 Compared to Fiscal 2004
Net Sales
Net sales in fiscal 2005 were $419.0 million, or 26.9% above fiscal 2004 sales
of $330.2 million. For the year, sales increases were recorded in all brands and
business segments.
Domestic Wholesale Net Sales
The domestic wholesale business increased by 14.0%, or $31.5 million, to $256.3
million, including Ebel sales of $15.7 million. A sales increase of $7.2 million
was recorded in the Movado brand. The increase is attributed to new product
introductions at more affordable price points as well as increased sell through
at certain retailers in key customer chain stores. The Coach brand increased by
$2.3 million as a result of the introduction of fashion products in tandem with
new product offerings by Coach, Inc. The Tommy Hilfiger watch business increased
by $4.4 million. This reflects the expansion into new doors in the North
American marketplace as well as the continued strength of the Tommy Hilfiger
watch business.
International Wholesale Net Sales
The international wholesale business was $88.7 million and was above prior year
by $44.2 million or 99.4%, including Ebel sales of $28.5 million. An increase of
$6.3 million was recorded in Tommy Hilfiger as a result of international market
expansion. Coach, Concord and Movado increased by $2.0 million, $5.0 million and
$2.3 million, respectively, due to growth primarily recorded in Asia.
Retail Net Sales
Sales in the Company's retail segment increased by $13.1 million, or 21.5%, to
$73.9 million. Comparable store sales increases of 11.2% were achieved in the
Movado Boutiques. In addition, new store sales grew by $10.4 million over the
prior year. Comparable store sales in the Company outlet stores were flat year
over year. At January 31, 2005, the Company operated 24 Movado Boutiques and 27
outlet stores as compared to 17 Movado Boutiques and 26 outlet stores at January
31, 2004.
18
<PAGE>
Gross Margin
Gross margin for the year was $250.1 million, an increase of $49.8 million over
prior year gross margin of $200.3 million. The increase of $49.8 million was due
to increased sales of $88.8 million. As a percent of sales, gross margin was
59.7% versus 60.7% in the prior year. The lower gross margin percentage was
primarily attributed to a sales mix change due to the addition of Ebel and the
increased sales of Tommy Hilfiger, where the gross margins are lower than the
Company's historical average.
Selling, General and Administrative Expenses
SG&A expenses of $215.1 million increased by $49.5 million, or 29.9%, from
$165.5 million in fiscal 2004. The primary reasons for the increases were the
addition of Ebel, which recorded $28.3 million of incremental expenses, $6.6
million of increased spending in support of the Movado Boutique expansion,
higher payroll and related costs of $6.4 million, additional marketing programs
of $1.3 million and other corporate initiatives of $2.2 million, which included
higher legal costs, costs incurred in connection with Sarbanes-Oxley
implementation and costs associated with the acquisition of Ebel which could not
be capitalized. In addition, in accordance with SFAS No. 144, the Company
recorded a non-cash impairment charge of $2.0 million which is included in SG&A.
Wholesale Operating Income
Operating income in the wholesale segment decreased by $1.5 million to $33.4
million. The effect of the addition of Ebel was an operating loss for the year
of $3.8 million. Excluding the loss of Ebel, operating income in the wholesale
segment was $37.2 million or an increase over prior year of $2.3 million. The
increase excluding the effect of Ebel is the net result of higher gross margin
of $14.9 million, partially offset by the increase in SG&A expenses of $12.6
million.
The higher gross margin of $14.9 million was the result of an increase in net
sales of $30.3 million. The increase in the SG&A expenses of $12.6 million is
primarily due to $1.7 million in the wholesale segment as a result of the
translation impact of the weak U.S. dollar, an increase of $1.3 million in
marketing spending, which includes support for the Movado expansion in China and
support for the international market expansion of Tommy Hilfiger, higher payroll
and related costs of $6.4 million and $2.2 million in other corporate
initiatives including higher legal costs, costs incurred in connection with
Sarbanes-Oxley implementation and costs associated with the acquisition of Ebel
which could not be capitalized.
Retail Operating Income (Loss)
Operating income in the retail segment increased by $1.8 million. The increase
is the net result of higher gross margin of $10.5 million partially offset by
increased SG&A expenses of $8.7 million.
The retail segment higher gross margin was due to a net sales increase of $13.1
million. This was primarily due to comparable store sales increases in the
Movado Boutiques of 11.2% and the opening of seven new Movado Boutiques and one
new outlet store. The comparable store sales in the outlet stores were flat year
over year.
The increase in SG&A expenses of $8.7 million was primarily attributed to the
costs associated with the opening of the seven new Movado Boutiques and one new
outlet store of $6.6 million and the effect of the impairment charge related to
the Soho Boutique of $2.0 million.
19
<PAGE>
Income from Litigation Settlement
The Company recognized income for the year ended January 31, 2005 from a
litigation settlement with Swiss Army Brands, Inc. in the net amount of $1.4
million. This consisted of a gross settlement of $1.9 million partially offset
by direct costs related to the litigation of $0.5 million. After accounting for
fees and taxes associated with the settlement, net income increased by $0.8
million, or $0.03 per diluted share.
Interest Expense
Interest expense for fiscal 2005 was $3.4 million, reflecting a 12.7% increase
over fiscal 2004 interest of $3.0 million. The increase was primarily the result
of higher average borrowings, which were $58.0 million or 14.9% above the prior
year. The increased borrowings were initiated to take advantage of low long-term
rates and to improve the Company's capital structure.
Income Taxes
The Company's income tax provision amounted to $6.8 million and $8.9 million in
fiscal 2005 and 2004 respectively. This represents an effective tax rate of
20.5% in fiscal 2005 compared to 28% for fiscal 2004. The lower effective tax
rate for fiscal 2005 is primarily due to adjustments in the fourth quarter
relating to refunds from a retroactive Swiss tax ruling, a favorable U.S. tax
accrual adjustment and the recording of the tax benefit from an asset impairment
in the U.S.
Fiscal 2004 Compared to Fiscal 2003
Net Sales
Net sales in fiscal 2004 were $330.2 million, or 10.0% above fiscal 2003 sales
of $300.1 million. For the year, sales increases were recorded in all brands and
business segments.
Domestic Wholesale Net Sales
The domestic wholesale business increased by 8.2%, or $17.0 million, to $224.9
million. A sales increase of $7.2 million was recorded in the Movado brand with
the opening of new doors in the chain and department store business. The Coach
brand increased by $3.4 million and was attributed to the introduction of
fashion products in tandem with Coach, Inc. new product offerings. The Company
intends to continue to provide products viewed as accessories to the Coach
leather goods customer. The Concord brand increased by $2.9 million and was
fueled by the introduction of new, more accessibly priced steel products. The
Tommy Hilfiger brand increased by $2.0 million, which reflects the expansion
into new doors in the North American marketplace.
International Wholesale Net Sales
The international wholesale business was $44.5 million and was above prior year
by 15.9%, or $6.1 million. The effect of translating the weaker U.S. dollar
resulted in an increase in net sales of $3.9 million. Increases of $5.2 million
were recorded in Tommy Hilfiger as a result of international market expansion.
The Movado business was below prior year by $3.2 million as a result of
difficult economic conditions in Europe and South America.
20
<PAGE>
Retail Net Sales
Sales in the Company's retail segment increased by $7.0 million, or 13.0%, to
$60.9 million. Comparable store sales increases of 20.1% were recorded in the
Movado Boutiques. In addition, sales increases of $3.8 million were recorded as
a result of the expansion into seven new Movado Boutiques opened in fiscal 2004.
At January 31, 2004, the Company operated 17 Movado Boutiques and 26 outlet
stores as compared to 10 Movado Boutiques and 26 outlet stores at January 31,
2003.
Gross Margin
Gross margin for the year was $200.3 million, an increase of $16.1 million over
prior year gross margin of $184.2 million. The increase of $16.1 million was
largely due to increased sales of $30.1 million. Included in these incremental
margins were the effects of foreign currency translation which resulted in an
increase in gross margin of $3.2 million. As a percent of sales, gross margin
was 60.7% versus 61.4% in the prior year. The lower gross margin percentage was
primarily attributed to the effect of the increased sales mix of Tommy Hilfiger,
where the gross margin for this business is lower than the Company's historical
average.
Selling, General and Administrative Expenses
SG&A expenses of $165.5 million reflect an increase of $13.1 million from $152.4
million in fiscal 2003. Included in the $13.1 million increase in SG&A expenses
is approximately $2.7 million in higher costs as a result of the translation
impact of the weak U.S. dollar. In addition, there was increased marketing
spending of $2.6 million, which included the new Movado television campaign,
increased operating costs of approximately $4.0 million to support the seven new
Movado Boutiques, and $4.1 million of higher payroll and related costs.
Wholesale Operating Income
Operating income in the wholesale segment increased by $5.4 million to $34.9
million. The increase is the net result of higher gross margin of $12.6 million,
partially offset by the increase in SG&A expenses of $7.2 million.
The higher gross margin was the result of an increase in net sales of $23.1
million. The principal reasons for the increase in the SG&A expenses of $7.2
million were approximately $2.7 million in the wholesale segment as a result of
the translation impact of the weak U.S. dollar, an increase of $1.8 million in
marketing spending, which included the production and airing of the new Movado
brand television campaign, and higher payroll and related costs of $4.1 million.
Retail Operating Income (Loss)
Operating income in the retail segment decreased by $2.4 million. The decrease
was the net result of higher SG&A expenses of $6.0 million partially offset by
higher gross margin of $3.6 million.
The retail segment higher gross margin was due to a net sales increase of $7.0
million, primarily the result of opening seven new Movado Boutiques which
accounted for $3.8 million and comparable store sales increases in the Movado
Boutiques of $2.6 million. The increase in SG&A expenses of $6.0 million was
primarily due to costs associated with the opening of the new Movado Boutiques
of approximately $4.0 million, as well as increased spending in existing Movado
Boutiques of $1.2 million primarily to support the related back office
infrastructure.
21
<PAGE>
Interest Expense
Interest expense in fiscal 2004 declined by $0.9 million from $3.9 million in
fiscal 2003 to $3.0 million in fiscal 2004. The decrease was due to
significantly lower weighted-average bank borrowings. The average borrowings
for fiscal 2004 were $50.5 million or 25.7% lower than fiscal 2003 borrowings of
$68.0 million. This was due to favorable cash flow and working capital
management.
Income Taxes
The Company's income tax provision amounted to $8.9 and $7.8 million in fiscal
2004 and 2003, respectively. This represents a 28.0% effective tax rate in both
fiscal years. Management believes that with the acquisition of Ebel, a slightly
higher percentage of its total sales will be derived from lower tax rate
international markets; thereby slightly reducing the Company's overall effective
rate in fiscal 2005.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2005, the Company had $63.8 million of cash and cash equivalents
as compared to $82.1 million in the comparable prior year period. The $18.3
million decrease is primarily due to the use of $43.5 million to fund the Ebel
acquisition and capital expenditures of $14.9 million, primarily to support the
build out of the new retail stores, remodeling of existing stores and the
expansion of office space in the corporate headquarters in Paramus, New Jersey.
These investing activities were offset by $30.2 million of cash provided by
operating activities.
Cash generated by operating activities continues to be the Company's primary
source to fund its growth initiatives and to pay dividends. In fiscal 2005, 2004
and 2003, the Company generated cash from operations of $30.2 million, $51.6
million and $33.3 million, respectively.
Accounts receivable at January 31, 2005 was $102.6 million as compared to $88.8
million in the comparable prior year period. The $13.8 million increase in
accounts receivable reflects the addition of Ebel receivables of $13.4 million
and the negative effect of currency translation of $0.9 million. Excluding these
two factors, accounts receivable was $0.5 million below the comparable prior
year period. This decrease is the result of a shift in the mix of sales growth
as well as improved global cash collections.
Inventories at January 31, 2005 were $187.9 million as compared to $121.7
million in the comparable prior year period. The $66.2 million increase is
primarily due to the addition of $41.4 million of Ebel inventory. The remaining
$24.8 million increase in inventory resulted from the addition of $5.7 million
to support the retail growth strategy, an increase of $3.2 million due to the
effect of foreign currency translation and an increase of $15.9 million in other
brand inventory to support the expansion of the domestic and international
wholesale business, including new products for introduction at the international
trade fair held in Basel, Switzerland.
Cash provided by / (used) in financing activities amounted to $3.6 million,
($1.9) million and ($11.1) million in fiscal 2005, 2004 and 2003, respectively.
Cash provided by financing activities during fiscal 2005 was primarily the
result of a net increase in long-term debt of $10.0 million partially offset by
the payment of a $5.2 million mortgage assumed as part of the Ebel acquisition.
At January 31, 2005, the Company paid off its Senior Notes due January 31, 2005,
which were originally issued in a private placement completed in fiscal 1994.
These notes had required annual principal payments of $5.0 million since January
1998 and bore interest of 6.56% per annum. The Company repaid $10.0 million of
the final principal due in fiscal 2005. The Company did not repay any principal
in fiscal 2004 due to the timing of when principal payment was due. At January
31, 2005, no principal of these notes remained outstanding.
22
<PAGE>
During fiscal 1999, the Company issued $25.0 million of Series A Senior Notes
under a Note Purchase and Private Shelf Agreement dated November 30, 1998. These
notes bear interest of 6.90% per annum, mature on October 30, 2010 and are
subject to annual repayments of $5.0 million commencing October 31, 2006. At
January 31, 2005, $25.0 million was issued and outstanding.
As of March 21, 2004, the Company amended its Note Purchase and Private Shelf
Agreement, originally dated March 21, 2001, to expire on March 21, 2007. This
agreement allows for the issuance, for up to three years after the date thereof,
of senior promissory notes in the aggregate principal amount of up to $40.0
million with maturities up to 12 years from their original date of issuance. On
October 8, 2004, the Company issued, pursuant to the Note Purchase Agreement,
4.79% Senior Series A-2004 Notes due 2011 (the "Senior Notes"), in an aggregate
principal amount of $20.0 million, which will mature on October 8, 2011 and are
subject to annual repayments of $5.0 million commencing on October 8, 2008.
Proceeds of the Senior Notes will be used by the Company for capital
expenditures, repayment of certain of its debt obligations and general corporate
purposes. As of January 31, 2005, $20.0 million was issued and outstanding.
On June 17, 2003, the Company completed the renewal of its revolving credit line
with its bank group. The agreement provides for a three year $75.0 million
unsecured revolving line of credit and $15.0 million of uncommitted working
capital lines. The line of credit expires on June 17, 2006. The Company had no
outstanding borrowings under its bank lines at January 31, 2005 and January 31,
2004. In addition, one bank in the domestic bank group issued five irrevocable
standby letters of credit for retail and operating facility leases to various
landlords and Canadian payroll to the Royal Bank of Canada totaling $0.6 million
with expiration dates through May 15, 2006.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an
unspecified length of time with a Swiss bank. Available credit under these lines
totaled 8.0 million and 8.8 million Swiss francs, with dollar equivalents of
approximately $6.7 million and $7.0 million at January 31, 2005 and 2004,
respectively, of which a maximum of $5.0 million may be drawn under the terms of
the Company's revolving credit line with its bank group. As of January 31, 2005,
the Swiss bank has guaranteed the Company's Swiss subsidiary's obligations to
certain Swiss third parties in the amount of approximately $2.8 million in
various foreign currencies. As of January 31, 2005, there are no borrowings
against these lines.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program. There
were no shares repurchased under the repurchase program during fiscal 2005 or
fiscal 2004. As of January 31, 2005, the Company had authorization to repurchase
shares up to $4.5 million against an aggregate authorization of $30.0 million.
For fiscal 2005, treasury shares increased by 336,854 as the result of cashless
exercises of stock options for 821,957 shares of stock.
Cash dividends in fiscal 2005 amounted to $4.0 million compared to $2.5 million
in fiscal 2004 and $1.6 million in fiscal 2003.
At January 31, 2005, the Company had working capital of $303.7 million as
compared to $252.9 million in the prior year. The Company defines working
capital as the difference between current assets and current liabilities. The
Company expects that annual capital expenditures in the near term will
approximate the fiscal 2005 levels. Management believes that the cash on hand in
addition to the expected cash flow from operations and the Company's short-term
borrowing capacity will be sufficient to meet its working capital needs for at
least the next 12 months.
23
<PAGE>
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Payments due by period (in thousands):
<TABLE>
<CAPTION>
Less than 1 2-3 4-5 More than 5
Total year years years years
---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Contractual Obligations:
Long-Term Debt Obligations (1) $ 45,000 - $ 10,000 $ 20,000 $ 15,000
Interest Payments on Long-Term Debt (1) 10,789 1,820 6,497 2,060 412
Operating Lease Obligations (2) 80,597 12,186 21,444 17,610 29,357
Purchase Obligations (3) 34,663 34,663 - - -
---------- ----------- ------------- ------------- ------------
Total Contractual Obligations $ 171,049 $ 48,669 $ 37,941 $ 39,670 $ 44,769
========== =========== ============= ============= ============
</TABLE>
(1) The Company has long-term debt obligations and related interest payments of
$55.8 million related to Series A-2004 Senior Notes and Series A Senior Notes
further discussed in "Liquidity and Capital Resources".
(2) Includes store operating leases, which generally provide for payment of
direct operating costs in addition to rent. These obligation amounts include
future minimum lease payments and exclude such direct operating costs.
(3) The Company had outstanding purchase obligations with suppliers at the end
of fiscal 2005 for raw materials, finished watches and packaging in the normal
course of business. These purchase obligation amounts do not represent total
anticipated purchases but represent only amounts to be paid for items required
to be purchased under agreements that are enforceable, legally binding and
specify minimum quantity, price and term.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet financing or unconsolidated
special-purpose entities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 151, "Inventory Costs", an
amendment of ARB No. 43, Chapter 4 ("SFAS No. 151"). The amendments made by SFAS
No. 151 will improve financial reporting by clarifying that abnormal amounts of
idle facility expense, freight, handling costs, and wasted materials (spoilage)
should be recognized as current-period charges by requiring the allocation of
fixed production overheads to inventory based on the normal capacity of the
production facilities. The guidance is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005, and is not expected to have a
significant impact on the Company's consolidated financial position, results of
operations or cash flows.
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment", which is a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123(R)"). SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash
Flows". Generally, the approach in SFAS No. 123(R) is similar to the approach
described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. Public entities are required to apply SFAS No. 123(R) as of the
first annual reporting period that begins after June 15, 2005.
The Company continued to use the intrinsic value based method of accounting for
share-based payments. The Company uses the Black-Scholes formula to estimate the
value of stock options granted to employees. SFAS No. 123(R) requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement may reduce net operating
cash flows and increase net financing cash flows in periods after adoption. The
Company is currently assessing the impact of this pronouncement on its
consolidated statement of operations and its consolidated statement of cash
flows.
24
<PAGE>
Also in December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, "Exchanges of Nonmonetary Assets--An Amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions" ("SFAS No. 153"). SFAS No. 153
eliminates the exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
"Accounting for Nonmonetary Transactions", and replaces it with an exception for
exchanges that do not have commercial substance. SFAS No. 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective for the fiscal periods beginning after June 15, 2005. The
adoption of SFAS No. 153 is not expected to have a material impact on the
Company's current financial position or results of operations.
25
<PAGE>
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Foreign Currency Exchange Rate Risk
The Company's primary market risk exposure relates to foreign currency exchange
risk (see Note 7 to the Consolidated Financial Statements). The majority of the
Company's purchases are denominated in Swiss francs. The Company reduces its
exposure to the Swiss franc exchange rate risk through a hedging program. Under
the hedging program, the Company manages most of its foreign currency exposures
on a consolidated basis, which allows it to net certain exposures and take
advantage of natural offsets. The Company uses various derivative financial
instruments to further reduce the net exposures to currency fluctuations,
predominantly forward and option contracts. These derivatives either (a) are
used to hedge the Company's Swiss franc liabilities and are recorded at fair
value with the changes in fair value reflected in earnings or (b) are documented
as SFAS No. 133 cash flow hedges with the gains and losses on this latter
hedging activity first reflected in other comprehensive income, and then later
classified into earnings. In both cases, the earnings impact is partially offset
by the effects of currency movements on the underlying hedged transactions. If
the Company did not engage in a hedging program, any change in the Swiss franc
to local currency would have an equal effect on the Company's cost of sales. In
addition, the Company hedges its Swiss franc payable exposure with forward
contracts. As of January 31, 2005, the Company's entire net forward contracts
hedging portfolio consisted of 239.0 million Swiss francs equivalent for various
expiry dates ranging through January 27, 2006. The Company also has 30.0 million
Swiss franc option contracts related to cash flow hedges for various expiry
dates ranging through October 31, 2005.
The Company's Board of Directors authorized the hedging of the Company's Swiss
franc denominated investment in its wholly-owned Swiss subsidiaries using
purchase options under certain limitations. These hedges are treated as net
investment hedges under SFAS No. 133. As of January 31, 2005, the Company's
purchased option hedge portfolio related to net investment hedging amounted to
50.0 million Swiss francs with various expiry dates ranging through September
27, 2006.
Commodity Risk
Additionally, the Company has a hedging program related to gold used in the
manufacturing of the Company's watches. Under this hedging program, the Company
purchases various commodity derivative instruments, primarily future contracts.
These derivatives are documented as SFAS No. 133 cash flow hedges, and gains and
losses on these derivative instruments are first reflected in other
comprehensive income, and later reclassified into earnings, partially offset by
the effects of gold market price changes on the underlying actual gold
purchases. If the Company did not engage in a gold hedging program, any changes
in the gold price would have an equal effect on the Company's cost of sales. The
Company did not hold any futures contracts in its gold hedge portfolio related
to cash flow hedges as of January 31, 2005.
Debt and Interest Rate Risk
In addition, the Company has certain debt obligations with variable interest
rates, which are based on LIBOR plus a fixed additional interest rate. The
Company does not hedge these interest rate risks. The Company also has certain
debt obligations with fixed interest rates. The differences between the market
based interest rates at January 31, 2005, and the fixed rates were unfavorable.
The Company believes that a 1% change in interest rates would affect the
Company's net income by approximately $0.2 million, which is not material.
26
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Schedule Page
Number Number
-------- -----------
<S> <C> <C>
Management's Annual Report on Internal Control Over Financial Reporting F-1
Report of Independent Registered Public Accounting Firm F-2
Consolidated Statements of Income for the fiscal years ended January 31, 2005,
2004 and 2003 F-4
Consolidated Balance Sheets at January 31, 2005 and 2004 F-5
Consolidated Statements of Cash Flows for the fiscal years ended January
31, 2005, 2004 and 2003 F-6
Consolidated Statements of Changes in Shareholders' Equity for the fiscal years
ended January 31, 2005, 2004 and 2003 F-7
Notes to Consolidated Financial Statements F-8 to F-30
Valuation and Qualifying Accounts and Reserves II S-1
</TABLE>
27
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
The Company, under the supervision and with the participation of its management,
including the Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the Company's disclosure controls and procedures, as such
terms are defined in Rule 13a-15(e) under the Securities Exchange Act, as
amended (the "Exchange Act"). Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective as of the end of the period covered by
this report.
Changes in Internal Control Over Financial Reporting
- ----------------------------------------------------
There has been no change in the Company's internal control over financial
reporting during the quarter ended January 31, 2005, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
It should be noted that while the Company's Chief Executive Officer and Chief
Financial Officer believe that the Company's disclosure controls and procedures
provide a reasonable level of assurance that they are effective, they do not
expect that the Company's disclosure controls and procedures or internal control
over financial reporting will prevent all errors and fraud. A control system, no
matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
See Financial Statements and Supplementary Data for Management's Annual
Report on Internal Control Over Financial Reporting and Report of Independent
Registered Public Accounting Firm containing an attestation thereto.
28
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the captions
"Election of Directors" and "Management" and is incorporated herein by
reference.
Information on the beneficial ownership reporting for the Company's directors
and executive officers is contained in the Company's Proxy Statement for the
2005 annual meeting of shareholders under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" and is incorporated herein by reference.
Information on the Company's Audit Committee and Audit Committee Financial
Expert is contained in the Company's Proxy Statement for the 2005 annual meeting
of shareholders under the caption "Information Regarding the Board of Directors
and Its Committees" and is incorporated herein by reference.
The Company has adopted and posted on its website at www.movadogroupinc.com a
Code of Business Conduct and Ethics that applies to all directors, officers and
employees, including the Company's Chief Executive Officer, Chief Financial
Officer and principal financial and accounting officers. The Company will post
any amendments to the Code of Business Conduct and Ethics, and any waivers that
are required to be disclosed by SEC regulations, on the Company's website.
Item 11. Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the captions
"Executive Compensation" and "Compensation of Directors" and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the caption
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the caption "Certain
Relationships and Related Transactions" and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is included in the Company's Proxy
Statement for the 2005 annual meeting of shareholders under the caption "Fees
Paid to PricewaterhouseCoopers LLP" and is incorporated herein by reference.
29
<PAGE>
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report
--------------------------------------
1. Financial Statements:
See Financial Statements Index on page 27 included in Item 8 of Part
II of this annual report.
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying
Accounts and Reserves
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3. Exhibits:
Incorporated herein by reference is a list of the Exhibits contained
in the Exhibit Index on pages 33 through 40 of this annual report.
30
<PAGE>
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.
MOVADO GROUP, INC.
(Registrant)
Dated: April 18, 2005 By: /s/ Gedalio Grinberg
--------------------------------------
Gedalio Grinberg
Chairman of the Board of Directors
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 date indicated.
Dated: April 18, 2005 /s/ Gedalio Grinberg
--------------------------------------
Gedalio Grinberg
Chairman of the Board of Directors
Dated: April 18, 2005 /s/ Efraim Grinberg
--------------------------------------
Efraim Grinberg
President and Chief Executive Officer
Dated: April 18, 2005 /s/ Richard J. Cote
--------------------------------------
Richard J. Cote
Executive Vice President and
Chief Operating Officer
Dated: April 18, 2005 /s/ Eugene J. Karpovich
--------------------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
Dated: April 18, 2005 /s/ Margaret Hayes Adame
--------------------------------------
Margaret Hayes Adame
Director
Dated: April 18, 2005 /s/ Donald Oresman
--------------------------------------
Donald Oresman
Director
31
<PAGE>
Dated: April 18, 2005 /s/ Leonard L. Silverstein
--------------------------------------
Leonard L. Silverstein
Director
Dated: April 18, 2005 /s/ Alan H. Howard
--------------------------------------
Alan H. Howard
Director
Dated: April 18, 2005 /s/ Nathan Leventhal
--------------------------------------
Nathan Leventhal
Director
Dated: April 18, 2005 /s/ Michael J. Hand
--------------------------------------
Michael J. Hand
Vice President,
Corporate Controller and
Principal Accounting Officer
32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
3.1 Restated By-Laws of the Registrant.
Incorporated by reference to Exhibit 3.1
filed with the Company's Registration
Statement on Form S-1 (Registration No.
33-666000).
3.2 Restated Certificate of Incorporation of the
Registrant as amended. Incorporated herein by
reference to Exhibit 3(i) to the Registrant's
Quarterly Report on Form 10-Q filed for the
quarter ended July 31, 1999.
4.1 Specimen Common Stock Certificate.
Incorporated herein by reference to Exhibit
4.1 to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1998.
4.2 Note Purchase and Private Shelf Agreement
dated as of November 30, 1998 between the
Registrant and The Prudential Insurance
Company of America. Incorporated herein by
reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for
the year ended January 31, 1999.
4.3 Note Purchase and Private Shelf Agreement
dated as of March 21, 2001 between the
Registrant and The Prudential Insurance
Company of America. Incorporated herein by
reference to Exhibit 4.4 to the Registrant's
Annual Report on Form 10-K for the year ended
January 31, 2001.
4.4 Amendment dated as of March 21, 2004 to Note
Purchase and Private Shelf Agreement dated as
of March 21, 2001 between the Registrant and
The Prudential Insurance Company of America.
Incorporated herein by reference to Exhibit
4.5 to the Registrant's Annual Report on Form
10-K for the year ended January 31, 2004.
10.1 Amendment Number 1 to License Agreement dated
December 9, 1996 between the Registrant as
Licensee and Coach, a division of Sara Lee
Corporation as Licensor, dated as of February
1, 1998. Incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
October 31, 1998.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.2 Agreement, dated January 1, 1992, between The
Hearst Corporation and the Registrant, as
amended on January 17, 1992. Incorporated
herein by reference to Exhibit 10.8 filed
with the Company's Registration Statement on
Form S-1 (Registration No. 33-666000).
10.3 Letter Agreement between the Registrant and
The Hearst Corporation dated October 24, 1994
executed October 25, 1995 amending License
Agreement dated as of January 1, 1992, as
amended. Incorporated herein by reference to
Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended October
31, 1995.
10.4 Registrant's 1996 Stock Incentive Plan
amending and restating the 1993 Employee
Stock Option Plan. Incorporated herein by
reference to Exhibit 10.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended October 31, 1996. *
10.5 Lease dated August 10, 1994 between
Rockefeller Center Properties, as landlord
and SwissAm, Inc., as tenant for space at 630
Fifth Avenue, New York, New York.
Incorporated herein by reference to Exhibit
10.4 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
1994.
10.6 Death and Disability Benefit Plan Agreement
dated September 23, 1994 between the
Registrant and Gedalio Grinberg. Incorporated
herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1994. *
10.7 Registrant's amended and restated Deferred
Compensation Plan for Executives effective
June 17, 2004. *
10.8 License Agreement dated December 9, 1996
between the Registrant and Sara Lee
Corporation. Incorporated herein by reference
to Exhibit 10.32 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 1997.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.9 First Amendment to Lease dated April 8, 1998
between RCPI Trust, successor in interest to
Rockefeller Center Properties ("Landlord")
and Movado Retail Group, Inc., successor in
interest to SwissAm, Inc. ("Tenant") amending
lease dated August 10, 1994 between Landlord
and Tenant for space at 630 Fifth Avenue, New
York, New York. Incorporated herein by
reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for
the year ended January 31, 1998.
10.10 Second Amendment dated as of September 1,
1999 to the December 1, 1996 License
Agreement between Sara Lee Corporation and
Registrant. Incorporated herein by reference
to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
October 31, 1999.
10.11 License Agreement entered into as of June 3,
1999 between Tommy Hilfiger Licensing, Inc.
and Registrant. Incorporated herein by
reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended October 31, 1999.
10.12 Severance Agreement dated December 15, 1999,
and entered into December 16, 1999 between
the Registrant and Richard J. Cote.
Incorporated herein by reference to Exhibit
10.35 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2000. *
10.13 Lease made December 21, 2000 between the
Registrant and Mack-Cali Realty, L.P. for
premises in Paramus, New Jersey together with
First Amendment thereto made December 21,
2000. Incorporated herein by reference to
Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 2000.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.14 Lease Agreement dated May 22, 2000 between
Forsgate Industrial Complex and the
Registrant for premises located at 105 State
Street, Moonachie, New Jersey. Incorporated
herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q
filed for the quarter ended April 30, 2000.
10.15 Second Amendment of Lease dated July 26, 2001
between Mack-Cali Realty, L.P., as landlord,
and Movado Group, Inc., as tenant, further
amending lease dated as of December 21, 2000.
Incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on
Form 10-Q filed for the quarter ended October
31, 2001.
10.16 Third Amendment of Lease dated November 6,
2001 between Mack-Cali Realty, L.P., as
lessor and Movado Group, Inc., as lessee, for
additional space at Mack-Cali II, One Mack
Drive, Paramus, New Jersey. Incorporated herein by
reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q filed for the
quarter ended October 31, 2001.
10.17 Amendment Number 2 to Registrant's 1996 Stock
Incentive Plan dated March 16, 2001.
Incorporated herein by reference to Exhibit
10.27 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2002.*
10.18 Amendment Number 3 to Registrant's 1996 Stock
Incentive Plan approved June 19, 2001.
Incorporated herein by reference to Exhibit
10.28 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2002.*
10.19 Amendment Number 3 to License Agreement dated
December 9, 1996, as previously amended,
between the Registrant, Movado Watch Company
S.A. and Coach, Inc. dated as of January 30,
2003. Incorporated herein by reference to
Exhibit 10.29 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 2002.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.20 Amended and Restated Master Promissory Note
Agreement dated June 21, 2001 between the
Registrant and Fleet National Bank.
Incorporated herein by reference to Exhibit
10.30 to the Registrant's Annual Report on
Form 10-K for the year ended January 31,
2002.
10.21 Line of Credit Letter Agreement dated August
20, 2001 between the Registrant and The Bank
of New York. Incorporated herein by reference
to Exhibit 10.31 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 2002.
10.22 First Amendment to the License Agreement
dated June 3, 1999 between Tommy Hilfiger
Licensing, Inc., Registrant and Movado Watch
Company S.A. entered into January 16, 2002.
Incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2002.
10.23 Second Amendment to the License Agreement
dated June 3, 1999 between Tommy Hilfiger
Licensing, Inc., Registrant and Movado Watch
Company S.A. entered into August 1, 2002.
Incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2002.
10.24 Amendment dated August 5, 2004 to Line of
Credit Agreement between the Registrant and
The Bank of New York dated August 20, 2001.
Incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2004.
10.25 Line of Credit Letter Agreement dated June
20, 2004 between the Registrant and Fleet
National Bank and Second Amended and Restated
Promissory Note as of June 20, 2004.
Incorporated herein by reference to Exhibit
10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31,
2004.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.26 Endorsement Agreement dated as of April 4,
2003 between the Registrant and The Grinberg
Family Trust. Incorporated herein by
reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for
the year ended January 31, 2003.
10.27 Revolving Credit Agreement dated June 17,
2003 between the Registrant, Concord Watch
Company S.A., Movado Watch Company S.A., the
Lenders signatory thereto and JP Morgan Chase
Bank as Administrative Agent, Swingline Bank
and Issuing Bank. Incorporated herein by
reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended July 30, 2003.
10.28 Third Amendment to License Agreement dated
June 3, 1999 between Tommy Hilfiger
Licensing, Inc. and the Registrant entered
into as of May 7, 2004. Incorporated herein
by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended April 30, 2004.
10.29 Amendment dated October 29, 2004 to the
Credit Agreement dated as of June 17, 2003
between the Registrant, MGI Luxury Group
S.A., Movado Watch Company S.A., each of the
lenders signatory to such Credit Agreement
and JP Morgan Chase Bank. Incorporated herein
by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended October 31, 2004.
10.30 Employment Agreement dated August 27, 2004
between the Registrant and Mr. Eugene J.
Karpovich. Incorporated herein by reference
to Exhibit 10.2 the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
October 31, 2004. *
10.31 Employment Agreement dated August 27, 2004
between the Registrant and Mr. Frank Kimick.
Incorporated herein by reference to Exhibit
10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31,
2004. *
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.32 Employment Agreement dated August 27, 2004
between the Registrant and Mr. Timothy F.
Michno. Incorporated herein by reference to
Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
October 31, 2004. *
10.33 Master Credit Agreement dated August 17, 2004
and August 20, 2004 between MGI Luxury Group
S.A. and UBS AG. Incorporated herein by
reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended July 31, 2004.
10.34 Fourth Amendment to License Agreement dated
June 3, 1999 between Tommy Hilfiger
Licensing, Inc. and the Registrant entered
into as of June 25, 2004. Incorporated herein
by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 31, 2004.
10.35 Waiver and Amendment dated as of February 27,
2004 among the Registrant, Concord Watch
Company S.A., Movado Watch Company S.A., each
of the Lenders signatory to the Credit
Agreement and JP Morgan Chase Bank as
Administrative Agent, Swingline Bank and
Issuing Bank. Incorporated herein by
reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for
the year ended January 31, 2004.
10.36 Fifth Amendment of Lease dated October 20,
2003 between Mack-Cali Realty, L.P. as
landlord and the Registrant as tenant further
amending the lease dated as of December 21,
2000. Incorporated herein by reference to
Exhibit 10.29 to the Registrant's Annual
Report on Form 10-K for the year ended
January 31, 2004.
10.37 Registrant's 1996 Stock Incentive Plan,
amended and restated as of April 8, 2004.*
10.38 License Agreement entered into December 15,
2004 between MGI Luxury Group S.A. and Hugo
Boss Trade Mark Management GmbH & Co.**
21.1 Subsidiaries of the Registrant.
23.2 Consent of PricewaterhouseCoopers LLP.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Constitutes a compensatory plan or arrangement.
** Confidential portions of Exhibit 10.38 have been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934.
</TABLE>
40
<PAGE>
Management's Annual Report on Internal Control Over Financial Reporting
- -----------------------------------------------------------------------
The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting, as such terms is defined in
Rule 13a-15(f) under the Exchange Act, for the Company. With the participation
of the Chief Executive Officer and the Chief Financial Officer, the Company's
management conducted an evaluation of the effectiveness of the Company's
internal control over financial reporting based on the framework and criteria
established in Internal Control - Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, the Company's management has concluded that the Company's internal
control over financial reporting was effective as of January 31, 2005.
Management's assessment of the effectiveness of our internal control over
financial reporting as of January 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.
F-1
<PAGE>
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Movado Group Inc.:
We have completed an integrated audit of Movado Group, Inc.'s 2005 consolidated
financial statements and of its internal control over financial reporting as of
January 31, 2005 and audits of its 2004 and 2003 consolidated financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement schedule
- ------------------------------------------------------------------
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Movado Group, Inc. and its subsidiaries at January 31,
2005 and 2004, and the results of their operations and their cash flows for each
of the three years in the period ended January 31, 2005 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 of financial statements
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Internal control over financial reporting
- -----------------------------------------
Also, in our opinion, management's assessment, included in "Management's Annual
Report on Internal Control Over Financial Reporting", that the Company
maintained effective internal control over financial reporting as of January
31, 2005 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of January
31, 2005, based on criteria established in Internal Control - Integrated
Framework issued by the COSO. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
F-2
<PAGE>
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
April 18, 2005
F-3
<PAGE>
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
------------------------------
2005 2004 2003
-------- -------- --------
<S> <C> <C> <C>
Net sales $418,966 $330,214 $300,077
Cost of sales 168,818 129,908 115,907
-------- -------- --------
Gross profit 250,148 200,306 184,170
Selling, general and administrative 215,072 165,525 152,394
-------- -------- --------
Operating income 35,076 34,781 31,776
Income from litigation settlement, net 1,444 - -
Interest expense, net 3,430 3,044 3,916
-------- -------- --------
Income before income taxes 33,090 31,737 27,860
Provision for income taxes 6,783 8,886 7,801
-------- -------- --------
Net income $ 26,307 $ 22,851 $ 20,059
======== ======== ========
Basic income per share:
Net income per share $1.06 $0.95 $0.84
Weighted basic average shares outstanding 24,708 24,101 23,739
Diluted income per share:
Net income per share $1.03 $0.92 $0.82
Weighted diluted average shares outstanding 25,583 24,877 24,381
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
January 31,
----------------------
2005 2004
--------- ---------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 63,782 $ 82,083
Trade receivables, net 102,622 88,800
Inventories, net 187,890 121,678
Other 32,758 27,932
--------- ---------
Total current assets 387,052 320,493
Property, plant and equipment, net 50,283 42,112
Other assets 39,615 28,362
--------- ---------
Total assets $ 476,950 $ 390,967
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt - $ 10,000
Accounts payable 38,488 23,631
Accrued payroll and benefits 10,747 8,033
Accrued liabilities 28,871 17,748
Current taxes payable - 2,237
Deferred income taxes 5,250 5,961
--------- ---------
Total current liabilities 83,356 67,610
Long-term debt 45,000 25,000
Deferred and noncurrent income taxes 14,827 12,195
Other liabilities 17,209 11,449
--------- ---------
Total liabilities 160,392 116,254
--------- ---------
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued - -
Common Stock, $0.01 par value, 100,000,000 shares
authorized; 22,580,459 and 21,754,600 shares issued, respectively 226 218
Class A Common Stock, $0.01 par value, 30,000,000 shares
authorized; 6,801,812 and 6,801,812 shares issued and
outstanding, respectively 68 68
Capital in excess of par value 100,289 89,348
Retained earnings 214,953 192,601
Accumulated other comprehensive income 48,707 34,473
Treasury Stock, 4,433,553 and 4,112,520 shares at cost, respectively (47,685) (41,995)
--------- ---------
Total shareholders' equity 316,558 274,713
--------- ---------
Total liabilities and shareholders' equity $ 476,950 $ 390,967
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
--------------------------------
2005 2004 2003
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,307 $ 22,851 $ 20,059
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,603 9,973 8,369
Impairment of long-lived assets 2,025 - -
Deferred and noncurrent income taxes 8,132 10,101 (294)
Provision for losses on accounts receivable 2,072 2,290 1,987
Provision for inventories 3,221 993 830
(Gain) loss on disposition of property, plant and equipment (253) 109 -
Tax benefit from stock options exercised 2,554 2,511 489
Changes in current assets and liabilities:
Trade receivables 1,422 4,583 (2,602)
Inventories (29,587) (6,248) (4,815)
Other current assets 5,716 12,179 14,236
Accounts payable 11,248 160 (2,989)
Accrued liabilities (6,615) 987 (2,734)
Accrued payroll and benefits 2,714 2,023 (811)
Deferred and current taxes payable (9,474) (9,370) 2,465
Other noncurrent assets (6,253) (4,997) (248)
Other noncurrent liabilities 4,358 3,502 (636)
-------- -------- --------
Net cash provided by operating activities 30,190 51,647 33,306
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (14,947) (10,830) (6,525)
Investment in Ebel (1) (43,525) - -
Trademarks (1,000) (653) (514)
-------- -------- --------
Net cash used in investing activities (59,472) (11,483) (7,039)
-------- -------- --------
Cash flows from financing activities:
Repayment of Senior Notes (10,000) - (5,000)
Repayment of current bank borrowings - - (6,500)
Payment of Ebel mortgage (5,187) - -
Proceeds of Senior Notes 20,000 - -
Stock options exercised and other changes 3,830 2,568 2,172
Dividends paid (3,955) (2,537) (1,602)
Repurchase of treasury stock (1,127) (1,979) (135)
-------- -------- --------
Net cash provided by (used in) financing activities 3,561 (1,948) (11,065)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents 7,420 5,502 6,192
Net (decrease) increase in cash and cash equivalents (18,301) 43,718 21,394
Cash and cash equivalents at beginning of year 82,083 38,365 16,971
-------- -------- --------
Cash and cash equivalents at end of year $ 63,782 $ 82,083 $ 38,365
======== ======== ========
(1) Supplemental Disclosure:
Fair value of assets acquired $ 71,629
Less: liabilities assumed (26,603)
--------
Cash paid for the transaction 45,026
Less: cash acquired (1,340)
Less: accrued deal costs (161)
--------
Net cash paid for transaction $ 43,525
========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Class A Capital in Other
Preferred Common Common Excess of Retained Comprehensive Treasury
Stock Stock Stock Par Value Earnings Income (Loss) Stock
--------- ------ ------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 2002 $ - $ 98 $ 35 $ 69,484 $153,830 ($ 23,286) ($27,691)
Net income 20,059
Dividends ($0.06 per share) (1,602)
Stock options exercised, net of tax of $489 2 2,631 (135)
Employee stock bonus plan 85
Supplemental executive retirement plan 30
Net unrealized loss on investments, net of tax
of $25 (82)
Net change in effective portion of hedging
contracts, net of tax of $2,709 4,584
Foreign currency translation adjustment 38,170
Conversion of Class A Common Stock to
Common Stock 1 (1)
----- ------ ------- ---------- -------- --------- --------
Balance, January 31, 2003 $ - $ 101 $ 34 $ 72,145 $172,287 $ 19,386 ($27,741)
Net income 22,851
Dividends ($0.105 per share) (2,537)
Stock options exercised, net of tax of $2,511 8 16,861 (14,254)
Supplemental executive retirement plan 170
Restricted stock amortization less cancellations 315
Net unrealized gain on investments, net of tax
of $89 139
Net change in effective portion of hedging
contracts, net of tax of $2,212 (3,434)
Foreign currency translation adjustment 18,382
----- ------ ------- ---------- -------- --------- --------
Balance, January 31, 2004 $ - $ 109 $ 34 $ 89,491 $192,601 $ 34,473 ($41,995)
Net income 26,307
Stock split adjustment 109 34 (143)
Dividends ($0.16 per share) (3,955)
Stock options exercised, net of tax of $2,554 8 10,010 (5,690)
Supplemental executive retirement plan 107
Restricted stock amortization less cancellations 824
Net unrealized gain on investments, net of tax
of $18 39
Net change in effective portion of hedging
contracts, net of tax of $134 366
Foreign currency translation adjustment 13,829
----- ------ ------- ---------- -------- --------- --------
Balance, January 31, 2005 $ - $ 226 $ 68 $ 100,289 $214,953 $ 48,707 ($47,685)
===== ====== ======= ========== ======== ========= ========
Note: Balances prior to fiscal 2004 within the Consolidated Statements of Changes in Shareholders' Equity have not been
split-adjusted.
</TABLE>
<TABLE>
<CAPTION>
(Shares information in thousands) Common Stock Class A Common Treasury Stock
------------ -------------- --------------
<S> <C> <C> <C>
Beginning balance, January 31, 2002 19,596 6,966 (3,088)
Stock issued to employees exercising stock options 356 - (14)
Conversion of Class A Common Stock 164 (164) -
Restricted stock and other stock plans, less cancellations - - 8
------- -------- -------
Balance at January 31, 2003 20,116 6,802 (3,094)
------- -------- -------
Stock issued to employees exercising stock options 1,639 - (1,033)
Conversion of Class A Common Stock - - 14
Restricted stock and other stock plans, less cancellations - - -
------- -------- -------
Balance January 31, 2004 21,755 6,802 (4,113)
------- -------- -------
Stock issued to employees exercising stock options 825 - (337)
Conversion of Class A Common Stock - - -
Restricted stock and other stock plans, less cancellations - - 16
------- -------- -------
Balance January 31, 2005 22,580 6,802 (4,434)
======= ======== =======
Note: Shares information provided has been adjusted to reflect the effect of the fiscal 2005 two-for-one stock split.
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
NOTES TO MOVADO GROUP, INC.'S CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Movado Group, Inc. (the "Company") is a designer, manufacturer and distributor
of quality watches with prominent brands in almost every price category
comprising the watch industry. In fiscal 2005, the Company marketed six
distinctive brands of watches: Movado, Ebel, Concord, ESQ, Coach and Tommy
Hilfiger, which compete in most segments of the watch market.
The Company designs, manufactures and contracts for the assembly of Movado, Ebel
and Concord watches primarily in Switzerland for sale throughout the world. ESQ
and Tommy Hilfiger watches are manufactured to the Company's specifications by
independent contractors located in Asia. ESQ watches are presently sold
primarily in North America and the Caribbean. Tommy Hilfiger watches are
presently sold throughout the world. Coach watches are assembled in Switzerland
by independent contractors and sold primarily in North America and Asia.
In addition to its sales to trade customers and independent distributors,
through a wholly-owned domestic subsidiary, the Company sells Movado watches, as
well as proprietary Movado jewelry, tabletop and accessories directly to
consumers in its Movado Boutiques. Additionally, the Company operates outlet
stores throughout the United States, through which it sells discontinued and
second merchandise.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and balances have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Reclassification
Certain reclassifications were made to prior years' financial statement amounts
and related note disclosures to conform to the fiscal 2005 presentation.
Translation of Foreign Currency Financial Statements and Foreign Currency
Transactions
The financial statements of the Company's international subsidiaries have been
translated into United States dollars by translating balance sheet accounts at
year-end exchange rates and statement of operations accounts at average exchange
rates for the year. Foreign currency transaction gains and losses are charged or
credited to income as incurred. Foreign currency translation gains and losses
are reflected in the equity section of the Company's consolidated balance sheet
in accumulated other comprehensive income (loss).
F-8
<PAGE>
Cash and Cash Equivalents
Cash equivalents are considered all highly liquid investments with original
maturities at date of purchase of three months or less.
Trade Receivables
The Company's trade customers include department stores, jewelry store chains
and independent jewelers. Movado, Ebel, Concord, Coach and Tommy Hilfiger
watches are also marketed outside the U.S. through a network of independent
distributors. Accounts receivable are stated net of allowances for doubtful
accounts of $6.8 million, $6.7 million and $5.2 million and net of estimated
sales returns and allowances of $23.3 million, $19.3 million and $17.0 million
at January 31, 2005, 2004 and 2003, respectively.
The Company's concentrations of credit risk arise primarily from accounts
receivable related to trade customers during the peak selling seasons. The
Company has significant accounts receivable balances due from major department
store chains. The Company's results of operations could be materially adversely
affected in the event any of these customers or a group of these customers
defaulted on all or a significant portion of their obligations to the Company as
a result of financial difficulties. As of January 31, 2005, there were no known
situations with any of the Company's major customers which indicate the
customer's inability to make the required payments.
The following is a rollforward of sales returns and allowances for the fiscal
years ended January 31, 2005, 2004 and 2003 (in thousands):
<TABLE>
<CAPTION>
2005 2004 2003
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $ 19,345 $ 16,974 $ 15,539
Acquired Ebel reserves 7,354 - -
Provision charged to operations 27,074 28,446 38,563
Write-offs (30,461) (26,075) (37,128)
-------- -------- --------
Balance, end of year $ 23,312 $ 19,345 $ 16,974
======== ======== ========
</TABLE>
Inventories
The Company values its inventory at the lower of cost or market using the
first-in, first-out (FIFO) method. The cost of finished goods and component
inventories, held by overseas subsidiaries, are determined using average cost.
The Company's management regularly reviews its sales to customers and customers'
sell through at retail to determine excess or obsolete inventory reserves.
Inventory with less than acceptable turn rates is classified as discontinued
and, together with the related component parts which can be assembled into
saleable finished goods, is sold through the Company's outlet stores. When
management determines that finished product and components are unsaleable in the
Company's outlet stores, a reserve is established for the cost of those products
and components. These estimates could vary significantly, either favorably or
unfavorably, from actual requirements depending on future economic conditions,
customer inventory levels or competitive conditions which may differ from
expectations.
F-9
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation of buildings are amortized using the straight-line method based on
the useful life of ten years. Depreciation of furniture and equipment is
provided using the straight-line method based on the estimated useful lives of
assets, which range from four to ten years. Computer software is amortized using
the straight-line method over five years. Leasehold improvements are amortized
using the straight-line method over the lesser of the term of the lease or the
estimated useful life of the leasehold improvement. Upon the disposition of
property, plant and equipment, the accumulated depreciation is deducted from the
original cost and any gain or loss is reflected in current earnings.
Long-Lived Assets
The Company establishes the estimated useful lives of its depreciable assets
based on factors including historical experience, the expected beneficial
service period of the asset, the quality and durability of the asset and the
Company's maintenance policy including periodic upgrades. Changes in useful
lives are made on a prospective basis unless factors indicate the carrying
amounts of the assets may not be recoverable and an impairment write-down is
necessary.
The Company reviews its long-lived assets for impairment when events or changes
in circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. When such a determination has been made,
management compares the carrying value of the assets with their estimated future
undiscounted cash flows. If it is determined that an impairment loss has
occurred, the loss is recognized during that period. The impairment loss is
calculated as the difference between asset carrying values and the present value
of estimated net cash flows or comparable market values, giving consideration to
recent operating performance and pricing trends.
During the fourth quarter of fiscal 2005, the Company determined that the
carrying value of its long-lived assets in the Movado Boutique located in the
Soho section of New York City, may not be recoverable and performed an
impairment review. The impairment review was performed pursuant to SFAS No. 144
because of an economic downturn affecting the Boutique operations and revenue
forecasts. As a result, the Company recorded a non-cash impairment charge of
$2.0 million consisting of property, plant and equipment of $0.8 million and
other assets of $1.2 million. The entire impairment charge is included in the
selling, general and administrative expenses in the fiscal 2005 Consolidated
Statement of Income. There were no impairment losses related to long-lived
assets in fiscal 2004 or 2003.
Capitalized Software Costs
The Company capitalizes certain computer software costs after technological
feasibility has been established. The costs are amortized utilizing the
straight-line method over the economic lives of the related products ranging
from three to seven years.
Intangibles
Intangible assets consist primarily of trade names and trademarks and are
recorded at cost. Trade names are not amortized. Trademarks are generally
amortized over ten years. The Company continually reviews intangible assets to
evaluate whether events or changes have occurred that would suggest an
impairment of carrying value. An impairment would be recognized when expected
undiscounted future operating cash flows are lower than the carrying value. At
January 31, 2005 and 2004, intangible assets at cost were $13.5 million and $7.5
million,
F-10
<PAGE>
respectively, and related accumulated amortization of intangibles was $4.5
million and $3.5 million, respectively. Amortization expense for fiscal 2005,
2004 and 2003 was $1.0 million, $0.7 million and $0.6 million, respectively.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce foreign currency
fluctuation risks. The Company accounts for its derivative financial instruments
in accordance with Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", ("SFAS No. 133")
as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149. SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments and hedging activities. They require that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. Changes in the fair value
of those instruments will be reported in earnings or other comprehensive income
depending on the use of the derivative and whether it qualifies for hedge
accounting. The accounting for gains and losses associated with changes in the
fair value of the derivative and the effect on the consolidated financial
statements will depend on its hedge designation and whether the hedge is highly
effective in achieving offsetting changes in the fair value of cash flows of the
asset or liability hedged.
The Company's risk management policy is to enter into forward exchange contracts
and purchase foreign currency options, under certain limitations, to reduce
exposure to adverse fluctuations in foreign exchange rates and, to a lesser
extent, in commodity prices related to its purchases of watches. When entered
into, the Company designates and documents these derivative instruments as a
cash flow hedge of a specific underlying exposure, as well as the risk
management objectives and strategies for undertaking the hedge transactions.
Changes in the fair value of a derivative that is designated and documented as a
cash flow hedge and is highly effective, are recorded in other comprehensive
income until the underlying transaction effects earnings, and then are later
reclassified into earnings in the same account as the hedged transaction. The
Company formally assesses, both at the inception and at each financial quarter
thereafter, the effectiveness of the derivative instrument hedging the
underlying forecasted cash flow transaction which is being hedged. Any
ineffectiveness related to the derivative financial instruments' change in fair
value will be recognized in the period in which the ineffectiveness was
calculated.
The Company uses forward exchange contracts to offset its exposure to certain
foreign currency liabilities. These forward contracts are not designated as SFAS
No. 133 hedges and, therefore, changes in the fair value of these derivatives
are recognized into earnings, thereby offsetting the current earnings effect of
the related foreign currency liabilities.
During fiscal 2003, the Company's risk management policy was modified to include
net investment hedging of the Company's Swiss franc-denominated investment in
its wholly-owned subsidiaries located in Switzerland using purchase foreign
currency options under certain limitations. When entered into for this purpose,
the Company designates and documents the derivative instrument as a net
investment hedge of a specific underlying exposure, as well as the risk
management objectives and strategies for undertaking the hedge transactions.
Changes in the fair value of a derivative that is designated and documented as a
net investment hedge are recorded in other comprehensive income in the same
manner as the cumulative translation adjustment of the Company's Swiss
franc-denominated investment. The Company formally assesses, both at the
inception and at each financial quarter thereafter, the effectiveness of the
derivative instrument hedging the net investment.
F-11
<PAGE>
All of the Company's derivative instruments have liquid markets to assess fair
value. The Company does not enter into any derivative instruments for trading
purposes.
Revenue Recognition
In the wholesale segment, the Company recognizes its revenues upon transfer of
title and risk of loss in accordance with its FOB shipping point terms of sale
and after the sales price is fixed and determinable and collectibility is
reasonably assured. In the retail segment, transfer of title and risk of loss
occurs at the time of register receipt. The Company records estimates for sales
returns, volume-based programs and sales and cash discount allowances in the
same period that the sales are recorded as a reduction of revenue. These
estimates are based upon historical analysis, customer agreements and/or
currently known factors that arise in the normal course of business.
Cost of Sales
Costs of sales of the Company's products consist primarily of component costs,
internal assembly costs and unit overhead costs associated with the Company's
supply chain operations in Switzerland and Asia. The Company's supply chain
operations consist of logistics management of assembly operations and product
sourcing in Switzerland and Asia and minor assembly in Switzerland.
Selling, General and Administrative Expenses
The Company's SG&A expenses consist primarily of advertising, selling,
distribution and general and administrative expenses. Annual advertising
expenditures are based principally on overall strategic considerations relative
to maintaining or increasing market share in markets that management considers
to be crucial to the Company's continued success as well as on general economic
conditions in the various markets around the world in which the Company sells
its products.
Selling expenses consist primarily of salaries, sales commissions, sales force
travel and related expenses, expenses associated with the Basel Watch and
Jewelry Fair and other industry trade shows and operating costs incurred in
connection with the Company's retail business. Sales commissions vary with
overall sales levels. Retail selling expenses consist primarily of salaries and
store rents.
Distribution expenses consist primarily of salaries of distribution staff,
rental and other occupancy costs, security, depreciation and amortization of
furniture and leasehold improvements and shipping supplies.
General and administrative expenses consist primarily of salaries and other
employee compensation, employee benefit plan costs, office rent, management
information systems costs, bad debts, patent and trademark expenses and various
other general corporate expenses.
Warranty Costs
The Company has warranty obligations in connection with the sale of its watches.
The Company's products are covered by limited warranties against defects in
materials and workmanship for periods ranging from two to three years from the
date of purchase for movements and up to five years for the gold plating on
Movado watch casings and bracelets. As a practice, warranty costs are expensed
as incurred and recorded in the quarterly consolidated statement of income. The
warranty obligations are evaluated quarterly and reviewed in detail on an annual
basis to determine if any material changes occurred. When material changes in
warranty costs are experienced, the Company will adjust the warranty accrual as
required. As of January 31, 2005, 2004 and 2003,
F-12
<PAGE>
the reserve balances for warranty costs were $4.0 million, $0.9 million and $0.9
million, respectively. The following is a rollforward of the warranty liability
for the fiscal years ended January 31, 2005, 2004 and 2003 (in thousands):
<TABLE>
<CAPTION>
2005 2004 2003
------- ------ ------
<S> <C> <C> <C>
Balance, beginning of year $ 900 $ 900 $ 600
Acquired Ebel reserves 3,127 - -
Provision charged to operations 1,450 789 961
Settlements made (1,498) (789) (661)
------- ------ ------
Balance, end of year $ 3,979 $ 900 $ 900
======= ====== ======
</TABLE>
Preopening Costs
Costs associated with the opening of new boutique and outlet stores, including
pre-opening rent, are expensed in the period incurred.
Advertising
The Company expenses the production costs of an advertising campaign at the
commencement date of the advertising campaign. Included in advertising expenses
are costs associated with cooperative advertising programs. These costs are
recorded as SG&A expenses. Advertising expense for fiscal 2005, 2004 and 2003
amounted to $67.8 million, $53.1 million and $50.5 million, respectively.
Included in the other current assets in the consolidated balance sheets as of
January 31, 2005 and 2004 are prepaid advertising costs of $2.5 million and $0.6
million, respectively. These prepaid costs represent advertising costs paid to
licensors in advance, pursuant to the Company's licensing agreements.
Shipping and Handling Costs
Amounts charged to customers and costs incurred by the Company related to
shipping and handling are included in net sales and cost of goods sold,
respectively.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax laws and tax rates, in each jurisdiction the Company operates, and
applies to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities due to a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, the amounts of any future tax
benefits are reduced by a valuation allowance to the extent such benefits are
not expected to be realized on a more-likely-than-not basis. The Company
calculates estimated income taxes in each of the jurisdictions in which it
operates. This process involves estimating actual current tax expense along with
assessing temporary differences resulting from differing treatment of items for
both book and tax purposes.
F-13
<PAGE>
Earnings Per Share
The Company presents net income per share on a basic and diluted basis. Basic
earnings per share is computed using weighted-average shares outstanding during
the period. Diluted earnings per share is computed using the weighted-average
number of shares outstanding adjusted for dilutive common stock equivalents.
The weighted-average number of shares outstanding for basic earnings per share
were 24,708,000, 24,101,000 and 23,739,000 for fiscal 2005, 2004 and 2003,
respectively. For diluted earnings per share, these amounts were increased by
875,000, 776,000 and 642,000 in fiscal 2005, 2004 and 2003, respectively, due to
potentially dilutive common stock equivalents issuable under the Company's stock
option plans. For all periods presented, basic and diluted shares outstanding,
and the related "per share" amounts reflect the effect of the fiscal 2005
two-for-one stock split.
Stock-Based Compensation
Employee stock options are accounted for under the intrinsic value method, which
measures compensation cost as the excess, if any, of the quoted market price of
the stock at grant date over the amount an employee must pay to acquire the
stock. Accordingly, compensation expense has not been recognized for stock
options granted at or above fair value. Had compensation expense been determined
and recorded based upon the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", net income (in thousands) and net
income per share would have been reduced to pro forma amounts as follows:
<TABLE>
<CAPTION>
2005 2004 2003
---- ---- ----
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 26,307 $22,546 $ 22,851 $18,768 $ 20,059 $16,439
Net Income per share-Basic $ 1.06 $ 0.91 $ 0.95 $ 0.78 $ 0.84 $ 0.69
Net Income per share-Diluted $ 1.03 $ 0.88 $ 0.92 $ 0.75 $ 0.82 $ 0.67
</TABLE>
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $7.10, $5.89 and $4.86 per
share in fiscal 2005, 2004 and 2003, respectively. The following
weighted-average assumptions were used for grants in 2005, 2004 and 2003:
dividend yield of 0.99% for fiscal 2005, 0.87% for fiscal 2004 and 0.62% for
fiscal 2003; expected volatility of 48% for fiscal 2005, 52% for fiscal 2004 and
46% for fiscal 2003; risk-free interest rates of 4.26% for fiscal 2005, 3.04%
for fiscal 2004 and 5.23% for fiscal 2003 and expected lives of three to seven
years for fiscal 2005, four to seven years for fiscal 2004, and seven years for
fiscal 2003.
Stockholders' Equity
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program
throughout fiscal 2005. There were no shares repurchased under the repurchase
program during fiscal 2005 and fiscal 2004. As of January 31, 2005, the Company
had authorization to repurchase shares up to $4.5 million against an aggregate
authorization of $30.0 million.
F-14
<PAGE>
Recently Issued Accounting Standards
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 151, "Inventory Costs", an
amendment of ARB No. 43, Chapter 4 ("SFAS No. 151"). The amendments made by SFAS
No. 151 will improve financial reporting by clarifying that abnormal amounts of
idle facility expense, freight, handling costs, and wasted materials (spoilage)
should be recognized as current-period charges and by requiring the allocation
of fixed production overheads to inventory based on the normal capacity of the
production facilities. The guidance is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005, and is not expected to have a
significant impact on the Company's consolidated financial position, results of
operations or cash flows.
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment", which is a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123(R)"). SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash
Flows". Generally, the approach in SFAS No. 123(R) is similar to the approach
described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. Public entities are required to apply SFAS No. 123(R) as of the
first annual reporting period that begins after June 15, 2005.
The Company continued to use the intrinsic value based method of accounting for
share-based payments. The Company uses the Black-Scholes formula to estimate the
value of stock options granted to employees. SFAS No. 123(R) requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement may reduce net operating
cash flows and increase net financing cash flows in periods after adoption. The
Company is currently assessing the impact of this pronouncement on its
consolidated statement of operations and its consolidated statement of cash
flows.
Also in December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, "Exchanges of Nonmonetary Assets -- An Amendment of APB
Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS No. 153"). SFAS
No. 153 eliminates the exception from fair value measurement for nonmonetary
exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
"Accounting for Nonmonetary Transactions", and replaces it with an exception for
exchanges that do not have commercial substance. SFAS No. 153 specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective for the fiscal periods beginning after June 15, 2005. The
adoption of SFAS No. 153 is not expected to have a material impact on the
Company's current financial position or results of operations.
F-15
<PAGE>
NOTE 2 - ACQUISITION
On December 22, 2003, the Company entered into an agreement to acquire Ebel S.A.
and the worldwide business related to the Ebel brand (collectively "Ebel") from
LVMH Moet Hennessy Louis Vuitton ("LVMH"). On March 1, 2004, the Company
completed the acquisition of Ebel with the exception of the payment for the
acquired Ebel business in Germany, which was completed July 30, 2004. The Ebel
brand, one of the world's premier luxury watch brands, was established in La
Chaux-de-Fonds, Switzerland in 1911. The Company acquired Ebel to revitalize and
re-build the brand and to expand its global market share.
Under the terms of the agreement, the Company acquired all of the outstanding
common stock of Ebel S.A. and the related worldwide businesses in exchange for:
- 51.6 million Swiss francs in cash; and
- the assumption of a short-term mortgage payable of 6.6 million Swiss
francs.
Under the purchase method of accounting, the Company recorded an aggregate
purchase price of approximately $45.0 million, which consisted of approximately
$40.6 million in cash and $4.4 million in deal costs and other incurred
liabilities, which primarily consisted of legal, accounting, investment banking
and financial advisory services fees.
In accordance with Statement of Financial Accounting Standards No. 141,
"Business Combinations", ("SFAS No. 141"), the Company allocated the purchase
price to the tangible assets, intangible assets, and liabilities acquired based
on their estimated fair values. The fair value assigned to tangible and
intangible assets acquired was based on an independent appraisal. The fair value
of assets acquired and liabilities assumed exceeds the purchase price. That
excess has been allocated as a pro rata reduction of the amounts that otherwise
would have been assigned to all of the acquired assets except for certain
specific types of assets as set forth in SFAS No. 141. The pro forma adjustments
were based upon an independent assessment of appraised values. The assessment is
complete. In accordance with Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), goodwill and
purchased intangibles with indefinite lives are not amortized but will be
reviewed annually for impairment. Purchased intangibles with finite lives are
amortized on a straight-line basis over their respective estimated useful lives.
In accordance with Emerging Issues Task Force No. 95-3 ("EITF 95-3"),
"Recognition of Liabilities in Connection with a Purchase Business Combination",
the Company recognized costs associated with exiting an activity of an acquired
company and involuntary termination of employees of an acquired company as
liabilities assumed in a purchase business combination and included the
liabilities in the allocation of the acquisition cost. The liability recognized
in connection with the acquisition of Ebel was comprised of approximately $2.4
million for employee severance, $0.2 million for lease terminations, $1.7
million for exit costs related to certain promotional and purchase contracts and
$0.4 million of other liabilities. For the year ended January 31, 2005, payments
against employee severance, lease terminations, exit costs and other liabilities
amounted to $1.2 million, $0.2 million, $1.1 million and $0.4 million,
respectively. There were no further adjustments related to the abovementioned
accruals during the fiscal year ended January 31, 2005.
F-16
<PAGE>
As part of the acquisition, the Company recorded deferred tax assets resulting
from Ebel's net operating loss carryforwards amounting to approximately 165.0
million Swiss francs. The Company established a full valuation allowance on the
deferred tax assets. The total purchase price has been allocated as follows (in
thousands):
<TABLE>
<S> <C>
Cash $ 1,340
Accounts receivable 16,369
Property, plant and equipment 4,556
Inventories 35,834
Intangible assets 9,129
Other current assets 4,401
--------
Total assets acquired 71,629
Current liabilities 16,149
Short-term commitments and contingencies 5,269
Mortgage payable 5,185
--------
Total purchase price $ 45,026
========
</TABLE>
In allocating the purchase price, the Company considered, among other factors,
its intention for future use of the acquired assets, analyses of historical
financial performance and estimates of future performance of Ebel's products.
Included in the other current assets are certain assets held for sale which
currently approximate $1.5 million and are expected to be disposed of within the
next 12 months.
The fair value of intangible assets was primarily based on the income approach
and cost approach. The discount rates used were 16% for customer lists and 21%
for trade names. These discount rates were determined after consideration of the
industry's cost of capital which is equal to the weighted-average, after-tax
cost of equity and debt. The identifiable intangible assets purchased in the
Ebel acquisition consisted of the following (in thousands):
<TABLE>
<CAPTION>
Gross Useful
Identifiable Intangible Assets - Acquired Value Life
-------- ----------
<S> <C> <C>
Trade names $ 8,343 Indefinite
Customer list 786 5 years
--------
Total $ 9,129
========
</TABLE>
Subsequent to the acquisition, the Company utilized a portion of the deferred
tax assets relative to the net operating losses, and also reassessed the full
valuation allowance initially set up on the deferred tax assets. As required by
SFAS No. 109, the recognition of any tax benefits were applied to reduce the
carrying value of acquired intangible assets. The trade name and customer list
have thus been reduced by $2.6 million and $0.2 million, respectively, due to
current year utilization of net operating losses, and the trade name and
customer list have also been reduced an additional $1.9 million and $0.1
million, respectively, due to the reassessment of the valuation allowances
initially set up on the deferred tax assets.
F-17
<PAGE>
The carrying amounts of the acquired intangible assets, at January 31, 2005,
were as follows (in thousands):
<TABLE>
<CAPTION>
Gross
Identifiable Intangible Assets - Carrying Value Value
----------
<S> <C>
Trade names $ 4,215
Customer list 334
----------
Total $ 4,549
==========
</TABLE>
Amortization expense for the next four years for the acquired intangibles with
finite lives is expected to be as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortization
For the Fiscal Year Ended January 31, Expense
------------
<S> <C>
2006 $ 84
2007 84
2008 84
2009 82
------------
$ 334
============
</TABLE>
Pro Forma Financial Information
The unaudited financial information in the table below summarizes the combined
results of operations of the Company and Ebel, on a pro forma basis, as though
the acquisition had been completed as of the beginning of each period presented.
This pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the results of operations that would
have been achieved had the acquisition taken place at the beginning of each
period presented. The unaudited pro forma condensed combined statements of
income for the year ended January 31, 2005 combines the historical results for
the Company for the year ended January 31, 2005 and the historical results for
Ebel for the period preceding the acquisition of February 1 through February 29,
2004. The unaudited pro forma condensed combined statements of income for the
year ended January 31, 2004 combines the historical results for the Company for
the year ended January 31, 2004, and the historical results for Ebel for the
year ended January 31, 2004. The following amounts are in thousands, except per
share amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
-----------------------------
2005 2004
---------- ----------
<S> <C> <C>
Revenues $ 420,335 $ 398,826
Net income $ 24,302 $ 10,828
Basic income per share $ 0.98 $ 0.45
Diluted income per share $ 0.95 $ 0.44
</TABLE>
F-18
<PAGE>
NOTE 3 - INVENTORIES
Inventories at January 31, consisted of the following (in thousands):
<TABLE>
<CAPTION>
2005 2004
-------- --------
<S> <C> <C>
Finished goods $123,519 $ 78,490
Component parts 114,157 43,335
Work-in-process 4,661 2,261
-------- --------
242,337 124,086
Less: inventories reserve (54,447) (2,408)
-------- --------
$187,890 $121,678
======== ========
</TABLE>
The increase in all inventory categories, including the inventory reserve,
includes the acquired net assets of Ebel. As of January 31, 2005, the Ebel
inventory was $93.8 million with reserves of $52.4 million.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at January 31, at cost, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
2005 2004
-------- --------
<S> <C> <C>
Land and buildings $ 6,543 $ 2,464
Furniture and equipment 44,036 34,770
Computer software 29,169 26,333
Leasehold improvements 32,288 25,405
-------- --------
112,036 88,972
Less: accumulated depreciation (61,753) (46,860)
-------- --------
$ 50,283 $ 42,112
======== ========
</TABLE>
Depreciation and amortization expense for fiscal 2005, 2004 and 2003 was $12.6
million, $10.0 million and $8.4 million, respectively, which includes computer
software amortization expense for fiscal 2005, 2004 and 2003 of $4.0 million,
$2.9 million and $3.0 million, respectively.
NOTE 5 - BANK CREDIT ARRANGEMENTS AND LINES OF CREDIT
The Company's revolving credit facility with its domestic bank group was amended
in June 2003 to provide for a three year $75.0 million unsecured revolving line
of credit. The line of credit expires on June 17, 2006. In addition, certain
members within the bank group provided for $15.0 million of uncommitted working
capital lines of credit at January 31, 2005 and 2004, respectively. As of
January 31, 2004, one bank in the domestic bank group issued five irrevocable
standby letters of credit for retail and operating facility leases to various
landlords and Canadian payroll to the Royal Bank of Canada totaling $0.6 million
with expiry dates through May 15, 2006. The Company pays a facility fee on the
unused portion of the credit facility. The agreement also contains certain
financial covenants including an interest coverage ratio, and certain
restrictions that limit the Company on the sale, transfer or distribution of
corporate assets, including dividends, and limit the amount of debt outstanding.
The Company was in compliance with these restrictions and covenants at January
31, 2005 and 2004. The domestic unused line of credit was $90.0 million at
January 31, 2005 and 2004.
F-19
<PAGE>
A Swiss subsidiary of the Company maintains unsecured lines of credit with an
unspecified length of time with a Swiss bank. Available credit under these lines
totaled 8.0 million and 8.8 million Swiss francs at January 31, 2005 and 2004,
respectively, with dollar equivalents of approximately $6.7 million and $7.0
million, respectively, of which a maximum of $5.0 million can be drawn. As of
January 31, 2005, the Swiss bank has guaranteed the Company's Swiss subsidiary's
obligations to certain Swiss third parties in the amount of approximately $2.8
million in various foreign currencies. There are no restrictions on transfers in
the form of dividends, loans or advances to the Company by its foreign
subsidiaries.
There were no outstanding borrowings against the Company's aggregate demand
lines of credit at January 31, 2005 and January 31, 2004, respectively.
Aggregate maximum and average monthly outstanding borrowings against the
Company's lines of credit and related weighted-average interest rates during
fiscal 2005 and 2004 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
-----------------------------
2005 2004
----------- -------------
<S> <C> <C>
Maximum borrowings $ 37,925 $ 31,000
Average monthly borrowings $ 21,711 $ 15,532
Weighted-average interest rate 2.3% 2.1%
</TABLE>
Weighted-average interest rates were computed based on average month-end
outstanding borrowings and applicable average month-end interest rates.
NOTE 6 - LONG-TERM DEBT
The components of long-term debt as of January 31, were as follows (in
thousands):
<TABLE>
<CAPTION>
2005 2004
------- -------
<S> <C> <C>
Senior Notes $ - $10,000
Series A Senior Notes 25,000 25,000
Series A-2004 Senior Notes 20,000 -
------- -------
45,000 35,000
Less: current portion - 10,000
------- -------
Long-term debt $45,000 $25,000
======= =======
</TABLE>
At January 31, 2005, the Company paid off its Senior Notes due January 31, 2005,
which were originally issued in a private placement completed in fiscal 1994.
These notes had required annual principal payments of $5.0 million since January
1998 and bore interest of 6.56% per annum. The Company repaid $10.0 million of
the final principal due in fiscal 2005. The Company did not repay any principal
in fiscal 2004 due to the timing of when principal payment was due. At January
31, 2005, no principal of these notes remained outstanding.
The Series A Senior Notes ("Series A Senior Notes") were issued on December 1,
1998 under a Note Purchase and Private Shelf Agreement and bear interest at
6.90% per annum. Interest is payable semiannually on April 30 and October 30.
These notes mature on October 30, 2010 and are subject to annual payments of
$5.0 million commencing on October 31, 2006. At January 31, 2005, $25.0 million
was issued and outstanding.
F-20
<PAGE>
As of March 21, 2004, the Company amended its Note Purchase and Private Shelf
Agreement, originally dated March 21, 2001, to expire on March 21, 2007. This
agreement allows for the issuance, for up to three years after the date thereof,
of senior promissory notes in the aggregate principal amount of up to $40.0
million with maturities up to 12 years from their original date of issuance. On
October 8, 2004, the Company issued, pursuant to the Note Purchase Agreement,
4.79% Senior Series A-2004 Notes due 2011 (the "Senior Notes"), in an aggregate
principal amount of $20.0 million, which will mature on October 8, 2011 and are
subject to annual repayments of $5.0 million commencing on October 8, 2008.
Proceeds of the Senior Notes will be used by the Company for capital
expenditures, repayment of certain of its debt obligations and general corporate
purposes. As of January 31, 2005, $20.0 million was issued and outstanding.
The agreements governing the Senior Notes and Series A Senior Notes contain
certain restrictions and covenants which generally require the maintenance of a
minimum net worth, limit the amount of additional secured debt the Company can
incur and limit the sale, transfer or distribution of corporate assets,
including dividends. The Company was in compliance with these restrictions and
covenants at January 31, 2005 and 2004.
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company follows the provisions of SFAS No. 133 requiring that all derivative
financial instruments be recorded on the balance sheet at fair value.
As of January 31, 2005, the balance of deferred net gains on derivative
financial instruments documented as cash flow hedges included in accumulated
other comprehensive income ("AOCI") was $2.0 million, net of tax of $1.2
million, compared to $1.6 million in net gains at January 31, 2004, net of tax
of $1.0 million and $4.5 million in net gains at January 31, 2003, net of tax of
$2.9 million. The Company estimates that a substantial portion of the deferred
net gains at January 31, 2005 will be realized into earnings over the next 12
months as a result of transactions that are expected to occur over that period.
The primary underlying transaction which will cause the amount in AOCI to affect
cost of goods sold consists of the Company's sell through of inventory purchased
predominantly in Swiss francs. The maximum length of time the Company is hedging
its exposure to the fluctuation in future cash flows for forecasted transactions
is 24 months. For the years ended January 31, 2005, 2004 and 2003, the Company
reclassified net gains from AOCI to earnings of approximately $1.4 million, net
of tax of $0.9 million, $3.2 million, net of tax of $2.0 million, and $1.7
million, net of tax of $1.0 million, respectively.
During fiscal 2005, 2004 and 2003, the Company recorded no charge related to its
assessment of the effectiveness of its derivative hedge portfolio. The hedge
relationship is perfectly effective and therefore no hedge ineffectiveness was
recorded. Changes in the contracts' fair value due to spot-forward differences
are excluded from the designated hedge relationship. These amounts were not
significant for the years ended January 31, 2005, 2004 and 2003. The Company
records these transactions in the cost of sales of the consolidated statements
of income.
The balance of the net loss included in the cumulative foreign currency
translation adjustment associated with derivatives documented as net investment
hedges was $1.5 million, net of a tax benefit of $0.9 million as of January 31,
2005, a net loss of $1.0 million, net of a tax benefit of $0.6 million, as of
January 31, 2004 and a net loss of $0.3 million, net of a tax benefit of $0.2
million as of January 31, 2003. Under SFAS No. 133, changes in fair value of
these instruments are recognized in currency translation adjustment, a component
of AOCI, to offset the change in the value of the net investment being hedged.
F-21
<PAGE>
The following presents fair value and maturities of the Company's foreign
currency derivatives outstanding as of January 31, 2005 (in millions):
<TABLE>
<CAPTION>
Fair Value Maturities
---------- ----------
<S> <C> <C>
Forward exchange
contracts $0.8 2005-2006
Purchased foreign currency
options 1.9 2005-2006
----
$2.7
====
</TABLE>
The Company estimates the fair value of its foreign currency derivatives based
on quoted market prices or pricing models using current market rates. These
derivative financial instruments are currently reflected in other assets or
current liabilities.
NOTE 8 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The fair value of the Company's 4.79% Senior Notes and 6.90% Series A Senior
Notes approximate 99% and 107% of the carrying value of the notes, respectively,
as of January 31, 2005. The fair value was calculated based upon the present
value of future cash flows discounted at estimated borrowing rates for similar
debt instruments or upon estimated prices based on current yields for debt
issues of similar quality and terms.
NOTE 9 - INCOME TAXES
The provision for income taxes for the fiscal years ended January 31, 2005, 2004
and 2003 consists of the following components (in thousands):
<TABLE>
<CAPTION>
2005 2004 2003
-------- -------- --------
<S> <C> <C> <C>
Current:
U.S. Federal $ 3,980 $ 4,346 $ 3,454
U.S. State and Local 810 (126) 134
Non-U.S. 5,254 1,282 445
-------- -------- --------
10,044 5,502 4,033
-------- -------- --------
Noncurrent:
U.S. Federal - - -
U.S. State and Local - - -
Non-U.S. - 2,186 3,165
-------- -------- --------
- 2,186 3,165
-------- -------- --------
Deferred:
U.S. Federal (2,533) (351) 775
U.S. State and Local (242) 60 (65)
Non-U.S. (486) 1,489 (107)
-------- -------- --------
(3,261) 1,198 603
-------- -------- --------
Provision for income taxes $ 6,783 $ 8,886 $ 7,801
======== ======== ========
</TABLE>
F-22
<PAGE>
Significant components of the Company's deferred income tax assets and
liabilities for the fiscal year ended January 31, 2005 and 2004 consist of the
following (in thousands):
<TABLE>
<CAPTION>
2005 Deferred Taxes 2004 Deferred Taxes
------------------------ ----------------------
Assets Liabilities Assets Liabilities
---------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Operating loss carryforwards $ 32,120 $ - $ 896 $ -
Inventory reserve 3,103 4,762 1,633 4,843
Receivable allowance 2,960 1,559 2,840 900
Deferred compensation 4,627 - 3,941 -
FAS 133 - 323 - 471
Depreciation/amortization 2,247 267 - 544
Other 3,134 367 1,913 1,218
---------- ----------- ------- -----------
48,191 7,278 11,223 7,976
Valuation allowance (33,393) - (795) -
---------- ----------- ------- -----------
Total $ 14,798 $ 7,278 $10,428 $ 7,976
========== =========== ======= ===========
</TABLE>
As of January 31, 2005, the Company had foreign net operating loss carryforwards
of approximately $140.5 million, which are available to offset taxable income in
future years. The majority of the carryforward tax losses ($132.1 million) were
incurred in Switzerland in the Ebel business prior to the Company's acquisition
of the Ebel business on March 1, 2004. Effective March 1, 2004, Ebel S.A. was
merged into another wholly-owned Swiss subsidiary, and a Swiss tax ruling was
obtained that allows the Ebel tax losses to offset taxable income in the
surviving entity. As part of purchase accounting, the Company recorded net
deferred tax assets for the Swiss tax losses and for the temporary differences
between the Swiss tax basis and the assigned values of the net Ebel assets. The
Company has established a partial valuation allowance on the deferred tax assets
as a result of an evaluation of expected utilization of such tax benefits within
the expiry of the tax losses. The recognition of the tax benefit has been
applied to reduce the carrying value of acquired intangible assets to $4.6
million; subsequent recognition of deferred tax assets, if any, will be applied
to reduce the carrying value of the intangible assets to zero prior to being
recognized as a reduction of income tax expense. The Company recognized cash tax
savings of $2.8 million on the utilization of the Swiss tax losses during the
year. The remaining tax losses ($8.4 million) are related to the Company's
former operations in Germany, and its current operations in Germany, Japan, and
the United Kingdom. A full valuation allowance has been established on the
deferred tax assets resulting from these losses due to the Company's assessment
that the deferred tax assets will not likely be utilized.
Management will continue to evaluate the appropriate level of allowance on all
deferred tax assets, considering such factors as prior earnings history,
expected future earnings, carryback and carryforward periods, and tax strategies
that could potentially enhance the likelihood of realization of a deferred tax
asset.
The Company estimates its effective income tax rate periodically, considering
all known factors and the estimated effects of future events or tax planning
strategies that can cause the rate to vary from the statutory rate. Estimating
the outcome of future events is inherently uncertain and final resolution of
those events can cause the effective rate to vary significantly. During the
year, the effective tax rate was reduced to 20.5% principally as a result of
adjustments in the fourth quarter relating to refunds from a retroactive Swiss
tax ruling, a favorable U.S. tax accrual adjustment, and the recording of the
tax benefit of an asset impairment in the U.S.
F-23
<PAGE>
The provision for income taxes differs from the amount determined by applying
the U.S. federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
---------------------------------
2005 2004 2003
-------- -------- -------
<S> <C> <C> <C>
Provision for income taxes at the U.S. statutory rate $ 11,582 $ 11,108 $ 9,751
Lower effective foreign income tax rate (5,137) (5,487) (4,110)
Change in valuation allowance 101 (13) (12)
Tax provided on repatriated earnings of foreign
subsidiaries - 3,133 1,856
State and local taxes, net of federal benefit 250 (43) 44
Other, net (13) 188 272
-------- -------- -------
Total $ 6,783 $ 8,886 $ 7,801
======== ======== =======
</TABLE>
No provision has been made for federal income or withholding taxes which may be
payable on the remittance of the undistributed retained earnings of foreign
subsidiaries approximating $224.3 million at January 31, 2005, as those earnings
are considered reinvested for an indefinite period. As a result of various tax
planning strategies available to the Company, it is not practical to estimate
the amount of tax, if any, that may be payable on the eventual distribution of
such earnings.
The Company has not changed its position with respect to the indefinite
reinvestment of foreign earnings to take into account the possible election of
the repatriation provisions contained in the American Jobs Creation Act of 2004.
The American Jobs Creation Act of 2004 (the "Act"), as enacted on October 22,
2004, provides for a temporary 85% dividends received deduction on certain
foreign earnings repatriated during a one-year period. The deduction would
result in an approximate 5.25% U.S. federal tax rate on any repatriated
earnings. To qualify for the deduction, the earnings must be reinvested in the
United States pursuant to a domestic reinvestment plan established by the
Company's Chief Executive Officer and approved by the Company's Board of
Directors. Certain other criteria in the Act must be satisfied as well. The
maximum amount of the Company's foreign earnings that may qualify for the
temporary deduction under the Act is approximately $183.0 million.
The Company is in the process of evaluating whether foreign earnings will be
repatriated under the repatriation provisions of the Act, and if so, the amount
that will be repatriated. The Company will be considering repatriating any
amount up to the maximum. The Company is awaiting the issuance of further
regulatory guidance and passage of statutory technical corrections with respect
to certain provisions in the Act prior to determining the amounts that may be
repatriated. As a result, the Company expects to determine the amounts and
sources of foreign earnings to be repatriated, if any, prior to the close of the
fiscal year ending January 31, 2006. At this time, the income tax expense impact
of a qualifying repatriation, if the Company should choose to make one, cannot
be reasonably estimated.
NOTE 10 - OTHER ASSETS
In fiscal 1996, the Company entered into an agreement with a trust which owned
an insurance policy issued on the lives of the Company's Chairman and his
spouse. Under this agreement, the trust assigned the insurance policy to the
Company as collateral to secure repayment by the trust of interest-free loans
made by the
F-24
<PAGE>
Company to the trust in amounts equal to the premiums on said insurance policy
(approximately $0.7 million per annum). The agreement required the trust to
repay the loans from the proceeds of the policy. At January 31, 2003, the
Company had outstanding loans from the trust of $5.2 million. On April 4, 2003,
the agreement was amended and restated to transfer the policy from the trust to
the Company in partial repayment of the loan balance. The Company is the
beneficiary of the policy insofar as upon the death of the Company's Chairman
and his spouse, the proceeds of the policy would first be distributed to the
Company to repay the premiums paid by the Company with the remaining proceeds
distributed to the trust. As of January 31, 2005, the total premiums paid
amounted to $6.8 million and the cash surrender value of the policy was $6.7
million.
NOTE 11 - LEASES, COMMITMENTS AND CONTINGENCIES
The Company leases office, distribution, retail and manufacturing facilities,
and office equipment under operating leases, which expire at various dates
through January 2015. Certain leases include renewal options and the payment of
real estate taxes and other occupancy costs. Some leases also contain rent
escalation clauses (step rents) that require additional rent amounts in the
later years of the term. Rent expense for leases with step rents is recognized
on a straight-line basis over the minimum lease term. Likewise, capital funding
and other lease concessions that are occasionally provided to the Company, are
recorded as deferred rent and amortized on a straight-line basis over the
minimum lease term as adjustments to rent expense. Rent expense for equipment
and distribution, factory and office facilities under operating leases was
approximately $12.6 million, $9.7 million and $8.9 million in fiscal 2005, 2004
and 2003, respectively. Minimum annual rentals at January 31, 2005 under
noncancelable operating leases, which do not include escalations that will be
based on increases in real estate taxes and operating costs, are as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
- ----------------------------
<S> <C>
2006 $12,186
2007 11,613
2008 9,831
2009 8,944
2010 8,666
Thereafter 29,357
-------
$80,597
=======
</TABLE>
Due to the nature of its business as a luxury consumer goods distributor, the
Company is exposed to various commercial losses. The Company believes it is
adequately insured against such losses.
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Company maintains an Employee Savings Plan under Section 401(k) of the
Internal Revenue Code. Company contributions and expenses of administering the
Employee Savings Plan amounted to $0.6 million, $0.6 million and $0.7 million in
fiscal 2005, 2004 and 2003, respectively.
Effective June 1, 1995, the Company adopted a defined contribution supplemental
executive retirement plan ("SERP"). The SERP provides eligible executives with
supplemental pension benefits in addition to amounts received under the
Company's other retirement plan. The Company makes a matching contribution which
vests equally over five years. During fiscal 2005, 2004 and 2003, the Company
recorded an expense related to the SERP of approximately $0.6 million, $0.5
million and $0.5 million, respectively.
F-25
<PAGE>
During fiscal 1999, the Company adopted a Stock Bonus Plan for all employees not
in the SERP. Under the terms of this Stock Bonus Plan, the Company contributes a
discretionary amount to the trust established under the plan. Each plan
participant vests after five years in 100% of their respective prorata portion
of such contribution. For fiscal 2005, 2004 and 2003, the Company recorded an
expense of $0.3 million, $0.3 million and $0.2 million, respectively, related to
this plan.
On September 23, 1994, the Company entered into a Death and Disability Benefit
Plan agreement with the Company's Chairman. Under the terms of the agreement, in
the event of the Chairman's death or disability, the Company is required to make
an annual benefit payment of approximately $0.3 million to his spouse for the
lesser of ten years or her remaining lifetime. Neither the agreement nor the
benefits payable thereunder are assignable and no benefits are payable to the
estates or heirs of the Chairman or his spouse. Results of operations include an
actuarially determined charge related to this plan of approximately $0.2
million, $0.2 million and $0.1 million in fiscal years 2005, 2004 and 2003,
respectively.
Effective concurrently with the consummation of the Company's public offering in
the fourth quarter of fiscal 1994, the Board of Directors and the shareholders
of the Company approved the adoption of the Movado Group, Inc. 1993 Employee
Stock Option Plan (the "Employee Stock Option Plan") for the benefit of certain
officers, directors and key employees of the Company. The Employee Stock Option
Plan was amended in fiscal 1997 and restated as the Movado Group, Inc. 1996
Stock Incentive Plan (the "Plan"). Under the Plan, as amended and restated as of
April 8, 2004, the Compensation Committee of the Board of Directors, which is
comprised of the Company's five outside directors, has the authority to grant
incentive stock options and nonqualified stock options, to purchase, as well as
stock appreciation rights and stock awards, up to 9,000,000 shares of Common
Stock. Options granted to participants under the Plan generally become
exercisable in equal installments over three or five years and remain
exercisable until the tenth anniversary of the date of grant. The option price
may not be less than the fair market value of the stock at the time the options
are granted.
Transactions in stock options under the Plan since fiscal 2002 are summarized as
follows:
<TABLE>
<CAPTION>
Weighted-
Outstanding Average
Options Exercise Price
----------- --------------
<S> <C> <C>
January 31, 2002 4,353,344 $ 8.24
Options granted 648,900 $10.05
Options exercised (355,496) $ 4.54
Options forfeited (107,228) $ 9.39
----------- ------
January 31, 2003 4,539,520 $ 8.76
Options granted 978,144 $12.03
Options exercised (1,639,710) $ 8.74
Options forfeited (153,976) $ 5.86
----------- ------
January 31, 2004 3,723,978 $ 8.71
Options granted 784,203 $16.44
Options exercised (821,957) $ 9.04
Options forfeited (65,190) $ 9.33
----------- ------
January 31, 2005 3,621,034 $11.66
=========== ======
</TABLE>
Options exercisable at January 31, 2005, 2004 and 2003 were 2,888,888, 2,445,912
and 2,191,594, respectively.
F-26
<PAGE>
The following table summarizes outstanding and exercisable stock options as of
January 31, 2005:
<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- ----------------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.12 - $ 6.23 536,616 2.2 $ 4.67 475,596 $ 4.73
$ 6.23 - $ 9.35 417,038 4.0 $ 6.99 387,806 $ 6.96
$ 9.35 - $12.46 877,490 5.1 $ 10.69 768,795 $ 10.82
$12.46 - $15.58 1,335,643 6.2 $ 14.40 944,944 $ 14.61
$15.58 - $18.69 454,247 7.1 $ 18.01 311,747 $ 18.39
3,621,034 5.1 $ 11.66 2,888,888 $ 11.35
</TABLE>
NOTE 13 - TOTAL COMPREHENSIVE INCOME
The components of comprehensive income for the twelve months ended January 31,
2005, 2004 and 2003 are as follows (in thousands):
<TABLE>
<CAPTION>
2005 2004 2003
--------- -------- --------
<S> <C> <C> <C>
Net income $ 26,307 $ 22,851 $ 20,059
Net unrealized gain (loss) on
investments, net of tax 39 139 (82)
Net change in effective portion of
hedging contracts, net tax 366 (3,434) 4,584
Foreign currency translation adjustment 13,829 18,382 38,170
--------- -------- --------
Total comprehensive income $ 40,541 $ 37,938 $ 62,731
========= ======== ========
</TABLE>
NOTE 14 - SEGMENT INFORMATION
The Company conducts its business primarily in two operating segments: Wholesale
and Retail. The Company's Wholesale segment includes the designing,
manufacturing and distribution of quality watches, in addition to revenue
generated from after sales service activities and shipping. The Retail segment
includes the Movado Boutiques and outlet stores.
The Company divides its business into two major geographic segments: Domestic,
which includes the results of the Company's North American, Caribbean and Tommy
Hilfiger South American operations, and International, which includes the
results of all other Company operations. The Company's International operations
are principally conducted in Europe, the Middle East and Asia. The Company's
International assets are substantially located in Switzerland.
F-27
<PAGE>
Operating Segment Data as of and for the Fiscal Year Ended January 31, (in
thousands):
<TABLE>
<CAPTION>
Net Sales Operating Income (1)
------------------------------- --------------------------------
2005 2004 2003 2005 2004 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Wholesale $345,028 $269,341 $246,195 $ 33,445 $ 34,930 $ 29,544
Retail 73,938 60,873 53,882 1,631 (149) 2,232
-------- -------- -------- -------- -------- --------
Consolidated total $418,966 $330,214 $300,077 $ 35,076 $ 34,781 $ 31,776
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Total Assets Capital Expenditures
------------------------------- --------------------------------
2005 2004 2003 2005 2004 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Wholesale $415,739 $340,257 $306,841 $ 6,785 $ 2,958 $ 4,383
Retail 61,211 50,710 38,313 8,162 7,872 2,142
-------- -------- -------- -------- -------- --------
Consolidated total $476,950 $390,967 $345,154 $ 14,947 $ 10,830 $ 6,525
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Depreciation and Amortization
-------------------------------
2005 2004 2003
-------- -------- --------
<S> <C> <C> <C>
Wholesale $ 8,909 $ 7,500 $ 6,517
Retail 3,694 2,473 1,852
-------- -------- --------
Consolidated total $ 12,603 $ 9,973 $ 8,369
======== ======== ========
</TABLE>
(1) Fiscal 2005 Retail Operating Income includes a non-cash impairment charge of
$2.0 million recorded in accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144").
Geographic Segment Data as of and for the Fiscal Year Ended January 31, (in
thousands):
<TABLE>
<CAPTION>
Net Sales (2) Long-Lived Assets
------------------------------- --------------------------------
2005 2004 2003 2005 2004 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Domestic $330,269 $285,739 $261,701 $ 35,010 $ 30,216 $ 26,530
International 88,697 44,475 38,376 15,273 11,896 13,409
-------- -------- -------- -------- -------- --------
Consolidated total $418,966 $330,214 $300,077 $ 50,283 $ 42,112 $ 39,939
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Operating Income
-------------------------------
2005 2004 2003
-------- -------- --------
<S> <C> <C> <C>
Domestic $ 9,357 $ 6,622 $ 8,458
International 25,719 28,159 23,318
-------- -------- --------
Consolidated total $ 35,076 $ 34,781 $ 31,776
======== ======== ========
</TABLE>
(2) The domestic and international net sales are net of intercompany sales of
$272.1 million, $209.7 million and $182.5 million for the twelve months
ended January 31, 2005, January 31, 2004 and January 31, 2003,
respectively.
F-28
<PAGE>
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 2005 and 2004 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------
1st 2nd 3rd 4th
------- ------- -------- --------
<S> <C> <C> <C> <C>
Fiscal 2005
Net sales $74,187 $97,788 $127,023 $119,968
Gross profit $43,385 $57,978 $ 77,141 $ 71,644
Net income $ 736 $ 7,057 $ 11,334 $ 7,180
Net income per share:
Basic $ 0.03 $ 0.29 $ 0.46 $ 0.29
Diluted $ 0.03 $ 0.28 $ 0.44 $ 0.28
Fiscal 2004
Net sales $60,170 $76,545 $100,767 $ 92,732
Gross profit $36,440 $47,239 $ 61,339 $ 55,288
Net income $ 856 $ 5,751 $ 10,074 $ 6,170
Net income per share:
Basic $ 0.04 $ 0.24 $ 0.42 $ 0.25
Diluted $ 0.03 $ 0.23 $ 0.40 $ 0.24
</TABLE>
As each quarter is calculated as a discrete period, the sum of the four quarters
may not equal the calculated full year amount. This is in accordance with
prescribed reporting requirements.
NOTE 16 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
2005 2004 2003
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 2,950 $ 2,369 $ 3,559
Income taxes $ 7,434 $ 5,864 $ 6,583
</TABLE>
F-29
<PAGE>
NOTE 17 - STOCK DIVIDEND
On June 17, 2004, the Company's shareholders approved an amendment to its
articles of incorporation providing for an increase in the authorized shares of
common stock and Class A common stock to 100 million shares and 30 million
shares, respectively. Subsequently, on June 25, 2004, the Company distributed a
stock dividend of one newly issued share of common stock and one newly issued
share of Class A common stock for each then outstanding share of common stock
and of Class A common stock, respectively, to shareholders of record as of June
11, 2004.
NOTE 18 - LITIGATION SETTLEMENT
On July 28, 2004, a settlement was reached in a lawsuit the Company filed
against Swiss Army Brands, Inc. and two individuals in November 2001. In the
lawsuit, the Company alleged that Swiss Army Brands and the other defendants
tortiously interfered with its business by soliciting a number of the Company's
sales employees. As a result of the settlement, the Company recorded a pre-tax
gain of $1.4 million. This consisted of a gross settlement of $1.9 million
partially offset by direct costs related to the litigation of $0.5 million.
NOTE 19 - HUGO BOSS LICENSE AGREEMENT
On December 15, 2004, the Company entered into a License Agreement with Hugo
Boss Trademark Management GmbH & Co ("Hugo Boss"). The Company received a
worldwide exclusive license to use the trademark "HUGO BOSS" and any other
trademarks of Hugo Boss containing the names HUGO or BOSS, in connection with
the production, promotion and sale of watches. The Company is permitted to
assign its rights and sublicense the trademarks to its affiliates (although the
Company will remain liable after such assignment or sublicense under the License
Agreement). The term of the license is March 21, 2005 through December 31, 2013,
with an optional five-year renewal period.
F-30
<PAGE>
Schedule II
MOVADO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<TABLE>
<CAPTION>
Balance at Acquired Provision
Beginning Ebel Charged to Currency Net Balance at
Description of Year Balance Operations Revaluation Write-Offs End of Year
----------- ---------- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 2005:
Allowance for doubtful accounts $ 6,659 $ 2,192 $ 2,072 $ 68 ($4,161) $ 6,830
Year ended January 31, 2004:
Allowance for doubtful accounts $ 5,235 $ - $ 2,290 $ 106 ($ 972) $ 6,659
Year ended January 31, 2003:
Allowance for doubtful accounts $ 4,070 $ - $ 1,987 $ 93 ($ 915) $ 5,235
</TABLE>
<TABLE>
<CAPTION>
Balance at Acquired Provision
Beginning Ebel Charged to Currency Net Balance at
of Year Balance Operations Revaluation Write-Offs End of Year
---------- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 2005:
Inventory reserve $ 2,408 $ 50,800 $ 3,221 $3,464 ($ 5,446) $ 54,447
Year ended January 31, 2004:
Inventory reserve $ 4,323 $ - $ 993 ($ 645) ($ 2,263) $ 2,408
Year ended January 31, 2003:
Inventory reserve $ 8,151 $ - $ 1,829 $ 848 ($ 6,505) $ 4,323
</TABLE>
<TABLE>
<CAPTION>
Balance at Provision/
Beginning (Benefit) Currency Balance at
of Year to Operation Revaluation Adjustments End of Year
---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 2005:
Deferred tax assets valuation (1) $795 $101 $ 488 $32,009 $33,393
Year ended January 31, 2004:
Deferred tax assets valuation $950 ($13) ($ 142) $ - $ 795
Year ended January 31, 2003:
Deferred tax assets valuation $1,480 ($12) $ 86 ($ 604) $ 950
(1) The detail of adjustments is as follows:
</TABLE>
<TABLE>
<S> <C>
Ebel purchase accounting - NOL's $26,731
Ebel purchase accounting - other 3,261
Current year losses 1,201
Other 816
-------
$32,009
=======
</TABLE>
S-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>2
<FILENAME>y07454kexv10w7.txt
<DESCRIPTION>AMENDED & RESTATED DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.7
MOVADO GROUP, INC.
AMENDED AND RESTATED
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
Effective June 1, 1995
Amended and Restated Effective January 1, 1998
Amended and Restated Effective January 1, 2002
Amended and Restated Effective June 17, 2004
1
<PAGE>
MOVADO GROUP, INC.
AMENDED AND RESTATED
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions
1.1 Account........................................................................................ 5
1.2 Administrator.................................................................................. 5
1.3 Base Salary.................................................................................... 5
1.4 Change in Control.............................................................................. 5
1.5 Class Year Account............................................................................. 7
1.6 Code........................................................................................... 8
1.7 Company........................................................................................ 8
1.8 Company Stock.................................................................................. 8
1.9 Compensation................................................................................... 8
1.10 Effective Date................................................................................. 8
1.11 Eligible Employee.............................................................................. 8
1.12 Employee....................................................................................... 8
1.13 Employers...................................................................................... 8
1.14 Employer Contribution.......................................................................... 8
1.15 ERISA.......................................................................................... 8
1.16 Group I Employee............................................................................... 8
1.17 Group II Employee.............................................................................. 8
1.18 Matching Contribution.......................................................................... 9
1.19 Participant.................................................................................... 9
1.20 Plan........................................................................................... 9
1.21 Plan Year...................................................................................... 9
1.22 Salary Deferrals............................................................................... 9
1.23 Salary Deferral Election....................................................................... 9
1.24 Total and Permanent Disability................................................................. 9
1.25 Trust.......................................................................................... 9
1.26 Trustee........................................................................................ 9
1.27 Year of Service................................................................................ 9
ARTICLE II
Participation
2.1 Eligibility for Participation.................................................................. 10
2.2 Commencement of Participation.................................................................. 10
2.3 Benefits....................................................................................... 10
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
ARTICLE III
Contributions
3.1 Salary Deferrals............................................................................... 11
3.2 Matching Contributions......................................................................... 12
3.3 Company Stock.................................................................................. 12
3.4 Employer Contributions......................................................................... 13
3.5 Time of Contributions.......................................................................... 13
3.6 Form of Contributions.......................................................................... 14
ARTICLE IV
Vesting
4.1 Vesting........................................................................................ 14
ARTICLE V
Accounts
5.1 Accounts....................................................................................... 15
5.2 Investments, Gains and Losses.................................................................. 16
5.3 Forfeitures.................................................................................... 17
ARTICLE VI
Distributions
6.1 Payment........................................................................................ 17
6.2 Commencement of Payment........................................................................ 17
ARTICLE VII
Beneficiaries
7.1 Beneficiaries.................................................................................. 19
7.2 Lost Beneficiary............................................................................... 19
ARTICLE VIII
Funding
8.1 Prohibition Against Funding.................................................................... 20
8.2 Deposits in Trust.............................................................................. 20
8.3 Indemnification of Trustee..................................................................... 21
8.4 Withholding of Employee Contributions.......................................................... 21
ARTICLE IX
Claims Procedure
9.1 General........................................................................................ 21
9.2 Claim Review................................................................................... 21
9.3 Right of Appeal................................................................................ 22
9.4 Review of Appeal............................................................................... 22
9.5 Designation.................................................................................... 22
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
ARTICLE X
Administration of the Plan
10.1 Committee as Administrator..................................................................... 23
10.2 Actions Taken by the Committee................................................................. 23
10.3 Bond and Compensation.......................................................................... 23
10.4 Duties of the Committee........................................................................ 23
10.5 Employers to Furnish Information............................................................... 24
10.6 Expenses....................................................................................... 24
10.7 Indemnification................................................................................ 25
ARTICLE XI
General Provisions
11.1 No Assignment.................................................................................. 25
11.2 No Employment Rights........................................................................... 25
11.3 Incompetence................................................................................... 26
11.4 Identity....................................................................................... 26
11.5 Other Benefits................................................................................. 26
11.6 No Liability................................................................................... 26
11.7 Insolvency..................................................................................... 26
11.8 Amendment and Termination...................................................................... 27
11.9 Employer Determinations........................................................................ 27
11.10 Construction................................................................................... 27
11.11 Governing Law.................................................................................. 27
11.12 Severability................................................................................... 28
11.13 Headings....................................................................................... 28
11.14 Terms.......................................................................................... 28
11.15 Approval of IRS................................................................................ 28
11.16 Term........................................................................................... 28
</TABLE>
4
<PAGE>
MOVADO GROUP, INC.
AMENDED AND RESTATED
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
Movado Group, Inc., a New York corporation, Swiss-Am, Inc., a New
Jersey corporation, and Movado Retail Group, Inc., a New Jersey corporation,
hereby adopt this Amended and Restated Movado Group, Inc. Deferred Compensation
Plan for Executives.
ARTICLE I
DEFINITIONS
1.1 ACCOUNT. The bookkeeping account established for each Participant as
provided in Section 5.1 hereof.
1.2 ADMINISTRATOR. The committee appointed pursuant to ARTICLE X.
1.3 BASE SALARY.
(a) The amount payable to a Participant by the Employers as basic
salary attributable to services performed in a Plan Year. Base Salary shall only
include regularly scheduled salary payable throughout the year, as determined by
the Employers, and shall not include bonuses or irregular remuneration.
(b) Notwithstanding subsection (a), for those Employees classified
by an Employer as sales executives, the term Base Salary shall only include base
salary and shall not include commissions and bonuses.
1.4 CHANGE IN CONTROL. The occurrence during the term of the Plan of:
(a) The commencement (within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934 (the "Act")) of a tender offer for more than
twenty percent (20%) of the Company's outstanding shares of capital stock having
voting power in the election of directors (the "Voting Securities").
5
<PAGE>
(b) An acquisition (other than directly from the Company) of any
voting securities of the Company by any "Person" (as the term is used for
purposes of section 13(d) or 14(d) of the Act) immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Act) of twenty percent (20%) or more of the combine l voting power of
the Company's then outstanding Voting Securities, provided, however that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition") (as hereinafter defined) shall not
constitute an acquisition) which would cause a Change in Control. A Non-Control
Acquisition shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof or a trustee thereof acting solely in its capacity
as trustee) maintained by the Company or by any corporation or other Person of
which a majority of its voting power or its voting equity securities or equity
interest as owned, directly or indirectly, by the Company (for purposes of this
definition, a subsidiary); (2) the Company or its subsidiaries; or (3) any
Person who files in connection with such acquisition a Schedule 13D which
expressly disclaims any intention to seek control of the Company and does not
expressly reserve the right to seek such control; provided, however, that any
amendment to such statement of intent which either indicates an intention or
reserves the right to seek control shall be deemed an "acquisition" of the
securities of the Company reported in such filing as beneficially owned by such
Person for purposes of this paragraph.
(c) The individuals who, as of July 1, 2002, are members of the
board (the "Incumbent Board"), ceasing for any reason to constitute at least
two-thirds (2/3) of the members of the board; provided, however, that if the
election, or nomination for election by the Company's common stockholders, of
any new director was approved by a vote of at least two-thirds (2/3) of the
Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Act) or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any Election Contest or Proxy
Contest.
6
<PAGE>
(d) Approval by stockholders of the Company of:
(1) merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization is a "Non-Control
Transaction," i.e., meets each of the requirements described in (i), (ii) or
(iii) below: (i) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly,
immediately following such merger, consolidation or reorganization, at least
seventy percent (70%) if the outstanding voting securities of the corporation
resulting from such merger, consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
voting securities immediately before such merger, consolidation or
reorganization; or (ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds (2/3) of the
members of the board of director of the Surviving Corporation immediately
following the consummation of such merger, consolidation or reorganization; and
(iii) no Person other than the Company, any subsidiary, any employee benefit
plan (or any trust forming a part thereof or a trustee thereof acting solely in
its capacity as trustee) maintained by the Company, the Surviving Corporation,
or any Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of twenty percent (20%)
or more of the then outstanding Voting Securities has Beneficial Ownership of
thirty percent (30%) or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities immediately following the
consummation of such merger, consolidation or reorganization.
(2) A complete liquidation or dissolution of the Company.
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to an affiliate).
1.5 CLASS YEAR ACCOUNT. The bookkeeping subaccounts established for each
Participant as provided in section 5.1 hereof.
7
<PAGE>
1.6 CODE. The Internal Revenue Code of 1986, as amended.
1.7 COMPANY. Movado Group, Inc., a New York corporation.
1.8 COMPANY STOCK. Common stock of the Company.
1.9 COMPENSATION. The Participant's Base Salary, bonuses and other
remuneration from the Employer.
1.10 EFFECTIVE DATE. The Plan was originally effective on June 1, 1995.
This amendment and restatement is effective _____ 2004.
1.11 ELIGIBLE EMPLOYEE. An Employee of an Employer who is a management or
highly compensated Employee within the meaning of sections 201(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.
1.12 EMPLOYEE. Any person employed by an Employer.
1.13 EMPLOYERS. Movado Group, Inc., a New York corporation; Swiss-Am,
Inc., a New Jersey corporation, and Movado Retail Group, Inc., a New Jersey
corporation.
1.14 EMPLOYER CONTRIBUTION. A discretionary contribution made by the
Employers to the Trust that is credited to one or more Participant's Accounts in
accordance with the terms of Section 2.3 hereof.
1.15 ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
1.16 GROUP I EMPLOYEE. An Employee. who is designated as a Group I
Employee by an Employer in Schedule A attached hereto, as such schedule may be
amended by the Employer from time to time.
1.17 GROUP II EMPLOYEE. An Employee who is designated as a Group II
Employee by an Employer in Schedule A attached hereto, as such schedule may be
amended by the Employer from time to time.
8
<PAGE>
1.18 MATCHING CONTRIBUTION. A contribution made by the Employers to the
Trust that is credited to one or more Participant's Accounts in accordance with
the terms of Section 3.2 hereof.
1.19 PARTICIPANT. An Eligible Employee who has become a Participant as
provided in Section 3.1 and whose Account has not been fully distributed.
1.20 PLAN. The Amended and Restated Movado Group, Inc. Deferred
Compensation Plan for Executives.
1.21 PLAN YEAR. The twelve (12) month period ending December 31.
1.22 SALARY DEFERRALS. The portion of Compensation that a Participant
elects to defer in accordance with Section 3.1 hereof.
1.23 SALARY DEFERRAL ELECTION. The separate written agreement, submitted
to the Administrator, by which an Eligible Employee agrees to participate in
this Plan and make Salary Deferral hereunder.
1.24 TOTAL AND PERMANENT DISABILITY. Any medically determinable physical
or mental disorder hat renders a Participant incapable of continuing in the
employment of an Employer and is (expected to continue for the remainder of a
Participant's life, as determined by the Administrator in its sole discretion.
1.25 TRUST. The Trust under the Plan.
1.26 TRUSTEE. The trustee under the Trust and any successor Trustee
appointed pursuant to the Trust.
1.27 YEAR OF SERVICE. A Participant's twelve (12) month period of
employment with an Employer beginning on the Participant's first day of
employment with the Employer. Periods of employment of less than twelve (12)
full months shall not constitute a Year of Service.
9
<PAGE>
ARTICLE II
PARTICIPATION
2.1 ELIGIBILITY FOR PARTICIPATION.
(a) The Employers shall determine which Eligible Employees shall
become Participants and the category of benefits, under Section 2.3, to which
they will be entitled. The Employers' determination under this Section 2.1 and
under Section 2.3 shall be set forth in Schedule A, attached hereto.
(b) An Employer may determine that a Participant shall cease being a
Participant as of any date specified by it; provided, however, that the Employer
may not reduce the Account of such Participant as of the date such determination
is made. Such determination shall be specified in Schedule B.
2.2 COMMENCEMENT OF PARTICIPATION.
(a) Each Eligible Employee selected to become a Participant
(pursuant to Section 1.1) shall become a Participant as of the date specified by
an Employer, as set forth in Schedule A.
(b) Notwithstanding subsection (a), a Salary Deferral Election with
respect to a Plan year shall not be effective except to the extent it complies
with Section 3.1.
2.3 BENEFITS. The Employers shall determine, from time to time, whether
a Participant is to be treated as a Group I or Group II Employee. An Employer
may change the classification of any Participant as of any date specified by it;
provided, however, that the Account of such Participant shall not be reduced by
such change of classification. The classification of any Participant shall be
set forth in Schedule A. Participants shall cease to contribute hereunder after
they cease to be employed by any of the Employers.
10
<PAGE>
ARTICLE III
CONTRIBUTIONS
3.1 SALARY DEFERRALS.
(a) The Employers shall credit to the Account of a Participant an
amount equal to the amount designated in the Participant's Salary Deferral
Election for each Plan Year. Such amounts shall not be made available to such
Participant, except as provided in ARTICLE VI, and hall reduce such
Participant's Compensation from an Employer in accordance with the provisions of
the applicable Salary Deferral Election; provided, however, that all such
amounts shall be subject to the rights of the general creditors of each of the
Employers as provided in ARTICLE VIII.
(b) Each Eligible Employee shall deliver a Salary Deferral Election
to his or her Employer before any Salary Deferrals become effective. Such Salary
Deferral Election shall be void with respect to any Salary Deferral unless
submitted before the beginning of the calendar year during which the amount to
be deferred will be earned; provided, however, that in the year in which this
Plan is first adopted or an Employee is first eligible to participate, such
Salary Deferral election may be filed within thirty (30) days of the date on
which this Plan is adopted or the date on which an Employee is first eligible to
participate, respectively, with respect to Compensation earned during the
remainder of the calendar year.
(c) The Salary Deferral Election shall designate the amount of
Compensation deferred by each Participant and such other items as the
Administrator may prescribe. Such designations shall remain effective unless
amended as provided in subsection (d), below. There shall be no maximum limit on
the Salary Deferrals permitted for each Participant.
(d) A Participant may amend his or her Salary Deferral Election from
time to time for any Plan Year that has not yet commenced. If a Participant
amends his or her Salary Deferral Election in a given Plan Year to reduce or
discontinue Salary Deferrals for the balance of that Plan Year, then the
Participant's Account shall be reduced by ten
11
<PAGE>
percent (10%) of such unpaid amount, with such reduction being made from the
Participant's Salary Deferral subaccount (or such other subaccount as the
Administrator shall determine).
3.2 MATCHING CONTRIBUTIONS.
(a) Each Employer shall also credit to the Account of each
Participant who is its Employee, who is a Group I Employee and who makes Salary
Deferrals a Marching Contribution in an amount equal to one hundred percent
(100%) of the Salary Deferrals contributed by such Participant up to a maximum
of ten percent (10%) of such Participant's Base Salary.
(b) Each Employer shall also credit to the Account of each
Participant who is its Employee, who is a Group II Employee and who makes Salary
Deferrals a Marching Contribution in an amount equal to one hundred percent
(100%) of the Salary Deferrals contributed by such Participant up to a maximum
of five percent (5%) of such Participant's Base Salary.
(c) Matching Contributions for a Plan Year will be credited to the
Account of a Participant under this Section 3.2 only if such Participant is an
Employee on the last day of such Plan Year. The requirement set forth in this
Section 3.2(c) shall be waived in the event of: (i) the death of a Participant
during such Plan Year, (ii) the termination of the Participant's employment
after having incurred a Total and Permanent Disability during such Plan Year, or
(iii) the termination of the Participant's employment during such Plan Year
after having reached the age of sixty-five (65).
(d) Twenty percent (20%) of the Matching Contributions for a
Participant shall be made in rights to Company Stock, as determined under
Section 3.3.
(e) Matching Contributions for a Plan Year shall be made no earlier
than the last day of each quarter of such Plan Year. Matching Contributions made
during a Plan Year shall remain subject to all conditions specified in this
Plan, including those in subsection (c) above.
3.3 COMPANY STOCK.
12
<PAGE>
(a) Matching Contributions for a Participant in the form of rights
to Company Stock shall consist of bookkeeping credits to the Accounts and Class
Year Accounts for such Participant. Such credits will initially be determined by
crediting to such Participant's Accounts and Class Year Accounts the number of
shares (including fractional shares) of Company Stock that such Matching
Contribution could purchase based upon the value of the Company Stock at the end
of the month in which such Matching Contribution is made (or credited). All
determinations of the value of Company Stock will be made by the Treasurer of
the Company in his or he sole discretion.
(b) Dividends declared on Company Stock shall not be credited to the
Account and Class Year Accounts of any Participant.
(c) When a Participant or Beneficiary is entitled to a distribution
pursuant to ARTICLE VI with respect to his or her rights to Company Stock, the
Company shall issue to the Participant or Beneficiary the number of shares of
Company Stock that equal the number of full shares then credited in such
Participant's Accounts. The Company shall pay any fractional shares in cash. If
payment to the Participant or Beneficiary is being made in installments, the
Administrator, in its sole discretion, shall determine whether such Company
Stock shall be paid in like installments, as a lump-sum in connection with such
installments or in any other manner consistent with such installment payments.
3.4 EMPLOYER CONTRIBUTIONS. The Employers reserve the right to make
discretionary contributions to Participants' Accounts in such amount and in such
manner as may be determined by the Employers.
3.5 TIME OF CONTRIBUTIONS.
(a) Salary Deferrals shall be transferred to the Trust as soon as
administratively feasible following each payroll period. Matching Contributions
(other than Company Stock or the rights to Company Stock) and Option Deferrals
shall be transferred to the Trust no later than thirty (30) days following the
last day of the Plan Year. The Employers shall also transmit at the same time
any necessary instructions regarding the allocation of such amounts among the
Accounts of Participants.
13
<PAGE>
(b) Employer Contributions shall be transferred to the Trust at such
time as the Employers shall determine. The Employers shall also transmit at that
time any necessary instructions regarding the allocation of such amounts among
the Accounts of Participants.
3.6 FORM OF CONTRIBUTIONS. All Salary Deferrals, Matching Contributions
and Employs Contributions to the Trust shall be made in the form of cash or cash
equivalents of United States currency, except as otherwise provided herein.
Notwithstanding the foregoing, Salary Referrals may be made in the form of
Company Stock or rights to Company Stock which the Participant would otherwise
be entitled to receive as Compensation.
ARTICLE IV
VESTING
4.1 VESTING.
(a) Except as otherwise provided herein, a Participant shall have a
nonforfeitable right to the vested portion of his or her Class Year Accounts;
provided, however, that all such amounts shall be subject to the rights of the
general creditors of the Employers as provide in ARTICLE VII.
(b) Each Class Year Account of a Participant will vest twenty
percent (20%) if the Participant is still an Employee on the last day of each
Plan Year beginning with the Plan Year of such Class Year Account. Thereafter,
such Class Year Account shall vest an additional twenty percent (20%) on the
last day of each Plan Year as long as the Participant is still an Employee and
therefore shall be fully vested on the last day of the fourth Plan Year
following the first plan Year of such Class Year Account if the Participant is
still then an Employee. Further vesting shall cease once a Participant is no
longer an Employee.
(c) The portion of a Participant's Class Year Accounts attributable
to Salary Deferral and Option Deferrals, and earnings thereon, shall be fully
vested.
14
<PAGE>
(d) A Participant who attains the age of sixty-five (65) shall be
fully vested in the amounts credited to all of his or her Accounts.
(e) A Participant who has a termination of employment due to Total
and Permanent Disability shall be fully vested in the amounts credited to all of
his or her Class Year Account.
(f) If a Change in Control occurs, all amounts attributable to
Matching Contributions shall be fully vested as of the effective date of such
Change in Control.
(g) Any amounts credited to a Participant's Class Year Accounts that
arc not vested a the time of his or her termination of employment with an
Employer shall be forfeited. The Administrator shall determine the extent to
which such forfeiture shall consist of rights to Company Stock.
ARTICLE V
ACCOUNTS
5.1 ACCOUNTS.
(a) (1) The Administrator shall establish and maintain a bookkeeping
account in the name of each Participant. Unless otherwise directed by the
Employers, the Trustee shall also maintain and invest separate omnibus accounts
that correspond to each Participant's Account.
(2) The Administrator may also establish any subaccounts that it
feels may be appropriate. The Administrator shall also establish and maintain
subaccounts in each Participant's Account that shall be denominated as Class
Year Accounts. The Administrator shall all ) establish and maintain subaccounts
in each Participant's Account for rights to Company Stock.
(b) (1) Each Participant's Account shall be credited with Salary
Deferrals (as specified in the Participant's Salary Deferral Election), any
Matching Contributions allocable thereto, any Option Deferrals, any Employer
Contributions and any earnings or losses on the foregoing. Each Participant's
Account shall be reduced by any
15
<PAGE>
distributions made plus any federal and state tax withholding and any social
security withholding tax as may be required by law.
(2) Separate Class Year Accounts for a Participant shall consist
of each Participant's Salary Deferrals, Option Deferrals, Matching Contributions
and Employer Contributions that are made with respect to a given Plan Year and
any earnings or losses on such amounts Class Year Accounts shall be separately
maintained for a Participant for each Plan Year un I such Class Year Accounts
are fully vested (as provided in ARTICLE IV), at which time successfully vested
Class Year Accounts shall be merged.
5.2 INVESTMENTS, GAINS AND LOSSES.
(a) (1) By written investment directions to the Administrator, each
Participant shall direct the investment of his or her Account (other than the
subaccount for rights to Company Stock) among the investment funds available
under this Plan. The Administrator may require separate investment directions
with respect to each Class Year Account of a Participant. In the absence of
timely instructions, a Participant's Account shall be invested in a money market
fund as selected by the Administrator. In accordance with rules established by
the Administrator, each Participant shall be allowed to modify his or her
investment directions (or the initial investment made in the absence of
directions from the Participant) with respect to all or any portion of his or
her Account, effective as of the first day following the date of modification
(or such other time specified by the Administrator). A Participant's change of
investment directions shall apply to the existing balance in his or her Account
and to future amounts o be credited thereto, as the Participant may elect.
(2) Notwithstanding subsection (a)(1), neither the Administrator
nor the Trustee are obligated to follow any investment instruction received by a
Participant pursuant to subsection (a)(1).
(3) The Employers, or the Trustee if an Employer so directs,
shall, from time to time, establish the investment funds available under the
Plan.
(b) The Administrator shall adjust the amounts credited to each
Participant's Account to reflect Salary Deferrals, Option Deferrals, Matching
Contributions,
16
<PAGE>
Employer Contributions, investment experience, distributions and any other
appropriate adjustments. Such adjustments its shall be made as frequently as is
administratively feasible.
5.3 FORFEITURES. Any forfeitures from a Participant's Account shall
continue to be held in the Trust, shall be separately invested and shall be used
to reduce succeeding Matching Contributions and Employer Contributions until
such forfeitures have been entirely so applied. If no further Matching
Contributions or Employee Contributions will be made, then such forfeitures
shall be returned to the Employer that made such contribution.
ARTICLE VI
DISTRIBUTIONS
6.1 PAYMENT.
(a) (1) Benefits shall be paid in roughly equal annual installments
over a period of ten (10) years payable in January of each year.
(2) Notwithstanding subsection (a)(1), the Administrator, in its
sole discretion may pay any amounts due to a Participant in a lump-sum.
(b) In the event that a Participant who is a former Employee and who
is receiving installment payments under subsection (a)(1) is determined by the
Administrator to be providing services for a competitor of an Employer within
two (2) years after his or her terminate m of employment with an Employer, then
all remaining amounts due such Participant under the Plan shall be paid in a
lump sum.
(c) Payment may be made in Company Stock to the extent the
Participant's Account has been denominated in Company Stock (under Section 3.3
or otherwise). Otherwise, payment shall be made in cash.
6.2 COMMENCEMENT OF PAYMENT.
(a) Except as otherwise provided herein, payments to a Participant
shall commence in the January immediately after the calendar year in which the
Participant has had a terminal )n of employment with an Employer.
17
<PAGE>
(b) The Administrator may permit an early distribution (before the
date set forth in Section 6.2(a)) of part or all of any deferred amounts;
provided, however, that such distribution shall be made only if the
Administrator, in its sole discretion, determines that the Participant has
experienced an unforeseen emergency that is caused by an event beyond the
control of the Participant and that would result in severe financial hardship to
the Participant if early distribution were not permitted. Any distribution
pursuant to this subsection is limited to the amount it necessary to meet the
hardship.
(c) Upon the death of a Participant, all amounts credited to his or
her Account shall be fully vested and shall be paid to his or her beneficiary or
beneficiaries, as determined under ARTICLE VII hereof.
(d) (1) A Participant who has experienced a hardship, as determined
by the Administrator, in its sole discretion, shall be permitted to receive, in
a lump-sum payment, a distribution of up to fifty percent (50%) of the vested
portion of his or her Account exclusive of the subaccount for Company Stock;
provided, however, that ten percent (10%) of the amount designated for
distribution shall be treated as a forfeiture under Section 5.3 from the balance
of the Participant's Account.
(2) A Participant who receives a hardship distribution under
subsection (d)(1) shall not receive any Matching Contributions or Employer
Contributions and shall not be permitted to make any further Salary Deferrals
for the balance of the Plan Year and for the following Plan Year.
(3) A Participant shall not be permitted to receive more than
two (2) hardship distributions under subsection (d)(1).
(e) (1) A Participant who filed an election under this subsection
(e) shall receive distribution from the vested portion of his or her Account in
accordance with that election; provided, however, that amounts in the
Participant's Account distributed under this subsection (e) shall not include
Matching Contributions or Employer Contributions.
(2) An election under this subsection (e) shall be made with
the Administrator on a form prescribed by the Administrator. The election shall
only be valid if
18
<PAGE>
filed at least two (2) years before the date of distribution; provided, however,
that a Participant may amend an otherwise valid election to defer the date of
distribution as long as that amendment is filed with the Administrator at least
six (6) months before the otherwise applicable date of distribution.
ARTICLE VII
BENEFICIARIES
7.1 BENEFICIARIES. Each Participant may from time to time designate one
or more persons who may be any one or more members of such Participant's family
or other persons, administrators, trusts, foundations or other entities) as his
or her beneficiary under this Plan. Such designation shall be made on a form
prescribed by the Administrator. Each Participant may at any time and from time
to time, change any previous beneficiary designation, without notice to or
consent of any previously designated beneficiary, by amending his or her
previous designation on a form prescribed by the Administrator. If the
beneficiary does not survive the Participant (or is otherwise unavailable to
receive payment) or if no beneficiary is validly designated, then the amounts
payable under this Plan shall be paid to the Participant's surviving spouse, if
any, and, if none, to the Participant's estate and such person shall be deemed
to be a beneficiary hereunder. If more than one person is the beneficiary of a
deceased Participant, each such person shall receive a pro rata share of any
death benefit payable unless otherwise designated on the applicable form. If a
beneficiary who is receiving benefits dies, all benefits that were payable to
such beneficiary shall then be payable to the estate of that beneficiary.
7.2 LOST BENEFICIARY.
(a) All Participants and beneficiaries shall have the obligation to
keep the Administrator informed of their current address until such time as all
benefits due have been paid.
(b) If a Participant or beneficiary cannot be located by the
Administrator exercising due diligence, then, in its sole discretion, the
Administrator may presume that the Participant or beneficiary is deceased for
purposes of this Plan and all unpaid amounts (net
19
<PAGE>
of due diligence expenses) owed to the Participant or beneficiary shall be paid
accordingly or, if a beneficiary cannot be so located, then such amounts may be
forfeited. Any such presumption of death shall be final, conclusive and binding
on all parties.
ARTICLE VIII
FUNDING
8.1 PROHIBITION AGAINST FUNDING. Should any investment be acquired in
connection with the liabilities assumed under this Plan, it is expressly
understood and agreed that the Participants and beneficiaries shall not have any
right with respect to, or claim against, such assets nor shall any such purchase
be construed to create a trust of any kind or a fiduciary relationship between
the Employers and the Participants, their beneficiaries or any other person. Any
such assets (including any amounts deferred by a Participant or contributed by
the Employers pursuant to ARTICLE III hereof) shall be and remain a part of the
general, unpledged, unrestricted assets of the Employers, subject to the claims
of its general creditors. It is the express intention of the parties hereto that
this arrangement shall be unfunded for tax purposes and for purposes of Title I
of ERISA. Each Participant and beneficiary shall be required to look to the
provisions of this Plan and to the Employers themselves for enforcement of any
and all benefits due under this Plan, and to the extent any such person acquires
a right to receive payment under this Plan, such right shall be no greater than
the right of any unsecured general creditor of the Employers. The Employers or
the Trust shall be designated the owner and beneficiary of any investment
acquired in connection with its obligation under this Plan.
8.2 DEPOSITS IN TRUST. Notwithstanding Section 8.1, or any other
provision of this Plan to the contrary, the Employers may deposit into the Trust
any amounts they deem appropriate to pay the benefits under this Plan. The
amounts so deposited may include all contributions made pursuant to a Salary
Deferral Election by a Participant, any Employer Contributions and any Matching
Contributions.
20
<PAGE>
8.3 INDEMNIFICATION OF TRUSTEE.
(a) The Trustee shall not be liable for the making, retention, or
sale of any investment or reinvestment made by it, as herein provided, nor for
any loss to, or diminution of, the Trust assets, unless due to its own
negligence, willful misconduct or lack of good faith.
(b) Such Trustee shall be indemnified and saved harmless by the
Employers from and against all personal liability to which it may be subject by
reason of any act done or omitted to be done in its official capacity as Trustee
in good faith in the administration of this Plan and the Trust, including all
expenses reasonably incurred in its defense in the event an Employer fails to
provide such defense upon the request of the Trustee. The Trustee is relieved of
all responsibility in connection with its duties hereunder to the fullest extent
permitted by law, short of breach of duty to the beneficiaries.
8.4 WITHHOLDING OF EMPLOYEE CONTRIBUTIONS. The Administrator is
authorized to make any and all necessary arrangements with the Employers in
order to withhold the Participant's Salary Deferrals under Section 3.1 hereof
from his or her pay. The Administrator shall determine the amount and timing of
such withholding.
ARTICLE IX
CLAIMS PROCEDURE
9.1 GENERAL. In the event that a Participant or his or her beneficiary
does not receive any Plan benefit that is claimed, such Participant or
beneficiary shall be entitled to consideration and review as provided in this
ARTICLE IX. Such consideration and review shall be conducted in a manner
designed to comply with section 503 of ERISA.
9.2 CLAIM REVIEW. Upon receipt of any written claim for benefits, the
Administrator shall be notified and shall give due consideration to the claim
presented. If the claim is denied to any extent by the Administrator, the
Administrator shall furnish the claimant with a written notice setting forth (in
a manner calculated to be understood by the claimant):
21
<PAGE>
(a) the specific reason or reasons for denial of the claim;
(b) a specific reference to this Plan provisions on which the denial
is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(d) an explanation of the provisions of this ARTICLE IX.
9.3 RIGHT OF APPEAL. A claimant who has a claim denied under Section 9.2
may appeal to the Administrator for reconsideration of that claim. A request for
reconsideration under this Section 9.3 must be filed by written notice within
sixty (60) days after receipt by the claimant of the notice of denial under
Section 9.2.
9.4 REVIEW OF APPEAL. Upon receipt of an appeal, the Administrator shall
promptly take action to give due consideration to the appeal. Such consideration
may include a hearing of the parties involved, if the Administrator feels such a
hearing is necessary. In preparing for the appeal, the claimant shall be given
the right to review pertinent documents and the right to submit in writing a
statement of issues and comments. After consideration of the merits of the
appeal, the Administrator shall issue a written decision which shall be binding
on all parties. The decision shall be written in a manner calculated to be
understood by the claimant and shall specifically state its reasons and
pertinent Plan provisions on which it relies. The Administrator's decision shall
be issued within sixty (60) days after the appeal is filed, except that if a
hearing is held the decision may be issued within one hundred twenty (120) days
after the appeal is filed.
9.5 DESIGNATION. The Administrator may designate one or more of its
members or any other person of its choosing to make any determination otherwise
required under this ARTICLE IX.
22
<PAGE>
ARTICLE X
ADMINISTRATION OF THE PLAN
10.1 COMMITTEE AS ADMINISTRATOR. The committee designated in this Section
10.1 shall be the Administrator. The name of the committee shall be the Deferred
Compensation Committee and shall consist of such individuals, corporations or
other entities as the Employers shall from time to time appoint. Until otherwise
designated by the Employers, the members of the Deferred Compensation Committee
shall be those persons holding the following positions (or their nearest
equivalent) at the Company: Chief Financial Officer; Treasurer; President and
Chief Operating Officer; and Vice President, Human Resources.
10.2 ACTIONS TAKEN BY THE COMMITTEE. All resolutions or other actions
taken by the Deferred Compensation Committee at a meeting shall be by the
affirmative vote of a majority of those present at the meeting. More than half
of the members must be present to constitute a quorum or a meeting. Any member
of the Deferred Compensation Committee may sign any document or instrument
requiring the signature of the Deferred Compensation Committee or otherwise act
on behalf of the Deferred Compensation Committee, unless otherwise directed by
the Deferred Compensation Committee. The Deferred Compensation Committee may
adopt such additional rules of procedures and conduct as it deems appropriate.
10.3 BOND AND COMPENSATION. The members of the Deferred Compensation
Committee shall serve without bond, except as otherwise required by law, and
without remuneration for their services as such.
10.4 DUTIES OF THE COMMITTEE. The Deferred Compensation Committee shall
undertake all duties assigned to it under the Plan and Trust and shall undertake
all actions, express or implied, necessary for the proper administration of the
Plan. All actions and decisions of the Deferred Compensation Committee shall be
made in its sole discretion, unless expressly otherwise provided in the Plan.
The Deferred Compensation Committee's duties and responsibilities include, but
are not limited to, the following:
(a) adopting and enforcing such rules and regulations that it deems
necessary or appropriate for the administration of the Plan in accordance with
applicable law;
23
<PAGE>
(b) interpreting the Plan, in its sole discretion, with its good
faith interpretation thereof to be final and conclusive on any Employee, former
Employee, Participant, former Participant, beneficiary or other party;
(c) deciding all questions concerning the Plan, including the
eligibility of any person to participate in the Plan in accordance with the Plan
provisions;
(d) computing the amounts to be distributed to any Participant,
former Participant or beneficiary in accordance with the provisions of the Plan,
determining the person or persons to whom such amounts will be distributed and
determining when such amounts will be distributed;
(e) authorizing the payment of distributions;
(f) keeping such records and submitting such filings, elections,
applications, returns or other documents or forms as may be required under the
Code and applicable regulations, or under other federal, state or local law and
regulations; and
(g) appointing such agents, counsel, accountants and consultants as
may be required to assist in administering the Plan.
10.5 EMPLOYERS TO FURNISH INFORMATION. To enable the Deferred
Compensation Committee to perform its functions, the Employers shall supply full
and timely information to the Deferred Compensation Committee on all matters
relating to the remuneration of all Participants, their retirement, death or
other cause of separation from service, and such other pertinent acts as the
Deferred Compensation Committee may require.
10.6 EXPENSES. All expenses of Plan administration and operation,
including the fees of any agents or counsel employed and including any expenses
attributable to a termination of the Plan, shall be paid by the Employers. To
the extent that the Employers may be liable for social security or other
withholding tax, the Administrator, in its sole discretion, may charge such
expenses to the benefits due to the applicable Participant or Beneficiary.
24
<PAGE>
10.7 INDEMNIFICATION. The Employers hereby agree to indemnify each and
every member of the Deferred Compensation Committee or Employee acting on behalf
of the Deferred Compensation Committee for any expenses or liabilities (other
than those due to willful misconduct) actually incurred in or arising out of the
performance of their duties under the Plan, including but not limited to,
litigation expenses and attorneys fees.
ARTICLE XI
GENERAL PROVISIONS
11.1 NO ASSIGNMENT. Benefits or payments under this Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
or the Participant's beneficiary, whether voluntary or involuntary, and any
attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber,
attach or garnish the same shall not be valid, nor shall any such benefit or
payment be in any way liable for or subject to the debts, contracts,
liabilities, engagement or torts of any Participant or beneficiary, or any other
person entitled to such benefit or payment pursuant to the terms of this Plan,
except to such extent as may be required by law. If any Participant or
beneficiary or any other person entitled to a benefit or payment pursuant to the
terms of this Plan becomes bankrupt or attempts to anticipate, alienate, sell,
transfer, assign, pledge, encumber, attach or garnish any benefit or payment
under this Plan, in whole or in part, or if any attempt is made to subject any
such benefit or payment, in whole or in part, to the debts, contracts,
liabilities, engagements or torts of the Participant or beneficiary or any other
person entitled to any such benefit or payment pursuant to the terms of this
Plan, then such benefit or payment, in the discretion of the Administrator,
shall cease and terminate with respect to such Participant or beneficiary, or
any other such person.
11.2 NO EMPLOYMENT RIGHTS. Participation in this Plan shall not be
construed to confer upon any Participant the legal right to be retained in the
employ of the Employers, or give a Participant or beneficiary, or any other
person, any right to any payment whatsoever, except to the extent of the
benefits provided for hereunder. Each Participant shall remain subject to
discharge to the same extent as if this Plan had never been adopted.
25
<PAGE>
11.3 INCOMPETENCE. If the Administrator determines that any person to
whom a benefit is payable under this Plan is incompetent by reason of physical
or mental disability, the Administrator shall have the power to cause the
payments becoming due to such person to be made to another for his or her
benefit without responsibility of the Administrator or the Employers to see to
the application of such payments. Any payment made pursuant to such power shall,
as to such payment, operate as a complete discharge of the Employers, the
Administrator and the Trustee.
11.4 IDENTITY. If, at any time, any doubt exists as to the identity of
any person entitled to any payment hereunder or the amount or time of such
payment, the Administrator shall be entitled to hold such sum until such
identity or amount or time is determined or until an order of a court of
competent jurisdiction is obtained. The Administrator shall also be entitled to
pay such sum into court in accordance with the appropriate rules of law. Any
expenses incurred by the Employers, Administrator, and Trust incident to such
proceeding or litigation shall be charged against the Account of the affected
Participant.
11.5 OTHER BENEFITS. The benefits of each Participant or beneficiary
hereunder shall be in addition to any benefits paid or payable to or on account
of the Participant or beneficiary under any other pension, disability, annuity
or retirement plan or policy whatsoever.
11.6 NO LIABILITY. No liability shall attach to or be incurred by any
employee, officer, director or manager of an Employer, Trustee or any
Administrator under or by reason of the terms, conditions and provisions
contained in this Plan, or for the acts or decisions taken or made hereunder or
in connection herewith; and as a condition precedent to the establishment of
this Plan or the receipt of benefits thereunder, or both, such liability, if
any, is expressly waived and released by each Participant and by any and all
persons claiming under or through any Participant or any other person. Such
waiver and release shall be conclusively evidenced by any act or participation
in or the acceptance of benefits or the making of any election under this Plan.
11.7 INSOLVENCY. Should an Employer be considered insolvent (as defined
by the Trust), such Employer, through its board of directors and chief executive
officer, shall give
26
<PAGE>
immediate written notice of such to the Administrator of this Plan and the
Trustee. Upon receipt of such notice, the Administrator or Trustee shall cease
to make any payments to Participants who were Employees of the Employer or their
beneficiaries and shall hold any and all assets attributable to such Employer
for the benefit of the general creditors of that Employer.
11.8 AMENDMENT AND TERMINATION.
(a) Except as otherwise provided in this Section 11.8, the Employers
shall have the sole authority to modify, amend or terminate this Plan; provided,
however, that any modification or termination of this Plan shall not reduce,
alter or impair, without the consent of a Participant, a Participant's right to
any amounts already credited to his or her Account on the day before the
effective date of such modification or termination. Following such termination,
payment of such credited amounts may be made in a single-sum payment if the
Employers so designate. Any such decision to pay in a single sum shall apply to
all Participants.
(b) Any funds remaining in the Trust after termination of this Plan
and satisfaction of all liabilities to Participants and others, shall be
returned to the Employers.
11.9 EMPLOYER DETERMINATIONS. Any determinations, actions or decisions of
the Employers (including but not limited to, Plan amendments and Plan
termination) shall be made by the board of directors of the Employers in
accordance with their established procedures or by such other individuals,
groups or organizations that have been properly delegated by the board of
directors to make such determination or decision.
11.10 CONSTRUCTION. All questions of interpretation, construction or
application arising under or concerning the terms of this Plan shall be decided
by the Administrator, in its sole and final discretion, whose decision shall be
final, binding and conclusive upon all persons.
11.11 GOVERNING LAW. This Plan shall be governed by, construed and
administered in accordance with the applicable provisions of ERISA, and any
other applicable federal law, provided however, that to the extent not preempted
by federal law this Plan shall be
27
<PAGE>
governed by, construed and administered under the laws of the State of New York,
other than its laws respecting choice of law.
11.12 SEVERABILITY. If any provision of this Plan is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provision of this Plan and this Plan shall be construed and enforced as if such
provision had not been included therein. If the inclusion of any Employee (or
Employees) as a Participant under this Plan would cause this Plan to fail to
comply with the requirements of sections 201(2), 301(a)(3) and 401(a)(1) of
ERISA, then this Plan shall be severed with respect to such Employee or
Employees, who shall be considered to be participating in a separate
arrangement.
11.13 HEADINGS. The headings contained herein are inserted only as a
matter of convenience and for reference and in no way define, limit, enlarge or
describe the scope or intent of this Plan nor in any way shall they affect this
Plan or the construction of any provision thereof.
11.14 TERMS. Capitalized terms shall have meanings as defined herein.
Singular nouns shall be read as plural, masculine pronouns shall be read as
feminine, and vice versa, as appropriate.
11.15 APPROVAL OF IRS. If an Employer seek a private letter ruling from
the Internal Revenue Service and the Internal Revenue Service does not issue a
ruling acceptable to the Employees regarding this Plan, then this Plan (and the
Trust), at the election of the Employers, shall be void ab initio and all Salary
Deferrals shall be returned to the Employees who made such contributions and all
Employer Contributions and Matching Contributions shall be returned to the
Employer that made such contributions.
11.16 TERM OF PLAN. This Plan shall continue in effect, unless sooner
terminated as provided herein, for a term expiring on June 17, 2014. Such term
may be extended only by the affirmative vote of a majority of the votes cast by
the shareholders of Movado Group, Inc., present in person or represented by
proxy, at a duly called meeting of such shareholders. Any expiration of this
Plan under this Section 11.16, shall be treated in the same manner as
termination of the Plan under Section 11.8.
28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.37
<SEQUENCE>3
<FILENAME>y07454kexv10w37.txt
<DESCRIPTION>1996 STOCK INCENTIVE PLAN
<TEXT>
<PAGE>
EXHIBIT 10.37
MOVADO GROUP, INC.
1996 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED AS OF APRIL 8, 2004)
1. PURPOSE
The purpose of the Plan is to provide a means through which the
Company and its Affiliates may attract able persons to enter and remain in the
employ of the Company and its Affiliates and to provide a means whereby
employees, directors and consultants of the Company and its Affiliates can
acquire and maintain Common Stock ownership, or be paid incentive compensation
measured by reference to the value of Common Stock, thereby strengthening their
commitment to the welfare of the Company and its Affiliates and promoting an
identity of interest between stockholders and these persons.
So that the appropriate incentive can be provided, the Plan provides
for granting Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Phantom Stock Units, Performance
Share Units and Stock Bonuses, or any combination of the foregoing.
This Plan in an amendment and restatement of the Movado Group, Inc.
1996 Stock Incentive Plan (the "1996 Plan"); provided, however, that all awards
granted under the 1996 Plan will continue to be governed by the terms of the
1996 Plan and the Award Agreements issued thereunder.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan.
(a) "Affiliate" means (i) any entity that directly or indirectly is
controlled by, controls or is under common control with the Company and (ii) any
entity in which the Company has a significant equity interest, in either case as
determined by the Committee.
(b) "Award" means, individually or collectively, any Incentive Stock
Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock
Award, Phantom Stock Unit Award, Performance Share Unit Award or Stock Bonus
Award.
(c) "Award Period" means a period of time within which performance
is measured for the purpose of determining whether an Award of Performance Share
Units has been earned.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control," shall, unless in the case of a
particular Award, the applicable Award agreement states otherwise or contains a
different definition of "Change in Control," be deemed to occur upon:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more (on a fully diluted basis) of (A) the then outstanding shares of
common stock of the Company, taking into account as outstanding for this purpose
such common stock issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock (the "Outstanding Company Common Stock")
<PAGE>
2
and (B) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
of this Agreement, the following acquisitions shall not constitute a Change of
Control: (I) any acquisition by the Company or any Affiliate, (II) any
acquisition by any employee benefit plan sponsored or maintained by the Company
or any Affiliate, (III) any acquisition by a "Permitted Transferee," as defined
in the Company's Certificate of Incorporation, (IV) any acquisition which
complies with clauses (A), (B) and (C) of subsection (v) of this Section 2(e),
or (V) in respect of an Award held by a particular Participant, any acquisition
by the Participant or any group of persons including the Participant (or any
entity controlled by the Participant or any group of persons including the
Participant);
(ii) Individuals who, on the date hereof, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof, whose election or nomination for election was approved by a
vote of at least two-thirds of the Incumbent Directors then on the Board (either
by a specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without written objection to
such nomination) shall be an Incumbent Director; provided, however, that no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or
as a result of any other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board shall be deemed to
be an Incumbent Director;
(iii) the dissolution or liquidation of the Company;
(iv) the sale of all or substantially all of the
business or assets of the Company; or
(v) the consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction involving the
Company that requires the approval of the Company's stockholders, whether for
such transaction or the issuance of securities in the transaction (a "Business
Combination"), unless immediately following such Business Combination: (A) at
least 50% of the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Company"), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial ownership
of sufficient voting securities eligible to elect a majority of the directors of
the Surviving Company (the "Parent Company"), is represented by the Outstanding
Company Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares into which the
Outstanding Company Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of the Outstanding Company
Voting Securities among the holders thereof immediately prior to the Business
Combination, (B) no Person (other than any employee benefit plan sponsored or
maintained by the Surviving Company or the Parent Company or a "Permitted
Transferee," as defined in the Company's Certificate of Incorporation), is or
becomes the beneficial owner, directly or indirectly, of 20% or more of the
total voting power of the outstanding voting securities eligible to elect
directors of the Parent Company (or, if there is no Parent Company, the
Surviving Company) and (C) at least a majority of the members of the board of
directors of the Parent Company (or, if there is no Parent Company, the
Surviving Company) following the consummation of the Business Combination were
Board members at the time of the Board's approval of the execution of the
initial agreement providing for such Business Combination.
(f) "Code" means the Internal Revenue Code of 1986, as
amended. Reference in the Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to such section and any
regulations under such section.
(g) "Committee" means a committee of at least two people as
the Board may appoint to administer the Plan or, if no such committee has been
appointed by the Board, the Board. Unless the Board is acting as the Committee
or the Board specifically determines otherwise, each member of the Committee
shall, at the time he takes any action with respect to an Award under the Plan,
be an
<PAGE>
3
Eligible Director. However, the mere fact that a Committee member shall fail to
qualify as an Eligible Director shall not invalidate any Award made by the
Committee which is otherwise validly granted under the Plan.
(h) "Common Stock" means the common stock, par value $0.01 per
share, of the Company, but does not include the Class A common stock of the
Company.
(i) "Company" means Movado Group, Inc.
(j) "Date of Grant" means the date on which the granting of an
Award is authorized, or such other date as may be specified in such
authorization or, if there is no such date, the date indicated on the applicable
Award agreement.
(k) "Effective Date" of this amendment and restatement means
April 8, 2004.
(l) "Eligible Director" means a person who is (i) a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act,
or a person meeting any similar requirement under any successor rule or
regulation and (ii) an "outside director" within the meaning of Section 162(m)
of the Code, and the Treasury Regulations promulgated thereunder; provided,
however, that clause (ii) shall apply only with respect to grants of Awards with
respect to which the Company's tax deduction could be limited by Section 162(m)
of the Code if such clause did not apply.
(m) "Eligible Person" means any (i) individual regularly
employed by the Company, a Subsidiary or Affiliate who satisfies all of the
requirements of Section 6; provided, however, that no such employee covered by a
collective bargaining agreement shall be an Eligible Person unless and to the
extent that such eligibility is set forth in such collective bargaining
agreement or in an agreement or instrument relating thereto; (ii) director of
the Company, a Subsidiary or an Affiliate or (iii) consultant or advisor to the
Company, a Subsidiary or an Affiliate who may be offered securities pursuant to
Form S-8 (which, as of the Effective Date, includes those who (A) are natural
persons and (B) provide bona fide services to the Company other than in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the Company's securities).
(n) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(o) "Fair Market Value, on a given date means (i) if the Stock
is listed on a national securities exchange, the mean between the highest and
lowest sale prices reported as having occurred on the primary exchange with
which the Stock is listed and traded on the date prior to such date, or, if
there is no such sale on that date, then on the last preceding date on which
such a sale was reported; (ii) if the Stock is not listed on any national
securities exchange but is quoted in the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") on a
last sale basis, the average between the high bid price and low ask price
reported on the date prior to such date, or, if there is no such sale on that
date, then on the last preceding date on which a sale was reported; or (iii) if
the Stock is not listed on a national securities exchange nor quoted in NASDAQ
on a last sale basis, the amount determined by the Committee to be the fair
market value based upon a good faith attempt to value the Stock accurately and
computed in accordance with applicable regulations of the Internal Revenue
Service.
(p) "Incentive Stock Option" means an Option granted by the
Committee to a Participant under the Plan which is designated by the Committee
as an incentive stock option as described in Section 422 of the Code and
otherwise meets the requirements set forth herein.
(q) "Mature Shares" means shares of Stock or shares of Class A
common stock of the Company owned by a Participant which are not subject to any
pledge or other security interest
<PAGE>
4
and have either been held by the Participant for six months, previously acquired
by the Participant on the open market or meet such other requirements as the
Committee may determine are necessary in order to avoid an accounting earnings
charge on account of the use of such shares to pay the Option Price or satisfy a
withholding obligation in respect of an Option.
(r) "Nonqualified Stock Option" means an Option granted by the
Committee to a Participant under the Plan which is not designated by the
Committee as an Incentive Stock Option.
(s) "Option" means an Award granted under Section 7.
(y) "Option Period" means the period described in Section
7(c).
(u) "Option Price" means the exercise price for an Option as
described in Section 7(a).
(v) "Participant" means an Eligible Person who has been
selected by the Committee to participate in the Plan and to receive an Award
pursuant to Section 6.
(w) "Performance Goals" means the performance objectives of
the Company or Affiliate during an Award Period or Restricted Period established
for the purpose of determining whether, and to what extent, Awards will be
earned for an Award Period or Restricted Period. To the extent an Award is
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code, the Performance Goals shall be established with reference to one or
more of the following, either on a Company-wide basis or, as relevant, in
respect of one or more Affiliates, divisions or operations of the Company:
(i) earnings (gross, net or per share)
(ii) stock price (absolute or relative to other
companies)
(iii) market share
(iv) gross or net profit margin
(v) return on equity
(vi) sales
(vii) costs or expenses
(x) "Performance Share Unit" means a hypothetical investment
equivalent to one share of Stock granted in connection with an Award made under
Section 9.
(y) "Phantom Stock Unit" means a hypothetical investment
equivalent to one share of Stock granted in connection with an Award made under
Section 10.
(z) "Plan" means this Movado Group, Inc. 1996 Stock Incentive
Plan, as amended and restated as of April 8, 2004.
(aa) "Restricted Period" means, with respect to any share of
Restricted Stock or any Phantom Stock Unit, the period of time determined by the
Committee during which such Award is subject to the restrictions set forth in
Section 10.
(bb) "Restricted Stock" means shares of Stock issued or
transferred to a Participant subject to forfeiture and the other restrictions
set forth in Section 10.
(cc) "Restricted Stock Award" means an Award of Restricted
Stock granted under Section 10.
(dd) "Securities Act" means the Securities Act of 1933, as
amended.
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5
(ee) "Stock" means the Common Stock or such other authorized
shares of stock of the Company as the Committee may from time to time authorize
for use under the Plan.
(ff) "Stock Appreciation Right" or "SAR" means an Award
granted under Section 8 of the Plan.
(gg) "Stock Bonus" means an Award granted under Section 11.
(hh) "Stock Option Agreement" means any agreement between the
Company and a Participant who has been granted an Option pursuant to Section 7
which defines the rights and obligations of the parties thereto.
(ii) "Strike Price" means, in respect of an SAR, (i) in the
case of an SAR granted in tandem with an Option, the Option Price of the related
Option, or (ii) in the case of an SAR granted independent of an Option, the Fair
Market Value on the Date of Grant.
(jj) "Subsidiary" means any subsidiary of the Company as
defined in Section 424(f) of the Code.
(kk) "Vested Unit" shall have the meaning ascribed thereto in
Section 10(d).
3. Effective Date, Duration and Shareholder Approval
The amendment and restatement of the Plan is effective as of the
Effective Date; provided that the validity and exercisabilty of any and all
Awards granted on or after the Effective Date pursuant to the amended and
restated Plan (i) in respect of shares of Stock in excess of that available
under the Plan immediately prior to the Effective Date, (ii) of a type not
available under the Plan immediately prior to the Effective Date or (iii) to any
person not eligible to receive Awards under the Plan immediately prior to the
Effective Date, is contingent upon approval of the Plan by the shareholders of
the Company following the Effective Date, in a manner intended to comply with
the shareholder approval requirements of Sections 162(m) and 422 of the Code,
and of the New York Stock Exchange. No Option shall be treated as an Incentive
Stock Option unless the Plan has been approved by the shareholders of the
Company in a manner intended to comply with the shareholder approval
requirements of Section 422(b)(i) of the Code; provided that any Option intended
to be an Incentive Stock Option shall not fail to be effective solely on account
of a failure to obtain such approval, but rather such Option shall be treated as
a Nonqualified Stock Option unless and until such approval is obtained.
The expiration date of the Plan, on and after which no Awards may be
granted hereunder, shall be the day prior to the tenth anniversary of the
Effective Date; provided, however, that the administration of the Plan shall
continue in effect until all matters relating to Awards previously granted have
been settled.
4. ADMINISTRATION
The Committee shall administer the Plan. The majority of the members
of the Committee shall constitute a quorum. The acts of a majority of the
members present at any meeting at which a quorum is present or acts approved in
writing by a majority of the Committee shall be deemed the acts of the
Committee.
<PAGE>
6
Subject to the provisions of the Plan and applicable law, the
Committee shall have the power, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to a
Participant; (iii) determine the number of shares of Stock to be covered by, or
with respect to which payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, shares of Stock, other securities, other Awards
or other property, or canceled, forfeited, or suspended and the method or
methods by which Awards may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
the delivery of cash, Stock, other securities, other Options other property and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret, administer, reconcile any inconsistency, correct any default
and/or supply any omission in the Plan and any instrument or agreement relating
to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive
such rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and (ix) make any other determination
and take any other action specified under the Plan or that the Committee deems
necessary or desirable for the administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Award or any documents evidencing Awards granted
pursuant to the Plan shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive and binding upon all parties,
including, without limitation, the Company, any Affiliate, any Participant, any
holder or beneficiary of any Award, and any shareholder.
(c) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award
hereunder.
5. Grant of Awards; Shares Subject to the Plan
The Committee may, from time to time, grant Awards of Options, Stock
Appreciation Rights, Restricted Stock, Phantom Stock Units, Performance Share
Units and/or Stock Bonuses to one or more Eligible Persons; provided, however,
that:
(a) Subject to Section 13, the aggregate number of shares of
Stock in respect of which Awards may be made under the Plan is 4,500,000 shares;
(b) Shares of Stock shall be deemed to have been used in
settlement of Awards whether they are actually delivered or the Fair Market
Value equivalent of such shares is paid in cash; provided, however, that shares
of Stock or Company Class A common stock delivered (either directly or by means
of attestation) in full or partial payment of the Option Price in accordance
with the third sentence of Section 7(b) shall be deducted from the number of
shares of Stock delivered to the Participant pursuant to such Option for
purposes of determining the number of shares of Stock acquired pursuant to the
Plan. In accordance with (and without limitation upon) the preceding sentence,
if and to the extent an Award under the Plan expires, terminates or is canceled
for any reason whatsoever without the Participant having received any benefit
therefrom, the shares covered by such Award shall again become available for
future Awards under the Plan. For purposes of the foregoing sentence, a
Participant shall not be deemed to have received any "benefit" in the case of
forfeited Restricted Stock Awards by reason of having enjoyed voting rights and
dividend rights prior to the date of forfeiture;
<PAGE>
7
(c) Stock delivered by the Company in settlement of Awards may
be authorized and unissued Stock or Stock held in the treasury of the Company or
purchased on the open market or by private purchase;
(d) Subject to Section 13, no person may be granted Options or
SARs under the Plan during any calendar year with respect to more than 1,200,000
shares of Stock; provided that such number shall be adjusted pursuant to Section
13, and shares otherwise counted against such number, only in a manner which
will not cause Options or SARs granted under the Plan to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code; and
(e) Subject to Section 13, with respect to awards of
Performance Share Units, Restricted Stock or Phantom Stock Units intended to
qualify as "performance-based compensation" under Section 162(m) of the Code, no
person may be granted Performance Share Units, Restricted Stock or Phantom Stock
Units under the Plan during any calendar year with respect to more than
1,200,000 shares of Stock; provided that such number shall be adjusted pursuant
to Section 13, and shares otherwise counted against such number, only in a
manner which will not cause such Performance Share Units, Restricted Stock or
Phantom Stock Units granted under the Plan to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code.
6. ELIGIBILITY
Participation shall be limited to Eligible Persons who have received
written notification from the Committee, or from a person designated by the
Committee, that they have been selected to participate in the Plan.
7. OPTIONS
The Committee is authorized to grant one or more Incentive Stock
Options or Nonqualified Stock Options to any Eligible Person; provided, however,
that no Incentive Stock Options shall be granted to any Eligible Person who is
not an employee of the Company or a Subsidiary. Each Option so granted shall be
subject to the following conditions, or to such other conditions as may be
reflected in the applicable Stock Option Agreement.
(a) OPTION PRICE. Subject to Section 7(e), the exercise price
("Option Price") per share of Stock for each Option shall be set by the
Committee at the time of grant but shall not be less than the Fair Market Value
of a share of Stock at the Date of Grant.
(b) MANNER OF EXERCISE AND FORM OF PAYMENT. No shares of Stock
shall be delivered pursuant to any exercise of an Option until payment in full
of the Option Price therefor is received by the Company. Options which have
become exercisable may be exercised by delivery of written notice of exercise to
the Committee accompanied by payment of the Option Price. The Option Price shall
be payable (i) in cash and/or shares of Stock valued at the Fair Market Value at
the time the Option is exercised (including by means of attestation of ownership
of a sufficient number of shares of Stock in lieu of actual delivery of such
shares to the Company); provided, that such shares of Stock are Mature Shares,
(ii) in the discretion of the Committee, either (A) in other property having a
fair market value on the date of exercise equal to the Option Price or (B) by
delivering to the Committee a copy of irrevocable instructions to a stockbroker
to deliver promptly to the Company an amount of loan proceeds, or proceeds from
the sale of the Stock subject to the Option, sufficient to pay the Option Price,
(iii) to the extent provided in the Stock Option Agreement, by delivery of, or
attestation as to ownership of, shares of the Company's Class A common stock
convertible into an equivalent number of shares of Stock with a fair market
value equal to the portion of the Option Price to be paid thereby; provided that
such shares of Class A common stock are Mature Shares, or (iv) by such other
method as the Committee may allow.
<PAGE>
8
(c) VESTING, OPTION PERIOD AND EXPIRATION. Options shall vest
and become exercisable in such manner and on such date or dates determined by
the Committee and shall expire after such period, not to exceed ten years, as
may be determined by the Committee (the "Option Period"); provided, however,
that notwithstanding any vesting dates set by the Committee, the Committee may,
in its sole discretion, accelerate the exercisability of any Option, which
acceleration shall not affect the terms and conditions of such Option other than
with respect to exercisability. If an Option is exercisable in installments,
such installments or portions thereof which become exercisable shall remain
exercisable until the Option expires.
(d) STOCK OPTION AGREEMENT - OTHER TERMS AND CONDITIONS. Each
Option granted under the Plan shall be evidenced by a Stock Option Agreement.
Except as specifically provided otherwise in such Stock Option Agreement, each
Option granted under the Plan shall be subject to the following terms and
conditions:
(i) Each Option or portion thereof that is exercisable
shall be exercisable for the full amount or for any part thereof.
(ii) Each share of Stock purchased through the exercise
of an Option shall be paid for in full at the time of the exercise. Each
Option shall cease to be exercisable, as to any share of Stock, when the
Participant purchases the share or exercises a related SAR or when the
Option expires.
(iii) Subject to Section 12(k), Options shall not be
transferable by the Participant except by will or the laws of descent and
distribution and shall be exercisable during the Participant's lifetime
only by him.
(iv) Each Option shall vest and become exercisable by
the Participant in accordance with the vesting schedule established by the
Committee and set forth in the Stock Option Agreement.
(v) At the time of any exercise of an Option, the
Committee may, in its sole discretion, require a Participant to deliver to
the Committee a written representation that the shares to be acquired upon
such exercise are to be acquired for investment and not for resale or with
a view to the distribution thereof. Upon such a request by the Committee,
delivery of such representation prior to the delivery of any shares issued
upon exercise of an Option shall be a condition precedent to the right of
the Participant or such other person to purchase any shares. In the event
certificates for Stock are delivered under the Plan with respect to which
such investment representation has been obtained, the Committee may cause
a legend or legends to be placed on such certificates to make appropriate
reference to such representation and to restrict transfer in the absence
of compliance with applicable federal or state securities laws.
(vi) Each Participant awarded an Incentive Stock Option
under the Plan shall notify the Company in writing immediately after the
date he or she makes a disqualifying disposition of any Stock acquired
pursuant to the exercise of such Incentive Stock Option. A disqualifying
disposition is any disposition (including any sale) of such Stock before
the later of (A) two years after the Date of Grant of the Incentive Stock
Option or (B) one year after the date the Participant acquired the Stock
by exercising the Incentive Stock Option. The Company may, if determined
by the Committee and in accordance with procedures established by it,
retain possession of any Stock acquired pursuant to the exercise of an
Incentive Stock Option as agent for the applicable Participant until the
end of the period described in the preceding sentence, subject to
complying with any instructions from such Participant as to the sale of
such Stock.
(e) INCENTIVE STOCK OPTION GRANTS TO 10% STOCKHOLDERS.
Notwithstanding anything to the contrary in this Section 7, if an Incentive
Stock Option is granted to a Participant who owns stock representing more than
ten percent of the voting power of all classes of stock of the Company or of a
Subsidiary, the Option Period shall not exceed five years from the Date of Grant
of
<PAGE>
9
such Option and the Option Price shall be at least 110 percent of the Fair
Market Value (on the Date of Grant) of the Stock subject to the Option.
(f) $100,000 PER YEAR LIMITATION FOR INCENTIVE STOCK OPTIONS.
To the extent the aggregate Fair Market Value (determined as of the Date of
Grant) of Stock for which Incentive Stock Options are exercisable for the first
time by any Participant during any calendar year (under all plans of the
Company) exceeds $100,000, such excess Incentive Stock Options shall be treated
as Nonqualified Stock Options.
(g) RELOAD OPTIONS. The Committee may provide for the grant to
any Participant of additional Options ("Reload Options") upon the exercise of
Options, including Reload Options, through the delivery of shares of Stock or
shares of Class A common stock of the Company; provided, however, that the
Reload Options (i) may only be granted in connection with a grant of
Nonqualified Stock Options; (ii) may only be granted with respect to the same
number of shares of Stock or Class A common stock as were surrendered to
exercise the Nonqualified Stock Options and the number of shares of Stock
withheld for tax purposes pursuant to Section 12(d)(ii), (iii) shall have an
exercise price per share not less than the greater of (A) five dollars more than
the exercise price of the Nonqualified Stock Options, the exercise of which
resulted in the grant of the Reload Options, or (B) 110% of the Fair Market
Value of a share of Stock on the date of exercise of the Nonqualified Stock
Options which resulted in the grant of the Reload Options, (iv) shall not be
exercisable until six months after the exercise of the Nonqualified Stock
Options which resulted in the grant of the Reload Options, (v) shall not be
exercisable after the expiration of the term of the Nonqualified Stock Options,
the exercise of which resulted in the grant of the Reload Options, and (vi)
shall otherwise be subject to the same terms and conditions of the Nonqualified
Stock Options, the exercise of which resulted in the grant of the Reload
Options. Notwithstanding any provision of this Plan or a Stock Option Agreement
to the contrary, unless the Stock Option Agreement specifically provides for the
grant of Reload Options pursuant to Section 7(g) of the Plan, no grant of a
Nonqualified Stock Option shall include a grant of Reload Options.
8. STOCK APPRECIATION RIGHTS
Any Option granted under the Plan may include SARS, either at the
Date of Grant or, except in the case of an Incentive Stock Option, by subsequent
amendment. The Committee also may award SARs to Eligible Persons independent of
any Option. An SAR shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose, including, but not
limited to, the following:
(a) VESTING, TRANSFERABILITY AND EXPIRATION. SARs granted in
connection with an Option shall become exercisable, be transferable and shall
expire according to the same vesting schedule, transferability rules and
expiration provisions as the corresponding Option. An SAR granted independent of
an Option shall become exercisable, be transferable and shall expire in
accordance with a vesting schedule, transferability rules and expiration
provisions as established by the Committee and reflected in an Award agreement.
(b) AUTOMATIC EXERCISE. If on the last day of the Option
Period (or in the case of an SAR independent of an option, the period
established by the Committee after which the SAR shall expire), the Fair Market
Value exceeds the Strike Price, the Participant has not exercised the SAR or the
corresponding Option, and neither the SAR nor the corresponding Option has
expired, such SAR shall be deemed to have been exercised by the Participant on
such last day and the Company shall make the appropriate payment therefor.
(c) PAYMENT. Upon the exercise of an SAR, the Company shall
pay to the Participant an amount equal to the number of shares subject to the
SAR multiplied by the excess, if any, of the Fair Market Value of one share of
Stock on the exercise date over the Strike Price. The Company shall
<PAGE>
10
pay such excess in cash, in shares of Stock valued at Fair Market Value, or any
combination thereof, as determined by the Committee. Fractional shares shall be
settled in cash.
(d) METHOD OF EXERCISE. A Participant may exercise an SAR at
such time or times as may be determined by the Committee at the time of grant by
filing an irrevocable written notice with the Committee or its designee,
specifying the number of SARs to be exercised, and the date on which such SARs
were awarded.
(e) EXPIRATION. Except as otherwise provided in the case of
SARs granted in connection with Options, an SAR shall expire on a date
designated by the Committee which is not later than ten years after the Date of
Grant of the SAR.
9. PERFORMANCE SHARES
(a) AWARD GRANTS. The Committee is authorized to establish
Performance Share programs to be effective over designated Award Periods
determined by the Committee. At the beginning of each Award Period, the
Committee will establish in writing Performance Goals based for such Award
Period and a schedule relating the accomplishment of the Performance Goals to
the Awards to be earned by Participants. The Committee shall determine the
number of Performance Share Units to be awarded, if any, to each Participant who
is selected to receive such an Award. The Committee may add new Participants to
a Performance Share program after its commencement by making pro-rata grants.
(b) DETERMINATION OF AWARD. At the completion of a Performance
Share Award Period, or at other times as specified by the Committee, the
Committee shall calculate the number of shares of Stock earned with respect to
each Participant's Performance Share Unit Award by multiplying the number of
Performance Share Units granted to the Participant by a performance factor
representing the degree of attainment of the Performance Goals.
(c) PARTIAL AWARDS. A Participant for less than a full Award
Period, whether by reason of commencement or termination of employment or
otherwise, shall receive such portion of an Award, if any, for that Award Period
as the Committee shall determine.
(d) PAYMENT OF PERFORMANCE SHARE UNIT AWARDS. Performance
Share Unit Awards shall be payable in that number of shares of Stock determined
in accordance with Section 9(b); provided, however, that, at its discretion, the
Committee may make payment to any Participant in the form of cash. The amount of
any payment made in cash shall be based upon the Fair Market Value of the Stock
on the day prior to payment. Payments of Performance Share Unit Awards shall be
made as soon as practicable after the completion of an Award Period.
(e) ADJUSTMENT OF PERFORMANCE GOALS. The Committee may, during
the Award Period, make such adjustments to Performance Goals as it may deem
appropriate to compensate for, or reflect, (i) extraordinary or non-recurring
events experienced during an Award Period by the Company or by any other
corporation whose performance is relevant to the determination of whether
Performance Goals have been attained; (ii) any significant changes that may have
occurred during such Award Period in applicable accounting rules or principles
or changes in the Company's method of accounting or in that of any other
corporation whose performance is relevant to the determination of whether an
Award has been earned or (iii) any significant changes that may have occurred
during such Award Period in tax laws or other laws or regulations that alter or
affect the computation of the measures of Performance Goals used for the
calculation of Awards.
(f) APPLICABILITY OF SECTION 162(m). With respect to Awards of
Performance Shares intended to qualify as "performance-based compensation" under
Section 162(m) of the Code, this Section 9 (including the substance of the
Performance Goals, the timing of establishment of the Performance Goals, the
adjustment of the Performance Goals and determination of the Award) shall be
<PAGE>
11
implemented by the Committee in a manner designed to preserve such Awards as
such "performance-based compensation."
10. Restricted Stock Awards and Phantom Stock Units
(a) AWARD OF RESTRICTED STOCK AND PHANTOM STOCK UNITS.
(i) The Committee shall have the authority (1) to grant
Restricted Stock and Phantom Stock Unit Awards to Eligible Persons, (2) to
issue or transfer Restricted Stock to Participants, and (3) to establish
terms, conditions and restrictions applicable to such Restricted Stock and
Phantom Stock Units, including the Restricted Period, which may differ
with respect to each grantee, the time or times at which Restricted Stock
or Phantom Stock Units shall be granted or become vested and the number of
shares or units to be covered by each grant.
(ii) Each Participant granted a Restricted Stock Award
shall execute and deliver to the Company an Award agreement with respect
to the Restricted Stock setting forth the restrictions and other terms and
conditions applicable to such Restricted Stock. If the Committee
determines that the Restricted Stock shall be held in escrow rather than
delivered to the Participant pending the release of the applicable
restrictions, the Committee may require the Participant to additionally
execute and deliver to the Company (i) an escrow agreement satisfactory to
the Committee and (ii) the appropriate blank stock powers with respect to
the Restricted Stock covered by such agreement. If a Participant shall
fail to execute a Restricted Stock agreement and, if applicable, an escrow
agreement and stock powers, the Award shall be null and void. Subject to
the restrictions set forth in Section 10(b), the Participant generally
shall have the rights and privileges of a stockholder as to such
Restricted Stock, including the right to vote such Restricted Stock. At
the discretion of the Committee, cash dividends and stock dividends with
respect to the Restricted Stock may be either currently paid to the
Participant or withheld by the Company for the Participant's account, and
interest may be credited on the amount of cash dividends withheld at a
rate and subject to such terms as determined by the Committee. The cash
dividends or stock dividends so withheld by the Committee and attributable
to any particular share of Restricted Stock (and earnings thereon, if
applicable) shall be distributed to the Participant upon the release of
restrictions on such share and, if such share is forfeited, the
Participant shall have no right to such cash dividends, stock dividends or
earnings.
(iii) Upon the Award of Restricted Stock, the Committee
shall cause a stock certificate registered in the name of the Participant
to be issued and, if it so determines, deposited together with the stock
powers with an escrow agent designated by the Committee. If an escrow
arrangement is used, the Committee may cause the escrow agent to issue to
the Participant a receipt evidencing any stock certificate held by it
registered in the name of the Participant.
(iv) The terms and conditions of a grant of Phantom
Stock Units shall be reflected in a written Award agreement. No shares of
Stock shall be issued at the time a Phantom Stock Unit Award is made, and
the Company will not be required to set aside a fund for the payment of
any such Award. At the discretion of the Committee, each Phantom Stock
Unit (representing one share of Stock) awarded to a Participant may be
credited with cash and stock dividends paid by the Company in respect of
one share of Stock ("Dividend Equivalents"). At the discretion of the
Committee, Dividend Equivalents may be either currently paid to the
Participant or withheld by the Company for the Participant's account, and
interest may be credited on the amount of cash Dividend Equivalents
withheld at a rate and subject to such terms as determined by the
Committee. Dividend Equivalents credited to a Participant's account and
attributable to any particular Phantom Stock Unit (and earnings thereon,
if applicable) shall be distributed to the Participant upon settlement of
such Phantom Stock Unit and, if such Phantom Stock Unit is forfeited, the
Participant shall have no right to such Dividends Equivalents.
(b) RESTRICTIONS.
<PAGE>
12
(i) Restricted Stock awarded to a Participant shall be
subject to the following restrictions until the expiration of the
Restricted Period, and to such other terms and conditions as may be set
forth in the applicable Award agreement: (1) if an escrow arrangement is
used, the Participant shall not be entitled to delivery of the stock
certificate; and (2) the shares shall be subject to forfeiture during the
Restricted Period and restrictions on transferability, each as set forth
in the Award agreement and, to the extent such shares are forfeited, the
stock certificates shall be returned to the Company, and all rights of the
Participant to such shares and as a shareholder shall terminate without
further obligation on the part of the Company.
(ii) Phantom Stock Units awarded to any Participant
shall be subject to (1) forfeiture until the expiration of the Restricted
Period, to the extent provided in the applicable Award agreement, and to
the extent such Phantom Stock Units are forfeited, all rights of the
Participant to such Phantom Stock Units shall terminate without further
obligation on the part of the Company and (2) such other terms and
conditions as may be set forth in the applicable Award agreement.
(iii) The Committee shall have the authority to remove
any or all of the restrictions on the Restricted Stock and Phantom Stock
Units whenever it may determine that, by reason of changes in applicable
laws or other changes in circumstances arising after the date of the
Restricted Stock Award or Phantom Stock Award, such action is appropriate.
(c) RESTRICTED PERIOD. The Restricted Period of Restricted
Stock and Phantom Stock Units shall commence on the Date of Grant and shall
expire from time to time as to that part of the Restricted Stock and Phantom
Stock Units indicated in a schedule established by the Committee in the
applicable Award agreement.
(d) DELIVERY OF RESTRICTED STOCK AND SETTLEMENT OF PHANTOM
STOCK UNITS. Upon the expiration of the Restricted Period with respect to any
shares of Stock covered by a Restricted Stock Award, the restrictions set forth
in Section 10(b) and the applicable Award agreement shall be of no further force
or effect with respect to shares of Restricted Stock which have not then been
forfeited, except as otherwise set forth in the applicable Award agreement. If
an escrow arrangement is used, upon such expiration, the Company shall deliver
to the Participant, or his beneficiary, without charge, the stock certificate
evidencing the shares of Restricted Stock which have not then been forfeited and
with respect to which the Restricted Period has expired (to the nearest full
share) and any cash dividends or stock dividends credited to the Participant's
account with respect to such Restricted Stock and the interest thereon, if any.
Upon the expiration of the Restricted Period with respect to any
Phantom Stock Units covered by a Phantom Stock Unit Award, the Company shall
deliver to the Participant, or his beneficiary, without charge, one share of
Stock for each Phantom Stock Unit which has not then been forfeited and with
respect to which the Restricted Period has expired ("Vested Unit"); provided,
however, that, if so noted in the applicable Award agreement, the Committee may,
in its sole discretion, elect to pay cash or part cash and part Stock in lieu of
delivering only Stock for Vested Units. If cash payment is made in lieu of
delivering Stock, the amount of such payment shall be equal to the Fair Market
Value of the Stock as of the date on which the Restricted Period lapsed with
respect to such Vested Unit.
(e) STOCK RESTRICTIONS. Each certificate representing
Restricted Stock awarded under the Plan shall bear a legend substantially in the
form of the following until the lapse of all restrictions with respect to such
Stock:
Transfer of this certificate and the shares represented hereby is
restricted pursuant to the terms of the Movado Group, Inc. 1996 Stock
Incentive Plan and a Restricted Stock Purchase and Award Agreement, dated
as of _____________, between
<PAGE>
13
Movado Group, Inc. and __________________. A copy of such Agreement is on
file at the offices of Movado Group, Inc.
Stop transfer orders shall be entered with the Company's transfer agent and
registrar against the transfer of legended securities.
(f) APPLICABILITY OF SECTION 162(m). With respect to Awards of
Restricted Stock or Phantom Stock Units intended to qualify as
"performance-based compensation" under Section 162(m) of the Code, the Committee
shall establish and administer Performance Goals in the manner described in
Section 9 as an additional condition to the vesting and payment of such Awards.
11. STOCK BONUS AWARDS
The Committee may issue unrestricted Stock, or other awards
denominated in Stock, under the Plan to Eligible Persons, alone or in tandem
with other Awards, in such amounts and subject to such terms and conditions as
the Committee shall from time to time in its sole discretion determine. Stock
Bonus Awards under the Plan shall be granted as, or in payment of, a bonus, or
to provide incentives or recognize special achievements or contributions. With
respect to Stock Bonus Awards intended to qualify as "performance-based
compensation" under Section 162(m) of the Code, the Committee shall establish
and administer Performance Goals in the manner described in Section 9 as an
additional condition to the vesting and payment of such Stock Bonus Awards.
12. GENERAL
(a) ADDITIONAL PROVISIONS OF AN AWARD. Awards to a Participant
under the Plan also may be subject to such other provisions (whether or not
applicable to the benefit awarded to any other Participant) as the Committee
determines appropriate including, without limitation, provisions to assist the
Participant in financing the purchase of Stock upon the exercise of Options
(provided, that the Committee determines that providing such financing does not
violate the Sarbanes-Oxley Act of 2002), provisions for the forfeiture of or
restrictions on resale or other disposition of shares of Stock acquired under
any Award, provisions giving the Company the right to repurchase shares of Stock
acquired under any Award in the event the Participant elects to dispose of such
shares, provisions allowing the Participant to elect to defer the receipt of
payment in respect of Awards for a specified period or until a specified event,
and provisions to comply with Federal and state securities laws and Federal and
state tax withholding requirements. Any such provisions shall be reflected in
the applicable Award agreement.
(b) PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise
specifically provided in the Plan, no person shall be entitled to the privileges
of ownership in respect of shares of Stock which are subject to Awards hereunder
until such shares have been issued to that person.
(c) GOVERNMENT AND OTHER REGULATIONS. The obligation of the
Company to settle Awards in Stock shall be subject to all applicable laws,
rules, and regulations, and to such approvals by governmental agencies as may be
required. Notwithstanding any terms or conditions of any Award to the contrary,
the Company shall be under no obligation to offer to sell or to sell and shall
be prohibited from offering to sell or selling any shares of Stock pursuant to
an Award unless such shares have been properly registered for sale pursuant to
the Securities Act with the Securities and Exchange Commission or unless the
Company has received an opinion of counsel, satisfactory to the Company, that
such shares may be offered or sold without such registration pursuant to an
available exemption therefrom and the terms and conditions of such exemption
have been fully complied with. The Company shall be under no obligation to
register for sale under the Securities Act any of the shares of Stock to be
offered or sold under the Plan. If the shares of Stock offered for sale or sold
under the Plan are offered or sold pursuant to an exemption from registration
under the Securities Act, the Company may restrict the transfer of such shares
and may legend the Stock certificates representing such shares in such manner as
it deems advisable to ensure the availability of any such exemption.
<PAGE>
14
(d) TAX WITHHOLDING.
(i) A Participant may be required to pay to the Company
or any Affiliate and the Company or any Affiliate shall have the right and is
hereby authorized to withhold from any shares of Stock or other property
deliverable under any Award or from any compensation or other amounts owing to a
Participant the amount (in cash, Stock or other property) of any required tax
withholding and payroll taxes in respect of an Award, its exercise, or any
payment or transfer under an Award or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
(ii) Without limiting the generality of clause (i)
above, the Committee may, in its sole discretion, permit a Participant to
satisfy, in whole or in part, the foregoing withholding liability (but no more
than the minimum required withholding liability) by (A) delivery of Mature
Shares of Stock or Class A common stock owned by the Participant with a Fair
Market Value equal to such withholding liability or (B) having the Company
withhold from the number of shares of Stock otherwise issuable pursuant to the
exercise or settlement of the Award a number of shares with a Fair Market Value
equal to such withholding liability.
(e) CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. No employee of the
Company, a Subsidiary or Affiliate, or other person, shall have any claim or
right to be granted an Award under the Plan or, having been selected for the
grant of an Award, to be selected for a grant of any other Award. Neither the
Plan nor any action taken hereunder shall be construed as giving any Participant
any right to be retained in the employ or service of the Company, a Subsidiary
or an Affiliate.
(f) DESIGNATION AND CHANGE OF BENEFICIARY. Each Participant
shall file with the Committee a written designation of one or more persons as
the beneficiary who shall be entitled to receive the amounts payable with
respect to an Award, if any, due under the Plan upon his death. A Participant
may, from time to time, revoke or change his beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the Committee.
The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to such receipt. If no
beneficiary designation is filed by a Participant, the Beneficiary shall be
deemed to be his or her spouse or, if the Participant is unmarried at the time
of death, his or her estate.
(g) PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS. If the
Committee shall find that any person to whom any amount is payable under the
Plan is unable to care for his affairs because of illness or accident, or is a
minor, or has died, then any payment due to such person or his estate (unless a
prior claim therefor has been made by a duly appointed legal representative)
may, if the Committee so directs the Company, be paid to his spouse, child,
relative, an institution maintaining or having custody of such person, or any
other person deemed by the Committee to be a proper recipient on behalf of such
person otherwise entitled to payment. Any such payment shall be a complete
discharge of the liability of the Committee and the Company therefor.
(h) NO LIABILITY OF COMMITTEE MEMBERS. No member of the
Committee shall be personally liable by reason of any contract or other
instrument executed by such member or on his behalf in his capacity as a member
of the Committee nor for any mistake of judgment made in good faith, and the
Company shall indemnify and hold harmless each member of the Committee and each
other employee, officer or director of the Company to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or willful bad faith; provided, however, that approval of the Board
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Articles of
<PAGE>
15
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
(i) GOVERNING LAW. The Plan shall be governed by and construed
in accordance with the internal laws of the State of New York applicable to
contracts made and performed wholly within the State of New York.
(j) FUNDING. No provision of the Plan shall require the
Company, for the purpose of satisfying any obligations under the Plan, to
purchase assets or place any assets in a trust or other entity to which
contributions are made or otherwise to segregate any assets, nor shall the
Company maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for such
purposes. Holders shall have no rights under the Plan other than as unsecured
general creditors of the Company, except that insofar as they may have become
entitled to payment of additional compensation by performance of services, they
shall have the same rights as other employees under general law.
(k) NONTRANSFERABILITY.
(i) Each Award shall be exercisable only by a
Participant during the Participant's lifetime, or, if permissible under
applicable law, by the Participant's legal guardian or representative. No Award
may be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or by the laws of descent and
distribution and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the
Company, a Subsidiary or an Affiliate; provided that the designation of a
beneficiary shall not constitute an assignment, alienation, pledge, attachment,
sale, transfer or encumbrance.
(ii) Notwithstanding the foregoing, the Committee may,
in its sole discretion, permit Awards other than Incentive Stock Options to be
transferred by a Participant, without consideration, subject to such rules as
the Committee may adopt consistent with any applicable Award agreement to
preserve the purposes of the Plan, to:
(A) any person who is a "family member" of the
Participant, as such term is used in the
instructions to Form S-8 (collectively, the
"Immediate Family Members");
(B) a trust solely for the benefit of the Participant
and his or her Immediate Family Members;
(C) a partnership or limited liability company whose
only partners or shareholders are the Participant
and his or her Immediate Family Members; or
(D) any other transferee as may be approved either (a)
by the Board or the Committee in its sole
discretion, or (b) as provided in the applicable
Award agreement;
(each transferee described in clauses (A), (B), (C) and (D) above is hereinafter
referred to as a "Permitted Transferee"); provided that the Participant gives
the Committee advance written notice describing the terms and conditions of the
proposed transfer and the Committee notifies the Participant in writing that
such a transfer would comply with the requirements of the Plan.
(iii) The terms of any Award transferred in
accordance with the immediately preceding sentence shall apply to the Permitted
Transferee and any reference in the Plan, or in any applicable Award Agreement,
to a Participant shall be deemed to refer to the Permitted Transferee,
<PAGE>
16
except that (A) Permitted Transferees shall not be entitled to transfer any
Awards, other than by will or the laws of descent and distribution; (B)
Permitted Transferees shall not be entitled to exercise any transferred Option
unless there shall be in effect a registration statement on an appropriate form
covering the shares of Stock to be acquired pursuant to the exercise of such
Option if the Committee determines, consistent with any applicable Award
agreement, that such a registration statement is necessary or appropriate, (C)
the Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, whether or not such notice is or would otherwise have been
required to be given to the Participant under the Plan or otherwise, and (D) the
consequences of the termination of the Participant's employment by, or services
to, the Company, a Subsidiary or an Affiliate under the terms of the Plan and
the applicable Award agreement shall continue to be applied with respect to the
Participant, following which any transferred Options shall be exercisable by the
Permitted Transferee only to the extent, and for the periods, specified in the
Plan and the applicable Award agreement.
(l) RELIANCE ON REPORTS. Each member of the Committee and each
member of the Board shall be fully justified in relying, acting or failing to
act, and shall not be liable for having so relied, acted or failed to act in
good faith, upon any report made by the independent public accountant of the
Company and its Affiliates and upon any other information furnished in
connection with the Plan by any person or persons other than himself.
(m) RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, profit sharing, group insurance or other benefit plan of the Company
or any Subsidiary except as otherwise specifically provided in such other plan.
(n) EXPENSES. The expenses of administering the Plan shall be
borne by the Company and its Affiliates.
(o) PRONOUNS. Masculine pronouns and other words of masculine
gender shall refer to both men and women.
(p) TITLES AND HEADINGS. The titles and headings of the
sections in the Plan are for convenience of reference only, and in the event of
any conflict, the text of the Plan, rather than such titles or headings shall
control.
(q) TERMINATION OF EMPLOYMENT. Unless an applicable Award
agreement provides otherwise, for purposes of the Plan a person who transfers
from employment or service with the Company to employment or service with a
Subsidiary or an Affiliate or vice versa shall not be deemed to have terminated
employment or service with the Company, a Subsidiary or an Affiliate.
(r) SEVERABILITY. If any provision of the Plan or any Award
agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in
any jurisdiction or as to any person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to the applicable laws, or if it
cannot be construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, person or Award and the
remainder of the Plan and any such Award shall remain in full force and effect.
13. Changes in Capital Structure
Awards granted under the Plan and any agreements evidencing such
Awards, the maximum number of shares of Stock subject to all Awards stated in
Section 5(a) and the maximum number of shares of Stock with respect to which any
one person may be granted Awards during any period stated in Sections 5(d) or
5(e) shall be subject to adjustment or substitution, as determined by the
Committee in its sole discretion, as to the number, price or kind of a share of
Stock or other consideration subject to such
<PAGE>
17
Awards or as otherwise determined by the Committee to be equitable (i) in the
event of changes in the outstanding Stock or in the capital structure of the
Company by reason of stock or extraordinary cash dividends, stock splits,
reverse stock splits, recapitalization, reorganizations, mergers,
consolidations, combinations, exchanges, or other relevant changes in
capitalization occurring after the Date of Grant of any such Award or (ii) in
the event of any change in applicable laws or any change in circumstances which
results in or would result in any substantial dilution or enlargement of the
rights granted to, or available for, Participants, or which otherwise warrants
equitable adjustment because it interferes with the intended operation of the
Plan. Any adjustment in Incentive Stock Options under this Section 13 shall be
made only to the extent not constituting a "modification" within the meaning of
Section 424(h)(3) of the Code, and any adjustments under this Section 13 shall
be made in a manner which does not adversely affect the exemption provided
pursuant to Rule 16b-3 under the Exchange Act. Further, with respect to Awards
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code, such adjustments or substitutions shall be made only to the extent
that the Committee determines that such adjustments or substitutions may be made
without causing the Company to be denied a tax deduction on account of Section
162(m) of the Code. The Company shall give each Participant notice of an
adjustment hereunder and, upon notice, such adjustment shall be conclusive and
binding for all purposes.
Notwithstanding the above, in the event of any of the following:
A. The Company is merged or consolidated with another corporation or
entity and, in connection therewith, consideration is received by shareholders
of the Company in a form other than stock or other equity interests of the
surviving entity;
B. All or substantially all of the assets of the Company are
acquired by another person;
C. The reorganization or liquidation of the Company; or
D. The Company shall enter into a written agreement to undergo an
event described in clauses A, B or C above,
then the Committee may, in its discretion and upon at least 10 days advance
notice to the affected persons, cancel any outstanding Awards and pay to the
holders thereof, in cash or stock, or any combination thereof, the value of such
Awards based upon the price per share of Stock received or to be received by
other shareholders of the Company in the event. The terms of this Section 13 may
be varied by the Committee in any particular Award agreement.
14. Effect of Change in Control
Except to the extent reflected in a particular Award agreement:
(a) In the event of a Change in Control, notwithstanding any
provision of the Plan to the contrary, all Options and SARs shall become
immediately exercisable with respect to 100 percent of the shares subject to
such Option or SAR, and the Restricted Period shall expire immediately with
respect to 100 percent of such Phantom Stock Units or shares of Restricted Stock
(including a waiver of any applicable Performance Goals) and, to the extent
practicable, such acceleration of exercisability and expiration of the
Restricted Period (as applicable) shall occur in a manner and at a time which
allows affected Participants the ability to participate in the Change in Control
transaction with respect to the Stock subject to their Awards.
<PAGE>
18
(b) In the event of a Change in Control, all incomplete Award
Periods in effect on the date the Change in Control occurs shall end on the date
of such change, and the Committee shall (i) determine the extent to which
Performance Goals with respect to each such Award Period have been met based
upon such audited or unaudited financial information then available as it deems
relevant, (ii) cause to be paid to each Participant partial or full Awards with
respect to Performance Goals for each such Award Period based upon the
Committee's determination of the degree of attainment of Performance Goals, and
(iii) cause all previously deferred Awards to be settled in full as soon as
possible.
(c) In addition, in the event of a Change in Control, the
Committee may in its discretion and upon at least 10 days' advance notice to the
affected persons, cancel any outstanding Awards and pay to the holders thereof,
in cash or stock, or any combination thereof, the value of such Awards based
upon the price per share of Stock received or to be received by other
shareholders of the Company in the event.
(d) The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and business of the Company. The Company agrees that it will make
appropriate provisions for the preservation of Participants' rights under the
Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.
15. Nonexclusivity of the Plan
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.
16. Amendments and Termination
(a) AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend,
alter, suspend, discontinue, or terminate the Plan or any portion thereof at any
time; provided that no such amendment, alteration, suspension, discontinuation
or termination shall be made without shareholder approval if such approval is
necessary to comply with any tax or regulatory requirement applicable to the
Plan (including as necessary to comply with any applicable stock exchange
listing requirement or to prevent the Company from being denied a tax deduction
on account of Section 162(m) of the Code); and provided further that any such
amendment, alteration, suspension, discontinuance or termination that would
impair the rights of any Participant or any holder or beneficiary of any Award
theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
(b) AMENDMENT OF AWARD AGREEMENTS. The Committee may, to the extent
consistent with the terms of any applicable Award agreement, waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Award theretofore granted or the associated Award
agreement, prospectively or retroactively; provided that any such waiver,
amendment, alteration, suspension, discontinuance, cancellation or termination
that would impair the rights of any Participant or any holder or beneficiary of
any Option theretofore granted shall not to that extent be effective without the
consent of the affected Participant, holder or beneficiary; and provided further
that, without stockholder approval, (i) no amendment or modification may reduce
the exercise price of any Option, (ii) the Committee may not cancel any
outstanding Option and replace it with a new Option (with a
<PAGE>
19
lower exercise price) in a manner which would either (A) be reportable on the
Company's proxy statement as Options which have been "repriced" (as such term is
used in Item 402 of Regulation S-K promulgated under the Exchange Act), or (B)
result in any Option being accounted for under the "variable" method for
financial statement reporting purposes and (iii) the Committee may not take any
other action which is considered a "repricing" for purposes of the shareholder
approval rules of any applicable stock exchange.
* * *
As amended and restated by the Board of
Directors of Movado Group, Inc. at a meeting
held on April 8, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.38
<SEQUENCE>4
<FILENAME>y07454kexv10w38.txt
<DESCRIPTION>LICENSE AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.38**
License Agreement
between
HUGO BOSS Trade Mark Management GmbH & Co. KG
Dieselstrasse 12
D-72555 Metzingen
Germany
- hereinafter referred to as "HUGO BOSS" -
and
MGI Luxury Group S.A.
35 Rue de Nideau
CH-2501 Bienne
Switzerland
- hereinafter referred to as "Licensee" -
**CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED FROM PAGES 3, 5, 6,
10, 11-13, 20, 22-24; APPENDIX 3 (PAGES 7-54 AND PAGE 58); APPENDIX 4 (PAGES
1-14) AND APPENDIX 6 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF
1934,AS AMENDED ("1934 ACT").
<PAGE>
2
Preface
a) HUGO BOSS is entitled to grant licences for the trademarks "BOSS", "HUGO
BOSS", "BOSS HUGO BOSS", "HUGO", and "HUGO HUGO BOSS" which are
registered or under application for registration for various products in
numerous countries around the world.
The HUGO BOSS group enjoys an excellent reputation world-wide as an
established fashion house, which is based upon the high quality of HUGO
BOSS products and the special HUGO BOSS image.
b) Licensee is aware that HUGO BOSS grants production and distribution
licenses to third parties for the above trademarks.
c) Proceeding from the foregoing, the parties wish to enter into a licence
agreement on certain watch products and agree as follows:
1. Grant of License
1.1 Subject to the terms of this Agreement, HUGO BOSS hereby grants to the
Licensee the exclusive non-transferable license to use the trademarks
"HUGO BOSS", "BOSS HUGO BOSS", "HUGO HUGO BOSS", "BOSS", and "HUGO" as
set forth in Appendices 1 and 2 to this Agreement, and any other
trademarks which at any time during the term of this Agreement are owned
by HUGO BOSS for Licensed Products (as hereinafter defined) and contain
either or both the words "HUGO" and/or "BOSS" (hereinafter referred to as
the "Trademarks"), for the production, marketing, advertising, promotion,
sale and distribution of the Licensed Products (as hereinafter defined)
in the License Territory (as hereinafter defined) and in connection
therewith, and subject to the terms hereof, to use the reputation and the
image of HUGO BOSS and the products of HUGO BOSS. Notwithstanding the
foregoing, Licensee shall not have any right to use any trademark
containing the word BALDESSARINI. In addition, Hugo Boss hereby grants
Licensee the non-exclusive right and license to use the tradename HUGO
BOSS as a tradename solely in connection with Licensee performing its
obligations and exercising its rights under this Agreement.
The License includes, besides the exclusive right to use the Trademarks
as set forth above, the exclusive right to use the Trademarks in
advertising and PR materials, in promotional materials and on the
packaging of the Licensed Products, subject to and within the limitations
of the other provisions of this Agreement, in particular Art. 10.
Trademark use on promotional gifts is only permitted upon obtaining the
prior written approval of HUGO BOSS. The
<PAGE>
3
License further includes the exclusive right to use the Licensor Designs
(as defined in section 6.5 hereof) and the right to use designs of the
promotional material, and all associated copyrights, trade dress rights,
and other design rights.
"HUGO BOSS group" means all subsidiaries linked to HUGO BOSS AG,
Dieselstrasse 12, D-72555 Metzingen, in accordance with ss. 18 of the
German Stock Corporation Act ("Aktiengesetz").
"Licensed Products" means watches, e.g. wristwatches, pocket watches,
alarm watches, in each case bearing the Trademarks on labelling, tags
and/or on the products themselves.
"License Territory" means all countries of the world
"Exclusive" means in this context that during the term of this Agreement,
HUGO BOSS will not grant any further licenses for the production,
marketing, advertising, promotion, sale and/or distribution in the
License Territory of the Licensed Products and moreover will not itself
produce and/or distribute any Licensed Products in the License Territory.
Notwithstanding the foregoing, HUGO BOSS retains the right to produce
and/or distribute Licensed Products bearing the Trademarks to the extent
it in good faith deems such use necessary or useful in order to perfect
or preserve its rights in the Trademarks and only to the extent that
Licensee has refused or failed to provide Hugo Boss with the necessary
Licensed Products within a reasonable time after written request made to
Licensee by Hugo Boss. All such Licensed Products provided by Licensee to
HUGO BOSS shall be under terms of sale that are * consistent with Sec.
8.3 hereof. Moreover, nothing set forth herein shall limit in any way
HUGO BOSS' right to manufacture and/or distribute and/or grant licenses
for manufacture and/or distribution of products other than Licensed
Products, in particular, men's and women's jewellery of precious metals
and alternative materials, e.g. rings, bracelets, chains, cufflinks,
earrings, key rings.
1.2 It is the intention of the parties that the Licensee exploits the rights
granted hereunder throughout the whole of the License Territory to the
extent commercially reasonable. Subject to the terms of this Agreement,
it shall be considered commercially reasonable for the Licensee to make
use of the license and engage in an active course of distribution and
marketing activities in those countries within the License Territory
where the HUGO BOSS group has an existing marketing and distribution
structure for its core products. However, the parties agree that Licensed
Products shall be distributed, marketed and sold - at a minimum - in the
following countries: (Europe:) United Kingdom, Germany, France, Spain,
Italy, Benelux, Switzerland, Austria,
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT
<PAGE>
4
(Asia:) Japan, Hong Kong, South Korea, Taiwan, PR China, Singapore,
(Americas:) U.S.A., Canada, Mexico.
Licensee shall refrain from any activity which could adversely affect in
any way the cooperation of the parties under this Agreement and any third
party licensee of HUGO BOSS with respect to production, distribution,
sales and promotion campaigns or any other activity using or in
connection with the Trademarks.
2. Subcontractors
2.1 The Licensee is entitled to have the Licensed Products manufactured by
third parties acting as subcontractors. In any case, manufacturers of the
Licensed Product are to be considered as subcontractors according to this
regulation. Licensee shall inform HUGO BOSS in a timely manner of new
subcontractors at the latest 6 (six month) after production start.
2.2 Licensee warrants to HUGO BOSS that each subcontractor will perform all
relevant obligations under this Agreement.
2.3 HUGO BOSS may request for cause, upon written notice to Licensee, at any
time that a subcontractor shall discontinue the manufacturing of the
License Products. It shall be considered as cause if, based on reasonable
grounds which shall be set forth in the written notice delivered to
Licensee as provided above, it appears likely that the subcontractor will
materially and enduringly imperil the marketing concept of HUGO BOSS e.g.
through the production of Licensed Products of inferior quality. The
Licensee warrants that its agreements with subcontractors shall provide
for immediate termination on the aforementioned grounds.
<PAGE>
5
3. HUGO BOSS Team
LICENSEE shall at all times maintain a separate team of highly
experienced and qualified people solely in charge of the development, the
marketing and the overall distribution and sale strategy of the Licensed
Products.
4. Payments / Taxes
4.1 The license and marketing fees payable by Licensee to HUGO BOSS are
stated in CHF. The payment shall be made to account : *
or such other account as HUGO BOSS may from time to time designate to
Licensee in writing. Any amounts owing to HUGO BOSS which are past due
shall bear interest of the applicable Base Rate of the Deutsche
Bundesbank plus eight (8) per cent.
4.2 Direct taxes on the license fees and/or advertising contributions in the
Federal Republic of Germany will be assumed by HUGO BOSS; Licensee agrees
to pay any turnover tax (VAT) and/or withholding tax on the license fees,
Marketing Contribution (as defined in Sec. 10.8) and/or Advertising Fees
(as defined in Sec. 10.4) imposed on Licensee under the law of
Switzerland, any Swiss Canton or any other taxing authority within
Switzerland. An amount equal to the withholding taxes paid by Licensee
shall be deducted by Licensee from the License Fees payable under Article
5 and/or from the Marketing Contribution or Advertising Fees payable
under Article 10. Licensee shall, in due time, furnish HUGO BOSS with all
certificates or other administrative documents issued by the Swiss taxing
authority on the withholding taxes paid.
5. License Fees
5.1 As compensation for the rights and opportunities for use provided in this
Agreement, Licensee shall pay to HUGO BOSS a license fee in the amount of
* of the sum of the Net Sales. Net Sales shall designate the sales of
Licensed Products made and invoiced by Licensee or by any entity
controlled by, under common control with, or controlling Licensee
("Licensee Affiliate") to an unrelated third party (e.g. customer or
distributor) after the deduction of:
- Sales or value added taxes;
- Customs duties and insurance costs;
- Packing and freight charges;
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24-b2 OF THE 1934 ACT.
<PAGE>
6
- Returns that Licensee actually authorizes and receives, not
exceeding * total sales of Licensed Products in such year;
and
- Rebates and other allowances, defined as credits to a
customer after delivery that Licensee actually grants in
writing to the extent auditable, expressly excluding
credits for warranty related or delivery or quality issues,
and further excluding any credits included within the
Marketing Contribution (as defined in Sec. 10.8) and not
exceeding in any year * total sales of Licensed Products in
such year,
provided that each such item is indicated separately and appears clearly
separate from the product price, or, in the case of returns and
allowances, is appropriately documented. Subject to Sec. 5.3 and
subsequent adjustment for returns and allowances, the due date of the
license fees is Licensee's invoicing date to third parties.
Notwithstanding anything contained herein to the contrary, Licensee shall
not be obliged to pay any License Fees for Net Sales made and invoiced
during the calendar year 2005 in connection with Prior Products (as
defined in section 17.1).
5.2 Licensee shall have no obligation to pay any minimum license fee for the
year 2005. Beginning in calendar year 2006 and through the calendar year
2010, Licensee shall pay to HUGO BOSS a minimum annual license fee each
year equal to * Net Sales for such year under the Business Plan (as
defined in Sec. 11).
(a) Beginning in calendar year 2011, Licensee shall pay HUGO BOSS an
annual minimum license fee equal to *
Notwithstanding the foregoing, in the event that the entity owning either
the * brand acquires fifty percent (50%) or more of the voting rights of
Licensee or of any entity controlling Licensee, then the minimum annual
license fee each year shall be * Net Sales for such year as set forth in
the Business Plan, beginning with the calendar year in which such change
of ownership has taken place.
5.3 No later than 30 days after the last day of each calendar quarter (April
30, July 30, October 30 and January 30, respectively, or if such date
shall fall on a
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
7
weekend or holiday, the following business day), Licensee shall submit to
Hugo Boss a written statement setting forth the license fee and
Advertising Fee (as defined in section 10.4) due for the immediately
preceding calendar quarter, giving a count by country of total Licensed
Products sold per stock keeping unit ("SKU") and the applicable Net
Sales. Licensee shall remit to HUGO BOSS with each such statement the
aggregate license fee and Advertising Fee due for the calendar quarter
then ended.
After the fourth quarter each year, Licensee shall determine the minimum
license fee and the minimum Advertising Fee due for such year and, where
necessary, the difference between such minimum fees and the license fees
and Advertising Fees paid for such year.
In the event the payments made were less than the minimums due for any
such year, Licensee shall transmit the difference at the latest with the
payment of the License fee due for the fourth quarter. In the event the
payments made were more than minimums due for any such year, Licensee can
deduct the overpaid differences from the license fee and Advertising Fee
due in the following quarter.
5.4 The Licensee shall keep complete and accurate records of sales subject to
license fees, maintain and preserve the underlying documents for at least
five years following the termination of this Agreement and permit a
representative or authorised agent of Hugo Boss to examine such records,
copy them, and audit the corresponding accounting entries in Licensee's
books during the latter's business hours on at least three business days'
notice. Notwithstanding the immediate due date and accrual of interest on
overdue license fees, Licensee shall bear the costs of the audit, but
only if the license fees paid by the Licensee with respect to any audited
time period are three or more percent lower than those determined by the
audit. Hugo Boss shall ensure that all its representatives examining
Licensee's records are aware of and abide by the confidentiality
obligations as set forth in Article 14 hereof.
6. Product Development, Product Design
6.1 To ensure the uniformity of quality and image in all products sold by
HUGO BOSS and its licensees and bearing HUGO BOSS trademarks, the
principal design guidelines and general structure of the collection shall
be provided by HUGO BOSS to Licensee for development of the Licensed
Products. Licensee agrees to observe and comply with all such guidelines
and briefings and acknowledges HUGO BOSS' high quality standards and
reputation in high end fashion products. Hugo Boss will notify Licensee
in due time when such guidelines will be materially modified.
6.2 Licensee shall provide all its design proposals in the following process:
<PAGE>
8
(i) Licensee shall present to HUGO BOSS design drawings. After
approval according to this subsection 6.2,
(ii) Licensee shall present to HUGO BOSS prototypes. After approval
according this subsection 6.2,
(iii) Licensee shall present to HUGO BOSS pre-production samples for
approval. Licensee warrants that production conforms to the
approved pre-production samples.
HUGO BOSS shall, with respect to each submission made by Licensee for
approval, notify Licensee in writing without undue delay, and in any
event within ten (10) business days, as to whether it approves the
submission. Unless Hugo Boss disapproves any submission with the
specified time period, it will be deemed approved. In the event Hugo Boss
disapproves any submission, it will furnish Licensee with the reasons for
such disapproval together with notice thereof.
6.3 Following Licensee's receipt of HUGO BOSS' written approval of any
prototype, Licensee shall provide HUGO BOSS with samples of the Licensed
Products from the first production run using the approved designs for the
purpose of obtaining HUGO BOSS' written approval of said samples. Each
party shall receive and maintain an approved production run sample of
every approved model for purposes of documentation of said approval and
quality control of the Licensed Products pursuant to Sec. 7. The costs of
creation and supply of the samples shall be borne by Licensee.
6.4 The parties acknowledge and agree that it is essential to the image and
reputation of HUGO BOSS to regularly adjust the range of designs of the
Licensed Products (like those of HUGO BOSS and its other licensees) to
meet new demands and fashion trends. The intervals of the renewal and
expansion of product designs will be mutually determined by the parties
acting in good faith.
6.5 Licensee agrees that HUGO BOSS shall become and remain the sole owner of
any design that it approves hereunder which is not in the public domain
and which previously was not used by Licensee on products other than the
Licensed Products, including usage of special materials, creation of
special colour effects and shapes, to the extent the respective Licensed
Products are actually offered for sale in any jurisdiction ("Licensor
Designs"). Hugo Boss shall protect all Licensor Designs, where
appropriate, in accordance with Sec. 13. of this Agreement. In addition,
HUGO BOSS remains the sole owner of any design for the Licensed Products
which was developed by HUGO BOSS. Licensee shall remain the owner of
designs proposed to HUGO BOSS but not used on any Licensed Products sold
to third parties.
6.6 Licensee shall provide HUGO BOSS, on its own costs, with one sample of
each launched Licensed Product.
<PAGE>
9
7. Quality
7.1 Licensed Products produced by Licensee for sale shall conform to the
samples from the first production of such Licensed Products approved by
HUGO BOSS pursuant to Section 6.3. Licensee shall adhere to the standards
of quality (including, without limitation, materials, design and
workmanship) set forth in Appendix 3 (as such standards may be updated
and expanded by mutual agreement between the Parties from time to time)
and safeguard the quality of Licensed Products by means of
quality-control measures approved by HUGO BOSS. In doing so, Licensee
acknowledges HUGO BOSS' high quality standards and reputation in high end
fashion products.
7.2 All modifications with respect to materials, design and workmanship in a
series under production require the prior written approval of HUGO BOSS.
7.3 HUGO BOSS may at any time, upon giving reasonable prior notice, carry out
quality and manufacturing control inspections at the premises of
Licensee, or wherever the Licensed Products are being manufactured, or it
may have such inspections performed by third persons. Licensee agrees to
permit such examinations, also with respect to subcontractors, during
normal business hours and facilitate said inspections.
7.4 In the event that any Licensed Products produced or in production do not
conform to the required specifications, HUGO BOSS shall give notice of
such nonconformity to Licensee and, in HUGO BOSS' sole discretion,
determine whether the affected Licensed Products may be sold. In the
event Licensee shall become aware of any such nonconformity, it shall
immediately notify HUGO BOSS thereof prior to the distribution of the
affected Licensed Products, so that HUGO BOSS can make appropriate
decisions as to conforming such products to the applicable quality
standards that shall be binding upon the Licensee. In any case in which
either party has notified the other of any such quality problem, no
affected Licensed Products shall be distributed until HUGO BOSS has
approved and monitored the necessary modifications to said products or
otherwise indicated in writing that the products are acceptable. If it is
not reasonably practicable to conform the affected Licensed Products to
the applicable quality standards, Licensee shall have the right to sell
such Licensed Products but only after removing any identifying brand
names and only through its outlet stores or through approved clearance
channels; alternatively the affected Licensed Products will be destroyed
under the supervision of HUGO BOSS and the costs thereof borne by
Licensee.
<PAGE>
10
8. Distribution
8.1 Licensee shall be responsible for the distribution of the Licensed
Products throughout the License Territory. The parties agree that the
Licensed Products will be offered, sold and distributed by Licensee
directly and/or through Licensee's distributors exclusively through
distribution channels: which suit the image of the Trademarks and the
marketing policies of HUGO BOSS including the following:
- specialised retail dealers;
- high-end department stores, provided they are HUGO BOSS clients;
- BOSS HUGO BOSS Shops, HUGO HUGO BOSS Shops, and HUGO BOSS stores;
- Duty-Free stores;
- Licensee's own outlet stores;
- After prior written approval by HUGO BOSS, which shall not be
unreasonably withheld: Other clearance channels up to * annual Net
Sales. In case where said percentage of Net Sales exceeds * ,
Licensee needs the express and written approval by HUGO BOSS for
such distribution on a case-by-case basis, such approval not to be
unreasonably withheld.
- After prior written approval by HUGO BOSS: catalogues, premium,
incentive, and military accounts.
Within the framework of the Business Plan and subject to this section
8.1, Licensee shall suggest, and the Parties shall agree on individual
distribution channels (importers, retail dealers, "points of sale") for
the Licensed Products.
8.2 Licensee shall enter into separate distribution agreements with its
distributors. No rights or duties shall be derived for HUGO BOSS from the
resulting direct contract relationship between Licensee and its
distributors. However, Licensee guarantees that the agreements between
Licensee and its distributors will terminate if the agreement between
HUGO BOSS and Licensee terminates for any reason whatsoever.
Licensee will terminate its contract with any distributor in the event
that any such distributor violates a material term of such contract which
reasonably is expected to adversely affect the reputation, image, style
and marketing strategy of HUGO BOSS (e.g., no diversion of Licensed
Products, adherence to advertising protocol, selling only to approved
accounts), and such violation has not been remedied within fifteen (15)
calendar days. Licensee warrants that such a remedy and termination
clause will be provided for in the respective agreements.
8.3 At the request of HUGO BOSS, Licensee will sell the Licensed Products to
HUGO BOSS itself, to organisations within HUGO BOSS' distribution network
for further distribution to its local customers (e.g. franchising stores,
BOSS HUGO
*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
11
BOSS Shops in Shops, etc.) or directly to said local customers. Such
sales shall be under terms of sale that are * .
8.4 Licensee shall entrust the distribution of the Licensed Products as
follows:
Nominated sales personnel shall attend mainly to the distribution
of the Licensed Products. This personnel will not distribute or be
otherwise involved in handling any products competing with the
Licensed Products, i.e. with high-end designer brands, without the
prior written approval of HUGO BOSS. The distribution system, as
well as the countries included within Licensee's key market plan
and Licensee's organizational structure with respect to the
License Products, are set forth in the Business Plan.
Licensee will select its sales personnel in accordance with and inform
its sales personnel of the product philosophy of the Licensed Products as
communicated by HUGO BOSS. Upon request by HUGO BOSS, Licensee shall
cause its employees who are entrusted with the distribution of the
Licensed Products to be trained regularly by HUGO BOSS or by persons or
companies instructed by HUGO BOSS. Licensee will require each such
employee to abide by such product philosophy.
8.5 Licensee acknowledges that to preserve the goodwill associated with the
Trademarks, License Products should be sold at prices and terms
reflecting the prestigious nature of the Trademarks, and the reputation
of the Trademarks as appearing on goods of high quality and reasonable
price, it being understood, however, that Hugo Boss is not empowered and
may not fix or regulate the prices for which the Licensed Products are to
be sold, either at the wholesale or the retail level.
8.6 Licensee shall not materially breach the applicable terms and dates of
delivery and shall in a timely and complete manner inform HUGO BOSS of
any material problems which arise in connection therewith, particularly
delivery delays.
8.7 Licensee shall handle all customer inquiries and complaints relating to
the Licensed Products in a manner consistent with the manner in which it
handles customer inquiries and complaints relating to watches it sells at
comparable prices under other brand names. Licensee shall provide
substantially the same service, warranties, repair and replacement rights
to wholesale purchasers and consumers of the Licensed Products as it
provides to purchasers of such other watches. Licensee shall be solely
responsible for all costs associated with the handling of such inquiries
and complaints and the provision of such service.
The After Sales Service is subject to the quality requirements as stated
in Section 7 of this Agreement and may be controlled by HUGO BOSS in
accordance with the same conditions.
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
12
9. Launch Dates
The parties shall agree on an annual general launch schedule, and on
further seasonal launch schedules based on said annual launch schedule.
10. Marketing, Advertising and Promotional Measures
10.1 With regard to the general HUGO BOSS marketing activities, HUGO BOSS
alone is in charge of all activities including all marketing, advertising
(e.g. newspapers, magazines, billboards, TV, radio, internet sites) and
promotional as well as sport and art sponsoring activities.
10.2 Within the framework of the Business Plan (Sec. 11), marketing,
advertising and promotional activities in connection with the Licensed
Products shall be agreed upon with the Licensee. The parties shall inform
each other regularly about the implementation of this Business Plan.
10.3 With respect to the Licensed Products, subject to section 10.4, HUGO BOSS
is in charge of conception and design of all advertising activities (e.g.
concepts, layouts and shootings for print and billboard campaigns;
concepts, layouts and production for TV or radio spots; concepts, layouts
and set ups of internet sites; all media bookings and spending).
10.4 To contribute to the costs for the above-mentioned activities of HUGO
BOSS, Licensee shall pay to HUGO BOSS an amount each year equal to the
greater of * target Net Sales for such year set forth in the Business
Plan ("Advertising Fee"). Notwithstanding the foregoing, in the event
that the entity owning either the * brand acquires fifty percent (50%) or
more of the voting rights of Licensee or of any entity controlling
Licensee, then the Advertising fee each year shall be * target Net Sales
for such year as set forth in the Business Plan.
The Advertising Fee shall be paid in accordance with the provisions in
Sec. 4 and 5. HUGO BOSS shall use this fee for the costs of production
and placement in print and electronic media of advertising for Licensed
Products only. HUGO BOSS and Licensee shall, every six (6) months, agree
in which countries such media budget shall be spent; provided, however,
that for the U.S.A. only, such media budget shall be withheld and spent
by Licensee as it shall reasonably determine after approval of HUGO BOSS.
While in principle, HUGO BOSS shall endeavour to spend the entire
Advertising Fee paid by Licensee in respect of each year, and Licensee
shall endeavour to spend the portion thereof withheld for the U.S.A.,
prior to the end of such year, the parties recognize that this
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
13
will not always be practical or possible and therefore they agree that
any deficiency will be spent in the immediately following year.
10.5 Licensee shall be responsible for conception and design of point-of-sale
activities with regard to the Licensed Products, i.e. catalogues for
retailers and/or sales representatives, special events, co-operative
advertising with the retailer and product displays. However, all
advertising materials and promotional activities require the prior
written approval of HUGO BOSS.
10.6 Moreover, Licensee shall carry out all point-of-sale activities such as
production and distribution of stand-ups, window cards, catalogues and
other promotional material, production and distribution of product
displays, special events, co-operative advertising with retailers.
Licensee shall also be responsible for trade fairs, product placements,
media bookings and spending of advertising targeted to retailers.
10.7 Licensee shall be responsible for public relations activities with regard
to the Licensed Products, i.e. texts, shootings, placement in
end-consumer press and trade press throughout the License Territory.
However, all public relations activities require the prior written
approval of HUGO BOSS.
10.8 All those activities mentioned in Sec. 10.5, Sec. 10.6 and Sec. 10.7
shall be elaborated in close co-operation with HUGO BOSS or
persons/companies appointed by HUGO BOSS (for example PR Agencies in
charge for HUGO BOSS) and are subject to the prior approval of HUGO BOSS.
Licensee shall bear responsibility for all costs for the activities
referred to in Sec. 10.5, Sec. 10.6 and Sec. 10.7. For those activities
Licensee shall spend or cause its distributors to spend at least * of the
"Net Sales" throughout the term of this agreement ("Marketing
Contribution"). The Marketing Contribution may be revised from time to
time by mutual consent.
Notwithstanding the foregoing, in the event that the entity owning either
the * brand acquires fifty percent (50%) or more of the voting rights of
Licensee or of any entity controlling Licensee, then the Marketing
contribution each year shall be * of target Net Sales for such year as
set forth in the Business Plan.
10.9 Costs incurred by Licensee in connection with customer accommodation or
after-sales service, customer gifts or invitations, dealers' meetings and
training of marketing and sales personnel are not included in the
activities stated in clauses 10.6 and 10.7 and shall be borne solely by
Licensee.
10.10 Any and all public statements, publications and information given to
third parties concerning this Agreement or the relationship between
Licensee and HUGO BOSS generally must be previously agreed upon by the
parties, except where such statements are required by law or government
act. However, the
*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
14
parties shall inform each other of such statements required by law or
government act. Normal company information of Licensee and HUGO BOSS that
does not contain any statements regarding the contents of this Agreement
or its relationship with HUGO BOSS is exempted from this provision.
10.11 Licensee is not permitted to use the Trademarks as a part of its firm
name or as part of the firm name of a company affiliated or otherwise
associated with it. The use of the Trademarks by Licensee on letterhead,
forms, business cards, etc. requires the prior written approval of HUGO
BOSS.
10.12 The parties will consult at least semi-annually to review the level of
actual expenditures for (i) the production and placement of advertising
for the Licensed Products in print and electronic media and (ii) the
activities set forth in Sections 10.5, 10.6 and 10.7, relative to sales
growth, including consideration of whether certain increases in such
expenditures are appropriate. If the parties disagree as to whether
certain increases are appropriate, a top management meeting of the
parties can be called by either party and the parties will use their best
efforts to resolve such disagreement.
11. Business Plan
11.1 The parties have agreed upon a Business Plan for the term of this
Agreement, as set forth in Appendix 5 (the "Business Plan"). This
Business Plan determines:
- the sales targets (volume and value), specified by products and
regions
- the sequence of collection development
- the distribution structure and distribution manpower investments
- the marketing, advertising and promotional investments
- the marketing and design manpower investments
- the utilisation of marketing, advertising and promotional
investments
- the size of collections and suggested retail price points
- the launch schedule
etc. with regard to the business development of the Licensed Products for
the complete term of this Agreement. Licensee shall, once a year, develop
a forward rolling action plan covering the pursuant three (3) years,
containing among other things, sales, turnover, number of customers per
country and other data contained in the Business Plan. HUGO BOSS and
Licensee shall agree on the action plan in a joint annual meeting. If the
Parties cannot agree on the three-year action plan, a top management
meeting of the parties can be called by either party and both parties
will use their best efforts to solve the issue.
<PAGE>
15
11.2 On request by HUGO BOSS, Licensee shall inform HUGO BOSS in writing of
actions taken and confirm compliance with the individual steps of the
three-year action plan and the implementation of the planned activities.
12. Information, Co-ordination and Co-operation
12.1 Licensee shall inform HUGO BOSS in a timely manner, if it terminates the
collaboration with a distributor.
12.2 HUGO BOSS and the Licensee shall each designate a person at their
respective companies to be in charge of the development, design and
marketing of the Licensed Products.
12.3 In co-ordination with Licensee, HUGO BOSS has defined all reporting data
relevant to HUGO BOSS' quality control of the manufacture, distribution
and sale of Licensed Products (Appendix 5) and shall specify the
frequency with which such data is to be made available. This data must be
electronically processed and made available to HUGO BOSS via data
transmission in a complete and timely manner. The Parties shall jointly
decide on changes to the reporting data format.
12.4 HUGO BOSS may specify and furnish the data processing interfaces
necessary for a smooth exchange of data in accordance with Licensee;
provided that, in any event, it shall be sufficient if Licensee furnishes
the required reporting data to Hugo Boss via email.
12.5 The parties will endeavour to keep each other fully informed on a timely
basis of all issues that reasonably could be expected to have a material
impact on the production, marketing, advertising, promotion, sale or
distribution of the Licensed Products and Licensee shall furnish HUGO
BOSS with such reports in respect thereof as HUGO BOSS may reasonably
request from time to time.
12.6 Licensee acknowledges HUGO BOSS's intent to license the Trademarks for
jewellery, as provided in Sec. 1.1 and Licensee will reasonably cooperate
with any such jewellery licensee.
13. Trademarks, Internet Domains and other Intellectual Property Rights
13.1 During the term of this Agreement, Licensee shall be entitled to use the
Trademarks only as provided herein in connection with the Licensed
Products, subject to the terms hereof, and for no other purpose. Upon
termination of this Agreement for any reason, Licensee shall immediately
discontinue all use of the Trademarks, except as otherwise provided
herein or as otherwise agreed in writing by HUGO BOSS, and thereafter
will not, either directly or indirectly, use any other name, title,
expression, design or packaging so nearly
<PAGE>
16
resembling the Trademarks as would be likely to lead to any confusion or
uncertainty or to deceive the public.
13.2 Licensee agrees that, to the extent such guidelines are not inconsistent
with any of the provisions of this Agreement, it will fully comply with
any and all guidelines notified to Licensee by HUGO BOSS regarding the
utilisation of the Trademarks on or in connection with the distribution
and sale of Licensed Products, including, without limitation, any
corporate Identity Policies of HUGO BOSS on the use of the Trademarks.
13.3 The Trademarks and the Licensor Designs, whether or not registered by
HUGO BOSS, are the sole property of HUGO BOSS. HUGO BOSS warrants that is
has the full and exclusive right, power and authority to grant this
exclusive license for the Trademarks and the Licensor Designs to Licensee
and that neither this Agreement nor the grant of such license conflicts
with or will result in a breach of the terms, conditions, provisions,
representations, warranties or covenants contained in any other agreement
to which Hugo Boss, or any of the Hugo Boss Group Companies, is a party,
including, the Previous License Agreements (as defined in section 17.1).
Licensee recognises the exclusive rights of HUGO BOSS with respect to the
Trademarks and acknowledges that all rights of use of the Trademarks on
or in connection with the Licensed Products by Licensee inure solely to
the benefit of HUGO BOSS. The parties agree that any and all rights to
the Trademarks that may arise from their use by the Licensee shall vest
solely in HUGO BOSS. Licensee agrees that it shall take no action that
might impair in any way HUGO BOSS' rights with respect to the Trademarks,
including, without limitation, registering the Trademarks in its own
name, or might damage HUGO BOSS' license relationships with third parties
with respect to manufacture, distribution or otherwise.
Licensee is aware that all Internet Domains relating to the trademarks
are the sole property of HUGO BOSS AG, Dieselstrasse 12, D-72555
Metzingen, Germany, and recognises the exclusive rights of HUGO BOSS AG
of such Internet Domains. The parties agree that the provisions of this
subsection 13.3. also apply, mutatis mutandis, to said Internet Domains.
Licensee is further aware that HUGO BOSS is entitled to use such Internet
Domains.
13.3.1 HUGO BOSS shall have the sole responsibility between the parties to
maintain the Trademarks and the Licensor Designs, in particular, to pay
all pertaining prolongation fees, initiate and conduct opposition
proceedings against similar trademark or design applications, in any
applicable country of the License Territory. HUGO BOSS shall do so on its
own costs. Licensee agrees to provide any and all information to HUGO
BOSS which may reasonably be required in such actions, e.g. invoices to
prove use of any given Trademark. Licensee shall give immediate notice to
HUGO BOSS of any application or registration of a sign, trade name,
trademark, or product packaging or product design which
<PAGE>
17
comes to Licensee's attention and which appears to violate any of HUGO
BOSS' rights with respect to the Trademarks or any packaging or product
design.
13.3.2 Subject to this Sec. 13.3.2, HUGO BOSS shall further have the sole right
as between the parties to defend the rights to the Trademarks and any
other rights of HUGO BOSS in any applicable country of the License
Territory against third party infringements of the Trademarks, e.g.
counterfeits, use of the Trademarks, HUGO BOSS product or packaging
design without authorization of HUGO BOSS, or of brand names or product
or packaging design by third parties confusingly similar to the Licensed
Products. Licensee agrees to provide any and all information to HUGO BOSS
which may reasonably be required in such actions which HUGO BOSS in its
sole discretion may initiate. In particular, but without limitation,
Licensee shall provide prompt notice to HUGO BOSS of products which come
to Licensee's attention and which infringe upon HUGO BOSS' rights,
providing the names and addresses of the manufacturer, the supplier or
seller, as the case may be, together with bills, receipts and other
records, if any. Notwithstanding the foregoing, with respect only to
products which are counterfeits of the Licensed Products, the parties
will consult to determine appropriate action. If, following such
consultation, the parties agree to bring any claim, complaint, proceeding
or other action, then HUGO BOSS shall bring the claim, complaint,
proceeding or other action in its name and the parties shall equally
share all costs and all monetary recoveries, if any, including without
limitation, judgments, settlements and any other awards, in connection
therewith and the parties will reasonably co-operate in good faith with
respect to each such action brought. If, following such consultation,
only one party desires to pursue action, then such party shall have the
right to pursue such action in its own name at its sole cost and shall be
exclusively entitled to any and all damages and other amounts recovered
or awarded in connection with any such action and the other party shall
reasonably cooperate with the party pursuing such action at the latter's
expense; provided however that notwithstanding the foregoing, in no event
shall Licensee have the right to pursue any such action without the prior
written consent of HUGO BOSS which HUGO BOSS shall not unreasonably
withhold. Licensee shall give prompt notice to HUGO BOSS of any use of a
sign, trade name, trademark, or product packaging or product design which
comes to Licensee's attention and which appears to be an infringement
upon or to violate any of HUGO BOSS' rights with respect to the
Trademarks or any packaging or product design. Nothing set forth herein
shall be construed as requiring HUGO BOSS to prosecute any infringements
if in its own discretion it decides not to do so.
13.3.3 HUGO BOSS shall continue to take all reasonable and necessary actions to
obtain trademark registrations in those countries of the License
Territory, where such registrations for the Trademarks have been applied
for but are not yet issued, as identified in Appendices 1 and 2 to this
Agreement. In addition,in the event that HUGO BOSS determines that it is
necessary to do so, HUGO BOSS shall take all reasonable and necessary
actions to obtain additional
<PAGE>
18
registrations for the Trademarks in those countries identified in
Appendix 1 where such registrations have not yet been applied for.
However, HUGO BOSS is not liable for ensuring the successful registration
of the Trademarks in these countries. HUGO BOSS shall keep Licensee
informed as to the legal status of the Trademarks. HUGO BOSS shall not be
liable for ensuring that the Trademarks are utilised in a manner which
maintains their protection.
Upon request by Licensee, HUGO BOSS shall take all reasonable and
necessary actions to obtain trademark registrations of the Trademarks in
other countries of the License Territory not named in Appendix 1 to this
Agreement, provided that HUGO BOSS, accepts no liability for failure to
successfully register such Trademarks in such countries.
In the event that trademark registrations for the Trademarks cannot be
obtained in a country where, according to this section 13.3.3, Hugo Boss
is to seek such registrations, and such country is specifically mentioned
in the Business Plan and the failure to obtain any such registrations has
a material adverse affect on Licensee's ability to sell Licensed Products
in such country, the Business Plan shall be adjusted proportionately to
reflect the elimination of such country.
13.3.4 Licensee shall use its best efforts to assist and otherwise co-operate
with HUGO BOSS in applying for and maintaining the registration and
protection of the Trademarks, such efforts to include without limitation,
executing any registered user or other agreement or document as may be
appropriate, through the making of necessary declarations, delivery of
necessary documents and by providing useful or appropriate information.
HUGO BOSS shall reimburse Licensee for its out-of-pocket costs incurred
therefore.
Licensee shall supply to HUGO BOSS upon its reasonable request copies of
invoices and other records of sales for each country where necessary or
useful to establish proof of Trademark use in such countries on the
Licensed Products. For this purpose, Licensee shall also regularly inform
HUGO BOSS of the countries in which deliveries of the Licensed Products
are expected in the then current year.
13.3.5 Licensee agrees that it will be listed as "Registered User" of the
Trademarks for the Licensed Products to the extent possible and/or
required under relevant local law. HUGO BOSS will reimburse Licensee for
its costs incurred therefore.
13.3.6 Licensee agrees: (a) to use the Trademarks exclusively in the design
format indicated by HUGO BOSS, and, to the extent not contrary to any of
the provisions hereof, in conformity with the "Corporate Identity Policy"
of HUGO BOSS, (b) to designate them with the markings prescribed by HUGO
BOSS (such as "(R)" or "Marca registrada," "HUGO BOSS is the registered
trademark of HUGO BOSS AG" or the like); provided that no such
designation shall be
<PAGE>
19
required on the Licensed Products themselves, and (c) to the extent not
contrary to any of the provisions hereof, to observe any and all other
restrictions and conditions reasonably notified by HUGO BOSS to Licensee,
including those which may arise from agreements between HUGO BOSS and any
third party.
Licensee shall not itself use the Trademarks in connection with
sub-brands or accompanying brands of Licensee or otherwise in any way not
explicitly permitted by this Agreement or HUGO BOSS. In particular, and
without limiting the foregoing, designations such as "BOSS HUGO BOSS by
........." are prohibited. All references to the manufacturer and/or
Licensee require the prior written approval of HUGO BOSS. Notwithstanding
the foregoing, Licensee shall not be prohibited from using model names
for individual collections of Licensed Products or from applying for
trademark registrations for such model names, provided that Licensee
shall be solely responsible for all costs associated therewith.
13.4 The parties acknowledge and agree that, as provided in section 6.5, HUGO
BOSS is the owner of all rights to the Licensor Designs and of the
designs of the promotional material. HUGO BOSS grants the Licensee for
the duration of this Agreement the right of use of these designs for the
purpose of this Agreement in the License Territory. Furthermore, except
as otherwise provided in Article 18, the Licensee undertakes to no longer
use the above-mentioned designs and promotional material after
termination of this Agreement.
Notwithstanding and without limiting the foregoing, Licensee shall
provide to HUGO BOSS any and all instruments or documents necessary or
useful to confirm HUGO BOSS' ownership of such copyright and design
rights, including, without limitation, any assignments of rights that
HUGO BOSS may reasonably request.
13.4.1 HUGO BOSS shall own all inventions made by Licensee or its employees,
whether or not patentable, which are based in whole or in part on
Confidential Information from HUGO BOSS as hereinafter defined in Sec.
14. Licensee shall promptly notify HUGO BOSS of the making of each such
invention and shall co-operate in securing to HUGO BOSS the benefits of
each such invention throughout the world by executing assignments, patent
applications and similar documents necessary for HUGO BOSS to perfect
rights in the invention; provided that Hugo Boss reimburses Licensee all
amounts incurred by Licensee in assigning such rights to Hugo Boss,
including, without limitation, any and all amounts Licensee may be
required to pay by law to the inventing employee.
13.5 Any and all intellectual property rights in display and sales promotional
materials related to the Licensed Products shall be the property of HUGO
BOSS. Licensee shall co-operate in securing to HUGO BOSS the benefits of
any such rights throughout the world by executing assignments and similar
documents necessary for HUGO BOSS to perfect its rights in such matters.
<PAGE>
20
13.6 The provisions contained in this Section 13. shall not affect Sec. 18.
14. Confidentiality
The Parties agree to use all Confidential Information (as hereinafter
defined) of the other party provided to it or obtained by it pursuant to
this Agreement only in its capacity as contracting party to this
Agreement and as contemplated in this Agreement. "Confidential
Information" shall mean any and all technical data, knowledge or
information, trade secrets or advice relating to the design development,
manufacture, assembly, use, sale, and customer servicing of the Licensed
Products and any and all information concerning the business of the other
party. Either party acknowledges the other party's sole rights in the
Confidential Information. Either party shall ensure that, without the
prior written approval of the other party, no Confidential Information
shall be used for any purpose other than as set forth herein or copied or
disclosed to any third party during the term of this Agreement or after
its termination.
This confidentiality provision does not apply to information
(i) which was or comes into the public domain through no fault of the
receiving party, or
(ii) which was obtained from a third party legally entitled to use and
disclose such information, or
(iii) the disclosure of which is required by law, or
(iv) which was already in possession of the receiving Party before
closing this Agreement and not otherwise subject to any
confidentiality obligation as between the parties.
Upon termination of this Agreement, either party shall either return to
the other party, or at the request of the other party, destroy all
Confidential Information in its possession.
15. Other Products
15.1 Licensee will not manufacture or distribute watches under the brand names
* ; provided that, nothing contained herein shall prohibit Licensee from
acquiring any third party distributing either or both of those watch
brands so long as such distribution ceases within twelve (12) months
after the date of such acquisition.
*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PUSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
21
16. Liability Issues
16.1 Licensee shall be responsible for any and all defects in the Licensed
Products and in no event shall HUGO BOSS be liable for any direct,
indirect, special, incidental or consequential damages or any lost
revenues or profits or any other damages arising with respect to the
Licensed Products, whether based in contract, tort, breach of express or
implied warranty, including without limitation, negligence or product
liability.
16.2 If either party becomes aware of any law, or other rule, regulation or
order having the force of law issued by any duly constituted authority
having appropriate jurisdiction, in any country included within the
Business Plan that would have the effect of making it impractical to sell
or to continue selling Licensed Products in or into such country, the
parties shall consult in good faith and attempt to agree on an
appropriate adjustment to the Business Plan, including, without
limitation, a proportionate reduction in target Net Sales.
16.3 Hugo Boss will indemnify, defend and hold harmless Licensee, each
Licensee Affiliate, and their respective officers, directors, agents,
employees, shareholders, legal representatives, successors, affiliates
and assigns, from and against any and all claims, actions, suits,
liabilities, damages and expenses (including reasonable attorneys' fees,
costs and expenses) which Licensee or any Licensee Affiliate may incur or
be obligated to pay in any action or claim (i) for infringement of any
other person's claimed right to use a trademark or other intellectual
property right (except claimed rights relating to the designs of the
Licensed Products or to any intellectual property used by Licensee and
not granted by HUGO BOSS hereunder) in the Territory, including such
infringements as may be contained in any advertising placed by Hugo Boss,
where such action or claim results from Licensee's proper use of the
Trademarks or other rights (except rights related to the Licensor
Designs) granted hereunder in the Territory, in accordance with the terms
of this Agreement, or (ii) arising out of or in connection with the
Previous License Agreements (as defined in section 17.1) or the
termination of either or both of the Previous License Agreements, or the
distribution, sale, marketing or advertising of the Prior Product (as
defined in section 17.1). Licensee will give Hugo Boss timely written
notice of any such claim or action, and thereupon Hugo Boss will
undertake and conduct the defense of any suit so brought. HUGO BOSS
further agrees that the provisions contained in this Section shall
survive the termination or expiration of this Agreement.
16.4 Licensee agrees to indemnify, defend and save harmless HUGO BOSS and its
officers, directors, agents, employees, shareholders, legal
representatives, successors, affiliates and assigns, and each of them,
from any and all claims, actions and suits and from and against any and
all liabilities, judgements, losses, damages, costs, charges, reasonable
attorneys' fees and other expenses of every nature and character incurred
in any action between HUGO BOSS and any third party, relating to
Licensee's business and/or with respect to the
<PAGE>
22
Licensed Products (including, without limitation, any breach by Licensee
of this Agreement). Licensee further agrees that the provisions contained
in this Section shall survive the termination or expiration of this
Agreement. Licensee will maintain at all times during the term of the
Agreement and for 5 (five) years thereafter and provide evidence thereof
to HUGO BOSS from time to time upon its request, product liability
insurance of a kind and in an amount reasonably satisfactory to HUGO BOSS
naming HUGO BOSS as beneficiary as its interests shall appear.
17. Transition from preceding agreement on Licensed Products
17.1 Licensee is aware that prior to the date of this Agreement, HUGO BOSS
granted a license to use the Trademarks in connection with Licensed
Products to Tempus Concept S.A. ("Tempus") and, following the bankruptcy
of Tempus to Roventa-Henex S.A. ("Roventa") (the "Previous License
Agreements"). Hugo Boss represents and warrants that the Previous License
Agreement with Tempus has been properly terminated, and that neither
Tempus, nor any party claiming under Tempus, nor any other third party,
has any right and, after termination of the Previous License Agreement
with Roventa, neither Roventa nor any party claiming under Roventa will
have any right, to use the Trademarks in connection with the Licensed
Products; except that Roventa has existing inventory of finished watches
bearing the Trademarks ("Prior Product") which it has the right to sell.
HUGO BOSS will use best efforts to terminate the Previous License
Agreement with Roventa on or prior to March 15, 2005.
17.2 Hugo Boss shall purchase all Prior Product from Roventa as soon as
practicable . Promptly after purchasing the Prior Product, Hugo Boss
shall send Licensee a list describing all such Prior Product, giving
quantities and identifying all such Prior Product by model number, and
otherwise containing such additional information as Licensee may
reasonably request. Licensee shall have the right to examine all such
Prior Product upon prior notice to Hugo Boss at a mutually convenient
time. Within thirty (30) days after receipt of the above described list,
Licensee shall identify which styles and quantities of such products it
elects to purchase from HUGO BOSS; provided, that in any event Licensee
shall purchase those styles listed on Appendix 6 annexed hereto. Of those
styles listed in Appendix 6, Licensee shall purchase at least such of the
Prior Product as it reasonably deems necessary for establishing an
initial inventory of Licensed Products and for purposes of performing its
obligations under this Agreement for calendar year 2005 and in any event
up to * based on average monthly sales for the prior two (2) years. Hugo
Boss shall sell such Prior Product to Licensee at the price Hugo Boss
paid to purchase such products, and, together therewith, shall use best
efforts to provide Licensee with a corresponding number of boxes,
warranty cards and operating manuals. Hugo Boss shall have the right to
sell any Prior Products not purchased by Licensee until, but in no event
after, June 30, 2006. All Prior Product remaining in Hugo Boss's
possession after June
*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PUSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
23
30, 2006 either will be destroyed (in which event Hugo Boss will furnish
to Licensee appropriate evidence of such destruction as Licensee may
request) or will be sold by HUGO BOSS through its outlet stores.
17.3 Subject to the other provisions contained herein, the parties shall
reasonably co-operate to manage all issues, including, without
limitation, all communications issues, arising out of the termination of
the Previous License Agreements, with the aim to appropriately and
expeditiously dispose of the Prior Product while maintaining and
developing the reputation and distribution of the Licensed Products.
18. Contract Term and Termination
18.1 This Agreement enters into force on March 21, 2005, and shall continue in
effect until December 31, 2013, unless sooner terminated as herein
provided; except that if Licensee pays to HUGO BOSS license fees which
are based on Net Sales * for the year 2011, the Agreement will be
automatically extended for an additional period of five (5) years through
December 31, 2018, unless either party gives notice of non-extension at
any time during the period from March 1, 2012, to April 30, 2012. In case
Licensee pays to HUGO BOSS license fees based on Net Sales * for the year
2011, not later than 18 months before the final expiration of the
Agreement the contracting parties shall enter into negotiations for the
extension of the Agreement.
18.2 Either contracting party may terminate the Agreement if for two
successive calendar years (beginning after calendar year 2005) only the
minimum license fees are paid. In this case the notice period for
termination is two months before the end of the half calendar year
following the relevant time periods. For the avoidance of doubt, all
payment obligations of Licensee under this Agreement shall continue
during such half year period.
18.3 Further, the Agreement may be terminated by either party upon a notice
period of three months prior to June 30 and December 31 of a particular
year where there are material changes in the ownership composition of the
other party, i.e. a change of fifty (50) % or more of the voting
ownership rights. The right of termination must be exercised within three
months after receiving the information about the material change in
ownership composition.
Notwithstanding the foregoing, Hugo Boss shall not have any such right of
termination where the new owner of Licensee is either
(i) a financial investor, or
(ii) a strategic investor experienced in the design, manufacture,
marketing and sale of high end watches or fashion products,
However, in the
*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
24
event that the entity owning either * brand acquires fifty percent (50%)
or more of Licensee or of any entity controlling Licensee, the following
shall apply: If the agreed Business Plan will not be met for the calendar
year in which such change of ownership of Licensee has taken place, HUGO
BOSS can terminate the Agreement with six (6) months notice.
Licensee shall not have any such right of termination where the new owner
of HUGO BOSS is either
(i) a financial investor, or
(ii) a strategic investor experienced in the design, manufacture,
marketing and sale of high end fashion products.
After a warning letter with a period of maximum 6 (six) months for
fulfilling its obligations of the Business Plan and any further action
plans as referred to in Sec. 11, HUGO BOSS may also terminate the
Agreement upon a notice period of three months prior to June 30 and
December 31 of a particular year, if Licensee fails to fulfil its
above-mentioned obligations.
18.4 The right to terminate for cause remains unaffected. Such cause also
exists,
(a) if the other contracting party becomes insolvent,
(b) if settlement or bankruptcy proceedings are commenced with respect
to the estate of the other party,
(c) if - insofar as not otherwise indicated in this Agreement - the
other party fails to fulfill within 30 (thirty) days a contractual
obligation or one undertaken in order to fulfil this Agreement
despite prior written notice, or fails to desist from conduct that
is in violation of the Agreement within this period,
(d) if the other party is in breach of a material obligation hereunder
and fails to remedy such breach (if it reasonably can be remedied)
within ten (10) days after receipt of notice thereof from the
party not in breach, or,
(e) without prior written notice, if the other party has repeatedly
breached the same obligation hereunder within any twelve (12)
month period.
(f) if by reason of the other party's behaviour, continued compliance
with contractual obligations would be considered intolerable by a
reasonable party .
18.5 HUGO BOSS may also terminate the Agreement with a notice period of ten
(10) days for cause if Licensee falls more than three months into arrears
in paying the license fees. If Licensee considerably damages the
reputation of the Trademarks by a negligent act or omission, HUGO BOSS
may likewise terminate the Agreement without notice.
18.6 Terminations and notices under this provision must be communicated by
registered mail or personal delivery.
*CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24b-2 OF THE 1934 ACT.
<PAGE>
25
19. Consequences of Termination of the Agreement
19.1 The termination of this Agreement according to one of the above
provisions does not release either party from any of its obligations
under this Agreement that arise or come due, as the case may be, after
the termination of this Agreement or that by their express terms survive
termination. Upon the justified termination for cause as defined in Sec.
18.4 by HUGO BOSS, all outstanding license and Advertising Fees will
become immediately due and payable.
Further rights of indemnity etc. will not be affected by extraordinary
notice of termination, regardless of whether such rights are founded upon
the Agreement or in law. The regular or extraordinary notice of
termination and termination as such does not in itself give rise to any
sort of damages or compensation claims.
19.2 On the date of termination or expiration of this Agreement, except as
otherwise provided herein, all rights of the Licensee to use the
designations "BOSS" and/or "BOSS HUGO BOSS" and/or any other trademark
belonging to HUGO BOSS shall end and the Licensee shall also cease making
any reference to HUGO BOSS and/or its Trademarks and any reference to
previous activity/co-operation for/with HUGO BOSS as Licensee of HUGO
BOSS, and will also be responsible therefore on behalf of its
subcontractors. Further, the Licensee shall, no later than as of the date
of termination of the Agreement, extinguish all "Registered User"
registrations at its own cost or - upon the request and at the cost of
HUGO BOSS - transfer them, to the extent legally possible, to third
persons designated by HUGO BOSS.
19.3 Notwithstanding anything to the contrary contained in this Agreement,
HUGO BOSS has the right to purchase from Licensee, completely or in part,
Licensed Products on hand with the Licensee in finished form or still in
production, insofar as they have been manufactured according to designs
approved by HUGO BOSS pursuant to Section 6.3, at the Licensee's book
value evaluated by a third party to be nominated by both parties; if the
parties cannot agree on the appropriate person within 30 days, such
person shall be appointed by the President of the Industrie- und
Handelskammer Stuttgart. To exercise such right, Hugo Boss shall give
Licensee written notice of the Licensed Products Hugo Boss intends to
purchase no later than thirty (30) days prior to the effective
termination date.
Licensee shall be permitted to distribute all its remaining Licensed
Products not purchased by Hugo Boss for up to twelve months after the
termination of the Agreement upon the previously customary conditions and
through the previously utilised or similar channels of distribution;
provided however that the quantity of Licensed Products Licensee shall be
permitted to sell during such twelve month period may not exceed one
hundred twenty percent (120%) of the units sold by Licensee in the
immediately preceding year, and provided
<PAGE>
26
further that any quantity in excess thereof either will be destroyed (in
which event Licensee shall furnish to HUGO BOSS appropriate evidence of
such destruction as HUGO BOSS may request) or may be sold by Licensee for
an additional period not exceeding six (6) months through its outlet
stores. After the aforementioned six(6) month period, Licensee shall
destroy all remaining inventory and shall furnish HUGO BOSS appropriate
evidence of such destruction. The Licensee shall account for these sales
and pay the computed license fees to HUGO BOSS no later than within eight
months after the termination of the Agreement.
19.4 In addition to its rights under Section 19.3, in case Licensee has still
remaining inventory after the twelve month distribution period HUGO BOSS
shall also have the right of election:
a) to purchase the remaining inventory, completely or in part on
terms to be mutually agreed upon,
b) or to request the transfer of the remaining inventory to a third
party designated by HUGO BOSS on terms to be mutually agreed upon.
These sales will not be subject to the payment of license fees.
19.5 In order to enable HUGO BOSS to exercise its right of election of Sec.
19.3 and 19.4, the Licensee shall promptly inform HUGO BOSS as to the
existing inventory of Licensed Products, broken down by article number
including colour variants. Upon receipt of the information about the
inventory, HUGO BOSS shall decide within four weeks the manner in which
its right of election will be exercised.
20. Miscellaneous
20.1 Licensee may not assign, delegate to third parties or sublicense rights
or duties under this Agreement or assign the Agreement as a whole,
without the express prior written consent of HUGO BOSS. This does not
apply to an assignment, delegation, or sublicense to any Licensee
Affiliate (provided that notwithstanding any such assignment, delegation
or sublicense, MGI Luxury Group S.A. shall remain liable for performance
of Licensee's obligations hereunder) or to any change in control
otherwise permitted under section 18.3. Licensee shall notify HUGO BOSS
any such assignment. HUGO BOSS shall not assign any rights or delegate
any duties to any party other than an affiliate.
20.2 This Agreement constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, oral or written,
between the parties hereto with respect to the subject matter hereof.
This Agreement may be modified, amended or supplemented (including this
clause) only by the mutual written agreement of the parties hereto.
<PAGE>
27
20.3 This Agreement is made and shall be construed in all respects in
accordance with the laws of the Federal Republic of Germany, without
regard to its conflicts of law principles. The parties irrevocably agree
that all disputes related to this Agreement shall be brought exclusively
before the courts of Stuttgart, provided, that HUGO BOSS may, but is not
obliged to, seek relief in any court located in the place of Licensee's
principal place of business.
20.4 In the event any of the provisions of this Agreement are held to be
unenforceable or invalid by any court of competent jurisdiction, unless
the unenforceability or invalidity thereof causes a substantial departure
from the underlying intent and sense of the remainder of this Agreement,
the validity and enforceability of the remaining provisions shall not be
affected thereby, except those remaining provisions of which the
unenforceable or invalidated provisions comprise an integral part of or
from which they are otherwise clearly inseparable. In the event any
provision is held unenforceable or invalid, the parties shall use their
best efforts to agree upon an enforceable and valid provision which shall
be a reasonable substitute for such unenforceable or invalid provision in
light of the purpose of this Agreement, and, upon so agreeing, shall
incorporate such substitute provision in the Agreement. The same applies
if omissions in the Agreement become apparent. The relevant provision,
which is unenforceable or missing, is then to be replaced by a valid
provision corresponding to the meaning and purpose of this Agreement.
20.5 The instant Agreement is executed in duplicate. Appendices 1 - 6 to this
Agreement constitute a part of this Agreement.
Appendix 1: Trademarks (Exclusive License)(Sec. 1.1)
Appendix 2: Trade name (non-exclusive license) (Sec. 1.1)
Appendix 3: Quality directives (Sec. 7)
Appendix 4: Business Plan (Sec. 11)
Appendix 5: Reporting format (Sec. 12)
Appendix 6: Prior Product Styles (Sec.17.2)
20.6 No delay or omission by either of the parties hereto in exercising any
right or remedy provided for herein shall constitute a waiver of such
right or remedy, nor shall it be construed as a bar to or a waiver of any
such right or remedy on any future occasion. No waiver by either party of
any provision of this Agreement, or of any breach of default shall be
effective unless in writing and signed by the party against whom such
waiver is to be enforced.
20.7 Nothing contained herein shall be deemed to place the parties in the
relationship of employer-employee, partners, joint venturers, or either
as agent of the other. Licensee shall not represent itself as the
employee, partner, agent or legal representative of HUGO BOSS for any
purpose
<PAGE>
28
whatsoever and shall have no right to create or to assume any obligation
of any kind, express or implied, for or on behalf of HUGO BOSS; provided,
however, that Licensee may describe itself as the exclusive licensee of
the Licensed Products in the License Territory.
20.8 Notwithstanding the provisions in Sec. 20.3 above, HUGO BOSS may enforce
its rights under Sec. 13 and 14 and Licensee may enforce its rights under
Sec. 14, in any court having competent jurisdiction.
20.9 The English language version of this Agreement shall be the definitive
version and any issues that may arise in connection with this Agreement
or its interpretation shall be resolved by reference only to that
version.
20.10 Any notice to be given pursuant to this Agreement shall be written in
English and shall be deemed duly given when sent by reputable overnight
international courier including FedEx, UPS or DHL to the respective
address first set forth above or by facsimile to the respective facsimile
number set forth below confirmed by letter as aforesaid, or to such other
address and/or facsimile number as a party hereto may designate by like
notice.
To Licensee: Fax: ( 41 ) 32 329 34 01
Attn: General Manager - Hugo Boss Watches
Copy to: Fax: (201) 267 8050
Attn: Brand Manager - Hugo Boss Watches
To HUGO BOSS: Fax: (49) 7123 94 2018
Attn: Head of Legal Department
Copy to: Fax: (49) 7123 94 2086
Attn: Head of Licensing Department
20.11 The obligations of either party hereunder, except for the obligations of
Licensee to pay license fees, Advertising Fees and other amounts to be
paid to HUGO BOSS hereunder, shall be excused for a period equal to the
time by which such performance is prevented or delayed as a result of
strikes, labor
disputes, acts of God, or any other causes beyond the reasonable control of the
party obligated to perform.
<PAGE>
29
Metzingen,......................2004
......................, ..................2004
HUGO BOSS
By: /s/ Wolfgang Merte
--------------------------
Name: Wolfgang Merte
------------------------
Title: Managing Director
-----------------------
MGI LUXURY GROUP S.A.
By: /s/ Kurt Burki
-------------------------
Name: Kurt Burki
-----------------------
Title: Chairman
----------------------
By: /s/ Rick Cote
-------------------------
Name: Rick Cote
-----------------------
Title: Director
----------------------
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------------ --------- ------------- ----------
<S> <C> <C> <C>
Benelux BHB 702475 registered
Bosnia-Herzegovina BHB 702475 registered
Belarus BHB 702475 registered
Ukraine BHB 702475 registered
Great Britain BHB 702475 registered
Kazakhstan BHB 702475 registered
Yugoslavia BHB 702475 registered
Austria BHB 702475 registered
Denmark BHB 702475 registered
Finland BHB 702475 registered
Moldavia BHB 702475 registered
China BHB 702475 registered
Portugal BHB 702475 registered
Sweden BHB 702475 registered
Armenia BHB 702475 registered
Slovenia BHB 702475 registered
Albania BHB 702475 registered
Switzerland BHB 702475 registered
Italy BHB 702475 registered
Algeria BHB 702475 registered
Hungary BHB 702475 registered
France BHB 702475 registered
Sudan BHB 702475 registered
Monaco BHB 702475 registered
Liechtenstein BHB 702475 registered
Norway BHB 702475 registered
Morocco BHB 702475 registered
Germany BHB 39760304 registered
San Marino BHB 702475 registered
Latvia BHB 702475 registered
Macedonia BHB 702475 registered
Poland BHB 702475 registered
Croatia BHB 702475 registered
Egypt BHB 702475 registered
Iceland BHB 702475 registered
Liberia BHB 702475 registered
Azerbaidzan BHB 702475 registered
Cuba BHB 702475 registered
Mongolia BHB 702475 registered
Peru BOSS 39436 registered
Denmark BOSS 773035 registered
Algeria BOSS 773035 registered
Algeria BOSS 483341 registered
Australia BOSS A461875 registered
Bosnia-Herzegovina BOSS 773035 registered
Uruguay BOSS 352211 registered
Israel BOSS 68301 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
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<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------------- --------- ------------- ----------
<S> <C> <C> <C>
Slovakia BOSS 483341 registered
Antigua and Barbuda BOSS 773035 registered
Kyrgystan BOSS 773035 registered
Bulgaria BOSS 773035 registered
Iceland BOSS 773035 registered
Bosnia-Herzegovina BOSS 483341 registered
Moldavia BOSS 483341 registered
Turkey BOSS 773035 registered
Yugoslavia BOSS 515189 registered
Canada BOSS 526466 registered
Albania BOSS 483341 registered
Lithuania BOSS 773035 registered
Ukraine BOSS 483341 registered
Lithuania BOSS 8430 registered
Yugoslavia BOSS 773035 registered
Poland BOSS 66417 registered
Switzerland BOSS 483341 registered
Thailand BOSS 108400 registered
Hungary BOSS 515189 registered
Belarus BOSS 515189 registered
Kazakhstan BOSS 483341 registered
Singapore BOSS 5002/87 registered
Moldavia BOSS 515189 registered
France BOSS 1414947 registered
Ukraine BOSS 515189 registered
Estonia BOSS 773035 registered
Spain BOSS 773035 registered
Hungary BOSS 483341 registered
Belarus BOSS 483341 registered
Czech Republic BOSS 773035 registered
Slovenia BOSS 200071890 registered
Vietnam BOSS 773035 registered
Egypt BOSS 515189 registered
Austria BOSS 483341 registered
Morocco BOSS 773035 registered
Kenya BOSS 773035 registered
Switzerland BOSS 515189 registered
Sweden BOSS 225178 registered
Austria BOSS 773035 registered
Switzerland BOSS 773035 registered
Liechtenstein BOSS 483341 registered
Finland BOSS 773035 registered
Korea South BOSS 502360 registered
Rumania BOSS 515189 registered
Italy BOSS 773035 registered
Portugal BOSS 515189 registered
Lesotho BOSS 773035 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
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International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- -------------------- --------- ------------- ----------
<S> <C> <C> <C>
Benelux BOSS 515189 registered
Slovenia BOSS 483341 registered
Slovakia BOSS 773035 registered
Rumania BOSS 483341 registered
Macedonia BOSS 515189 registered
Taiwan BOSS 419774 registered
Japan BOSS 773035 registered
Austria BOSS 515189 registered
Sudan BOSS 515189 registered
Morocco BOSS 515189 registered
Cuba BOSS 773035 registered
South Africa BOSS B87/3241 registered
Antilles BOSS 00674 registered
Slovakia BOSS 515189 registered
Italy BOSS 515189 registered
Korea North BOSS 483341 registered
Tadzhikistan BOSS 483341 registered
Kyrgystan BOSS 483341 registered
Kyrgystan BOSS 515189 registered
Australia BOSS 773035 registered
United Arab Emirates BOSS 31074 registered
Haiti BOSS D-1658 registered
Moldavia BOSS 773035 registered
Swaziland BOSS 773035 registered
Macedonia BOSS 483341 registered
Liberia BOSS 773035 registered
Honduras BOSS 81.128 registered
Hungary BOSS 773035 registered
Bhutan BOSS 773035 registered
Vietnam BOSS 483341 registered
Azerbaidzan BOSS 773035 registered
Canada BOSS 416215 registered
Rumania BOSS 773035 registered
France BOSS 515189 registered
France BOSS 483341 registered
Nicaragua BOSS 49535 registered
USA BOSS 1,472,180 registered
San Marino BOSS 515189 registered
Germany BOSS 515189 registered
Croatia BOSS 773035 registered
Japan BOSS 2190696 registered
Singapore BOSS 773035 registered
Portugal BOSS 483341 registered
Armenia BOSS 773035 registered
Great Britain BOSS 773035 registered
Georgia BOSS 4102 registered
Monaco BOSS 483341 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
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International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- -------------------- --------- ------------- ----------
<S> <C> <C> <C>
China BOSS 773035 registered
Algeria BOSS 515189 registered
Georgia BOSS 773035 registered
Poland BOSS 773035 registered
Mozambique BOSS 773035 registered
Egypt BOSS 773035 registered
Benelux BOSS 773035 registered
Japan BOSS 2191582 registered
Bosnia-Herzegovina BOSS 515189 registered
Kazakhstan BOSS 515189 registered
Greece BOSS 78113 registered
Ireland BOSS 132382 registered
Kuwait BOSS 19654 registered
Germany BOSS 1056140 registered
Croatia BOSS 515189 registered
Macao BOSS 1702 registered
Greece BOSS 773035 registered
New Zealand BOSS 169997 registered
Benelux BOSS 483341 registered
Monaco BOSS 773035 registered
Korea North BOSS 515189 registered
Italy BOSS 483341 registered
Slovenia BOSS 515189 registered
Morocco BOSS 483341 registered
Portugal BOSS 773035 registered
Czech Republic BOSS 483341 registered
Bulgaria BOSS 515189 registered
Mongolia BOSS 773035 registered
San Marino BOSS 773035 registered
Uzbekistan BOSS 483341 registered
Myanmar BOSS 4/1186/1998 registered
Ukraine BOSS 773035 registered
Belarus BOSS 773035 registered
Norway BOSS 135716 registered
Monaco BOSS 515189 registered
France BOSS 773035 registered
Kazakhstan BOSS 773035 registered
Czech Republic BOSS 515189 registered
Australia BOSS 647105 registered
Liechtenstein BOSS 773035 registered
Tunisia BOSS 515189 registered
Sweden BOSS 773035 registered
Liechtenstein BOSS 515189 registered
Mongolia BOSS 515189 registered
Slovenia BOSS 773035 registered
Cyprus Greek BOSS 49637 registered
Uzbekistan BOSS 515189 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
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International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- -------------------- -------------------- ------------- ----------
<S> <C> <C> <C>
Russia BOSS 773035 registered
Vietnam BOSS 515189 registered
Tadzhikistan BOSS 515189 registered
Spain BOSS 515189 registered
Tadzhikistan BOSS 773035 registered
Turkmenistan BOSS 773035 registered
Yugoslavia BOSS 483341 registered
Russia BOSS 483341 registered
Macedonia BOSS 773035 registered
Jamaica BOSS B38806 registered
Latvia BOSS 773035 registered
Armenia BOSS 483341 registered
Turkey BOSS 99252 registered
Croatia BOSS 483341 registered
Brazil BOSS 813467110 registered
Chile BOSS 514562 registered
Finland BOSS 125852 registered
Latvia BOSS M16755 registered
Germany BOSS 1110284 registered
Brazil BOSS 813467101 registered
Denmark BOSS 02.049/1995 registered
Albania BOSS 773035 registered
Great Britain BOSS 1298751 registered
Sierra Leone BOSS 773035 registered
Uzbekistan BOSS 773035 registered
Norway BOSS 773035 registered
Egypt BOSS 483341 registered
San Marino BOSS 483341 registered
Myanmar BOSS HUGO BOSS 4/1184/1998 registered
Greece BOSS HUGO BOSS 106590 registered
Lebanon BOSS HUGO BOSS 61884 registered
Mexico BOSS HUGO BOSS 502193 registered
USA BOSS HUGO BOSS 1,531,899 registered
San Marino BOSS HUGO BOSS LABEL 754225 registered
Tadzhikistan BOSS HUGO BOSS LABEL 754225 registered
Vietnam BOSS HUGO BOSS LABEL 606620 registered
Sweden BOSS HUGO BOSS LABEL 754225 registered
Ecuador BOSS HUGO BOSS LABEL 4056-94 registered
Switzerland BOSS HUGO BOSS LABEL 516345 registered
Mongolia BOSS HUGO BOSS LABEL 516345 registered
Spain BOSS HUGO BOSS LABEL 754225 registered
Finland BOSS HUGO BOSS LABEL 754225 registered
Albania BOSS HUGO BOSS LABEL 606620 registered
Kazakhstan BOSS HUGO BOSS LABEL 516345 registered
Slovakia BOSS HUGO BOSS LABEL 754225 registered
Hungary BOSS HUGO BOSS LABEL 606620 registered
Iran BOSS HUGO BOSS LABEL 100166 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
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International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------------ -------------------- ------------- ----------
<S> <C> <C> <C>
France BOSS HUGO BOSS LABEL 606620 registered
San Marino BOSS HUGO BOSS LABEL 606620 registered
Sudan BOSS HUGO BOSS LABEL 516345 registered
Germany BOSS HUGO BOSS LABEL 2036450 registered
Croatia BOSS HUGO BOSS LABEL 516345 registered
Cuba BOSS HUGO BOSS LABEL 754225 registered
Poland BOSS HUGO BOSS LABEL 606620 registered
Australia BOSS HUGO BOSS LABEL 754225 registered
Macedonia BOSS HUGO BOSS LABEL 754225 registered
Moldavia BOSS HUGO BOSS LABEL 516345 registered
Dominican Republic BOSS HUGO BOSS LABEL 73784 registered
Togo BOSS HUGO BOSS LABEL 32910 registered
Vietnam BOSS HUGO BOSS LABEL 754225 registered
Korea South BOSS HUGO BOSS LABEL 319338 registered
Kazakhstan BOSS HUGO BOSS LABEL 606620 registered
Croatia BOSS HUGO BOSS LABEL 754225 registered
Mexico BOSS HUGO BOSS LABEL 422852 registered
Monaco BOSS HUGO BOSS LABEL 754225 registered
Mexico BOSS HUGO BOSS LABEL 422851 registered
Tadzhikistan BOSS HUGO BOSS LABEL 516345 registered
Barbados BOSS HUGO BOSS LABEL 81/11740 registered
Rumania BOSS HUGO BOSS LABEL 606620 registered
Gaza BOSS HUGO BOSS LABEL 7417 registered
Kyrgystan BOSS HUGO BOSS LABEL 754225 registered
Vietnam BOSS HUGO BOSS LABEL 516345 registered
Belarus BOSS HUGO BOSS LABEL 606620 registered
Egypt BOSS HUGO BOSS LABEL 516345 registered
Slovakia BOSS HUGO BOSS LABEL 516345 registered
Thailand BOSS HUGO BOSS LABEL 66840 registered
Burkina Faso BOSS HUGO BOSS LABEL 32910 registered
Italy BOSS HUGO BOSS LABEL 754225 registered
Japan BOSS HUGO BOSS LABEL 754225 registered
Austria BOSS HUGO BOSS LABEL 754225 registered
Congo BOSS HUGO BOSS LABEL 32910 registered
Iceland BOSS HUGO BOSS LABEL 236/1993 registered
Uzbekistan BOSS HUGO BOSS LABEL 754225 registered
Cyprus Greek BOSS HUGO BOSS LABEL 39326 registered
Lithuania BOSS HUGO BOSS LABEL 754225 registered
Benelux BOSS HUGO BOSS LABEL 606620 registered
Liechtenstein BOSS HUGO BOSS LABEL 754225 registered
Costa Rica BOSS HUGO BOSS LABEL 88091 registered
Russia BOSS HUGO BOSS LABEL 247287 registered
Finland BOSS HUGO BOSS LABEL 134230 registered
Rumania BOSS HUGO BOSS LABEL 754225 registered
Bulgaria BOSS HUGO BOSS LABEL 606620 registered
Cuba BOSS HUGO BOSS LABEL 606620 registered
Macao BOSS HUGO BOSS LABEL 13018 registered
Czech Republic BOSS HUGO BOSS LABEL 754225 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------------------ -------------------- ------------- ----------
<S> <C> <C> <C>
Bhutan BOSS HUGO BOSS LABEL 754225 registered
Andorra BOSS HUGO BOSS LABEL 8958 registered
Korea North BOSS HUGO BOSS LABEL 606620 registered
Turkey BOSS HUGO BOSS LABEL 754225 registered
Mongolia BOSS HUGO BOSS LABEL 606620 registered
Macedonia BOSS HUGO BOSS LABEL 606620 registered
Jamaica BOSS HUGO BOSS LABEL B39835 registered
Bosnia-Herzegovina BOSS HUGO BOSS LABEL 516345 registered
Germany BOSS HUGO BOSS LABEL 1108880 registered
China BOSS HUGO BOSS LABEL 550975 registered
Germany BOSS HUGO BOSS LABEL 1185466 registered
Albania BOSS HUGO BOSS LABEL 754225 registered
Greece BOSS HUGO BOSS LABEL 754225 registered
Ivory Coast BOSS HUGO BOSS LABEL 32910 registered
France BOSS HUGO BOSS LABEL 754225 registered
Portugal BOSS HUGO BOSS LABEL 754225 registered
Macedonia BOSS HUGO BOSS LABEL 516345 registered
Spain BOSS HUGO BOSS LABEL 606620 registered
Great Britain BOSS HUGO BOSS LABEL 754225 registered
Portugal BOSS HUGO BOSS LABEL 516345 registered
Guatemala BOSS HUGO BOSS LABEL 77108 registered
Liechtenstein BOSS HUGO BOSS LABEL 516345 registered
Kazakhstan BOSS HUGO BOSS LABEL 754225 registered
Poland BOSS HUGO BOSS LABEL 754225 registered
Bahrain BOSS HUGO BOSS LABEL 16962 registered
Hungary BOSS HUGO BOSS LABEL 516345 registered
Croatia BOSS HUGO BOSS LABEL 606620 registered
Ghana BOSS HUGO BOSS LABEL 31828 registered
Antigua and Barbuda BOSS HUGO BOSS LABEL 754225 registered
Peru BOSS HUGO BOSS LABEL 13715 registered
Chile BOSS HUGO BOSS LABEL 646494 registered
China BOSS HUGO BOSS LABEL 754225 registered
China BOSS HUGO BOSS LABEL 606620 registered
Russia BOSS HUGO BOSS LABEL 754225 registered
Czech Republic BOSS HUGO BOSS LABEL 516345 registered
Ukraine BOSS HUGO BOSS LABEL 754225 registered
Italy BOSS HUGO BOSS LABEL 606620 registered
Algeria BOSS HUGO BOSS LABEL 606620 registered
Colombia BOSS HUGO BOSS LABEL 159326 registered
Equatorial Guinea BOSS HUGO BOSS LABEL 32910 registered
Spain BOSS HUGO BOSS LABEL 516345 registered
Singapore BOSS HUGO BOSS LABEL 754225 registered
Chile BOSS HUGO BOSS LABEL 392343 registered
Austria BOSS HUGO BOSS LABEL 606620 registered
Central African Republic BOSS HUGO BOSS LABEL 32910 registered
Liechtenstein BOSS HUGO BOSS LABEL 606620 registered
Yugoslavia BOSS HUGO BOSS LABEL 606620 registered
Cuba BOSS HUGO BOSS LABEL 550975 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- -------------------- -------------------- ------------- ----------
<S> <C> <C> <C>
Jordan BOSS HUGO BOSS LABEL 33480 registered
Iceland BOSS HUGO BOSS LABEL 754225 registered
Rumania BOSS HUGO BOSS LABEL 516345 registered
Saudi Arabia BOSS HUGO BOSS LABEL 638/23 registered
Yugoslavia BOSS HUGO BOSS LABEL 516345 registered
Moldavia BOSS HUGO BOSS LABEL 754225 registered
Hong Kong BOSS HUGO BOSS LABEL 01161/2000 registered
Lesotho BOSS HUGO BOSS LABEL 754225 registered
United Arab Emirates BOSS HUGO BOSS LABEL 23105 registered
Italy BOSS HUGO BOSS LABEL 516345 registered
Benelux BOSS HUGO BOSS LABEL 516345 registered
Gabon BOSS HUGO BOSS LABEL 32910 registered
Slovenia BOSS HUGO BOSS LABEL 606620 registered
Latvia BOSS HUGO BOSS LABEL M16783 registered
Korea North BOSS HUGO BOSS LABEL 516345 registered
Uruguay BOSS HUGO BOSS LABEL 351727 registered
Sierra Leone BOSS HUGO BOSS LABEL 754225 registered
Uzbekistan BOSS HUGO BOSS LABEL 516345 registered
Sweden BOSS HUGO BOSS LABEL 319458 registered
Chile BOSS HUGO BOSS LABEL 646495 registered
Turkmenistan BOSS HUGO BOSS LABEL 754225 registered
Norway BOSS HUGO BOSS LABEL 754225 registered
Monaco BOSS HUGO BOSS LABEL 606620 registered
Austria BOSS HUGO BOSS LABEL 516345 registered
Azerbaidzan BOSS HUGO BOSS LABEL 754225 registered
France BOSS HUGO BOSS LABEL 92425453 registered
Denmark BOSS HUGO BOSS LABEL 03.620/1996 registered
Antilles BOSS HUGO BOSS LABEL 00673 registered
Morocco BOSS HUGO BOSS LABEL 754225 registered
Bulgaria BOSS HUGO BOSS LABEL 516345 registered
Czech Republic BOSS HUGO BOSS LABEL 606620 registered
San Marino BOSS HUGO BOSS LABEL 516345 registered
Brazil BOSS HUGO BOSS LABEL 813467152 registered
Lithuania BOSS HUGO BOSS LABEL 8947 registered
Mongolia BOSS HUGO BOSS LABEL 754225 registered
Slovenia BOSS HUGO BOSS LABEL 754225 registered
Benelux BOSS HUGO BOSS LABEL 754225 registered
France BOSS HUGO BOSS LABEL 516345 registered
Switzerland BOSS HUGO BOSS LABEL 606620 registered
Morocco BOSS HUGO BOSS LABEL 606620 registered
Hungary BOSS HUGO BOSS LABEL 754225 registered
Norway BOSS HUGO BOSS LABEL 166036 registered
Slovakia BOSS HUGO BOSS LABEL 606620 registered
Liberia BOSS HUGO BOSS LABEL 754225 registered
Bolivia BOSS HUGO BOSS LABEL 59321 registered
Malta BOSS HUGO BOSS LABEL 22725 registered
Mali BOSS HUGO BOSS LABEL 32910 registered
Chad BOSS HUGO BOSS LABEL 32910 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------------- -------------------- ------------- ----------
<S> <C> <C> <C>
Algeria BOSS HUGO BOSS LABEL 516345 registered
Egypt BOSS HUGO BOSS LABEL 754225 registered
Denmark BOSS HUGO BOSS LABEL 754225 registered
Trinidad and Tobago BOSS HUGO BOSS LABEL 31244 registered
Estonia BOSS HUGO BOSS LABEL 754225 registered
Kyrgystan BOSS HUGO BOSS LABEL 516345 registered
Indonesia BOSS HUGO BOSS LABEL 330827 registered
Bahamas BOSS HUGO BOSS LABEL 16180 registered
France BOSS HUGO BOSS LABEL 92425454 registered
Panama BOSS HUGO BOSS LABEL 70279 registered
Georgia BOSS HUGO BOSS LABEL 832 registered
Poland BOSS HUGO BOSS LABEL 584899 registered
Yugoslavia BOSS HUGO BOSS LABEL 754225 registered
Philippines BOSS HUGO BOSS LABEL 63703 registered
Mexico BOSS HUGO BOSS LABEL 422853 registered
Bermuda BOSS HUGO BOSS LABEL 25579 registered
Morocco BOSS HUGO BOSS LABEL 516345 registered
Switzerland BOSS HUGO BOSS LABEL 754225 registered
Monaco BOSS HUGO BOSS LABEL 516345 registered
Swaziland BOSS HUGO BOSS LABEL 754225 registered
Armenia BOSS HUGO BOSS LABEL 754225 registered
Ukraine BOSS HUGO BOSS LABEL 516345 registered
Sudan BOSS HUGO BOSS LABEL 606620 registered
Brazil BOSS HUGO BOSS LABEL 813467160 registered
Yemen BOSS HUGO BOSS LABEL 14049 registered
Georgia BOSS HUGO BOSS LABEL 754225 registered
Paraguay BOSS HUGO BOSS LABEL 270171 registered
Bulgaria BOSS HUGO BOSS LABEL 754225 registered
Venezuela BOSS HUGO BOSS LABEL P232339 registered
Latvia BOSS HUGO BOSS LABEL 754225 registered
Mauretania BOSS HUGO BOSS LABEL 32910 registered
Ukraine BOSS HUGO BOSS LABEL 606620 registered
Kenya BOSS HUGO BOSS LABEL 754225 registered
Surinam BOSS HUGO BOSS LABEL 13799 registered
Belarus BOSS HUGO BOSS LABEL 754225 registered
Slovenia BOSS HUGO BOSS LABEL 516345 registered
Bosnia-Herzegovina BOSS HUGO BOSS LABEL 754225 registered
Cameroon BOSS HUGO BOSS LABEL 32910 registered
Algeria BOSS HUGO BOSS LABEL 754225 registered
Portugal BOSS HUGO BOSS LABEL 606620 registered
Senegal BOSS HUGO BOSS LABEL 32910 registered
Mozambique BOSS HUGO BOSS LABEL 754225 registered
Tunisia BOSS HUGO BOSS LABEL 516345 registered
Canada BOSS HUGO BOSS LABEL 502586 registered
Niger BOSS HUGO BOSS LABEL 32910 registered
Argentina BOSS HUGO BOSS LABEL 1587386 registered
Guinea-Bissau BOSS HUGO BOSS LABEL 32910 registered
Benin BOSS HUGO BOSS LABEL 32910 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------- -------------------------- ------------- ----------
<S> <C> <C> <C>
Guinea BOSS HUGO BOSS LABEL 32910 registered
Portugal BOSS HUGO BOSS white/black 002860377 registered
Great Britain BOSS HUGO BOSS white/black 002860377 registered
Mexico BOSS HUGO BOSS white/black 775800 registered
Belgium BOSS HUGO BOSS white/black 002860377 registered
China BOSS HUGO BOSS white/black 785514 registered
Greece BOSS HUGO BOSS white/black 002860377 registered
Denmark BOSS HUGO BOSS white/black 002860377 registered
Spain BOSS HUGO BOSS white/black 002860377 registered
Luxembourg BOSS HUGO BOSS white/black 002860377 registered
Ireland BOSS HUGO BOSS white/black 002860377 registered
Germany BOSS HUGO BOSS white/black 002860377 registered
Italy BOSS HUGO BOSS white/black 002860377 registered
Taiwan BOSS HUGO BOSS white/black 1063553 registered
Netherlands BOSS HUGO BOSS white/black 002860377 registered
Finland BOSS HUGO BOSS white/black 002860377 registered
Austria BOSS HUGO BOSS white/black 002860377 registered
Germany BOSS HUGO BOSS white/black 30205552 registered
France BOSS HUGO BOSS white/black 002860377 registered
Sweden BOSS HUGO BOSS white/black 002860377 registered
Turkey BOSS HUGO BOSS white/black 785514 registered
Ukraine BOSS HUGO BOSS white/black 785514 registered
Slovenia BOSS HUGO BOSS white/black 785514 registered
Japan BOSS HUGO BOSS white/black 785514 registered
Russia BOSS HUGO BOSS white/black 785514 registered
Spain HUGO 000049270 registered
Italy HUGO 000049270 registered
Germany HUGO 2036129 registered
Bulgaria HUGO 604808 registered
Egypt HUGO 604808 registered
Cuba HUGO 604808 registered
China HUGO 604808 registered
Kazakhstan HUGO 604808 registered
Slovakia HUGO 604808 registered
Sweden HUGO 604808 registered
Finland HUGO 000049270 registered
Sudan HUGO 604808 registered
Mexico HUGO 571494 registered
Great Britain HUGO 000049270 registered
Belgium HUGO 000049270 registered
Rumania HUGO 604808 registered
Greece HUGO 000049270 registered
Morocco HUGO 604808 registered
Benelux HUGO 604808 registered
Croatia HUGO 604808 registered
Switzerland HUGO 604808 registered
Sweden HUGO 000049270 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- -------------- -------------------- ------------- ----------
<S> <C> <C> <C>
Finland HUGO 604808 registered
Algeria HUGO 604808 registered
France HUGO 604808 registered
Portugal HUGO 604808 registered
Russia HUGO 604808 registered
Netherlands HUGO 000049270 registered
Great Britain HUGO 604808 registered
Vietnam HUGO 604808 registered
Germany HUGO 000049270 registered
Canada HUGO 548123 registered
Korea North HUGO 604808 registered
Slovenia HUGO 604808 registered
Greece HUGO 123272 registered
Australia HUGO 706184 registered
Portugal HUGO 000049270 registered
Ukraine HUGO 604808 registered
Italy HUGO 604808 registered
Mongolia HUGO 604808 registered
Hungary HUGO 604808 registered
Austria HUGO 604808 registered
Spain HUGO 604808 registered
Denmark HUGO 604808 registered
Liechtenstein HUGO 604808 registered
Belarus HUGO 604808 registered
Czech Republic HUGO 604808 registered
Austria HUGO 000049270 registered
San Marino HUGO 604808 registered
Denmark HUGO 000049270 registered
Poland HUGO 604808 registered
Monaco HUGO 604808 registered
Ireland HUGO 000049270 registered
Yugoslavia HUGO 604808 registered
Luxembourg HUGO 000049270 registered
France HUGO 000049270 registered
Italy HUGO 793762 registered
Japan hugo 2534878 registered
Greece HUGO HUGO BOSS 114503 registered
Denmark HUGO HUGO BOSS 200001318 registered
Myanmar HUGO HUGO BOSS 4/1185/1998 registered
Uruguay HUGO HUGO BOSS 264545 registered
Rumania HUGO HUGO BOSS LABEL 771889 registered
Korea North HUGO HUGO BOSS LABEL 604811 registered
Albania HUGO HUGO BOSS LABEL 604811 registered
Belarus HUGO HUGO BOSS LABEL 771889 registered
Liberia HUGO HUGO BOSS LABEL 771889 registered
Singapore HUGO HUGO BOSS LABEL 771889 registered
Benelux HUGO HUGO BOSS LABEL 771889 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------------------ -------------------- ------------- ----------
<S> <C> <C> <C>
Morocco HUGO HUGO BOSS LABEL 604811 registered
Hungary HUGO HUGO BOSS LABEL 771889 registered
Switzerland HUGO HUGO BOSS LABEL 604811 registered
Hungary HUGO HUGO BOSS LABEL 604811 registered
Czech Republic HUGO HUGO BOSS LABEL 604811 registered
Canada HUGO HUGO BOSS LABEL 495668 registered
Sweden HUGO HUGO BOSS LABEL 771889 registered
Bulgaria HUGO HUGO BOSS LABEL 771889 registered
Bosnia-Herzegovina HUGO HUGO BOSS LABEL 771889 registered
San Marino HUGO HUGO BOSS LABEL 771889 registered
Bulgaria HUGO HUGO BOSS LABEL 604811 registered
Uzbekistan HUGO HUGO BOSS LABEL 771889 registered
Spain HUGO HUGO BOSS LABEL 771889 registered
Chad HUGO HUGO BOSS LABEL 32911 registered
France HUGO HUGO BOSS LABEL 771889 registered
Uzbekistan HUGO HUGO BOSS LABEL 604811 registered
Swaziland HUGO HUGO BOSS LABEL 771889 registered
Andorra HUGO HUGO BOSS LABEL 8868 registered
China HUGO HUGO BOSS LABEL 604811 registered
Turkey HUGO HUGO BOSS LABEL 145393 registered
Central African Republic HUGO HUGO BOSS LABEL 32911 registered
Ukraine HUGO HUGO BOSS LABEL 771889 registered
Georgia HUGO HUGO BOSS LABEL 771889 registered
Tadzhikistan HUGO HUGO BOSS LABEL 771889 registered
Congo HUGO HUGO BOSS LABEL 32911 registered
Norway HUGO HUGO BOSS LABEL 166037 registered
Liechtenstein HUGO HUGO BOSS LABEL 771889 registered
Cameroon HUGO HUGO BOSS LABEL 32911 registered
Rumania HUGO HUGO BOSS LABEL 604811 registered
Monaco HUGO HUGO BOSS LABEL 604811 registered
Latvia HUGO HUGO BOSS LABEL 771889 registered
Norway HUGO HUGO BOSS LABEL 771889 registered
Egypt HUGO HUGO BOSS LABEL 604811 registered
Czech Republic HUGO HUGO BOSS LABEL 771889 registered
USA HUGO HUGO BOSS LABEL 1,865,732 registered
Australia HUGO HUGO BOSS LABEL 771889 registered
Guinea-Bissau HUGO HUGO BOSS LABEL 32911 registered
Antigua and Barbuda HUGO HUGO BOSS LABEL 771889 registered
Slovakia HUGO HUGO BOSS LABEL 771889 registered
Kazakhstan HUGO HUGO BOSS LABEL 771889 registered
China HUGO HUGO BOSS LABEL 771889 registered
Egypt HUGO HUGO BOSS LABEL 771889 registered
Greece HUGO HUGO BOSS LABEL 771889 registered
Mauretania HUGO HUGO BOSS LABEL 32911 registered
Hong Kong HUGO HUGO BOSS LABEL 06100/2003 registered
Togo HUGO HUGO BOSS LABEL 32911 registered
Denmark HUGO HUGO BOSS LABEL 771889 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ------------- -------------------- ------------- ----------
<S> <C> <C> <C>
Cuba HUGO HUGO BOSS LABEL 604811 registered
Sudan HUGO HUGO BOSS LABEL 604811 registered
Morocco HUGO HUGO BOSS LABEL 771889 registered
San Marino HUGO HUGO BOSS LABEL 604811 registered
Ivory Coast HUGO HUGO BOSS LABEL 32911 registered
Chile HUGO HUGO BOSS LABEL 689450 registered
Italy HUGO HUGO BOSS LABEL 771889 registered
Cuba HUGO HUGO BOSS LABEL 771889 registered
Vietnam HUGO HUGO BOSS LABEL 771889 registered
Slovakia HUGO HUGO BOSS LABEL 604811 registered
Estonia HUGO HUGO BOSS LABEL 771889 registered
Poland HUGO HUGO BOSS LABEL 771889 registered
Albania HUGO HUGO BOSS LABEL 771889 registered
Armenia HUGO HUGO BOSS LABEL 771889 registered
Germany HUGO HUGO BOSS LABEL 2037591 registered
Lithuania HUGO HUGO BOSS LABEL 771889 registered
Yugoslavia HUGO HUGO BOSS LABEL 771889 registered
Lesotho HUGO HUGO BOSS LABEL 771889 registered
Switzerland HUGO HUGO BOSS LABEL 771889 registered
Austria HUGO HUGO BOSS LABEL 771889 registered
Portugal HUGO HUGO BOSS LABEL 771889 registered
Portugal HUGO HUGO BOSS LABEL 604811 registered
Moldavia HUGO HUGO BOSS LABEL 771889 registered
Turkmenistan HUGO HUGO BOSS LABEL 771889 registered
Benelux HUGO HUGO BOSS LABEL 604811 registered
Sweden HUGO HUGO BOSS LABEL 319460 registered
Mozambique HUGO HUGO BOSS LABEL 771889 registered
Monaco HUGO HUGO BOSS LABEL 771889 registered
Austria HUGO HUGO BOSS LABEL 604811 registered
Mali HUGO HUGO BOSS LABEL 32911 registered
Kenya HUGO HUGO BOSS LABEL 771889 registered
Ukraine HUGO HUGO BOSS LABEL 604811 registered
Poland HUGO HUGO BOSS LABEL 604811 registered
Azerbaidzan HUGO HUGO BOSS LABEL 771889 registered
Senegal HUGO HUGO BOSS LABEL 32911 registered
Liechtenstein HUGO HUGO BOSS LABEL 604811 registered
Burkina Faso HUGO HUGO BOSS LABEL 32911 registered
Macedonia HUGO HUGO BOSS LABEL 771889 registered
Finland HUGO HUGO BOSS LABEL 771889 registered
Mongolia HUGO HUGO BOSS LABEL 604811 registered
Iceland HUGO HUGO BOSS LABEL 771889 registered
Finland HUGO HUGO BOSS LABEL 134723 registered
Slovenia HUGO HUGO BOSS LABEL 771889 registered
Croatia HUGO HUGO BOSS LABEL 771889 registered
Niger HUGO HUGO BOSS LABEL 32911 registered
France HUGO HUGO BOSS LABEL 604811 registered
Turkey HUGO HUGO BOSS LABEL 771889 registered
Bhutan HUGO HUGO BOSS LABEL 771889 registered
</TABLE>
<PAGE>
Appendix 1 Registerations and Applications
- Exclusive -
International Class 14
<TABLE>
<CAPTION>
Country Trademark Trademark No. Status
- ----------------- ------------------------------ ------------- ----------
<S> <C> <C> <C>
Gabon HUGO HUGO BOSS LABEL 32911 registered
Japan HUGO HUGO BOSS LABEL 771889 registered
Croatia HUGO HUGO BOSS LABEL 604811 registered
Taiwan HUGO HUGO BOSS LABEL 1037502 registered
Russia HUGO HUGO BOSS LABEL 771889 registered
Kyrgystan HUGO HUGO BOSS LABEL 771889 registered
Great Britain HUGO HUGO BOSS LABEL 771889 registered
Thailand HUGO HUGO BOSS LABEL 174346 registered
Yugoslavia HUGO HUGO BOSS LABEL 604811 registered
Spain HUGO HUGO BOSS LABEL 604811 registered
Algeria HUGO HUGO BOSS LABEL 771889 registered
Sierra Leone HUGO HUGO BOSS LABEL 771889 registered
Algeria HUGO HUGO BOSS LABEL 604811 registered
Kazakhstan HUGO HUGO BOSS LABEL 604811 registered
Belarus HUGO HUGO BOSS LABEL 604811 registered
Slovenia HUGO HUGO BOSS LABEL 604811 registered
Italy HUGO HUGO BOSS LABEL 604811 registered
Mongolia HUGO HUGO BOSS LABEL 771889 registered
Vietnam HUGO HUGO BOSS LABEL 604811 registered
Malta HUGO HUGO BOSS LABEL 37407 registered
Benin HUGO HUGO BOSS LABEL 32911 registered
Equatorial Guinea HUGO HUGO BOSS LABEL 32911 registered
Guinea HUGO HUGO BOSS LABEL 32911 registered
Italy HUGO HUGO BOSS LABEL black/red 720624 registered
Liberia HUGO HUGO BOSS LABEL black/red 720624 registered
Sweden HUGO HUGO BOSS LABEL black/red 720624 registered
Albania HUGO HUGO BOSS LABEL black/red 720624 registered
Belarus HUGO HUGO BOSS LABEL black/red 720624 registered
Macedonia HUGO HUGO BOSS LABEL black/red 720624 registered
Algeria HUGO HUGO BOSS LABEL black/red 720624 registered
Morocco HUGO HUGO BOSS LABEL black/red 720624 registered
Liechtenstein HUGO HUGO BOSS LABEL black/red 720624 registered
Azerbaidzan HUGO HUGO BOSS LABEL black/red 720624 registered
France HUGO HUGO BOSS LABEL black/red 720624 registered
Benelux HUGO HUGO BOSS LABEL black/red 720624 registered
Kyrgystan HUGO HUGO BOSS LABEL black/red 7