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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14(a)-11(c) or
Section 240.14a-12
Movado Group, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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LOGO
MOVADO
GROUP
May 23, 199726, 1998
Dear Shareholders:
You are cordially invited to attend the 19971998 Annual Meeting of the
shareholders of Movado Group, Inc. to be held on Tuesday,Thursday, June 10, 1997,11, 1998 at
10:00 a.m., Eastern Daylight Time, at the offices of Simpson, Thacher & Bartlett
located at 425 Lexington Avenue, New York, New York. The official Notice of
Meeting, Proxy Statement and form of proxy are enclosed with this letter. The
matters listed in the Notice of Meeting are described in the attached Proxy
Statement.
The vote of every shareholder is important and your cooperation in
completing, signing and returning your proxy promptly will be appreciated.
We hope to see you at the Annual Meeting.
Sincerely,
Gedalio Grinberg
Chairman of the Board
And Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND RETURN
YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
125 Chubb Avenue, Lyndhurst, New Jersey 07071 Telephone: 201-460-4800
Facsimile: 201-460-4540
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MOVADO GROUP, INC.
125 CHUBB AVENUE
LYNDHURST, NEW JERSEY 07071
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 10, 199711, 1998
Notice is hereby given that the Annual Meeting of Shareholders of Movado Group,
Inc. will be held on Tuesday,Thursday, June 10, 199711, 1998 at 10:00 a.m., Eastern Daylight
Time, at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York for the following purposes:
1. To elect sixseven directors to serve until the next Annual
Meeting and until their successors are elected and qualified;
2. To ratify the selection of Price Waterhouse LLP as the
Company's independent accountants for the fiscal year ending
January 31, 1998;1999;
3. To consider and voteact upon an amendmenta proposal to amend the Company's Certificate1996 Stock
Incentive Plan to increase the number of Incorporation modifying the definitionshares of "Permitted Transferee" in Paragraph 4.1(d)(i) with respectcommon
stock available for issuance thereunder and to the Class A Common Stock;modify certain
other terms thereof; and
4. To transact such other business as may properly come before
the meeting or any postponement or adjournment thereof.
Holders of the Company's Common Stock and Class A Common Stock of record at the
close of business on May 5, 19978, 1998 are entitled to notice of and to vote at the
Annual Meeting of Shareholders or any postponements or adjournments thereof.
Dated: May 23, 199726, 1998 By order of The Board of Directors
Timothy F. Michno
Secretary and General Counsel
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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MOVADO GROUP, INC.
125 CHUBB AVENUE
LYNDHURST, NJ 07071
PROXY STATEMENT
INFORMATION CONCERNING THE SOLICITATION
This proxy statement and the accompanying proxy are being furnished to
the shareholders of Movado Group, Inc. (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company to be used for
voting at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
on Tuesday,Thursday, June 10, 199711, 1998 at 10:00 a.m., Eastern Daylight Time, at the offices
of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York and at
any adjournments thereof. It is expected that this proxy statement and the form
of proxy will first be sent to shareholders on or about May 23, 1997.26, 1998.
At the Annual Meeting, the holders of the Company's Common Stock and
Class A Common Stock (together the "Capital Stock") will be asked to consider
and vote upon the following proposals:
1. To elect sixseven directors to serve until the next annual meeting and
until their successors are elected and qualified;
2. To ratify the selection of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending January 31,
1998;1999;
3. To consider and vote upon an amendment toamend the Company's Certificate1996 Stock Incentive Plan to increase the
number of Incorporation modifying the definitionshares of "Permitted Transferee" in Paragraph 4.1 (d) (i) with respectCommon Stock available for issuance thereunder
and to the Class A Common Stock;modify certain other terms thereof; and
4. To transact such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
The Board of Directors knows of no other business to be presented at
the Annual Meeting. If any other business is properly presented, the persons
named in the enclosed proxy will have the power to vote all proxies received,
and not theretofore revoked, in accordance with the recommendations of the Board
of Directors. If the enclosed proxy is properly executed, duly returned to the
Company in time for the Annual Meeting and not revoked, your shares will be
voted in accordance with the instructions contained thereon. Where a signed
proxy is returned, but no specific instructions are indicated, your shares will
be voted FOR the nominees for Directors identified below,below; FOR the ratification
of the appointment of Price Waterhouse LLP as the Company's independent
accountants for fiscal year 19981999; and FOR the approval of the amendmentproposal to amend the Company's
Certificate of Incorporation.1996 Stock Incentive Plan.
Abstentions will be treated as present for purposes of determining a
quorum for the Annual Meeting. Proxies returned by brokers as "non-votes" will
not be treated as present for purposes of determining the presence of a quorum.
Any shareholder who executes and returns a proxy may revoke it in
writing at any time before it is voted at the Annual Meeting by: (i) filing with
the Secretary of the Company, at the above address, written notice of such
revocation bearing a later date than the proxy or a subsequent proxy relating to
the same shares or (ii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy).
The solicitation of proxies in the enclosed form is made on behalf of
the Board of Directors. The entire cost of soliciting these proxies will be
borne by the Company. In addition to use of the mails, proxies may be solicited
personally or by telephone by officers, directors and employees of the Company,
who will receive no additional compensation for such activities. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of shares
held of record by such persons, who will be reimbursed for their reasonable
expenses incurred in such connection.
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OUTSTANDING VOTING SECURITIES
The Board of Directors has fixed the close of business on May 5, 19978, 1998
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting (the "Record Date"). Only holders of record of
the Capital Stock at the close of business on the Record Date are entitled to
notice of and to vote at the Annual Meeting or any and all adjournments thereof.
On the Record Date there were 4,313,1359,337,329 shares of Common Stock outstanding and
3,215,3023,529,029 shares of Class A Common Stock outstanding reflecting the Company's
five for four stock split effected by means of a stock dividend distributed May
1, 1997.outstanding. Each share of Common Stock
is entitled to one vote, and each share of Class A Common Stock is entitled to
10 votes. The holders of a majority in voting power of the outstanding shares of
Capital Stock entitled to vote at the Annual Meeting, present in person or
represented by proxy, constitute a quorum at the Annual Meeting. The affirmative
vote of the holders of a majority in voting power present in person or
represented by proxy and entitled to vote is required to ratify the selection of
Price Waterhouse LLP as the Company's independent accountants for fiscal 1998;1999
and to approve the proposal to amend the Company's 1996 Stock Incentive Plan;
and the affirmative vote of the holders of a plurality in voting power present
in person or represented by proxy and entitled to vote is sufficient for the
election of Directors.
The approval of the proposal to amend the Company's Certificate of
Incorporation requires the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the voting power of the outstanding shares
of Capital Stock entitled to vote at the Annual Meeting.
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Class A Common Stock and the Common Stock as of the
Record Date (except as otherwise noted in footnotes 4 , 5, 6, 9 and 10)12) by (i)
each shareholder who is known by the Company to beneficially own in excess of 5%
of the outstanding shares of Class A Common Stock or of the outstanding shares
of Common Stock, (ii) each director, (iii) each Named Executive Officer (as
hereinafter defined) and (iv) all executive officers and directors as a group.
Unless otherwise noted, all shares are beneficially owned by the persons
indicated.
PERCENT OF OUTSTANDING
SHARES OF CAPITAL STOCK
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SHARES OF
CLASS A SHARES OF
COMMON COMMON PERCENT OF
STOCK STOCK CLASS A TOTAL
BENEFICIALLY BENEFICIALLY COMMON COMMON VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OWNED STOCK STOCK POWER (1)
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Margaret Hayes Adame ................ - 1,250 -...................... -- 1,875 -- * *
Kenneth J. Adams (2) ................ - 8,131 -...................... -- 19,884 -- * *
Michael J. Bush (3) ................. - 31,250 -....................... -- 99,375 -- 1.1% *
*The Equitable Companies Incorporated (4)... -- 503,900 -- 5.4% 1.1%
FMR Corp. (4) ....................... - 748,875 - 17.4% 2.0%(5) ............................. -- 1,013,812 -- 10.9% 2.3%
Goldman Sachs & Co. (5) ............ - 767,750 - 17.8% 2.1%(6) ................... -- 650,324 -- 7.0% 1.5%
Efraim Grinberg (6) ................. 572,732 88,418 17.8%(7) ....................... 842,594 185,127 23.9% 2.0% 15.9%19.3%
Gedalio Grinberg (7) ................ 2,173,766 40,918 67.6%(8) ...................... 2,018,230 61,377 57.2% * 59.7%45.4%
Alan H. Howard ............................ -- 937 -- * *
Mellon Bank Corporation (9) ............... -- 627,050 -- 6.7% 1.4%
Timothy F. Michno(8) ................ - 2,631 -Michno(10) ..................... -- 8,260 -- * *
Donald Oresman ...................... 1,307 -............................ 1,960 -- * --- *
Leonard L. Silverstein (9) .......... 331,120 21,882 10.3%(11) ............... 436,246 35,323 12.4% * 9.15%9.9%
Thomson Hortsmann & Bryant, Inc. (10) - 404,875 - 9.4% 1.1%(12) ..... -- 687,318 -- 7.4% 1.5%
All executive officers and directors as
a group 2,747,806 157,312 85.5% 3.6% 75.8%
(8(10 persons) (11)(13) ................. 2,862,784 379,884 81.1% 4.0% 65.0%
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* DENOTES LESS THAN ONE PERCENT
The address for Messrs. Adams, Bush, G. Grinberg. E. Grinberg, Howard, Michno,
Oresman and Silverstein and Ms. Hayes-Adame is c/o Movado Group, Inc., 125 Chubb
Avenue, Lyndhurst, New Jersey 07071.
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(1) In calculating the percent of total voting power, the voting power of
shares of Common Stock (one vote per share) and Class A Common Stock
(10 votes per share) has been aggregated.
(2) The total shares of Common Stock reported as beneficially owned by Mr.
Adams includes 8,12519,875 shares which he has the right to acquire by the
exercise of options under the Company's 1996 Stock Incentive Plan.
(3) The total shares of Common Stock reported as beneficially owned by Mr.
Bush includes 25,00082,500 shares which he has the right to acquire by the
exercise of options under the Company's 1996 Stock Incentive Plan.
(4) InOn February 10, 1998 in a joint filing on Schedule 13G dated February 14, 1997, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), The
Equitable Companies Incorporated ("Equitable") in its capacity as a
parent holding company of Alliance Capital Management L.P.; Alpha
Assurances Vie Mutuelle ("Alpha"); AXA Assurances I.A.R.D. Mutuelle
("IARD"); AXA Assurances Vie Mutuelle ("Vie") and AXA Courtage
Assurance Mutuelle ("Courtage") as a group; and AXA-UAP each reported
beneficial ownership of 503,900 shares of Common Stock as of December
31, 1997. Each reporting person reported that it has sole voting power
as to 1,200 of such shares, shared voting power as to 502,700 of such
shares, sole investment power as to 503,900 of such shares and shared
investment power as to none of such shares. Each reporting person
reported that all such shares were acquired in the ordinary course of
business and not for the purpose, or with the effect, of changing or
influencing the control of the Company or in connection with any
transaction having such purpose or effect. The addresses of such
reporting persons are as follows: Equitable: 1290 Avenue of the
Americas, New York, New York 10104; Alpha: 100-101 Terrasse Boieldieu,
92042 Paris La Defense, France; IARD and Vie: 21, rue de Chateaudun,
75009 Paris, France; Courtage: 26, rue Louis le Grand, 75002 Paris,
France; AXA-UAP: 23, Avenue Matignon 75009 Paris France.
(5) In a joint filing on Schedule 13G dated February 14, 1998, under the
Exchange Act, FMR Corp., through its wholly owned subsidiary, Fidelity
Management and Research Company, and Edward C. Johnson 3d and Abigail
P. Johnson each reported beneficial ownership as of 599,100December 31, 1997
of 1,013,812 shares of Common Stock as to which each such reporting
person has sole dispositive power and which,
as adjusted for the Company's five for four stock split effected by
means of a stock dividend distributed on May 1, 1997 (the "Stock
Split"), equaled 748,875 shares.power. Each reporting person reported
having no shared dispositive power as to any of such shares nor any
voting power, either sole or shared, as to any such shares. Each such
reporting person also reported that all of the shares of Common Stock
which it beneficially owns were acquired in the ordinary course of
business and not for the purpose or with the effect of changing or
influencing control of the Company, or in connection with any
transaction having such purpose or effect. The address of FMR Corp. and
Mr. and Mrs. Johnsoneach such
reporting person is 82 Devonshire Street, Boston, Massachusetts 02109.
(5)(6) On February 14, 1997,1998, in a joint filing on Schedule 13G under the
Exchange Act, Goldman Sachs Equity Portfolios, Inc.Trust on behalf of Goldman Sachs Small Cap
Equity Fund ("GS Equity"), reported beneficial ownership as of 541,600December
31, 1997 of 483,812 shares of Common Stock as to which it has shared
investment and voting power and which, as adjusted for the Company's
Stock Split, equaled 677,000 shares.power. The Goldman Sachs Group, L.P. ("Group")
and Goldman, Sachs & Co. ("GS & Co.") each reported beneficial
ownership of 614,200650,324 shares of Common Stock, including the shares owned
by GS Equity. Each of Group and GS & Co. reported that it has shared
investment and voting power as to all 614,200650,324 shares of Common Stock. As adjusted for the Stock Split, the total shares of
Common Stock beneficially owned by Group and GS & Co. equaled 767,750.
None of Group, GS & Co. or GS Equity reported having sole voting or
investment power as to any of the shares of Common Stock, and each
reported in their Schedule 13G filing that all these shares were acquired in the ordinary course of
business and not for the purpose, or with the effect, of changing or
influencing the control of the Company, or in connection with any
transaction having such purpose or effect. The address of Group, and GS
& Co., is 85 Broad Street, New York, New York 10004. The address of GS
Equity is 1 New York Plaza, New York, New York 10004.
(6)(7) The total number of shares of Class A Common Stock beneficially owned
by Mr. Efraim Grinberg includes an aggregate of 187,769281,653 shares held by
several trusts for the benefit of Mr. E. Grinberg's siblings and
himself, of which trusts Mr. E. Grinberg is sole trustee. As sole
trustee, Mr. E. Grinberg has sole investment and voting power with
respect to the shares held by such trusts. In addition, the amount of
shares of Class A Common Stock reported for Mr. E. Grinberg includes an
aggregate of 287,647431,468 shares of Class A Common Stock held by several
trusts for the benefit of Mr. E. Grinberg's siblings and himself, of
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which trusts Mr. E. Grinberg is co-trustee with Mr. Leonard L.
Silverstein. As a co-trustee, Mr. E. Grinberg has shared investment and
voting power with Mr. Silverstein with respect to the shares of Class A
Common Stock held by such trusts. The total number of shares of Common
Stock owned by Mr. E. Grinberg includes 37,16855,752 shares of Common Stock
held under the Company's Employee Savings and Investment Plan ("401(k)
Plan"), the trustees of which are Messrs. G.Gedalio Grinberg and E.
Grinberg, both of whom have shared investment and voting power as to
such shares. Mr. E. Grinberg disclaims beneficial ownership as to the
318,073477,107 shares of Class A Common Stock held by the trusts for the
benefit of his siblings of which he is trustee or co-trustee and of the
37,16855,752 shares of Common Stock held under the Company's 401(k) Plan
except to the extent of his pecuniary interest therein. The total
number of shares of Common Stock owned by Mr. E. Grinberg also includes
50,000127,500 shares of Common Stock which he has the right to acquire by the
exercise of options under the Company's 1996 Incentive Stock Plan.
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(7)(8) The total number of shares of Class A Common Stock beneficially owned
by Mr. G. Grinberg includes 49,7234,778 shares of Class A Common Stock owned
by theThe Grinberg Family Foundation, a non-profit corporation of which
Mr. G. Grinberg, Sonia Grinberg and Mr. Leonard L. Silverstein are the
directors and officers and as to which shares these three individuals
have shared investment and voting power. The total number of shares of
Common Stock owned by Mr. G. Grinberg includes 37,16855,752 shares of Common
Stock held under the Company's 401(k) Plan, the trustees for which are
Messrs. G. Grinberg and E. Grinberg, both of whom have shared
investment and voting power as to such shares. Mr. G. Grinberg
disclaims beneficial ownership as to the 49,7234,778 shares of Class A Common
Stock owned by theThe Grinberg Family Foundation and the 37,16855,752 shares of
Common Stock owned by the Company's 401(k) Plan except to the extent of
his pecuniary interest therein.
(8)(9) On January 23, 1998 in a joint filing on Schedule 13G under the
Exchange Act, The Dreyfus Corporation ("Dreyfus"), a subsidiary of
Mellon Bank Corporation ("MBC"), reported beneficial ownership of
558,000 shares of Common Stock; and MBC for itself and its subsidiary
Mellon Bank, N.A. each reported beneficial ownership of 627,050 shares
of Common Stock, including the 558,000 shares owned by Dreyfus. Dreyfus
reported that it has sole voting and investment power as to 535,000
shares and shared voting and investment power as to 23,250 shares. MBC
and Mellon Bank, N.A. each reported having sole voting and investment
power as to 603,800 shares and shared voting and investment power as to
23,250 shares. Each of MBC, Mellon Bank, N.A. and Dreyfus reported that
all such shares were acquired in the ordinary course of business and
not for the purpose, or with the effect, of changing or influencing the
control of the Company or in connection with any transaction having
such purpose or effect.
(10) The total number of shares of Common Stock reported as beneficially
owned by Mr. Michno includes 2,6258,251 shares which he has the right to
acquire by the exercise of options under the Company's 1996 Stock
Incentive Plan.
(9)(11) The total number of shares of Class A Common Stock beneficially owned
by Mr. Leonard L. Silverstein includes an aggregate of 287,647431,468 shares
of Class A Common Stock held by several trusts for the benefit of Mr.
G. Grinberg's three children, of which trusts Mr. Silverstein is
co-trustee with Mr. E. Grinberg, with whom he has shared investment and
voting power as to the shares held by such trusts. The total number of
shares of Class A Common Stock reported for Mr. Silverstein also
includes 49,7234,778 shares of Class A Common Stock owned by theThe Grinberg
Family Foundation, of which Mr. G. Grinberg, his wife and Mr.
Silverstein are the directors and officers and as to which shares these
three individuals have shared investment and voting power. Mr.
Silverstein disclaims beneficial ownership of the shares of Class A
Common Stock held by the trusts and theThe Grinberg Family Foundation.
(10)(12) Thomson Hortsmann & Bryant, Inc. ("TH&B"), in a filing under the
Exchange Act on Schedule 13G dated January 7, 1997,27, 1998, reported
beneficial ownership of 323,900687,318 shares of Common Stock as to all of
which shares it has sole investment power. TH&B also reported that it
has sole voting power with respect to 198,700391,458 of such shares and shared
voting power as to 5,3009,537 of such shares. As adjusted for the Stock Split,
TH&B's total beneficial ownership equals 404,875 shares of Common
Stock, as to 248,375 of which it has sole voting power and shared
voting power of 6,625 shares. TH&B reported that all of the
shares of Common Stock which it beneficially owns were acquired in the
ordinary course of business and not for the purpose, or with the
effect, of changing or influencing control of the Company, or in
connection with any transaction having such purpose or effect. The
address of TH&B is Park 80 West, Plaza Two, Saddle Brook, New Jersey
07663.
(11)4
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(13) Excludes double counting of shares deemed to be beneficially owned by
more than one person. Unless otherwise indicated, the individuals named
have sole investment and voting power.
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ITEM 1 - ELECTION OF DIRECTORS
Directors hold office until the next annual meeting of shareholders and
until the election and qualification of their successors. The Company's By-laws
provide that the number of Directors constituting the Board may be changed by
action of the Board of Directors, so long as the number is not less than three.
The Board currently consists of sixseven directors. All of the nominees are members
of the present Board of Directors. If any nominee for election to the Board of
Directors of the Company should be unable to accept nomination or election as a
director, which is not expected, the proxies may be voted with discretionary
authority for a substitute or substitutes designated by the Board of Directors
or the number of Directors constituting the Board may be reduced in accordance
with the Company's By-Laws. Directors shall be elected by the holders of a
plurality of the voting power present in person or represented by proxy and
entitled to vote. Abstentions and broker "non-votes" shall not be counted for
purposes of the election of directors. THE BOARD OF DIRECTORS RECOMMENDS THE
ELECTION OF THE NOMINEES LISTED BELOW. THE BOARD RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE ELECTION OF THE NOMINEES. PROXIES SOLICITED BY THE BOARD WILL BE SO
VOTED EXCEPT WHERE AUTHORITY HAS BEEN WITHHELD.
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The following table lists information with respect to the nominees for
election as directorsDirectors of the Company.
NAME AGE POSITION
---- --- --------
Margaret Hayes Adame 5758 Director
Michael J. Bush 3637 Executive Vice President and Chief
Operating OfficerOfficer; Director
Efraim Grinberg 39 President
and40 President; Director
Gedalio Grinberg 6566 Chief Executive Officer and Chairman of
the Board of Directors
Alan H. Howard 38 Director
Donald Oresman 7172 Director
Leonard L. Silverstein 7576 Director
There are no family relationships between any of the Company's
directors with the exception of Efraim Grinberg, who is the son of Gedalio
Grinberg. There are no arrangements between any director and any other person
pursuant to which any of them was elected a director.
Ms. Hayes Adame was elected to the Board of Directors of the Company on
September 8, 1993. Ms. Hayes Adame is the President of the Fashion Group
International, Inc. which she joined in March 1993. From 1981 to March 1993, Ms.
Hayes Adame was a senior vice president and general merchandise manager at Saks
Fifth Avenue. She is also a member of the board of directors of International
Flavors & Fragrances, Inc.
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Mr. Bush was elected to the Board of Directors in 1996. Mr. Bush joined
the Company in August 1995 as Executive Vice President and Chief Operating
Officer. From 1991 to 1995, Mr. Bush was the Senior Vice President, Marketing
and Strategic Planning for Ross Stores, Inc., a California based retailer. Prior
to assuming his position at Ross Stores, Mr. Bush was a Senior Consultant with
Bain & Company, Inc., a strategic consulting firm which he joined in 1985.
Mr. E. Grinberg joined the Company in June 1980 and served as the
Company's Vice President of Marketing from February 1985 until July 1986, at
which time he was elected to the position of Senior Vice President of Marketing.
In 1988, Mr. E. Grinberg was elected to the Board of Directors of the Company,
and inCompany.
From June 1990 he was electedto October 1995, Mr. E. Grinberg served as the Company's
President and Chief Operating Officer.Officer and since October 1995 has served as the
Company's President. Mr. E. Grinberg also serves on the board of directors of
the American Watch Association and the Jeweler's Security Alliance.
Mr. G. Grinberg founded the Company in 1961 and, since then, has served
as the Company's Chairman and Chief Executive Officer.
Mr. Howard was elected to the Board of Directors of the Company in
September 1997. Mr. Howard is a Managing Director of Credit Suisse First Boston
Corporation, which he joined in 1986. Prior to 1986, Mr. Howard worked with the
James River Corporation and the Dixie Products Group of American Can Company.
Mr. Oresman has served on the Board of Directors of the Company since
1981. He was Executive Vice President and General Counsel of Paramount
Communications, Inc., a publishing and entertainment company, from December 1983
until his retirement in March 1994. Prior to December 1983, Mr. Oresman was
engaged in the practice of law as a partner of Simpson Thacher & Bartlett where
he is now Of Counsel.
Mr. Silverstein has served on the Board of Directors of the Company
since 1975. He has been engaged in the practice of law at Silverstein and
Mullens, Washington, D.C., for 3940 years. Mr. Silverstein also serves as Vice
President and Director of Tax Management, Inc., a wholly owned subsidiary of
BNA, Inc., and a director of Chevy Chase Federal Savings Bank. He is a former
Vice Chairman and currently honorary trustee of the John F. Kennedy Center for
the Performing Arts, Past President of the Alliance Francaise of Washington, a
director of the National Symphony Orchestra Association and a trustee of the
White House Historical Association.
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INFORMATION REGARDING THE BOARD OF DIRECTORS
AND ITS COMMITTEES; DIRECTOR COMPENSATION
Messrs. G. Grinberg and E. Grinberg serve on the Executive Committee of
the Board of Directors. The Executive Committee of the Board of Directors has,
in the intervals between meetings of the Board of Directors, all the authority
of the Board of Directors except for those matters that the New York Business
Corporation Law reserves to the full Board of Directors. The Executive Committee
held three meetingsone meeting in fiscal 1997.1998.
Ms. Hayes Adame and Messrs. Howard, Oresman and Silverstein serve on
the Compensation Committee of the Board of Directors. The Compensation Committee
of the Board of Directors reviews remuneration levels for executive officers of
the Company, reviews significant employee benefits programs and establishes and
administers executive compensation programs, including bonus plans, stock option
and other equity-based programs, deferred compensation plans and any other cash
or stock incentive programs. The Compensation Committee is comprised solely of
independentnon-employee directors. The Compensation Committee held one meeting in fiscal
1997.1998.
Ms. Hayes Adame and Messrs. Howard, Oresman and Silverstein serve on
the Audit Committee of the Board of Directors. The Audit Committee of the Board
of Directors recommends to the Board of Directors the independent public
accountants to be selected to audit the Company's annual financial statements
and approves any special assignments given to such accountants. The Audit
Committee also reviews the planned scope of the annual audit and the independent
accountants' letter of comments and management's responses thereto, any
significant accounting changes made or contemplated and the effectiveness and
efficiency of the Company's internal accounting staff. In addition, the Audit
Committee meets periodically with the Company's Internal Audit staff with
respect to internal control issues generally. The Audit Committee is comprised
solely of independent directors.non-employee Directors. The Audit Committee held two meetings in
the
fiscal year ended January 31, 1997.1998.
The Board of Directors held threefive meetings during fiscal 1997 and each1998. Every
director attended all the meetings ofevery meeting held by the Board of Directors and all the
meetingsas well as every meeting held
by all committeeseach committee of the Board on which such director served.
No executive officer of the Company receives any additional
compensation for serving the Company as a member of the Board of Directors or
any of its committees. Directors who are not executive officers of the Company
receive a fee of $3,000 for each Board meeting attended and $1,000 for each
committee meeting attended.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities ( the "10% Stockholders"), to file reports of
ownership and changes of ownership with the Securities and Exchange Commission
and the NASDAQNasdaq National Market. Executive officers, directors and 10%
Stockholders of the Company are required by law to furnish the Company with
copies of all Section 16(a) forms so filed. Based solely on review of copies of
such forms received or written representations that no other reports were
required, the Company believes that, during the last fiscal year, its executive
officers, directors and 10% Stockholders complied with all filing requirements
under Section 16(a) applicable to them with respect to their beneficial
ownership of Capital Stock, except that one report on Form 4 due on February 10,
1996 was filed late on a Form 5 on March 18, 1996 by each of Mr. Gedalio
Grinberg, Chairman and Chief Executive Officer, and Mrs. Sonia Grinberg, a 10%
stockholder,(i) two reports covering a total of twelve small acquisitions of phantom stock
units under the Company's Deferred Compensation Plan. Although Mrs.two
transactions were filed late by Mr. Gedalio Grinberg, is
not a participant in and is not eligible to participate in the Deferred
Compensation Plan, the requirement that she file the(ii) one report arose solely by
virtue of her indirect pecuniary interest in the phantom stock units
attributable to her spouse. The reportcovering
one transaction was filed late for each reporting person due toby Mr. Leonard L. Silverstein, and (iii) a Form 3
report of initial ownership following the fact that the acquisitions had been
eligible for deferred reporting on Form 5 under Rule 16a-6appointment of the 1934 ActMr. Alan H. Howard as small acquisitions not exceeding $10,000a
Director in market value within the prior
six-month period until the final of such acquisitions made prior to the date the
Plan statementSeptember 1997 was issued to Mr. Grinberg.filed late.
7
11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1995, the Company hired Mr. Michael Bush as Executive Vice
President and Chief Operating Officer. Pursuant to its offer of employment, the
Company made a $150,000 interest free loan to Mr. Bush to partially compensate
Mr. Bush for the loss of certain stock options he forfeited when he left Ross
Stores, Inc. to join the Company. Under the terms of a promissory note, as
amended, the loan iswas payable on or before January 31, 1998, provided, however,
that so long as Mr. Bush remainsremained at all times an employee of the Company the
unpaid principal amount of 6
10
the loan willwould be automatically reduced by $75,000 on
January 31, 1997 and by an amount equal to the then remaining outstanding
principal balance on January 31, 1998. In accordance with the terms of the
amended note, the outstanding principal balance of the loan was reduced to
$75,000 on January 31, 1997 which was the amount
outstandingand to zero on January 31, 1997. In the event his employment with the Company
should, for any reason, terminate prior to January 31, 1998, the note provides
that the entire unpaid balance then outstanding would become automatically
payable as of the date of such termination.1998.
In fiscal 1996, the Company entered into an agreement with a trust
which owns an insurance policy issued on the lives of the Company's Chairman and
Chief Executive Officer and his spouse. The insurance policy provides for a
death benefit of $27 million. The trustees of the trust are the three children
of the Chairman and his spouse, namely, Efraim Grinberg, Alexander Grinberg, and
Miriam Grinberg-Phalen. Under the agreement, the trust has assigned the
insurance policy to the Company as collateral to secure repayment by the trust
of interest free loans to be made annually by the Company to the trust in
amounts sufficient for the trust to pay the premiums on the insurance policy
(approximately $740,000 per annum). Under the agreement, the trust will repay
the loans from the death benefit proceeds of the policy. At January 31, 19971998 the
Company had loaned the trust $878,426$ 1,620,000 under this agreement.
See "Compensation Committee Interlocks and Insider Participation" for
information regarding certain business relationships between the Company and the
respective law firms of Messrs. Oresman and Silverstein and the investment
banking firm in which Mr. Howard is a Managing Director.
EXECUTIVE OFFICERS
For detailed information concerning Michael Bush, Gedalio Grinberg and
Efraim Grinberg, see the listing for each under the heading "Election of
Directors" above. The names of the other executive officers of the Company (and
their respective ages as of the filing date of this report) are set forth below
together with the positions held by each during the past five years.
NAME AGE POSITION
---- --- --------
Kenneth J. Adams 3940 Senior Vice President and Chief
Financial Officer
Timothy F. Michno 4041 Secretary and General Counsel
Howard Regenbogen 6768 Treasurer and Assistant Secretary
Mr. Adams, who served as Corporate Controller since coming to the
Company in December 1992, was elected Senior Vice President and Chief Financial
Officer on April 14, 1995. Before joining the Company, Mr. Adams worked for twelve12
years at Price Waterhouse LLP where he progressed to the position of Senior
Manager, serving clients in the international and middle market arenas.
Mr. Michno joined the Company in April 1992 and since then has served
as its Secretary and General Counsel. He has been engaged in the practice of law
for the past 1415 years, immediately prior to joining the Company and since 1986,
as an associate at the New York firm of Chadbourne & Parke. From 1988 to 1991 he
served as a resident outside counsel to Fortune Brands, Inc. (formerly known as
American Brands, Inc.), a consumer products company.
Mr. Regenbogen joined the Company in 1972 as its Controller and has
served as Treasurer of the Company since 1987. From September 1994 until April
14, 1995 Mr. Regenbogen served, in addition, as the Company's Chief Financial
Officer.
8
12
ITEM 2 - RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP to be the
Company's independent accountants for the year ending January 31, 1998,1999, subject
to ratification of such appointment by the Company's shareholders. Price
Waterhouse LLP has served as the Company's independent accountants since fiscal
year 1977. If the appointment of Price Waterhouse is not approved by the
shareholders, or Price Waterhouse LLP ceases to act as the Company's independent
accountants, or the Board of Directors removes Price Waterhouse LLP as the
Company's independent accountants, the Board will appoint other independent
accountants. The engagement of new accountants for periods following the 1998
Annual Meeting will be subject to ratification by the shareholders at that
meeting.
7
11
Representatives of Price Waterhouse LLP are expected to be present at
the Annual Meeting of Shareholders.Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions. THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR SUCH
RATIFICATION. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
ITEM 3 - PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION1996 STOCK INCENTIVE PLAN
At the Annual Meeting Shareholdersshareholders will be asked to consider and, if
deemed advisable, to approve an amendmenta proposal to amend the Company 1996 Stock
Incentive Plan (the "Plan"). Under the Plan, which amended and restated the
Company's Certificate1993 Employee Stock Option Plan, officers and executive, managerial
and professional employees are provided an equity interest in the Company as a
component of Incorporation ("Proposed Amendment"). The Proposed Amendment, if approved by the
Shareholders, would modify the definition of "Permitted Transferee"compensation in Paragraph
4.1(d) (i)order to link directly their financial interests
with those of the Company's Certificateshareholders over the long term. Incentive awards
under the Plan ("Awards") may be options ("Options"), which may be ISOs or Non
ISOs; stock appreciation rights granted in tandem with Options or designated
portions thereof, or as independent Awards; or other Awards ("Other Share-Based
Awards") that are valued in whole or in part by reference to, or are otherwise
based on, the fair market value of Incorporation with respect to the
Company's Class A Common Stock.
SUMMARY OF THE PROPOSED AMENDMENT
Under the Company's Certificate of Incorporation, in the event that the
beneficial or record ownership of any shares of Class A Common Stock is
transferred to any person other than a Permitted Transferee, as defined in
Paragraph 4.1(d) (i) each such share is converted automatically into Common
Stock. As of the Record Date there were 4,313,135 and 3,215,302 shares of the Company's Common Stock (the
"Shares"). The aggregate number of Shares available for issuance under the Plan,
adjusted for two separate stock splits that occurred in fiscal 1998, is
1,500,000 Shares. Through May 8, 1998, total Awards (including Options
exercised, exercisable and Class A Commonunexercisable) representing 1,352,834 Shares had been
granted under the Plan. The market value of each Share as of May 8, 1998 was
$29.25.
To further the objectives of the Plan, the Compensation Committee of
the Board (the "Committee") recommended that the Board amend the Plan, subject
to approval by the Company's shareholders, to (i) increase the number of Shares
available for issuance as Awards thereunder from 1,500,000 to 2,000,000; (ii)
extend eligibility under the Plan to cover "key" employees of the Company, who
may or may not necessarily be officers or executive, managerial or professional
employees, and to cover non-employee directors of the Company, who currently are
expressly excluded from eligibility under the Plan; and (iii) increase the limit
on the total number of Shares that may be issued as Awards to any one
Participant from 468,750 to 625,000 Shares which is the same proportion as the
proposed increase in the total number of Shares available for issuance under the
Plan.
If the holders of a majority in voting power of the Capital Stock
respectively outstanding. There
are twenty million shares of Common Stockpresent in person or represented by proxy and ten million shares of Class A
Common Stock authorized. Each share of Common Stock is entitled to one vote at the Annual
Meeting approve the foregoing proposed amendments to the Plan (the "Plan
Amendments"), such Plan Amendments will thereupon become effective. If such
approval by the Company's shareholders is not obtained, the proposed Plan
Amendments will not become effective and the Plan will continue as it currently
exists. Neither the effectiveness of the proposed Plan Amendments nor the
failure to approve them will have any effect on Awards outstanding under the
Plan at the time of the Annual Meeting.
The Plan is administered by the Committee which currently consists of
four and will at all times consist of two or more "outside directors" as defined
in Section 162 (m) of the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations promulgated thereunder. To the extent necessary to comply
with the rules promulgated under Section 16 of the Exchange Act, each member of
the Committee is a "non-employee director" within the meaning of the Exchange
Act. The Committee has the authority (i) to exercise all of the powers granted
to it under the Plan, (ii) to construe, interpret and implement the Plan and any
Award Agreements executed pursuant to the Plan, (iii) to prescribe, amend and
rescind rules relating to the Plan, (iv) to make any determination necessary or
advisable in administering the Plan and, (v) to correct any defect, supply any
omission and reconcile any inconsistency in the Plan.
9
13
The per share exercise price of an Option may not be less than the fair
market value of a Share on the date the Option is granted and each shareOptions cannot be
exercised more than 10 years from the date of Class A Common Stock is entitledgrant. Subject to 10 votes per sharethe provisions
of the Plan, an Option or designated portion thereof may be exercised by payment
of the exercise price in cash through the delivery of Shares with an aggregate
fair market value on all matters submittedthe date of exercise equal to the exercise price; with the
consent of the Committee, through the withholding of Shares issuable upon
exercise with an aggregate fair market value on the date of exercise equal to
the exercise price; or through the delivery of irrevocable instructions to a
votebroker to deliver promptly to the Company or its designee an amount equal to the
exercise price or by any combination of the shareholders. Each holderabove methods of shares of
Class A Common Stockpayment.
The Committee may grant a stock appreciation right in conjunction with
an Option or designated portion thereof at the time the related Option is
entitled to convert,granted or at any time any and all such
shares intoprior to the sameexercise or cancellation of the related
Option. For purposes of determining the number of shares of Common Stock.Shares available for grants,
such a stock appreciation right shall not be deemed an independent Award. The
Certificate of Incorporation provides that Permitted Transferees
include the spouse and certain family membersexercise price per Share of a holderstock appreciation right may not be less than fair
market value of Class A Common
Stock ("Class A Holder")a Share on the date the stock appreciation right is granted or,
in the case of a stock appreciation right granted in conjunction with an Option
or designated portion thereof, the exercise price per Share of the related
Option.
Upon the exercise of a stock appreciation right, the grantee shall be
entitled to receive with respect to each Share to which such stock appreciation
right related an amount in cash and/or Shares, as well as: trusts established principally for the benefitcase may be, equal to the
excess of (i) the fair market value of a Share on the date of exercise over (ii)
the exercise price of the stock appreciation right.
The Committee may grant, in its sole discretion, other Awards of Shares
and Other Share-Based Awards. Certain of such Class A Holders or their family members or other Permitted
Transferees; the executor, administrator or personal representativeOther Share-Based Awards
("Performance Based Awards") may be granted in a manner that is deductible by an
affiliate of the estate of any Class A Holder; certain charitable organizations established by a
Class A Holder or such person's family members; and certain trust grantors and
trust beneficiaries.
The Proposed Amendment would modify Paragraph 4.1(d) (i)Company under Section 162 (m) of the CertificateCode and may be based upon
stock price, market share, sales, earnings per share, return on equity or costs.
Each Award will be non-transferable during the lifetime of Incorporationthe Award
grantee provided that in the event Section 16 of the Exchange Act ceases to
require Awards to be non-transferable, the Committee may amend the Plan to
provide for such transfers.
The Board of Directors may suspend, amend or terminate the Plan, in
whole or in part. No amendment may be made without the approval of the
shareholders, however, if such approval is required by addingthe rules under the
Exchange Act, or by any regulatory authorities or stock exchanges. Furthermore,
no amendment, suspension or termination of the Plan may, without the consent of
a grantee, impair any of the rights or obligations under any Award previously
granted to such grantee under the Plan.
Awards under the Plan are authorized by the Committee or by the Board
of Directors in its sole discretion. For this reason, it is not possible to
determine the benefits or amounts that will be received by any particular
employees or group of employees in the future. Of the 1,352,834 Shares
underlying all Awards granted under the Plan through May 8, 1998 (which excludes
an aggregate of 207,456 Shares represented by Options cancelled due to the
termination of the employment of the grantees previously holding such Options),
Awards for 630,439 Shares had been granted to all executive officers as two additional categoriesa group
and Awards for 711,197 Shares (all but 11,198 of Permitted
Transferees,which were in the form of
Options) had been granted to all employees, including all current officers who
are not executive officers, as a corporationgroup. The following Named Executive Officers
(as hereinafter defined under the heading "Executive Compensation") have been
granted the following Awards through May 8, 1998: Gedalio Grinberg, Chief
Executive Officer: none; Efraim Grinberg, President: 262,500 Options; Michael
Bush, Executive Vice President, Chief Operating Officer: 255,000 Options, 15,000
Shares and a partnership in3,000 restricted Shares; Kenneth J. Adams, Chief Financial Officer:
43,438 Options and 1,000 restricted Shares; Timothy F. Michno, Secretary and
General Counsel: 24,063 Options and 500 restricted Shares. All such restricted
Shares were granted March 26, 1998 and are subject to 100% vesting on the third
anniversary of the date of grant. All Options granted under the Plan through May
8, 1998 to the Named Executive Officers and to all other grantees (except for
Options to purchase 25,938 Shares previously granted to one employee the
accelerated vesting of which every beneficial owner or
partner, respectively, was either a Class A Holder, a family member or other
affiliated personapproved by the Committee) vest 20% per year
beginning on the first anniversary of the date of grant and expire on the tenth
such anniversary. Exercise prices of such Class A HolderOptions range from $6.40 to $26.50 per
share. If the proposed Plan Amendments are approved at the Annual Meeting, each
of the four current non-employee directors will receive an Option to purchase
1,000 Shares which was granted December 16, 1997 by the Board of Directors,
subject to shareholder approval of the Plan Amendments. Such Option will be
exercisable immediately upon such approval and will remain valid until the fifth
10
14
anniversary of the date of grant. The exercise price for each such Option will
equal to $22.88 per Share, the market price on the grant date.
With respect to the United States federal income tax consequences of
the Plan, the Company has been advised as follows:
Under present law, an Award grantee will not realize taxable income
upon either the grant or other Permitted Transferee. The
reason for the Proposed Amendment is to enable Class A Holders to transfer
sharesexercise of Class A Common Stock toan ISO, and the grantee's employer will
not receive an income tax deduction at either such entities without such shares
automatically converting to Common Stock. Such transfers maytime. If the grantee does not
dispose of Shares acquired upon exercise of the ISO within either (i) two years
after the date of the grant of the ISO or (ii) one year after the date of
exercise, a subsequent sale of Shares will be desirable for
taxtaxed as long-term capital gain
(either 20% or estate planning purposes or other purposes28% depending on the individual
circumstancesholding period) or loss. If the grantee,
within either of each Class A Holder. If adopted, the Proposed Amendmentabove periods, disposes of Shares acquired upon exercise of
ISO, the grantee will have no effectgenerally realize as ordinary income an amount equal to
the lesser of (i) the gain realized by the grantee on such disposition or (ii)
the excess of the fair market value of the Shares on the date of the exercise
over the exercise price. In such event, the grantee's employer generally would
be entitled to an income tax deduction equal to the amount recognized as
ordinary income by the grantee. Any gain in excess of such amount realized by
the grantee as ordinary income would be taxed as short-term or long-term capital
gain (depending on the holding period). The difference between the exercise
price and the fair market value of the Shares at the time of ISO is exercised
will be an adjustment in computing alternative minimum taxable income for the
purpose of the alternative minimum tax imposed by Section 55 on the Code.
Under present law, an Award grantee will not realize taxable income
upon the grant of a Non-ISO and the grantee's employer will not receive an
income tax deduction at such time. Upon exercise of a Non-ISO, the grantee will
generally realize ordinary income in an amount equal to the excess of the fair
market value of the Shares on the date of exercise over the exercise price. Upon
a subsequent sale of the Shares, the grantee will recognize short-term or
long-term capital gain depending upon his or her holding period for the Shares.
The grantee's employer is generally allowed an income tax deduction equal to the
amount recognized as ordinary income by the grantee.
Amounts received by the grantee upon the exercise of stock appreciation
rights are taxed at ordinary rates when received. The grantee's employer is
generally allowed an income tax deduction equal to the amount recognized as
ordinary income by the grantee.
Amounts received by the grantee upon the grant of existing security holders other than modifyingOther Share-Based
Awards are ordinarily taxed at ordinary rates when received. However, if such
Awards consist of property subject to restrictions, the amounts generally will
not be taxed until the restrictions on transferlapse or until the grantee makes an election
under Section 83 (b) of the Class A Common StockCode. Subject to Section 162 (m) of the Code, the
grantee's employer is generally allowed an income tax deduction, equal to the
amount recognized as set forth aboveordinary income by the participant, at the time such amount
is taxed.
The Plan should allow certain ISOs, Non-ISOs, stock appreciation rights
and inPerformance-Based Awards granted under the Proposed Amendment.
SHAREHOLDER APPROVALPlan to be treated as qualified
performance-based compensation under Section 162 (m) of the Code. The Committee
may, however, from time to time award compensation that is not deductible under
Section 162 (m) of the Code.
On May 6, 1997March 26, 1998, the Board of Directors of the Company unanimously
approved the Proposed Amendment in the form annexed as Exhibit A to this Proxy
Statement.proposed Plan Amendments. Approval of the Proposed Amendmentproposed Plan Amendments
requires the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of thea majority in voting power of
the outstanding shares of Capital Stock present in person or represented by
proxy and entitled to vote at the Annual Meeting. Abstentions and broker non-votes will have the effect of negative
votes. THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE ADOPTION OF THE PROPOSED AMENDMENT.PLAN AMENDMENTS. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY IN THEIR
PROXIES A CONTRARY CHOICE.
11
15
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation
awarded to, earned by or paid to the Chief Executive Officer and each of the
fivefour other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers") during fiscal 1998, 1997, 1996 and
19951996 (each fiscal year ending January 31) for services rendered in all
capacities to the Company and its subsidiaries.
8
12
SUMMARY COMPENSATION TABLE (1)
Long Term Compensation
Annual Compensation Awards
------------------------------------ -----------------------
Restricted-------------------------------------- ------------------------
Number of
Name and Other Annual StockRestricted Securities All Other
Name and Compensation Stock Awards Underlying Compensation
Principal Position Year Salary Bonus($($) Compensation Awards (s) Underlying CompensationBonus ($) ($) ($) (2) Options(#)Options (#) ($)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gedalio Grinberg 1998 650,000 175,000 0 1,000 0 257,262(3)
Chairman and Chief 1997 650,000 175,000 0 13,500 0 257,870(3)
Chairman and Chief257,870
Executive Officer 1996 650,000 150,000 0 11,775 0 217,746
Executive Officer 1995Efraim Grinberg 1998 550,000 100,000150,000 0 0 0 109,264
Efraim Grinberg9,800 37,500 47,150(4)
President 1997 450,000 150,000 0 8,000 80,000 40,950(4)
President150,000 40,950
1996 400,000 125,000 0 8,000 0 38,924
1995 310,000 75,000 0 0 0 6,924
Michael J. Bush 1998 400,000 125,000 0 6,585 37,500 113,740(5)
Executive Vice President 1997 350,000 115,000 159,128(5)159,128 7,269 0 119,486(6)
Executive Vice President119,486
and Chief Operating 1996 114,423 79,167 0 112,000 100,000187,500 0
and Chief Operating Officer 1995 0 0 0 0 0 0
Kenneth J. Adams 1998 185,000 55,000 0 1,592 5,625 8,695(6)
Senior Vice President 1997 165,000 45,000 0 1,722 10,000 8,308(7)
Senior Vice President18,750 8,308
And Chief Financial 1996 136,539 40,000 0 57 0 1,155
And Chief Financial Officer 1995 107,500 36,813 0 0 0 924
Timothy F. Michno 1998 175,000 20,000 0 1,535 1,875 7,799(7)
Secretary and 1997 160,000 14,000 0 1,600 3,000 8,409(8)
Secretary and5,625 8,409
General Counsel 1996 150,000 12,500 0 390 0 2,454
General Counsel 1995 143,962 10,000 0 0 0 427
(1) The column designated by the United States Securities and Exchange
Commission ("Commission") for the reporting of Long Term Incentive Plan
Payouts has been deleted as no such compensation of a type required to
be reported under such column was awarded to, earned by, or paid to any
of the Named Executive Officers during the period covered by the table.
2) At January 31, 19971998, the aggregate number of share units of restricted
stock held by each of the Named Executive Officers and the aggregate
value thereof (based on the closing price of the Company's Common Stock
as of January 31, 1997)1998) were as follows: Mr. G. Grinberg: 1,370.72946.51 share
units, $30,670;$1,000; Mr. E. Grinberg: 941.0741,510.41 share units, $21,056;$32,473.71; Mr.
Bush: 4,371.413840.18 share units, $97,810;$18,063.87; Mr. Adams: 87.392200.13 share units,
$1,955;$4,302.84; and Mr. Michno: 90.116183.21 share units, $2,016. Except for
4000 shares of restricted stock granted to Mr. Bush on August 28, 1995
as to which the restrictions lapse on August 28, 1997, all$3,938.99. All of the
share units are phantom stock units awarded under the Company's
Deferred Compensation Plan for Executives ("Deferred Compensation
Plan"). Such phantom stock units ("Stock Units") vest 20% at the end of
each calendar year beginning in the calendar year in which awarded,
except that for participants 65 years or older, vesting is 100% at the
end of the calendar year in which awarded. Mr. G. Grinberg, who is the
only Named Executive Officer 65 years or older, was awarded 680.98 Stock Units in calendar year 1995, 650.126
Stock Units in calendar year 1996 and, for calendar year 1997, 39.63946.51 Stock
Units through January 31, 1997.1998. Mr. E. Grinberg was awarded 439.82501.26 and
770.84 Stock Units in calendar year 1995, 501.259 Stock Units in
calendar yearyears 1996 and for calendar year 1997, norespectively, and
46.51 Stock Units through January 31, 1997.1998. Mr. Bush was awarded 350.069350.07
and 522.13 Stock Units in calendar yearyears 1996 and for calendar year 1997, 21.344respectively,
and 28.63 Stock Units through January 31, 1997.1998. Mr. Adams was awarded
82.35782.36 and 121.83 Stock Units in calendar yearyears 1996 and for calendar year 1997,
5.031respectively, and 9.93 Stock Units through January 31, 1997.1998. Mr. Michno
was awarded 22.8767.25 and 180.0 Stock Units in calendar year 1995, 67.246 Stock Units in calendar yearyears 1996 and
for calendar
year 1997, norespectively, and 6.27 Stock Units through January 31, 1997.1998. No
dividends are
paid on the 4000 shares of restricted stock awarded to Mr. Bush until
such shares vest. Dividends accrue in respect of the Stock Units at the
same rate as payable on shares of Capital Stock but no dividends in
respect of Stock Units are payable until after the retirement of the
holder in accordance with the terms of the Deferred Compensation Plan.Units.
12
16
(3) Includes $ 104,920100,312 in total annual premiums paid in respect of certain
life insurance policies and one travel accident policy purchased for
Mr. G. Grinberg by the Company. Under his arrangement with the
9
13 Company,
Mr. G. Grinberg is entitled to the cash surrender value under these
life insurance policies and his beneficiary is entitled to the
applicable benefit without, in either event, reimbursement to the
Company of any premiums paid by the Company under such policies. Also
includes a $ 950 matching contribution made by the Company in respect
of fiscal 19971998 for the account of Mr. G. Grinberg pursuant to the
Company's Employee Savings and Investment Plan ("401(k) Plan"). Also
includes $ 87,00092,000 accrued by the Company in respect of a Death and
Disability Benefit Plan agreement with Mr. G. Grinberg. See "Contract
with Chief Executive Officer" below. Also includes a matching cash
contribution of $52,000 and a non-cash contribution of 815.94 Stock
Units valued at $ 65,00012,000 (based on the closing prices of the Company's
Common Stock on the grant dates) made by the Company for fiscal 19971998 to
Mr. G. Grinberg's account pursuant the Company's Deferred Compensation
Plan
for Executives.Plan.
(4) Represents a $950 matching contribution made by the Company in respect
of fiscal 1997 for the account of Mr. E. Grinberg pursuant to the
Company's 401(k) Plan and a matching cash contribution of $ 40,000 for
fiscal 1997 to his account under the Company's Deferred Compensation
Plan.
(5) Includes reimbursement of relocation related expenses of $147,128 in
connection with Mr. Bush's relocation from California to New Jersey
after joining the Company.
(6) Represents a $ 950 matching contribution made by the Company in respect
of fiscal 19971998 for the account of Mr. E. Grinberg pursuant to the
Company's 401(k) Plan. Also includes a matching cash contribution of $
44,000 and a non-cash contribution of 154.17 Stock Units valued at $
2,200 (based on the closing prices of the Company's Common Stock on the
grant dates) for fiscal 1998 to his account under the Company's
Deferred Compensation Plan.
(5) Represents a $ 950 matching contribution made by the Company in respect
of fiscal 1998 for the account of Mr. Bush pursuant to the Company's
401(k) Plan andPlan. Also includes a matching cash contribution of $ 35,000$32,000 and
a non-cash contribution of 96.42 Stock Units valued at $1,492 (based on
the closing prices of the Company's Common Stock on the grant dates)
for fiscal 19971998 to his account under the Company's Deferred
Compensation Plan. Also includes the forgiveness of $75,000 in
principal amount of a $150,000 loan which was made to Mr. Bush in
August 1995 to partially compensate Mr. Bush for the loss of certain
stock options he forfeited when he left Ross Stores, Inc. to join the
Company. Under the terms of a promissory note, as amended, the loan iswas
payable on or before January 31, 1998, provided, however, that so long
as Mr. Bush remainsremained at all times an employee of the Company the unpaid
principal amount of the loan willwould be automatically reduced by $75,000
on January 31, 1997 and by an amount equal to the then remaining
outstanding balance on January 31, 1998. In accordance with the terms
of the amended note, the outstanding principal balance of the loan was
reduced to $75,000 on January 31, 1997 which was the amount outstandingand to zero on January 31, 1997. In the event
his employment with the Company should, for any reason, terminate prior
to January 31, 1998, the note provides that the entire unpaid balance
then outstanding would become automatically payable as of the date of
such termination.1998.
Also includes imputed interest on the loan to Mr. Bush in the amount of
$8,536.
(7)$ 4,298.
(6) Represents a $ 950 matching cash contribution made by the Company in
respect of fiscal 19971998 for the account of Mr. Adams pursuant to the
Company's 401(k) Plan. Also includes a matching contribution of $ 7,400
and a non-cash contribution of 22.48 Stock Unites valued at $ 345
(based on the closing prices of the Common Stock on the grant dates)
made by the Company in respect of fiscal 1998 for the account of Mr.
Adams under the Company's Deferred Compensation Plan.
(8)(7) Represents a $409$ 449 matching contribution made by the Company in respect
of fiscal 19971998 for the account of Mr. Michno pursuant to the Company's
401(k) Plan andPlan. Also includes a matching cash contribution of $8,000$7,000 and a
non-cash contribution of 36 Stock Units valued at $ 350 (based on the
closing prices of the Company's Common Stock on the grant dates) for
fiscal 19971998 to his account under the Company's Deferred Compensation
Plan.
1013
1417
FISCAL YEAR END OPTION VALUES
The following table shows the number of shares of Common Stock represented by
unexercised stock options held by each of the Named Executive Officers as of
January 31, 1997.1998. No stock options were exercised in fiscal 19971998 by any of the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
TABLE
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END (#) AT FISCAL YEAR END ($)
------------------------------------ ------------------------------------------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------------- ---------------- ---------------- ----------------------------- ------------- ----------- -------------
Gedalio Grinberg........... 0 0 0 0
Efraim Grinberg............ 24,000 96,000 201,000 433,60090,000 172,500 1,188,900 1,914,975
Michael J. Bush............ 20,000 80,000 167,500 670,00075,000 150,000 1,052,250 1,894,500
Kenneth J. Adams .......... 4,500 13,000 37,687 62,57515,000 23,438 201,226 260,435
Timothy F. Michno.......... 1,500 6,000 12,562 36,3606,750 9,188 91,935 107,337
CONTRACT WITH CHIEF EXECUTIVE OFFICER
Under a Death and Disability Benefit Plan Agreement with Mr. G.
Grinberg dated September 23, 1994, in the event of Mr. Grinberg's death or
disability while employed by the Company, the Company will pay to his spouse, if
she is then living, an annual benefit equal to $300,000 (increased each year
beginning October 1, 1995 by an amount equal to two percent of the benefit that
would have been payable in the prior year). Benefits are payable for the lesser
of 10 years or the life of Mr. Grinberg's spouse, and are payable only from the
general assets of the Company. Neither Mr. Grinberg nor his spouse may assign
the Agreement or any of the benefits payable thereunder and none of the benefits
are payable to the estates or any of the heirs of Mr. Grinberg or his spouse.
The Agreement provides that it automatically terminates in the event of
the termination of Mr. Grinberg's employment with the Company for any reason
other than his death or disability and further provides that it is not to be
considered a contract of employment. For purposes of the Agreement "disability"
means the inability of Mr. Grinberg to perform the duties pertaining to his job
because of accident, sickness or other illness as determined by a majority of
disinterested directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was at all times during fiscal
year 19971998 comprised entirely of directorsDirectors who at no time were executive officers
or employees of the Company. The Compensation Committee for fiscal year 19971998
consisted of Margaret Hayes Adame, Donald Oresman and Leonard L. Silverstein.Silverstein
until December 16, 1997 at which time Alan H. Howard was also elected to serve
on the Committee. Mr. Silverstein is a partner at the law firm of Silverstein &
Mullens, and Mr. Oresman is Of - CounselOf-Counsel at the law firm of Simpson Thacher &
Bartlett, both of which firms rendered legal services to the Company during
fiscal 1997.
111998. Mr. Howard is a Managing Director of Credit Suisse First Boston
Corporation, which is an investment banking firm that acted as one of the
Company's underwriters in its public offering of 1.5 million shares of Common
Stock, completed in fiscal 1998.
14
1518
FISCAL 19971998 STOCK OPTION GRANTS
The following table provides certain information regarding grants of
stock options made during fiscal 19971998 to the Named Executive Officers pursuant
to the Company's 1996 Stock Incentive Plan. All such options become exercisable
with respect to 20% of such options on each anniversary of the date of grant
thus becoming fully exercisable on the fifth such anniversary (February 6,
2001)(March 26, 2002).
OPTION GRANTS IN LAST FISCAL YEAR
Grant
Individual Grants Date Value(1)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
% of Total
Number of Number
Securities of
Securities Securities
Underlying Underlying
Options Options Granted Exercise or Base Grant Date
Granted to Employees in Price Expiration Present Value
Name (#) Fiscal Year ($/Sh) Date ($)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gedalio Grinberg 0 0 - --- -- 0
Efraim Grinberg 80,000 34.19 $ 18.63 February 6, 2006 418,40037,500 17.24 $13.07 March 26, 2007 237,176
Michael Bush 0 0 - - 037,500 17.24 $13.07 March 26, 2007 237,176
Kenneth J. Adams 10,000 4.27 $ 18.63 February 6, 2006 52,3005,625 2.59 $13.07 March 26, 2007 35,576
Timothy F. Michno 3,000 1.28 $ 18.63 February 6, 2006 15,6901,875 0.86 $13.07 March 26, 2007 11,859
(1) The grant date present values set forth in the foregoing table were
arrived at using the Black-Scholes option pricing model based on the following
assumptions: volatility of 26%38% based on weekly closing prices of the underlying
common stockCommon Stock for the period ending MarchJanuary 31, 1997;1998; a risk free rate of return
equal to 5.54%5.6% based on the yield on a U.S. Government Zero Coupon Bond with a
maturity equal to the expected term of the option prior to exercise (i.e. 7
years); a dividend yield of 2%0.4%; a grant date of February 6, 1996.March 26, 1997. This schedule
does not take into account provisions of the options providing for termination
of the option following termination of employment, nontransferability or vesting
over a period of five years. The dollar amounts under this column are the result
of calculations using a certain option pricing model based on the foregoing
assumptions and, therefore, are not intended to forecast possible future
appreciation, if any, of the Company's stockCommon Stock price.
1215
1619
COMPENSATION COMMITTEE REPORT
GENERAL
The Compensation Committee of the Board of Directors (the "Committee")
is comprised entirely of the threefour non-employee members of the Board and was
established in September 1993 in anticipation of the Company's public offering
which took place the following month.Board. The
Committee is responsible for reviewing and approving the Company's compensation
policies affecting senior management, reviewing significant employee benefit
programs and reviewing and administering the Company's 1996 Stock Incentive
Plan.
COMPENSATION POLICIES AND COMPONENTS OF COMPENSATION
The compensation policies established by the Company and which were in
effect during fiscal year 19971998 are designed to enable the Company to attract,
retain, motivate and appropriately reward an exceptional group of highly
qualified individuals who are expected to contribute to the Company's continued
success. The three primary components of executive compensation are salary, cash
bonuses and stock based awards, including stock grants and stock options. The
Committee reviews each component of executive compensation on an annual basis.
Base salary levels for members of the Company's senior management team
are reviewed by the Committee in light of the Committee's assessment of the
responsibilities relative to the position under consideration, as well as each
individual's background, training and experience. Annual increases in base
salary levels, if warranted, are reviewed with reference to the executive
officer's performance and the performance of the Company as a whole. Executive
performance is evaluated by the Committee by reference to the extent to which
specific individual and departmental goals and objectives are met. These goals
and objectives vary from department to department and, within any single
department, from individual to individual. Corporate performance is measured by
the Committee by reference to the Company's achievement of pre-tax profit goals
and pre-tax operating cash flow goals set at the beginning of the fiscal year.
Cash bonuses, the second key component of executive compensation, are
intended to provide incentives to senior management in the short term to achieve
certain operating results, which are generally determined at the beginning of
the fiscal year and, typically, tied to net income results. By thus placing a
significant percentage of each executive officer's compensation at risk, this
approach creates a direct incentive for executive officers to achieve desired
performance goals. Certain mid-level managers are also eligible to receive
bonuses, which just as for senior management, are used as an additional, incentive-based element of
compensation dependent on corporate performance and individual merit.
Equity participation is the third key element of the Company's
executive compensation program and is afforded to executive officers and certain
employees through stock options and/or other stock based awards granted under
the Company's 1996 Stock Incentive Plan (the "Incentive Plan"). Options, and to
a lesser extent stock awards, have been awarded under the Incentive Plan on the
basis of the position held by the grantee, contributions already made by the
person meriting recognition and, more importantly, the Company's expectations of
the contribution the person will make over the long term to the Company's
growth. All options granted under the Incentive Plan have an exercise price
equal to the market value of the stock on the date of grant, generally vest
cumulatively in five annual installments of 20% and expire ten years from the
date of grant. In addition, all shares of Common Stock granted under the
Incentive Plan are, in each case, subject to vesting requirements. Thus, option
and stock grants are designed to retain executive officers and enhance
shareholder value by aligning the financial interests of each executive officer
or other key employee with the interests of the Company's shareholders over the
long term.
1316
1720
COMPENSATION OF CHIEF EXECUTIVE OFFICER FOR FISCAL 19971998
The compensation paid to the Company's Chief Executive Officer ("CEO") in fiscal
19971998 consisted primarily of salary and bonus.
The CEO's salary for fiscal 19971998 was approved by the Committee on the basis of
its subjective evaluation of the CEO's performance for the year and the
profitable performance of the Company. The performance measures used by the
Committee in making its determination were the continued growth in pre-tax
earnings and net sales and increases in operating income and gross margins.
The bonus paid to the CEO for fiscal 19971998 was approved by the Committee based
upon its assessment of the CEO's individual performance in achieving certain
strategic goals, specifically, the expansion and strengtheningcontinued growth in sales domestically of the
Company's brand portfolio,manufactured brands, the further penetration by the ESQ brand of the moderately
priced watch market, expansion of the international distribution
of Concord and Movado, and the developmentenhancement of Vizio as a separate luxury division withshareholder value and the Movado brand.creation
of greater trading liquidity. The Committee believes that a substantial portion
of the CEO's bonus should be tied to the financial performance of the Company.
Therefore, the CEO's bonus for fiscal 19971998 was approved, in addition, on the
basis of the Company's attainment of certain performance targets, specifically
the achievement of earnings per share and net sales results, that were determined by the Committee at the beginning of
the fiscal year.results.
POLICY REGARDING DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits the tax deduction to
$1 million for compensation paid to the CEO and the four other most highly
compensated executive officers of the Company. No policy determination by the
Committee regarding this matter has yet been made.
COMPENSATION COMMITTEE
Margaret Hayes Adame
Alan H. Howard
Donald Oresman
Leonard L. Silverstein
1417
1821
PERFORMANCE GRAPH
The two performance graphgraphs set forth below comparescompare the cumulative total
shareholder return of the Company's Common Stock since the date of the Company's
public offering (i.e., September 30, 1993), through the fiscal year ended January
31, 19971998 with that of the Broad Market (CRSP Total Return Index for the NASDAQ
Stock Market) and (i) for the first graph, a peer group index comprised of the
following five companies: Swiss Army Brands, Inc., Fossil Inc., Jostens Inc.,
Tiffany & Co. and Jan Bell Marketing Inc. (the "old peer group"); and, (ii) for
the second graph, a peer group index comprised of the following five companies:
Swiss Army Brands, Inc., Fossil Inc., Jostens Inc. and, Tiffany & Co. and Tag Heuer
International S.A. (the "new peer group"). The returns of each company in both
the old peer group indexand the new peer group indexes have been weighted according
to the respective issuer's stock market capitalization. TheEach graph assumes an
initial investment of $100 on September 30, 1993 and the reinvestment of
dividends (where applicable).
The difference between the old peer group and the new peer group is the
replacement of Jan Bell Marketing Inc. (from the old peer group) with Tag Heuer
International S.A. (in the new peer group). The basis for this change is to have
a peer group comprised of individual companies that are engaged in primary lines
of business that most closely approximate the business of the Company in order
to present more meaningful comparative results.
FISCAL 19971998 COMPARATIVE TOTAL RETURNS
MOVADO GROUP, INC., NASDAQ
STOCK MARKET AND INDUSTRY (OLD) PEER GROUP
(PERFORMANCE RESULTS FROM 9/30/93 THROUGH 1/31/97)
[GRAPH]98)
[BAR GRAPH]
Legend
Symbol CRSP Total Returns Index for: 01/31/92 01/29/9395 01/31/94 01/31/95 01/31/96 01/31/97 01/30/98
- ------ ----------------------------- -------- -------- -------- -------- -------- --------
______ Movado Group, Inc. 99.1 104.2 134.7 162.7 294.4
...--. Nasdaq Stock Market (US Companies 80.8Companies) 91.4 105.1 100.2 141.6141.7 185.7 219.6
- ------ Self-Determined Peer Group 141.2 127.4 92.2 90.6 118.4 137.9 155.4
Companies in the Self-Determined Peer Group
FOSSIL INCINC. JAN BELL MARKETING INCINC.
JOSTENS INCINC. SWISS ARMY BRANDS INCINC.
TIFFANY & CO NEW
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are weightedreweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly Interval,interval, based on the fiscal year-end, is not a trading
day, the proceedingpreceding trading day is used.
D. The index level for all series was set to $100.0 on 09/30/93.
1518
22
FISCAL 1998 COMPARATIVE TOTAL RETURNS
MOVADO GROUP, INC., NASDAQ
STOCK MARKET AND INDUSTRY (NEW) PEER GROUP
(PERFORMANCE RESULTS FROM 9/30/93 THROUGH 1/31/98)
[BAR GRAPH]
Symbol CRSP Total Returns Index for: 01/29/93 01/31/94 01/31/95 01/31/96 01/31/97 01/30/98
- ------ ----------------------------- -------- -------- -------- -------- -------- --------
______ Movado Group, Inc. 99.1 104.2 134.7 162.7 294.4
...--. Nasdaq Stock Market (US Companies) 91.4 105.1 100.2 141.7 185.7 219.6
- ------ Self-Determined Peer Group 115.7 95.7 99.9 132.9 152.3 168.5
Companies in the Self-Determined Peer Group
FOSSIL INC. JOSTENS INC.
SWISS ARMY BRANDS INC. TAG HEUER INTL, SA
TIFFANY & CO. NEW
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 09/30/93.
19 23
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholders' proposals intended to be presented at the 19981999 Annual
Meeting of Shareholders must be received by the Company no later than February
2, 1998January
20, 1999 for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Board of Directors, at the time of the preparation of this Proxy
Statement, knows of no business to come before the Annual Meeting other than
that referred to herein. If any other business should come before the Annual
Meeting, the persons named in the enclosed proxy will have discretionary
authority to vote all proxies received and not theretofore revoked in accordance
with their best judgment.
Upon the written request of any record holder or beneficial owner of
Common Stock or Class A Common Stock entitled to vote at the Annual Meeting, the
Company, without charge, will provide a copy of its Annual reportReport on Form 10-K
for the year ended January 31, 1997,1998, as filed with the Securities and Exchange
Commission. Requests should be directed to Howard Regenbogen, Treasurer, Movado
Group, Inc., 125 Chubb Avenue, Lyndhurst, New Jersey 07071.
The Company's consolidated balance sheets, and the related consolidated
statements of income, cash flows, and changes in shareholders' equity and the
notes thereto, and management's discussion and analysis of financial condition
and results of operations as set forth on pages 19 through 39 of the Company's
1997 Annual Report to Shareholders, a complete copy of which is being delivered
to shareholders together with this Proxy Statement, are hereby incorporated
herein by reference.
BY ORDER OF THE BOARD OF DIRECTORS
Timothy F. Michno
Secretary and General Counsel
Lyndhurst, New Jersey
May 20, 199726, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE ANNUAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
1620
20
Exhibit A
CERTIFICATE OF24
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
OFNUMBER 1 TO
MOVADO GROUP, INC. UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW1996
STOCK INCENTIVE PLAN
Movado Group, Inc., a New York corporation organized(the "Company") hereby adopts this
Amendment Number 1 to the Company's 1996 Stock Incentive Plan (the "Plan")
effective upon approval by the holders of a majority in voting power of the
outstanding shares of common stock and existingclass A common stock of the Company
present in person or represented by proxy and entitled to vote at the next
annual meeting of shareholders, currently scheduled to be held June 11, 1998.
1. Section 3 of the Plan is hereby amended to read in
its entirety as follows:
"3 Eligibility. Awards under the BusinessPlan may be granted
to such officers, directors and executive,
managerial, professional, or other key employees of
the Company or its Affiliates as the Committee shall
from time to time in its sole discretion select".
2. In Section 4(a) of the Plan, the first sentence
thereof is deleted in its entirety and the following
is substituted in lieu thereof "Subject to Section 13
(relating to adjustments upon changes in
capitalization), the aggregate number of shares of
Stock upon which Awards may be based shall not exceed
2,000,000 shares".
3. Section 4(b) of the Plan is deleted in its entirety
and the following is substituted in lieu thereof:
"Subject to Section 13 (relating to adjustments upon
changes in capitalization), the total number of
shares of Stock available for grants to any one
participant of Awards under the Plan shall not exceed
625,000".
Upon the effectiveness of the foregoing amendments to the Plan, all references
to the Plan shall be deemed to mean the Plan as amended hereby.
25
MOVADO GROUP, INC.
1996 STOCK INCENTIVE PLAN
1. Purpose.
(a) The purpose of this Stock Incentive Plan (the "Plan") is to
provide for certain officers, directors and key employees of the Movado Group,
Inc. (the "Company") and certain of its affiliates an incentive to maintain and
enhance the performance and profitability of the Company.
(b) The Plan is an amendment and restatement of the North American
Watch Corporation's 1993 Employee Stock Option Plan (the "1993 Plan"); however
all options granted under the 1993 Plan will continue to be governed by the
terms of the 1993 Plan and the Award Agreements thereunder.
2. Administration.
(a) The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, at least two of whom shall be
"outside directors" as defined in Section 162(m) of the Code and the regulations
promulgated thereunder, and, to the extent necessary to comply with Rule 16b-3
of the Securities Exchange Act of 1934 (the "Act") or any successor rule
thereto, each of whom shall be a "disinterested person" within the meaning of
the Act. The members of the Committee may be changed at any time and from time
to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of
the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any Award Agreements executed pursuant to the Plan, (iii)
to prescribe, amend and rescind rules relating to the Plan, (iv) to make any
determination necessary or advisable in administering the Plan and (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan.
(c) The determination of the Committee on all matters relating to
the Plan or any Award Agreement shall be conclusive.
(d) 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 granted
hereunder.
26
2
(e) Notwithstanding anything to the contrary contained herein: (i)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board and (ii) the Board may, in its sole discretion, at any
time and from time to time, resolve to administer the Plan. In either of the
foregoing events, the term Committee as used herein shall mean the Board.
3. Eligibility.
Awards under the Plan may be granted to such officers, directors and
executive, managerial or professional employees of the Company or its Affiliates
as the Committee shall from time to time in its sole discretion select;
provided, that directors who are not employees of either the Company or an
affiliate shall not be eligible to receive an Award under the Plan.
4. Shares of Stock Subject to the Plan.
(a) Subject to Section 13 (relating to adjustments upon changes in
capitalization), the aggregate number of shares of Stock upon which Awards may
be based shall not exceed 800,000 shares. The number of shares delivered in full
or partial payment of any Option Price (if permitted under Section 5.5(b)(iii))
shall be deducted from the number of shares delivered to the grantee pursuant to
such Option for purposes of determining the number of shares acquired pursuant
to the Plan. Without limiting the generality of the foregoing, shares of Stock
covered by Options, which Options expire, terminate or are canceled for any
reason (other than an Option or part thereof, which is canceled as a result of
the exercise of a related Stock Appreciation Right) shall again become available
for award under the Plan.
(b) Subject to Section 13 (relating to adjustments upon changes in
capitalization), the total number of shares of Stock available for grants to any
one participant of (a) Awards under the Plan shall not exceed 250,000.
(c) Shares of Stock that shall be subject to issuance pursuant to
the Plan shall be authorized and unissued or treasury shares of Stock.
(d) Without limiting the generality of the foregoing, the Committee
may, with the grantee's consent, cancel any Award under the Plan and issue a new
Award in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted Award shall satisfy all
applicable Plan requirements as of the date such new Award is granted.
27
3
5. Stock Options.
5.1 Grant of Stock Options.
The Committee may grant Options to purchase shares of Stock in such
amounts and subject to such terms and conditions as the Committee shall from
time to time in its sole discretion determine, subject to the terms of the Plan.
5.2 Types of Options Under Plan.
(a) Options granted under the Plan may be either (i) Non-ISOs, or
(ii) ISOs.
(b) All Options when granted are intended to be Non-ISOs, unless the
applicable Award Agreement explicitly states that the Option is intended to be
an ISO. If an Option is intended to be an ISO, and if for any reason such Option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such Option (or portion) shall be regarded as a Non-ISO
appropriately granted under the Plan, provided that such Option (or portion)
otherwise meets the Plan's requirements relating to Non-ISOs.
5.3 Option Price.
Except as provided in Section 5.7 of the Plan, the Option Price
shall be no less than the Fair Market Value of a share of Stock on the date the
Option is granted.
5.4 Period of Exercise.
The Committee shall determine the dates after which Options may be
exercised in whole or in part; provided, however, that an Option shall not be
exercised prior to the effective date of the Plan nor later than the Option's
Termination Date and, provided, further, that no Option shall be exercisable
more than 10 years after the date of grant. The Committee may amend an Option to
accelerate the date after which such Option may be exercised in whole or in
part. An Option which has not been exercised on or prior to its Termination Date
shall be cancelled.
5.5 Notice of Exercise; Exercise Date.
(i) An Option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such manner as
the Committee shall in its sole discretion prescribe, and by payment in
accordance with Section 5.6.
(ii) For purposes of the Plan, the "Option Exercise Date" shall
be deemed to be the business day on which the written notice of exercise
is received by the Company.
28
4
5.6 Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Award
Agreement otherwise provides or the Committee in its sole discretion otherwise
determines, (i) any written notice of exercise of an Option shall be accompanied
by payment of the full purchase price for the shares being purchased and (ii)
the grantee shall have no right to receive shares of Stock with respect to an
Option exercise prior to the Option Exercise Date.
(b) Manner of Payment. Payment of the Option Price shall be made in
any combination of the following:
(i) by certified or official bank check payable to the Company
(or the equivalent thereof acceptable to the Committee);
(ii) with the consent of the Committee in its sole discretion, by
personal check (subject to collection);
(iii) if and to the extent provided in the applicable Award
Agreement, by delivery of previously acquired shares of Stock owned by the
grantee having a Fair Market Value (determined as of the Option Exercise
Date) equal to the portion of the Option Price being paid thereby;
(iv) if authorized by the Committee, by delivery of a properly
executed exercise notice together with irrevocable instructions to a
securities broker (or, in the case of pledges, lender) approved by the
Company to, (a) sell shares of Stock subject to the option and to deliver
promptly to the Company a portion of the proceeds of such sale transaction
on behalf of the exercising participant to pay the Option Price, or (b)
pledge shares of Stock subject to the Option to a margin account
maintained with such broker or lender, as security for a loan, and such
broker or lender, pursuant to irrevocable instructions, delivers to the
Company the loan proceeds, at the time of exercise to pay the Option
Price; and
(v) by other means the Committee deems appropriate.
5.7 Special ISO Requirements.
In order for a grantee to receive special tax treatment with respect
to stock acquired under an Option intended to be an ISO, the grantee of such
Option must be, at all times during the period beginning on the date of grant
and ending on the day three months before the date of exercise of such Option,
an employee of the Company or any of the Company's parent or subsidiary
corporations (within the meaning of section 424 of the Code), or of a
corporation or a parent or subsidiary corporation of such corporation issuing or
assuming a stock option in a transaction to which section 424(a) of the Code
applies. If an
29
5
Option granted under the Plan is intended to be an ISO and if the grantee, at
the time of grant, owns stock possessing 10% or more of the total combined
voting power of all classes of stock of the grantee's employer corporation or of
its parent or subsidiary corporation, then (a) the Option Price per share shall
in no event be less than 110% of the Fair Market Value of the Stock on the date
of such grant and (b) such Option shall not be exercisable after the expiration
of five years after the date such Option is granted.
6. Stock Appreciation Rights
(a) Grant of Stock Appreciation Rights. A Stock Appreciation Right
may be granted (a) independent of an Option or (b) in conjunction with an
Option, or portion thereof. A Stock Appreciation Right granted pursuant to
clause (b) of the preceding sentence may be granted at the time the related
Option is granted or at any time prior to the exercise or cancellation of the
related Option.
(b) Exercise Price. The exercise price per share of a Stock
Appreciation Right shall be an amount determined by the Committee but in no
event shall such amount be less than the Fair Market Value of a share of Stock
on the date the Stock Appreciation Right is granted or, in the case of a Stock
Appreciation Right granted in conjunction with an Option, or portion thereof,
the Option Price of the related Option.
(c) Period of Exercise. The Committee shall determine the dates
after which Stock Appreciation Rights may be exercised in whole or in part;
provided, however, that a Stock Appreciation Right shall not be exercised prior
to the effective date of the Plan nor later than the Termination Date of the
Stock Appreciation Right. The Committee may amend a Stock Appreciation Right to
accelerate the date after which it may be exercised in whole or in part. A Stock
Appreciation Right which has not be exercised on or prior to its Termination
Date shall be cancelled. A Stock Appreciation Right granted in conjunction with
an Option, or portion thereof, shall not be exercised unless such Option, or
portion thereof, is otherwise exercisable, and such a Stock Appreciation Right
shall be cancelled to the extent the Option to which it relates has been
exercised, or has expired, been terminated or been cancelled for any reason.
(d) Exercise of Stock Appreciation Rights. A Stock Appreciation
Right, or portion thereof, shall be exercised in accordance with such procedures
as may be established by the Committee. Upon the exercise of a Stock
Appreciation Right, the participant or his or her legal representative shall be
entitled to receive from the Company with respect to each share of Stock to
which such Stock Appreciation Right relates an amount equal to the excess of (a)
the Fair Market Value of a share of Common Stock on the date of exercise over
(b) the exercise price of the Stock Appreciation Right. Such amount shall be
paid in cash
30
6
and/or shares of Stock at the discretion of the Committee. The number of shares
of Stock, if any, issued as a result of the exercise of a Stock Appreciation
Right shall be based on the Fair Market Value of such share of Stock on the date
of exercise. Upon the exercise of a Stock Appreciation Right, or portion
thereof, granted in conjunction with an Option, or portion thereof, the Option,
or portion thereof, to which such Stock Appreciation Right relates shall be
deemed in the case of a cash payment to have been cancelled and in the case of a
payment of shares of Stock to have been exercised.
7. Other Share-Based Awards
Other Awards of Stock and Awards that are valued in whole or in part
by reference to, or are otherwise based on the Fair Market Value of, shares of
Stock may be granted under the Plan in the discretion of the Committee. Such
Awards shall be in such form, and dependent on such conditions, as the Committee
shall determine, including, without limitation, the right to receive one or more
shares of Stock, or the equivalent cash value of such Stock, upon the completion
of a specified period of service, the occurrence of an event and/or the
attainment of performance objectives. Such Awards may be granted alone or in
addition to any other Awards granted under the Plan. Subject to the provisions
of the Plan, the Committee shall determine to whom and when such Awards will be
made, the number of shares of Stock to be awarded under (or otherwise related
to) such Awards, whether such Awards shall be settled in cash, Stock or a
combination of cash and Stock, and all other terms and conditions of such
Awards. Notwithstanding the foregoing, certain Awards granted under this Section
7 of the Plan may be granted in a manner which is deductible by the Company
under Section 162(m) of the Code. Such Awards (the "Performance-Based Awards")
shall be based upon stock price, market share, sales, earnings per share, return
on equity or costs.
8. Definitions of Certain Terms.
(a) The term "1993 Plan" as used herein means the North American
Watch Corporation Law1993 Employee Stock Option Plan.
(b) The term "Act" as used herein means the Securities Exchange Act
of 1934.
(c) The term "Affiliate" as used herein means any person or entity,
which, at the time of reference, directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company.
(d) The term "Award" as used herein means an Option, Stock
Appreciation Right or other award granted under the Plan.
31
7
(e) The term "Award Agreement" as used herein has the meaning
ascribed to it in Section 21(a).
(f) The term "Board" as used herein means the Board of Directors of
the Company.
(g) The term "Change in Control" as used herein has the meaning
ascribed to it in Section 19(c).
(h) The term "Code" as used herein means the United States Internal
Revenue Code of 1986, as amended.
(i) The term "Committee" as used herein means the committee
appointed by the Board to administer the Plan.
(j) The term "Company" as used herein means the Movado Group, Inc.
(k) The term "Consent" as used herein has the meaning ascribed to it
in Section 10(b).
(l) The term "Election Contest" as used herein has the meaning
ascribed to it in Section 19(c).
(m) Except as otherwise determined by the Committee in its sole
discretion, the "Fair Market Value" as of any date and in respect of any share
of Stock shall be the mean between the high and low prices of a share of Stock
as reported on NASDAQ --National Market System if shares of Stock are then
trading in such system, or if not, then the mean between the high and low prices
of a share of Stock on the principal United States national securities exchange
on which shares of Stock are principally trading. In no event shall the Fair
Market Value of any share be less than its par value.
(n) The term "ISO" as used herein means an incentive stock option
with the meaning of Section 422 of the Code.
(o) The term "Non-Control Acquisition" as used herein has the
meaning ascribed to it in Section 19(c).
(p) The term "Non-Control Transaction" as used herein has the
meaning ascribed to it in Section 19(c).
(q) The term "Non-ISO" as used herein means a stock option that is
not an ISO.
(r) The term "Option" as used herein means a stock option granted
under the Plan.
(s) The term "Option Exercise Date" as used herein has the meaning
ascribed to it in Section 5.5.
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8
(t) The term "Option Price" as used herein means the purchase price
of one share of Stock under an Option.
(u) The term "Plan" as used herein means the Movado Group, Inc. 1996
Stock Incentive Plan.
(v) The term "Plan Action" as used herein has the meaning ascribed
to it in Section 10(a).
(w) The term "Stock" as used herein means common stock, par value
$.01 per share, of the Company as constituted on the effective date of the Plan,
and any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(x) The term "Stock Appreciation Right" as used herein means a stock
appreciation right granted under the Plan.
(y) The term "Termination Date" as used herein means, with respect
to each Award, a date fixed by the Committee.
(z) The term "Voting Securities" as used herein has the meaning
ascribed to it in Section 19(c).
9. Amendment of the Plan; Modification of Options.
(a) Plan Amendments. The Board may, without shareholder approval, at
any time and from time to time, suspend, discontinue or amend the Plan in any
respect whatsoever, except that no such amendment shall impair any rights under
any Award theretofore granted under the Plan without the consent of the grantee
of such Award. Furthermore, except as and to the extent otherwise permitted by
Section 13 or 19 hereof, no such amendment shall, without shareholder approval:
(i) materially increase, beyond the amounts set forth in Section
4, the number of shares of Stock in respect of which Awards may be issued
under the Plan;
(ii) materially modify the designation in Section 3 of the class
of persons eligible to receive Awards under the Plan;
(iii) provide for the grant of Awards having an Option Price less
than 100% of the Fair Market Value of a share of Stock on the date of
grant;
(iv) permit an Option to be exercisable more than 10 years after
the date of grant; or
(v) extend the term of the Plan beyond the period set forth in
Section 23.
33
9
10. Restrictions.
(a) Consent Requirements. If the Committee shall at any time
determine that any Consent (as hereinafter defined) is necessary or desirable as
a condition of, or in connection with, the granting of any Award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, if (i) the Company may make any payment under the
Plan in cash, Stock or both and (ii) the Committee determines that Consent is
necessary or desirable as a condition of, or in connection with, payment in any
one or more of such forms, then the Committee shall be entitled to determine not
to make any payment whatsoever until such Consent has been obtained.
Certificates representing shares of Stock may bear such legends as the Committee
shall deem advisable to reflect restrictions which may be imposed by laws,
including without limitation, the Securities Act of 1933.
(b) Consent Defined. The term "Consent" as used herein with respect
to any Plan Action means (i) any and all listings, registrations or
qualifications in respect thereof upon any securities exchange or other
self-regulatory organization or under any federal, state or local law, rule or
regulation, (ii) the expiration, elimination or satisfaction of any
prohibitions, restrictions or limitations under any federal, state or local law,
rule or regulation or the rules of any securities exchange or other
self-regulatory organization, (iii) any and all written agreements and
representations by the grantee with respect to the disposition of shares, or
with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made and (iv) any and all consents,
clearances and approvals in respect of a Plan Action by any governmental or
other regulatory bodies or any parties to any loan agreements or other
contractual obligations of the Company or any Affiliate.
11. Nontransferability.
No Award granted to any grantee shall be assignable or transferable
by the grantee other than by will or by the laws of descent and distribution.
During the lifetime of the grantee, all rights with respect to any Award granted
to the grantee shall be exercisable only by the grantee. This Section 11 (or any
part thereof) may be altered by the Committee to the extent that it is no longer
required under the rules promulgated under Section 16 of the Act or any other
law, rule or regulation applicable to the Company.
34
10
12. Withholding Taxes.
(a) Whenever, under the Plan, shares of Stock are to be delivered
pursuant to an Award, the Committee may require as a condition of delivery that
the grantee remit an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto. Whenever cash is to
be paid under the Plan, the Company may, as a condition of its payment, deduct
therefrom, or from any salary or other payments due to the grantee, an amount
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto or to the delivery of any shares of Stock under the
Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee
may elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Stock owned by the grantee having a Fair
Market Value (determined as of the date of such delivery by the grantee) equal
to all or part of the amount to be so withheld, and (ii) the Committee may
permit any such delivery to be made by withholding shares of Stock from the
shares otherwise issuable pursuant to the Award giving rise to the tax
withholding obligation (in which event the date of delivery, for an Option,
shall be deemed the date such Option was exercised).
13. Adjustments Upon Changes in Capitalization.
If (and to the extent) specified by the Committee, the number of
shares of Stock that may be issued pursuant to Awards under the Plan, the number
of shares of Stock subject to Awards, the exercise price of Options theretofore
granted under the Plan and the amount payable by a grantee in respect of an
Option shall be appropriately adjusted (as the Committee may determine) for any
change in the number of issued shares of Stock resulting from the subdivision or
combination of shares of Stock or other capital adjustments, or the payment of a
stock dividend after the effective date of the Plan, or other change in such
shares of Stock effected without receipt of consideration by the Company;
provided that any Awards covering fractional shares of Stock resulting from any
such adjustment shall be eliminated and provided further that each ISO granted
under the Plan shall not be adjusted in a manner that causes such Option to fail
to continue to qualify as an ISO within the meaning of section 422 of the Code.
Adjustments under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
14. Right of Discharge Reserved.
Nothing in the Plan or in any Award Agreement shall confer upon any
person the right to continue in the employment of the Company or an Affiliate or
affect any right which the Company
35
11
or an Affiliate may have to terminate the employment of such person.
15. No Rights as a Shareholder.
No grantee or other person shall have any of the rights of a
shareholder of the Company with respect to shares of Stock subject to an Option
until the issuance of a stock certificate to such-grantee for such shares of
Stock. Except as otherwise provided in Section 13, no adjustment shall be made
for dividends, distributions or other rights (whether ordinary or extraordinary,
and whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued.
16. Nature of Payments.
(a) All Awards granted hereunder shall be granted, issued, delivered
or paid, as the case may be, in consideration of services performed for the
Company or for its Affiliates by the grantee.
(b) No Award shall be considered special incentive payments to the
grantee or, unless otherwise determined by the Committee, be taken into account
in computing the grantee's salary or compensation for the purposes of
determining any benefits under (i) any pension, retirement, life insurance or
other benefit plan of the Company or any Affiliate or (ii) any agreement between
the Company or any Affiliate and the grantee.
(c) By accepting an Award under the Plan, the grantee thereby waives
any claim to continued exercise of an Option or vesting of an Award or to
damages or severance entitlement related to non-continuation of the Award beyond
the period provided herein or in the applicable Award Agreement, notwithstanding
any contrary provision in any written employment contract with the grantee,
whether any such contract is executed before or after the grant date of the
Award.
17. Non-Uniform Determinations.
The Committee's determinations under the Plan need not be uniform
and may be made by it selectively among persons who receive, or are eligible to
receive, Awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee shall
be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Award Agreements, as
to (a) the persons to receive Awards under the Plan, and (b) the terms and
provisions of Awards under the Plan.
36
12
18. Other Payments or Options.
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company, any Affiliate or the Committee from making any option,
award or payment to any person under any other plan, arrangement or
understanding, whether now existing or hereafter in effect.
19. Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Stock by reason of such
merger or consolidation, or in the event that all or substantially all of the
assets of the Company are acquired by another person, or in the event of a
Change of Control (as defined in Section 19(c) below) after the date of the
adoption of this Plan or in the event of a reorganization or liquidation of the
Company (each such event being hereinafter referred to as a "Reorganization
Event") or in the event that the Board shall propose that the Company enter into
a Reorganization Event, then the Committee may in its discretion, by written
notice to a grantee, provide that such grantee's Options will be terminated
unless exercised within 30 days (or such longer period as the Committee shall
determine in its sole discretion) after the date of such notice; provided that
if the Committee takes such action, the Committee also shall accelerate the
dates upon which all outstanding Options of such grantee shall be exercisable.
The Committee also may in its discretion by written notice to a grantee provide
that all or some of the restrictions on any of his Awards may lapse in the event
of a Reorganization Event upon such terms and conditions as the Committee may
determine.
(b) Whenever deemed appropriate by the Committee, the actions
referred to in Section 19(a) may be made conditional upon the consummation of
the applicable Reorganization Event.
(c) The term Change of Control means the occurrence during the term
of the Plan of:
(i) The commencement (within the meaning of Rule 14d-2 under the
Act) of a tender offer for more than 20% of the Company's outstanding
shares of capital stock having ordinary voting power in the election of
directors (the "Voting Securities").
(ii) An acquisition (other than directly from the Company) of any
voting securities of the Company by any "Person" (as the term person 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
combined voting power of the Company's
37
13
then outstanding Voting Securities; provided, however, in determining
whether a Change in Control has occurred, Voting Securities which are
acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee
benefit plan (or a trust forming a part thereof or a trustee thereof
acting solely in its capacity as trustee) maintained by (A) the Company or
(B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a
"Subsidiary"), (ii) the Company or its Subsidiaries, or (iii) 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 (b).
(iii) The individuals who, as of June 14, 1996, are members of the
Board (the "Incumbent Board"), ceasing for any reason to constitute at
least two-thirds 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 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
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 1934 Act or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(iv) Approval by stockholders of the Company of:
(A) 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 (A), (B), and (C) below:
a) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly
immediately following such
38
14
merger, consolidation or reorganization, at least seventy percent
(70%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or
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;
b) 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 of the members of the board of directors of the Surviving
Corporation immediately following the consummation of such merger,
consolidation or reorganization; and
c) 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 thirty 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.
(B) A complete liquidation or dissolution of the Company; or
(C) 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).
20. Governing Law.
The Plan shall be governed by the laws of the State of New York
(the "Corporation"), hereby
certifies as follows:
FIRST: The nameapplicable to agreements made and to be performed entirely within such state.
21. Award Agreements.
(a) Awards granted under the Plan shall be evidenced by written
agreements, which shall (i) contain such provisions not inconsistent with the
terms of the Corporation is Movado Group, Inc. The name under
whichPlan as the Corporation was formed was North American Watch Corporation.
SECOND: The Certificate of Incorporation ofCommittee may in its sole discretion deem necessary or
desirable and (ii) be referred to herein as "Award Agreements."
39
15
(b) With respect to Options, each Award Agreement shall set forth
the Corporation was filed
by the Department of State on November 2, 1967. A Restated Certificate of
Incorporation was filed by the Department of State on May 5, 1969. A Certificate
of Amendment of the Restated Certificate of Incorporation was filed by the
Department of State on July 24, 1979. A Restated Certificate of Incorporation
was filed by the Department of State on September 27, 1993. A Certificate of
Amendment to the Certificate of Incorporation was filed by the Department of
State on April 26, 1996.
THIRD: The Certificate of Incorporation of the Corporation is hereby amended by
adding to Paragraph 4.1(d) (i), which restricts the transferabilitynumber of shares of Class A Common Stock subject to the Option granted thereby and the
Option Price. The Option Price per share shall not be less than the Fair Market
Value of a share of Stock on the date the Option is granted.
22. Section Headings.
The section headings contained herein are for convenience only and
are not intended to those defineddefine or limit the contents of said sections.
23. Effective Date.
(a) The Plan, as "Permitted Transferees",amended and restated herein, shall be deemed
adopted and become effective upon the following two categoriesapproval thereof by the Board or such
other date as the Board shall determine; provided that, notwithstanding any
other provision of Permitted Transfereesthe Plan, no Option granted under Paragraph 4.1(d) (i) (A)
as new sub-clauses (6)the amended and (7):
21
"(6)restated
Plan shall be exercisable unless the Plan, is approved, directly or indirectly,
by the express consent of shareholders holding at least a corporation, every beneficial ownermajority of the
Company's voting stock voting in person or by proxy at a duly held shareholders'
meeting within 12 months before or after the date the Plan is adopted.
(b) No further Awards shall be granted under the Plan on or after
the tenth anniversary of the earlier of the date on which it is (1) adopted or
was at(2) approved by shareholders. All Awards granted under the time of such owner's transfer of Class A Common StockPlan prior to such
corporation, a
Class A Holder, any oftenth anniversary date shall remain in effect until such Class A Holder's family membersOptions have been
exercised or any Permitted
Transferee of anyhave terminated in accordance with the terms and provisions of the
foregoing;Plan and (7) a partnership or limited partnership, every partner and limited
partner of which is, or was at the time of such partner's or limited partner's
transfer of Class A Common Stock to such partnership or limited partnership, a
Class A Holder, any of such Class A Holder's family members or any Permitted
Transferee of any of the foregoing".
FOURTH: Resolutions setting forth the proposed amendment to the
Certificate of Incorporation of the Corporation were duly adopted by the
unanimous written consent of the Board of Directors of the Corporation dated May
6, 1997. Thereafter, pursuant to the Certificate of Incorporation and By-laws of
the Corporation, at the annual meeting of shareholders of the Corporation which
was duly held on June 10, 1997, at least sixty-six and two-thirds percent (66
2/3) of the voting power of all the outstanding shares of stock of the
Corporation entitled to vote in the election of Directors of the Corporation
were voted in favor of said amendment.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this certificate to be subscribed by its President and its
Secretary and affirmed by them as true under the penalties of perjury this _____
day of June, 1997.
----------------------------------
Efraim Grinberg
President
----------------------------------
Timothy F. Michno
Secretaryapplicable Award Agreement.
22
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MOVADO40
[MOVADO GROUP, INC. LETTERHEAD] NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD JUNE 11, 1998
Dear Shareholder:
The undersigned hereby appoints Timothy F. Michno and Howard Regenbogen proxies,
each with power to act without the other and with power of substitution, and
hereby authorizes them to represent and vote, as designated on the other side,
all the shares of stock of Movado Group, Inc. standing in the name of the
undersigned with all powers which the undersigned would possess if present at
the Annual Meeting of Shareholders of the Company to be held June 10, 1997 or
any adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
(up arrow)FOLD AND DETACH(up arrow)
23
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1,2 AND 3
PLEASE MARK
YOUR VOTES AS /X/
INDICATED IN
THIS EXAMPLE
1. ELECTION OF DIRECTORS
FOR ALL NOMINEES WITHHOLD
LISTED TO THE RIGHT AUTHORITY
(EXCEPT AS MARKED TO VOTE FOR ALL NOMINEES
TO THE CONTRARY) LISTED TO THE RIGHT
/ / / /
NOMINEES: GEDALIO GRINBERG, EFRAIM GRINBERG, MARGARET HAYES ADAME, MICHAEL BUSH,
DONALD ORESMAN AND LEONARD L. SILVERSTEIN
INSTRUCTION: TO WITHHOLD TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
- --------------------------------------------------------------------------------
2. Ratification of Price Waterhouse as the independent certified public
accountants of the corporation.
FOR AGAINST ABSTAIN
/ / / / / /
3. Proposal to approve the amendment to the corporation's Certificate of
Incorporation modifying the definition of "Permitted Transferee" in
Paragraph 4.1(d)(i) with respect to the Class A Common Stock
FOR AGAINST ABSTAIN
/ / / / / /
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATE:_______________________________,1997
-----------------------------------------
(SIGNATURE)
-----------------------------------------
(SIGNATURE IF HELD JOINTLY)
PLEASE SIGN, DATE, AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
- --------------------------------------------------------------------------------
(up arrow)Fold and Detach Here(up arrow)
24
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included under Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in this annual 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 Section 21E of the Securities Exchange Act of 1934. The
Company cautions readers that FORWARD LOOKING STATEMENTS, include without
limitation, those relating to the Company's future business prospects, revenues,
working capital, liquidity, capital needs, plans for future operations,
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, competitive products and pricing, ability to enforce
intellectual property rights, and success of hedging strategies in respect of
currency exchange rate fluctuations.
GENERAL
Net Sales. Among the more significant factors which influence annual sales are
general economic conditions in the Company's domestic and international markets,
new product introductions, the level of advertising expenditures, the
effectiveness of marketing and distribution programs and product pricing
decisions.
Reported sales are also affected by foreign exchange rates, primarily the U.S.
dollar/Swiss franc rate, because 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.
The Company's business is very seasonal. There are two major selling seasons in
most of the Company's markets: the spring season which includes graduations and
several holidays and, most importantly, the Christmas and holiday season. Major
selling seasons in certain international markets center around significant local
holidays that occur in late winter or early spring; however, because these
markets are a less significant portion of the Company's business, their impact
is far less than that of the selling seasons in North America.
The Company is continuing its efforts, begun in fiscal 1995, to expand sales in
key international markets. These efforts have included the recruitment of a
number of key personnel with management level sales and marketing
responsibilities, the addition and replacement of selected independent
distributors, an increase in the number of sales representatives, retargeted and
increased advertising and coordinated marketing programs designed to build brand
awareness and consumer demand for the Company's watches at point of sale.
Gross Margins. The Company's overall gross margins are primarily affected by
four major factors: sales mix, product pricing strategy, component and labor
costs and the U.S. dollar/Swiss franc exchange rate. The Company's gross margins
on its manufactured brands are higher than those on its distributed brands and,
therefore, any shift in overall sales mix toward the Company's manufactured
brands will generally have a favorable impact on margins. In addition, margins
on sales of a particular brand vary from model to model and, therefore, changes
in the model sales mix within a brand will impact margins.
19
25
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 competitor actions. The overall level of liquidation sales of
discontinued models in a particular fiscal year can also impact the Company's
gross margins.
Manufacturing costs of the Company's Movado and Concord brands consist primarily
of component costs, Company and subcontract assembly costs and unit overhead
costs.
The Company seeks to control and reduce component and subcontract labor costs
through a combination of negotiation with existing suppliers and alternative
sourcing. Overall wage and salary costs at the Company's manufacturing
operations in Switzerland are a function of production levels and local
inflation. These costs have remained fairly stable over the three previous
fiscal years.
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,
therefore, hedges its Swiss franc purchases using a combination of forward
contracts, purchased currency options and spot purchases. The Company's hedging
program has, in the recent past, been reasonably successful in stabilizing
product costs despite exchange rate fluctuations.
Operating Expenses. The Company's operating 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 marketplaces around the
world in which the Company sells its products.
Selling expenses consist primarily of sales commissions, salesforce travel costs
and operating costs incurred in connection with the Company's retail business.
Sales commissions vary proportionally with overall sales levels. Retail
operating expenses consist primarily of salaries and store rent.
Distribution expenses consist primarily of salaries of distribution staff, the
cost of part-time help to meet seasonal needs, and shipping costs and supplies.
General and administrative expenses consist primarily of salaries, employee
benefit plan costs, office rent, management information systems costs and
various other corporate expenses such as insurance, legal, internal audit and
credit and collection costs.
Operating expenses over the last three fiscal years reflect the effect of the
implementation of the Company's growth strategy. The more significant expenses
associated with this strategy include advertising and marketing expenses
designed to increase market share for the Piaget, Corum, Concord and Movado
brands, advertising and marketing costs for the continuing expansion of the
Company's ESQ line which was introduced in 1993, additions to the Company's
domestic salesforce, salaries and rents associated with additional outlet stores
and the addition of staff to support distribution and inventory management
requirements coincident with growth of the Company's domestic business.
Income taxes. The Company's income tax provision for both fiscal 1997 and 1996
amounted to $3.9 million or 24.8% and 28.5% of pretax income, respectively. A
portion of the Company's consolidated operations are located in non-U.S.
jurisdictions and therefore the Company's effective rate differs from U.S.
statutory rates. The majority of the Company's non-U.S. operations are located
in jurisdictions with statutory rates below U.S. rates. The Company believes
that the future effective tax rate will range from 24% to 30%; however, there
can be no assurance of this as it is dependent on a number of factors including:
mix of foreign
20
26
to domestic earnings, local statutory tax rates and the Company's
ability to utilize carryforward net operating losses in certain jurisdictions.
RESULTS OF OPERATIONS
Net Sales. Comparative net sales by product class are as follows (in thousands):
1997 1996 1995
-------- -------- --------
Piaget and Corum $ 22,386 $ 25,963 $ 22,296
Concord and Movado
Domestic 109,314 91,105 83,342
International 30,185 28,504 27,437
ESQ 29,496 19,350 11,293
Other 23,726 20,945 16,485
-------- -------- --------
$215,107 $185,867 $160,853
======== ======== ========
Net sales increased 15.7% in fiscal 1997. The increase resulted primarily from
growth in unit sales in the U.S. and, to a lesser extent, unit sales gains in
the Company's international business.
Increases in unit sales in the U.S. were attributable primarily to the Concord,
Movado and ESQ brands offset somewhat by a decline in unit sales of Piaget. The
increase in international unit sales was offset somewhat by the negative impact
of a change in translation rates.
Net sales increased 15.6% in fiscal 1996. The increase resulted primarily from
growth in unit sales volumes in the U.S., Canada, the Caribbean and certain Far
East markets offset somewhat by decreased unit sales in the Company's other
international markets. Increases in unit sales in North America were
attributable primarily to the Movado and ESQ brands and, to a lesser extent,
increases in unit sales of Piaget in the United States, Canada and the
Caribbean.
The increase in net sales in fiscal 1996 also includes the effect of price
increases which were implemented in response to a significant decline in the
value of the dollar against the Swiss franc which increases the Company's
product costs. Net sales were also favorably impacted by changes in average
translation rates.
Gross Margins. The Company's gross margins increased from 55.1% to 55.8% in
fiscal 1997. Fiscal 1997 margins were favorably impacted by sales mix,
particularly an increase in the proportion of Concord, Movado and ESQ sales to
total sales as well as reduced per unit overhead costs due to higher unit
production levels in Switzerland. The Company's margin was also benefited by
increases in the U.S. dollar against the Swiss franc which occurred late in the
fiscal year.
The Company's gross margins increased from 52.8% to 55.1% in fiscal 1996. The
Company continued to experience a shift in its overall sales mix toward its
higher margin Concord, Movado and ESQ brands. Margins also benefited from
reduced levels of lower margin liquidation sales due to the success of the
Company's outlet stores and improved production planning. The Company was able
to offset the otherwise negative impact on gross margins of a significant
decline in the U.S. dollar against the Swiss franc with price increases on all
of its lines implemented at various points throughout the year.
Operating Expenses. Operating expenses in fiscal 1997 increased 18.2% to 46.3%
of sales from 45.4% of sales in 1996. The increase in fiscal 1997 operating
expenses occurred primarily in the advertising and selling, general and
administrative expense categories. Although increasing slightly in absolute
terms, product distribution costs declined as a percentage of sales.
21
27
The increase in advertising and marketing expenditures occurred primarily in
the U.S. This increase was planned and relates to the Company's ongoing efforts
to build identity and image for its brands. Fiscal 1997 advertising and
marketing costs were affected by higher levels of media spending for Concord,
Movado and, in particular, ESQ in the U.S., production costs for a new
advertising campaign for Concord and increased marketing and promotional
activities in the U.S. for all of the Company's brands including the
introduction of the new Vizio line.
The growth in consolidated advertising costs also included increased media
spending in certain international markets, primarily the Far East and Middle
East.
Selling expenses included an increase in sales commissions commensurate with
sales growth as well as the costs associated with an increase in the number of
employees involved in the Company's domestic sales function, particularly in the
ESQ brand and the growth of its retail division.
Fiscal 1997 general and administrative expenses included the cost of management
additions and increased employee benefit costs. Fiscal 1997 operating expenses
also included a non-recurring charge of $450,000 in connection with
restructuring the Company's German business.
Operating expenses increased 21.8% in fiscal 1996 to 45.4% of net sales as
compared to 43.0% of net sales in the prior year. The increase in overall
operating expenses was attributable primarily to a planned 36% increase in
advertising costs, and increases in variable selling and distribution expenses.
The increase in fiscal 1996 advertising expenses related to domestic media costs
primarily for Movado and ESQ, targeted international campaigns, cooperative
advertising programs and domestic and international advertising production
costs. Fiscal 1996 advertising expenses also included a one time $600,000 charge
in connection with a change in the accounting standards for advertising
production costs. Non-advertising operating expenses as a percentage of sales
were consistent with the prior year.
Interest Expense. Net interest expense, which consists primarily of interest on
the Company's $40,000,000 of 6.56% senior notes and borrowings against its
working capital and revolving lines of credit, was $4.9 million, $4.5 million
and $4.3 million for fiscal 1997, 1996 and 1995, respectively. The effect of
higher average outstanding borrowings against working capital lines in 1997 and
1996 was offset somewhat by lower average interest rates on these borrowings.
Income Taxes. The Company's income tax provision for both fiscal 1997 and 1996
amounted to $3.9 million or 24.8% and 28.5% of pretax income, respectively. A
portion of the Company's consolidated operations are located in non-U.S.
jurisdictions and therefore the Company's effective rate differs from U.S.
statutory rates. The majority of the Company's non-U.S. operations are located
in jurisdictions with statutory rates below U.S. rates. The Company believes
that the future effective tax rate will range from 24% to 30%; however, there
can be no assurance of this as it is dependent on a number of factors including:
mix of foreign to domestic earnings, possible changes in local statutory tax
rates and utilization of net operating losses.
In fiscal 1995, the Company recorded a tax benefit of $2.5 million. The benefit
resulted primarily from the reversal of valuation allowances on domestic
deferred tax assets related to net operating loss carryforwards, cumulative
temporary differences and alternative minimum tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs historically have been primarily a function of
its seasonal working capital requirements which have increased due to
significant growth in domestic sales over the two previous years. The Company's
business is not capital intensive and liquidity needs for capital investments
have not been significant in relation to the Company's overall financing
requirements.
The Company has met its liquidity needs primarily through funds from operations
and bank borrowings under working capital lines of credit with domestic and
Swiss banks. The Company
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28
has also entered into a revolving credit agreement with
its domestic banks. Funds available under this agreement are in addition to the
Company's working capital lines. (See Note 3 to the Consolidated Financial
Statements for details of the Company's borrowing arrangements with its banks).
The Company expects that its future requirements for capital will relate not
only to working capital requirements for the expected continued growth of its
existing brands, but also funding new lines of business including the Spring
1998 launch of the Company's new Coach watch line and possible product line
extensions and retail boutiques for the Movado brand. In addition, the Company
is required to make a $5 million sinking fund payment on February 2, 1998 in
connection with its $40 million 6.56% senior notes. The Company's existing bank
credit lines and planned operating cash flows will not be sufficient to fund the
combined capital commitments associated with internal growth, new business and
sinking fund requirements; however, management believes the Company's positive
operating performance of recent years and current financial position will afford
it sufficient access to capital to meet all existing financial commitments and
fully implement its business plans.
At January 31, 1997, the Company's debt to total capitalization ratio had been
increased to 33.7% from 31.8% at January 31, 1996. The major factor in this
increase was a $12.2 million decline in the Company's cumulative translation
adjustment due to strengthening of the U.S. dollar. Excluding the cumulative
translation adjustment, the Company's debt to total capitalization ratio
declined from 34.0% to 33.3%.
The Company's working capital consisting primarily of trade receivables and
inventories amounted to $126.7 and $132.7 million at January 31, 1997 and 1996,
respectively. The decline in the Company's working capital in 1997 is primarily
attributable to the reclassification of $5.0 million of the Company's long-term
senior debt which is payable on January 31, 1998.
Accounts receivable at January 31, 1997 were $75.7 million compared to $75.3
million at January 31, 1996. Most of this increase related to growth in domestic
sales in the second half of fiscal 1997 as compared to the prior year period
partially offset by the translation effect due to strengthening of the U.S.
dollar. On a constant dollar basis the Company reduced its days sales
outstanding from 137 at January 31, 1996 to 130 at January 31, 1997.
Inventories at January 31, 1997 and 1996 were $87.2 million and $89.1 million,
respectively, a decrease of $1.9 million or 2.2%. On a constant dollar basis,
the Company's inventories increased approximately 5.0% in 1997; however,
consolidated inventory turns increased from 1.0 to 1.1 times on a constant
dollar basis.
The Company's capital expenditures amounted to $6,626,000, $2,025,000 and
$4,397,000 in fiscal 1997, 1996 and 1995, respectively. Fiscal 1997 expenditures
are principally related to the Company's Piaget Boutique, upgrades of the
Company's domestic distribution operations, the relocation of the Company's
Swiss operations and computer hardware and software investments to automate the
Company's domestic salesforce. Fiscal 1996 and 1995 expenditures were primarily
related to improvements in the Company's management information systems,
expansion and upgrades of the Company's domestic distribution operations and
leasehold improvements related to the expansion of the Company's Movado Company
Store network.
23
29
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
Net sales $ 215,107 $ 185,867 $ 160,853
Costs and expenses:
Cost of sales 95,031 83,502 75,871
Selling, general and administrative 99,657 84,315 69,243
--------- --------- ---------
194,688 167,817 145,114
--------- --------- ---------
Operating income 20,419 18,050 15,739
Net interest expense 4,874 4,450 4,307
--------- --------- ---------
Income before income taxes 15,545 13,600 11,432
Provision for (benefit from) income taxes 3,853 3,876 (2,512)
--------- --------- ---------
Net income $ 11,692 $ 9,724 $ 13,944
========= ========= =========
Earnings per share $ 1.94 $ 1.62 $ 2.32
========= ========= =========
Shares used in per share computations 6,012 6,007 6,000
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24
30
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JANUARY 31,
------------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash $ 4,885 $ 3,829
Trade receivables, net 75,688 75,335
Inventories 87,177 89,101
Other 16,914 12,521
--------- ---------
Total current assets 184,664 180,786
Plant, property and equipment, net 15,066 11,794
Other assets 8,713 7,800
--------- ---------
$ 208,443 $ 200,380
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 7,778 $ 8,782
Current portion of long-term debt 5,000 --
Accounts payable 25,297 22,042
Accrued liabilities 13,188 9,289
Deferred and current taxes payable 6,711 7,994
--------- ---------
Total current liabilities 57,974 48,107
--------- ---------
Long-term debt 40,000 40,000
Deferred and noncurrent foreign income taxes 3,477 3,860
Other liabilities 3,122 3,572
Shareholders' equity
Preferred Stock, $0.01 par value,
5,000,000 shares authorized; no shares issued -- --
Common Stock, $0.01 par value,
20,000,000 shares authorized; 3,445,206 and 3,426,610
shares issued, respectively 34 34
Class A Common Stock, $0.01 par value,
shares authorized; 2,585,322 and 2,588,891
shares issued and outstanding, respectively 26 26
Capital in excess of par value 34,503 34,252
Retained earnings 71,291 60,319
Cumulative translation adjustment (1,856) 10,338
Treasury stock, 9,201 shares, at cost (128) (128)
--------- ---------
103,870 104,841
--------- ---------
Commitments and contingencies (Note 11)
--------- ---------
$ 208,443 $ 200,380
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
31
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1997 1996 1995
-------- -------- --------
Cash flows from operating activities:
Net income $ 11,692 $ 9,724 $ 13,944
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,946 2,949 3,109
Deferred and noncurrent foreign income taxes 221 (373) (4,831)
Provision for losses on accounts receivable 1,917 1,115 867
Changes in current assets and liabilities:
Trade receivables (4,096) (10,607) (9,982)
Inventories (3,828) (2,836) (4,450)
Other current assets (14,163) (453) (4,484)
Accounts payable 5,174 1,318 10,392
Accrued liabilities 4,301 481 (601)
Deferred and current taxes payable (377) 2,299 4,174
Increase in other noncurrent assets (1,285) (153) (1,337)
Increase in other noncurrent liabilities 253 414 23
-------- -------- --------
Net cash provided by operating activities 3,755 3,878 6,824
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (6,626) (2,025) (4,397)
Goodwill, trademarks and other intangibles (294) (278) (717)
-------- -------- --------
Net cash used in investing activities (6,920) (2,303) (5,114)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from (payment of) current borrowings under lines of credit 5,335 (1,194) 1,235
Principal payments under capital leases (389) (996) (869)
Exercise of stock options 212 214 --
Dividends paid (720) (599) (480)
Purchase of treasury stock -- (128) --
-------- -------- --------
Net cash provided by (used in) financing activities 4,438 (2,703) (114)
-------- -------- --------
Effect of exchange rate changes on cash (217) 61 147
Net increase (decrease) in cash 1,056 (1,067) 1,743
Cash at beginning of year 3,829 4,896 3,153
-------- -------- --------
Cash at end of year $ 4,885 $ 3,829 $ 4,896
======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
32
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS A CAPITAL IN CUMULATIVE
PREFERRED COMMON COMMON EXCESS OF RETAINED TRANSLATION TREASURY
STOCK STOCK STOCK PAR VALUE EARNINGS ADJUSTMENT STOCK
----- ----- ----- --------- -------- ---------- -----
Balance, January 31, 1994 $ -- $ 32 $ 28 $ 34,009 $ 37,730 $ 659 $ --
Net income 13,944
Dividends ($0.08 per share) (480)
Translation adjustment 7,008
Issuance of Common Stock
Conversion of 239,196 shares of
Class A Common Stock to 239,187
shares of Common Stock 2 (2)
-------- ------- ------ --------- --------- --------- ---------
Balance, January 31, 1995 -- 34 26 34,009 51,194 7,667 --
Net income 9,724
Dividends ($0.10 per share) (599)
Stock options exercised 214
Tax benefit from employees
exercising stock options 29
Purchase of Treasury stock (128)
Translation adjustment 2,671
-------- ------- ------ --------- --------- --------- ---------
Balance, January 31, 1996 -- 34 26 34,252 60,319 10,338 (128)
Net income 11,692
Dividends ($0.12 per share) (720)
Stock options exercised 212
Tax benefit from employees
exercising stock options 39
Translation adjustment (12,194)
-------- ------- ------ --------- --------- --------- ---------
Balance, January 31, 1997 $ -- $ 34 $ 26 $ 34,503 $ 71,291 $ (1,856) $ (128)
======== ======= ====== ========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
33
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Movado Group, Inc. (the "Company"), is a designer, manufacturer and distributorwill be held at 10:00
a.m. on Thursday, June 11, 1998 at the offices of quality watches with prominent brands in almost every price category
comprisingSimpson, Thacher & Bartlett,
425 Lexington Avenue, New York City, for the watch industry. The Company markets five distinctive brands of
watches: Movado, Concord, ESQ, Piaget and Corum, which compete in most segments
of the watch market.
The Company designs and manufactures Concord and Movado watches primarily
through its subsidiaries in Switzerland and the United States. ESQ watches are
manufacturedfollowing purposes:
1. To elect seven directors to the Company's specifications using Swiss movements by
independent contractors located in the Far East. The Company is also the
exclusive distributorBoard of Swiss-manufactured Piaget and Corum watches in the
United States, Canada, Central America and the Caribbean Islands. The Company
distributes its watch brands through its United States operations as well as
through sales subsidiaries in Canada, Hong Kong, Singapore and Switzerland and
through a numberDirectors.
2. To ratify selection of independent distributors located in various countries
throughout the world.
In addition to its sales to trade customers and independent distributors, Movado
Group, Inc. sells Movado watches and Piaget products directly to consumers in
its Company-operated Movado Design Store and its Piaget Boutique, respectively,
both of which are located on Fifth Avenue in New York City. Movado Group, Inc.
also operates a number of Movado Company Stores throughout the United States,
through which the Company sells discontinued and sample merchandise.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and balances have been eliminated.
Translation of foreign currency financial statements and foreign currency
transactions
The financial statements ofpublic accountants.
3. To amend 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
as cumulative translation adjustments.
Sales and trade receivables
The Company's trade customers include department stores, jewelry store chains
and independent jewelers. Movado and Concord watches are also marketed through a
network of independent distributors. Sales are recognized upon shipment of
products to trade customers. Accounts receivable are stated net of allowances
for doubtful accounts of $3,876,000 and $3,323,000 at January 31, 1997 and 1996 respectively. No individual trade customer, including trade customers under
common control, or international distributor accounts for 10% or more of the
Company's consolidated net sales.
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 obligation to the Company as
a result of financial difficulties.
Inventories
Inventories are valued at the lower of cost or market. The cost of domestic
finished goods inventories is determined using the first-in, first-out (FIFO)
method. The costs of finished goods
28
34
inventories held by overseas subsidiaries and all component parts inventories
are determined using average cost.
Plant, property and equipment
Plant, property and equipment at January 31, at cost, consists of the following
(in thousands):
1997 1996
-------- --------
Furniture and equipment $ 26,288 $ 23,195
Leasehold improvements 8,662 6,306
-------- --------
34,950 29,501
Less: accumulated depreciation and amortization (19,884) (17,707)
======== ========
$ 15,066 $ 11,794
======== ========
Depreciation of furniture and equipment is provided using the straight-line
method based on the estimated useful lives of assets which range from three to
ten 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.
Goodwill and other intangibles
Other intangible assets consist primarily of trademarks and are recorded at
cost. Trademarks are amortized over ten years, except in the case of costs
associated with the Piaget and Corum trademarks, which are amortized over the
remaining terms of the Piaget and Corum distribution agreements. Goodwill is
amortized over 40 years. At January 31, 1997 and 1996, goodwill and other
intangible assets at cost were $5,065,000 and $5,043,000, respectively, and
related accumulated amortization of goodwill and other intangibles were
$2,385,000 and $2,188,000, respectively.
Advertising production costs
In fiscal 1996, the Company adopted a newly prescribed accounting guideline
which requires that production costs of an advertising campaign be expensed at
the commencement date of the advertising campaign. As a result of adopting this
new accounting pronouncement, the Company recorded at February 1, 1995 a one
time pre-tax charge of approximately $600,000 ($0.07 per share after tax) which
is included in selling, general and administrative expenses. Advertising
expenses for fiscal 1997, 1996 and 1995, amounted to $38.7 million, $33.0
million and $24.4 million, respectively.
Income taxes
The Company and its domestic subsidiaries file a consolidated federal income tax
return. Foreign income taxes have been provided based on the applicable tax
rates in each of the foreign countries in which the Company operates. Certain
Swiss income taxes are payable over several years; the portion of these taxes
not payable within one year is classified as noncurrent. Noncurrent foreign
income taxes included in the consolidated balance sheets at January 31, 1997 and
1996 were $724,000 and $637,000, respectively.
Earnings per share
Earnings per share are based on the weighted average total number of sharesStock Incentive Plan.
Only holders of Common Stock and Class A Common Stock outstanding during the periods presented.
Stock-based compensation
Stock-based compensation is recognized using the intrinsic value method. For
disclosure purposes, pro forma net income and earnings per share are provided
as if the fair value method had been applied.
29
35
Use of estimates in the preparationMovado Group, Inc. of
financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilitiesrecord at the dateclose of business on May 8, 1998 will be entitled to vote at the
financial statements andmeeting or any adjournment thereof.
TO BE SURE THAT YOUR VOTE IS COUNTED, WE URGE YOU TO COMPLETE AND SIGN THE
PROXY/VOTING INSTRUCTION CARD BELOW, DETACH IT FROM THIS LETTER AND RETURN IT IN
THE POSTAGE PAID ENVELOPE ENCLOSED IN THIS PACKAGE. The giving of such proxy
does not affect your right to vote in person if you attend the reported amountsmeeting. The
prompt return of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
JANUARY 31,
---------------------
1997 1996
------- -------
Finished goods $53,497 $51,034
Work-in-process and component parts 33,680 38,067
------- -------
$87,177 $89,101
======= =======
NOTE 3 - BANK CREDIT ARRANGEMENTS AND LINES OF CREDIT
In fiscal 1997,your signed proxy will aid the Company entered into revised agreements with certain
domestic banks providing for $35,000,000 of unsecured demand borrowings, to be
used primarily for seasonal working capital requirements. Borrowings under these
lines bear interest atin reducing the prime commercial lending rate or LIBOR plus 1% or the
certificate of deposit rate plus 1.25%. Borrowings may be made in either U.S.
dollars or Swiss francs. These lines expire in the third quarter of fiscal
1998.
The Company's Swiss subsidiaries maintain secured and unsecured lines of credit
with Swiss banks, a majority of which have an unspecified duration. Available
credit under these lines totaled 20,500,000 Swiss francs, with dollar
equivalents of approximately $14,437,000 and $16,635,000 at January 31, 1997 and
1996, respectively. The Swiss franc credit lines included a line of 1,500,000
Swiss francs for the purchase of gold, borrowings which are secured by gold
inventory. As of January 31, 1997 and 1996, gold inventory valued at $0 and
$827,000, respectively, was pledged as collateral for borrowings under this line
of credit. One subsidiary's credit line contains a covenant requiring
maintenance of retained earnings above a specified minimum level. This
subsidiary was in compliance with this covenant at January 31, 1997 and 1996.
There are no other restrictions on transfers in the form of dividends, loans or
advances to the Company by its foreign subsidiaries.
Outstanding borrowings against the Company's aggregate demand lines of credit
were $7,746,000 and $8,782,000 at January 31, 1997 and 1996, respectively.
Aggregate maximum and average monthly outstanding borrowings against the
Company's lines of credit and related weighted average interest rates during
fiscal 1997, 1996 and 1995 were as follows (in thousands):
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------
1997 1996 1995
------- ------- -------
Maximum borrowings $56,143 $41,032 $31,300
Average monthly borrowings $34,302 $28,940 $22,139
Weighted average interest rate 5.9% 6.0% 6.2%
Weighted average interest rates were computed based on average month-end
outstanding borrowings and applicable average month-end interest rates.
On January 31, 1996, the Company entered into a three year revolving credit
agreement with its domestic banks which provides the Company with a $20.0
million unsecured revolving line of credit. The agreement provides for various
rate options including the federal funds rate plus a fixed rate, the prime rate
or a fixed rate plus the LIBOR rate. The Company pays a facility
30
36
fee on the unused portion of the credit facility. The agreement also contains
certain financial covenants based on fixed coverage ratios, leverage ratios and
restrictions which limit the Company on the sale, transfer or distribution of
corporate assets, including dividends. The Company was in compliance with these
restrictions and covenants at January 31, 1997. The amount of $5.0 million
outstanding at January 31, 1997 is included in long-term debt. There were no
amounts outstanding at January 31, 1996.
NOTE 4 - LONG-TERM DEBT
Long-term senior debt outstanding at January 31, 1997 and 1996 consisted of
$35,000,000 and $40,000,000, respectively, of Senior Notes due January 31, 2005
(the "Senior Notes") which were issued in a private placement completed in
fiscal 1994. The Senior Notes bear interest at 6.56% per annum, payable
semiannually on July 31 and January 31, and are subject to mandatory annual
prepayments of $5,000,000 commencing January 31, 1998 and accordingly such
amount has been classified as a current liability in fiscal 1997. The Company
has the option to prepay amounts due to holders of the Senior Notes at 100% of
the principal plus a "make-whole" premium and accrued interest. The Senior Note
agreement contains certain restrictions and covenants which generally require
the maintenance of a minimum net worth, limit the amountexpense
of additional secured
debtproxy solicitation.
BY ORDER OF THE BOARD OF DIRECTORS
May 26, 1998 TIMOTHY F. MICHNO
General Counsel and Secretary
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
[________]
1. Election of Directors
FOR all nominees listed below [ ]
WITHHOLD AUTHORITY to vote for all nominees [ ]
listed below.
*EXCEPTIONS [ ]
Nominees: Gedalio Grinberg, Efraim Grinberg, Margaret Hayes-Adame, Michael Bush,
Alan H. Howard, Donald Oresman and Leonard L. Silverstein
*Exceptions
- --------------------------------------------------------------------------------
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED.
2. To ratify and approve 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, 1997.
Included in long-term debt at January 31, 1997 was $5.0 million related to the
Company's revolving credit agreement as described in Note 3.
NOTE 5 - FOREIGN CURRENCY MANAGEMENT
A substantial portion of the Company's watches and watch components are sourced
from affiliated and nonaffiliated suppliers in Switzerland. A significant
strengthening of the Swiss franc against currencies of other countries in which
the Company conducts sales activities increases the Company's product cost. This
may adversely impact gross margins to the extent the Company is unsuccessful in
hedging against changes in the currency exchange rates or higher product costs
cannot be recovered through price increases in local markets. Significant
fluctuations in the Swiss franc - U.S. dollar exchange rate can also have a
material impact on the U.S. dollar value of the net assets of the Company's
wholly-owned Swiss subsidiaries.
The Company hedges against foreign currency exposure using only forward exchange
contracts, purchased foreign currency options and open market purchases to cover
identifiable inventory purchase commitments and equity invested in its
international subsidiaries. Due to production lead times, the Company hedges
identified inventory purchase commitments generally over a period of up to
eighteen months.
The Company has established strict counterparty credit guidelines and only
enters into foreign currency transactions with financial institutions of
investment grade or better. At January 31, 1997 and 1996, the Company had
foreign currency trading lines totaling $200,000,000 with various banks. To
minimize the concentration of credit risk, the Company enters into hedging
transactions with each of these banks. As a result, the Company considers the
risk of counterparty default to be minimal.
The following table presents the aggregate contract amounts and fair values,
based on dealer quoted prices, of the Company's financial instruments
outstanding at January 31, 1997 and 1996. All financial instruments included
below mature within one year and were held for hedging purposes only. Foreign
currency forward amounts (in thousands) consist primarily of U.S. dollar - Swiss
franc contracts.
31
37
AS OF JANUARY 31,
------------------------------------------------
1997 1996
-------------------- ---------------------
CONTRACT FAIR CONTRACT FAIR
AMOUNTS VALUES AMOUNTS VALUES
Foreign Currency Forward Amounts $56,176 $50,041 $78,528 $77,065
Purchased Options $ 7,450 $ 0 $40,751 $ 310
The contract amounts of these foreign currency forward amounts and purchased
options do not necessarily represent amounts exchangedselection by the parties and,
therefore, are not a direct measureBoard of the exposureDirectors of thePrice
Waterhouse LLP as independent public accountants for The Company through its
use of these financial instruments. The amounts exchanged are calculated on the
basis of the contract amounts and the other terms of the financial instruments,
which relate to exchange rates. As of January 31, 1997 and 1996, the receivable
from and payable to banks recorded in current assets and other current
liabilities, respectively, associated with closed contract positions was
$247,000 and $289,000, respectively.
The estimated fair values of these foreign currency forward amounts and
purchased options used to hedge the Company's risks will fluctuate over time.
These fair value amounts should not be viewed in isolation, but rather in
relation to the fair values of the underlying hedged transactions and
investments and the Company's overall exposure to fluctuations in foreign
exchange rates.
Gains and losses from and premiums paid for forward or option transactions that
hedge inventory purchase commitments are included in the carrying cost of
inventory and are recognized in cost of sales upon sale of the inventory. Net
deferred charges from hedging amounted to $640,000 and $403,000 at January 31,
1997 and 1996, respectively, and were included in other current assets on the
accompanying balance sheet.
Gains and losses on financial instruments that are designated and effective as
hedges of net investments in international operations are included in
shareholders' equity in the cumulative translation adjustment account.
NOTE 6 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The estimated fair value of the Company's Senior Notes at January 31, 1997
approximated the carrying value of the notes as the difference between
market-based interest rates at the balance sheet date and the 6.56% fixed rate
of the notes was minimal. The fair value of the Company's other monetary assets
and liabilities approximate carrying value due to the relatively short-term
nature of these items.
32
38
NOTE 7 - INCOME TAXES
The provision for (benefit from) income taxes for the fiscal years ended January
31, 1997, 1996 and 1995 consist of the following components (in thousands):
1997 1996 1995
------- ------- -------
Current:
U.S. Federal $ 1,667 $ 1,609 $ 270
U.S. State and Local 477 460 195
Non-U.S 860 1,430 (601)
------- ------- -------
3,004 3,499 (136)
------- ------- -------
Noncurrent:
U.S. Federal -- -- --
U.S. State and Local -- -- --
Non-U.S 845 800 64
------- ------- -------
845 800 64
------- ------- -------
Deferred:
U.S. Federal -- 450 (2,400)
U.S. State and Local -- (350) --
Non-U.S 4 (523) (40)
------- ------- -------
4 (423) (2,440)
------- ------- -------
Provision for (benefit from) income taxes $ 3,853 $ 3,876 ($2,512)
======= ======= =======
During fiscal 1997, there were no material changes in the Company's deferred tax
asset and liability accounts. Taxes were provided for at a rate of 24.8% and
28.5% for fiscal 1997 and 1996, respectively. The reduction in the consolidated
tax rate is predominantly due to higher earnings in lower tax jurisdictions.
The Company's deferred federal U.S. tax charge for the year ended January 31,
1996, principally resulted from the utilization of federal domestic net
operating loss and Alternative Minimum Tax (AMT) credit carryforwards. The
Company's state and local deferred tax benefit results from the realization of
deferred state and local tax benefits. The Company's deferred U.S. federal tax
benefit for the year ended January 31, 1995 principally results from the
reversal of valuation allowances related to deferred tax assets for domestic net
operating loss carryforwards, AMT credit carryforwards and future domestic
income tax deductions. As required under Statement of Financial Accounting
Standards No. 109, these allowances are to be reversed when the Company believes
that the related tax benefits are more likely than not to be realized. The
reversal of the valuation allowances coincided with the return of U.S.
operations to profitability due not only to growth in the domestic business but
also to a substantial reduction in interest expense as a result of the Company's
refinancing completed in fiscal 1994. The Company's current benefit for foreign
taxes in fiscal 1995 was primarily attributable to a favorable impact from Swiss
Cantonal tax law changes.
The deferred U.S. federal tax benefit for the year ended January 31, 1995
represents a portion of the tax effect of U.S. net operating loss carryforwards
and future tax deductions which mainly arose in prior years and for which a 100%
valuation allowance had been recorded. The reduction in the valuation allowance
was primarily due to the fiscal 1995 refinancing which management believed would
result in the realization of at least a portion of its accumulated deferred tax
benefits due to expected interest savings in the U.S.
33
39
Deferred income taxes reflect the tax effect of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred income taxes have been
classified as current or noncurrent on the consolidated balance sheets based
on the underlying temporary differences and the expected due dates of taxes
payable upon reversal. Significant components of the Company's deferred income
tax assets and liabilities for the fiscal
year ended January 31, 1997 consist
of the following (in thousands):
DEFERRED TAX
----------------------
ASSETS LIABILITIES
------- -----------
Operating loss carryforwards $ 2,357 $ --
Rent accrual 650 --
Inventory reserve 631 5,091
Receivable allowance 1,022 551
Depreciation/amortization 797 53
Other 523 308
------- -------
5,980 6,003
Valuation allowance (2,580) --
------- -------
Total $ 3,400 $ 6,003
======= =======
As of January 31, 1997, the Company had foreign net operating loss carryforwards
of approximately $5,500,000 which are available to offset taxable income in
future years. Additionally, the Company has domestic capital loss carryforwards
of approximately $260,000 which expire in fiscal 1998. As of January 31, 1997,
the Company continued to maintain a 100% valuation allowance with respect to the
tax benefit of foreign net operating loss carryforwards. The Company has not
recorded a deferred tax asset related to its capital loss carryforwards due to
uncertainty as to its realization. Management is continuing to evaluate the
appropriate level of allowance based on future operating results and changes in
circumstances.
The provision for (benefit from) income taxes differs from the amount determined
by applying the U.S. federal statutory rate as follows (in thousands):
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
1997 1996 1995
------- ------- -------
Provision for income taxes at the U.S. statutory rate $ 5,441 $ 4,760 $ 3,887
Realization of capital and operating loss carryforwards -- (177) (1,561)
Recognition of deferred tax asset -- -- (2,400)
Lower effective foreign income tax rate (2,369) (1,215) (3,003)
Tax provided on repatriated earnings of foreign
subsidiaries 308 328 300
State and local taxes, net of federal benefit 315 73 195
Other 158 107 70
------- ------- -------
$ 3,853 $ 3,876 ($2,512)
======= ======= =======
No provision has been made for taxes on foreign subsidiaries' undistributed
earnings of approximately $84,000,000 at January 31, 1997, as those earnings are
intended to be reinvested. As a result of various tax planning alternatives
available to the Company, it is not practical to estimate the amount of tax, if
any, that might be payable on the eventual remittance of such earnings. On
remittance, certain withholding taxes would be imposed which might be available
to offset a U.S. tax liability, if any. In the event all undistributed earnings
as of January 31, 1997 were remitted, approximately $4,170,000 of withholding
taxes would be imposed.
34
40
NOTE 8 - OTHER ASSETS
In fiscal 1996, the Company entered into an agreement with a trust which owns an
insurance policy issued on the lives of the Company's Chairman and Chief
Executive Officer and his spouse. Under that agreement the trust has assigned
the insurance policy to the Company as collateral to secure repayment by the
trust of interest free loans to be made by the Company in amounts sufficient for
the trust to pay the premiums on said insurance policy ($740,000 per annum).
Under the agreement, the trust will repay the loans from the proceeds of the
policy. The Company had loaned approximately $879,000 and $199,000 under this
agreement at January 31, 1997 and 1996, respectively.
NOTE 9 - OTHER LIABILITIES
Other liabilities include notes payable to employees of $414,000 as of January
31, 1997 and 1996, respectively, issued in connection with redemption of all
4,664 outstanding shares of the Company's former Class B (Non-Voting) Common
Stock. The redemption was effective July 31, 1993.
NOTE 10 - RESTRUCTURING CHARGE
During fiscal 1997, the Company signed a distribution agreement with Junghans
Uhren GmbH to distribute Movado watches in Germany. As a result of this
agreement, the Company closed its German sales office and recorded a charge of
approximately $450,000, included in selling, general and administrative
expenses, to cover severance and other costs to close the operation. Most of
these costs will be paid in the first quarter of fiscal 1998.
NOTE 11 - LEASES, COMMITMENTS AND CONTINGENCIES
Rent expense for equipment and distribution, factory and office facilities held
under operating leases was approximately $4,270,000, $3,274,000 and $3,384,000
in fiscal 1997, 1996 and 1995, respectively. Minimum annual rentals at January
31, 1997 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:
Year ending January 31,
(in thousands):
1998 $ 4,807
1999 4,610
2000 4,177
2001 4,065
2002 3,925
2003 and thereafter 9,259
-------
$30,843
=======
The Company has entered into capital leases to finance the cost of enhancing its
management information systems in the United States and Switzerland. The gross
value of computer equipment recorded under capital leases was $3,848,000 and
$3,631,000 as of January 31, 1997 and 1996, respectively. Accumulated
depreciation of computer equipment recorded under capital leases was $2,421,000
and $1,959,000 as of January 31, 1997 and 1996, respectively.
35
41
Future minimum lease payments for equipment under capital leases at January 31,
1997 are as follows:
Year ending January 31, (in thousands):
1998 $ 183
1999 230
-------
Total minimum lease obligations 413
Less interest (41)
-------
Present value of minimum lease obligations 372
Less current portion (156)
-------
Net amount due after one year $ 216
=======
Due1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve an amendment to the natureCompany's 1996 Stock Incentive Plan increasing
from 1,500,000 to 2,000,000 the number of its businessshares of Common Stock authorized for
issuance under the plan and authorizing certain other amendments.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion the Proxies are authorized to vote upon such other matters
as a luxury consumer goods distributor,may properly come before the Company is exposed to various commercial losses.meeting or any adjournment or postponement
thereof.
Change of Address and
or Comments Mark Here [ ]
The Company believes it is
adequately insured against such losses.
NOTE 12 - EMPLOYEE BENEFIT PLANS
Prior to fiscal 1995, the Company maintained two primary benefit plans for its
domestic employees; a noncontributory Profit Sharing Plan and an Employee
Savings Plan under Section 401(k) of the Internal Revenue Code. Company
contributionssignature on this Proxy should correspond exactly with stockholder's name as
printed to the Profit Sharing Plan were atleft. In the discretioncase of joint tenancies, co-executors, or
co-trustees, both should sign. Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian should give their full title.
Dated: , 1998
--------------------------------
Signature
-----------------------------------
Signature
-----------------------------------
Please Sign, Date and Return the Proxy Promptly Using the Enclose Envelope.
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [X]
41
MOVADO GROUP, INC.
PROXY/VOTING INSTRUCTION CARD
- --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors of MOVADO
GROUP, INC. for the Annual Meeting on June 11, 1998
The undersigned appoints Timothy F. Michno and no such contributions were madeHoward Regenbogen, and
each of them, with full power of substitution in fiscal 1997, 1996 and 1995.
Company contributions and expenses of administeringeach, the Employee Savings Plan
amounted to $127,000, $106,000 and $84,000 in fiscal 1997, 1996 and 1995,
respectively.
During fiscal 1995, the Company merged its Profit Sharing Plan with and into the
Employee Savings Plan and transferred participants' assets accumulated under the
Profit Sharing Plan to the Employee Savings Plan. The merged Plan retains the
characteristicsproxies of the
former Employee Savings Plan.
Effective June 1, 1995,undersigned, to represent 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 1997undersigned and 1996, the Company recorded
expenses related to the SERP of approximately $138,000 and $42,000,
respectively.
On September 23, 1994, the Company entered into a Death and Disability Benefit
Plan agreement with the Company's Chairman and Chief Executive Officer. 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
$300,000 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 $85,000 and $78,000 for fiscal 1997 and 1996,
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 the Compensation Committee of
the Board of Directors, which is comprised of the Company's three outside
directors, has the authority to grant incentive stock options and nonqualified
stock options
36
42
to purchase, as well as stock appreciation rights and stock award, up to
800,000vote all shares of Common Stock. Options granted to participants under the Plan
become exercisable in equal installments on the first through fifth
anniversaries of the date of grant 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 1995 are summarized as
follows:
WEIGHTED
OUTSTANDING AVERAGE PRICE EXERCISABLE
OPTIONS PER SHARE OPTIONS
----------- ------------- -----------
January 31, 1994 266,000 $14.00
Options granted 15,000 12.79
Options that became exercisable 14.00 41,100
Options terminated (60,500) 14.00
----------- ------------- -----------
January 31, 1995 220,500 13.90 41,100
Options granted 107,000 13.99
Options that became exercisable 36,000
Options exercised (15,200) 14.00
Options terminated (4,000) 14.00
----------- ------------- -----------
January 31, 1996 308,300 13.93 77,100
Options granted 229,000 20.59
Options that became exercisable 62,020
Options exercised (19,600) 14.00
Options terminated (7,900) 14.00
----------- ------------- -----------
January 31, 1997 509,800 $16.92 139,120
At January 31, 1997 and 1996, 273,798 and 176,500 options to purchase shares of
Common Stock were available for additional grants, respectively. Options
exercisable at January 31, 1997 had a weighted average price of $13.95 per
share.
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $6.51 and $4.71 per share
in fiscal 1997 and 1996, respectively. The following weighted-average
assumptions were used for grants in both 1997 and 1996: dividend yield of 2% for
all years; expected volatility of 26%, risk-free interest rates of 5.6% and 6.3%
for fiscal 1997 and 1996, respectively, and expected lives of 7 years.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for the Plan.
Had compensation cost for the Company's fiscal 1997 and 1996 grants for
stock-based compensation plans been determined based on the fair value at the
grant dates and recognized ratably over the vesting period, the Company's net
income and net income per common share for fiscal 1997 and 1996 would
approximate the pro forma amounts below (in thousands except per share data):
1997 1996
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
Net income $ 11,692 $ 11,392 $ 9,724 $ 9,651
========= ========= ========= =========
Net income per common share $ 1.94 $ 1.89 $ 1.62 $ 1.61
========= ========= ========= =========
The pro forma impact takes into account options granted since February 1, 1995
and is likely to increase in future years as additional options are granted and
amortized ratably over the vesting period.
37
43
NOTE 13 - GEOGRAPHIC AREAS
The table below provides information pertaining to the Company's operations in
different geographic areas. For purposes of discussion, the Company divides its
business into two major geographic segments; "domestic", which includes the
results of the Company's United States and Canadian operations and
"international", which includes the results of all other Company operations. The
Company's international operations are principally conducted in Europe. The
Company's international assets are substantially located in Europe. Other
international operations contributed less than 10% of consolidated net sales and
constituted less than 10% of consolidated total assets for all periods presented
(in thousands).
DOMESTIC INTERNATIONAL ELIMINATIONS CONSOLIDATED
FISCAL YEAR 1997:
Revenue from sales to unaffiliated customers $175,404 $ 39,703 $ -- $215,107
Intercompany sales 1,635 84,103 (85,738)
-------- -------- --------- --------
Net sales $177,039 $123,806 $ (85,738) $215,107
======== ======== ========= ========
Income from continuing operations before
income taxes $ 3,102 $ 12,825 $ (382) $ 15,545
======== ======== ========= ========
Identifiable assets $108,606 $115,007 $ (15,170) $208,443
======== ======== ========= ========
FISCAL YEAR 1996:
Revenue from sales to unaffiliated customers $146,749 $ 39,118 $ -- $185,867
Intercompany sales 2,830 71,656 (74,486) --
-------- -------- --------- --------
Net sales $149,579 $110,774 $ (74,486) $185,867
======== ======== ========= ========
Income from continuing operations before
income taxes $ 5,103 $ 9,244 $ (747) $ 13,600
======== ======== ========= ========
Identifiable assets $104,770 $121,246 $ (25,636) $200,380
======== ======== ========= ========
FISCAL YEAR 1995:
Revenue from sales to unaffiliated customers $125,639 $ 35,214 $ -- $160,853
Intercompany sales 2,164 74,658 (76,822) --
-------- -------- --------- --------
Net sales $127,803 $109,872 $ (76,822) $160,853
======== ======== ========= ========
Income from continuing operations before
income taxes $ 4,728 $ 7,273 $ (569) $ 11,432
======== ======== ========= ========
Identifiable assets $ 99,566 $111,074 $ (23,691) $186,949
======== ======== ========= ========
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44
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 1997 and 1996 (in thousands, except per share amounts):
QUARTER ENDED
OCTOBER JANUARY
APRIL 30 JULY 31 31 31
------------------------------------------------------
1997
Net sales $ 31,014 $50,751 $76,864 $56,478
Gross profit $ 17,351 $27,630 $42,967 $32,128
Net (loss) income $ (474) $ 1,684 $ 7,350 $ 3,132
Per share:
Net (loss) income $ (0.08) $ 0.28 $ 1.22 $ 0.52
1996
Net sales $ 28,204 $43,986 $68,079 $45,598
Gross profit $ 14,917 $23,311 $36,132 $28,005
Net (loss) income $ (1,058) $ 1,444 $ 6,507 $ 2,831
Per share:
Net (loss) income $ (0.18) $ 0.24 $ 1.08 $ 0.47
Net income for the quarter ended January 31, 1997 includes the effect of a
one-time, pre-tax charge of approximately $450,000 in connection with
restructuring the Company's German operation. (See Note 10 to Consolidated
Financial Statements).
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
1997 1996 1995
----------------------------------
Cash paid during the year for:
Interest $5,141 $4,887 $4,464
Income taxes $4,321 $2,395 $1,217
Non-cash investing and financial activities:
Equipment acquired under capital lease $ 217 $ 422 $ 51
NOTE 16 - SUBSEQUENT EVENT
On April 3, 1997 the Company's Board of Directors approved a five-for-four stock
split of the Company's common stock. The stock split will become effective April
21, 1997. Financial information contained in this report has not been adjusted
to reflect the impact of the common stock split.
39
45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Movado Group,
Inc.
In our opinion,, which the accompanying consolidated balance sheetsundersigned may be entitled to vote at the Annual Meeting of
Shareholders to be held on June 11, 1998, and at any adjournment or postponement
thereof, as indicated on the related
consolidated statements of income, cash flows and changes in shareholders'
equity present fairly, in all material respects, the financial position of
Movado Group, Inc. and its subsidiaries at January 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three yearsreverse side.
This proxy, when properly executed, will be voted in the period ended January 31, 1997, in conformity with generally accepted
accounting principles. These financial statements aremanner
directed herein by the responsibility of the
Company's management; our responsibilityundersigned shareholder. If no direction is given, this
proxy will be voted FOR proposals 1, 2 and 3.
MOVADO GROUP, INC.
P.O. BOX 11346
NEW YORK, N.Y. 10203-0346
(Continued, and to express an opinionbe signed and dated on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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 the opinion expressed above.
/s/PRICE WATERHOUSE LLP
New York, New York
March 24, 1997, except as to Note 16, which is as of April 3, 1997.
reverse side.)