<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Quarter Ended: August 3, 1996 Commission File Number: 0-15898
DESIGNS, INC.
-------------
(Exact name of registrant as
specified in its charter)
Delaware 04-2623104
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
66 B Street, Needham, MA 02194
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(617) 444-7222
--------------
(Registrant's telephone number, including area code)
Indicate by "X" whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 3, 1996
----- --------------------------------
Common 15,819,294 shares
<PAGE> 2
DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
August 3, 1996, July 29, 1995 and February 3, 1996
(In thousands, except share data)
(Unaudited)
<CAPTION>
August 3, July 29, February 3,
1996 1995 1996
--------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,771 $ 8,293 $ 13,941
Short-term investments -- -- 5,978
Accounts receivable 421 909 473
Inventories 64,610 62,580 58,008
Deferred income taxes 922 1,579 922
Pre-opening costs, net 251 1,286 884
Prepaid income taxes 1,308 0 126
Prepaid expenses 4,056 1,382 3,842
-------- -------- --------
Total current assets 87,339 76,029 84,174
Property and equipment, net of accumulated
depreciation and amortization 41,000 33,049 36,083
Other assets:
Long-term investments 5,766 12,978 6,050
Deferred income taxes 2,737 1,505 2,698
Intangible assets 2,716 2,563 2,901
Other assets 662 771 743
-------- -------- --------
Total assets $140,220 $126,895 $132,649
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,868 $ 9,909 $ 8,185
Accrued expenses and other current
liabilities 11,787 8,782 8,346
Accrued rent 2,739 2,986 2,586
Income taxes payable -- 458 --
Current portion of long-term note 1,000 500 500
-------- -------- --------
Total current liabilities 28,394 22,635 19,617
Long-term note payable -- 500 500
Minority interest (Note 2) 6,371 4,808 6,447
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized, none issued
Common Stock, $0.01 par value, 50,000,000 shares
authorized, 15,819,000, 15,812,000 and 15,818,000
shares issued at August 3, 1996, July 29, 1995
and February 3, 1996 respectively 158 158 158
Additional paid-in capital 52,784 52,650 52,767
Retained earnings 52,513 46,144 53,160
-------- -------- --------
Total stockholders' equity 105,455 98,952 106,085
-------- -------- --------
Total liabilities and stockholders' equity $140,220 $126,895 $132,649
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
<PAGE> 3
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
August 3, July 29,
1996 1995
--------- --------
<S> <C> <C>
Sales $66,524 $66,993
Cost of goods sold including
occupancy 45,959 47,115
------- -------
Gross profit 20,565 19,878
Expenses:
Selling, general and administrative 17,177 15,939
Restructuring (income) -- --
Depreciation and amortization 2,666 2,083
------- -------
Total expenses 19,843 18,022
------- -------
Operating income (loss) 722 1,856
Interest expense 44 65
Interest income 262 252
------- -------
Income (loss) before minority interest
and income taxes 940 2,043
Less minority interest 1 16
------- -------
Income (loss) before income taxes 939 2,027
Provision (benefit) for income taxes 385 834
------- -------
Net income (loss) $ 554 $ 1,193
======= =======
Net income (loss) per common and
common equivalent share $ 0.04 $ 0.08
Weighted average common and common
equivalent shares outstanding 15,817 15,763
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE> 4
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
August 3, July 29,
1996 1995
--------- --------
<S> <C> <C>
Sales $125,860 $124,329
Cost of goods sold including
occupancy 89,138 88,255
-------- --------
Gross profit 36,722 36,074
Expenses:
Selling, general and administrative 33,237 30,115
Restructuring (income) -- (2,200)
Depreciation and amortization 5,150 3,947
-------- --------
Total expenses 38,387 31,862
-------- --------
Operating income (loss) (1,665) 4,212
Interest expense 88 87
Interest income 580 723
-------- --------
Income (loss) before minority interest
and income taxes (1,173) 4,848
Less minority interest (144) 106
-------- --------
Income (loss) before income taxes (1,029) 4,742
Provision (benefit) for income taxes (438) 1,952
-------- --------
Net income (loss) $ (591) $ 2,790
======== ========
Net income (loss) per common and
common equivalent share $ (0.04) $ 0.18
Weighted average common and common
equivalent shares outstanding 15,814 15,760
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE> 5
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Twelve Months Ended
---------------------
August 3, July 29,
1996 1995
--------- ---------
<S> <C> <C>
Sales $302,605 $284,889
Cost of goods sold including
occupancy 212,872 195,292
-------- --------
Gross profit 89,733 89,597
Expenses:
Selling, general and administrative 70,110 58,518
Restructuring (income) -- (5,400)
Depreciation and amortization 9,955 7,480
-------- --------
Total expenses 80,065 60,598
-------- --------
Operating income (loss) 9,668 28,999
Interest expense 197 114
Interest income 1,448 1,443
-------- --------
Income (loss) before minority interest
and income taxes 10,919 30,328
Less minority interest 175 106
-------- --------
Income (loss) before income taxes 10,744 30,222
Provision (benefit) for income taxes 4,352 12,252
-------- --------
Net income (loss) $ 6,392 $ 17,970
======== ========
Net income (loss) per common and
common equivalent share $ 0.40 $ 1.14
Weighted average common and common
equivalent shares outstanding 15,793 15,812
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE> 6
DESIGNS, INC.
STATEMENTS OF CASH FLOWS
(In thousands-Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------
August 3, July 29,
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (591) $ 2,790
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 5,150 3,947
Minority interest (144) 106
Loss on sale of investments -- 48
Loss from disposal of property and equipment 182 212
Changes in operating assets and liabilities:
Accounts receivable 52 3,267
Inventories (6,602) (6,914)
Prepaid expenses (214) (169)
Income taxes payable (1,182) 458
Accounts payable 4,683 (3,301)
Accrued expenses and other current liabilities 3,995 2,838
Accrued rent 153 (4,704)
------- --------
Net cash provided by (used for) operating activities 5,482 (1,422)
------- --------
Cash flows from investing activities:
Additions to property and equipment (9,828) (9,808)
Incurrence of pre-opening costs (138) (1,198)
Proceeds from disposal of property and equipment 13 170
Sale and maturity of investments 6,168 3,501
Reduction in other assets 116 23
------- --------
Net cash (used in) investing activities (3,669) (7,312)
------- --------
Cash flows from financing activities:
Payment for aquisition of a business -- (5,428)
Issuance of common stock under option program (1) 17 31
------- --------
Net cash provided by (used for) financing activities 17 (5,397)
------- --------
Net increase (decrease) in cash and cash equivalents 1,830 (14,131)
Cash and cash equivalents:
Beginning of the year 13,941 22,424
------- --------
End of the quarter $15,771 $ 8,293
======= ========
Supplementary Cash Flow Disclosure
Cash paid, net:
Interest $ 43 $ 46
Taxes 722 1,592
<FN>
(1) Including tax related benefit.
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE> 7
DESIGNS, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the interim
consolidated financial statements. These financial statements do not include all
disclosures associated with annual financial statements and, accordingly, should
be read in conjunction with the notes contained in the Company's audited
consolidated financial statements for the fiscal year ended February 3, 1996.
The Company's business has historically been seasonal in nature and the results
of the interim periods presented are not necessarily indicative of the results
to be expected for the full fiscal year.
2. Minority Interest
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company,
entered into a partnership agreement with LDJV Inc. (the "Partnership
Agreement") establishing a joint venture to sell Levi's[Registered Trademark]
brand products and jeans-related products in Original Levi's[Registered
Trademark] Stores and Levi's[Registered Trademark] Outlet stores. LDJV Inc. is a
wholly-owned subsidiary of Levi's Only Stores, Inc., which is a wholly-owned
subsidiary of Levi Strauss & Co. The partnership established pursuant to the
Partnership Agreement is known as The Designs/OLS Partnership (the "OLS
Partnership").
The operating results of the OLS Partnership are consolidated with the financial
statements of the Company for the three, six and twelve months ended August 3,
1996. Minority interest at August 3, 1996 represents LDJV Inc.'s 30% interest in
the OLS Partnership.
In accordance with the Partnership Agreement, the OLS Partnership distributed
$155,000 to its partners for the six months ended July 29, 1995. This cash
distribution represented funds sufficient to pay taxes associated with the
earnings of the Partnership for the six month period ended July 29, 1995. There
have been no cash distributions made during the first six months of fiscal 1996.
3. Restructuring
In fiscal 1993, the Company recorded a non-recurring pre-tax charge of $15.0
million which covered the costs associated with the closing of 15 of its poorest
performing Designs stores. The costs to close these 15 stores totaled $9.6
million, comprised of $6.1 million of cash and $3.5 million of noncash costs.
Total costs of $9.6 million to close the 15 stores were less than the original
pre-tax estimate, primarily due to favorable negotiations with landlords. A
portion of the remaining reserve of $5.4 million was recognized in the first
quarter of 1995 and the remaining portion was recognized in the fourth quarter
of fiscal 1994 as non-recurring pre-tax income.
<PAGE> 8
DESIGNS, INC.
Notes to Consolidated Financial Statements
4. Boston Trading Ltd., Inc. Acquisition
On May 2, 1995, the Company acquired certain assets of Boston Trading Ltd., Inc.
In accordance with the terms of the Asset Purchase Agreement dated April 21,
1995, the Company paid $5.4 million in cash, financed by operations, and
delivered a non-negotiable promissory note in the principal amount of $1 million
payable in two equal annual installments through May 1997 (the "Purchase Note").
In the first quarter of fiscal 1996, the Company asserted certain
indemnification rights under the Asset Purchase Agreement. In accordance with
the Asset Purchase Agreement the Company, when exercising its indemnification
rights, has the right to offset against the payment of principal and interest
due and payable under the Purchase Note. Accordingly, the Company did not make
the $500,000 payment of principal on the Purchase Note that was due on May 2,
1996. The Company has paid all interest through May 2, 1996 in accordance with
the terms of the Purchase Note.
5. Credit Facility
On July 24, 1996, the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with BayBank, N.A. and State Street Bank and
Trust Company under which the banks established a credit facility for the
Company. This credit facility, which terminates on June 30, 1999, consists of:
(i) a revolving line of credit permitting the Company to borrow up to $15
million, and (ii) a commercial and trade letters of credit facility under which
letters of credit, in aggregate amounts up to $45 million, may be issued for the
Company's inventory purchases. Under the revolving line of credit portion of the
facility, the Company has the ability to issue standby letters of credit up to
$750,000. Loans made under this portion of the facility bear interest, subject
to adjustment, at BayBank, N.A.'s prime rate or LIBOR-based fixed rate. The
Company may increase the letters of credit portion of the facility in increments
of $15 million up to a total of $45 million. The terms of the Credit Agreement
require the Company to maintain specific net worth, inventory turnover and cash
flow ratios. At August 3, 1996, the Company had outstanding letters of credit
totaling approximately $9.4 million.
<PAGE> 9
Part I. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Sales for the second quarter of fiscal 1996 decreased 1 percent to $66.5 million
from $67.0 million in the second quarter of fiscal 1995. Sales for the six month
year to date and rolling twelve month periods increased 1 percent and 6 percent,
respectively, over sales in the prior year. Comparable store sales decreased 7
percent for the second quarter of fiscal 1996 and 7 percent for the year to date
period. Comparable stores are retail locations that are open at least 13 months.
Of the 153 stores that the Company operated as of August 3, 1996, 140 were
comparable stores.
Gross margin rate, including the costs of occupancy, for the second quarter
equaled 30.9 percent of sales, compared with 29.7 percent of sales for the
second quarter in the prior year. The improvement was due to an increase in the
percentage of business generated from higher margin store formats, partially
offset by the deleveraging of occupancy expenses on the lower than expected
sales base. For the six month periods, gross margin rate remained relatively
unchanged at 29.2 percent of sales and 29.0 percent of sales for the periods
ending August 3, 1996 and July 29, 1995, respectively. For the rolling twelve
month periods, gross margin decreased to 29.7 percent of sales as compared to
31.4 percent of sales in the prior period primarily due to increased occupancy
costs.
Selling, general and administrative expenses for the second quarter equaled 25.8
percent of sales, compared with 23.8 percent in the prior year, the increase was
primarily attributable to the costs associated with infrastructure expenses
associated with the development of the vertically integrated Boston
Traders[Registered Trademark] brand and lower than anticipated sales results for
the quarter. This increase was partially offset by a decrease in the level of
store payroll expense, which equaled 11.6 percent of sales as compared with 12.3
percent in the prior year. Selling, general and administrative expenses for the
six months and rolling twelve months equaled 26.4 percent and 23.2 percent of
sales, respectively, compared to 24.2 percent and 20.5 percent of sales in
comparable periods in the prior year. The increase is similarly attributable to
the acquisition and development of the Boston Traders[Registered Trademark]
brand.
In fiscal 1993, the Company recorded a non-recurring pre-tax charge of $15.0
million which covered the costs associated with the closing of 15 of its poorest
performing Designs stores. Total costs of $9.6 million, comprised of $6.1
million of cash and $3.5 million of noncash costs, to close the 15 stores were
less than the original pre-tax estimate, primarily due to favorable negotiations
with landlords. A portion of the remaining reserve of $5.4 million was
recognized in the first quarter of 1995 and the remaining portion was recognized
in the fourth quarter of fiscal 1994 as non-recurring pre-tax income.
Depreciation and amortization expense of $2.6 million, $5.1 million and $10.0
million for the three, six and twelve month periods increased by 28.0 percent,
30.0 percent and 33.1 percent, respectively, as compared to the comparable
periods in the prior year. Increased depreciation and amortization expense
reflected increased capital expenditures associated with new store openings, the
Company's new corporate office, and the upgrade of information and technology
systems hardware and merchandising management software.
Interest expense was $44,000 and $65,000 in the second quarter of fiscal 1996
and fiscal 1995, respectively. This reduction is attributable to the decrease in
the average borrowing balance. For the six month year to date period interest
expense increased to $88,000 from $87,000 in the prior period. On a rolling 12
month basis, interest expense increased to $197,000 as compared to $114,000 in
the prior period. The increase is attributable to interest payments made in
connection with the non-negotiable promissory note issued in conjunction with
the acquisition of certain assets of Boston Trading, Ltd., Inc. in May 1995.
There were no borrowings under the revolving credit facility during the first
six months of fiscal 1996.
Interest income for the second quarter was $262,000 compared to $252,000 in the
second quarter of fiscal year 1995. The increase in interest income is
attributable to higher investment yields as compared to the prior year. For the
six month period interest income of $580,000 decreased compared with
<PAGE> 10
$723,000 for the same period last year. This decrease was primarily the result
of a lower average investment balance as compared to the prior year. For the
rolling 12 month period, interest income increased from $1.1 million in the
prior period to $1.4 million for such period ending August 3, 1996 due to higher
investment yields.
Net income for the second quarter of fiscal year 1996 was $554,000 or $0.04 per
share, compared with net income of $1.2 million, or $.08 per share, for the
second quarter in the prior fiscal year. For the six month period ended August
3, 1996 the Company reported a loss of ($591,000), or ($0.04) per share compared
with $2.8 million, or $0.18 per share, for the corresponding period in the prior
year. The results for the six months ended July 29, 1995, included the
recognition of $2.2 million, or $0.08 per share, of non-recurring pretax income
related to the fiscal 1993 restructuring program as more fully described above.
Net income, on a rolling 12 month basis, was $6.4 million, or $0.40 per share,
as compared with $18 million, or $1.14 per share in the prior comparable period.
Net income for the twelve month period ended July 29, 1995 included the impact
of restructuring income of $5.4 million or $0.20 per share.
SEASONALITY
The Company's business is seasonal, reflecting increased consumer buying in the
"Fall" and "Holiday" seasons. Historically, the second half of each fiscal year
provides a greater portion of the Company's annual sales and operating income.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of the Company's liquidity, capital resources and
capital expansion plans includes certain forward-looking information. Such
forward-looking information requires management to make certain estimates and
assumptions regarding the Company's expected strategic direction and the related
effect of such plans on the financial results of the Company. Actual results and
strategic directions may differ from those estimates and assumptions. The
Company encourages readers of this information to refer to the Company's Current
Report on Form 8-K, previously filed with the United States Securities and
Exchange Commission on April 30, 1996, which identifies certain risks and
uncertainties that may impact the future earnings and direction of the Company.
The Company's primary cash needs are for operating expenses, including cash
outlays associated with the development of the Boston Traders[Registered
Trademark] branded product line, seasonal inventory purchases and capital
expenses for information technology and new and remodeled stores and
acquisitions.
WORKING CAPITAL AND CASH FLOWS
To date, the Company has financed its working capital requirements and expansion
program with cash flow from operations, borrowings and proceeds from Common
Stock offerings. Cash provided by operations for the first six months of fiscal
1996 was $5.5 million as compared to cash used for operations of $1.4 million
for the comparable six month period in the prior fiscal year.
The Company's working capital at August 3, 1996 was approximately $58.9 million
compared to approximately $53.4 million on July 29, 1995. This increase was
attributable to the maturity of certain long-term investments.
At August 3, 1996 total inventories were $64.6 million an increase of $2.0
million from the prior year. This increase is primarily due to new store
<PAGE> 11
openings, offset partially by a reduction in inventory due to closed stores and
continued efforts by the Company to manage inventory levels.
The Company's trade payables to Levi Strauss & Co., its principal vendor,
generally are due 30 days after the date of invoice. Variations in the amount of
trade payables outstanding at the end of different periods relate to the timing
of purchases. In the second quarter of fiscal 1995, the Company began sourcing
its own merchandise with various off-shore and domestic vendors. To date,
payment to these vendors has been through the issuance of letters of credit,
which require payment upon shipment of merchandise. The Company anticipates that
the use of this payment method will be proportionate to its Boston
Traders[Registered Trademark] product purchases.
On July 24, 1996, the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with BayBank, N.A. and State Street Bank and
Trust Company under which the banks established a credit facility for the
Company. This credit facility, which terminates on June 30, 1999, consists of:
(i) a revolving line of credit permitting the Company to borrow up to $15
million, and (ii) a commercial and trade letters of credit facility under which
letters of credit, in aggregate amounts up to $45 million, may be issued for the
Company's inventory purchases. Under the revolving line of credit portion of the
facility, the Company has the ability to issue standby letters of credit up to
$750,000. Loans made under this portion of the facility bear interest, subject
to adjustment, at BayBank, N.A.'s prime rate or LIBOR-based fixed rate. The
Company may increase the letters of credit portion of the facility in increments
of $15 million up to a total of $45 million. The terms of the Credit Agreement
require the Company to maintain specific net worth, inventory turnover and cash
flow ratios. At August 3, 1996, the Company had outstanding letters of credit
totaling approximately $9.4 million.
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company,
and a subsidiary of Levi's Only Stores, Inc., a wholly-owned subsidiary of Levi
Strauss & Co., entered into a partnership agreement (the "Partnership
Agreement") to sell Levi's[Registered Trademark] brand products and
jeans-related products. The joint venture that was established by the
Partnership Agreement is known as The Designs/OLS Partnership (the "OLS
Partnership"). The term of the joint venture is ten years; however, the
Partnership Agreement contains certain exit rights that enable either partner to
buy the other partner's interest or sell its own interest, in the joint venture
after five years. The OLS Partnership may open up to thirty-five to fifty
Original Levi's[Registered Trademark] Stores and Levi's[Registered Trademark]
Outlet stores throughout eleven Northeast states and the District of Columbia
through the end of fiscal 1999. At the end of the second quarter of fiscal 1996
there were eleven Original Levi's[Registered Trademark] Stores and eight
Levi's[Registered Trademark] Outlet stores.
In June 1994, Levi Strauss & Co. advised the Company that it did not see any
additional growth in the Levi's[Registered Trademark] Outlet by Designs store
format, other than additional outlet stores that might be opened by the OLS
Partnership. As such, the Company does not currently plan to open any
Levi's[Registered Trademark] Outlet by Designs stores during fiscal 1996. In
addition, the OLS Partnership is opening its own outlet stores, which may impact
the availability of goods to the Levi's[Registered Trademark] Outlet by Designs
stores.
It is the intention of the partners in the joint venture that the OLS
Partnership's working capital and funds for its future expansion will come from
its operations, capital contributions, loans from the partners and borrowings
from third parties.
<PAGE> 12
CAPITAL EXPENDITURES
In the second quarter of fiscal 1995, the Company acquired certain assets of
Boston Trading Ltd., Inc. This acquisition was completed so that the Company
would own the Boston Traders[Registered Trademark] brand name, certain Boston
Traders[Registered Trademark] outlet store assets, various trademark licenses
and inventory. The Company currently plans to use the Boston Traders[Registered
Trademark] brand to transition from being a single vendor retailer to a
vertically integrated retailer featuring the Boston Traders[Registered
Trademark] brand and select Levi Strauss & Co. brands. In the spring of fiscal
1997, barring unforeseen circumstances, the Company plans to open up to five to
seven new specialty stores which will predominantly feature Boston
Traders[Registered Trademark] brand product.
During the first six months of fiscal 1996, the Company remodeled five
Levi's[Registered Trademark] Outlet by Designs stores and one Boston
Traders[Registered Trademark] outlet store. Total cash outlays of $9.8 million
during both the first six months of the fiscal year 1996 and 1995, represent the
costs of new and remodeled stores, relocation of corporate facilities as well as
other corporate capital spending during the periods. Barring unforeseen
circumstances, the OLS Partnership plans to open one Levi's[Registered
Trademark] Outlet store during the remainder of fiscal 1996.
The Company continually evaluates discretionary investments in new projects that
may complement its existing business. Further, as leases expire, the Company
continues to evaluate the performance of its existing stores. As a result of
this process, certain store locations could be closed or relocated within a
shopping center in the future.
The Company expects that cash flow from operations, short-term borrowings and
available cash will enable it to finance its current working capital, remodeling
and expansion requirements during the remainder of the fiscal year.
<PAGE> 13
Part II. Other Information
ITEM 1. Legal proceedings
The Company is a party to litigation and claims arising in the normal course of
its business. Barring unforeseen circumstances, management does not expect the
results of these actions to have a material adverse effect on the Company's
business or financial condition.
ITEM 6. Exhibits and Reports on Form 8-K
A. Reports on Form 8-K:
The Company reported under item 5 of Form 8-K, dated July 26, 1996, that Carolyn
R. Faulkner was promoted on July 16, 1996, to the additional office of Chief
Financial Officer of the Company.
The Company reported under item 5 on Form 8-K, dated August 7, 1996, that on
July 24, 1996 the Company entered into an Amended and Restated Credit Agreement
among the Company, BayBank, N.A. and State Street Bank and Trust Company.
B. Exhibits:
3.1 Restated Certificate of Incorporation of the Company, as
amended (included as Exhibit 3.1 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (No. 33-13402),
and incorporated herein by reference). *
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, as amended, dated June 22, 1993 (included as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
dated June 17, 1996, and incorporated herein by reference). *
3.3 Certificate of Designations, Preferences and Rights of a
Series of Preferred Stock of the Company establishing Series A
Junior participating Cumulative Preferred Stock dated May 1,
1995 (included as Exhibit 3.2 to the Company's Annual Report
on Form 10-K dated May 1, 1996, and incorporated herein by
reference). *
3.4 By-Laws of the Company, as amended (included as Exhibit 3.1 to
the Company's Quarterly Report on form 10-Q dated December 12,
1995, and incorporated herein by reference). *
4.1 Shareholder Rights Agreement dated as of May 1, 1995 between
the Company and its transfer agent (included as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated May 1, 1995,
and incorporated herein by reference). *
10.1 1987 Incentive Stock Option Plan, as amended (included as
Exhibit 10.1 to the Company's Annual Report on Form 10-K dated
April 29, 1993, and incorporated herein by reference). *
<PAGE> 14
10.2 1987 Non-Qualified Stock Option Plan, as amended (included as
Exhibit 10.2 to the Company's Annual Report on Form 10-K dated
April 29, 1993, and incorporated herein by reference). *
10.3 1992 Stock Incentive Plan, as amended (included as Exhibit A
to the Company's definitive proxy statement dated May 10,
1994, and incorporated herein by reference). *
10.4 Senior Executive Incentive Plan effective for the fiscal year
ending February 1, 1997.
10.5 License Agreement between the Company and Levi Strauss & Co.
dated as of April 14, 1992 (included as Exhibit 10.8 to the
Company's Annual Report on Form 10-K dated April 29, 1993, and
incorporated herein by reference. *
10.6 Credit Agreement among the Company, BayBank Boston, N.A., and
State Street Bank and Trust Company dated as of November 17,
1994 (included as Exhibit 1 to the Company's current report on
Form 8-K dated November 22, 1994, and incorporated herein by
reference). *
10.7 Amendment dated June 2, 1995 to the Credit Agreement among the
Company, BayBank Boston, N.A., and State Street Bank and Trust
Company dated as of November 17, 1994 (included as 10.18 to
the Company's Quarterly Report on Form 10-Q dated September
12, 1995, and incorporated herein by reference). *
10.8 Amendment dated May 8, 1996 to the Credit Agreement among the
Company, BayBank Boston, N.A., and State Street Bank and Trust
Company dated as of November 17, 1994 (included as 10.1 to the
Company's Annual Report on Form 8-K dated June 6, 1996, and
incorporated herein by reference). *
10.9 Amended and Restated Credit Agreement among the Company,
BayBank, N.A., and State Street Bank and Trust Company
dated as of July 24, 1996 (included as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated August 7, 1996,
and incorporated herein by reference). *
10.10 Consulting Agreement between the Company and Stanley I. Berger
dated December 21, 1994 (included as Exhibit 10.7 to the
Company's Annual Report on Form 10-K, dated April 28, 1995,
and incorporated herein by reference). *
<PAGE> 15
10.11 Participation Agreement among Designs JV Corp. (the "Designs
Partner"), the Company, LDJV Inc. (the "LOS Partner"), Levi's
Only Stores, Inc. ("LOS"), Levi Strauss & Co. ("LS&CO") and
Levi Strauss Associates Inc. ("LSAI") dated January 28, 1995
(included as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated April 24, 1995, and incorporated herein by
reference). *
10.12 Partnership Agreement of The Designs/OLS Partnership (the "OLS
Partnership") between the LOS Partner and the Designs Partner
dated January 28, 1995 (included as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.13 Glossary executed by the Designs Partner, the Company, the LOS
Partner, LOS, LS&CO, LSAI and the OLS Partnership dated
January 28, 1995 (included as Exhibit 10.3 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.14 Sublicense Agreement between LOS and the LOS Partner dated
January 28, 1995 (included as Exhibit 10.4 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.15 Sublicense Agreement between the LOS Partner and the
Partnership dated January 28, 1995 (included as Exhibit 10.5 to
the Company's Current Report on Form 8-K dated April 24, 1995,
and incorporated herein by reference). *
10.16 License Agreement between the Company and the OLS Partnership
dated January 28, 1995 (included as Exhibit 10.6 to the
Company's Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.17 Administrative Services Agreement between the Company and the
OLS Partnership dated January 28, 1995 (included as Exhibit
10.7 to the Company's Current Report on Form 8-K dated April
24, 1995, and incorporated herein by reference). *
10.18 Asset Purchase Agreement between LOS and the Company relating
to the stores located in Minneapolis, Minnesota dated January
28, 1995 (included as Exhibit 10.9 to the Company's Current
Report on Form 8-K dated April 24, 1995, and incorporated
herein by reference). *
10.19 Asset Purchase Agreement between LOS and the Company relating
to the store located in Cambridge, Massachusetts dated
January 28, 1995 (included as Exhibit 10.10 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
<PAGE> 16
10.20 Asset Purchase Agreement among Boston Trading Ltd., Inc.,
Designs Acquisition Corp., the Company and others dated April
21, 1995 (included as 10.16 to the Company's Quarterly Report
on Form 10-Q dated September 12, 1995, and incorporated herein
by reference). *
10.21 Non-Negotiable Promissory Note between the Company and
Atlantic Harbor, Inc., formerly known as Boston Trading Ltd.,
Inc., dated May 2, 1995 (included as 10.17 to the Company's
Quarterly Report on Form 10-Q dated September 12, 1995, and
incorporated herein by reference). *
10.22 Employment Agreement dated as of October 16, 1995 between the
Company and Joel H. Reichman (included as Exhibit 10.1 to the
Company's Report on Form 8-K dated December 6, 1995, and
incorporated herein by reference). *
10.23 Employment Agreement dated as of October 16, 1995 between the
Company and Scott N. Semel (included as Exhibit 10.2 to the
Company's Report on Form 8-K dated December 6, 1995, and
incorporated herein by reference). *
10.24 Employment Agreement dated as of October 16, 1995 between the
Company and Mark S. Lisnow (included as Exhibit 10.3 to the
Company's Report on Form 8-K dated December 6, 1995, and
incorporated herein by reference). *
10.25 Employment Agreement dated as of October 16, 1995 between the
Company and William D. Richins (included as Exhibit 10.4 to
the Company's Report on Form 8-K dated December 6, 1995, and
incorporated herein by reference). *
10.26 Employee Separation Agreement dated as August 7, 1996 between
the Company and William D. Richins.
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
99. Report of the Company dated April 30, 1996 concerning certain
cautionary statements of the Company to be taken into account
in conjunction with the consideration and review of the
company's publicly disseminated documents (including oral
statements made by others on behalf of the Company) that
include forward looking information (included as Exhibit 99 to
the Company's Current Report on Form 8-K dated April 30, 1996,
and incorporated herein by reference). *
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DESIGNS, INC.
By: /s/ Carolyn R. Faulkner
---------------------------
Carolyn R. Faulkner,
Chief Financial Officer
Dated: September 17, 1996
<PAGE> 1
DESIGNS, INC.
SENIOR EXECUTIVE INCENTIVE PLAN
This Senior Executive Incentive Plan (the "EIP") of Designs, Inc. (the
"Corporation") has been adopted and approved by the Compensation Committee of
the Board of Directors of the Corporation (the "Board") in order to link annual
cash bonus payments to senior executive officers of the Corporation to the
achievement of annual corporate performance measurements. A senior executive
officer of the Corporation may be eligible to receive cash bonus payments under
the EIP provided that such officer is designated for a particular fiscal year as
a participant ("Participant") in the EIP by the Compensation Committee of the
Board, or such other committee of the Board which the Board may so designate to
administer the EIP (the "Committee").
DEFINITIONS
"EPS" means, on a consolidated basis, the Net Earnings (as defined below)
of the Corporation for the fiscal year divided by the number of shares of the
Corporation's common stock outstanding at the end of the fiscal year.
"Net Earnings" means, on a consolidated basis, the Corporation's gross
sales for the fiscal year minus the Corporation's expenses for that fiscal year.
"RONA" means, on a consolidated basis, EBIT (as defined below) for the
fiscal year divided by the Net Assets (as defined below) of the Corporation at
the end of that fiscal year.
"EBIT" means, on a consolidated basis, the Net Earnings of the Corporation
for the fiscal year plus interest and taxes for that fiscal year.
"Net Assets" means, on a consolidated basis, the Corporation's inventory
(product) plus the Corporation's fixed assets (stores, other buildings, capital
equipment and the like), each determined at the end of the fiscal year.
COMPONENTS
The EIP is designed to reward Participants based on the following two (2)
measures of corporate performance: EPS and RONA. Each fiscal year, the Committee
will establish an EPS corporate performance target and a RONA corporate
performance target, each of which is independent of the other and both of which
are to be determined without regard to the effect of any non-recurring item of
income or expense recorded during the fiscal year. The EPS corporate performance
target is subject to equitable adjustment in the event of any stock split, stock
dividend, reclassification of shares, issuance of new shares, repurchase or
cancellation of shares or other similar event affecting the number of shares of
the Corporation's common stock outstanding from fiscal year end to fiscal year
end. Each Participant will paid a cash bonus equal to: (a) up to twenty-five
percent (25%) of the Participant's base salary paid for the fiscal year based
upon the amount by which EPS for the fiscal year exceeds the EPS target for that
fiscal year; plus (b) up to twenty-five percent (25%) of the Participant's base
salary paid for the fiscal year based upon the amount by which RONA for that
fiscal year exceeds the RONA target for that fiscal year.
<PAGE> 2
PAYMENT OF CASH BONUSES
Any cash bonus payment that is earned in a particular fiscal year will be
paid, at the Participant's option, either:
(a) within thirty (30) days after the Corporation's fiscal year financial
results have been audited by the Corporation's independent
accountants; or
(b) prior to the last day of the calendar year to which the payment
relates with appropriate adjustments to be made, based on the audited
financial results of the Corporation, within thirty (30) days after
the Corporation's fiscal year financial results have been audited by
the Corporation's independent accountants.
ELIGIBILITY
Those senior executive officers of the Corporation designated as
Participants after the beginning of the fiscal year may receive a prorated
payment based on the number of months they are employed by the Company during
the fiscal year. Any Participant who leaves the employ of the Corporation
voluntarily following the end of the end of the fiscal year but before the date
on which a payment under the EIP is made forfeits any cash bonus payment which
the Participant was eligible to receive. Any Participant who involuntarily
leaves the employ of the Corporation during the fiscal year will be paid, if
earned, a prorated cash bonus for the portion of the fiscal year the senior
executive officer qualified as a Participant through the date the Participant
leaves the employ of the Corporation, such payment being made in accordance with
the terms of the EIP. Cash bonus payments are based on base salary paid during
the fiscal year. No other payments are included for purposes of the cash bonus
payment calculation. All interpretations or other decisions concerning the EIP
shall be made by the Committee, in its sole discretion.
<PAGE> 1
EMPLOYEE SEPARATION AGREEMENT
-----------------------------
THIS AGREEMENT made as of this 7th day of August, 1996 by and between
Designs, Inc., a Delaware corporation having a usual place of business in
Needham, Massachusetts ("Designs"), and William D. Richins ("Richins") of
Wilton, Connecticut.
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
WHEREAS, Designs has employed Richins most recently pursuant to an
Employment Agreement dated as of October 16, 1995 (the "Agreement"); and
WHEREAS, Designs and Richins desire to set forth the terms of the
termination of Richins's employment at Designs;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth herein, Designs and Richins hereby agree as follows:
1. Richins hereby resigns as an employee and officer of Designs and its
affiliates, effective July 15, 1996 (the "termination date"). Richins will
execute and deliver to Designs a separate instrument embodying such resignation
in the form of Exhibit A; shall sign the internal memorandum which is attached
hereto as Exhibit B; and shall execute and file with the SEC a "Form 5" in the
form attached hereto as Exhibit C. Richins shall not hereafter be considered an
officer or employee of Designs and its affiliates.
2. Provided Richins has executed and delivered this Employee Separation
Agreement (the "ESA") and has not revoked it in accordance with Section 21
hereof, commencing on the termination date and continuing for a period of twelve
months (hereinafter referred to as the "continuation period"), Richins shall be
paid an amount equal in rate to the base salary of $225,000 per year less
applicable deductions. Except as expressly set forth in this ESA, he shall not
be entitled to benefit from or continue to participate in any bonus, deferred
compensation, welfare or benefit plan maintained by Designs. All payments during
the continuation period shall be made consistent with Designs' regular pay
cycle.
3. (a) Richins acknowledges that his right to health insurance and related
coverages under the Consolidated Omnibus Budget Reconciliation Act ("COBRA")
becomes effective as of the termination date and will continue for a maximum of
eighteen months thereafter. Richins has informed Designs that he wants to
continue his coverage during this period and will pay the requisite premiums in
accordance with COBRA.
(b) All options which have heretofore been granted to Richins under
Designs' 1992 Stock Incentive Plan shall be exercisable in accordance with their
terms for thirty (30) days after the termination date.
<PAGE> 2
4. (a) Except as provided above, all other benefits heretofore provided by
Designs to Richins have terminated as of the termination date. Richins
acknowledges that the payments during the twelve month continuation
period, are in lieu of all other benefits and payments which otherwise may have
been payable to him as a result of his termination under benefit plans or
policies of Designs, including, without limitation, additional salary
continuation pay, stock options, bonus payments, separation pay, commission and
automobile insurance, fuel and repair costs, and he hereby waives any rights he
may have in or to any such other benefits or payments, it being the intention of
the parties hereto to convert and merge all such rights into this ESA.
(b) Without limiting the foregoing, Richins specifically waives any rights
he might have under the Agreement, which except as set forth below is hereby
terminated. Notwithstanding the foregoing, Richins reaffirms his undertakings
pursuant to Sections 9(a)(b)(c)(d), 10(a)(b), 11(a)(b) and 12 of the Agreement.
(c) Richins will not hire, and will make every reasonable effort to
dissuade any future employer from hiring any current employee of Designs or its
affiliates until July 15, 1998.
(d) The parties agree that the "Non-Competitive Period" described in
Section 9(a) of the Agreement shall expire on July 15, 1997 and further agree
that the money which Richins will receive during the continuation period will be
considered to be consideration for Richins' reaffirmation of his obligations
under this Section 4, among other considerations which Richins grants Designs in
this ESA.
5. Richins shall never apply for employment with Designs or any of its
affiliates.
6. The parties shall state that "Richins resigned from Designs because of
the personal difficulties with the drawn out relocation from his residence in
Connecticut." All requests for references by Richins' prospective employers
shall be directed by Richins, and as practical, by Designs, to Joel Reichman.
Reichman, or if he is unavailable, his designee shall respond to such requests,
in accordance with Designs' policy, by stating the periods of Richins'
employment and the positions he held during that employment. Designs shall
circulate to its designated recipients Exhibit D hereto. Richins agrees that on
and after the termination date, he will have no discussion or written
communication with Designs' employees, suppliers, analysts, consultants,
customers, financing sources or auditors concerning Designs' business
activities. Richins further confirms and agrees that all Designs' financial and
personnel data which is not publicly filed or available is proprietary to
Designs, and includes valuable trade secrets. Richins further agrees that after
the termination date he shall not enter the premises or property of Designs or
any of its affiliates, subsidiaries or related companies for any purpose at any
time unless he is specifically authorized to do so by the General Counsel of
Designs.
<PAGE> 3
7. Richins hereby agrees not to criticize, disparage or otherwise comment
negatively about, orally or in writing, directly or indirectly, Designs, its
affiliates or any of their respective past, present or future officers,
directors, employees, agents, businesses, suppliers or service providers,
products or services. He shall make no comment about his employment which shall
reflect badly upon Designs, and shall make no comment about his leaving Designs
which is inconsistent with the substance of the first sentence of Section 6
hereof. He agrees to use his best efforts to ensure that none of the members of
his family so criticize, so disparage or so reflect on any of such persons or
entities. Designs agrees that Joel Reichman, Scott Semel, Carolyn Faulkner,
Mark Lisnow and Neal Vantosky will not criticize, disparage, or comment
negatively about, orally or in writing, directly or indirectly, Richins, that
each shall make no comment about Richins' leaving Designs which is inconsistent
with the substance of the first sentence of Section 6 and that it will send the
memorandum attached hereto as Exhibit D to its listed addressees.
8. (a) Richins, for himself, his heirs, legal representatives, successors
and assigns, does hereby waive, remise, release and forever discharge Designs,
its past, present, and future directors, officers, stockholders in their
capacity as stockholders, employees, affiliates, agents and attorneys and their
respective heirs, legal representatives, successors and assigns, of and from any
and all claims, debts, demands, actions, causes of action, suits, dues, sum and
sums of money, accounts, reckonings, bonds, specialties, covenants, contracts,
controversies, agreements, promises, doings, omissions, variances, damages,
executions, liabilities and obligations (hereinafter collectively referred to as
"Claims") of every kind and nature whatsoever, at law, in equity or otherwise,
which he has, or ever had, or which he can, shall or may have, for, upon or by
reason of any matter, cause or thing whatsoever, whether known or unknown, from
the beginning of the world to and including the date hereof, including, without
limitation, all Claims which arise out of or in connection with Richins's
employment or the termination of his employment with Designs and all Claims
under the common law and the federal Age Discrimination in Employment Act,
Chapter 151B of the Massachusetts General Laws, or any such other federal or
state statute regulating the employment relationship but excluding all Claims
based on a breach of this ESA provided, however, that nothing contained in this
Section 8(a) or in this ESA shall diminish or alter any pre-existing rights
Richins may have to a defense or indemnification from Designs or any insurance
carrier with respect to any claim brought against Richins or Designs by any
third party.
(b) Designs, for itself and its successors and assigns, does hereby
waive, remise, release and forever discharge Richins, his legal representatives,
successors and assigns, of and from any and all Claims of every kind and nature
whatsoever, at law, in equity or otherwise, which it has, or ever had, or which
it can, shall or may have, for, upon or by reason of any matter, cause or thing
whatsoever, whether known or unknown, from the beginning of the world to and
including the date hereof, including, without limitation, all Claims which arise
out of or in connection with Richins' employment or the termination of his
employment with Designs and all Claims under the common law but excluding any
Claim of fraud, embezzlement, or any other improper or unlawful receipt or
retention of anything of value belonging to Designs, and further excluding all
Claims based on a breach of this ESA.
9. Richins and Designs acknowledge that they each may hereafter discover
facts in addition to or different from those which he or it now knows or
believes to be true with respect to the subject matter of this ESA, that it is
their intention hereby fully, finally and forever to waive and release all
matters released in Section 8(a) or 8(b) hereof respectively (the "released
matters") and that, in furtherance of such intention, the releases given herein
shall be and remain in effect notwithstanding the discovery or existence of any
such additional or different facts.
<PAGE> 4
10. Richins agrees that the fact and existence of this ESA and amounts paid
hereunder shall not be disclosed by Richins to any person, corporation,
organization, agency or other entity, except for his wife, his attorney, his
tax advisor and to such government authorities as required by law, and in the
case of Designs, the fact and the existence of this ESA and the amounts paid
hereunder shall not be disclosed except to its officers, stockholders,
employees and directors, having a business need to know the contents of this
ESA, its attorneys, and its accountants, and to any responsible governmental
agency, including but not limiting to the SEC.
11. Richins shall not, directly or indirectly, solicit, participate in or
bring any legal claim, action or proceeding against Designs, whether by himself
or by any person, agency, organization or entity, and shall not voluntarily
become involved or participate or cooperate in, publicly or privately, any legal
claim, action or proceeding against Designs except as required to do so by
properly issued subpoena and then only after giving Designs a reasonable
opportunity to review such subpoena and oppose the giving of such testimony.
12. Richins and Designs agrees that each shall not bring any action or
proceeding against the other arising out of or relating to Richins' employment
or the termination of his employment with Designs. If either Richins or Designs
should bring any action arising out of the subject matter of this ESA and the
other party shall prevail concerning any or all of the issues so presented, that
party shall pay all of the other party's costs and expenses of the defense of
such issue(s). If at any time Richins shall bring an action or proceeding to
challenge the validity of this ESA or any of its provisions, he shall first
repay to Designs all payments, considerations and benefits provided by Designs
to which Richins would not be entitled absent this ESA.
13. Richins warrants and represents to Designs that he has not heretofore
assigned, transferred or purported to assign or transfer, and shall not
hereafter assign or transfer or purport to assign or transfer, to any person or
entity any released matter. Richins shall indemnify and hold harmless Designs
from and against all claims, suits, actions, causes of action, liabilities,
obligations, losses, costs and expenses (including, without limitation,
attorneys' fees whether or not litigation be commenced) based on, resulting
from, in connection with, or arising out of, any such assignment or transfer or
purported assignment or transfer.
14. Richins confirms and agrees that he has returned to Designs and forever
ceased to use all originals and all copies of all notebooks, disks, tapes,
computer programs, software, reports, proposals, notes, documents and other
materials which contain any confidential or proprietary information of Designs
or its vendors or customers or which otherwise are the property of Designs.
Richins further confirms and agrees that all Designs' financial and personnel
data which is not publicly filed or available constitutes proprietary
information, including valuable trade secrets. Richins further confirms and
agrees that he has returned to Designs and forever ceased to use his office
keys, key cards, printed cards, corporate credit cards and other property which
had been in his possession and was owned by Designs or its vendors or customers,
including one Jaguar automobile and its accessories.
15. Richins acknowledges that the amounts paid hereunder are not intended
to be wages.
<PAGE> 5
16. Neither this ESA nor any provision or part hereof shall constitute, or
be construed as, an admission of liability or wrongdoing by either party hereto.
17. This ESA shall be binding upon, and inure to the benefit of, the
parties hereto and their respective heirs, legal representatives, successors
and assigns, and shall inure to the benefit of all past, present and future
directors, officers, stockholders in their capacity as stockholders, employees,
affiliates, agents and attorneys and their respective heirs, legal
representatives, successors and assigns.
18. This ESA constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, between them concerning such subject matter,
except as specifically set forth herein.
19. This ESA shall be governed by, and construed and enforced in accordance
with, the substantive laws of the Commonwealth of Massachusetts without regard
to its principles of conflicts of laws.
20. This ESA may be executed in one or more counterparts, each of which
when so executed shall be deemed to be an original and all of which together
shall constitute one and the same agreement.
21. Richins further states that he has carefully read this ESA, that he
knows and understands the contents hereof and that he is executing this ESA as
his own free act and deed and knowingly and voluntarily waives his rights and
claims as described above. In signing this ESA, Richins acknowledges that he has
not relied on any statements or explanations made by Designs. Richins further
represents and agrees that he has consulted with an attorney of his choosing,
and that he fully understands the terms, conditions, and final and binding
effect of this ESA and the release contained herein to be a full and final
release of all Claims with final and binding effect. Richins acknowledges that
he has been given a period of at least twenty-one days within which to consider
this ESA prior to his execution hereof. Furthermore, Designs and Richins agree
that Richins shall have the right to revoke this ESA by written notice to
Designs within the seven-day period after he executes it (the "revocation
period"), and that this ESA shall not become effective or enforceable until such
seven-day revocation period has expired. In the event this ESA is revoked by
Richins in accordance with the provisions of this Section 21, notwithstanding
the immediately preceding sentence, Richins shall return to Designs all
payments, considerations and benefits provided by Designs to which Richins would
not be entitled absent this ESA.
22. Any dispute concerning the meaning, application or violation of this
ESA (but not about its validity which will be assumed by the arbitrator), shall
be submitted to final and binding arbitration as follows:
(a) Arbitration shall be conducted in accordance with the Voluntary
Labor Arbitration Rules of the American Arbitration Association ("Rules") then
in effect.
(b) All hearings will be held in Suffolk or Norfolk County in the
Commonwealth of Massachusetts.
(c) The arbitrator will be without power to add to, delete from, or
amend the provisions of this Agreement.
<PAGE> 6
(d) The costs of arbitration and the fee of the arbitrator shall be
allocated by the arbitrator. In the event that the arbitrator determines that
either party has brought a frivolous claim or has made a frivolous defense to a
valid claim, the arbitrator may award expenses, reasonable attorney's fees and
costs to the prevailing party.
(e) Except as otherwise provided herein, arbitration shall be pursuant
to the Rules. The applicable procedural law shall be Title 9 of the United
States Code, and to the extent the arbitrator resorts to general rules of
contract interpretation, he or she shall resort to the law of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, Designs and Richins have set their hands and seals on
the date first above written.
ATTEST: DESIGNS, INC.
/s/ Scott N. Semel, EVP [Seal] By:/s/ Joel H. Reichman, President
- ------------------------------ -------------------------------
Its President thereunto duly
authorized
WITNESS:
/s/ Judy Richins [Seal] /s/ William D. Richins 8/7/96
- ------------------------------ ----------------------------------
William D. Richins
<PAGE> 1
<TABLE>
Statement Re: Computation of Per Share Earnings
<CAPTION>
Three Months Six Months Twelve Months
Ended Ended Ended
8/3/96 7/29/95 8/3/96 7/29/95 8/3/96 7/29/95
------ ------- ------ ------- ------ -------
(In thousand, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 554 $ 1,193 $ (591) $ 2,790 $ 6,392 $17,970
Weighted average shares outstanding during the period 15,817 15,763 15,814 15,760 15,793 15,812
Net income (loss) per common and common equivalent share $ 0.04 $ 0.08 $ (0.04) $ 0.18 $ 0.40 $ 1.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF DESIGNS, INC. AS OF AUGUST 3, 1996, JULY 29,
1995 AND FEBRUARY 3, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE
THREE, SIX AND TWELVE MONTHS ENDED AUGUST 3, 1996, JULY 29, 1995 AND FEBRUARY
3, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 15,771
<SECURITIES> 0
<RECEIVABLES> 421
<ALLOWANCES> 0
<INVENTORY> 64,610
<CURRENT-ASSETS> 87,339
<PP&E> 69,754
<DEPRECIATION> 28,754
<TOTAL-ASSETS> 140,220
<CURRENT-LIABILITIES> 28,394
<BONDS> 0
<COMMON> 158
0
0
<OTHER-SE> 105,297
<TOTAL-LIABILITY-AND-EQUITY> 140,220
<SALES> 125,860
<TOTAL-REVENUES> 125,860
<CGS> 89,138
<TOTAL-COSTS> 89,138
<OTHER-EXPENSES> 38,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> (1,029)
<INCOME-TAX> (438)
<INCOME-CONTINUING> (591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (591)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
