SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended March 2, 1996
Commission file number 1-8509
NANTUCKET INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-096269
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
105 Madison Avenue, New York, New York 10016
(Address of principal executive offices) (Zip Code)
(212) 889-5656
(registrant's telephone number)
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Name of each exchange on which registered
Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The aggregate market value of the outstanding Common Stock of the registrant
held by non-affiliates of the registrant as of May 21, 1996, based on the
closing price of the Common Stock on the American Stock Exchange on said date
was $9,775,000.
As of May 21, 1996, the Registrant had outstanding 2,988,796 shares of Common
Stock not including 3,052 shares classified as Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE.
The following items are incorporated by reference from the proxy statement for
the fiscal year ended March 2, 1996:
PART III - Items 10, 11, 12, 13.
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PART I
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ITEM 1. BUSINESS
General
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Nantucket Industries, Inc. (the "Company") produces and distributes popular
priced branded men's' fashion undergarments for sale, throughout the United
States, to mass merchandisers and national chains. Nantucket also produces,
under the GUESS? label, women's innerwear which it sells to department and
specialty stores. This allows the Company to be a major supply source for men's'
and women's undergarments and intimate apparel covering many retail price
points. Production and distribution of the Company's product lines is based in
its facility in Cartersville, Georgia. From November, 1992 to July 1, 1994, when
it was closed, the Company had a manufacturing facility in Rio Grande, Puerto
Rico. In addition, substantial quantities of the Company's products are
manufactured by offshore production contractors located in the Far East,
Caribbean Basin and South America.
Since its founding in 1947, the Company has gradually evolved into a major
manufacturer of high fashion, creatively styled men's' and ladies'
undergarments. With this transition has come an increased emphasis upon quality
control, creative fashion design, innovative marketing and brand name
recognition. With the commencement in fiscal 1994 of the GUESS? Division, the
Company has expanded its customer base from mass merchandisers and chain stores,
to better department stores and specialty stores.
Restructuring Strategy
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In recent years, the Company was burdened with an unprofitable Puerto Rico
facility and low margin product lines which created challenges in its business,
profitability and financial resources. In the fourth quarter of the fiscal year
which ended February 26, 1994 the Company began the implementation of a
restructuring strategy to improve operating results and enhance its financial
resources.
Specific steps taken included:
. The shutdown of the Puerto Rico facility
. Improving the product mix by eliminating unprofitable lines
(women's products other than those sold under the GUESS? license
and socks) and terminating business with Avon Products, the
principal customer of the Puerto Rico facility
. Terminating the employment contracts of its former chairman and
vice chairman,
. Increasing equity through a $1 million private placement to the
new management team and the sale of $2.9 million of treasury
stock to GUESS?.
. Obtaining additional working capital financing through the
restructuring of credit facilities.
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In April, 1996 the Company signed a letter of intent for a $3.5 Million
private placement consisting of 250,000 shares of common stock and $2,625,000 of
12.5% convertible subordinated debentures due August 31, 2001. The debentures
will be secured by a second mortgage on the Company's manufacturing and
distribution facility in Georgia and are convertible into 467,167 shares of
common stock in specified amounts after specified dates at prices ranging from
$5.10 to $6.00. Closing of the transsaction is expected in early June, 1996.
In connection with the implementation of these actions, the Company
reflected, as described in Note 2 of its financial statements for the fiscal
years ended February, 1995 and February, 1994, unusual charges, of $1,252,400
and $5,450,000, respectively. The combined charges for both years include
approximately $760,000 of expenses incurred in closing the Puerto Rico facility,
write-downs and reserves of asset values and other non-cash items ($1.5 million
write-off of goodwill, $2.1 million writedowns of inventory, $530,000 writedowns
of fixed assets) and the accrual for the severance payments to the former
Chairman and Vice Chairman of the Board ($1,765,000). As described below, in
fiscal 1996 the Company recorded an unusual credit of $300,000 related to the
elimination of a subordinated note payable associated with the purchase of the
Puerto Rico facility since the likelihood of payment on such note is considered
remote.
Phoenix Associates, Inc.
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As of November, 1992, the Company acquired all of the stock of Phoenix
Associates, Inc. ("Phoenix") located in Puerto Rico. Phoenix manufactured men's'
and ladies' undergarments and ladies' apparel as an exclusive contractor of the
Company. The purchase price was $1,500,000 plus contingent payments based on
sales and margins of products sold to Avon Products, Inc., a major customer of
Phoenix.
In April, 1993, in connection with the annual audit of the Company's
financial statements for the fiscal year ended February, 1993, the Company
discovered an inventory variance of $1,700,000 at the Phoenix facility. The
Company determined that this was principally attributable to previously
unrecorded manufacturing and material cost variances at the Phoenix facility.
The ongoing manufacturing inefficiencies and cost variances continued and,
in the fourth quarter of fiscal 1994, the Company formulated plans to close this
facility. Operations at this facility ceased as of July, 1994.
For the year ended February, 1994 an unusual charge was recorded which
included $3,308,000 attributable to the shutdown of this facility. A final
assessment associated with this closing required additional write-offs,
reflected as an unusual charge of $1,252,400 in fiscal 1995. These charges,
related to the closing of the Phoenix facility, are as follows:
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Fiscal 1995 Fiscal 1994
Shutdown Costs $160,000 $300,000
Write-off Goodwill $1,478,000
Write-off Inventory $1,092,400 $1,000,000
Write-down of Property, Plant
and Equipment $530,000
In 1993, the Company, and its wholly-owned subsidiary, Nantucket Mills,
Inc. initiated an action against the former owners of the Puerto Rico
facility. In the third quarter of the current fiscal year, the Company
concluded that its claims against the holder of a note payable from Mills
are in excess of the $300,000 due and, in the opinion of legal counsel and
management, the likelihood of any payment of this note being required is
remote. Accordingly the Company has eliminated this payable and reflected
such reduction as an unusual credit in the accompanying financial
statements.
Financing Arrangements
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Revolving Credit
The company had a $9.5 million secured borrowing facility with
Chemical Bank which expired on February 28, 1994. On March 22, 1994,
the Company entered into a new $15 million three year revolving credit
facility with Congress Financial Corp. The revolving credit agreement
provides for loans based upon eligible accounts receivable and
inventory, a $3,000,000 letter of credit facility and purchase money
term loans of up to 75% of the orderly liquidation value of newly
acquired and eligible equipment. Borrowings bear interest at 1-3/4% to
3% above prime. The agreement requires, among other provisions, the
maintenance of certain working capital and net worth and also contains
restrictions regarding payment of dividends. Borrowings under the
agreement are collateralized by substantially all of the assets of the
Company.
In connection with this refinancing, the Company used
$5,090,000 of the proceeds of the revolving credit facility to reduce
the balance due to Chemical Bank and simultaneously entered into a
$2,000,000 Term Loan Agreement with Chemical Bank. At December 15, 1995
$1,000,000 was outstanding under this loan. Pursuant to an amendment to
this agreement, the Company made payments of $100,000 each on December
31, 1995 and January 31, 1996 and agreed to pay the remaining $800,000
in 15 equal installments commencing March 31, 1996. The amendment also
requires certain prepayments in the event the Company refinances any
existing debt or obtains additional equity or debt financing. Pursuant
to the agreement, the Company issued 10,000 treasury common shares
related to its decision to defer making the mandatory prepayments.
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Real Estate Financing
On June 8, 1994 the Company borrowed $1,500,000 under a
separate five year term loan with Congress Financial Corp. and repaid a
$1,700,000 Industrial Revenue Bond financing. The Congress loan is
secured by the Company's facility in Cartersville, Georgia.
Capital Investment and Change of Management
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Simultaneously with the financing transactions described above, on March 22,
1994 the Samberg Group, L.L.C. (the "Group"), a limited liability company
organized under the laws of Delaware and comprising as members Stephen M.
Samberg ("Samberg"), Stephen P. Sussman, Robert Polen , Raymond L. Wathen and,
effective January 30, 1995 , Toby Hoffman (collectively, the "Group Members")
purchased 5,000 shares of the Company's Non-Voting Convertible Preferred Stock
("Preferred Stock") for $1,000,000. The Preferred Stock acquired by the Group is
convertible into shares of Common Stock, $.10 par value per share, of the
Company ("Common Stock") at the rate of $5.00 per share.
Also, on March 22, 1994, Samberg, President of the Company, was elected
Chairman of the Board, Chief Executive Officer and Treasurer of the Company by
the board of directors of the Company (the "Board"). Concurrently, George J.
Gold resigned as Chairman of the Board and Treasurer of the Company and Donald
D. Gold resigned as Vice Chairman of the Board and Secretary of the Company.
(George J. Gold and Donald D. Gold are referred to herein collectively as the
"Golds".)
The Golds' existing employment contracts (the terms of which expire on
February 28, 1999) have been canceled and replaced by a Termination and
Severance Agreement pursuant to which the Golds will receive aggregate payments
for severance of approximately $400,000 per year and other benefits for five
years. Included in the unusual charge provided in the financial statements for
the fiscal year ended February 26, 1994 is $1,765,000 attributable to the
accrual of the present value of such severance payments.
Also, effective as of March 22, 1994 Messrs. Philip A. Gold and Drew F.
Wofford resigned as directors. Such vacancies have been filled by electing as
directors Raymond L. Wathen, the President of the Company's GUESS? division, and
Ronald S. Hoffman, who at the date of his election was not affiliated with the
Company. As of July 1, 1994, Mr. Hoffman joined the Company as Vice President
Finance and Chief Financial Officer; he remains a director.
Finally, all of the Golds, The Group, the Group Members and the Company have
entered into a voting trust agreement (the "Voting Trust Agreement") for a term
of five years, providing for the Voting Trustee thereunder to vote shares owned
by such parties as follows:
(i) in all elections for director through the 1996 election, in
favor of the two Golds, the Group Non-Employee Director (as defined
in the Voting Trust Agreement generally to mean a nominee of the
Group who is not an employee of the Company), Samberg,
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Wathen (or replacements therefor designated by the Group), and
Robert M. Rosen and/or one or more other directors who are
neither employees of the Company nor affiliates or close
associates of a competitor or licensor of the Company
("Non-Employee Directors") nominated in accordance with the
Voting Trust Agreement (if any directors so elected fail to
finish their respective three-year terms, the election of their
successor would be subject to the same requirements);
(ii) in all elections for director through the remaining term of the
Voting Trust Agreement, in favor of the two Golds, Samberg and one
other nominee designated by the Group, and with respect to other
nominees in accordance with the direction of the beneficial owners
of the shares in the voting trust with respect to their respective
shares, provided that any such owner wishing to vote against any
nominee must give notice thereof at least 15 days prior to the vote;
(iii) with respect to any merger, sale of assets, share issuance
requiring shareholder approval or similar transaction outside of the
ordinary course of business, as directed by the beneficial holders
of the shares held in the voting trust with respect to their
respective shares; and
(iv) with respect to any other matter in accordance with the vote of
a plurality of the holders of Common Stock other than the shares
held in the voting trust, provided that if fewer than 50% of such
shares in the aggregate are voted (either for or against) with
respect to such matter, the Trustee shall abstain from voting with
respect to such matter.
The total number of shares of Common Stock subject to the Voting Trust
Agreement as of the date hereof is 708,923 which represents approximately 24% of
the outstanding Common Stock and which does not include shares of non-voting
Preferred Stock owned by the Group and convertible to Common Stock.
Products and Sales
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The Company manufactures and sells men's' fashion underwear to mass
merchandisers and, in the case of the GUESS? division, men's' and ladies'
undergarments to better department and specialty stores, primarily through
direct contact by salaried and commissioned Company sales personnel. All sales
are made to customers generally not affiliated with the Company. These goods are
sold under various licensed trademarks as well as under the private label of the
customer. The Company promotes its brand name undergarments with seasonal
marketing programs and sales events. Through the fiscal year ending February 26,
1994, the Company also sold ladies' socks and hosiery.
The Company operates as a single business segment. Net sales and operating
profits or losses for each of fiscal years ending March, 1996, February, 1995
and February, 1994 are presented in the accompanying financial statement
captioned "Consolidated Statements of Operations".
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Mens' Undergarments
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The Company's men's' fashion briefs are sold primarily under the licensed
trademarks "BRUT", "BRUT 33", "BRITTANIA", "ARROW", "BOTANY 500" and "GUESS?".
The Company targets undergarments marketed under each of these trademarks to
different segments of the market.
GUESS? Division
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The Company sells ladies' innerwear and men's undergarments under the
licensed trademark "GUESS?". These products are distributed through better
department and specialty stores. Sales of GUESS? products commenced at the end
of the third fiscal quarter of fiscal 1994 and did not account for a significant
percentage of the Company's consolidated net sales during that year. Sales in
fiscal 1996 and 1995 of GUESS? products aggregated $ 4.9 million and $3.1
million respectively.
Eliminated Product Lines
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Ladies' Undergarments and Outerwear
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The ladies' undergarment and outerwear division manufactured and
sold a number of products including panties, crop tops, bodysuits, sports
bras, thermal underwear, sweatshirts, night shirts, boxer shorts, and
specially designed panties for incontinent women. During fiscal 1994, the
Company ceased operations at this division in order to focus its resources on
the higher margin Mens' and GUESS? divisions.
The Company continues to design, manufacture and sell ladies'
innerwear through the GUESS? division.
Ladies' undergarments and outerwear accounted for approximately 3%
of the Company's consolidated net sales in fiscal 1994.
Women's Sock Division
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The women's sock division shipped basic, sports and fashion sock
styles in single and multi-pair packages to mass merchants, specialty stores
and shoe chains. The Company did not manufacture any socks or hosiery and
acquired all its product from independent domestic sources. During fiscal
1994, the Company ceased operations at this division.
Sales of women's socks and hosiery accounted for approximately 10%
of the Company's consolidated net sales in fiscal 1994.
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Avon Products, Inc.
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The principle customer of the Company's Phoenix facility in Puerto
Rico was Avon Products, Inc. In conjunction with the shutdown of this
facility, the Company terminated its business with Avon. Sales to Avon
represented 12% of the Company's consolidated net sales in fiscal 1994.
Sources of Materials
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The Company uses primarily cotton and synthetic fabrics (nylon, polyester and
acetate) for its undergarment products. At present, adequate supplies of raw
materials are available from numerous sources. The Company purchases raw
material from numerous domestic sources and purchases complete garments from
foreign manufacturers located in the Far East, Mexico and the Caribbean Basin
and has products sewn in the Caribbean basin and Colombia. Such foreign
manufacturers account for production of approximately 70% of all the Company's
products.
The Company does not have any long term contracts with any of its foreign
manufacturers.
Licenses and Trademarks
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On December 7, 1992, the Company signed an agreement with GUESS?, Inc. for
the exclusive United States rights to produce and sell undergarments bearing the
"GUESS?" trademark and variations thereof. Effective May 31, 1996, the license
was extended through the period ended May 31, 1999. Minimum royalties of $70,000
for the 18-month period ended May 31, 1994, $105,000 for the 12 month period
ended May 31, 1995 and $140,000 for the period to end May 31, 1996 were
exceeded. Minimum royalties will increase by $35,000 in each 12-month period
thereafter. The license is subject to termination prior to its expiration if
certain minimum sales goals are not met. Such minimum sales goals of $1 million
for the 18-month period December 1, 1992 through May 31, 1994 , $2 million for
the 12 months ended May 31, 1995 and $3 million for the period to end May 31,
1996 were exceeded. For the contract year ending May 31, 1997, minimum sales of
$8 million are required. For each contract year ending in May thereafter, the
minimum sales goal increases by $2,000,000. The Company began shipping product
under this trademark during the third quarter of fiscal 1994. Net sales of
GUESS? products were $4.9 million in fiscal 1996, $3.2 million in fiscal 1995
and $620,000 in fiscal 1994. Sales for the contract year ending May, 1996 will
exceed the minimum.
On September 6, 1988, the Company acquired a license with BRITTANIA
Sportswear, Ltd. a wholly owned subsidiary of Levi Strauss, to manufacture and
market men's' underwear and ladies' intimate apparel, including bra and panty
coordinates,and, as of January, 1996, men's and ladies loungewear, under the
trademark "BRITTANIA". The license, which is to expire in December, 1996 is
expected to be renewed for at least a two year term with additional renewal
options expected. Minimum royalties of $144,000 in calendar year 1994, $220,000
in calendar year 1995 and $230,000 in calendar year 1996 are guaranteed under
this license. Sales under this
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license represented approximately $14.6 million in fiscal 1996, $14.2 million in
fiscal 1995 and $6.9 million in fiscal 1994.
The Company's license for use of the "BRUT" and "BRUT 33" trademarks in
connection with its men's' undergarments expires in February 1998. The license
may, however, be revoked prior to its expiration, at the licensor's option, in
the event that net sales are less than $5,000,000 in any fiscal year. Products
sold under the "BRUT" and "BRUT 33" license agreements represented $5.1 million
in fiscal 1996, $6.5 million in fiscal 1995 and $8.3 million in fiscal 1994. A
minimum royalty of $100,000 is guaranteed under the License for each annual
period.
On October 5, 1992, the Company signed an agreement with Cluett, Peabody &
Co., Inc. for the exclusive United States rights to produce and sell men's' and
boys' fashion underwear, T-shirts, V-neck shirts, tank tops, briefs and boxer
shorts bearing the "ARROW" trademark during the period commencing January 1,
1993 and expiring, as extended, through December 31, 1999. A minimum royalty of
$162,500 is guaranteed under the license for each annual period commencing
January 1, 1993 and expiring on December 31, 1996; and a minimum royalty of
$250,000 is guaranteed for each such period during the extension period. The
Company began shipping product under this trademark during the first quarter of
fiscal 1994. Net sales under this license were $4.8 million in fiscal 1996, $4.3
million in fiscal 1995 and $6.3 million in fiscal 1994.
On December 21, 1992, the Company signed an agreement with McGregor
Corporation for the exclusive United States rights to produce and sell men's'
and boys' fashion knit underwear briefs bearing the "BOTANY 500" trademark
during the period commencing on January 1, 1993 and expiring, pursuant to an
extension, December 31, 1998 with further extensions through December 31, 2001.
McGregor Corporation may, at its option, terminate the license prior to its
expiration if certain minimum sales goals are not met. Minimum sales levels for
calendar 1996 are $750,000 and $1 million for each calendar year thereafter
through December 31, 1998. The Company began shipping product under this
trademark during the first quarter of fiscal 1994. Net sales under this license
were $1.1 million in fiscal 1996, $1.1 million in fiscal 1995 and $991,000
during fiscal 1994.
On November 20, 1991, the Company signed sublicense agreements with Dawson
Consumer Products, Inc. for the exclusive United States rights to produce and
sell men's' high fashion knitted underwear briefs bearing the "ADOLFO" and "JOHN
HENRY" trademarks. The license for ADOLFO expired on September 30, 1994. During
fiscal 1996, Dawson Consumer Products relinquished its license for the JOHN
HENRY trademark. Accordingly, the Company gave up its right to the JOHN HENRY
brand. Net sales of ADOLFO and JOHN HENRY products were not significant in any
reported fiscal year.
The loss of the right to sell products under these labels would have a
material adverse effect on the Company.
On April 3, 1990, the Company signed an agreement with "DANSKIN", a division
of Esmark Apparel, Inc., for the exclusive United States rights to produce and
sell women's socks bearing the DANSKIN trademark. The license expired September
30, 1993. Net sales under this license
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were approximately $2.2 million for fiscal 1994. The Company has terminated its
women's sock division.
Seasonality
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Sales of the Company's products are traditionally highest in the third fiscal
quarter, which extends through autumn, when many of the pre-Christmas sales are
made, and are typically lowest in the fourth fiscal quarter.
Customers
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Three of the Company's customers each accounted for more than 10% of the
Company's consolidated net sales during fiscal 1996, 1995 and 1994.
For the fiscal year ended March 2, 1996, approximately 40% of the Company's
consolidated net sales were made to K-Mart, as compared to 43% for fiscal 1994,
and 27% for fiscal 1994.
For the fiscal year ended March 2, 1996, approximately 21% of the Company's
consolidated net sales were made to were made to Target Stores, as compared to
17% for fiscal 1995 and 15% for fiscal 1994.
For the fiscal year ended March 2, 1996, approximately 13% of the Company's
consolidated net sales were made to Sears, as compared to sales in the prior
fiscal year of 12%. Sales in fiscal 1994 were 14% of consolidated sales.
The Company has long standing relationships with these customers and believes
that such relationships will continue. However, loss of any of these customers
could have a material adverse effect on the Company.
For the fiscal year ended February 26, 1994, approximately 12% of the
Company's consolidated net sales were made to Avon Products. Substantially all
of the goods sold to Avon Products had been produced at the Phoenix Puerto Rico
facility. As a result of the shutdown of the Puerto Rico facility, the Company
ceased selling products to Avon Products in the fiscal year ended February,
1994.
No other customer accounted for more than 10% of the Company's consolidated
net sales for fiscal 1996, 1995 or 1994.
Delivery Requirements
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All purchase orders are taken for current delivery and the Company has no
long-term sales contracts with any customer, or any contract entitling the
Company to be the exclusive supplier of merchandise to a retailer or
distributor.
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Backlog
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The backlog of orders for the Company's products at February, 1996 and 1995
was in excess of $2 million. The backlog at the beginning of each fiscal year is
traditionally lower than at other times during the year, and is not necessarily
indicative of sales prospects for an entire year. Although substantially all of
such orders are subject to cancellation, the Company expects them to be filled
within the current fiscal year.
Backlog levels have decreased due to the Company's continuing implementation
of "just in time" delivery through EDI (electronic data interchange) with most
of the Company's major customers. For fiscal 1996 approximately 95% of the
orders for the men's' division were received through EDI. All EDI orders are
received and shipped on a weekly basis, and industry wide adoption of EDI has
reduced the time between order and delivery. Coupled with the large size of many
of the Company's customers, this has tended to increase the levels of inventory
that the Company is required to maintain in order to fulfill its customers'
requirements. The Company has recognized the need to more closely monitor
inventory levels as well as its purchasing function and will seek to obtain from
its suppliers the same short term delivery commitments that it affords to its
customers.
Competition
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All of the Company's markets are highly competitive.
During the past several years there has occurred a reduction in the number of
retailers available to purchase the Company's products. The remaining retailers
are relatively larger and possess strengthened negotiating positions. It has
become increasingly important that the Company cooperate closely with its
customers, who are among the largest retailers in the United States, in the
development of products, programs and packaging and that it be able to quickly
and completely ship orders which it receives through EDI. During the fiscal year
ended February 26, 1994, the Company experienced difficulty in filling all of
its orders, caused in large part by the cash shortage resulting from losses at
its Puerto Rico facility and the expiration of its financing arrangement with
Chemical Bank. The Company's cash position has been improved significantly by
the refinancing in March 1994 and the additional equity of $3.9 million raised
in fiscal 1995.
The Company competes in the manufacture of its products with numerous other
companies, many of which have substantially greater financial resources than the
Company. The Company's competitors include manufacturers of retailers' private
label, designer label and unbranded merchandise, as well as manufacturers which
produce goods for sale under their own recognized name brands.
Although the largest producers of branded men's' underwear are Fruit of the
Loom, Inc. and Hanes, the Company does not consider these large national brands
to be its direct competition. The Company primarily produces and sells fashion
underwear either under licensed brands which have consumer recognition in areas
other than undergarments or under so-called "private labels" for specific
retailers.
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The Company's largest competition in the GUESS? Division's business are
Calvin Klein and Jockey.
The Company has succeeded in licensing brand names which are potentially very
significant, primarily as a result of its past successes in extending brand
names to its products. The successful implementation of a typical brand name
program requires close coordination between the licensor of the trademark (who
is concerned about the design and quality of product to be sold under its mark
as well as the type of retail outlet in which the products will be sold), the
manufacturer and the retailer. The Company considers that it has particular
expertise in developing such programs. Other competitive considerations include
product design expertise, packaging and shipping reliability, all of which are
strong areas for the Company. Of course, there is no assurance that the Company
will continue to be successful in acquiring or retaining licenses to use
desirable brand names or that, once acquired, such brand names will be
attractive to consumers.
The Company has developed and patented packaging which it believes makes its
products more attractive to the consumer and more theft and damage resistant
than its competitors' packaging. It involves a transparent plastic blister pack
which allows single or multiple garments to be visible in a package which is
heat sealed. Unlike the typical cardboard box with only a small transparent
window, all garments are visible without the need to open the package and, in
fact, the package cannot be opened without a cutting implement. As a result, the
Company has received fewer returns of damaged merchandise. This new packaging
continues to receive strong acceptance.
Imports
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The Company fills 70% of its production requirements through imported
merchandise produced in factories in Mexico, the Caribbean and the Far East. A
variety of sources are utilized in order to increase the reliability of supply.
In addition, the Company deals with contractors who cut and sew garments for the
Company in various locations including South America and the Caribbean. The
primary factors which determine whether the Company will import a specific
garment, have it produced by contractors or produce it at the Company's domestic
facility are the amount of labor required to produce the garment and the time
available between order and delivery dates. Importing is most advantageous for
garments with a high labor content and relatively long delivery time.
Environmental Matters
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The Company believes that its manufacturing facility materially conforms to
all governmental regulations pertaining to environmental quality as presently
promulgated.
Employees
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On March 2, 1996, the Company had a total of approximately 356 employees, of
which 331 were located in Cartersville, Georgia. This represents a 28% reduction
from the prior level of 498 employees reflecting the Company's decision to
transfer domestic production to offshore
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contracting facilities and expand distribution activities at the Cartersville
facility. None of the Company's employees is covered by a collective bargaining
agreement. The Company has never experienced a work stoppage due to labor
difficulties and believes that its relations with its employees are
satisfactory.
ITEM 2. PROPERTIES
The Company's executive offices and showrooms, containing an aggregate of
10,000 square feet of floor area, are located at 105 Madison Avenue, New York,
New York. The Company occupies these premises under a lease which expires in
May, 1997 and provides for aggregate annual rentals of approximately $242,000,
plus increases for certain taxes, energy costs, and any legally required safety
improvements.
The Company owns a 160,000 square foot manufacturing and distribution
facility in Cartersville, Georgia. The Cartersville facility is subject to a
first mortgage lien to Congress Financial and a second mortgage lien to Chemical
Bank collateralizing all of the Company's indebtedness to such lenders. The
Cartersville facility is suitable for the manufacture and distribution of the
Company's products and provides adequate manufacturing facilities for all
planned domestic production.
ITEM 3. LEGAL PROCEEDINGS
On September 27, 1993, a civil action (case No. 93-6766) was instituted by
the Company and its wholly-owned subsidiary, Nantucket Mills, Inc. ("Mills") in
the United States District Court, Southern District of New York, against Stanley
R. Varon and others, seeking compensatory damages of approximately $4,000,000
plus declaratory and injuctive relief for acts of alleged securities fraud,
fraudulent conveyance, breach of fiduciary trust and unfair competition. The
action arises out of the acquisition by Mills of all of the common stock of
Phoenix Associates, Inc. ("Phoenix") from Mr. Varon and Armando Lugo on February
22, 1993. Certain claims against Mr. Varon arise from facts which predate the
acquisition of Phoenix as well as from his former positions as a director,
officer and employee of Nantucket.
On September 27, 1993 the Company and Mills filed a Demand for Arbitration
and Notice to Arbitrate with the American Arbitration Association Commercial
Arbitration Tribunal, with respect to a dispute between the Company and Mills,
as claimants, and Mr. Varon and Mr. Lugo, as Respondents. The Demand for
Arbitration seeks rescission of the stock purchase agreement, rescission of the
employment agreement between Nantucket and Varon, as well as compensatory
damages of approximately $4,000,000, all on account of alleged breaches of
representations and warranties contained in said stock purchase agreement,
fraudulent misrepresentations with respect to Phoenix, and breach of fiduciary
trust.
13
<PAGE>
On November 16, 1993 in connection with such civil action and arbitration
proceeding, Mr. Varon filed certain counterclaims against the Company and Mills
alleging improper termination and breach of his Employment Agreement with the
Company and breach by the Company and Mills of the Stock Purchase Agreement
pursuant to which all of the stock of Phoenix was acquired from Messrs. Varon
and Lugo. In his counterclaims Mr. Varon is also seeking indemnification and
contribution from the Company, Mills and their respective principal officers,
directors and employees. Total damages alleged in the counterclaim are
approximately $9,000,000. The Company considers the damages in the counterclaims
to be unsupportable and believes it will likely prevail in its defenses to all
such counterclaims. In the third quarter of the 1996 fiscal year, the Company
concluded that its counterclaims against the holder of the note payable from a
related party, as described above, are in excess of the $300,000 due and, in the
opinion of legal counsel and management, the likelihood of any payment of this
note is remote.
On March 29, 1996, the Company and Mills filed an amended Complaint and
Demand for Jury Trial which added certain parties as defendants and alleges
certain fraudulent activities which constitute a pattern of racketeering
activity under the Racketeering Influenced Corrupt Organization Act.
These actions remain in their preliminary stage, with discovery not yet
having been commenced.
The Company is subject to other legal proceedings and claims which are in the
ordinary course of its business. In the Company's opinion, the Phoenix
litigation and other legal proceedings will be successfully defended or resolved
without a material adverse effect on the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
14
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock, $.10 par value, is traded on the American Stock
Exchange under the symbol "NAN".
Set forth below are the reported high and low prices of the Common Stock for
each quarterly period during the past two years, as reported by the American
Stock Exchange:
Fiscal 1996 High Low
----------- ---- ---
First Quarter $5-5/8 $3-1/2
Second Quarter 5-1/2 3-7/8
Third Quarter 5-1/4 3-1/16
Fourth Quarter 3-3/16 2-5/8
Fiscal 1995 High Low
----------- ---- ---
First Quarter $6-5/8 $4
Second Quarter 7-5/8 5-5/8
Third Quarter 7-1/2 5-1/2
Fourth Quarter 6-1/8 4-1/4
As of May 21, 1996, the Company's Common Stock was held by approximately 358
holders of record.
The Company has never paid any cash dividends on its Common Stock, and has no
present intention of so doing in the foreseeable future. The Company is
prohibited from declaring and paying cash dividends on its Common Stock by the
terms of its credit agreements with Congress Financial Corporation and Chemical
Bank each dated March 22, 1994.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
with respect to the Company and its subsidiaries for the five fiscal years ended
March 2, 1996.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and in conjunction with the Company's Consolidated Financial
Statements and notes thereto appearing elsewhere in this Report.
<TABLE>
<CAPTION>
For Fiscal Year Ended
---------------------
(In thousands, except per share amounts)
MARCH 2, FEB. 25, FEB. 26, FEB. 27, FEB. 29,
1996 1995 1994 1993 1992
Summary Statements of Operations
- --------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $35,060 $37,015 $41,634 $46,851 $44,690
Gross profit 8,328 7,061 5,854 9,652 10,027
Unusual credit (charge) 300 (1,252) (5,450)
Net (loss) income (239) (3,147) (9,450) 359 704
Net (loss) income per share $(.08) $ (1.15) $(3.81) $.15 $.29
Average shares
outstanding 2,985 2,743 2,481 2,439 2,439
Summary Balance Sheet Data
- --------------------------
Total assets $18,855 $22,184 $22,195 $30,927 $25,021
Long-term debt (exclusive
of current maturities) 9,108 11,300 9,750 300 7,700
Working capital 10,827 12,830 10,262 7,876 16,952
Stockholders' equity 5,257 5,465 4,697 13,611 13,237
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
General
- -------
In recent years, the Company was burdened with an unprofitable Puerto Rico
facility and low margin product lines which created challenges in its business,
profitability and financial resources. At the end of the 1994 fiscal year the
Company began the implementation of a restructuring strategy to improve
operating results and enhance its financial resources. During fiscal 1995, the
Company implemented strategies which reduced costs, streamlined its operations
and closed its Puerto Rico plant.
In March, 1994, the Company refinanced its debt and entered into agreements
with its principal stockholders and employees to increase its capital, through
the sale of $1 million of non-voting convertible preferred stock to management
and reduce expenses. In August, 1994, the Company sold treasury stock which
increased equity by $2.9 million. Although there can be no assurance that these
measures will be successful, the Company believes the steps it has taken provide
sufficient liquidity to fund its operations.
In April, 1996 the Company signed a letter of intent for a $3.5 Million
private placement consisting of 250,000 shares of common stock and $2,625,000 of
12.5% convertible subordinated debentures due August 31, 1996. The debentures
will be secured by a second mortgage on the Company's manufacturing and
distribution facility in Georgia and are convertible into 467,167 shares of
common stock in specified amounts after specified dates at prices ranging from
$5.10 to $6.00. Closing of the transaction is expected in early June, 1996. The
net proceeds will be used to prepay the balance payable to Chemical Bank.
Accordingly, the entire balance is included in current liabilities. The
remaining net proceeds will be used to reduce the outstanding balance with
Congress.
Results of Operation
- --------------------
Sales
Net sales for the fiscal year ended March 2, 1996 decreased 5% from prior
year levels to $35,060,000. Most of this decline was associated with the
elimination of unprofitable product lines, including a reduction of $1,024,000
related to the fiscal 1996 elimination of the Company's healthcare line. A soft
retail environment contributed to an overall 5.5% decrease in the core men's'
fashion underwear products. For the current fiscal year, there was a 55%
increase in the sales of the developing GUESS? intimate apparel product line to
$4.9 million.
For the fiscal year ended February, 1995, net sales declined 11% reflecting
$9.5 million reduction related to the elimination of unprofitable product lines.
Sales in the Company's core men's' fashion underwear division rose 7% over prior
year levels. Sales of the GUESS? products
17
<PAGE>
grew to $3.2 million, an increase of $2.6 million from prior year levels when
the initial shipments began in November, 1993.
Net sales in fiscal 1994 decreased 11% to $41.6 million, with declines in
the sock and women's divisions and a 28% increase in the Mens' division.
The sales decline in the Women's Division of $3.6 million in fiscal 1995 and
$7.9 million in fiscal 1994 was predominantly the result of the termination of
the Company's business with Avon Products during the third quarter of fiscal
1994. The sales decline in the Sock Division of $3.4 million in fiscal 1995 and
$4.3 million in fiscal 1994 was the result of the Company's decision to not
renew its license with DANSKIN, and the Company's decision during 1994 to cease
operations at this division
Gross Margin
Gross profit margins continued to improve from prior year levels as follows:
Fiscal Year
1996 1995 1994
---- ---- ----
Gross Margin % 24% 19% 14%
Amount- % Increase (Decrease) 18% 21% (39%)
This is a result of the improved product mix from the increased sales of the
higher margin GUESS? Innerwear line, the elimination of the unprofitable
products, improved plant efficiencies and lower cost product sources. The gross
profit margin in fiscal 1995 reflects non recurring inventory reserves and
write-offs generally associated with discontinued product lines which aggregated
$652,000. The decrease in gross profit margin in fiscal 1994 was the result of
unfavorable manufacturing variances at both Cartersville and Puerto Rico,
unfavorable product mixes and inventory write-downs of $500,000.
Selling, general and administrative expenses
Selling, general and administrative expenses for the 1996 fiscal year
declined 3% to $7,554,000 from the prior year level. These changes are generally
due to the variable selling costs related to the decreases in net sales. The
current fiscal year has been reduced by a $102,000 recovery of an insurance
claim which was expensed in the fourth quarter of the prior fiscal year.
Selling, general and administrative expenses in fiscal 1995 declined
$2,028,000 or 21%. This reflects the reduction in senior management salaries
resulting from the termination and severance agreements entered into with the
former chairman and vice chairman and reduced professional fees. In fiscal 1994,
there was a $1.5 million increase in selling, general and administrative costs.
This increase was primarily attributable to increased royalties (with licensed
brands comprising a higher proportion of the Company's sales), set-up costs
incurred in connection with new
18
<PAGE>
programs at certain customers and increased accounting, legal and other
professional fees, incurred in connection with the refinancing and restructuring
described herein and investigation of the Company's fiscal 1993 inventory loss.
Selling, general and administrative costs represented 21% of sales in fiscal
1996 and 1995 and 23% in fiscal 1994. Many of these costs are substantially
fixed. In fiscal 1995, the impact of the termination and severance agreements
with the former chairman and vice chairman, a significant fixed element in prior
years, is reflected in the lower percentage of these costs to sales.
Unusual (credit) charge
In November, 1992, the Company acquired the Puerto Rico facility, Phoenix
Associates, Inc., pursuant to a stock purchase agreement. A portion of the
purchase price was debt payable to the former owners of Phoenix, of which
$300,000 was due February 2, 1998. In April, 1993, the Company discovered an
inventory variance of $1,700,000 principally attributable to unrecorded
manufacturing and material cost variances at the Puerto Rico facility incurred
prior to the Company's acquisition of this facility. In connection with the
acquisition of the Puerto Rico facility, the Company initiated an action against
the former owners of that facility. In the third quarter of the current fiscal
year, the Company concluded that its claims against the holder of the
subordinated note payable are in excess of the $300,000 due. In the opinion of
legal counsel and management, the likelihood of any payment being required on
this note is remote. Accordingly, in fiscal 1996, the Company eliminated this
payable and reflected such $300,000 reduction as an unusual credit in the
accompanying financial statements.
The operating loss for fiscal 1995 and 1994 includes an unusual charge of
approximately $1.3 million and $5.5 million, respectively. Of the total unusual
charge of $1,252,500 in fiscal 1995 and $5,450,000 in fiscal 1994, approximately
$160,000 in fiscal 1995 and $300,000 in fiscal 1994 represents expenses incurred
during fiscal 1995 in closing the Puerto Rico facility, $1,092,000 in the
current fiscal year and $3,085,000 in fiscal 1994 represents write-downs of
asset values and other non-cash items and $2.1 million in fiscal 1994 represents
employee severance payments. The fiscal 1994 accrual of severance payments for
the former Chairman and Vice Chairman of the Board ($1,765,000) will reduce
compensation expenses over a five year period which commenced in fiscal 1995.
The write-down of asset values is not expected to have a material effect on the
Company's liquidity.
Interest expense
The increase in interest expense of $118,000 for the 1996 fiscal year is
primarily due to the higher prime rates in effect during fiscal year 1996 and
increased in levels of financing.
Interest expense for fiscal year 1995 was $1,195,000 and $795,000 in fiscal
1994 The increase in fiscal 1995 reflects higher borrowing levels associated
with the new credit agreements and increases in the prime rate..
19
<PAGE>
Liquidity and Capital Resources
- -------------------------------
In March, 1994 the Company refinanced its credit agreements with (i) a three
year $15,000,000 revolving credit facility, including a $3,000,000 letter of
credit facility, with Congress Financial, (ii) a $2,000,000 Term Loan Agreement
with Chemical Bank and (iii) an additional $1,500,000 Term Loan with Congress
replacing the Industrial Revenue Bond financing of the Cartersville, Georgia
manufacturing plant. Additionally, the $1,000,000 investment in the Company by
the Management Group and the sale of 490,000 shares of common treasury stock to
GUESS?, Inc. and certain of its affiliates increased the Company's liquidity and
capital resources. The net proceeds of $2.9 million from the sales of treasury
shares was used to prepay $500,000 of bank debt and the balance provided
additional working capital resources.
Under the terms of the Term Loan Agreement with Chemical Bank, scheduled
installments of $500,000 each were due on December 15, 1995 and March 15, 1996.
As of December 15, 1995 the Company agreed to an amendment in which it made
payments of $100,000 each on December 31, 1995 and January 31, 1996, with the
remaining $800,000 to be paid in 15 equal installments commencing March 31,
1996.
The Company believes that the credit facility provides adequate financing
flexibility to fund its operations.
Working capital decreased $2,003,000 to $10,988,000. This decrease reflects
a decrease in receivable levels caused by the lower sales levels experienced in
the overall retail environment. Inventory levels declined as the impact of
increased offshore sourcing reduced the level of raw materials.
Property, plant and equipment additions were $97,000 for fiscal 1996,
$388,000 for fiscal 1995 and $216,000 for fiscal 1994. The revolving credit
agreement with Congress Financial provides for the Company to borrow purchase
money term loans (up to a maximum of $500,000) of up to 75% of the orderly
liquidation value of newly acquired and eligible equipment
The Company knows of no other trends or uncertainties which have had, or
which it expects will have, any material impact on the Company's operations. The
Company believes that the moderate rate of inflation over the past few years has
not had significant impact on sales or profitability and its future operations
are not expected to be affected significantly by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto at Page F-1 et seq.
-- ---
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
20
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors and Executive Officers is set forth on the
Proxy Statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is
hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth in the Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
Management is set forth in the Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is set
forth in the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, and is hereby incorporated by reference.
21
<PAGE>
PART IV
-------
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
The following is a list of all exhibits and financial statement
schedules filed as part of this report, certain of which documents have been
incorporated by reference to documents previously filed on behalf of the
Registrant.
(a)(1) Index to Consolidated Financial Statements of Nantucket Industries,
Inc.
Page
Report of Independent Certified Public Accountants - Grant Thornton LLP F-1
Consolidated Balance Sheets-
March 2, 1996 and February 25, 1995 F-2
Consolidated Statements of Operations - Years Ended
March 2, 1996, February 25, 1995 and February 26, 1994 F-3
Consolidated Statements of Stockholders' Equity -Years Ended
March 2, 1996, February 25, 1995 and February 26, 1994 F-4
Consolidated Statements of Cash Flows - Years Ended
March 2, 1996, February 25, 1995 and February 26, 1994 F-5
Notes to Consolidated Financial Statements F-6
(a)(2) Financial Statement Schedule
Schedule II - Consolidated valuation and qualifying accounts F-18
22
<PAGE>
(a) (3) Exhibits
Exhibits which, in their entirety, are incorporated by reference to any
report, exhibit or other filing previously made with the Securities and Exchange
Commission are designated by an asterisk (*) and the location of such material
is included in its description.
<TABLE><CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
(3)(a) Certificate of Incorporation as currently *
in effect (filed as Exhibit 3(a) to Form 10-K
Report for the fiscal year ended February 27,
1988 (the "1988 10-K").
(3)(b) By-Laws as currently in effect (filed as *
Exhibit 3(b) to Form 10-Q Report for the quarter
ended August 26, 1995.
(4)(a) Specimen Stock Certificate (filed as Exhibit *
4(b) to Registration Statement on Form
S-1, No. 2-87229 filed October
17, 1983 (the "1983 Form S-1").
(4)(b) Share Purchase Rights Agreement, dated *
as of September 6, 1988, between the Company
and State Street Bank and Trust Company (filed
as Exhibit 4(a) to Form 8-K Report dated as of
September 6, 1988), as amended by the following:
Amendment No. 1 dated October 3, 1988 (filed as
Exhibit 9 to Schedule 14D-9 Amendment No. 1
dated October 4, 1988), Amendment No. 2 dated
October 18, 1988 (filed as Exhibit 14 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988) and
Amendment No. 3 dated November 1, 1988 (filed as
Exhibit 4(c) to Form 10-K Report for the fiscal
year ended February 25, 1989 (the "1989 10-K"),
Amendment No. 4 dated as of November 17, 1988
(filed as Exhibit 1 to Amendment No. 1 to Form 8-A,
dated November 18, 1988) and Amendment dated as of
August 15, 1994 (filed as Exhibit 4(e) to Form 8-K dated
August 19, 1994).
(4)(c) Note Acquisition Rights Agreement dated as of *
September 6, 1988 between the Company and State
Street Bank and Trust Company, as amended on September 19,
1988 (filed as Exhibit 4(b) to Form 8-K Report dated
September 6, 1988) as amended by the following: Amendment
No. 2 dated October 3, 1988 (filed as Exhibit 10 to Schedule
14D-9 Amendment No. 2 dated October 4, 1988), Amendment No.
3 dated October 18, 1988 (filed as Exhibit 15 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988), Amendment No.
23
<PAGE>
4 dated November 1, 1988, (filed as Exhibit 4(d) to the 1989
10-K) and Amendment No. 5 dated as of November 17, 1988
(filed as Exhibit 2 to Amendment No. 1 to Form 8-A, dated
November 18, 1988).
(4)(d) Certificate of Designation, Preferences and *
Rights of Non-Voting Convertible Preferred Stock of
Nantucket Industries, Inc. (filed as Exhibit 4 to Form 8-K
Current Report dated March 22, 1994 (the "1994 8-K").
(4)(e) Common Stock Purchase Agreement dated as of *
August 18, 1994 by and among Registrant, Guess ?, Inc., the
Maurice Marciano 1990 Children's Trust, the Paul Marciano
Trust u/t/d 2/20/86, the Armand Marciano Trust u/t/d 2/20/86
and The Samberg Group, L.L.C. (filed as Exhibit 4(d) to Form
8-K dated August 19, 1994).
(9) Voting Trust Agreement by and among the *
Samberg Group, L.L.C., George Gold, Donald Gold, Stephen
Samberg, Stephen Sussman, Robert Polen, Ray Wathen,
Nantucket Industries, Inc., Robert Rosen and Joseph Mazzella
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(a) Nantucket Industries, Inc. Savings Plan, *
effective June 1, 1988 by and between the Registrant and
George Gold and Donald Gold as Trustees, Amendment No. 1
thereto dated June 22, 1990 and Amendment No. 2 thereto
dated November 19, 1990 (filed as Exhibit (10)(a) to Form
10-K Report for the fiscal year ended February 29, 1992 (the
"1992 10-K")).
(10)(b) Incentive Stock Option Plan (filed as Exhibit *
10(d) to the 1988 10-K).
(10)(c) 1988 Nantucket Industries, Inc. Nonstatutory *
Stock Option Plan (filed as Exhibit 10(c) to the 1989 10-K).
(10)(e)(i) Trademark Agreement between Registrant and *
Faberge, Incorporated dated November 1, 1980 ("Trademark
Agreement") regarding the trademarks "Faberge" and "BRUT"
for use with men's and boy's underwear and bathing suits
(filed as Exhibit 10(g)(i) to 1987 10-K); Amendment dated
November 16, 1982 regarding the trademark "BRUT 33" (filed
as Exhibit 10(m) to 1983 S-1); Letter dated August 24, 1983
24
<PAGE>
from Faberge to Registrant with respect to renewal of the
Trademark Agreement for an additional five year period
(filed as Exhibit 10(g)(iii) to 1987 10-K); Amendment dated
May 6, 1983 regarding the trademarks "BRUT Medallion Design"
and "Brut Royale" (filed as Exhibit 10(k)(ii) to 1983 S-1;
Amendment dated December 5, 1983 (filed as Exhibit 10(g)(iv)
to the Form 10-K Report for the fiscal year ended March 3,
1984 (the "1984 10-K"); Amendment dated October 31, 1984
(filed as Exhibit 10(g)(xiii) to the Form 10-K Report for
the fiscal year ended March 2, 1985 (the "1985 10-K"));
Amendment dated March 14, 1986 extending license to include
swimwear tops (filed as Exhibit 10(g)(v) to the 1986 10-K;
Amendment dated April 25, 1984 (filed as Exhibit 10(g)(v) to
the 1984 10-K); Letter dated December 31, 1987, extending
term of Trademark Agreement for an additional five year
period and deleting men's and boy's bathing suits from
coverage (filed as Exhibit 10(g)(iii) to the 1988 10-K);
extension dated February 24, 1989, extending expiration date
of the Trademark Agreement to February 28, 1998 (filed as
Exhibit 10(e)(ii) to the 1989 10-K).
(10)(e)(ii) Intentionally Omitted
(10)(e)(iii) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated September 6, 1988 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 19 to Form 10-Q for the Quarter ended
August 27, 1988).
(10)(e)(iv) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated December 31, 1991 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 10(e)(iv) to the Form 10-K Report for the
fiscal year ending February 26, 1994 (the "1994 10-K")).
(10)(e)(v) Amendment dated as of January 31, 1996 Filed
to License Agreement between the Registrant Herewith
and BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
for the manufacture and sale of mens' and ladies' loungewear
under the "BRITTANIA" trademark.
(10)(e)(vi) Intentionally omitted.
25
<PAGE>
(10)(f) Modification and Extension of Lease *
dated November 30, 1982 between Registrant and Satti
Development Corp. (filed as Exhibit 10(1) to the 1983 10-K);
(i) amendment dated February 16, 1988 *
extending term of lease through April 30, 1993 (filed as
Exhibit 10(h) to the 1988 10-K);
(ii) amendment dated August 15, 1991 *
expanding demised premises, extending term of lease through
May 31, 1997 and modifying annual rental (filed as Exhibit
10(f)(ii) to 1992 Form 10-K).
10(f)(i) Intentionally omitted.
(10)(g) Promissory Notes from George J. Gold *
and Donald D. Gold to Registrant (filed as Exhibit 10(s) to
1983 S-1).
(10)(h) Intentionally omitted.
(10)(i) Amended and Restated Credit Agreement *
dated December 8, 1989, between Registrant and Manufacturers
Hanover Trust Company ("MHTC") for the borrowing of up to
$11,500,000 of which $8,500,000 is on a revolving credit
basis until March 5, 1993, the balance to be used against
letters of credit issued by MHTC for the benefit of the
Registrant; $8,500,000 Note dated December 8, 1989, from
Registrant to MHTC; Continuing Letter of Credit Security
Agreement dated December 8, 1989, between Registrant and
MHTC. (filed as Exhibit 10(i) to the Form 10-K Report for
the fiscal year ended March 3, 1990 (the "1990 10-K")
Omitted exhibits to said Agreement will be furnished to the
Commission upon request.
(i) First Amendment dated August 1, 1990 * to Loan
Agreement between Registrant and MHTC (filed as Exhibit
10(i)(i) to the Form 10-K Report for the fiscal year
ended March 2, 1991);
(ii) Second Amendment and Waiver dated * as of May 23,
1991 to Loan Agreement between Registrant and MHTC (filed
as Exhibit (10)(i)(ii) to the 1992 Form 10-K);
26
<PAGE>
(iii) Fifth Amendment and Waiver dated * as of February
22, 1993, to Amended and Restated Credit Agreement dated
as of December 8, 1989, between the Registrant and
Chemical Bank, as successor by merger to MHTC (filed as
Exhibit (iii) to the Form 8-K dated March 4, 1993);
(iv) Sixth Amendment and Waiver dated * as of March 4,
1993, to Amended and Restated Credit Agreement (filed as
Exhibit 10(k)(iv) to 1993 10-K).
(10)(j)(i) Revolving Credit Agreement dated as of *
December 30, 1993 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (the "Credit Agreement") (filed as
Exhibit 10(j)(i) to the 1994 Form 10-K).
(10)(j)(ii) First Amendment to Credit Agreement dated *
as of February 28, 1994 by and between Chemical Bank,
Nantucket Industries, Inc., Nantucket Mills, Inc. and
Nantucket Management Corporation (filed as Exhibit 10(j)(ii)
to the 1994 10-K).
(10)(j)(iii) Second Amendment to Credit Agreement dated *
as of March 17, 1994 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (filed as Exhibit 10(j)(iii) to the
1994 10-K).
(10)(k) Intentionally omitted.
(10)(n) Intentionally omitted.
(10)(o) Intentionally omitted.
(10)(q) Intentionally omitted.
(10)(r) Intentionally omitted.
(10)(s) Intentionally omitted.
(10)(t) Intentionally omitted.
(10)(u) Intentionally omitted
27
<PAGE>
(10)(v) Sublicense Agreement dated November 20, 1991 *
by and among Dawson Consumer Products, Inc., Registrant and
PGH Company regarding the use of the trademark "Adolfo" on
men's high fashion underwear briefs (filed as Exhibit
(10)(v) to the 1992 Form 10-K).
(10)(w) Sublicense Agreement dated October 16, 1992 *
by and among Salant Corporation, Dawson Consumer Products,
Inc. and the Registrant regarding the use of the trademark
"John Henry" on men's high fashion underwear briefs (filed
as Exhibit (10)(w) to the 1992 Form 10-K).
(10)(x) Employment Agreement dated May 26, 1992 *
by and between the Registrant and Stephen P. Sussman (filed
as Exhibit 10(x) to the Form 10Q Report for November 28,
1992) as amended by the Amendment dated August 8, 1994
(filed as Exhibit 99(a) to Form 8-K dated August 19, 1994).
(10)(y) Intentionally omitted.
(10)(z)(i) Intentionally omitted
(10)(z)(ii) Amended and Restated Employment *
Agreement dated as of March 18, 1994 by and between
Nantucket Industries, Inc. and Stephen M. Samberg (filed as
Exhibit 10(z)(ii) to the 1994 Form 10-K) as amended by the
Amendment dated August 8, 1994 (filed as Exhibit 99(c) to
Form 8-K dated August 19, 1994).
(10)(aa) License Agreement dated October 5, 1992 *
between Cluett Peabody & Co., Inc. and Registrant with
respect to the ARROW trademark (filed as Exhibit 2 to Form
10Q Report for November 28, 1992).
28
<PAGE>
(10)(bb) License Agreement dated December 9, 1992 *
between GUESS?, Inc. and Registrant with respect to the
GUESS? trademark (filed as Exhibit 3 to Form 10Q Report for
November 28, 1992).
(10)(cc) Registrant's 1992 Executive Long-Term Stock *
Option Place (filed as Exhibit 4 to Form 10Q Report for
November 28, 1992).
(10)(dd) Registrant's 1992 Executive Performance *
Benefit Plan (filed as Exhibit 5 to Form 10Q for November
28, 1992).
(10)(ee) Management Agreement made as of January 1, *
1993 by and between Nantucket Management Corp. (a subsidiary
of Registrant) and Registrant (filed as Exhibit 10(ee) to
1993 10-K).
(10)(ff) License Agreement dated December 21, 1992 *
between Registrant and McGregor Corporation with respect to
the Botany 500 Trademark (filed as Exhibit 10(ff) to 1993
10-K).
(10)(ff)(i) Letter agreement dated July 10, 1995 Filed
amending License Agreement between the Registrant Herewith
and McGregor Corporation with respect to Botany 500
Trademark.
(10)(gg) Severance Agreement dated as of March 18, *
1994 by and among Nantucket Industries Inc., George J. Gold
and Donald Gold (filed as Exhibit 10(gg)(i) to the Form 10K
Report for the fiscal year ended February 25, 1995). (Filed
as Exhibit 10(gg) to the 1994 Form 10-K) as amended by the
Amendment dated August 17, 1994 (filed as Exhibit 99(b) to
Form 8-K dated August 19,1994).
(10)(gg)(i) Letter dated February 28, 1995 amending *
Severance Agreement by and among Registrant, George J. Gold
and Donald D. Gold (filed as Exhibit 10(gg)(i) to the Form
10-K Report for the fiscal year ended February 25, 1995).
29
<PAGE>
(10)(hh) Agreement dated as of March 1, 1994 by *
and among the Samberg Group, L.L.C., George J. Gold, Donald
D. Gold, Stephen M. Samberg, Stephen P. Sussman, Robert
Polen, Raymond L. Wathen and Nantucket Industries, Inc.
(filed as Exhibit 10(hh) to the 1994 Form 10-K)
(10)(ii) Loan and Security Agreement by and between *
Nantucket Industries, Inc. and Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(jj) Guaranty by Nantucket Mills, Inc. in favor *
of Congress Financial Corp. dated as of March 21, 1994
(filed as Exhibit 99(c) to 1994 8-K).
(10)(kk) General Security Agreement by Nantucket *
Mills, Inc. in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(d) to 1994 8-K).
(10)(ll) Guaranty by Nantucket Management *
Corporation in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(e) to 1994 8-K).
(10)(mm) General Security Agreement by Nantucket *
Management Corporation in favor of Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(f) to 1994
8-K).
(10)(nn) Amended and Restated Credit Agreement by *
and among Chemical Bank, Nantucket Industries, Inc.,
Nantucket Mills, Inc. and Nantucket Management Corporation
dated as of March 21, 1994 (filed as Exhibit 99(g) to 1994
8-K) and amended by the Amendment dated as of August 18,
1994 (filed as Exhibit 99(e) to the Form 8-K dated August
19, 1994).
(10)(oo) Amended and Restated Security Agreement by *
and between Nantucket Industries, Inc. and Chemical Bank
dated as of March 21, 1994 (filed as Exhibit 99(h) to 1994
8-K).
30
<PAGE>
(10)(pp) Amended and Restated Security Agreement *
by and between Nantucket Mills, Inc. and Chemical Bank dated
as of March 21, 1994 (filed as Exhibit 99(i) to 1994 8-K).
(10)(qq) Security Agreement by and between Nantucket *
Management Corporation and Chemical Bank dated as of March
21, 1994 (filed as Exhibit 99(j) to 1994 8-K).
(10)(rr) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Congress Financial Corporation dated June 8, 1994
(filed as Exhibit 10(rr) to the 1994 Form 10-K).
(10)(ss) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Chemical Bank dated as of June 8, 1994 (filed as
Exhibit 10(ss) to the 1994 Form 10-K).
(10)(tt) Employment Agreement dated November 23, *
1994 by and between Registrant and Raymond L. Wathen (filed
as Exhibit 10(tt) to Form 10-K Report for the fiscal year
ended February 25, 1995).
(10)(tt)(i) Amendment to Employment Agreement entered Filed
into as of January 1, 1996 between Registrant and Herewith
Raymond L. Wathen.
(10)(uu) Employment Agreement dated July 1, 1994 *
by and between Registrant and Ronald S. Hoffman (filed as
Exhibit 10(uu) to Form 10-K Report for the fiscal year ended
February 25, 1995).
(10)(uu)(i) Letter Agreement dated June 12, 1995 Filed
between Registrant and Ronald S. Hoffman, extending Herewith
the term of his employment to June 30, 1996.
31
<PAGE>
(10)(vv) Employment Agreement dated as of January Filed
1, 1996 by and between Registrant and Joseph Herewith
Visconti.
(10)(ww) First Amendment, dated as of December 15, *
1995, to Amended and Restated Credit Agreement dated as of
March 21, 1994, among Nantucket Industries, Inc. and its
subsidiaries and Chemical Bank (filed as Exhibit (10)(vv) to
Form 10-Q Report for the quarter ended November 25, 1995.
</TABLE>
(c) Subsidiaries of the Company
- -------------------------------
<TABLE>
<CAPTION>
STATE OF DOING BUSINESS
NAME INCORPORATION NAME
<S> <C> <C>
Nantucket Mills, Inc. Delaware Phoenix Associates,
Inc. (in Puerto Rico)
Nantucket Management Corp.* New York N/A
</TABLE>
* Dissolved as of December, 1995, pursuant to vote dated October 17, 1995
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York.
NANTUCKET INDUSTRIES, INC.
May 21, 1996 By: \s\ Stephen M. Samberg
-----------------------
Stephen M. Samberg, Chairman of the
Board and Chief Executive Officer/
(principal executive officer)
May 21, 1996 By: \s\ Ronald S. Hoffman
----------------------
Ronald S. Hoffman, Vice President-
Finance and Chief Financial Officer
(principal financial and accounting
officer)
32
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
May 21, 1996 \s\ Stephen M. Samberg
----------------------
Stephen M. Samberg, Chairman of the
Board and Chief Executive Officer
May 21, 1996 \s\ Joseph Visconti
- ------------ -------------------
Joseph Visconti, President and
Director
May 21, 1996 \s\ Ronald S. Hoffman
---------------------
Ronald S. Hoffman, Vice President-
Finance and Chief Financial Officer,
Secretary and Director
May 21, 1996 \s\ Warren C. Cole
------------------
Warren C. Cole, Director
May 21, 1996 \s\ Donald D. Gold
------------------
Donald D. Gold, Director
May 21, 1996 \s\ George J. Gold
------------------
George J. Gold, Director
May 21, 1996 \s\ Robert M. Rosen
-------------------
Robert M. Rosen, Director
May 21, 1996 \s\ Roger Williams
- ------------ ------------------
Roger Williams, Director
33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTS
Board of Directors and Stockholders
Nantucket Industries, Inc.
We have audited the accompanying consolidated balance sheets of Nantucket
Industries, Inc. and Subsidiaries as of March 2, 1996 and February 25, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended March 2, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Nantucket Industries, Inc. and Subsidiaries as of March 2, 1996 and February 25,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended March 2, 1996, in
conformity with generally accepted accounting principles.
We have also audited Schedule II of Nantucket Industries, Inc. and Subsidiaries
as of March 2, 1996 and February 25, 1995 and for the periods then ended. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON
New York, New York
April 25, 1996
F-1
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 2, February 25,
1996 1995
------------------ ------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $15,085 $32,049
Accounts receivable, less allowance for
doubtful accounts of $40,000 and $194,000,
respectively (Note 5) 4,417,033 6,472,148
Inventories (Notes 3 and 5) 10,156,639 10,984,196
Other current assets 729,145 760,054
------------
-----------------
Total current assets 15,317,902 18,248,447
PROPERTY, PLANT AND EQUIPMENT - NET (Notes 5 and 10) 3,498,825 3,766,871
OTHER ASSETS,NET 38,413 168,194
------------
-----------------
$18,855,140 $22,183,512
============ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Notes 5 and 10) $1,275,000 $975,000
Accounts payable 1,721,852 2,405,989
Accrued salaries and employee benefits 383,595 811,882
Accrued unusual charge (Note 2) 465,000 465,000
Accrued expenses and other liabilities 392,789 358,267
Accrued royalties 249,792 399,546
Income taxes payable (Note 6) 2,934 2,640
------------ -----------------
Total current liabilities 4,490,962 5,418,324
LONG-TERM DEBT (Notes 5 and 10) 8,428,782 9,941,799
ACCRUED UNUSUAL CHARGE (Note 2) 678,879 1,058,330
SUBORDINATED NOTE PAYABLE (Notes 2 and 8) - 300,000
------------ -----------------
13,598,623 16,718,453
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 7 and 10)
Preferred stock, $.10 par value; 500,000 shares authorized,
of which 5,000 shares have been designated as non-voting
convertible and are issued and outstanding 500 500
Common stock, $.10 par value; authorized
6,000,000 shares; issued 2,991,848 299,185 299,185
Additional paid-in capital 11,556,386 11,576,898
Accumulated deficit (6,579,617) (6,340,135)
------------ -----------------
5,276,454 5,536,448
Less 3,052 shares at March 2, 1996 and 10,552 at
February 25, 1995 of common stock held in treasury, at cost 19,937 71,389
------------ -----------------
5,256,517 5,465,059
------------ -----------------
$18,855,140 $22,183,512
============ =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
--------------------------------------------------------
March 2, February 25, February 26,
1996 1995 1994
------------------ ---------------- ----------------
<S> <C> <C> <C>
Net sales $35,060,136 $37,015,167 $41,634,255
Cost of sales 26,732,017 29,953,922 35,779,766
------------------ ---------------- ----------------
Gross profit 8,328,119 7,061,245 5,854,489
Selling, general and administrative
expenses 7,554,057 7,759,955 9,787,171
Unusual (credit) charge (Note 2) (300,000) 1,252,400 5,450,000
------------------ ---------------- ----------------
Operating profit (loss) 1,074,062 (1,951,110) (9,382,682)
Interest expense 1,313,544 1,195,541 794,967
------------------ ---------------- ----------------
Loss before income taxes (239,482) (3,146,651) (10,177,649)
Income tax benefit (Note 6) - - 727,908
Net loss ($239,482) ($3,146,651) ($9,449,741)
================== ================ ================
Net loss per share ($0.08) ($1.15) ($3.81)
================== ================ ================
Weighted average common shares outstanding 2,984,955 2,742,520 2,480,970
================== ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 2, 1996, February 25, 1995 and February 26, 1994
<TABLE><CAPTION>
Preferred stock
designated as
non-voting convertible Common stock Additional Retained
---------------------------------------------- paid-in earnings
Shares Amount Shares Amount Capital (deficit)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at February 29, 1992 2,876,848 $287,685 $9,416,368 $6,192,287
Net income 358,922
Common stock issued under
stock option plans 5,000 500 14,500
Balances at February 27, 1993 2,881,848 $288,185 $9,430,868 $6,551,209
Net loss (9,449,741)
Common stock issued under
stock option plans exchanged
for treasury stock 110,000 11,000 611,500
Contribution of capital 535,030
Balances at February 26, 1994 2,991,848 299,185 10,577,398 (2,898,532)
Net loss (3,146,651)
Issuance of Preferred stock 5,000 $500 999,500
Sale of treasury stock (Note 7) (294,952)
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5)
Balances at February 26, 1995 5,000 500 2,991,848 299,185 11,576,898 (6,340,135)
Net loss (239,482)
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5) (20,512)
Balances at March 2, 1996 5,000 $500 2,991,848 $299,185 $11,556,386 ($6,579,617)
<CAPTION>
Treasury stock
------------------------------
Shares Amount Total
--------------------------------------
<S> <C> <C> <C>
Balances at February 29, 1992 440,013 ($2,658,942) $13,237,398
Net income 358,922
Common stock issued under
stock option plans 15,000
Balances at February 27, 1993 440,013 ($2,658,942) $13,611,320
Net loss (9,449,741)
Common stock issued under
stock option plans exchanged
for treasury stock 63,039 (622,500) 0
Contribution of capital 535,030
Balances at February 26, 1994 503,052 (3,281,442) 4,696,609
Net loss (3,146,651)
Issuance of Preferred stock 1,000,000
Sale of treasury stock (Note 7) (490,000) 3,196,303 2,901,351
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5) (2,500) 13,750 13,750
Balances at February 26, 1995 10,552 (71,389) 5,465,059
Net loss (239,482)
Issuance of treasury stock in
compliance with credit agreement
prepayment terms (Note 5) (7,500) 51,452 30,940
Balances at March 2, 1996 3,052 ($19,937) $5,256,517
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------
March 2, February 25, February 26,
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($239,482) ($3,146,651) ($9,449,741)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities
Depreciation and amortization 365,342 393,148 379,560
Provision for doubtful accounts 120,000 90,000 50,000
Unusual charge (credit) (300,000) 1,091,929 5,450,000
Treasury stock issued in compliance with credit agreement 30,190 13,750 -
Provision for obsolete and slow moving inventory 452,590 688,510 500,000
Deferred income taxes - - (222,792)
Decrease (increase) in assets
Accounts receivable 1,935,115 (1,633,875) 1,251,040
Refundable income taxes - 558,000 361,157
Inventories 374,967 (1,373,776) 3,152,039
Other current assets 30,909 (221,991) 192,353
(Decrease) increase in liabilities
Accounts payable (684,137) (1,287,921) (348,516)
Accrued expenses and other liabilities (543,519) (1,010,199) 1,000,127
Income taxes payable 294 (7,544) (128,383)
Accrued unusual charge (379,451) (691,670) -
--------------- -------------- -------------
Net cash provided by (used in) operating activities 1,162,818 (6,538,290) 2,186,844
--------------- -------------- -------------
Cash flows from investing activities
Additions to property, plant and equipment (97,296) (388,011) (215,561)
Decrease in other assets 129,781 244,130 (17,659)
Acquisition of business - - (37,997)
--------------- -------------- -------------
Net cash provided by (used in) investing activities 32,485 (143,881) (271,217)
--------------- -------------- -------------
Cash flows from financing activities
Payments of previous line of credit agreement - (5,090,294) (2,319,955)
Payments of long-term debt and capital lease obligations (200,000) (1,000,000) (166,746)
Issuance of convertible preferred stock - 1,000,000 -
Net proceeds from sale of treasury stock 750 2,901,351 -
Borrowings (repayments) under line of credit agreement, net (1,013,017) 8,307,245 -
Shareholder contribution - - 535,030
--------------- -------------- -------------
Net cash (used in) provided by financing activities (1,212,267) 6,118,302 (1,951,671)
--------------- -------------- -------------
NET DECREASE IN CASH ($16,964) ($563,869) ($36,044)
Cash at beginning of period 32,049 595,918 631,962
--------------- -------------- -------------
Cash at end of period $15,085 $32,049 $595,918
=============== ============== =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $1,320,046 $1,708,384 $715,354
=============== ============== =============
Income taxes - - $10,604
=============== ============== =============
</TABLE>
Note: In 1994, the Company recorded an increase in deferred costs of $214,000
associated with amounts accrued for loan refinancing costs
The accompanying notes are an integral part of these statements
F-5
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 1996, February 25, 1995 and February 26, 1994
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Company
Nantucket Industries, Inc. and its wholly-owned subsidiaries (the
"Company") designs, manufactures and sells throughout the United
States men's branded and private label fashion undergarments to mass
merchandisers and national chains. In addition, the Company designs,
manufactures and sells to department and specialty stores GUESS?
innerwear for both women and men.
For the current fiscal year, sales to the Company's largest customer
accounted for 40% of net sales and 43% and 27%, respectively, for the
two prior fiscal years. Sales to the second largest customer in the
current fiscal year were 21% of net sales and 17% and 15%,
respectively, for the two prior fiscal years. Sales in the current
fiscal year to the Company's third largest customer represented 13% of
net sales and 12% in the prior fiscal year. For the fiscal year ending
February, 1994, sales to another customer represented 12% of net sales.
In the fourth quarter of fiscal 1994, the Company terminated business
with this customer in connection with the shutdown of its Puerto Rico
facility (Note 2).
Principles of Consolidation
The consolidated financial statements include the accounts of Nantucket
Industries, Inc. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Accounts Receivable
An allowance for doubtful accounts is provided based upon historical
bad debt experience and periodic evaluations of the aging of the
accounts. Substantially all receivables are insured up to 80% of the
outstanding balance, subject to certain deductibles.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market (net realizable value).
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Equipment under
lease is stated at the present value of the minimum lease payments at
the inception of the lease. Depreciation and amortization are provided
by the straight-line method over the estimated useful lives of the
assets as follows:
Years
-----
Buildings and improvements 20 - 40
Machinery and equipment 3 - 10
Furniture and fixtures 10
F-6
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
Other Assets
Other long-term assets consist primarily of capitalized loan
origination costs. These costs are being amortized over the term of the
related credit agreements.
Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated
Federal income tax return. Deferred income taxes arise as a result of
differences between financial statement and income tax reporting.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income
(loss) by average common shares outstanding during each year. Stock
options and warrants are not included since the effect would be
antidilutive or not significant to the computation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to February 28.
The year ended March 2, 1996 had 53 weeks and the years ended February
25, 1995 and February 26, 1994 contained 52 weeks.
Reclassification
Certain prior year amounts have been reclassified in order to conform
to the current year's presentation.
Use of Estimates
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates
Impairment of Long-Lived Assets
In 1995, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". Accordingly, when
indicators of impairment are present, the Company periodically
evaluates the carrying value of property, plant and equipment and
intangibles in relation to the operating performance and future
undiscounted cash flows of the underlying business. The Company adjusts
carrying amount of the respective assets if the expected future cash
flows is less than the book value.
Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for debt
with similar terms and maturities, the fair value of the Company's
long-term debt approximates the carrying value. The carrying value of
all other financial instruments potentially subject to valuation risk,
principally cash, accounts receivable and accounts payable, also
approximate fair value.
F-7
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
NOTE 2 - UNUSUAL (CREDIT) CHARGE
In November, 1992, the Company acquired a manufacturing facility in
Puerto Rico, Phoenix Associates, Inc., pursuant to a stock purchase
agreement. Phoenix had been an exclusive contractor for the Company,
manufacturing many of the Company's product lines for its men's and
ladies' divisions. A portion of the purchase price was subordinated
debt payable to the former owners of Phoenix, of which $300,000 was due
February 2, 1998. In April, 1993, the Company discovered an inventory
variance of $1,700,000, principally attributable to unrecorded
manufacturing and material cost variance at the Puerto Rico facility,
which were incurred prior to the Company's acquisition of this
facility. In connection with the acquisition of the Puerto Rico
facility, the Company initiated an action against the former owners of
that facility as more fully described in Note 8. In the third quarter
of the current fiscal year, the Company concluded that its
counterclaims against the former owners of Phoenix, the holder of the
subordinated debt payable, are in excess of the $300,000 due and, in
the opinion of legal counsel and management, the likelihood of any
payment of this note is remote. Accordingly the Company has eliminated
this payable and reflected such reduction as an unusual credit in the
accompanying financial statements.
At the end of fiscal 1994, the Company formulated plans to close its
Puerto Rico facility, discontinue a portion of its women's innerwear
business, reduce costs and streamline operations. In fiscal 1994, the
Company provided for the costs associated with these matters as an
unusual charge. The Puerto Rico facility shutdown was completed in
July, 1994. A final assessment associated with this closing required
additional write-offs, reflected as an unusual charge of $1,252,400 in
fiscal 1995.
Simultaneously in 1994, the Company also terminated the employment
contracts of its Chairman and Vice-Chairman. In accordance with the
underlying agreement, they will be paid an aggregate of approximately
$400,000 per year in severance and other benefits, through February 28,
1999. The present value of these payments was accrued at February 26,
1994.
For fiscal 1996, 1995 and 1994, the unusual charge (credit) consisted
of the following:
<TABLE><CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Employee severance (Note 8) $ - $ - $2,065,000
Write-off of goodwill - - 1,478,000
Write-down of inventory - 1,092,400 1,000,000
Write-down of property, plant and equipment - - 530,000
Elimination of subordinated note payable (300,000) -
Other 160,000 377,000
----------- ---------- ----------
$ (300,000) $1,252,400 $5,450,000
----------- ========== ==========
</TABLE>
Through March 2, 1996, payments of the unusual charges aggregated $1,231,000;
$460,000 associated with the shutdown of the Puerto Rico facility and $771,000
representing payments against the present value of the termination payments to
the former Chairman and Vice Chairman.
F-8
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
1996 1995
---------- -----------
Raw materials $1,308,694 $ 1,960,413
Work in process 5,709,573 5,594,387
Finished goods 3,138,372 3,429,396
----------- -----------
$10,156,639 $10,984,196
----------- -----------
Inventory valuation allowances and write-downs approximating $453,000
and $1.3 million were provided for the years ended March 2, 1996 and
February 25, 1995, respectively. For the fiscal year ended February,
1995 $1,092,400 of such reserves were related to the unusual charge
(Note 2).
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are summarized as follows:
1996 1995
---------- ----------
Land $ 83,757 $ 83,757
Buildings and improvements 3,157,252 3,139,814
Machinery and equipment 3,400,628 3,332,500
Furniture and fixtures 800,929 788,984
------- -------
7,442,566 7,345,055
Less accumulated depreciation 3,943,741 3,578,184
--------- ---------
$3,498,825 $3,766,871
========= =========
NOTE 5 - LONG-TERM DEBT AND NOTES PAYABLE
Revolving Credit
The company had a $9.5 million secured borrowing facility with Chemical
Bank which expired on February 28, 1994. On March 22, 1994, the Company
entered into a new $15 million three year revolving credit facility
with Congress Financial Corp. The revolving credit agreement provides
for loans based upon eligible accounts receivable and inventory, a
$3,000,000 letter of credit facility and purchase money term loans of
up to 75% of the orderly liquidation value of newly acquired and
eligible equipment. Borrowings bear interest at 1-3/4% to 3% above
prime. The agreement requires, among other provisions, the maintenance
of minimum working capital and
F-9
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
net worth levels and also contains restrictions regarding payment of
dividends. Borrowings under the agreement are collateralized by
substantially all of the assets of the Company.
In connection with this refinancing, the Company used $5,090,000 of the
proceeds of the revolving credit facility to reduce the balance due to
Chemical Bank and simultaneously entered into a $2,000,000 Term Loan
Agreement with Chemical Bank. At December 15, 1995 $1,000,000 was
outstanding under this loan. Pursuant to an amendment to this
agreement, the Company made payments of $100,000 each on December 31,
1995 and January 31, 1996 and agreed to pay the remaining $800,000 in
15 equal installments commencing March 31, 1996. The amendment also
requires certain prepayments in the event the Company refinances any
existing debt or obtains additional equity or debt financing. Pursuant
to the agreement, the Company issued 10,000 treasury common shares
related to its decision to defer making the mandatory prepayments.
Real Estate Financing
On June 8, 1994 the Company borrowed $1,500,000 under a separate five
year term loan with Congress Financial Corp. and repaid a $1,700,000
Industrial Revenue Bond financing. This loan is secured by the
Company's facility in Cartersville, Georgia.
Annual Maturities
Annual maturities of debt are as follows:
1997 $1,275,000
1998 7,994,000
1999 345,000
2000 90,000
----------
$9,704,000
==========
NOTE 6 - INCOME TAXES
Effective for fiscal 1994, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." The adoption of SFAS No. 109 did not
have a material effect on the consolidated financial statements.
Therefore, the effect of adopting SFAS No. 109 is included in income
tax expense rather than as a cumulative effect of an accounting
change.
Under the provisions of SFAS No. 109, deferred income taxes reflect the
net effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amount
used for income tax purposes. Deferred tax assets and liabilities are
measured using enacted tax law. Significant components of the Company's
deferred taxes at March 2, 1996 and February 25, 1995 are as follows:
F-10
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforward $4,256,000 $3,656,000
Accrued severance 460,000 613,000
Excess of tax basis over book basis of
inventories 137,000 280,000
Capitalized inventory costs 147,000 177,000
Other 58,000 173,000
---------- ----------
Total deferred tax assets 5,058,000 4,899,000
Deferred tax liabilities
Difference between the book and tax basis of
property, plant and equipment 357,000 266,000
--------- ---------
Net deferred tax asset 4,701,000 4,633,000
Less valuation allowance 4,701,000 4,633,000
--------- ---------
Net deferred taxes $ - $ -
========== =========
</TABLE>
The Company anticipates utilizing its deferred tax assets only to the
extent of its deferred tax liabilities. Accordingly, the Company has
fully reserved all remaining deferred tax assets which it cannot
presently utilize.
Refundable taxes of $558,000 were recorded at February 26, 1994, which
reflect carryback of the Company's net operating losses for Federal and
state income tax purposes. At March 2, 1996, the net operating loss
carryforward for book purposes is $12 million. For tax purposes, at
March 2, 1996, the Company's net operating carryforward was $10.6
million, which begins to expire in the year 2009. Certain tax
regulations relating to the change in ownership may limit the Company's
ability to utilize its net operating loss carryforward if the ownership
change, as computed under such regulations, exceeds 50%. Through
March, 1996 the change in ownership was approximately 40%.
There was no income tax provision (benefit) for the fiscal years 1996
and 1995. The provision (benefit) for income taxes for fiscal year 1994
is comprised of the following:
1994
----------
Current
Federal $(515,102)
State and Local 10,194
(504,908)
Deferred (benefit) provision (223,000)
$(727,908)
----------
F-11
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
The following is a reconciliation of the normal expected statutory
Federal income tax rate to the effective rate reported in the financial
statements:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Computed "expected" provision for
Federal income taxes (35.0)% (35.0)% (35.0)%
Reversal of prior year deferred taxes (2.2)
State taxes - net of Federal income tax
benefit
Officers' life insurance 1.0
Other (2.0)
Valuation allowance 35.0 35.0 31.0
----- ----- -----
Actual provision for income taxes - % - % (7.2)%
======= ======= ======
</TABLE>
NOTE 7- STOCKHOLDERS' EQUITY
Stock Options and Warrants
The 1992 stock option plan, as amended, provides for the issuance of
options to purchase up to 340,000 shares of common stock at the market
value at the date of grant. Options are exercisable up to ten years
from the date of grant.
A summary of option transactions under these plans is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- --------------------
SHARES PRICE Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning $8.10 $5.13
180,000 $5.75 120,000 10.75 260,000 11.00
$3.00-
Granted 84,000 3.37 180,000 5.75
$5.13-
Exercised - - (110,000) 5.75
$8.10- 10.75
Canceled or expired - (120,000) (30,000) $11.00
-------- ---------
Outstanding, end of year $3.00- $8.00-
264,000 5.75 180,000 $5.75 120,000 10:75
======== ======== =========
Exercisable, end of year -
- -
========= ======== =========
Available for grant 76,000 160,000
========= ========
70,000
</TABLE>
F-12
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" which is effective for fiscal years beginning
after December 15, 1995. As permitted by FAS 123,. the Company has
elected to continue to account for stock option grants in accordance
with APB No. 25 and, accordingly, recognizes no compensation expense
for these grants.
Issuance of Preferred Stock
On March 22, 1994, the Company sold to its Management Group 5,000
shares of non-voting convertible preferred stock for $1,000,000. These
shares are convertible into 200,000 shares of common stock at the rate
of $5.00 per share. These shares provide for cumulative dividends at a
floating rate equal to the prime rate and approximate $160,000 at March
2, 1996. Such dividends are convertible into common stock at the rate
of $5.00 per share. These shares are redeemable, at the option of the
Company, on or after February 28, 1999 and have a liquidation
preference of $200 per share.
Sale of Treasury Stock
On August 22, 1994, the Company sold 490,000 shares of its common
treasury stock to GUESS?, Inc. and certain of its affiliates for $6.00
per share. Net proceeds aggregated $2.9 million. The treasury stock
issued had an average cost of $6.52 per share. Accordingly, $295,000,
representing the difference between the net proceeds and the treasury
shares cost of $3,196,000, was charged to the Company's accumulated
deficit.
In connection with the Company's refinancing on March 22, 1994 (Note
5), the Company entered into a $2,000,000 Term Loan Agreement with
Chemical Bank. Pursuant to the agreement, the Company issued to
Chemical Bank 10,000 treasury common shares, 7,500 in the current
fiscal year and 2,500 at the end of the prior fiscal year, related to
mandatory prepayments which were not made.
Stockholders' Rights Plan
The Company has a Stockholders' Rights plan which becomes effective
when more than 30% of the Company's common shares are acquired by a
person or a group. The Company may redeem the rights before such time.
NOTE 8-COMMITMENTS,CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Lease Commitments
Minimum rental commitments under noncancellable leases (excluding
renewal options and escalation's) having a term of more than one year
as of March 2, 1996, are as follows:
Operating
Leases
------
Fiscal year ending
1997 $242,000
1998 60,000
----------
Total minimum lease payments $302,000
----------
F-13
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
Rental expense under operating leases, including escalation amounts,
was approximately $300,000, $284,000, and $426,000 for the fiscal years
ended March 2, 1996, February 25, 1995 and February 26, 1994,
respectively.
Employment Agreements
The Company has entered into employment agreements, as amended, with
certain officers providing for minimum salary levels. Certain of these
agreements provide for adjusted annual cost-of-living increases, change
in control, and termination provisions. In addition, several of these
agreements provide for commission payments based on certain sales
thresholds, as well as death and disability benefits payable to the
respective estate and permanent disability benefits payable to the
executives in the amount of one-half the executive's remaining
contracted salary and certain retirement health care benefits to
certain executives. The Company is insured for the death benefit
provision under the executive employment contracts.
The aggregate commitment under these agreements at March 2, 1996 is as
follows:
Fiscal year ending
1997 $1,110,000
1998 $960,000
1999 $818,000
2000 -
Agreements with Principal Stockholders
On March 1, 1994, in connection with the restructuring described in
Note 2, the Company entered into agreements with its two principal
stockholders and a group of employees (the "Management Group"). The
agreements provide, among other things, for:
The reimbursement of the principal stockholders, limited to
$1.50 per share to the extent that the gross proceeds per
share from the sale of common stock by the stockholders during
the two-year period beginning September 1, 1994 are less than
$5.00 per share. Such guaranty is applicable to a maximum of
160,000 shares sold by such shareholders, subject to
reductions under certain circumstances. Through March 2, 1996
the principal shareholders have sold 109,875 shares including
51,275 at prices below of $5.00 per share resulting in a
charge in the current year operating results of $36,000.
Pursuant to the agreement and applicable securities laws, at
March 2, 1996 the maximum remaining shares subject to this
guarantee, at current market prices, is 50,125 shares.
Warrants to purchase up to 160,000 shares of common stock
equal to the number of shares sold by the principal
stockholders. The exercise price per share of such warrants
would equal the gross proceeds per share from the
corresponding sale by the principal stockholders. Such
warrants expire on February 28, 2000.
The contribution to the Company of approximately $535,000 of
cash surrender value of life insurance policies on the lives
of the stockholders owned by the Company, in the form of a
loan against such policies which is not required to be repaid.
F-14
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
The cancellation of the outstanding stock options and
incentive awards of the Group members and the principal
stockholders and the authorization to issue options to Group
members to purchase 150,000 shares of common stock based upon
certain terms and conditions.
Trademark Licensing Agreements
Minimum payments under noncancellable licensing agreements (excluding
renewal options) having a term of more than one year as of March 2,
1996, are as follows:
Fiscal year ending Amount
------------------ ------
1997 $527,000
1998 $380,000
1999 $275,000
2000 $208,000
--------
Total minimum licensing payments $1,199,000
==========
Royalties to GUESS?, Inc., which owns 23% of the outstanding common
stock of the Company, aggregated $335,000 in fiscal 1996, $220,000 in
fiscal 1995 and $43,000 in fiscal 1994.
Litigation
In September 1993, the Company filed an action against the former
owners of Phoenix Associates, Inc. ("Phoenix"). The Company is seeking
compensatory damages of approximately $4,000,000 plus declaratory and
injunctive relief for acts of alleged securities fraud, fraudulent
conveyances, breach of fiduciary trust and unfair competition in
connection with the acquisition of the common stock of Phoenix.
Additionally, the Company has filed a demand for arbitration which
seeks compensatory damages of $4,000,000, rescission of the stock
purchase agreement, rescission of an employment agreement and other
matters, all on account of alleged breaches of the stock purchase
agreement, fraudulent misrepresentation and breach of fiduciary duties.
In November 1993, the former owners of Phoenix filed counterclaims
against the Company alleging improper termination with regard to their
employment agreement and breach of the stock purchase agreement. The
former owners have filed for damages of approximately $9,000,000. The
actions remain in their preliminary stage. The Company considers the
damages in the counterclaim to be unsupportable and believes it will
likely prevail on its defenses to such counterclaims . In the third
quarter of the 1996 fiscal year, the Company concluded that its
counterclaims against the holder of the subordinated note payable to
the former owner of Phoenix, as described in Note 2 above, are in
excess of the $300,000 due and, in the opinion of legal counsel and
management, the likelihood of any payment of this note is remote.
The Company is subject to other legal proceedings and claims which
arise in the ordinary course of its business.
In the opinion of management, the Phoenix litigation and other legal
proceedings and claims will be successfully defended or resolved
without a material adverse effect on the consolidated financial
position or results of
F-15
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 1996, February 25, 1995 and February 26, 1994
operations of the Company. No provision has been made by the Company
with respect to the aforementioned litigation at March 2, 1996.
NOTE 9 - RETIREMENT PLANS
The Company has a 401(k) plan for the benefit of all qualified
employees. Under the terms of the plan, the Company contributes an
amount equal to 1% for fiscal years 1994 and 1995 and 2% for fiscal
year 1996 of the participant's earnings subject to the maximum
contribution levels established by the Internal Revenue Service. Plan
contributions for fiscal 1996, 1995, and 1994 were $102,000, $105,000,
and $88,000, respectively.
NOTE 10 - RESTRUCTURING STRATEGY AND LIQUIDITY MATTERS
In recent years, the Company was burdened with an unprofitable Puerto
Rico facility and low margin product lines which created challenges in
its business, profitability and financial resources. At the end of the
1994 fiscal year the Company began the implementation of a
restructuring strategy to improve operating results and enhance its
financial resources. During fiscal 1995, the Company implemented
strategies which reduced costs, streamlined its operations and closed
its Puerto Rico plant.
In March, 1994, the Company refinanced its debt (Note 5), entered into
agreements with its principal stockholders (Note 8), increased its
capital through the sale of $1 million of non-voting convertible
preferred stock to management (Note 6) and reduced expenses. In August,
1994, the Company sold treasury stock which increased equity by $2.9
million. Although there can be no assurance that these measures will be
successful, the Company believes the steps it has taken provide
sufficient liquidity to fund its operations.
In April, 1996 the Company signed a letter of intent for a $3.5 Million
private placement consisting of 250,000 shares of common stock and
$2,625,000 of 12.5% convertible subordinated debentures due August 31,
1996. The debentures will be secured by a second mortgage on the
Company's manufacturing and distribution facility in Georgia and are
convertible into 467,167 shares of common stock in specified amounts
after specified dates at prices ranging from $5.10 to $6.00. Closing of
the transaction is expected in early June, 1996. The net proceeds will
be used to prepay the balance payable to Chemical Bank. Accordingly,
the entire balance is included in current liabilities. The remaining
net proceeds will be used to reduce the outstanding balance with
Congress.
F-16
<PAGE>
NOTE 11 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited consolidated quarterly financial data for fiscal years 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
(In Thousands except per share data)
------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1996
Net Sales $10,492 $7,361 $9,849 $7,358
Gross Profit $2,607 $2,124 $2,515 $1,082
Unusual credit (a) $300
Net income (loss) $256 $48 $498 ($1,041)
Net income (loss) per share $0.09 $0.02 $0.17 ($0.35)
Weighted average shares 2,981 2,983 2,986 2,989
1995
Net Sales $8,509 $9,209 $10,995 $8,302
Gross Profit $1,660 $2,149 $2,374 $878 (b)
Unusual charge (a) ($1,252)
Net income (loss) ($449) ($1,297) $24 ($1,425)(b)
Net income (loss) per share ($0.18) ( $0.51) $0.01 ($0.48)
Weighted average shares 2,489 2,521 2,979 2,979
</TABLE>
(a) At the end of fiscal 1994, the Company formulated plans to close
its Puerto Rico facility. This was completed July 1994. A final
assessment associated with this closing required write-offs, reflected
as an unusual charge of $1,252,400 for the year ended February 1995. As
a result, the Company restated its results for its second fiscal
quarter which ended August 1994. In the third quarter of the current
fiscal year, the Company eliminated the $300,000 subordinated note
payable to the former owner of Phoenix which created an unusual credit
for fiscal year 1996. Both transactions are more fully described in
Note 2.
(b) During the fourth quarter of the fiscal year ended February 1995,
the Company recorded additional inventory reserves and write-offs which
aggregated $652,000.
F-17
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE><CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
Balance at Charged to from Balance at
beginning costs and reserves close
Description of year expenses described (a) of year
----------- ------- -------- ------------- -------
<S> <C> <C> <C> <C>
Year ended March 2, 1996
Allowances
Accounts receivable $193,964 $120,000 $273,888 $40,076
==============================================================
Year ended February 25, 1995
Allowances
Accounts receivable $175,000 $90,000 $71,036 $193,964
==============================================================
</TABLE>
(a) Uncollectable accounts written off against the allowance.
F-18
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
(3)(a) Certificate of Incorporation as currently *
in effect (filed as Exhibit 3(a) to Form 10-K
Report for the fiscal year ended February 27,
1988 (the "1988 10-K").
(3)(b) By-Laws as currently in effect (filed as *
Exhibit 3(b) to Form 10-Q Report for the quarter
ended August 26, 1995.
(4)(a) Specimen Stock Certificate (filed as Exhibit *
4(b) to Registration Statement on Form
S-1, No. 2-87229 filed October
17, 1983 (the "1983 Form S-1").
(4)(b) Share Purchase Rights Agreement, dated *
as of September 6, 1988, between the Company
and State Street Bank and Trust Company (filed
as Exhibit 4(a) to Form 8-K Report dated as of
September 6, 1988), as amended by the following:
Amendment No. 1 dated October 3, 1988 (filed as
Exhibit 9 to Schedule 14D-9 Amendment No. 1
dated October 4, 1988), Amendment No. 2 dated
October 18, 1988 (filed as Exhibit 14 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988) and
Amendment No. 3 dated November 1, 1988 (filed as
Exhibit 4(c) to Form 10-K Report for the fiscal
year ended February 25, 1989 (the "1989 10-K"),
Amendment No. 4 dated as of November 17, 1988
(filed as Exhibit 1 to Amendment No. 1 to Form 8-A,
dated November 18, 1988) and Amendment dated as of
August 15, 1994 (filed as Exhibit 4(e) to Form 8-K dated
August 19, 1994).
(4)(c) Note Acquisition Rights Agreement dated as of *
September 6, 1988 between the Company and State
Street Bank and Trust Company, as amended on September 19,
1988 (filed as Exhibit 4(b) to Form 8-K Report dated
September 6, 1988) as amended by the following: Amendment
No. 2 dated October 3, 1988 (filed as Exhibit 10 to Schedule
14D-9 Amendment No. 2 dated October 4, 1988), Amendment No.
3 dated October 18, 1988 (filed as Exhibit 15 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988), Amendment No.
<PAGE>
4 dated November 1, 1988, (filed as Exhibit 4(d) to the 1989
10-K) and Amendment No. 5 dated as of November 17, 1988
(filed as Exhibit 2 to Amendment No. 1 to Form 8-A, dated
November 18, 1988).
(4)(d) Certificate of Designation, Preferences and *
Rights of Non-Voting Convertible Preferred Stock of
Nantucket Industries, Inc. (filed as Exhibit 4 to Form 8-K
Current Report dated March 22, 1994 (the "1994 8-K").
(4)(e) Common Stock Purchase Agreement dated as of *
August 18, 1994 by and among Registrant, Guess ?, Inc., the
Maurice Marciano 1990 Children's Trust, the Paul Marciano
Trust u/t/d 2/20/86, the Armand Marciano Trust u/t/d 2/20/86
and The Samberg Group, L.L.C. (filed as Exhibit 4(d) to Form
8-K dated August 19, 1994).
(9) Voting Trust Agreement by and among the *
Samberg Group, L.L.C., George Gold, Donald Gold, Stephen
Samberg, Stephen Sussman, Robert Polen, Ray Wathen,
Nantucket Industries, Inc., Robert Rosen and Joseph Mazzella
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(a) Nantucket Industries, Inc. Savings Plan, *
effective June 1, 1988 by and between the Registrant and
George Gold and Donald Gold as Trustees, Amendment No. 1
thereto dated June 22, 1990 and Amendment No. 2 thereto
dated November 19, 1990 (filed as Exhibit (10)(a) to Form
10-K Report for the fiscal year ended February 29, 1992 (the
"1992 10-K")).
(10)(b) Incentive Stock Option Plan (filed as Exhibit *
10(d) to the 1988 10-K).
(10)(c) 1988 Nantucket Industries, Inc. Nonstatutory *
Stock Option Plan (filed as Exhibit 10(c) to the 1989 10-K).
(10)(e)(i) Trademark Agreement between Registrant and *
Faberge, Incorporated dated November 1, 1980 ("Trademark
Agreement") regarding the trademarks "Faberge" and "BRUT"
for use with men's and boy's underwear and bathing suits
(filed as Exhibit 10(g)(i) to 1987 10-K); Amendment dated
November 16, 1982 regarding the trademark "BRUT 33" (filed
as Exhibit 10(m) to 1983 S-1); Letter dated August 24, 1983
<PAGE>
from Faberge to Registrant with respect to renewal of the
Trademark Agreement for an additional five year period
(filed as Exhibit 10(g)(iii) to 1987 10-K); Amendment dated
May 6, 1983 regarding the trademarks "BRUT Medallion Design"
and "Brut Royale" (filed as Exhibit 10(k)(ii) to 1983 S-1;
Amendment dated December 5, 1983 (filed as Exhibit 10(g)(iv)
to the Form 10-K Report for the fiscal year ended March 3,
1984 (the "1984 10-K"); Amendment dated October 31, 1984
(filed as Exhibit 10(g)(xiii) to the Form 10-K Report for
the fiscal year ended March 2, 1985 (the "1985 10-K"));
Amendment dated March 14, 1986 extending license to include
swimwear tops (filed as Exhibit 10(g)(v) to the 1986 10-K;
Amendment dated April 25, 1984 (filed as Exhibit 10(g)(v) to
the 1984 10-K); Letter dated December 31, 1987, extending
term of Trademark Agreement for an additional five year
period and deleting men's and boy's bathing suits from
coverage (filed as Exhibit 10(g)(iii) to the 1988 10-K);
extension dated February 24, 1989, extending expiration date
of the Trademark Agreement to February 28, 1998 (filed as
Exhibit 10(e)(ii) to the 1989 10-K).
(10)(e)(ii) Intentionally Omitted
(10)(e)(iii) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated September 6, 1988 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 19 to Form 10-Q for the Quarter ended
August 27, 1988).
(10)(e)(iv) License Agreement between the Company and *
BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
dated December 31, 1991 for the manufacture and sale of
men's and ladies' underwear under the "BRITTANIA" trademark
(filed as Exhibit 10(e)(iv) to the Form 10-K Report for the
fiscal year ending February 26, 1994 (the "1994 10-K")).
(10)(e)(v) Amendment dated as of January 31, 1996 Filed
to License Agreement between the Registrant Herewith
and BRITTANIA Sportswear, Ltd. (subsidiary of Levi Strauss)
for the manufacture and sale of mens' and ladies' loungewear
under the "BRITTANIA" trademark.
(10)(e)(vi) Intentionally omitted.
<PAGE>
(10)(f) Modification and Extension of Lease *
dated November 30, 1982 between Registrant and Satti
Development Corp. (filed as Exhibit 10(1) to the 1983 10-K);
(i) amendment dated February 16, 1988 *
extending term of lease through April 30, 1993 (filed as
Exhibit 10(h) to the 1988 10-K);
(ii) amendment dated August 15, 1991 *
expanding demised premises, extending term of lease through
May 31, 1997 and modifying annual rental (filed as Exhibit
10(f)(ii) to 1992 Form 10-K).
10(f)(i) Intentionally omitted.
(10)(g) Promissory Notes from George J. Gold *
and Donald D. Gold to Registrant (filed as Exhibit 10(s) to
1983 S-1).
(10)(h) Intentionally omitted.
(10)(i) Amended and Restated Credit Agreement *
dated December 8, 1989, between Registrant and Manufacturers
Hanover Trust Company ("MHTC") for the borrowing of up to
$11,500,000 of which $8,500,000 is on a revolving credit
basis until March 5, 1993, the balance to be used against
letters of credit issued by MHTC for the benefit of the
Registrant; $8,500,000 Note dated December 8, 1989, from
Registrant to MHTC; Continuing Letter of Credit Security
Agreement dated December 8, 1989, between Registrant and
MHTC. (filed as Exhibit 10(i) to the Form 10-K Report for
the fiscal year ended March 3, 1990 (the "1990 10-K")
Omitted exhibits to said Agreement will be furnished to the
Commission upon request.
(i) First Amendment dated August 1, 1990 * to Loan
Agreement between Registrant and MHTC (filed as Exhibit
10(i)(i) to the Form 10-K Report for the fiscal year
ended March 2, 1991);
(ii) Second Amendment and Waiver dated * as of May 23,
1991 to Loan Agreement between Registrant and MHTC (filed
as Exhibit (10)(i)(ii) to the 1992 Form 10-K);
<PAGE>
(iii) Fifth Amendment and Waiver dated * as of February
22, 1993, to Amended and Restated Credit Agreement dated
as of December 8, 1989, between the Registrant and
Chemical Bank, as successor by merger to MHTC (filed as
Exhibit (iii) to the Form 8-K dated March 4, 1993);
(iv) Sixth Amendment and Waiver dated * as of March 4,
1993, to Amended and Restated Credit Agreement (filed as
Exhibit 10(k)(iv) to 1993 10-K).
(10)(j)(i) Revolving Credit Agreement dated as of *
December 30, 1993 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (the "Credit Agreement") (filed as
Exhibit 10(j)(i) to the 1994 Form 10-K).
(10)(j)(ii) First Amendment to Credit Agreement dated *
as of February 28, 1994 by and between Chemical Bank,
Nantucket Industries, Inc., Nantucket Mills, Inc. and
Nantucket Management Corporation (filed as Exhibit 10(j)(ii)
to the 1994 10-K).
(10)(j)(iii) Second Amendment to Credit Agreement dated *
as of March 17, 1994 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (filed as Exhibit 10(j)(iii) to the
1994 10-K).
(10)(k) Intentionally omitted.
(10)(n) Intentionally omitted.
(10)(o) Intentionally omitted.
(10)(q) Intentionally omitted.
(10)(r) Intentionally omitted.
(10)(s) Intentionally omitted.
(10)(t) Intentionally omitted.
(10)(u) Intentionally omitted
<PAGE>
(10)(v) Sublicense Agreement dated November 20, 1991 *
by and among Dawson Consumer Products, Inc., Registrant and
PGH Company regarding the use of the trademark "Adolfo" on
men's high fashion underwear briefs (filed as Exhibit
(10)(v) to the 1992 Form 10-K).
(10)(w) Sublicense Agreement dated October 16, 1992 *
by and among Salant Corporation, Dawson Consumer Products,
Inc. and the Registrant regarding the use of the trademark
"John Henry" on men's high fashion underwear briefs (filed
as Exhibit (10)(w) to the 1992 Form 10-K).
(10)(x) Employment Agreement dated May 26, 1992 *
by and between the Registrant and Stephen P. Sussman (filed
as Exhibit 10(x) to the Form 10Q Report for November 28,
1992) as amended by the Amendment dated August 8, 1994
(filed as Exhibit 99(a) to Form 8-K dated August 19, 1994).
(10)(y) Intentionally omitted.
(10)(z)(i) Intentionally omitted
(10)(z)(ii) Amended and Restated Employment *
Agreement dated as of March 18, 1994 by and between
Nantucket Industries, Inc. and Stephen M. Samberg (filed as
Exhibit 10(z)(ii) to the 1994 Form 10-K) as amended by the
Amendment dated August 8, 1994 (filed as Exhibit 99(c) to
Form 8-K dated August 19, 1994).
(10)(aa) License Agreement dated October 5, 1992 *
between Cluett Peabody & Co., Inc. and Registrant with
respect to the ARROW trademark (filed as Exhibit 2 to Form
10Q Report for November 28, 1992).
<PAGE>
(10)(bb) License Agreement dated December 9, 1992 *
between GUESS?, Inc. and Registrant with respect to the
GUESS? trademark (filed as Exhibit 3 to Form 10Q Report for
November 28, 1992).
(10)(cc) Registrant's 1992 Executive Long-Term Stock *
Option Place (filed as Exhibit 4 to Form 10Q Report for
November 28, 1992).
(10)(dd) Registrant's 1992 Executive Performance *
Benefit Plan (filed as Exhibit 5 to Form 10Q for November
28, 1992).
(10)(ee) Management Agreement made as of January 1, *
1993 by and between Nantucket Management Corp. (a subsidiary
of Registrant) and Registrant (filed as Exhibit 10(ee) to
1993 10-K).
(10)(ff) License Agreement dated December 21, 1992 *
between Registrant and McGregor Corporation with respect to
the Botany 500 Trademark (filed as Exhibit 10(ff) to 1993
10-K).
(10)(ff)(i) Letter agreement dated July 10, 1995 Filed
amending License Agreement between the Registrant Herewith
and McGregor Corporation with respect to Botany 500
Trademark.
(10)(gg) Severance Agreement dated as of March 18, *
1994 by and among Nantucket Industries Inc., George J. Gold
and Donald Gold (filed as Exhibit 10(gg)(i) to the Form 10K
Report for the fiscal year ended February 25, 1995). (Filed
as Exhibit 10(gg) to the 1994 Form 10-K) as amended by the
Amendment dated August 17, 1994 (filed as Exhibit 99(b) to
Form 8-K dated August 19,1994).
(10)(gg)(i) Letter dated February 28, 1995 amending *
Severance Agreement by and among Registrant, George J. Gold
and Donald D. Gold (filed as Exhibit 10(gg)(i) to the Form
10-K Report for the fiscal year ended February 25, 1995).
<PAGE>
(10)(hh) Agreement dated as of March 1, 1994 by *
and among the Samberg Group, L.L.C., George J. Gold, Donald
D. Gold, Stephen M. Samberg, Stephen P. Sussman, Robert
Polen, Raymond L. Wathen and Nantucket Industries, Inc.
(filed as Exhibit 10(hh) to the 1994 Form 10-K)
(10)(ii) Loan and Security Agreement by and between *
Nantucket Industries, Inc. and Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(jj) Guaranty by Nantucket Mills, Inc. in favor *
of Congress Financial Corp. dated as of March 21, 1994
(filed as Exhibit 99(c) to 1994 8-K).
(10)(kk) General Security Agreement by Nantucket *
Mills, Inc. in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(d) to 1994 8-K).
(10)(ll) Guaranty by Nantucket Management *
Corporation in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(e) to 1994 8-K).
(10)(mm) General Security Agreement by Nantucket *
Management Corporation in favor of Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(f) to 1994
8-K).
(10)(nn) Amended and Restated Credit Agreement by *
and among Chemical Bank, Nantucket Industries, Inc.,
Nantucket Mills, Inc. and Nantucket Management Corporation
dated as of March 21, 1994 (filed as Exhibit 99(g) to 1994
8-K) and amended by the Amendment dated as of August 18,
1994 (filed as Exhibit 99(e) to the Form 8-K dated August
19, 1994).
(10)(oo) Amended and Restated Security Agreement by *
and between Nantucket Industries, Inc. and Chemical Bank
dated as of March 21, 1994 (filed as Exhibit 99(h) to 1994
8-K).
<PAGE>
(10)(pp) Amended and Restated Security Agreement *
by and between Nantucket Mills, Inc. and Chemical Bank dated
as of March 21, 1994 (filed as Exhibit 99(i) to 1994 8-K).
(10)(qq) Security Agreement by and between Nantucket *
Management Corporation and Chemical Bank dated as of March
21, 1994 (filed as Exhibit 99(j) to 1994 8-K).
(10)(rr) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Congress Financial Corporation dated June 8, 1994
(filed as Exhibit 10(rr) to the 1994 Form 10-K).
(10)(ss) Deed to Secure Debt, Security Agreement *
and Assignment of Leases and Rents by Nantucket Industries,
Inc. to Chemical Bank dated as of June 8, 1994 (filed as
Exhibit 10(ss) to the 1994 Form 10-K).
(10)(tt) Employment Agreement dated November 23, *
1994 by and between Registrant and Raymond L. Wathen (filed
as Exhibit 10(tt) to Form 10-K Report for the fiscal year
ended February 25, 1995).
(10)(tt)(i) Amendment to Employment Agreement entered Filed
into as of January 1, 1996 between Registrant and Herewith
Raymond L. Wathen.
(10)(uu) Employment Agreement dated July 1, 1994 *
by and between Registrant and Ronald S. Hoffman (filed as
Exhibit 10(uu) to Form 10-K Report for the fiscal year ended
February 25, 1995).
(10)(uu)(i) Letter Agreement dated June 12, 1995 Filed
between Registrant and Ronald S. Hoffman, extending Herewith
the term of his employment to June 30, 1996.
<PAGE>
(10)(vv) Employment Agreement dated as of January Filed
1, 1996 by and between Registrant and Joseph Herewith
Visconti.
(10)(ww) First Amendment, dated as of December 15, *
1995, to Amended and Restated Credit Agreement dated as of
March 21, 1994, among Nantucket Industries, Inc. and its
subsidiaries and Chemical Bank (filed as Exhibit (10)(vv) to
Form 10-Q Report for the quarter ended November 25, 1995.
</TABLE>
EXHIBIT 10(e)(v)
Amendment
---------
This amendment is made as of the 31 day of January 1996 between Brittania
Sportswear Ltd., a California Corporation, ("Licensor") and Nantucket
Industries, Inc., a Delaware Corporation, ("Licensee").
WHEREAS, the Licensor and Licensee entered into an Agreement dated as of
December 31, 1991 pertaining to use of the trademark Brittania on men's and
women's underwear (the "Agreement"); and
WHEREAS, the Licensor and Licensee desire to amend the agreement.
NOW THEREFORE, in consideration of the mutual terms and convenants
hereinafter set forth, the parties hereto agree as follows:
1. Schedule D of the Agreement is hereby amended to include as Products
the category of loungewear ("Loungewear") as follows:
Top Silhouettes:
- --- ------------
Athletic Shirts
Muscle Shirts
Tee Back Athletic Shirts
Tee Shirts
Henley Neck Shirts
Unconstructed CPO Shirt, V-Neck
Fabrications:
-------------
Knits: Jersey, Rib, Thermal and Mesh
Woven: Flannel, Sheeting
Fabric Weight:
------ -------
Between 130 and 185 grams per square meter
Bottom Silhouettes:
------ ------------
Boxer Shorts
Jams
Pull-On Pants Elastic Waist
Pull-On Pants Draw String Waist
Fabrications:
-------------
Knits: Jersey, Rib, Thermal and Mesh
Woven: Flannel, Sheeting
1
<PAGE>
Fabric Weight:
------ -------
Between 130 and 185 grams per square meter
Unionsuits:
- -----------
One Piece
Fabrication:
------------
Knit: Jersey
Fabric Weight:
------ -------
Between 130 and 185 grams per square meter
2. Licensee shall use its best efforts to restrict sales and placement of
the Loungewear products to the underwear departments of those retail accounts
approved under Article 9 of the Agreement.
3. All other terms and conditions of the Agreement shall remain in full
force and effect.
IN WITNESS THEREOF, the parties have executed this Amendment by their
respective officers hereunto duly authorized as of the day and year first above
written.
LICENSOR LICENSEE
BRITTANIA SPORTSWEAR LTD. NANTUCKET INDUSTRIES, INC.
By: ________________________ By: _______________________
Title: _______________________ Title: _______________________
2
EXHIBIT 10(ff)(i)
July 10, 1995
Nantucket Industries, Inc.
105 Madison Avenue
New York, NY 10016
Att: President
Re: License Agreement dated as of December 21, 1992 between
McGregor Corporation and Nantucket Industries, Inc. (the "License
Agreement") - BOTANY 500______________________________
- ------------------------------------------------------
Gentlemen
This letter will confirm and constitute our agreement that the above-referenced
License Agreement be amended as follows:
1. Subject to the terms and conditions contained in the License Agreement, the
Term of the License Agreement is hereby extended through and including
December 31, 1998. Provided that Licensee has fulfilled and complied with
all of its obligations hereunder and that this Agreement has not been
terminated prior to December 31, 1998, Licensee shall have the right to
extend the Term to and including December 31, 2001 if Licensee gives
Licensor written notice of its desire to so extend the Term at least six
(6) months prior to December 31, 1998. Licensee shall have no other or
further right or option to so extend or renew the Term.
2. It is expressly understood that Products as set forth in paragraph 1.1 (b)
do not include knit or woven underwear boxer shorts.
3. Effective as of January 1, 1996, it is understood and agreed that in the
event that Licensee fails to achieve the Minimum Net Sales set forth in
Paragraph 10.4 (b) of the License Agreement for any License Year and such
failure is caused by the implementation of a change by Licensor of its
present marketing strategy for the BOTANY 500 brand, then, in that event,
Licensor will not have the right to terminate the License Agreement for
failure to meet Minimum Net Sales to the extent of the impact of such
change in marketing strategy.
4. Paragraph 10.2 (b) is hereby amended in its entirety to read as follows:
"10.2 (b) Notwithstanding anything to the contrary in this Agreement, in
the
<PAGE>
Nantucket Industries, Inc.
July 10, 1996
Page 2
event that, without first obtaining Licensor's prior written consent, which
consent shall not unreasonably be withheld, any person or entity that as of
October 1, 1992 is not the beneficial owner of more than 5% of any class of
equity securities of the Licensee, directly or indirectly, becomes the
beneficial owner of more than 30% of any class of equity securities of the
Licensee, Licensor shall have the right, without prejudice to any other
rights or remedies it may have, to terminate this Agreement at any time
after the happening of such event by giving written notice of termination
to the Licensee, and such termination shall be effective immediately upon
the giving of such notice; provided, however, for as long as Steven Samberg
or Robert Polen remains actively involved in the management of Licensee,
Licensor shall not exercise its right to terminate this Agreement pursuant
to this paragraph 10.2 (b)."
5. Paragraph 10.4 (b) is hereby amended by adding the following at the end
thereof:
[If the Term is extended]
License Year Minimum Net Sales
------------ -----------------
January 1, 1999 through
December 31, 1999 $1,100,000.00 (U.S.)
January 1, 2000 through
December 31, 2000 $1,200,000.00 (U.S.)
January 1, 2001 through
December 31, 2001 $1,200,000.00 (U.S.)
6. Except as expressly hereby amended, all of the other terms and conditions
of the License Agreement shall remain in full force and effect.
Kindly acknowledge your agreement to the foregoing by signing and returning both
counterparts to us for countersignature.
Very truly yours,
McGREGOR CORPORATION
GLOBAL LICENSING COMPANY
By: _____________________________
(Title)
CONFIRMED, ACCEPTED AND AGREED TO:
NANTUCKET INDUSTRIES, INC.
By: _____________________________
(Title)
EXHIBIT 10(tt)(i)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment ("Amendment") to the Employment Agreement (as hereinafter
defined) is entered into as of January 1, 1996 by and between Raymond L. Wathen
(the "Executive") and Nantucket Industries, Inc. (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive is employed by the Company pursuant to that certain
Employment Agreement (the "Employment Agreement") dated November 23, 1994 but
effective as of March 1, 1994 by and between the Company and the Executive;
WHEREAS, the Company believes that reducing the Executive's areas of
responsibility under the Employment Agreement and his compensation therefor will
be in the best interests of the Company;
WHEREAS, the Executive acknowledges the appropriateness of such change in
his responsibilities under the Employment Agreement and his compensation
therefor and wishes to remain employed by the Company under such new
arrangement; and
WHEREAS, based upon the aforementioned beliefs, each of the Executive and
the Company desires to amend the Employment Agreement as set forth herein;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements contained herein and other good and lawful consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree:
AGREEMENT
1. Section I.A of the Employment Agreement, captioned "Position," is hereby
--------
amended by deleting it in its entirety and replacing it with the following
Section I.A:
"A. Position. The Company hereby employs the Executive as a Salesman
--------
for the Company's GUESS? division, with a sales territory comprising
Texas, Louisiana, Mississippi, Alabama, Georgia, Florida, South
Carolina, North Carolina, Tennessee, Arkansas, Kentucky, Virginia and
the District of Columbia (the "Executive's Territory"). The Executive
shall perform such reasonable duties as may be determined and assigned
to him from time to time by the Company's Chief Executive Officer or
President. The Executive shall report to the Company's Chief
-1-
<PAGE>
Executive Officer and to the Company's President. The Executive shall
be entitled to an office and accoutrements appropriate to executives of
his station in the Company. During the Term (as hereinafter defined),
the Executive shall devote his best efforts, knowledge and skill and
shall devote substantially his full working time and attention to the
performance of his duties as aforesaid, except during such period as
the Executive shall be ill, disabled or on vacation as provided for by
this Agreement."
2. Sections I.C.(ii) and (iii) of the Employment Agreement, subsections of
the section captioned "Compensation.," are hereby amended by deleting them in
-------------
their entirety and replacing them with the following Sections I.C.(ii) and
(iii):
"(ii) During the period February 26, 1995 through December 31, 1995,
Executive shall be paid at a rate of $150,000 per annum (during said
period, the "Base Rate").
(iii) From January 1, 1996 until the end of the Term, the Executive
shall be paid at the rate of $100,000 per annum (after said date, the
"Base Rate") plus 1% of Net Sales of GUESS? Products sold by Executive
to (x) the customers listed on Exhibit A attached hereto and as the
same maybe amended from time to time by agreement of the parties and
(y) such other customers consisting of single or chains of retail
stores whose main buying office is located with the Executive's
Territory (collectively the "Executive's Customers")."
3. Section II.B of the Employment Agreement, captioned "Termination," is
-----------
hereby amending by the addition of the following Section II.B.(iv) immediately
following Section II.B.(iii)(b):
"(iv) Sales. The Executive's employment may be terminated at the sole
------
discretion of the Company in the event that (a) the Net Sales of GUESS?
Products sold by Executive to the Executive's Customers during the
fiscal year of the Company ending in February 1997 are less than
$3,300,000; or (b) Net Sales of GUESS? Products sold by the Executive
to the Executive's Customers during the fiscal year of the Company
ending in February 1998 are less than $4,700,000."
4. Section II.C.(i) of the Employment Agreement, captioned "Events
------
Constituting Change in Control," is hereby amended by deleting in their entirety
- ------------------------------
subsections (e) and (f) thereof and replacing them with the following:
"(e) a change in the composition of a majority of the Board of
Directors of the Company occurs within twenty-four (24) months after
any person (as such term is used in Sections 3(a)(9) and 13(d)(3) of
the Exchange Act becomes (after the date hereof) the beneficial owner,
directly or indirectly, of securities of the Company representing ten
percent (10%) or more of the combined voting power of the then
outstanding securities of the Company and the election or appointment
of such new
-2-
<PAGE>
Directors has not been approved by a majority of the Continuing
Directors (as defined in Section III.C.(iii)(d) hereof)."
5. Section II.C.(ii) of the Employment Agreement captioned "Employment
----------
Events" is hereby amended by deleting it in its entirety and replacing it with
- ------
the following Section II.C.(ii):
"(ii) Employment Events. The Company will provide or cause to be
-----------------
provided to the Executive the rights and severance benefits described
in subsection (iii) hereof in the event that the Executive's employment
by the Company is terminated at any time during the Term (but not, in
any event, after the expiration of the Term) subsequent to a Change in
Control either:
(a) by the Company for any reason other than for Cause, as
defined in II.B.(iii)(a)(1)-(4), pursuant to Section II.B.(iv), or
because of death or Permanent Disability, or
(b) by the Executive within three (3) months following the
occurrence, without the Executive's consent of any of the following
events:
(1) the Executive is assigned any duties or responsibilities
that are inconsistent with his position, duties, responsibilities or
status at the commencement of the Term hereof, or his reporting
responsibilities or title in effect at such time are changed;
(2) the Executive is transferred to a location which is
substantially more distant from his then residence than his current
home (at the date hereof) is from his current principal work location,
or is required to engage in an increased amount of travel on the
Company's business;
(3) the Executive determines in good faith that, due to the
Change in Control or events which have occurred thereafter, he is not
able effectively to discharge his duties;
(4) the Company fails to continue in effect any material
benefit or compensation plan or plans providing the Executive with
substantially similar benefits to those in which the Executive is
participating at the date of this Agreement or in which he hereafter
may participate at any time prior to a Change in Control; or
(5) the Company is in default in the payment of Base Rate,
if any, and/or Commissions or any portion thereof in excess of $1,000,
which default continues for more than ten (10) days after notice by the
Executive."
-3-
<PAGE>
6. Section II.C.(iii) of the Employment Agreement captioned "Severance
---------
Benefits" is hereby amended by deleting it in its entirety and replacing it with
- --------
the following Section II.C.(iii):
"(iii) Severance Benefits. The severance benefits to which the
-------------------
Executive shall be entitled under the circumstances specified in
subsections II.C.(i) and II.C.(ii) above are as set forth below. Such
benefits shall be in lieu of the payment of Base Rate and Commissions,
if any, but shall not affect any other benefits provided hereunder:
(a) The Company shall pay to the Executive within two (2) weeks
after such termination a lump sum equal to the greater of : (y) two
times the sum of the Base Rate and the Commissions paid to Executive in
the one year period immediately preceding the Change in Control
(exclusive of any portion thereof paid on account of the period ending
December 31, 1995); or (z) the sum of $200,000; in either case, such
sum to be discounted to present value at a discount rate of eight
percent (8%) per annum applied to each future payment from the time it
would have been payable as Base Rate or Commissions (treating all
monies paid pursuant to the foregoing clause (z) as Base Rate payments)
for a two year period following such termination to the date of actual
payment hereunder.
(b) If, at the effective date of termination, the Executive holds
any stock option, then (notwithstanding any terms of such option to the
contrary) the Executive, his personal representative or heir shall have
the right, during a period of seven (7) months following the
termination, at his election either (x) to exercise all such options as
to all or any part of the shares covered thereby, including shares as
to which such options would not otherwise then be exercisable, or (y)
to have the Company, upon written request, purchase all such options
(which options shall be deemed for this purpose to continue unaffected
by the terms of any merger or consolidation of which the Company is not
the surviving corporation regardless of any provisions of such merger,
consolidation or option to the contrary except insofar as is necessary
to adjust such to maintain its value, equity or economic significance
as equivalent to that in existence before such merger or other event)
at a cash purchase price equal to the excess of the fair market value
per share over the option price multiplied by the number of shares
covered by such option. In the event that at the effective date of
termination the Executive owns stock of the Company which is subject to
a contractual provision that grants the Company the right to purchase
such shares in specified circumstances, then the price at which the
Company may exercise such right shall also be the fair market value at
the date of termination. For purposes of this subsection (iii)(b), the
term "fair market value" where a Change in Control has occurred shall
mean the highest price per share paid as a result of any bona fide
offer which is in effect at any time during the period beginning on the
ninetieth (90th) day prior to the date on which the Change in Control
occurs and ending on the date on which such options are exercised. In
the event that any portion of this subsection (iii)(b) is held to be
contrary to law or to
-4-
<PAGE>
subject the Executive to liability under Section 16(b) of the Exchange
Act, that portion of this subsection (iii)(b) shall be modified to the
extent required to be in compliance with the law and, if such
modification is not effective, such portion shall become null and void
and all other portions hereof shall remain in full force and effect.
If any of the rights granted pursuant to this subsection (b) are also
available to the Executive pursuant to the terms of the option then
such rights shall be deemed to have been granted to the Executive
pursuant to the terms of such option, and this section shall not in any
event be effective to reduce any such rights.
(c) If, at the effective date of termination, the Executive
holds any unvested equity or deferred compensation rights, such rights
shall thereupon immediately become vested in full, notwithstanding any
contrary provision in any agreement resolution or instrument governing
such rights.
(d) In the event that any of the amounts payable to the
Executive by the Company hereunder would, if made, constitute Excess
Parachute Payments for purposes of Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended, after application of Section
280G(b)(4), then the amount payable by the Company shall be reduced by
the amount necessary to cause the Executive to receive no Excess
Parachute Payments. The allocation of any such reduction among the
various payments hereunder shall be made at the election of the
Executive. If the Company and the Executive do not agree on the
reduction, if any, necessary to cause the Executive to receive no
Excess Parachute Payments, Company shall, at the Executive's request,
apply for a ruling from the Internal Revenue Service ("Service") as to
whether any or all payments to be made to the Executive are, in the
view of the Executive, Excess Parachute Payments. Such ruling request
shall be made by the Company in such form and substance as is
satisfactory to the Executive. The Executive and the Company hereby
agree to be bound by the Service's ruling as to whether payments
constitute Excess Parachute Payments.
This subsection (d) shall be cancelled and of no force and effect if a
majority of the Company's Continuing Directors (as hereinafter defined)
then in office vote to override the operation of this subsection (d)
and such override is consented to by the Executive. As used herein,
the term "Continuing Director" means any member of the Board of
Directors of the Company who was a member of the Board on the date
hereof or who is elected to the Board after the date hereof upon the
affirmative recommendation of such number (but in no event fewer than
three) of Continuing Directors as shall constitute a majority of the
Continuing Directors then in office, voting separately and as a
subclass of directors on such recommendation. A person who is or
becomes a Continuing Director as defined or provided in the next
preceding sentence who thereafter ceases to be a member of the Board
shall not if thereafter elected to the Board be deemed to be a
Continuing Director by reason of his prior service as such and shall be
and become a Continuing Director of his
-5-
<PAGE>
latter period of service only if elected upon the affirmative
recommendation of such number (but in no event fewer than three) of
Continuing Directors then in office, voting separately as a subclass of
directors on such recommendation. A decision not to oppose the
election of any person or group of persons to the Board shall not be
deemed to be an "affirmative recommendation" within the meaning of the
two next preceding sentences."
7. Executive hereby tenders his resignation as a director of the Company
and as President of the Company's GUESS? Division, effective immediately.
8. The Employment Agreement as amended by this Amendment sets forth the
entire Agreement and understanding of the parties hereto with respect to its
subject matter and supersedes all other written and oral understandings with
respect thereto.
NANTUCKET INDUSTRIES, INC.
By:__________________________
Stephen M. Samberg,
Chief Executive Officer and
Chairman of the Board
EXECUTIVE:
_____________________________
Raymond L. Wathen
-6-
Exhibit (10)(uu)(i)
June 12, 1995
Mr. Ronald S. Hoffman
104 Kings Walk
Massapequa Park, NY 11762
Dear Mr. Hoffman:
This letter amends the agreement between us as reflected in our letter of
July 1, 1994 to you as follows:
The initial period of employment set forth in Paragraph 1 of said letter (to
wit: "the period commencing on July 1, 1994 and continuing until June 30, 1995")
is hereby extended until June 30, 1996.
No other changes of our agreement are effected hereby, including without
limitation, Paragraph 6 of said letter.
Please indicate your acceptance of the amendment set forth herein by
executing and returning the enclosed copy of this letter.
Very truly yours,
NANTUCKET INDUSTRIES, INC.
By:_________________________
Stephen M. Samberg,
Chief Executive Officer
ACKNOWLEDGEMENT
---------------
I hereby accept the above amendment and agree to be bound thereby.
____________________________
Ronald S. Hoffman
Dated:______________________
EXHIBIT 10(vv)
EMPLOYMENT AGREEMENT
Agreement, dated as of January 1, 1996 by and between Nantucket Industries,
Inc., a Delaware corporation having its principal office at 105 Madison Avenue,
New York, New York 10016 (the "Company") and Joseph Visconti, residing at 39
Struly Drive, Massapequa Park, New York 11762 (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company desires that the Executive shall enter and remain in
the employ of the Company as President thereof, and the Company is willing to
provide such salary, benefits and income security to the extent and upon the
terms and conditions set forth below;
WHEREAS, the Executive is willing to enter and remain in the employ of the
Company as President thereof, upon the understanding that the Company will
provide him with the salary and benefits set forth below, as well as a degree of
income security if his employment is terminated without cause;
WHEREAS, the Executive is expected to make major contributions to the
profitability, growth and financial strength of the Company; and
WHEREAS, the Company considers such services of the Executive to be in the
best interests of the Company and its stockholders and desires to assure itself
of the continued services of the Executive on an objective and impartial basis
and without distraction or conflict of interest in the event of an attempt to
obtain control of the Company;
NOW THEREFORE in consideration of the premises and the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
I. Employment of the Executive.
----------------------------
A. Position. The Company hereby employs the Executive as President of
---------
the Company, to have such responsibilities and to perform such reasonable senior
executive duties as may be determined and assigned to him from time to time by
the Company's Chief Executive Officer and Board of Directors and as are fully
consistent with the Executive's position with the Company. The Executive shall
report to the Company's Board of Directors and to the Company's Chief Executive
Officer. The Executive shall be entitled to an office and the accoutrements
appropriate to senior executive officers of his station in the Company. During
the Term (as hereinafter defined), the Executive shall devote his best efforts,
knowledge and skill and shall devote substantially his full working time and
attention to the performance of his duties
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as aforesaid, except during such period as the Executive shall be ill, disabled
or on vacation as provided for by this Agreement.
B. Term. Except in the case of earlier termination as hereinafter
-----
specifically provided herein (other than as a result of a material breach by the
Company), the term of the Executive's employment and the obligations of the
Company hereunder (the "Term") shall commence on January 1, 1996 and shall
terminate on February 27, 1999.
C. Renewal. Either party hereto may give notice to the other party on or
--------
before February 28, 1998 of intention to terminate this Agreement on February
27, 1999. In the event that no such notice is given, the parties hereto agree
to negotiate, in good faith, terms for the renewal of this Agreement.
D. Compensation. As compensation for all such services to be rendered by
-------------
the Executive in all capacities hereunder, including services as an officer or
director of the Company or any of its affiliates, the Company will pay or cause
to be paid to the Executive:
(i) An annual salary in the amount of $200,000 ("Salary") throughout
the Term; and
(ii) Three bonuses (each a "Bonus"), each with respect to a complete
fiscal year of the Company during the Term (each a "Fiscal Year") and as further
described hereinafter.
The Salary shall be payable to the Executive in weekly installments. Bonuses
shall be payable to the Executive no later than 120 days after the end of the
Fiscal Year with respect to which such Bonus is earned subject to prepayment as
hereinafter described, and shall be definitively computed by the Chief Financial
Officer of the Company. That portion of Bonuses paid to Executive attributable
to returned merchandise and merchandise with respect to which a purchaser has
been given a credit for shortage shall be deducted from the next Bonus paid to
Executive; or in the case of the Executive's final Bonus, shall be repaid to the
Company by Executive.
E. Bonus. The amount of the Bonus paid to Executive with respect to each
-----
Fiscal Year pursuant to Section I.D(ii) shall be determined in accordance with
this Section I.E.
(i) Definitions
(a) With respect to a Fiscal Year, "Bonus Pool" shall mean the
sum of (1) two percent (2%) of the excess, if any, of the Net Sales of men's
products (other then GUESS ? products) during such year over the Net Sales of
such products during the fiscal year of the Company ending February 24, 1996;
(2) one percent (1%) of the excess, if any, of the Net Sales of GUESS ? products
during such year over the Net Sales of such products during the fiscal year of
the Company ending February 24, 1996; and (3) two percent (2%) of the Net Sales
if any, of any other products during such year.
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(b) "Average Gross Profit Margin" with respect to a Fiscal Year
shall mean the Company's gross profit for such Fiscal Year divided by the Net
Sales for such Fiscal Year, each as computed in accordance with generally
accepted accounting principles ("GAAP").
(c) "Inventory Turnover" with respect to a Fiscal Year shall
mean the Net Sales for such Fiscal Year divided by the average monthly inventory
value, on a cost basis, for such Fiscal Year, each as computed in accordance
with GAAP.
(d) "Net Sales" with respect to a product line shall mean the
aggregate gross sales revenue of the Company with respect to such product line
less returns, discounts and other customary allowances, each as computed in
accordance with GAAP; provided, however, that all such Net Sales shall be at
prices and on terms satisfactory to the Company's Chief Executive Officer.
(ii) The amount of the Bonus with respect to a Fiscal Year shall be
the sum of:
(a) an amount equal to fifty percent (50%) of the Bonus Pool
with respect to such year;
(b) an amount to be determined by the Compensation Committee of
the Board of Directors of the Company in its sole discretion; provided, however,
that such amount shall be between zero (0) and ten percent (10%) of the Bonus
Pool with respect to such year;
(c) in the event that Average Gross Profit Margin for such year
was greater than twenty-eight percent (28%), but only in such event, an amount
equal to twenty-five percent (25%) of the Bonus Pool with respect to such year;
and
(d) in the event that Inventory Turnover for such year was
greater than three and one-half (3 1/2), but only in such event, an amount equal
to fifteen percent (15%) of the Bonus Pool with respect to such year.
Provided, however, that the Bonus paid to Executive with respect to the first
Fiscal Year shall not be less than $100,000.00.
F. Prepayment of Bonus.
--------------------
(i) During the period from the beginning of the Term until the end of
the first Fiscal Year, in addition to Salary, Executive shall receive the sum of
$100,000.00, paid in equal weekly installments. All such payments shall be
credited against Executive's Bonus with respect to the first Fiscal Year.
(ii) During the second Fiscal Year, in addition to Salary, Executive
shall receive the sum of $100,000, paid in equal weekly installments. All such
payments shall be credited
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against Executive's Bonus with respect to the second Fiscal Year. In the event
that Executive's Bonus with respect to the second Fiscal Year is less than
$100,000, the Executive shall repay to the Company the difference between
$100,000 and the Executive's Bonus with respect to the second Fiscal Year. Such
amount may be offset against the Company's obligation to pay money to the
Executive in the third Fiscal Year.
(iii) During the third Fiscal Year in addition to Salary, Executive
shall receive the sum of the lesser of (1) $100,000 or (2) the amount of the
Bonus with respect to the second Fiscal Year, paid in equal weekly installments.
All such payments shall be credited against Executive's Bonus with respect to
the third Fiscal Year. In the event that such amount is greater than
Executive's Bonus with respect to the third Fiscal Year, the Executive shall
repay to the Company the difference between such amount and the Executive Bonus
with respect to the third Fiscal Year.
G. Place of Performance. The Executive shall perform his duties at the
---------------------
Company's principal place of business in New York, New York. However, if the
Company's reasonable business needs require his temporary presence in other
locations, he shall perform his duties at those locations for an aggregate of
not more than ninety (90) days in any period of twelve (12) consecutive months.
II. Fringe Benefits, Termination, Change in Control.
------------------------------------------------
A. Benefits. During the Term:
---------
(i) The Company will include the Executive and his spouse and
dependents as participants in all plans and programs providing medical, dental,
hospitalization or other such insurance coverage provided to other senior
executives of the Company on the date hereof, upon substantially equivalent
terms, as in effect from time to time provided that such participation is
possible under the general terms and provisions of such plans and programs. The
other members of the Executive's family shall have the right to continue to be
covered by all applicable benefit plans in the event of the Executive's death or
Permanent Disability (as hereinafter defined) to the extent the Company can do
so without cost or potential liability. The Company shall have the right to
condition such continued coverage on payment of the premium therefor.
(ii) Provided that the Executive is insurable at normal rates,
the Company shall provide the Executive with disability coverage with benefits
equal to $100,000 per year payable during the Term of this Agreement; provided,
however, that if the Company adopts a disability insurance plan applicable to
executives generally the Executive's disability benefits shall be adjusted (up
or down) to the same level of disability insurance coverage as is provided by
such generally available disability insurance plan. The Company may satisfy its
obligation with respect to such disability benefit by paying to the Executive an
annual bonus equal to the
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premium for such coverage. Such coverage shall not be required to pay any
benefits for periods of disability of ninety (90) days or less.
(iii) The Executive shall be entitled to the prompt
reimbursement of his expenses, provided that such expenses are incurred in
connection with the performance of the Executive's duties hereunder, are in
accordance with past practice and are documented in a manner consistent with
Internal Revenue Service guidelines which are communicated in writing to the
Executive. Executive hereby acknowledges the receipt of a written copy of such
guidelines.
(iv) The Executive shall be entitled to four weeks of vacation
time in each year which to the extent not taken, shall be non-cumulative and
non-compensative.
(v) The Executive shall be eligible to participate in the
Company's 1992 Executive Long-Term Incentive Stock Option Plan and such other
stock option or other compensatory plans as the Company may maintain from time
to time. Upon employment of Executive, the Company shall grant incentive stock
options to Executive for the purchase of 30,000 shares of common stock of the
Company, par value $.10 ("Shares"). Such grant shall be made under the
Company's 1992 Executive Long-Term Stock Option Plan. The exercise price of
such options shall be the market value of the Shares as of the date of said
grant.
B. Termination. The Executive's employment may be terminated before the
------------
expiration of the Term in the following circumstances.
(i) Death. In the event of the Executive's death during the
------
Term, the Executive's employment shall terminate immediately. In such event,
the Executive's heirs and legal representatives shall be entitled to receive the
amount payable to Executive pursuant to Section I.D hereof through the end of
the month in which his death occurs. In the event of Executive's death during
the Term, the Bonus paid to Executive with respect to the Fiscal Year during
which said death occurs shall be calculated on the basis of the fiscal quarters
then completed for that Fiscal Year as compared to the same fiscal quarters of
the fiscal year of the Company ended on February 24, 1996; provided that
Inventory Turnover shall be calculated on an annualized basis.
(ii) Permanent Disability. If, during the Term, the Executive
---------------------
is unable substantially to perform his duties hereunder on account of illness,
accident or other physical or mental incapacity which shall continue for a
period of more than ninety (90) consecutive days ("Permanent Disability"), the
Company shall have the right to terminate the Executive's employment as of the
ninety-first (91st) day or at any time thereafter by giving notice of such
termination to the Executive.
Any questions as to the existence of Permanent Disability upon which the
Executive and the Company cannot agree shall be determined by a qualified
independent physician selected
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<PAGE>
by the Executive (or, if he is unable to make such selection, it shall be made
by any adult member of the Executive's immediate family) and approved by the
Company. The determination of such physician made in writing to the Company and
to the Executive shall be final and conclusive for all purposes of this
Agreement.
(iii) Cause. The Executive's employment may be terminated by
------
the Company for "Cause" as follows:
(a) "Cause" shall mean:
(1) material breach of this Agreement by the Executive which
continues after the Company has given the Executive both ten days' notice of
that breach and a reasonable opportunity to cure that breach;
(2) The Executive's being convicted of or pleading nole
----
contendere to, fraud, embezzlement or other felony or criminally dishonest act
- ----------
either against the Company or which, in the reasonable determination of the
Board of Directors, could have an adverse effect on the Company;
(3) the Executive's refusal to follow lawful directions of the
Chief Executive Officer or the Board of Directors of the Company after
reasonable notice and an opportunity to be heard; or
(4) habitual abuse of alcohol or illegal drugs.
For purposes of this Section II.C(iii)(a), any act, or failure to act, based
upon authority given to the Executive pursuant to a resolution duly adopted by
the Board of Directors of the Company or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Company, and shall
not constitute "Cause" hereunder.
(b) Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the members of the Board then in office at a meeting
of the Board called and held for the purpose of determining that, in the good
faith opinion of the Board, Cause for termination exists.
C. Change in Control. This Section shall become operative only upon the
------------------
occurrence of a Change in Control of the Company.
(i) Events Constituting Change in Control. A "Change of
--------------------------------------
Control" (sometimes also referred to herein as a "Change in Control") shall be
deemed to have occurred if at any time during the Term hereof:
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<PAGE>
(a) the Company is merged or consolidated with another company
or with a partnership, association or other entity and, as a result of such
merger or consolidation, less than seventy-five percent (75%) of the outstanding
voting securities or other beneficial interest of the surviving or resulting
corporation or other entity will then be owned in the aggregate by holders of
the outstanding voting securities of the Company prior to such merger or
consolidation other than holders who are an Acquiring Person. As used herein,
an Acquiring Person shall be any person (as such term is used in Section 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) who becomes (subsequent to the effective date of this Agreement) the
beneficial owner directly or indirectly of twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities (the
"Acquiring Person");
(b) the Company transfers all or substantially all of its assets
to another corporation, or to a partnership, association or other entity (not a
wholly owned subsidiary of the Company), less than seventy-five percent (75%) of
the outstanding voting securities or other beneficial interest of which is owned
in the aggregate by holders of the outstanding voting securities of the Company
prior to such transaction other than holders who are an Acquiring Person;
(c) any person (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act) except
GUESS ?, Inc., Maurice Marciano, Paul Marciano and Armand Marciano and/or any
affiliates thereof (collectively the "GUESS ? Group") becomes (subsequent to the
effective date of this Agreement) the beneficial owner, directly or indirectly,
of securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities;
(d) The GUESS ? Group becomes (subsequent to the effective date
of this Agreement) the beneficial owner, directly or indirectly, of securities
of the Company representing thirty percent (30%) or more of the combined voting
power of the Company's then outstanding securities; or
(e) a change in the composition of a majority of the Board of
Directors of the Company occurs within twenty-four (24) months after any person
(as such term is used in Sections 3(a)(9) and 13(d)(3) of the Exchange Act
becomes (after the date hereof) the beneficial owner, directly or indirectly, of
securities of the Company representing ten percent (10%) or more of the combined
voting power of the then outstanding securities of the Company and the election
or appointment of such new Directors has not been approved by a majority of the
Continuing Directors (as defined in Section III.C(iii)(d) hereof).
(ii) Employment Events. The Company will provide or cause to be
------------------
provided to the Executive the rights and severance benefits described in
subsection (iii) hereof in the event that the Executive's employment by the
Company is terminated at any time during the
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<PAGE>
Term (but not, in any event, after the expiration of the Term) subsequent to a
Change in Control either:
(a) by the Company for any reason other than for Cause, as
defined in II.B.(iii)(a)(1)-4, death or Permanent Disability, or
(b) by the Executive within three (3) months following the
occurrence, without the Executive's consent of any of the following events:
(1) the Executive is assigned any duties or responsibilities
that are inconsistent with his position, duties, responsibilities or status at
the commencement of the Term hereof, or his reporting responsibilities or title
in effect at such time are changed;
(2) the Executive is transferred to a location which is
substantially more distant from his then residence than his current home (at the
date hereof) is from his current principal work location, or is required to
engage in an increased amount of travel on the Company's business;
(3) the Executive determines in good faith that, due to the
Change in Control or events which have occurred thereafter, he is not able
effectively to discharge his duties;
(4) there occurs a failure by the Board of Directors to nominate
and endorse the Executive for election by the Stockholders of the Company as a
director;
(5) the Company fails to continue in effect any material benefit
or compensation plan or plans providing the Executive with substantially similar
benefits to those in which the Executive is participating at the date of this
Agreement or in which he hereafter may participate at any time prior to a Change
in Control; or
(6) the Company is in default in the payment of Salary, if any,
and/or Bonuses or any portion thereof in excess of $1,000, which default
continues for more than ten (10) days after notice by the Executive.
(iii) Severance Benefits. The severance benefits to which the
-------------------
Executive shall be entitled under the circumstances specified in subsections
II.C(i) and II.C(ii) above are as set forth below. Such benefits shall be in
lieu of the payment of Salary and Bonuses, if any, but shall not affect any
other benefits provided hereunder:
(a) The Company shall pay to the Executive within two (2) weeks
after such termination a lump sum equal to: (y) in the event such termination
occurs prior to February 28, 1998 two times the Salary paid to Executive for
calendar year 1996 and two times the Bonus paid to Executive with respect to the
first Fiscal Year; or (z) in the event that such termination occurs on or after
February 28, 1998, the sum of the Salary paid to Executive for calendar years
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<PAGE>
1996 and 1997 and the Bonuses paid to Executive with respect to the first and
second Fiscal Years; in each case, such sum to be discounted to present value at
a discount rate of eight percent (8%) per annum applied to each future payment
from the time it would have been payable as Salary or Bonus for a two year
period following such termination to the date of actual payment hereunder.
(b) If, at the effective date of termination, the Executive
holds any stock option, then (notwithstanding any terms of such option to the
contrary) the Executive, his personal representative or heir shall have the
right, during a period of seven (7) months following the termination, at his
election either (x) to exercise all such options as to all or any part of the
shares covered thereby, including shares as to which such options would not
otherwise then be exercisable, or (y) to have the Company, upon written request,
purchase all such options (which options shall be deemed for this purpose to
continue unaffected by the terms of any merger or consolidation of which the
Company is not the surviving corporation regardless of any provisions of such
merger, consolidation or option to the contrary except insofar as is necessary
to adjust such to maintain its value, equity or economic significance as
equivalent to that in existence before such merger or other event) at a cash
purchase price equal to the excess of the fair market value per share over the
option price multiplied by the number of shares covered by such option. In the
event that at the effective date of termination the Executive owns stock of the
Company which is subject to a contractual provision that grants the Company the
right to purchase such shares in specified circumstances, then the price at
which the Company may exercise such right shall also be the fair market value at
the date of termination. For purposes of this subsection (iii)(b), the term
"fair market value" where a Change in Control has occurred shall mean the
highest price per share paid as a result of any bona fide offer which is in
effect at any time during the period beginning on the ninetieth (90th) day prior
to the date on which the Change in Control occurs and ending on the date on
which such options are exercised. In the event that any portion of this
subsection (iii)(b) is held to be contrary to law or to subject the Executive to
liability under Section 16(b) of the Exchange Act, that portion of this
subsection (iii)(b) shall be modified to the extent required to be in compliance
with the law and, if such modification is not effective, such portion shall
become null and void and all other portions hereof shall remain in full force
and effect. If any of the rights granted pursuant to this subsection (b) are
also available to the Executive pursuant to the terms of the option then such
rights shall be deemed to have been granted to the Executive pursuant to the
terms of such option, and this section shall not in any event be effective to
reduce any such rights.
(c) If, at the effective date of termination, the Executive
holds any unvested equity or deferred compensation rights, such rights shall
thereupon immediately become vested in full, notwithstanding any contrary
provision in any agreement resolution or instrument governing such rights.
(d) In the event that any of the amounts payable to the
Executive by the Company hereunder would, if made, constitute Excess Parachute
Payments for purposes of Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended, after application of Section 280G(b)(4), then the amount
payable by the Company shall be reduced by the amount
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<PAGE>
necessary to cause the Executive to receive no Excess Parachute Payments. The
allocation of any such reduction among the various payments hereunder shall be
made at the election of the Executive. If the Company and the Executive do not
agree on the reduction, if any, necessary to cause the Executive to receive no
Excess Parachute Payments, Company shall, at the Executive's request, apply for
a ruling from the Internal Revenue Service ("Service") as to whether any or all
payments to be made to the Executive are, in the view of the Executive, Excess
Parachute Payments. Such ruling request shall be made by the Company in such
form and substance as is satisfactory to the Executive. The Executive and the
Company hereby agree to be bound by the Service's ruling as to whether payments
constitute Excess Parachute Payments.
This subsection (d) shall be cancelled and of no force and effect if a
majority of the Company's Continuing Directors (as hereinafter defined) then in
office vote to override the operation of this subsection (d) and such override
is consented to by the Executive. As used herein, the term "Continuing
Director" means any member of the Board of Directors of the Company who was a
member of the Board on the date hereof or who is elected to the Board after the
date hereof upon the affirmative recommendation of such number (but in no event
fewer than three) of Continuing Directors and shall constitute a majority of the
Continuing Directors then in office, voting separately and as a subclass of
directors on such recommendation. A person who is or becomes a Continuing
Director as defined or provided in the next preceding sentence who thereafter
ceases to be a member of the Board shall not if thereafter elected to the Board
be deemed to be a Continuing Director by reason of his prior service as such and
shall be and become a Continuing Director of his latter period of service only
if elected upon the affirmative recommendation of such number (but in no event
fewer than three) of Continuing Directors then in office, voting separately as a
subclass of directors on such recommendation. A decision not to oppose the
election of any person or group of persons to the Board shall not be deemed to
be an "affirmative recommendation" within the meaning of the two next preceding
sentences. For the purpose of this subsection (d), the Executive shall not be
considered to be a Continuing Director.
III. Miscellaneous Provisions.
-------------------------
A. During the Term, the Executive shall not directly or indirectly own
any interest in any company, business or enterprise, which engages in business
activities competitive with any major business activities of the Company, except
that the Executive may acquire a direct or indirect ownership interest of (i) up
to 5% of any class of equity securities in any business organization which has a
class of publicly traded securities, and debt securities of such business
organization, (ii) securities received by gift or inheritance subsequent to the
date hereof, and (iii) passive investments of up to a 5% equity interest in
privately held companies. The Executive acknowledges that prior to the
execution of this Agreement, he has made written disclosure to the Company's
Board of Director of all investments and interests which he owns, which would be
prohibited or require approval pursuant to this Section in the event such
investments or interests were acquired subsequent to the execution hereof.
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B. The Executive acknowledges that his services and responsibilities are
of unique and particular significance to the Company and that his position with
the Company has given, and will continue to give, him a close knowledge of its
policies and trade secrets. The Executive further acknowledges that in the
event the Company loses the services of the Executive prior to the expiration of
the Term, it could be subject to the loss of valuable business relationships
which have been cultivated for the Company by the Executive and by others. The
Executive acknowledges that as a result of the loss of any of the foregoing, the
Company would sustain substantial and irreparable damages. In the event that
either (i) the Executive voluntarily ceases to be an employee of the Company
prior to the expiration of the Term (except for reasons of breach by the Company
of this Agreement), or (ii) the Company terminates the employment of the
Executive for Cause or as a result of Permanent Disability, prior to expiration
of the Term, then the Executive, as part of the consideration for this
Agreement, agrees that he will not, during a period of 24 months commencing with
the date of such termination (and during such longer period as the Executive is
receiving compensation from the Company if such termination is as a result of
Permanent Disability), directly or indirectly on behalf of himself or others:
(i) own, manage, operate, join, control, participate in, invest
in, or otherwise be connected with in any manner, whether as an officer,
director, employee, partner, investor, agent or otherwise, any business or
entity which is in direct and substantial competition with any business in which
the Company was engaged during the 12 month period prior thereto, in any
jurisdiction where the Company is or was then engaged in such business, except
that the Executive may continue to make investments to the extent that such
investments would have been otherwise permissible under Section III.A. hereof if
the Executive had continued his employment with the Company;
(ii) solicit, and/or do business (of the type then engaged in by
the Company, or engaged in by the Company within 12 months prior thereto) with
any person or entity which is then or at any time within the period commencing
12 months prior to the termination of the Executive's employment with the
Company through the date of such termination had been a customer, distributor,
independent sales representative, licensor or contractor to or of the Company;
or
(iii) solicit any employee of the Company or any person who had
been an employee of the Company within the aforesaid 12 month period, for the
purpose of employing such person.
The Executive's obligations under this Section III.B are subject to and
contingent upon the Company's compliance in all material respects with its
obligations under this Agreement, including without limitation any thereof
arising hereunder in connection with the termination of the Executive's
employment. The Executive acknowledges that the provisions of this Section
III.B are reasonable and necessary for the protection of the Company and that
each provision and the period or periods of time, geographic areas and types and
scope of restrictions on the activities specified herein are and are intended to
be divisible. The parties acknowledge that the Company shall be entitled to all
remedies provided for at law or in equity, including without
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limitation an injunction to enforce the provisions of this Section III.B. This
Section III.B shall not be the exclusive remedy available to the Company in the
event of breach of this Agreement, but the rights and remedies provided for in
this Section III.B shall be in addition to all other rights and remedies
available to the Company.
C. The Executive covenants and agrees with Company that the Executive
will not, during or after the Term, disclose to anyone (except to the extent
reasonably necessary for the Executive to perform his duties hereunder) any
"confidential information", as such term is hereinafter qualified, concerning
the business or affairs of the Company or of any of its affiliates which the
Executive may have acquired in the course or as an incident of the Executive's
employment with the Company or with any of its affiliates, including, without
limitation, customer lists, business or trade secrets of, or methods or
techniques used by the Company or any of its affiliates or subsidiaries in or
about their respective businesses, or any information whatsoever concerning the
customers of any of them. For purposes of this Section, confidential
information shall not include information which was known to the public prior to
the date of communications by the Executive. Confidential information shall not
include information which becomes known to the Executive subsequent to the date
of termination of his employment with the Company.
D. Executive hereby represents and warrants that his execution of this
Agreement and his performance under this Agreement shall not violate any
contract or agreement to which Executive is a party.
E. Any dispute, controversy or claim arising out of, in connection with,
concerning, or relating to, this Agreement or its validity, construction,
interpretation, breach, performance or termination shall be settled by
arbitration. That arbitration shall be conducted before a single arbitrator in
New York, New York, in accordance with the then applicable Commercial
Arbitration Rules of the American Arbitration Association. the result of that
arbitration shall be final and binding. The arbitration award shall include the
allocation of all attorneys' fees, and may include any other expenses of the
arbitration, which the arbitrator determines. Judgment upon that arbitration
award may be entered in, and enforced by, any court of competent jurisdiction.
F. No right, benefit or interest hereunder shall be subject to
assignment, anticipation, alienation, sale, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation or to
execution, attachment, levy or similar process; provided, however, that the
Executive may assign any right, benefit or interest hereunder if such assignment
is permitted under the terms of any plan or policy of insurance or annuity
contract governing such right, benefit or interest.
G. This Agreement may not be amended, modified or cancelled except by
written agreement of the parties. No provision of this Agreement may be waived
except by a writing signed by the party to be bound thereby.
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H. In the event that any provision or portion of this Agreement shall be
determined to be contrary to law or invalid or unenforceable in any respect by a
court of competent jurisdiction, the remaining provisions shall not be affected,
but shall, subject to the discretion of such court, remain in full force and
effect and any invalid and unenforceable provisions shall be deemed, without
further action on the part of the parties hereto, modified, amended and limited
to the extent necessary to render the same valid and in full force and effect to
the fullest extent permitted by law.
I. This Agreement shall be binding upon and inure to the benefit of the
Executive, the Company and any successor organization or organizations which
shall succeed to substantially all of the business and property of the Company
whether by means of merger, consolidation, acquisition of substantially all of
the assets of the Company or otherwise, including by operation of law. In the
event that the Company enters into any agreement with respect to the acquisition
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise), such agreement shall provide for the acquiring party, in writing
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform if no succession had taken place.
J. For purposes of this Agreement, references to the "Company" shall mean
the Company together with all of its subsidiaries and references to actions
taken by the Company's board of Directors shall mean such actions taken without
the affirmative participation of directors which have a direct economic interest
in the outcome of any such action.
K. This Agreement has been made in and shall be governed and construed in
accordance with the laws of the State of New York.
L. For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, or delivered in hand, to the parties
at their respective addresses as set forth above, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
M. This Agreement sets forth the entire agreement and understanding of
the parties
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<PAGE>
hereto with respect to its subject matter, and supersedes all other written and
oral understandings with respect thereto.
NANTUCKET INDUSTRIES, INC.
By: ______________________________
Stephen M. Samberg, Chief Executive Officer
and Chairman of the Board
EXECUTIVE
__________________________________
Joseph Visconti
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