SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000 (Fiscal 2000)
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 Identification No.)
incorporation of principal executive offices)
66 B Street, Needham, MA 02494
(Address of principal executive offices) (Zip Code)
(781) 444-7222
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Preferred Stock Purchase Rights
(Title of each Class)
-----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the last sales price of such stock on
April 18, 2000 was approximately $14.7 million.
The registrant had 16,441,251 shares of Common Stock, $0.01 par value,
outstanding as of April 18, 2000.
continued
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K Requirement Incorporated Document
- --------------------- ---------------------
Part III
Item 10 Directors and Executive All information under the caption
Officers "Nominees for Director and Executive
Officers" in the Company's definitive
Proxy Statement which is expected to be
filed within 120 days of the end of the
fiscal year ended January 29, 2000.
Item 11 Executive Compensation All information under the caption
"Executive Compensation" in the
Company's definitive Proxy Statement
which is expected to be filed within 120
days of the end of the fiscal year ended
January 29, 2000.
Item 12 Security Ownership of All information under the caption
Certain Beneficial Owners "Security Ownership of Certain
Beneficial Owners and Management" in the
Company's definitive Proxy Statement
which is expected to be filed within 120
days of the end of the fiscal year ended
January 29, 2000.
Item 13 Certain Relationships and All information under the caption
Related Transactions "Certain Relationships and Related
Transactions" in the Company's
definitive Proxy Statement which is
expected to be filed within 120 days of
the end of the fiscal year ended January
29, 2000.
2
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DESIGNS, INC.
--------------------------------------
Index to Annual Report on Form 10-K
Year Ended January 29, 2000
PART I Page
Item 1. Business........................................................ 4
Item 2. Properties...................................................... 9
Item 3. Legal Proceedings............................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............. 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters............................................. 10
Item 6. Selected Financial Data......................................... 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 12
Item 8. Financial Statements and Supplementary Data..................... 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................... 47
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 47
Item 11. Executive Compensation.......................................... 47
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 47
Item 13. Certain Relationships and Related Transactions.................. 47
The information called for by Items 10, 11, 12 and 13, to the
extent not included in this document, is incorporated herein by
reference to the Company's definitive proxy statement which is
expected to be filed within 120 days after the Company's fiscal
year ending January 29, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................ 48
3
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PART I.
Item 1. Business
Summary
Designs, Inc. (the "Company") is an Outlet retailer based in the United States
selling quality branded apparel and accessories. The Company markets a broad
selection of Levi Strauss & Co. brand merchandise through outlet stores under
the names "Levi's(R)/Dockers(R) Outlet By Designs," "Levi's(R) Outlet By
Designs" and "Dockers(R) Outlet by Designs." The Company uses certain Levi
Strauss & Co. trademarks pursuant to a trademark license agreement with Levi
Strauss & Co.
In fiscal year 2000, the Company continued to re-align its store portfolio and
overhead structure to narrow its business to one focused solely on the
profitable Outlet segment including the Levi's(R) and Dockers(R) Outlet stores.
As part of this re-alignment to an outlet based business, the Company closed its
five remaining Boston Trading Co. (TM)/BTC(TM) mall stores and its five
Buffalo(R) Jeans Factory stores during the fourth quarter of fiscal 2000.
These strategic actions return Designs, Inc. to its core competency as a single
branded outlet operator, with all of its 103 stores devoted exclusively to
selling Levi Strauss & Co. brands of apparel and accessories.
As used throughout this report on Form 10-K, the terms fiscal 2000, 1999 and
1998 refer to the Company's twelve month periods ending January 29, 2000,
January 30, 1999 and January 31, 1998, respectively.
Store Formats
The Company's Levi's(R) Outlet by Designs and Dockers(R) Outlet by Designs
stores are located in outlet centers and are located primarily in the eastern
part of the United States. These stores sell manufacturing overruns, merchandise
specifically manufactured for the outlet stores, discontinued lines and
irregulars purchased directly from Levi Strauss & Co. and its licensees.
Many of the manufacturers' outlet centers in which these stores are located have
matured, resulting in limited increases in customer traffic. The combination of
this maturing of the Levi's(R) and Dockers(R) Outlet by Designs store base,
increased competition, and a limited availability of Levi's(R) and Dockers(R)
product resulted in less then expected comparable store performance in the past
three fiscal years. The Company initiated strategies to overcome this such as
closing unprofitable stores and re-negotiating existing leases.
Management believes that the Company competes with other apparel retailers by
offering superior selection, quality merchandise, knowledgeable in-store service
and competitive price points. The Company stresses product training with its
sales staff and, with the assistance of Levi Strauss & Co. merchandise
materials, provides its sales personnel with substantial product knowledge
training across all product lines.
4
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The following table provides a summary of the number of stores in operation at
year end for the past three fiscal years. Levi Strauss & Co. approves all new
outlet store locations which carry Levi Strauss & Co. brands and use any
trademark owned by Levi Strauss & Co.
<TABLE>
<CAPTION>
(Fiscal 2000) (Fiscal 1999) (Fiscal 1998)
January 29, January 30, January 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Levi's(R)/Dockers(R) Outlet by Designs 65 59 59
Levi's(R) Outlet previously operated by the Joint
Venture (1) 11 11 --
Levi's(R) Outlet stores acquired (2) 9 9 --
Dockers(R) Outlet stores acquired (2) 18 16 --
Buffalo Jeans(R) Factory Outlets (3) -- 5
Boston Trading Co.(R)(3) -- 3 11
Designs/BTC(TM)(3) -- 6 22
Boston Traders(R) Outlet stores (3) -- 4 12
Joint Venture: (1)
Original Levi's Stores(R) -- -- 11
Levi's(R) Outlets -- -- 11
--- --- ---
Sub-total 103 113 126
=== === ===
</TABLE>
(1) In Fiscal 1999, the Company and Levi Strauss & Co. agreed to dissolve and
wind up the Joint Venture between subsidiaries of the two companies. As
part of the dissolution process, on October 31, 1998, the Joint Venture
distributed 11 Levi's(R) Outlet stores to the Company and three Original
Levi's Stores(R) to Levi's Only Stores, Inc., a wholly-owned subsidiary of
Levi Strauss & Co. The remaining eight Original Levi's Stores(R) were
closed by the end of fiscal 1999.
(2) On September 30, 1998, the Company acquired from Levi's Only Stores, Inc.
16 Dockers(R) Outlet stores and nine Levi's(R) Outlet stores for
approximately $9.7 million.
(3) In fiscal 2000, the Company closed, as part of the Company's store closing
programs, its remaining Designs/BTC(TM) stores, Boston Traders(R) outlet
stores, Boston Trading Co.(R) stores and its five Buffalo Jeans(R) Factory
stores. In Fiscal 1999, the Company closed 37 stores as part of the
Company's store closing programs. In fiscal 1998, the Company closed 16
Designs stores and 15 Boston Traders(R) outlet stores.
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company,
and a subsidiary of Levi's Only Stores Inc. ("LOS"), a wholly-owned subsidiary
of Levi Strauss & Co., entered into a partnership agreement (the "Partnership
Agreement") to sell Levi's(R) brand jeans and jeans-related products. The joint
venture that was established by the Partnership Agreement is known as The
Designs/OLS Partnership (the "OLS Partnership"). In the third quarter of fiscal
1999, the Company and Levi Strauss & Co. agreed to dissolve and wind up the
joint venture between subsidiaries of the two companies. As part of the
dissolution process, on October 31, 1998, the OLS Partnership distributed 11
Levi's(R) Outlet stores to the Company with a net book value of approximately
$6.4 million. In addition, the OLS Partnership distributed to LOS three Original
Levi's Stores(R) located in New York City and Boston, Massachusetts with a net
book value of $5.5 million. The remaining eight Original Levi's Stores(R) owned
by the OLS Partnership were closed during the fourth quarter of fiscal 1999.
The Company's present plans for expansion in fiscal 2001 include opening 5 new
Levi's(R)/Dockers(R) Outlet by Designs stores, one of which will be located in
Puerto Rico, and remodeling 11 existing Levi's(R) Outlet by Designs stores.
During fiscal 2000, the Company initiated a program to remodel or replace its 59
oldest Levi's(R) Outlet by Designs stores to the Company's new store format,
which is a combined Dockers(R) Outlet store and Levi's(R) Outlet store that
separately displays each brand in its own unique environment. Six of these 59
stores were remodeled or relocated in fiscal 2000. The Company plans, barring
unforeseen circumstances, to continue to move, remodel or replace the remaining
50 stores over the next four years.
In fiscal 2001, capital expenditures related to these new and remodeled stores
are expected, barring unforeseen circumstances, to total approximately $5.6
million. The Company continually evaluates the performance of all of its stores
and may, from time to time, decide to close or reduce the size of certain store
locations.
5
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Customer Base
The Company believes that its customer base primarily reflects that of the
Levi's(R) and Dockers(R) brand customer. These stores also continue to attract
foreign travelers shopping for Levi's(R), Dockers(R) and Slates(R) brand apparel
and accessories. The Company's product selection offered is designed to satisfy
the casual apparel needs of customers in all age groups and income brackets.
Merchandising and Distribution
The Company offers a selection of Levi Strauss & Co. brands of merchandise
including manufacturing overruns, merchandise specifically manufactured for the
outlets, discontinued lines and irregulars purchased by the Company directly
from Levi Strauss & Co. and its licensees. By its nature, this merchandise is
subject to limited availability. The Company continues to evaluate and, within
the discretion of management, act upon opportunities to purchase substantial
quantities of Levi's(R), Dockers(R) and Slates(R) brand merchandise offered to
the Company by Levi Strauss & Co.
All merchandising decisions, including pricing, markdowns, advertising and
promotional campaigns, inventory purchases and merchandise allocations, are made
centrally at the Company's headquarters with input from field operations
personnel.
Trademarks
"Dockers(R),""Levi's(R)" and "Slates(R)" are registered trademarks of Levi
Strauss & Co. Buffalo Jeans(R) is a registered trademark of Buffalo DeFrance.
The Company is the owner of the "Boston Traders(R)" and "Traders Collection(R)"
trademarks and certain other trademarks acquired as part of the acquisition of
certain assets of Boston Trading Ltd., Inc. The Company abandoned these
trademarks in fiscal 2000 and, accordingly, the Company has recorded an
impairment charge of $2.4 million related to the writeoff of these trademarks.
See Item 3-Legal Proceedings and Management's Discussion and Analysis "Fiscal
2000 Restructuring and Non-Recurring Charges."
Store Operations
The Company currently employs one Vice President and Director of Store
Operations who reports directly to the Senior Vice President of Merchandising of
the Company. Two regional managers, who report to the Vice President and
Director of Store Operations, are responsible for the operations and
profitability of stores within specific geographic regions.
In order to provide management development and guidance to individual store
managers, the Company employs approximately 15 district managers. Each district
manager is responsible for hiring and developing store managers at the stores
assigned to that manager's area and for the sales and overall profitability of
those stores. District managers report directly to a regional manager.
Levi's(R)/Dockers(R) Outlet by Designs stores are located in manufacturers'
outlet centers and average approximately 12,000 square feet in size. The average
square footage of the Dockers(R) Outlets and Levi's(R) Outlet stores is
approximately 5,200 square feet.
The Company's stores utilize interior design and merchandise layout plans
designed by the Company's visual merchandising team, which are specifically
designed to promote customer identification as a specialty store selling quality
branded apparel and accessories. The merchandise layout is further customized by
store management and the Company's visual merchandising department to suit each
particular store location. The stores prominently display Levi's(R), Dockers(R)
and Slates(R) brand logos and utilize distinctive promotional displays. The
Company uses Levi Strauss & Co. logos and trademarks on store signs with the
permission of Levi Strauss & Co.
6
<PAGE>
Customer Service & Training
"Designs University" was established in fiscal 1996 to implement associate
training and development programs throughout the organization. The Company's
Operational Support and Development team is responsible for developing and
teaching creative programs that will enhance associate performance.
Sales associate expectations are established at all levels of training,
beginning with the Sales Associate Development Program. This program introduces
the associate to the Company's operational policies, product information and
customer service objectives. Through this program, associates are taught that
servicing the customer is the highest priority. Management believes that sales
associates are trained towards accomplishing the goal of reinforcing the
customer's perception of the Company's stores as branded specialty stores and of
differentiating its stores from those of the Company's competitors.
All members of store management participate in the Store Management Development
Program. Associates learn how to perform critical management functions required
to successfully operate a store. The Store Management Development Program
focuses on fundamental operational procedures, expense control and personnel
management.
Each Levi's(R) and Dockers(R) Outlet by Designs store employs approximately 20
associates. Store staffing typically includes a store manager, one or more
assistant managers and shift supervisors, and a team of full-time and part-time
sales associates. Store manager candidates or assistant manager candidates may
also be included on the team in specific stores. The store management team is
responsible for all operational matters in the store, including the hiring and
training of sales associates.
Information Systems
Management Information Systems is an extremely important factor in the
day-to-day operation and continued growth of the Company. Significant resources
were spent last year to ensure that all systems were ready to support the Year
2000. Because of this investment, the Company entered the Year 2000 with no
issues in any of our information systems. All merchandise and financial
functions were completely successful. During fiscal 2000, the Company installed
a new point of sale system that was designed to be Year 2000 compliant and offer
new functionality. Point of sale data, in conjunction with a full complement of
EDI transactions handling invoicing, advance shipment notices, and purchase
orders, are the primary sources of data input for the JDA Merchandise Management
package. The JDA software is designed to enhance the analytical capabilities of
the Company's merchandise and financial functions and to provide an integrated
business approach.
During fiscal 2000, the Company also started revamping its processing center
receiving and shipping processes through the installation of radio frequency
terminals and online systems. Implementations of enhancements to the Point of
Sale system and processing centers expect to be continued throughout the Fiscal
2001.
Advertising
The Company relies on the visibility and recognition of the Levi's(R) and
Dockers(R) brand names, as well as the natural flow of traffic that results from
locating stores in areas of high retail activity including destination outlet
centers and regional malls. The Company's Trademark License Agreement with Levi
Strauss & Co. limits the Company's ability to advertise to billboards and
specific outlet center promotions.
Competition
The United States casual apparel market is highly competitive with many national
and regional department stores, specialty apparel retailers and discount stores
offering a broad range of apparel products similar to those sold by the Company.
The Company considers any casual apparel manufacturer operating in outlet parks
throughout the United States competitors in the casual apparel market.
A majority of the Company's business involves the sale of branded apparel and
accessories sold by or manufactured under license from Levi Strauss & Co. Levi
Strauss & Co. is involved in the highly competitive fashion apparel industry.
Levi's(R)
7
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brand jeans have been impacted by the increased competition from private label
as well as fashion jeans market entrants, plus national sales trends of
Levi's(R) brand products.
Employees
As of January 29, 2000, the Company employed approximately 2,275 associates, of
whom 655 were full-time personnel. The Company hires additional temporary
employees during the peak late summer and holiday seasons.
All qualified full-time employees are entitled, when eligible, to life, medical,
disability and dental insurance and to participate in the Company's 401(k)
retirement savings plan. Store managers, district managers, regional managers
and corporate office employees are eligible to receive incentive compensation
subject to the achievement of specific performance objectives related to sales,
profitability and expense control. Vice Presidents, regional managers and
district managers are also entitled to use an automobile provided by the Company
or to receive an automobile allowance. Sales personnel are compensated on an
hourly basis and, generally, receive no commissions; but from time to time are
eligible to earn sales incentive payments from individual store sales contests.
Regional and district managers, store managers and certain corporate office
employees have been granted stock options. None of the Company's employees are
represented by any collective bargaining agreement.
8
<PAGE>
Item 2. Properties
As of January 29, 2000, the Company operated 103 Levi's(R) Outlet and Dockers(R)
Outlet by Designs stores. All of these stores are leased by the Company directly
from outlet center owners. The store leases are generally five years in length
and contain renewal options extending their terms to between 10 and 15 years.
Most of the Company's outlet store leases provide for annual rent based on a
percentage of store sales, subject to guaranteed minimum amounts.
Sites for store expansion are selected on the basis of several factors intended
to maximize the exposure of each store to the Company's target customers. These
factors include the demographic profile of the area in which the site is
located, the types of stores and other retailers in the area, the location of
the store within the mall and the attractiveness of the store layout. The
Company also utilizes financial models to project the profitability of each
location using assumptions such as the center's sales per square foot averages,
estimated occupancy costs and return on investment requirements. The Company
believes that its selection of locations enables the Company's stores to attract
customers from the general shopping traffic and to generate its own customers
from surrounding areas.
The lease for the Company's headquarters office, which began in November 1995,
is for a period of ten years. The lease provides for the Company to pay all
occupancy costs associated with the land and the 80,000 square foot building.
The Company entered into an agreement, effective April 1, 1998, to sublease
approximately 15,000 square feet to a sublessee for a term of five to eight
years. The Company also entered into a second agreement effective July 1, 1998
to sublease an additional 15,300 square feet to a sublessee for a term of five
to seven years.
Currently, the Company leases a warehouse facility in Orlando, Florida to
process approximately a million units of merchandise. The lease expires in
November 2000 and has two two-year options to extend. The Company also utilizes
a third party distribution center in Mansfield, Massachusetts.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Capital Expenditures."
Item 3. Legal Proceedings
The Company is a party to litigation and claims arising in the course of its
business. Management does not expect the results of these actions to have a
material adverse effect on the Company's business or financial condition.
In January 1998 Atlantic Harbor, Inc. filed a lawsuit against the Company for
failing to pay the outstanding principal amount of the Purchase Note. In March
1998, the Company filed a counterclaim against Atlantic Harbor, Inc. alleging
that the Company was damaged in excess of $1 million because of the breach of
certain representations and warranties made by Atlantic Harbor, Inc. and its
stockholders concerning the existence and condition of certain foreign trademark
registrations and license agreements. Barring unforeseen circumstances,
management of the Company does not believe that the result of this litigation
will have a material adverse effect on the Company's business or financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
9
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PART II.
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "DESI."
The following table sets forth, for the periods indicated, the high and low per
share sales prices for the common stock, as reported on the Nasdaq consolidated
reporting system.
Fiscal Year Ending
January 29, 2000 High Low
- ----------------------------------------------------------------------------
First Quarter 2 25/32 1 27/32
Second Quarter 2 9/16 1 3/8
Third Quarter 1 13/16 1 5/32
Fourth Quarter 1 23/32 1 3/16
Fiscal Year Ending
January 30, 1999 High Low
- ----------------------------------------------------------------------------
First Quarter 2 3/4 1 7/8
Second Quarter 2 1/8 1 1/8
Third Quarter 2 1/32 1 11/32
Fourth Quarter 2 13/16 5/8
As of April 18, 2000, based upon data provided by independent shareholder
communication services and the transfer agent for the common stock, there were
approximately 340 holders of record of common stock and 4,100 beneficial holders
of common stock.
The Company has not paid and does not anticipate paying cash dividends on its
Common Stock. For a description of financial covenants in the Company's loan
agreement that may restrict dividend payments, see Note C of Notes to
Consolidated Financial Statements.
10
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Years Ended (1)
January 29, January 30, January 31, February 1, February 3,
2000 1999 1998 1997 1996
(Fiscal 2000) (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) (Fiscal 1996)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales $ 192,192 $ 201,634 $ 265,726 $ 289,593 $ 301,074
Gross profit, net of occupancy costs 47,440(2) 42,249(3) 38,358(4) 86,229 89,085
Pre-tax income (loss) (10,278)(2) (29,269)(3) (46,562)(4) 10,364 16,515(5)
Net Income (loss) (12,493) (18,541) (29,063) 6,264 9,773
Earnings (loss) per share - basic $ (0.78) $ (1.17) $ (1.86) $ 0.40 $ 0.62
Earnings (loss) per share - diluted $ (0.78) $ (1.17) $ (1.86) $ 0.40 $ 0.61
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding
for earnings per share - basic 16,088 15,810 15,649 15,755 15,770
Weighted average shares outstanding
for earnings per share - diluted 16,088 15,810 15,649 15,833 15,898
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BALANCE SHEET DATA:
Working capital $ 19,624 $ 24,078 $ 42,104 $ 72,320 $ 64,557
Inventories 57,022 57,925 54,972 79,958 58,008
Property and equipment, net 16,737 17,788 35,307 39,216 36,083
Total assets 95,077 99,317 116,399 141,760 132,649
Shareholders' equity 52,269 63,956 82,380 111,045 106,085
OPERATING DATA:
Net sales per square foot $ 190 $ 187 $ 220 $ 234 $ 265
Number of stores open at fiscal year end 103 113 125 150 157
</TABLE>
(1) The Company's fiscal year is a 52 or 53 week period ending on the Saturday
closest to January 31. The fiscal year ended February 3, 1996 covered 53
weeks.
(2) Pre-tax loss for fiscal 2000, includes the $15.2 million charge taken in
the fourth quarter related to inventory markdowns, the abandonment of the
Company's Boston Traders(R) trademark, severance, and the closure of the
Company's 5 remaining Designs/BTC(TM) stores and its five Buffalo(R) Jeans
Factory stores. Of the $15.2 million charge, $7.8 million, or 4.1% of
sales, is reflected in gross margin. The pre-tax loss for fiscal 2000 also
includes $717,000 of non-recurring income related to excess reserves from
the fiscal 1999 restructuring program. The Company also incurred
approximately $3 million in costs related to the Company's recent proxy
solicitation and change in control. These costs are included in Selling,
general and administrative expenses for fiscal 2000.
(3) Pre-tax loss for fiscal 1999 includes the $13.4 million charge taken in
the third quarter related to closing 30 unprofitable stores. Also included
in the pretax loss for fiscal 1999 is the $5.2 million charge related to
the closing of one Designs store, three BTC(TM) stores and four Boston
Traders(R) outlet stores, all eight of which were closed in fiscal 2000.
Of the $5.2 million charge, $800,000, or 0.4% of sales, in reflected in
gross margin. In addition, the Company recognized $2.9 million in
restructuring income in the fourth quarter which was the result of
favorable lease negotiations associated with the original estimated $13.4
million charge.
(4) Pre-tax loss for fiscal 1998 includes the $20 million charge taken in the
second quarter related to the Company's strategy shift and the fourth
quarter charge of $1.6 million for the Company's reduction in work force.
Of the $20 million charge, $13.9 million or 5.2% of sales, is reflected in
gross margin
(5) Includes $2.2 million of non-recurring income related to the fiscal 1994
restructuring program recognized in fiscal year 1996.
11
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table provides a five-year history of the total sales results of
the Company, together with a summary of the number of stores in operation and
the change in the Company's comparable store sales. "Changes in comparable store
sales" measures the percentage change in sales in comparable stores, which are
those stores open for at least one full fiscal year.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED (1)
---------------------------------------------------------------------
Jan. 29, Jan. 30, Jan. 31, Feb. 1, Feb. 3,
2000 1999 1998 1997 1996
(Fiscal 2000) (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) (Fiscal 1996)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Sales (In Thousands) $ 192,192 $ 201,634 $ 265,726 $ 289,593 $ 301,074
Number of stores in operation at end of the fiscal year:
Store Type
Designs and BTC(TM) -- 9 22 44 49
Levi's(R) Outlet and Dockers(R) Outlet by Designs(2) 103 95 59 58 58
Buffalo Jeans(R) Factory Outlets -- 5 -- -- --
Boston Trading Co.(R) -- -- 11
Boston Traders(R) outlets -- 4 12 27 35
Joint Venture:
Original Levi's Stores(TM)(2) -- -- 11 11 11
Levi's(R) Outlet stores (2) -- -- 11 10 4
---------------------------------------------------------------------
Total stores 103 113 126 150 157
Comparable stores 87 80 112 142 97
Changes in total sales (5%) (24%) (8%) (4%) 13%
Changes in comparable store sales (1%) (18%) (10%) (5%) 1%
</TABLE>
(1) The Company's fiscal year is a 52 or 53 week period ending on the Saturday
closest to January 31. The fiscal year ended February 3, 1996 covered 53
weeks. Comparable store sales for fiscal 1997 were based upon 52-week
comparisons.
(2) During the third quarter of fiscal 1999, the Company and Levi Strauss &
Co. agreed to dissolve and wind up the Joint Venture between subsidiaries
of the two companies. As part of the dissolution process, on October 31,
1998, the Joint Venture distributed 11 Levi's(R) Outlet stores to the
Company and three Original Levi's Stores(TM) to Levi's Only Stores, Inc.,
a wholly-owned subsidiary of Levi Strauss & Co. The remaining 8 Original
Levi's Stores(R) owned by the Joint Venture were closed by the end of
fiscal 1999. On September 30, 1998, the Company acquired from Levi's Only
Stores, Inc. 16 Dockers(R) Outlet stores and 9 Levi's(R) Outlet stores.
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Changes in Directors and Executive Officers
At the Company's Annual Meeting of Stockholders which was held on October 4,
1999, the stockholders voted to elect a new slate of directors supported by
Jewelcor Management, Inc., consisting of John J. Schultz, Robert L. Patron,
Jeremiah P. Murphy, Jr., Joseph Pennacchio and Jesse H. Choper. On October 29,
1999, the Board of Directors appointed George Porter, formerly President of
Levi's USA, a division of Levi Strauss & Co., and James Mitarotonda, Chief
Executive Officer and founder of Barington Capital Group, as Directors of the
Company, thereby increasing the size of the Board of Directors to seven members.
On October 20, 1999, the Company announced that Joel H. Reichman, the Company's
President and Chief Executive Officer, resigned and that John J. Schultz, a
newly elected member of the Board, would assume the responsibilities of Chief
Executive Officer on an interim basis. On April 10, 2000, the Company announced
the appointment of David A. Levin as President and Chief Executive Officer.
12
<PAGE>
On April 10, 2000, the Company announced the resignation of James Mitarotonda as
a Director of the Company and the appointment of Seymour Holtzman, who was
subsequently made Chairman of the Board on April 11, 2000, to fill the resulting
vacancy on the Board. In addition, on April 11, 2000, the Board of Directors
appointed David A. Levin and Stanley Berger, one of the original founders of the
Company, as Directors of the Company, increasing the size of the Board of
Directors to nine members.
Shareholders Rights Agreement
On October 29, 1999, the Board of Directors of the Company unanimously voted to
implement the recommendation of the Company's shareholders to terminate the
Company's Shareholders Rights Agreement dated May 1, 1995 between the Company
and its transfer agent, Boston EquiServe. The costs to redeem these rights were
approximately $180,000 and are included in selling, general and administrative
expenses in the Consolidated Statement of Operations for fiscal 2000.
Relationship with Levi Strauss & Co.
On October 25, 1999, Levi Strauss & Co. notified the Company that it believed
that the recent change in the membership of the Company's Board of Directors and
senior management triggered its right to declare a breach under its trademark
license agreement (as amended, the "Outlet License Agreement"). This Agreement
authorizes the Company to use certain Levi Strauss & Co. trademarks in
connection with the operation of the Company's Levi's(R) Outlet by Designs and
Dockers(R) Outlet by Designs stores. On March 22, 2000, Levi Strauss & Co.
informed the Company that it had waived any rights it may have had to terminate
the Outlet License Agreement arising from any transfer of control that might be
deemed to have occurred. Also on March 22, 2000, Levi Strauss & Co. amended the
Outlet License Agreement for certain Change in Control provisions under Section
19 of the agreement.
Fiscal 2000 Restructuring and Impairment Charges
During the fourth quarter of fiscal 2000, the Company recorded a pre-tax charge
of $15.2 million, or $0.59 per share after tax, related to inventory markdowns,
the abandonment of the Company's Boston Traders(R) and related trademarks,
severance, and the closure of the Company's five Buffalo Jeans(R) Factory Stores
and its five remaining Designs stores. Of the $15.2 million charge, $7.8 million
relating to inventory markdowns was reflected in gross margin in fiscal 2000.
This pre-tax charge of $15.2 million included cash costs of approximately $3.6
million related to lease terminations and corporate and store severance, and
approximately $11.6 million of non-cash costs related to inventory markdowns and
the impairment of trademarks and store assets. Based on management's review of
the Company's remaining Levi's(R) and Dockers(R) Outlet by Designs stores, no
additional store closing reserves were needed at January 29, 2000. At January
29, 2000, the remaining reserve balance related to this $15.2 million charge was
$6.7 million, which primarily related to landlord settlements, severance and
markdowns. Of the $6.7 million reserved at yearend, $3.4 million, relating to
markdowns, was included as a reduction of inventory on the consolidated balance
sheet.
As a result of the above charges, the Company recorded a net operating loss for
fiscal 2000. Because of an additional year of net operating losses, the Company
recorded a further write-down of tax assets of $6.0 million or $0.37 per share
after tax attributable to the potential that certain deferred federal and state
tax assets may not be realizable.
The combined earnings and cash flow benefits of this charge are estimated to be
$2.2 million and $1.2 million, respectively, for both fiscal 2001 and 2002.
SALES
Sales for fiscal 2000 were $192.2 million, a decrease of 5%, compared with
fiscal 1999 sales of $201.6 million. Sales for fiscal 1999 decreased 24% to
$201.6 million from $265.7 million in fiscal 1998. The decrease in sales in
fiscal 2000 was due to a 1% decrease in comparable store sales and 23 store
closings in fiscal 2000 and 37 store closings in fiscal 1999. This decrease was
partially offset by sales from new stores of $32.6 million. The decrease in
sales in fiscal 1999 was due to store closings and an 18% decrease in comparable
store sales partially offset by sales from new stores that were opened during
fiscal 1999. Comparable store sales decreases in fiscal 2000 and 1999 were due
primarily to lower sales in men's Levi's(R) brand jeans and tops associated with
limited availability and reduced demand for Levi's(R) brand product. These sales
decreases were partially offset by increased sales of women's Levi's(R) brand
jeans and men's and women's Dockers(R) brand apparel.
13
<PAGE>
GROSS MARGIN
Set forth below are gross margin dollars and gross margin rates as a percentage
of total sales, which includes occupancy costs, for the fiscal years 2000, 1999
and 1998.
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999 Fiscal 1998
Percentage Percentage Percentage
(in thousands) Dollars of sales Dollars of sales Dollars of sales
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Merchandise margin $ 80,168 41.7% $ 76,876 38.1% $ 92,508 34.8%
Markdown reserves (7,847) (4.1%) (800) (0.4%) (13,900) (5.2%)
Occupancy costs (24,881) (12.9%) (33,827) (16.8%) (40,250) (15.2%)
-------- ----- -------- ----- -------- -----
Gross margin $ 47,440 24.7% $ 42,249 20.9% $ 38,358 14.4%
</TABLE>
The improved merchandise margin in fiscal 2000 as compared to fiscal 1999 is due
to the shift in the Company's store portfolio away from lower margin mall-based
stores towards the traditionally higher margin outlet store operations and
approximately a $558,000 benefit from LIFO. Included in gross margin for fiscal
2000 is approximately $7.8 million for markdowns related to reserves established
for aged and excess Outlet store inventory and liquidation markdowns associated
with the ten stores closed in the fourth quarter of fiscal 2000, which were
discussed above. Based on the recent changes in the Company and its shift to an
exclusively outlet business, the Company changed its current markdown strategy
in the fourth quarter of fiscal 2000 in an effort to improve inventory turnover
and significantly reduce the amount of aged merchandise on hand. Included in
gross margin for fiscal 1999 is approximately $800,000 of markdowns related to
store closings in fiscal 1999, discussed below under "Fiscal 1999
Restructuring."
The improvement in merchandise margin in fiscal 1999 as compared to fiscal 1998
was due to the start of the shift away from the lower margin mall-based stores.
In fiscal 1998 the Company also recorded approximately $5.6 million related to
adjustments for inventory shrinkage and reserves against pending resolution of
vendor discussions regarding proof of delivery of certain goods. Also included
in gross margin for fiscal 1998 is approximately $13.9 for markdowns and fabric
cancellation costs related to Boston Traders(R) brand merchandise which was
included in the second quarter charge for the termination of the Company's
private label product development program, discussed below under "Fiscal 1998
Restructuring."
Occupancy costs as a percentage of sales decreased in fiscal 2000 as compared to
fiscal 1999 and 1998, as a direct result of the Company's shift to an all outlet
store portfolio. The Company's outlet store format has a lower occupancy cost
structure as compared to the mall-based and urban store formats that existed in
the prior year.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses as a percentage of sales were 22.6%
or $43.4 million in fiscal 2000, 23.8% or $48.0 million in fiscal 1999 and 24.6%
or $65.3 million in fiscal 1998. The decrease in selling, general and
administrative expenses as a percentage of sales in fiscal 1999 was due to
reduced store payroll expense from lower staffing in response to sales
decreases. Also contributing to this decrease was a series of expense reduction
actions undertaken in fiscal 1998 and fiscal 1999 that are still ongoing.
Selling, general and administrative expenses for fiscal 2000 include
approximately $3.0 million, or $0.12 per share after tax, in expenses associated
with the recent annual stockholders meeting and proxy solicitation. These
expenses consisted of the Company's proxy expenses, expenses reimbursed to
Jewelcor Management, Inc., costs related to the termination of the Company's
Shareholder Rights Agreement, and other costs associated with the
change-in-control.
FISCAL 1999 RESTRUCTURING
During the third quarter of fiscal 1999, the Company announced its plans to
close, through lease terminations and expirations, 14 unprofitable Designs
stores, eight unprofitable Boston Trading Co.(R)/BTC(TM) stores and eight
Original Levi's Stores(TM) operated by the OLS Partnership. This store closing
strategy resulted in the Company recording a pre-tax charge of $13.4 million.
The total cost to close these stores was $10.5 million, which is $2.9 million
less than the original charge, primarily due to favorable landlord negotiations
on lease termination payments. As a result, the Company recognized pre-tax
income of $2.9 million in the fourth quarter of fiscal 1999. Total cash costs
were $4.2 million related to lease terminations, employee severance and other
related expenses. The remainder of the $10.5 million charge consists of non-cash
costs of approximately $6.3 million in store fixed asset write-offs. All of
these stores were closed by the end of fiscal 1999.
14
<PAGE>
In the fourth quarter of fiscal 1999, the Company recorded a pre-tax charge of
$5.2 million, or $0.20 per share after tax, related to the decision to close
three BTC(TM) mall stores, one Designs mall store, and four Boston Traders(R)
Outlet stores and to further reduce corporate headcount. The total cost of
severance and store closings was $717,000 less than the original charge due to
favorable landlord negotiations on lease termination payments. As a result, the
Company recognized income of $717,000 or $0.03 earnings per share after tax in
the fourth quarter of fiscal 2000.
FISCAL 1998 RESTRUCTURING
In the second quarter of fiscal 1998, the Company recorded a pre-tax charge of
$20 million related to its shift in strategy away from the vertically integrated
Boston Traders(R) private label concept to a strategy with greater emphasis on
name brands. This decision involved the liquidation of Boston Traders(R) brand
products, the closure of the Company's New York City product development office
and the closure of 17 Designs stores and 16 Boston Traders(R) Outlet stores.
Total actual costs to close related to this shift in strategy and the closure of
the stores was $19.9 million which included cash costs of $6.0 million related
to lease terminations, the cost of canceling private label fabric commitments,
severance associated with the closing of the New York office, and other
miscellaneous expenses. The remainder of the $19.9 million charge consisted of
non-cash costs of approximately $13.9 million, which included $12.4 million of
markdowns at cost related to the liquidation of Boston Traders(R) brand product
and $1.5 million for write-offs of store fixed assets. Merchandise markdowns and
costs associated with the cancellation of fabric commitments, which total
approximately $13.9 million, were accounted for in cost of goods sold for the
fiscal year ending January 31, 1998. The remaining amounts related to lease
termination costs, asset impairment charges, severance and other costs, were
accounted for in the restructuring charge in the Company's Consolidated
Statements of Operations for the year ending January 31, 1998.
In the fourth quarter of fiscal year 1998, the Company incurred an additional
pre-tax charge of $1.6 million relating primarily to severance, benefits and
other costs associated with a reduction in its home office and field staff. This
reduction in force resulted in the elimination of 47 positions, or approximately
25%, of the Company's headquarters and field management staff. This charge was
accounted for in the restructuring charge in the Company's Consolidated
Statements of Operations for the year ended January 31, 1998. Total actual costs
related to this reduction in staff were $1.4 million as compared to the original
charge of $1.6 million.
Also in fiscal 1998, the Company recorded an impairment charge of $378,000 in
accordance with Statement of Financial Accounting Standards No. 121 ("SFAS
121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This charge, which is reflected in "Provision for
impairment of assets, store closings and severances" in the Consolidated
Statements of Operations, reflects the estimated unrecoverable carrying value of
a store's assets as compared to the fair value of those assets based on
projected discounted future cash flows.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for fiscal year 2000 decreased to $6.5
million from $9.7 million in 1999 and $11.2 million in fiscal 1998, primarily
due to store closings offset slightly by depreciation for new and remodeled
stores. "See Liquidity and Capital Resources --Capital Expenditures."
INTEREST EXPENSE, NET
Net interest expense for fiscal 2000 was $1.2 million compared to $576,000 in
fiscal 1999 and $706,000 in fiscal 1998. This increase, as compared to fiscal
1999, is primarily a result of higher average borrowing levels and increased
interest rates under the Company's credit facility as compared to the prior
year. See "Liquidity and Capital Resources."
15
<PAGE>
NET INCOME (LOSS)
The Company reported a loss of $12.5 million or $0.78 per share for fiscal 2000
as compared with a loss of $18.5 million or $1.17 per share in fiscal 1999 and a
loss of $29.1 million or $1.86 per share in fiscal 1998. Below is a summary of
certain pre-tax charges included in net loss for fiscal 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
(in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Summary of Non-recurring Charges:
Store closing, markdown reserve, severance
impairment of asset charge recorded in
the fourth quarter of fiscal 2000 $ 15,252
Excess store closing reserve taken into income
in the fourth quarter of fiscal 2000 (717)
Non-recurring charges incurred related to recent
proxy solicitation and change-in-control 3,007
Write-down of certain tax assets 6,030
Store closing and severance reserve
recorded in the fourth quarter of fiscal 1999 $ 5,200
Store closing reserve recorded in
the third quarter of fiscal 1999 13,400
Excess store closing reserve taken into income
in the fourth quarter of fiscal 1999 (2,900)
Reduction in force recorded in the fourth
quarter of fiscal 1998 $ 1,600
Store closing reserve and abandonment of
vertical integration in the second quarter
of fiscal 1998 20,000
- ----------------------------------------------------------------------------------------
Total charges $ 23,572 $ 15,700 $ 21,600
Earnings (loss) per share impact of charges, adjusted
for minority interest portion of related charges ($1.06) ($0.61) ($0.81)
Earnings (loss) per share, inclusive of above charges ($0.78) ($1.86) $(1.86)
- ----------------------------------------------------------------------------------------
Earnings (loss) per share, exclusive of the above
charges $0.27 ($0.56) ($1.05)
</TABLE>
SEASONALITY
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
FISCAL 2000 FISCAL 1999 FISCAL 1998
- -------------------------------------------------------------------------------------------------------------
(SALES DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
First quarter $ 39,835 20.7% $ 43,400 21.5% $ 55,470 20.9%
Second quarter 42,907 22.3% 47,078 23.4% 64,543 24.3%
Third quarter 56,703 29.5% 58,714 29.1% 77,459 29.1%
Fourth quarter 52,747 27.5% 52,442 26.0% 68,254 25.7%
--------------------------------------------------------------------------------
$192,192 100.0% $201,634 100.0% $265,726 100.0%
</TABLE>
A comparison of sales in each quarter of the past three fiscal years is
presented above. The amounts shown are not necessarily indicative of actual
trends, since such amounts also reflect the addition of new stores and the
remodeling and closing of others during these periods. Historically, the Company
has experienced seasonal fluctuations in revenues and income, exclusive of
non-recurring charges, with increases occurring during the Company's third and
fourth quarters as a result of "Fall" and "Holiday" seasons. In recent years,
the Company's focus has shifted towards its outlet store business and the
percentage of mall-based business has declined. Accordingly, the Company's third
and fourth quarters, although continuing to generate a greater proportion of
total sales, have become less significant to total sales as had previously been
the case. This change is due to the seasonality of the Company's outlet business
as compared with the mall-based specialty stores. A comparison of quarterly
sales,
16
<PAGE>
gross profit, net loss and net loss per share for the past two fiscal years is
presented in Note N of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for operating expenses, including cash
outlays associated with inventory purchases and capital expenditures for new and
remodeled stores, severances and landlord termination payments. The Company
expects that cash flow from operations, short-term revolving borrowings and
trade credit will enable it to finance its current working capital, remodeling
and expansion requirements.
The following table sets forth financial data regarding the Company's liquidity
position at the end of the past three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash provided by (used for) operations $ 863 $ 1,936 $(7,182)
Working capital 19,624 24,078 42,104
Current ratio 1.5:1 1.7:1 2.4:1
</TABLE>
To date, the Company has financed its working capital requirements, acquisitions
and expansion program with cash flow from operations, borrowings under the
Company's credit facility, and proceeds from common stock offerings. Cash
provided by (used for) operating activities was $863,000, $1.9 million and
($7.2) million in fiscal 2000, 1999 and 1998, respectively. The Company's
improved cash flow from operations in fiscal 1999 is principally due to an
income tax refund of $12.9 million related to 1998 operating losses.
At January 29, 2000, the Company was in a net borrowing position of $22.2
million compared to a net borrowing position of $13.7 million at January 30,
1999. The increased level of borrowing in fiscal 2000 is due to cash outlays
associated with restructuring programs and increased merchandise purchases. The
following table provides a comparative analysis of the Company's cash and
borrowings at the end of fiscal years 2000 and 1999:
(in thousands) January 29, 2000 January 30, 1999
- --------------------------------------------------------------------------------
Cash and cash equivalents $ -- $ 153
Borrowings under credit facility 21,202 12,825
Promissory note payable 1,000 1,000
------- -------
Net borrowing position $22,202 $13,672
======= =======
Inventory
At January 29, 2000, total inventories decreased $903,000 to $57.0 million from
$58.0 million at January 30, 1999. This decrease was comprised of the following
components:
<TABLE>
<CAPTION>
Number Number
(In thousands) January 29, 2000 of stores January 30, 1999 of stores
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outlet stores $57,022 103 $53,146 100
Specialty stores -- -- 1,802 5
Closed stores -- -- 2,977 8
------- ---- ------- ----
Total inventories $57,022 103 $57,925 113
======= ==== ======= ====
</TABLE>
17
<PAGE>
The majority of the increase in inventories in the Outlet stores at January 29,
2000 as compared to the prior year is the result of new stores and an increase
in opportunistic purchases of inventory for the spring and fall seasons, offset
by the $7.8 million of markdowns taken in fiscal 2000, discussed more fully
above. The Company continues to evaluate and, within the discretion of
management, act upon opportunities to purchase substantial quantities of
Levi's(R) and Dockers(R) brand products for its Levi's(R) Outlet and Dockers(R)
outlet stores.
The Company currently leases a warehouse facility in Orlando, Florida, and also
uses a third-party facility in Mansfield, Massachusetts, to receive
approximately half of the Company's merchandise receipts for its stores. In
fiscal 2001, the Company plans to expand its facility in Orlando, Florida, to
receive merchandise for all stores and replenishment to the stores. The
projected additional expense of this operation is approximately $1.5 million,
which is expected to be more than offset by the benefits of improved inventory
turn and reduced shrinkage. The Company anticipates that all capital
expenditures associated with this project will be leased.
The Company's trade payables to Levi Strauss & Co., its principal vendor,
generally are due 30 days after the date of invoice. In fiscal 2000, the Company
was current with all outstanding merchandise payables to vendors.
On June 4, 1998 the Company entered into an Amended and Restated Loan and
Security Agreement with a subsidiary of BankBoston Boston, N.A., BankBoston
Retail Finance Inc. (now known as Fleet Retail Finance, Inc.), as agent for the
lenders named therein (the "Credit Agreement"). The Credit Agreement, which
terminates on June 4, 2001, consists of a revolving line of credit permitting
the Company to borrow up to $50 million. Under this credit facility, the Company
has the ability to cause the lenders to issue documentary and standby letters of
credit up to $5 million. The Company's obligations under the Credit Agreement
are secured by a lien on all of the Company's assets. The ability of the Company
to borrow under the Credit Agreement is subject to a number of conditions
including the accuracy of certain representations and compliance with tangible
net worth and fixed charge coverage ratio covenants. The availability of the
unused revolving line of credit is limited to specified percentages of the value
of the Company's eligible inventory determined under the Credit Agreement,
ranging from 60% to 65%. At the option of the Company, borrowings under this
facility bear interest at Fleet Boston, N.A.'s (formerly known as BankBoston,
N.A.) prime rate or at LIBOR-based fixed rates. The Credit Agreement contains
certain covenants and events of default customary for credit facilities of this
nature, including change of control provisions and limitations on payment of
dividends by the Company. The Company is subject to a prepayment penalty of
$250,000 if the Credit Agreement terminates prior to May 4, 2001.
In the third quarter of fiscal 1999, the Credit Agreement was amended to, among
other things, permit and acknowledge the Company's acquisition of the 25 outlet
stores from Levi's Only Stores, Inc ("LOS") and the transactions associated with
the agreement to dissolve and wind up the OLS Partnership. These amendments
included an increase in the minimum tangible net worth that the Company must
maintain, which was adjusted to recognize the value of the assets distributed to
the Company by the OLS Partnership. Prior to these amendments, the tangible net
worth of the OLS Partnership was excluded from the calculation of the Company's
tangible net worth for purposes of these financial covenants. Subject to certain
limitations and conditions, the Credit Agreement permits the Company, without
the prior permission of its lenders, to consummate certain acquisitions and to
repurchase shares of the Company's Common Stock. These amendments, among other
things, reduced the amount that the Company may expend for such purposes without
obtaining the prior permission of its lender.
On October 14, 1999, the Company was notified that, by virtue of the recent
change in the members of the Company's Board of Directors, a "Change in Control"
occurred within the meaning of the Credit Agreement, giving rise to an event of
default. On October 29, 1999, the lenders, the former BankBoston Retail Finance,
Inc. and the Company entered into an amendment to the Credit Agreement. This
amendment waives the event of default arising because of the "Change in
Control," and includes new events of default for material adverse changes in the
Company's financial condition or its business relationship with Levi Strauss &
Co. compared to the Company's financial condition and its relationship with Levi
Strauss & Co., respectively, as of October 8, 1999.
On March 28, 2000, the Credit Agreement was amended to, among other things,
exclude certain non-recurring charges and tax valuation reserves from the
Company's financial covenants, effective for the fiscal year ending January 29,
2000. As a result, the Company was in compliance with all debt covenants under
the Credit Agreement at the end of the fiscal year.
18
<PAGE>
At January 29, 2000, the Company had borrowings of approximately $21.2 million
outstanding under this facility and had five outstanding standby letters of
credit totaling approximately $4.1 million.
On May 2, 1995, the Company delivered a non-negotiable promissory note in the
principal amount of $1,000,000 in connection with the acquisition of certain
assets of Boston Trading Ltd., Inc. ("Boston Trading") in accordance with the
terms of an Asset Purchase Agreement dated April 21, 1995 among Boston Trading,
its stockholders, Designs Acquisition Corp., and the Company (the "Purchase
Agreement"). The principal amount of the Purchase Note is payable in two equal
annual installments through May 1997. The note bears interest at the published
prime rate and is payable semi-annually from the date of acquisition.
In the first quarter of fiscal 1997, the Company asserted certain
indemnification rights under the Purchase Agreement. In accordance with the
Purchase Agreement, the Company, when exercising its indemnification rights, has
the right, among other courses of action, 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 payments of principal on the Purchase Note
that were due on May 2, 1996 and May 2, 1997. The Company paid interest on the
original principal amount of the Purchase Note through May 2, 1996 and continued
to pay interest thereafter through January 31, 1998 on $500,000 of principal.
In January 1998, Atlantic Harbor, Inc. filed a lawsuit against the Company for
failing to pay the outstanding principal amount of the Purchase Note. In March
1998, the Company filed a counterclaim against Atlantic Harbor, Inc. alleging
that the Company was damaged in excess of $1 million because of the breach of
certain representations and warranties made by Atlantic Harbor, Inc. and its
stockholders concerning the existence and condition of certain foreign trademark
registrations and license agreements. Barring unforeseen circumstances,
management of the Company does not believe that the result of this litigation
will have a material adverse effect on the Company's business or financial
condition.
In March 1998, the Company received a federal income tax refund of approximately
$12.9 million because of losses incurred by the Company during fiscal 1998,
which were carried back against federal income tax payments in prior years. The
Company used a portion of the cash received to reduce outstanding borrowings
under its credit facility.
During the first quarter of fiscal year 1999, the Internal Revenue Service
("IRS") completed an examination of the Company's federal income tax returns for
fiscal years 1992 through 1996. Taxes on the adjustments proposed by the IRS,
excluding interest, amount to approximately $4.9 million. The IRS has challenged
the fiscal tax years in which various income and expense deductions were
recognized, resulting in potential timing differences of previously paid federal
income taxes. The Company appealing these proposed adjustments through the IRS
appeals process. The Company believes that these adjustments will be reduced
through the appeals process and, in the opinion of management, adequate
provisions have been made for all income taxes and interest. The Company
believes that any adjustments to prior periods that may arise as a result of
this process will not have a material impact on the results of operations and
financial condition of the Company.
CAPITAL EXPENDITURES
On October 31, 1998, the Company and Levi Strauss & Co. amended the trademark
license agreement (as amended, the "Outlet License Agreement") that authorizes
the Company to use certain Levi Strauss & Co. trademarks in connection with the
operation of the Company's Levi's(R) Outlet by Designs and Dockers(R) Outlet by
Designs stores in 25 states in the eastern portion of the United States. Subject
to certain default provisions, the term of the Outlet License Agreement was
extended to September 30, 2004, and the license for any particular store is the
period co-terminous with the lease term for such store (including extension
options). The Outlet License Agreement now provides that the Company has the
opportunity to extend the term of the license associated with one or more of the
Company's older Levi's(R) Outlet by Designs stores by either renovating the
store or replacing the store with a new store with an updated format and
fixturing. In order to extend the license associated with each of the Company's
59 older outlet stores, the Company must, subject to certain grace periods,
complete these renovations or the construction of replacement stores by December
31, 2004. As leases expire, the Company may lose the right to use the Levi's(R)
trademark in connection with certain Levi's(R) Outlet by Designs stores. At
January 30, 1999, the average remaining lease term (including extension options)
of the Company's Levi's(R) Outlet by Designs and Dockers(R) Outlet by Designs
stores was approximately 9.6 years.
19
<PAGE>
The Company, with the approval of Levi Strauss & Co., initiated a program to
remodel its existing outlet store base in fiscal 1999. This program allows the
Company to substitute new locations in the Company's existing territory for
older locations in maturing centers as management deems it appropriate to do.
The following table sets forth the stores opened, remodeled and closed and the
capital expenditures incurred for the fiscal years presented:
2000 1999 (1) 1998
- --------------------------------------------------------------------------------
New Stores:
Levi's(R)/Dockers(R) Outlets 10 -- --
Dockers(R) Outlets 2
Boston Trading Co.(R) -- -- 6
Boston Traders(R) outlets -- -- 1
Joint Venture:
Original Levi's Stores(TM) -- -- --
Levi's(R) Outlet stores -- -- 1
--------------------------------
Total new stores 12 -- 8
Remodeled Stores:
Remodeled Levi's(R) Outlet
by Designs 6 -- 5
Remodeled Boston Traders(R)
Outlets -- 6
--------------------------------
Total remodeled stores 6 -- 11
--------------------------------
Total closed stores 23 37 32
--------------------------------
Capital expenditures (000's) $6,006 $ -- $6,554
--------------------------------
(1) Excludes 16 Dockers(R) Outlet stores and 9 Levi's(R) Outlet stores acquired
by the Company on September 30, 1998.
During fiscal 2000, the Company received approximately $3.2 million in landlord
allowances against the total store capital expenditures of $6.0 million. The
Company incurred capital expenditures of $347,000 in fiscal 2000 related to
miscellaneous store capital improvements, leasehold improvements at the
Company's corporate office and technology expenditures.
The Company's present plans for expansion in fiscal 2001, barring unforeseen
circumstances, includes opening 5 new Levi's(R)/Dockers(R) Outlet by Designs
stores and remodeling or relocating 11 existing Levi's(R) Outlet by Designs
stores to new outlet centers in the eastern United States. As previously
announced, Levi Strauss & Co. has given the Company approval to open one
Levi's(R)/Dockers(R) Outlet by Designs stores in Puerto Rico in fiscal 2001. The
capital expenditures related to these 5 new stores and the remodeled stores are
expected, barring unforeseen circumstances, to total approximately $5.6 million.
This amount is net of committed landlord allowances that the Company will
receive during fiscal 2001. The appropriate cost to remodel or build a new
Levi's(R)/Dockers(R) Outlet store is approximately $35 per square foot.
The Company continues to seek opportunities to open and operate outlet stores
for other manufacturers of branded apparel. The Company continues to evaluate
the performance of its existing stores and to consider ways to enhance its
businesses. As a result of this process, certain store locations could be closed
or relocated within a shopping center in the future.
Recent Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No.137, "Accounting for
Derivative Instruments and Hedging Activities- Deferral of the Effective Date of
SFAS No. 133" in June 1999. SFAS No. 133 is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000; earlier adoption is
allowed. SFAS No. 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at their fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company will be required to adopt SFAS No. 133 in fiscal 2001.
The Company does not anticipate that the adoption of SFAS No. 133 will have a
significant effect on the Company's results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 -- "Revenue Recognition in Financial Statements" ("SAB No.
101"). SAB No. 101 deals with various revenue recognition issues, several of
which are common within the retail industry. As a result of the issuance of this
SAB, the Company reexamined its method of recognizing sales allowances. See Note
A of the consolidated financial statements for further discussion.
20
<PAGE>
Effects of Inflation
Although the Company's operations are influenced by general economic trends, the
Company does not believe that inflation has had a material effect on the results
of its operations in the last three fiscal years.
Risks and Uncertainties
The foregoing discussion of the Company's results of operations, liquidity,
capital resources and capital expenditures 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. Accordingly, actual results and the Company's implementation of its
plans and operations may differ materially from forward-looking statements made
by the Company. 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 28, 2000, which identifies
certain risks and uncertainties that may have an impact on future earnings and
the direction of the Company.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of business, the financial position and results of
operations of the Company are routinely subject to a variety of risks, including
market risk associated with interest rate movements on borrowings. The Company
regularly assesses these risks and has established policies and business
practices to protect against the adverse effect of these and other potential
exposures.
The Company utilizes cash from operations and short-term borrowings to fund its
working capital needs. This debt instrument is viewed as risk management tools
and is not used for trading or speculative purposes. In addition, the Company
has available letters of credit as sources of financing for its working capital
requirements. Borrowings under this credit agreement, which expires in June
2001, bears interest at variable rates based on FleetBoston N.A.'s prime rate or
the London Interbank Offering Rate ("LIBOR"). These interest rates at January
29, 2000 were 8.5% for prime and 8.17% for LIBOR. Based upon sensitivity
analysis as of January 29, 2000, a 10% increase in interest rates would result
in a potential loss to future earnings of approximately $160,000.
21
<PAGE>
Item 8. Financial Statements and Supplementary Data
DESIGNS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Management's Responsibility for Financial Reporting 23
Independent Auditors' Report 24
Consolidated Financial Statements:
Consolidated Balance Sheets at January 29, 2000
and January 30, 1999 27
Consolidated Statements of Operations for the Fiscal Years Ended
January 29, 2000, January 30, 1999 and January 31, 1998 28
Consolidated Statements of Changes in Stockholders'
Equity for the Fiscal Years Ended January 29, 2000, January 30, 1999
and January 31, 1998 29
Consolidated Statements of Cash Flows for the Fiscal Years
Ended January 29, 2000, January 30, 1999 and January 31, 1998 30
Notes to Consolidated Financial Statements 31
22
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The integrity and objectivity of the financial statements and the related
financial information in this report are the responsibility of the management of
the Company. The financial statements have been prepared in conformity with
generally accepted accounting principles and include, where necessary, the best
estimates and judgments of management.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization and the
accounting records provide a reliable basis for the preparation of the financial
statements. The system of internal accounting control is regularly reviewed by
management and improved and modified as necessary in response to changing
business conditions.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets periodically with management and the Company's independent
auditors to review matters relating to the Company's financial reporting, the
adequacy of internal accounting control and the scope and results of audit work.
The independent auditors have free access to the Committee.
Deloitte & Touche LLP, independent auditors, have been engaged to examine the
financial statements of the Company for the year ended January 29, 2000. The
Independent Auditors' Report expresses an opinion as to the fair presentation of
the financial statements in accordance with generally accepted accounting
principles and is based on an audit conducted in accordance with auditing
standards generally accepted in the United States of America.
/s/ John J. Schultz /s/ Kenneth F. Rogers, Jr.
- ------------------------------ ------------------------------
John J. Schultz Kenneth F. Rogers, Jr.
President and Chief Executive Officer Senior Vice President, Chief Financial
Officer & Treasurer
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Designs, Inc:
We have audited the accompanying consolidated balance sheet of Designs, Inc. as
of January 29, 2000 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year then ended. Our
audit also included the financial statement schedule for the year ended January
29, 2000 listing in the Index as Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Designs, Inc. as of
January 29, 2000, and the consolidated results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule for the year ended January 29, 2000, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 11, 2000
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Designs, Inc:
We have audited the accompanying consolidated balance sheet of Designs, Inc. and
subsidiaries as of January 30, 1999 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Designs, Inc. and
subsidiaries as of January 30, 1999, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities and Exchange Commission rules and
is not part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Boston, Massachusetts /s/ ARTHUR ANDERSEN LLP
March 16, 1999
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Designs, Inc:
We have audited the consolidated statements of income, changes in stockholders'
equity and cash flow of Designs, Inc. for the year ended January 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit. We have not audited the consolidated statements of Designs, Inc. for any
period subsequent to January 31, 1998.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit 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 financial statements of Designs, Inc. referred to above
present fairly, in all material respects, the consolidated results of its
operations and its cash flow for the year ended January 31, 1998 in conformity
with generally accepted accounting principles in the United States.
Boston, Massachusetts /s/ PRICEWATERHOUSECOOPERS LLP
March 17, 1998, except as to the segment
information for the year ended
January 31, 1998 presented in Note N,
for which the date is April 29, 1999.
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
January 29, 2000 and January 30, 1999
<TABLE>
<CAPTION>
January 29, 2000 January 30, 1999
ASSETS (Fiscal 2000) (Fiscal 1999)
----------------------------------------------
(In thousands, except share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 153
Restricted investment 2,365 --
Accounts receivable 83 178
Inventories 57,022 57,925
Deferred taxes 1,920 272
Prepaid expenses 1,042 911
----------------------------------------------
Total current assets 62,432 59,439
Property and equipment, net of
accumulated depreciation and amortization 16,737 17,788
Other assets:
Deferred income taxes 15,215 18,570
Intangible assets, net -- 2,628
Other assets 693 892
----------------------------------------------
Total assets $ 95,077 $ 99,317
==============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,801 $ 8,716
Accrued expenses and other current liabilities 7,730 6,030
Accrued rent 2,253 2,015
Reserve for severance and store closings 3,228 4,372
Payable to affiliate 594 403
Notes payable 22,202 13,825
----------------------------------------------
Total current liabilities 42,808 35,361
----------------------------------------------
Commitments and contingencies
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,
16,389,490 and 16,178,000 shares issued at
January 29, 2000 and January 30, 1999, respectively 167 162
Additional paid-in capital 54,571 53,908
Retained earnings (deficit) (639) 11,854
Treasury stock at cost, 286,650 shares at
January 29, 2000 and January 30, 1999 (1,830) (1,830)
Deferred compensation - (138)
----------------------------------------------
Total stockholders' equity 52,269 63,956
----------------------------------------------
Total liabilities and stockholders' equity $ 95,077 $ 99,317
==============================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the fiscal years ended January 29, 2000, January 30, 1999
and January 31, 1998
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
2000 1999 1998
-------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Sales $ 192,192 $ 201,634 $ 265,726
Cost of goods sold including occupancy 144,752 159,385 227,368
-------------------------------------------------------------
Gross profit 47,440 42,249 38,358
Expenses:
Selling, general and administrative 43,401 47,979 65,279
Provision for impairment of assets, store closings and severance 6,608 14,929 8,024
Depreciation and amortization 6,502 9,727 11,234
-------------------------------------------------------------
Total expenses 56,511 72,635 84,537
-------------------------------------------------------------
Operating loss (9,071) (30,386) (46,179)
Interest expense, net 1,207 576 706
Loss before minority interest and income taxes (10,278) (30,962) (46,885)
Less minority interest - (1,693) (323)
-------------------------------------------------------------
Loss before income taxes (10,278) (29,269) (46,562)
Provision (benefit) for income taxes 2,215 (10,728) (17,499)
-------------------------------------------------------------
Net loss $ (12,493) $ (18,541) $ (29,063)
=============================================================
Loss per share - basic and diluted ($0.78) ($1.17) ($1.86)
Weighted-average number of common shares outstanding:
Basic 16,088 15,810 15,649
Diluted 16,088 15,810 15,649
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
28
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the fiscal years ending January 29, 2000, January 30, 1999
and January 31, 1998
<TABLE>
<CAPTION>
Additional Retained
Common Stock Treasury Stock Paid-in Deferred Earnings
Shares Amounts Shares Amounts Capital Compensation (Deficit) Total
----------------- ---------------------- -------- ------------ --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1997 15,873 $ 159 (281) $ (1,827) $ 53,320 $ 59,393 $111,045
Issuance of Common Stock:
Exercises under option programs 144 1 351(1) 352
Retirement of shares (5) (19) (19)
Unrealized gain on investments 65 65
Net loss (29,063) (29,063)
---------------------------------------------------------------------------------------------
Balance at January 31, 1998 16,012 $ 160 (281) $ (1,827) $ 53,652 $ -- $ 30,395 $ 82,380
---------------------------------------------------------------------------------------------
Issuance of Common Stock:
Board of Directors compensation 50 1 78 79
Restricted Stock Award to associates 116 1 178 (178) 1
Restricted Stock vesting 38 38
Restricted Stock cancelled (5) (3) -- 2 (1)
Net loss (18,541) (18,541)
---------------------------------------------------------------------------------------------
Balance at January 30, 1999 16,178 $ 162 (286) $ (1,830) $ 53,908 $ (138) $ 11,854 $ 63,956
---------------------------------------------------------------------------------------------
Issuance of Common Stock:
Board of Directors compensation 157 2 256 258
Vesting of Restricted Stock Award 138 138
Issuance of shares to related
parties 355 3 407 410
Net loss (12,493) (12,493)
---------------------------------------------------------------------------------------------
Balance at January 29, 2000 16,690 $ 167 $ (286) $ (1,830) $ 54,571 $ -- $ (639) $ 52,269
=============================================================================================
</TABLE>
(1) Net of related tax benefit
The accompanying notes are an integral part of the
consolidated financial statements.
29
<PAGE>
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the fiscal years ending January 29, 2000, January 30, 1999
and January 31, 1998
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
2000 1999 1998
----------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(12,493) $(18,541) $(29,063)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 6,503 9,727 11,234
Deferred income taxes (4,323) (10,213) (5,015)
Minority interest -- (1,693) (323)
Loss from sale of investments -- -- 102
Loss (gain) from disposal of property and equipment (75) 161 398
Vesting of restricted stock, net of cancellations 138 38 --
Issuances of common stock to Board of Directors 258 78 --
Issuance of common stock to related parties (Note G) 410 -- --
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable 95 (761) 443
Inventories (6,944) (712) 12,598
Prepaid expenses (131) 104 3,819
(Increase) reduction in other assets 2,368 (739) (153)
Income taxes -- 12,469 (12,697)
Accounts payable (1,915) (105) (3,373)
Reserve for severance, store closings and impairment charges 14,844 11,206 15,412
Accrued expenses and other current liabilities 1,890 (269) (917)
Accrued rent 238 1,186 353
-------- -------- --------
Net cash provided by (used for) operating activities 863 1,936 (7,182)
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (7,136) (510) (7,762)
Payment for acquisition of a business -- (9,737) --
Incurrence of pre-opening costs -- -- (325)
Proceeds from disposal of property and equipment 108 102 13
Establishment of investment trust (2,365) -- --
Sale of investments -- -- 5,888
-------- -------- --------
Net cash used for investing activities (9,393) (10,145) (2,186)
-------- -------- --------
Cash flows from financing activities:
Net borrowings under credit facility 8,377 3,997 8,828
Proceeds from minority equityholder of joint venture -- 2,892 --
Distributions to minority equityholder of joint venture -- -- (1,710)
Issuances of common stock under Option Program (1) -- -- 333
-------- -------- --------
Net cash provided by financing activities 8,377 6,889 7,451
-------- -------- --------
Net decrease in cash and cash equivalents (153) (1,320) (1,917)
Cash and cash equivalents:
Beginning of the year 153 1,473 3,390
-------- -------- --------
End of the year $ -- $ 153 $ 1,473
======== ======== ========
</TABLE>
(1) Net of related tax benefit.
The accompanying notes are an integral part of the
consolidated financial statements.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Line of Business
Designs, Inc. (the "Company") is engaged in the retail sales of clothing and
accessories. Levi Strauss & Co. is the most significant vendor of the Company,
representing substantially all of the Company's merchandise purchases. Designs,
Inc. operates a chain of outlet stores located primarily in the eastern part of
the United States.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries and affiliates. All intercompany accounts, transactions and
profits are eliminated.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent liabilities as of the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from estimates.
Fiscal Year
The Company's fiscal year is a 52- or 53- week period ending on the Saturday
closest to January 31. Fiscal years 2000, 1999 and 1998 ended on January 29,
2000, January 30, 1999 and January 31, 1998, respectively. Fiscal years 2000,
1999 and 1998 were 52-week periods.
Cash and Cash Equivalents
Short-term investments, which have a maturity of ninety days or less when
acquired, are considered cash equivalents. The carrying value approximates fair
value.
Restricted Investment
In May 1999, the Company deposited $2.3 million in a trust established for the
purpose of securing pre-existing obligations of the Company to certain
executives under their respective employment agreements. These funds were being
held in a trust to pay the amounts that may become due under their employment
agreements and also to pay any amounts that may become due to them pursuant to
their indemnification agreements and the Company's by-laws. In March 2000,
subsequent to the Company's fiscal year end, the trust was terminated, and
accordingly, the funds are no longer restricted.
Inventories
At January 29, 2000, all merchandise inventories were valued at the lower of
cost or market using the retail method on the last-in, first-out ("LIFO") basis.
At January 30, 1999, approximately $606,000 of Boston Traders(R) liquidation
merchandise was valued on the first-in, first-out ("FIFO") basis. If all
inventory had been valued on the FIFO basis, inventory at January 29, 2000 and
January 30, 1999 would have been approximately $57,381,000 and $58,841,000,
respectively. The (provision) benefit for LIFO was $558,000, $795,000, and
($534,000) in fiscal 2000, 1999 and 1998, respectively.
Property and Equipment
Property and equipment are stated at cost. Major additions and improvements are
capitalized, while repairs and maintenance are charged to expense as incurred.
Upon retirement or other disposition, the cost and related depreciation of the
assets are removed from the accounts and the resulting gain or loss is reflected
in income. Depreciation is computed on the straight-line method over the assets'
estimated useful lives as follows:
Motor vehicles Five years
Store furnishings Five to ten years
Equipment Five to eight years
Leasehold improvements Lesser of useful lives or related lease life
Software development Three to five years
31
<PAGE>
Intangibles
Trademarks and licensing agreements acquired are amortized on a straight line
basis over 15 years and 3 years, respectively. Amortization expense for
trademarks and licensing agreements was $251,000, $317,000 and $312,000 for
fiscal 2000, 1999 and 1998, respectively. Accumulated amortization for trademark
and licensing was $1,143,000 at January 30, 1999. As more fully discussed in
Note I, the trademark and licensing agreements were abandoned and the Company
recorded a charge equal to the net book value of the intangibles of $2.4 million
in the fourth quarter of fiscal 2000.
Pre-opening Costs
In fiscal 1998, the Company adopted Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities." In accordance with this SOP,
the Company expenses all pre-opening costs as incurred. Adoption of this
pronouncement in fiscal 1998 did not result in a cumulative adjustment to
earnings.
Advertising Costs
Advertising costs, which are included in selling, general and administrative
expenses, are expensed when incurred. Advertising expense was $1.0 million, $1.2
million and $2.7 million for fiscal 2000, 1999 and 1998, respectively.
Sales Allowances
Historically, the Company has not recorded sales returns on the accrual basis of
accounting because the difference between the cash and accrual basis of
accounting was not material. In fiscal 2000 the Company decided to discontinue
this practice and is accruing sales returns in accordance with generally
accepted accounting principles. Because the effects of this change are
insignificant to all fiscal periods, the Company has recorded the cumulative
effect of this change in the current year. The impact of recording this change
in fiscal 2000 is a reduction in net income of approximately $130,000.
Minority Interest
As more fully discussed in Note K, minority interest represents LDJV Inc.'s 30%
interest in The Designs/OLS Partnership (the "OLS Partnership"), a joint venture
between Designs JV Corp., a wholly-owned subsidiary of the Company, and LDJV
Inc., a wholly-owned subsidiary of Levi's Only Stores, Inc. ("LOS"), which is a
wholly-owned subsidiary of Levi Strauss & Co. As discussed more fully in Note K,
during the fourth quarter of fiscal 1999, Designs JV Corp. and LDJV, Inc. agreed
to dissolve and wind up the Partnership.
Net Income Per Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") requires the computation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income by the weighted-average
number of shares of common stock outstanding during the year. Diluted earnings
per share is determined by giving effect to the exercise of stock options using
the treasury stock method.
<TABLE>
<CAPTION>
Fiscal Years Ending (in thousands) January 29, 2000 January 30, 1999 January 31, 1998
- ---------------------------------- ------------------------------------------------------
<S> <C> <C> <C>
Basic weighted-average common shares
outstanding 16,088 15,810 15,649
Stock options, excluding anti-dilutive
options of 114 shares, 80 shares and 34 shares
for January 29, 2000, January 30, 1999 and
January 31, 1998, respectively ---- ---- ----
-------- -------- --------
Diluted weighted-average shares outstanding 16,088 15,810 15,649
-------- -------- --------
</TABLE>
Options to purchase shares of the Company's common stock of 320,700, 1,876,350
and 2,026,700 for fiscal years 2000, 1999 and 1998, respectively, were
outstanding during the respective periods but were not included in the
computation of diluted EPS because the price of the options was greater than the
average market price of the common stock for the period reported. These options,
which all expire between June 2, 2002 and June 10, 2007, have exercise prices
that range from $2.00 to $17.75 in fiscal 2000, $4.44 to $21.50 in fiscal 1999
and $4.88 to $21.50 in fiscal 1998.
32
<PAGE>
During fiscal 1995, the Company's Board of Directors authorized the repurchase
of up to 2,000,000 shares of the Company's Common Stock. The Company repurchased
280,900 shares of the Company's Common Stock during fiscal 1997 at an aggregate
cost of $1,827,000. These shares were recorded by the Company as treasury stock,
and accounted for as a reduction in shareholders' equity. Shares owned by the
Company are not considered outstanding for the computation of earnings per share
until re-issued by the Company.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company
reviews its long-lived assets for events or changes in circumstances that might
indicate the carrying amount of the assets may not be recoverable. The Company
assesses the recoverability of the assets by determining whether the
depreciation of such assets over the remaining lives can be recovered through
projected undiscounted future cash flows. The amount of impairment, if any, is
measured based on projected discounted future cash flows using a discount rate
reflecting the Company's average cost of funds. At January 29, 2000, the Company
recorded an impairment charge of $611,000 for the write-down of fixed assets
which is included as part of the $15.2 million non-recurring charge recorded in
the fourth quarter of fiscal 2000. See Note I. The impairment charge of $611,000
was related to eight stores, which the Company acquired from LOS in October
1998. It was not until the end of fiscal 2000 that the Company had a full year
of operating results on these stores for which to make an assessment regarding
their future profitability and the realizability of their assets.
In fiscal 1998, the Company recorded an impairment charge of $378,000, which is
reflected in "Provision for impairment of assets, store closings and severances"
in the Consolidated Statements of Operations. No such impairment charge was
recorded in fiscal 1999.
Derivative Instruments and Hedging
The Financial Accounting Standards Board issued SFAS No.137, "Accounting for
Derivative Instruments and Hedging Accounting- Deferral of the Effective Date of
SFAS No. 133" in July 1999. SFAS No. 133 is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000; earlier adoption is
allowed. SFAS No. 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at their fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company will be required to adopt SFAS No. 133 in fiscal 2001.
The Company does not anticipate that the adoption of SFAS No. 133 will have a
significant effect on the Company's results of operations or financial position.
Reclassifications
Certain amounts from prior years have been reclassified to conform to the
current year presentation.
B. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
January 29, January 30,
2000 1999
-----------------------------------
(In Thousands)
Motor vehicles $ 46 $ 356
Store furnishings 16,073 15,338
Equipment 5,899 7,513
Leasehold improvements 16,929 15,690
Purchased software 5,291 5,008
Reserve on impaired assets (611) ---
Construction in progress 44 ---
-----------------------------------
43,671 43,905
Less accumulated depreciation 26,934 26,117
-----------------------------------
Total property and equipment $ 16,737 $ 17,788
-----------------------------------
Depreciation expense for fiscal 2000, 1999 and 1998 was $5,949,000, $9,210,000
and $10,040,000, respectively.
33
<PAGE>
C. DEBT OBLIGATIONS
On June 4, 1998 the Company entered into an Amended and Restated Loan and
Security Agreement with BankBoston Retail Finance, Inc. (now known as Fleet
Retail Finance, Inc.), as agent for the lenders named therein (the "Credit
Agreement"). The Credit Agreement, which terminates on June 4, 2001, consists of
a revolving line of credit permitting the Company to borrow up to $50 million.
Under this credit facility, the Company has the ability to cause the lenders to
issue documentary and standby letters of credit up to $5 million. The Company's
obligations under the Credit Agreement are secured by a lien on all of the
Company's assets. The ability of the Company to borrow under the Credit
Agreement is subject to a number of conditions including the accuracy of certain
representations and compliance with tangible net worth and fixed charge coverage
ratio covenants. The availability of the unused revolving line of credit is
limited to specified percentages of the value of the Company's eligible
inventory determined under the Credit Agreement, ranging from 60% to 65%. At the
option of the Company, borrowings under this facility bear interest at
FleetBoston, N.A.'s (formerly known as BankBoston, N.A.) prime rate or at
LIBOR-based fixed rates. These interest rates at January 29, 2000 were 8.50% for
prime and 8.17% for LIBOR. The Credit Agreement contains certain covenants and
events of default customary for credit facilities of this nature, including
change of control provisions and limitations on payment of dividends by the
Company. The Company is subject to a prepayment penalty of $250,000 if the
Credit Agreement terminates prior to May 4, 2001.
In the third quarter of fiscal 1999, the Credit Agreement was amended to, among
other things, permit and acknowledge the Company's acquisition of the 25 outlet
stores from LOS and the transactions associated with the agreement to dissolve
and wind up the OLS Partnership. These amendments include an increase in the
minimum tangible net worth that the Company must have, which was adjusted to
recognize the value of the assets distributed to the Company by the OLS
Partnership. Prior to these amendments, the tangible net worth of the OLS
Partnership was excluded from the calculation of the Company's tangible net
worth for purposes of these financial covenants. Subject to certain limitations
and conditions, the Credit Agreement permits the Company, without the prior
permission of its lenders, to consummate certain acquisitions and to repurchase
shares of the Company's Common Stock. These amendments, among other things,
reduced the amount that the Company may expend for such purposes without
obtaining the prior permission of its lenders.
On October 14, 1999, the Company was notified that, by virtue of the recent
change in the members of the Company's Board of Directors, a "Change in Control"
occurred within the meaning of the Credit Agreement, giving rise to an event of
default. On October 29, 1999, the lenders, the former BankBoston Retail Finance,
Inc. and the Company entered into an amendment to the Credit Agreement. This
amendment waives the event of default arising because of the "Change in
Control," and includes new events of default for material adverse changes in the
Company's financial condition or its business relationship with Levi Strauss &
Co. compared to the Company's financial condition and its relationship with Levi
Strauss & Co., respectively, as of October 8, 1999.
On March 28, 2000, the Credit Agreement was amended to, among other things,
exclude certain non-recurring charges and tax valuation reserves from the
Company's financial covenants, effective for the fiscal year ending January 29,
2000. As a result, the Company was in compliance with all debt covenants under
the Credit Agreement at the end of the fiscal year.
At January 29, 2000, the Company had borrowings of approximately $21.2 million
outstanding under this facility and had five outstanding standby letters of
credit totaling approximately $4.1 million. Average borrowings outstanding under
this credit facility for fiscal year 2000 was approximately $16.8 million.
On May 2, 1995, the Company delivered a non-negotiable promissory note in the
principal amount of $1,000,0000 in connection with the acquisition of certain
assets of Boston Trading Ltd., Inc. ("Boston Trading") in accordance with the
terms of an Asset Purchase Agreement dated April 21, 1995 among Boston Trading,
its stockholders, Designs Acquisition Corp., and the Company (the "Purchase
Agreement"). The principal amount of the Purchase Note was payable in two equal
annual installments through May 1997. The note bears interest at the published
prime rate and is payable semi-annually from the date of acquisition.
In the first quarter of fiscal 1997, the Company asserted certain
indemnification rights under the Purchase Agreement. In accordance with the
Purchase Agreement, the Company, when exercising its indemnification rights, has
the right, among other courses of action, 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 payments of principal on the Purchase Note
that were due on May 2, 1996 and May 2,
34
<PAGE>
1997. The Company paid interest on the original principal amount of the Purchase
Note through May 2, 1996 and continued to pay interest thereafter through
January 31, 1998 on $500,000 of principal.
In January 1998, Atlantic Harbor, Inc. filed a lawsuit against the Company for
failing to pay the outstanding principal amount of the Purchase Note. In March
1998, the Company filed a counterclaim against Atlantic Harbor, Inc. alleging
that the Company was damaged in excess of $1 million because of the breach of
certain representations and warranties made by Atlantic Harbor, Inc. and its
stockholders concerning the existence and condition of certain foreign trademark
registrations and license agreements. Barring unforeseen circumstances,
management of the Company does not believe that the result of this litigation
will have a material adverse effect on the Company's business or financial
condition.
The Company paid interest and fees on all the above described debt obligations
totaling $1,558,000, $1,062,000 and $833,000 for the fiscal years 2000, 1999 and
1998, respectively.
D. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"("SFAS109"). Under
SFAS 109, deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. SFAS 109 requires current recognition of
net deferred tax assets to the extent that it is more likely than not that such
net assets will be realized. To the extent that the Company believes that its
net deferred tax assets will not be realized, a valuation allowance must be
placed against those assets.
As of January 29, 2000, the Company has net operating loss carryforwards of
$34,705,000 for federal income tax purposes and $75,743,000 for state income tax
purposes, which are available to offset future taxable income through fiscal
year 2019. Additionally, the Company has alternative minimum tax credit
carryforwards of $1,138,000, which are available to reduce further income taxes
over an indefinite period.
The components of the net deferred tax assets as of January 29, 2000 and January
30, 1999 are as follows:
January 29, January 30,
2000 1999
-------------------------------
(In Thousands)
Deferred tax assets - current:
Inventory reserves $ 1,792 $ 426
LIFO reserve 128 -
-------------------------------
Subtotal 1,920 426
Deferred tax liabilities - current:
LIFO reserve - (154)
-------------------------------
Net deferred tax assets- current $ 1,920 $272
-------------------------------
Deferred tax asset - noncurrent:
Excess of book over tax
depreciation/amortization $ 2,684 $ 1,687
Restructuring reserve 1,281 1,004
Capital loss carryforward - 165
Net operating loss carryforward 16,346 15,121
Alternative minimum tax credit carryforward 1,138 1,138
-------------------------------
Subtotal $21,449 $19,115
Valuation allowance (6,234) (545)
-------------------------------
Total deferred tax assets - noncurrent $15,215 $18,570
-------------------------------
35
<PAGE>
As a result of restructuring and other non-recurring charges recorded in fiscal
2000, the Company recorded a further write-down of tax assets of $6.0 million
attributable to the potential that certain deferred federal and state tax assets
may not be realizable. Realization of the Company's deferred tax assets is
dependent on generating sufficient taxable income during the carryforward
period. The valuation allowance at January 29, 2000 is primarily attributable to
the potential that certain deferred federal and state tax assets will not be
realizable. Although realization is not assured, management believes it is more
likely than not that all of the remaining deferred tax assets will be realized.
The amount of the deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced. In reaching this determination, management
reviewed the Company's historical performance and projections of future results.
These projections provide positive evidence of future probable realization of
the remaining deferred tax asset within the prescribed carryforward timeframe.
The provision (benefit) for income taxes consists of the following:
FISCAL YEARS ENDING
January 29, January 30, January 31,
2000 1999 1998
(In Thousands)
Current:
Federal $ --- $ --- $(12,964)
State 508 364 (688)
--------------------------------------------
508 364 (13,652)
--------------------------------------------
Deferred:
Federal 439 (10,006) (1,639)
State 1,268 (1,086) (2,208)
--------------------------------------------
1,707 (11,092) (3,847)
--------------------------------------------
Total provision (benefit) $ 2,215 $(10,728) $(17,499)
--------------------------------------------
The following is a reconciliation between the statutory and effective income tax
rates:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
January 29, January 30, January 31,
2000 1999 1998
<S> <C> <C> <C>
Statutory federal income tax rate (34.0%) (35.0%) (35.0%)
State income and other taxes, net of federal tax benefit (1.6) (4.4) (2.6)
Permanent items .2 -- --
Change in valuation allowance 55.4 1.9 --
Expiration of capital loss carryforward 1.6 -- --
----------------------------------------
Effective tax rate 21.6% (37.5%) (37.6%)
----------------------------------------
</TABLE>
The Company received income tax refunds of $75,000 and $12,984,000 for fiscal
years 2000 and 1999, respectively, and the Company paid income taxes of $195,000
during fiscal year 1998. These figures represent the net of payments and
receipts. The above refund of $12.9 million related to losses incurred by the
Company in fiscal 1998, which were carried back against federal income tax
payments in prior years.
During the first quarter of fiscal year 1999, the IRS completed an examination
of the Company's federal income tax returns for fiscal years 1992 through 1996.
Taxes on the adjustments proposed by the IRS, excluding interest, amount to
approximately $4.9 million. The IRS has challenged the fiscal tax year in which
various income and expense deductions were recognized, resulting in potential
timing differences of previously paid federal income taxes. The Company is
currently appealing the proposed adjustments through the IRS appeals process.
The Company believes that these adjustments will be reduced through the appeals
process and, in the opinion of management, adequate provisions have been made
for all income taxes and interest. The Company believes that any adjustments to
prior periods that may arise as a result of this process will not have a
material impact on the results of operations and financial condition of the
Company.
36
<PAGE>
E. COMMITMENTS AND CONTINGENCIES
At January 29, 2000, the Company was obligated under operating leases covering
store and office space, automobiles and certain equipment for future minimum
rentals as follows:
TOTAL
FISCAL (In Thousands)
2001 $16,770
2002 15,576
2003 13,552
2004 12,180
2005 9,332
Thereafter 9,862
--------------------
$77,272
--------------------
The Company signed a lease for its corporate headquarters in Needham,
Massachusetts, during fiscal 1996. The term of the lease is for ten years ending
in November 2005. The lease provides for the Company to pay all related costs
associated with the land and headquarters building. The Company entered into a
lease agreement effective April 1, 1998 to sublease approximately 15,000 square
feet to a sublessee for a term of five to eight years. The Company also entered
into a second lease agreement effective July 1, 1998 to sublease an additional
15,300 square feet to a sublessee for a term of five to seven years. The
Company's commitment under this lease has been reduced by the expected future
rental income to be received from the Company's two sublessees.
In addition to future minimum rental payments, many of the store leases include
provisions for common area maintenance, mall charges, escalation clauses and
additional rents based on a percentage of store sales above designated levels.
Amounts charged to operations for the above occupancy costs, automobile and
leased equipment expense were $22,571,000, $30,480,000 and $36,458,000 in fiscal
years 2000, 1999 and 1998, respectively. Of these amounts charged to operations,
$23,000, $173,000 and $402,000 represent payments based upon a percentage of
adjusted gross sales as provided in the lease agreement for the fiscal years
ended 2000, 1999 and 1998, respectively.
The Company remains principally liable on three leases which were assigned to
Levi's Only Stores, Inc., a wholly-owned subsidiary of Levi Strauss & Co., in
connection with the sale of the Company's Original Levi's(R) Store(TM) located
in Minneapolis, Minnesota, and the two Dockers(R) Shops located in Minneapolis,
Minnesota, and Cambridge, Massachusetts. The store leases in Minneapolis and
Cambridge expire in January 2003 and January 2002, respectively.
In fiscal 2000, the Company entered into severance agreements with three of its
previous executives. Under the terms of the agreements, the Company is committed
to pay severance to each executive for a two-year period. One of the three
severance agreements requires the Company to maintain a letter of credit equal
to the outstanding severance liability. At January 29, 2000, the Company has an
outstanding liability related to these agreements of $1.9 million. The balance
of the letter of credit outstanding at yearend is $531,000.
On April 10, 2000, subsequent to yearend, the Company entered into a two-year
employment agreement with its newly appointed President and Chief Executive
Officer. The agreement, which expires on April 10, 2002, provides for a minimum
salary level, stock options and bonuses as determined by the Compensation
Committee of the Company's Board of Directors. The aggregate commitment for
future salaries at January 29, 2000, excluding bonuses, is $750,000.
The Company is also subject to various legal proceedings and claims that arise
in the ordinary course of business. Management believes that the resolution of
these matters will not have an adverse impact on the results of operations or
the financial position of the Company.
37
<PAGE>
F. STOCK OPTIONS
The Company's Board of Directors and its stockholders previously approved the
1987 Incentive Stock Option Plan (the "Incentive Plan") pursuant to which, as
amended, stock options to purchase up to 787,500 shares of Common Stock may be
issued to key employees (including executive officers and directors who are
employees). The Incentive Plan is administered by the Compensation Committee of
the Company's Board of Directors, which designates the optionees, number of
shares for each option grant, option prices (which may not be less than fair
value on the date of grant), date of grant, vesting schedule (ranging from three
to five years) and period of option (which may not be more than ten years). All
Incentive Plan options are non-assignable. The Incentive Plan terminates when
all shares issuable thereunder have been issued.
The Company's Board of Directors and its stockholders also previously approved
the 1987 Non-Qualified Stock Option Plan (the "Non-Qualified Plan") pursuant to
which stock options to purchase up to 337,500 shares of Common Stock which are
not "incentive stock options" (as defined in Section 422 of the Internal Revenue
Code, as amended) may be issued to key employees (including executive officers
and directors of the Company) and directors who are not employees of the
Company. The Non-Qualified Plan is administered by the Compensation Committee of
the Company's Board of Directors, which designates the optionees, number of
shares for each option grant, option prices (which may not be less than 85% of
the fair market value on the date of grant), date of grant, vesting schedule
(ranging from three to five years) and period of option (which may not be more
than ten years). All Non-Qualified Plan options are non-assignable. The
Non-Qualified Plan terminates when all shares issuable have been issued.
Outstanding options under both the Incentive Plan and the Non-Qualified Plan
expire seven to ten years after the date of grant. At the beginning of fiscal
1998 there were 76,948 options with an exercise price of $2.53 outstanding under
the Non-Qualified Plan. All 76,948 options were exercised during fiscal 1998.
There was no activity under this plan in fiscal 1999 or fiscal 2000.
On April 3, 1992, the Board of Directors adopted the 1992 Stock Incentive Plan
(the "1992 Plan"), which became effective on June 9, 1992 when it was approved
by the stockholders of the Company. Under the 1992 Plan, as amended, up to
1,850,000 shares of Common Stock may be issued pursuant to "incentive stock
options" (as defined in Section 422 of the Internal Revenue Code, as amended),
options which are not "incentive stock options," conditioned stock awards,
unrestricted stock awards and performance share awards. The 1992 Plan is
administered by the Compensation Committee, all of the members of which are
non-employee directors. The Compensation Committee makes all determinations with
respect to amounts and conditions covering awards under the 1992 Plan. No
Incentive Stock Options may be granted under the 1992 Plan after April 2, 2002.
Options have never been granted at a price less than fair value on the date of
the grant. Options granted to employees, executives and directors typically vest
over five, three and three years, respectively, with the exception of the
premium priced options issued to the executives which vest over a five-year
period. Options granted under the 1992 Plan expire ten years from the date of
grant. The 1992 Plan terminates when all shares issuable thereunder have been
issued.
By written consent dated as of April 28, 1997, the Board of Directors authorized
an increase in the number of shares issuable under the 1992 Plan to 2,430,000.
In addition, the Board of Directors authorized an increase in the number of
shares that may be granted during any fiscal year to any individual participant
from 75,000 to 270,000 shares, but only if all such stock options have a per
share exercise price not less than 200% of fair market value of one share of
Common Stock on the date of grant. Furthermore, they authorized the elimination
of certain provisions of the 1992 Plan that are no longer required by Rule 16b-3
under the Securities Exchange Act. The stockholders approved this increase and
the other amendments to the 1992 Plan at the Annual Meeting held on June 10,
1997.
On October 28, 1999, the Company entered into a consulting agreement with
Jewelcor Management Inc. ("JMI"), whereby the Company has given JMI the right to
receive a non-qualified stock option exercisable for up to 400,000 shares of the
Company's Common Stock. These options, which will expire on April 30, 2002 if
not exercised, will be granted as compensation for consulting services to be
performed over the following six-month term of the agreement. These 400,000
options will be issued outside of the 1992 Incentive Plan at an exercise price
of $1.16. When issued, these options will be fully vested and exercisable. The
Company will determine the fair value of these options using the Black Scholes
model. The fair value of such options will be accounted for as an increase in
Additional Paid In Capital and will offset amounts due to JMI as compensation
for services. See Note G.
38
<PAGE>
A summary of shares subject to the option plans described above is as follows:
1987 Incentive Stock Option Plan
FISCAL YEAR
- --------------------------------------------------------------------------------
2000 1999 1998
------------------------
Outstanding at
beginning of year 9,000 9,000 97,306
Options granted -- -- --
Options canceled 9,000 -- 20,900
Options exercised -- -- 67,406
------------------------
Outstanding at end of year -- 9,000 9,000
------------------------
Options exercisable at
end of year -- 9,000 9,000
Common shares reserved for
Future grants at end
of year -- -- --
Weighted-average exercise price per option:
Outstanding at beginning of year $11.17 $ 4.01
Granted during the year -- -- --
Canceled during the year -- -- $ 7.15
Exercised during the year -- -- $ 2.07
Outstanding at end of year -- $11.17 $11.17
1992 Stock Incentive Plan
FISCAL YEAR
-------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Outstanding at
beginning of year 2,103,225 2,041,749 1,660,400
Options granted 261,106 304,478 708,750
Options canceled 1,625,600 191,649 327,401
Options exercised 237,656 51,353 --
-------------------------------
Outstanding at end of year 501,075 2,103,225 2,041,749
-------------------------------
Options exercisable at
End of year 396,075 1,272,615 1,145,397
Common shares reserved
for future grants at
end of year 1,624,266 259,772 372,851
Weighted-average exercise price per option:
Outstanding at beginning of year $ 10.94 $ 12.02 $ 12.00
Granted during the year 1.60 0.97 10.65
Canceled during the year 12.15 9.09 8.99
Exercised during the year 1.10 1.66 --
Outstanding at end of year $ 6.68 $ 10.94 $ 12.02
39
<PAGE>
The following table summarizes information about stock options outstanding under
the 1992 Plan at January 29, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ---------------------------------
Weighted Weighted
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$0.66 to $2.15 189,125 9.5 years $ 1.26 84,125 $ 1.25
4.30 to 6.45 41,500 6.1 years 4.44 41,500 4.44
6.46 to 8.60 97,000 4.4 years 7.81 97,000 7.81
8.61 to 10.75 49,500 3.3 years 9.00 49,500 9.00
10.76 to 12.90 66,450 1.7 years 11.17 66,450 11.17
15.06 to 17.20 6,000 4.2 years 15.25 6,000 15.25
17.21 to 17.75 51,500 2.6 years 17.75 51,500 17.75
- ---------------- ------------- -----------
$0.66 to $17.75 501,075 396,075
------------- -----------
</TABLE>
During the fourth quarter of fiscal 2000, stock options covering an aggregate of
90,000 shares of Common Stock were issued outside of the 1992 Plan to three
non-employee directors as part of their consulting agreements with the Company.
See Note G. These options have exercise prices between $1.16 and $1.44 and are
fully vested and exercisable. All 90,000 options remain outstanding at January
29, 2000.
Subsequent to yearend, the Company granted 75,000 incentive stock options and
225,000 non-qualified options to its President and Chief Executive Officer as
part of his employment agreement. See note E. These options have a three-year
vesting and are exercisable at $1.19 per share.
When shares are sold within one year of exercise or within two years from date
of grant, the Company derives a tax deduction measured by the excess of the
market value over the option price at the date the shares are sold, which
approximated $18,256 in fiscal year 1998. There were no tax deductions taken for
fiscal years 1999 and 2000.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its plans. FASB Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), was issued by the FASB in 1995 and requires the Company to elect
either expense recognition under SFAS 123 or its disclosure-only alternative for
stock-based employee compensation. The Company has elected the disclosure-only
alternative and, accordingly, no compensation cost has been recognized. The
Company has disclosed the pro forma net income or loss and per share amounts
using the fair value based method.
Had compensation costs for the Company's grants for stock-based compensation
been determined consistent with SFAS 123, the Company's net loss and loss per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------------
(In Thousands, Except per Share Amounts) January 29, 2000 January 30, 1999 January 31, 1998
----------------------------------------------------------
<S> <C> <C> <C>
Net loss - as reported $(12,493) $(18,541) $(29,063)
Net loss - pro forma $(12,614) $(18,782) $(29,383)
Loss per share- basic and diluted as reported $ (0.78) $ (1.17) $ (1.86)
Loss per share- basic and diluted pro forma $ (0.78) $ (1.19) $ (1.88)
</TABLE>
The effects of applying SFAS 123 in this pro-forma disclosure are not likely to
be representative of the effects on reported net income for future years. SFAS
123 does not apply to awards prior to 1995 and additional awards are
anticipated.
40
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2000, 1999 and 1998: expected volatility
of 93.7% in fiscal 2000, 92.8% in fiscal 1999 and 63.97% in fiscal 1998;
risk-free interest rate of 6.6%, 5.0% and 6.2% in fiscal 2000, 1999 and 1998,
respectively; and expected lives of 4.5 years. No dividend rate was used for
fiscal 2000, 1999 and 1998. The weighted- average fair value of options as well
as restricted stock granted in fiscal 2000, 1999 and 1998 was $1.60, $0.97 and
$1.93, respectively.
G. RELATED PARTIES
On October 28, 1999, the Company entered into a consulting agreement with
Jewelcor Management, Inc. ("JMI"), a 14.7% stockholder of the Company, to assist
in developing and implementing a strategic plan for the Company and for other
related consulting services as may be agreed upon between JMI and the Company.
As compensation for these services, JMI was given the right to receive a
non-qualified stock option to purchase up to 400,000 shares of the Company's
Common Stock, exercisable at the closing price on October 28, 1999. Any
remaining compensation due will be paid to JMI in cash or stock. In Fiscal 2000,
the Company has recorded $240,000 in compensation expense related to this
agreement. In October 1999, the Company also reimbursed JMI $400,000, which was
paid in shares of the Company's Common Stock, for expenses incurred by JMI in
connection with the recent proxy solicitation. Based on the closing price of the
stock on October 29, 1999, JMI received 346,021 shares of the Company's Common
Stock. Subsequently, on April 7, 2000, Seymour Holtzman, President and Chief
Executive Officer of JMI, was elected to the Company's Board of Directors and on
April 11, 2000 was elected Chairman of the Board.
The Company has also entered into three consulting agreements with three of its
other Board members: John J. Schultz, Robert L. Patron and George T. Porter, Jr.
On October 28, 1999, the Company engaged John J. Schultz, under a consulting
agreement, to act as President and Chief Executive Officer of the Company on an
interim basis and to assist in the search for a permanent President and Chief
Executive Officer. As compensation for those services and additional services he
may provide subsequent to April 10, 2000, Mr. Schultz is paid a rate of $2,000
per day, payable at his election in cash or in shares of Common Stock, plus
reimbursement of reasonable out-of-pocket expenses. Mr. Schultz' compensation
also includes the grant of stock options exercisable for up to 15,000 shares of
the Company's Common Stock for each year in which Mr. Schultz serves as
President and CEO. The per share exercise price of these options will be the
closing price of shares of Common Stock on the date of grant. For the year
ending January 29, 2000, Mr. Schultz was paid $83,311 as compensation and
reimbursement of expenses and received 30,000 options. Subsequent to yearend,
the Company granted John J. Schultz 65,000 options outside of the 1992 Incentive
Plan as part of his consulting services.
On November 19, 1999, the Company entered into a consulting agreement with
Business Ventures International, Inc., a company affiliated with Robert Patron,
a member of the Board, to advise the Company with regard to real estate matters.
As compensation for these services, Mr. Patron is paid a rate of $2,000 per day,
payable at his election in cash or in shares of Common Stock, plus reimbursement
of reasonable out-of-pocket expenses. Mr. Patron's compensation also includes
the grant of stock options exercisable for up to 15,000 shares of the Company's
Common Stock for each year in which Mr. Patron furnishes real estate consulting
services to the Company. The per share exercise price of these options will be
the closing price of shares of Common Stock on the date of grant. For the year
ending January 29, 2000, Mr. Patron was paid $14,000 as compensation and
received 30,000 options.
On February 8, 2000, the Company retained Mr. Porter as a consultant to advise
the Company with regard to merchandising strategies and operations. As
compensation for these services, Mr. Porter is paid a rate of $2,000 per day,
payable at his election in cash or in shares of Common Stock, plus reimbursement
of reasonable out-of-pocket expenses. Mr. Porter's compensation also includes
the grant of stock options exercisable for up to 15,000 shares of the Company's
Common Stock for each year in which Mr. Porter furnishes consulting services to
the Company. The per share exercise price of these options will be the closing
price of shares of Common Stock on the date of grant. For the year ending
January 29, 2000, Mr. Porter was paid $7,373 as compensation and reimbursement
of expenses and received 30,000 options.
41
<PAGE>
H. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) plan that covers all eligible
employees who have completed one year of service. Under this plan, the Company
may provide matching contributions up to a stipulated percentage of employee
contributions. The expenses of the plan are fully funded by the Company; and the
matching contribution, if any, is established each year by the Board of
Directors. For fiscal 2000, the matching contribution by the Company was set at
50% of contributions by eligible employees up to a maximum of 6% of salary. The
Company recognized $141,000, $241,000 and $279,000 of expense under this plan in
fiscal 2000, 1999 and 1998, respectively.
I. RESTRUCTURING
Fiscal 2000
During the fourth quarter of fiscal 2000, the Company recorded a pre-tax charge
of $15.2 million related to inventory markdowns, the abandonment of the
Company's Boston Traders(R) and related trademarks, severance, the closure of
the Company's five Buffalo Jeans (R) Factory Stores and its five remaining
Designs stores. All of these stores were closed and all employees were severed
by the end of fiscal 2000. Of the $15.2 million charge, $7.8 million, which
relates to markdowns, is reflected as a reduction in gross margin for fiscal
2000. This pre-tax charge of $15.2 million included cash costs of approximately
$3.6 million related to lease terminations and corporate and store severance,
and approximately $11.6 million of non-cash costs related to inventory markdowns
and the impairment of trademarks and store assets. Based on management's review
of the Company's remaining Levi's(R) and Dockers(R) Outlet by Designs stores, no
additional store closing reserves were needed at January 29, 2000. At January
29, 2000, the remaining reserve balance related to these store closings was $6.7
million, which primarily related to landlord settlements, severance and
markdowns.
In addition, the Company also recorded a write-down of tax assets of $6.0
million attributable to the potential that certain deferred federal and state
tax assets may not be realizable.
Fiscal 1999
During the third quarter of fiscal 1999, the Company announced its plans to
close, through lease terminations and expirations, 14 unprofitable Designs
stores, eight unprofitable Boston Trading Co.(R)/BTC(TM) stores and eight
Original Levi's Stores(TM) operated by the OLS Partnership. This store closing
strategy resulted in the Company recording a pre-tax charge of $13.4 million.
The total cost to close these stores was $10.5 million, which is $2.9 million
less than the original charge, primarily due to favorable landlord negotiations
on lease termination payments. As a result, the Company recognized pre-tax
income of $2.9 million in the fourth quarter of fiscal 1999. Total cash costs
were $4.2 million related to lease terminations, employee severance and other
related expenses. The remainder of the $10.5 million charge consists of non-cash
costs of approximately $6.3 million in store fixed asset write-offs. All of
these stores were closed by the end of fiscal 1999.
In the fourth quarter of fiscal 1999, the Company recorded a pre-tax charge of
$5.2 million, or $(0.20) per share after tax, related to the decision to close
three BTC(TM) mall stores, one Designs mall store, and four Boston Traders(R)
Outlet stores and to further reduce corporate headcount. The total cost of
severance and store closings was $717,000 less than the original charge due to
favorable landlord negotiations on lease termination payments. As a result, the
Company recognized income of $717,000 in the fourth quarter of fiscal 2000 and
is reflected in the Provision for Impairment of assets, store closing and
severance on the Consolidated Statement of Operations for fiscal 2000.
Fiscal 1998
In the second quarter of fiscal 1998, the Company recorded a pre-tax charge of
$20 million related to its shift in strategy away from the vertically integrated
Boston Traders(R) private label concept to a strategy with greater emphasis on
name brands. This decision involved the liquidation of Boston Traders(R) brand
products, the closure of the Company's New York City product development office
and the closure of 17 Designs stores and 16 Boston Traders(R) Outlet stores.
Total costs to close related to this shift in strategy and the closure of the
stores was $19.9 million which included cash costs of $6.0 million related to
lease terminations, the cost of canceling private label fabric commitments,
severance associated with the closing of the New York office, and other
miscellaneous expenses. The remainder of the $19.9 million charge consisted of
non-cash costs of approximately $13.9 million, which included $12.4 million of
markdowns at cost related to the liquidation of Boston Traders(R) brand product
and $1.5 million for write-offs of store fixed assets. Merchandise markdowns and
costs associated with the cancellation of fabric commitments, which total
approximately $13.9 million were included in cost of goods sold for the fiscal
year ending January 31, 1998. There was no reserve balance remaining related to
this charge at January 29, 2000 and January 30, 1999.
42
<PAGE>
In the fourth quarter of fiscal year 1998, the Company incurred an additional
pre-tax charge of $1.6 million relating primarily to severance, benefits and
other costs associated with a reduction in its home office and field staff. This
reduction in force resulted in the elimination of 47 positions, or approximately
25%, of the Company's headquarters and field management staff. This charge was
included in the restructuring charge in the Company's Consolidated Statement of
Operations for the year ended January 31, 1998. Total actual costs related to
this reduction in staff were $1.4 million as compared to the original charge of
$1.6 million. The remaining reserve balance at January 31, 1998 was $1.3
million. There was no reserve balance remaining related to this charge at
January 29, 2000 and January 30, 1999.
J. FORMATION OF JOINT VENTURE
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company
("Designs JV Subsidiary"), and LDJV Inc., a subsidiary of Levi's Only Stores,
Inc. ("LOS"), which is a wholly-owned subsidiary of Levi Strauss & Co., entered
into a partnership agreement (the "Partnership Agreement"). The purpose of the
Partnership Agreement was to sell Levi's(R) brand jeans and jeans-related
products in Original Levi's Stores(R) and Levi's(R) Outlet stores in a specified
territory. The joint venture established under the Partnership Agreement is
known as The Designs/OLS Partnership (the "OLS Partnership").
In October 1998, the Company announced that it had reached an agreement with LOS
to dissolve and wind up the OLS Partnership. Pursuant to this agreement, the OLS
Partnership distributed to the Designs JV subsidiary 11 Levi's(R) Outlet stores,
valued at a net book value of approximately $6.3 million. In addition, the OLS
Partnership distributed three Original Levi's Stores(R) to LDJV Inc. The net
book value of these three Original Levi's Stores(R) was approximately $5.5
million, which was greater than LDJV Inc.'s equity interest in the OLS
Partnership. Consequently, LDJV Inc. made a $2.9 million capital contribution of
cash to the OLS Partnership at October 31, 1998.
In connection with the plan to dissolve and wind up the OLS Partnership, the OLS
Partnership recorded a pre-tax charge of $4.5 million in fiscal 1999 related to
the closing of the eight Original Levi's Stores(R) that it did not distribute.
This $4.5 million charge is included in the total $13.4 million charge recorded
by the Company in fiscal 1999 and discussed in Note I above. The total costs to
close these stores was $1.3 million less than the original charge, primarily due
to favorable landlord negotiations on lease termination payments. This $1.3
million was part of the total $2.9 million recognized as restructuring income in
fiscal 1999. See Note I above.
K.OUTLET STORE ACQUISITION
On September 30, 1998, the Company acquired 25 outlet stores from LOS for a
purchase price of approximately $9.7 million. These stores, 16 of which now
operate under the names "Dockers(R) Outlet by Designs" and nine of which operate
under the name "Levi's(R) Outlet by Designs," are located in the eastern United
States. A portion of the purchase price for these stores, approximately $5.1
million, was for inventory. The remainder of the purchase price, approximately
$4.6 million, was for fixed assets associated with these stores. The Company
also assumed the obligations associated with the real estate leases for the
stores.
L.SEGMENT DISCLOSURES
Through the end of the third quarter of fiscal 2000, the Company operated its
business under two reportable store segments (i) Outlet Store Group and (ii)
Specialty Store Group. On November 24, 1999, the Company announced that its
Board of Directors had decided to close its five remaining Designs stores and
its five Buffalo Jeans Factory Stores by the end of fiscal 2000.
As a result of these transactions, the Company now operates and manages its
business under one reportable store segment, the Outlet Store group. "Closed
stores and Other" includes the operations of all stores closed through the end
of fiscal 2000.
Outlet Store Group: At January 29, 2000, this store group included the Company's
59 Levi's(R)/Dockers(R) Outlet by Designs stores, 27 Dockers(R) Outlet stores
and 11 Levi's(R) Outlet stores. These outlet stores all operate in outlet
centers located primarily in the Eastern United States and primarily sell close
out and end of season merchandise from Levi Strauss & Co.
43
<PAGE>
Closed Stores and Other: This group included the Designs, Boston Trading
Co.(TM), Buffalo Jeans Factory Stores and Boston Traders(R) Outlet stores that
were closed as part of its store closing programs. The operations of the three
Original Levi's Stores(TM) that were distributed to LDJV, Inc. in October 1998
and the operations of the eight Original Levi's Stores(TM) that were closed in
fiscal 1999 are also included in this group.
The accounting policies of the reportable segments are the same as those
described in Note A. The Company evaluates individual store profitability in
terms of a store's "Contribution to Profit" which is defined by the Company as
gross margin less occupancy costs and all store specific expenses such as
payroll, advertising, insurance and depreciation.
Below is a summary of the results of operations for the "Outlet Store Group" and
"Closed Stores and Other" for the three years ended January 29, 2000:
For the year ended January 29, 2000
Closed
(in thousands) Outlets and Other Total
Sales $ 179,502 $ 12,690 $ 192,192
Merchandise margin 76,733 3,435 80,168
Markdown reserves (6,536) (1,311) (7,847)
Occupancy costs (21,741) (3,140) (24,881)
Gross margin 48,456 (1,016) 47,440
Depreciation/amortization (3,338) (923) (4,261)
Contribution to profit 25,041 (4,616) 20,425
Non-recurring charges (6,536) (7,999) (14,535)
Segment Assets:
Inventory, net 57,022 -- 57,022
Fixed assets, net 12,304 4,433 16,737
Capital expenditures 6,006 347 6,353
For the year ended January 30, 1999
Closed
(in thousands) Outlets and Other Total
Sales $ 149,733 $ 51,901 $ 201,634
Merchandise margin 61,711 15,165 76,876
Markdown reserves -- (800) (800)
Occupancy costs (18,267) (15,560) (33,827)
Gross margin 43,444 (1,195) 42,249
Depreciation/amortization (3,103) (4,217) (7,320)
Contribution to profit 19,393 (17,379) 2,014
Non-recurring charges -- (15,700) (15,700)
Segment Assets:
Inventory, net 50,815 7,110 57,925
Fixed assets, net 9,024 8,764 17,788
Capital expenditures -- 510 510
44
<PAGE>
For the year ended January 31, 1998
Closed
(in thousands) Outlets and Other Total
Sales $ 173,389 $ 92,337 $ 265,726
Merchandise margin 68,114 24,394 92,508
Markdown reserves -- (13,900) (13,900)
Occupancy costs (16,974) (23,276) (40,250)
Gross margin 51,140 (12,782) 38,358
Depreciation/amortization (3,047) (5,749) (8,796)
Contribution to profit 24,322 (8,622) 15,700
Non-recurring charges -- (21,600) (21,600)
Segment Assets:
Inventory, net 36,742 18,230 54,972
Fixed assets, net 7,367 27,940 35,307
Capital expenditures -- 7,762 7,762
Reconciliation of Contribution to Profit to Operating Income (Loss)
(in thousands) Fiscal 2000 Fiscal 1999 Fiscal 1998
- --------------------------------------------------------------------------------
Contribution to Profit:
Outlet store segment $ 25,041 $ 19,393 $ 24,322
Closed store and other (4,616) (17,379) (8,622)
Non-recurring store closing charges (14,535) (15,700) (21,600)
General and Administrative Expenses (14,961) (16,700) (25,781)
Total operating income (loss) $ (9,071) $(30,386) $(46,179)
Reconciliation of depreciation/amortization to Consolidated Statements of
Operations
(in thousands) Fiscal 2000 Fiscal 1999 Fiscal 1998
- --------------------------------------------------------------------------------
Segment depreciation/amortization $ 4,261 $ 7,320 $ 8,796
Corporate depreciation/amortization 2,241 2,407 2,438
Total depreciation/amortization per
Consolidated Statements of Operations $ 6,502 $ 9,727 $11,234
M. SHAREHOLDERS RIGHTS PLAN
On May 1, 1995, the Board of Directors of the Company adopted a Shareholder
Rights Plan. Pursuant to the Plan, the Company entered into a Shareholder Rights
Agreement ("Rights Agreement") between the Company and its transfer agent,
Boston EquiServe, the successor to The First National Bank of Boston, the
Company's transfer agent. Pursuant to the Rights Agreement, the Board of
Directors declared a dividend distribution of one preferred stock purchase right
(the "Right(s)") for each outstanding share of the Company's Common Stock to
stockholders of record as of the close of business on May 15, 1995. Initially,
these Rights are not exercisable and will trade with the shares of the Company's
Common Stock. In the event that a person becomes an "Acquiring Person" or is
declared an "Adverse Person" as each such term is defined in the Rights
Agreement, each holder of a Right (other than the Acquiring Person or the
Adverse Person) would be entitled to acquire such number of shares of preferred
stock which are equivalent to the Company's Common Stock having a value of twice
the then-current exercise price of the Right. If the Company is acquired in a
merger or other business combination transaction after any such event, each
holder of a Right would then be entitled to purchase, at the then-current
exercise price, shares of the acquiring company's Common Stock having a value of
twice the exercise price of the Right.
45
<PAGE>
On October 6, 1997, the Board of Directors approved an amendment to the Rights
Agreement, pursuant to which the definition of an "Acquiring Person" was
amended. The definition of Acquiring Person now allows a person who is and
continues to be permitted to file Schedule 13G, in lieu of Schedule 13D,
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, to be a beneficial owner of less than 20% of
the shares of the Company's Common Stock then outstanding without becoming an
"Acquiring Person."
On October 29, 1999, the Board of Directors of the Company unanimously voted to
implement the recommendation of the Company's shareholders to terminate the
Company's Shareholders Rights Agreement dated May 1, 1995 between the Company
and its transfer agent, Boston EquiServe. The costs to redeem these rights were
approximately $180,000 and included as part of selling, general and
administrative expenses for fiscal 2000.
N.SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
---------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 2000
Net Sales $ 39,835 $ 42,907 $ 56,703 $ 52,747 $ 192,192
Gross Profit 10,217 11,388 18,443 7,392 47,440
Net Income (Loss) (1) (863) (536) 2,692 (13,787) (12,493)
Earnings per Share - Basic (0.05) (0.03) 0.17 (0.84) (0.78)
Earnings per Share - Diluted (0.05) (0.03) 0.17 (0.84) (0.78)
FISCAL YEAR 1999
Net Sales $ 43,400 $ 47,078 $ 58,714 $ 52,442 $ 201,634
Gross Profit 9,376 9,337 13,467 10,069 42,249
Net Income (Loss) (2) (3,052) (3,094) (8,746) (3,649) (18,541)
Earnings per Share - Basic (0.19) (0.20) (0.55) (0.23) (1.17)
Earnings per Share - Diluted (0.19) (0.20) (0.55) (0.23) (1.17)
</TABLE>
(1) The results for the fourth quarter of fiscal 2000 include a pre-tax charge
of $15.2 million for store closings, inventory markdowns, severance and a
write-down of impaired assets. Of the $15.2 million, $7.8 million is
reflected in gross profit for the fourth quarter of fiscal 2000.
(2) The results for the fourth quarter of fiscal 1999 include a pre-tax
charge, net, for store closings and severance of $2.3 million.
Historically, the Company has experienced seasonal fluctuations in net sales,
gross profit and net income, with increases occurring during the Company's third
and fourth quarters as a result of "Fall" and "Holiday" seasons. In recent
years, as the Company's percentage of outlet business increases in relation to
total sales, the Company expects that the third and fourth quarters will
decrease as a percentage of total sales. Quarterly sales comparisons are not
necessarily indicative of actual trends, since such amounts also reflect the
addition of new stores, closing of stores and the remodeling of stores during
these periods.
46
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On December 21, 1999 Designs, Inc. (the "Company") dismissed its principal
independent accountants Arthur Andersen LLP ("Arthur Andersen"). On December 21,
1999, the Company engaged Deloitte & Touche LLP as its new principal independent
accountants. The Company's Board of Directors and its Audit Committee
unanimously approved the change of principal independent accountants.
On June 26, 1998 the Company filed with the Commission a Current Report on Form
8-K reporting that the Company had dismissed Coopers & Lybrand L.L.P as its
principal independent accountants and had retained Arthur Andersen as its
principal independent accountants.
Since Arthur Andersen was retained on June 26, 1998 and thereafter through
December 21, 1999 there were no disagreements between the Company and Arthur
Andersen on matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Arthur Andersen, would have caused Arthur Andersen to make
reference to the subject matter thereof in its reports. Since Arthur Andersen
was retained on June 26, 1998 and thereafter through December 21, 1999 there was
no occurrence of the kinds of events described in Item 304(a)(1)(v) of
Regulation S-K promulgated by the Commission. In addition, none of the reports
issued by Arthur Andersen concerning the Company's financial statements since it
was retained on June 26, 1998 and thereafter through December 21, 1999 contain
any adverse opinion or disclaimer of opinion. Such reports were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
PART III.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors and executive officers of the Company is
incorporated herein by reference to the Company's definitive proxy statement to
be filed within 120 days of the end of the fiscal year ended January 29, 2000.
Item 11. Executive Compensation
Information with respect to executive compensation is incorporated herein by
reference to the Company's definitive proxy statement to be filed within 120
days of the end of the fiscal year ended January 29, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership of certain beneficial owners and
management is incorporated herein by reference to the Company's definitive proxy
statement to be filed within 120 days of the end of the fiscal year ended
January 29, 2000.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions is
incorporated by reference to the Company's definitive proxy statement to be
filed within 120 days of the end of the fiscal year ended January 29, 2000.
47
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
14(a)(1) Financial Statements
The list of consolidated financial statements and notes required by this Item
14(a)(1) is set forth in the "Index to Financial Statements" on page 22 of this
Report.
14(a)(2) Financial Statement Schedules
Schedule II- Valuation and Qualifying Accounts for the three years ended January
29, 2000, January 30, 1999 and January 31, 1998 on Page 49 of this report.
All other schedules, other than the one listed above, have been omitted because
the required information is not applicable or is not present in amounts
sufficient to require submission of the schedules, or because the information
required is included in the financial statements or notes thereto.
14(a)(3) Exhibits
The list of exhibits required by this Item 14(a)(3) is set forth in the "Index
to Exhibits" on pages 50 to 53 of this Report.
14(b) Reports on Form 8-K
The Company reported under Item 6 of Form 8-K, dated April 11, 2000, that James
Mitarotonda resigned from as a Director of the Company and that Seymour Holtzman
was appointed as a Director of the Company to fill the position.
The Company reported under Item 5 of Form 8-K, dated April 28, 2000, that
Seymour Holtzman was elected Chairman of the Company's Board of Directors. The
Company also announced that Stanley Berger, one of the original founders of the
Company, and David A. Levin, recently appointed as President and Chief Executive
Officer, were elected Directors of the Company's Board of Directors, increasing
the Board to nine members.
48
<PAGE>
SCHEDULE II
DESIGNS, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended January 29, 2000
<TABLE>
<CAPTION>
Balance at Balance
Beginning of Net Charges/ At End
Description Year Provision Write-offs Year
<S> <C> <C> <C> <C> <C> <C>
Accrued Restructuring Reserves
Year ended January 31, 1998 $21,600 (1) $(18,672) $2,629 (4)
Year ended January 30, 1999 $2,629 $15,706 (2) $(11,174) $7,161 (5)
Year ended January 29, 2000 $7,161 $14,545 (3) $(15,010) $6,696 (6)
</TABLE>
(1) In fiscal 1998, the Company recorded charges of $21.6 million related to
severance and its shift in strategy away from the vertically integrated
Boston Traders(R) private label concept to a strategy with greater
emphasis on name brands. Included in this charge was $13.9 million for
merchandise markdowns and costs associated with the cancellation of fabric
commitments, which were included in cost of goods sold for the fiscal year
ending January 31, 1998.
(2) Included in the severance and store closing charge for fiscal 1999 of
$15.7 million, is a markdown reserve of $808,000 which was included in
cost of goods sold for the fiscal year ending January 30, 1999.
(3) Included in the severance and store closing charge for fiscal 2000 of
$14.5 million, is a markdown reserve of $7.8 million which was included in
costs of goods sold for the fiscal year ending January 29, 2000. In
addition, the total provision of $14.5 million, included restructuring
income of $717,000 recorded in the fourth quarter due to excess reserves
which were established in fiscal 1999.
(4) Included in the reserve balance at year end is a markdown reserve of
$830,000, which was included in inventory on the consolidated balance
sheet.
(5) Included in the reserve balance at year end is a markdown reserve of
$808,000 which was included in inventory and $1,981,000 of fixed asset
reserves which were included in fixed assets on the consolidated balance
sheet.
(6) Included in the reserve balance at year end is a markdown reserve of $3.5
million, which was included in inventory on the consolidated balance
sheet.
49
<PAGE>
Exhibits
3.1 Restated Certificate of Incorporation of the Company, as *
amended (included as Exhibit 3.1 to Amendment No. 3 of 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 established 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 3.4 to *
the Company's Amendment No. 1 to Annual Report on Form 10-K/A
dated May 28, 1999, 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).
4.2 First Amendment dated as of October 6, 1997 to the 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 October 9, 1997,
and incorporated herein by reference).
4.3 Second Amendment dated as of May 19, 1999 to the Shareholders *
Rights Agreement between the Company and its transfer agent,
as amended (included as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated May 25, 1999, and incorporated herein
by reference).
4.4 Third Amendment dated as of July 7, 1999 to the Shareholders *
Rights Agreement between the the Company and it transfer
agent, as amended (included as Exhibit 4.1 to the Company's
Current Report on Form 9-K dated July 13, 1999, and
incorporated by reference).
4.5 Notice to Holder of Rights dated November 10, 1999 regarding
termination of the Shareholders Rights Agreement.
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).
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 *
10.3 to the Company's Quarterly Report on Form 10-Q dated June
16, 1998, and incorporated herein by reference).
10.4 Senior Executive Incentive Plan for the fiscal year ending *
January 29, 2000 (included as Exhibit 10.4 to the Company's
Annual Report on Form 10-K dated April 30, 1999, and
incorporated herein by reference).
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).
50
<PAGE>
10.6 Amended and Restated Trademark License Agreement between the *
Company and Levi Strauss & Co. dated as of October 31, 1998
(included as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated December 3, 1998, and incorporated herein by
reference).
10.7 Amendment to the Amended and Restated Trademark License
Agreement dated March 22, 2000.
10.8 Amended and Restated Loan and Security Agreement dated as of *
June 4, 1998, between the Company and BankBoston Retail
Finance Inc., as agent for the Lender(s) identified therein
("BRBF") and the Lender(s) (included as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated June 11, 1998, and
incorporated herein by reference).
10.9 Fee letter dated as of June 4, 1998, between the Company and *
BBRF (included as Exhibit 10.2 to the Company's Current Report
on Form 8-K dated June 11, 1998, and incorporated herein by
reference).
10.10 First Amendment to Loan and Security Agreement dated as of *
September 29, 1998 among the Company, BBRF and the Lender(s)
identified therein (included as Exhibit 10.5 to the Company's
Current Report on Form 8-K dated December 3, 1998, and
incorporated herein by reference).
10.11 Second Amendment to Loan and Security Agreement dated as of *
October 31, 1998 among the Company, BBRF and the Lender(s)
identified therein (included as Exhibit 10.6 to the Company's
Current Report on Form 8-K dated December 3, 1998, and
incorporated herein by reference).
10.12 Third Amendment to Loan and Security Agreement dated as of *
October 28, 1999 among the Company, BBRF and the Lender(s)
identified therein (included as Exhibit 10.9 to the Company's
Form 10-Q dated December 14, 1999, and incorporated herein by
reference).
10.13 Fourth Amendment to Loan and Security Agreement dated as of
March 20, 2000 among the Company, Fleet Retail Finance (f/k/a
BankBoston Retail Finance) and the Lender(s) identified
therein.
10.14 Amendment and Distribution Agreement dated as of October 31, *
1998 among the Designs Partner, the LOS Partner and the OLS
Partnership (included as Exhibit 10.2 to the Company's Current
Report on Form 8-K dated December 3, 1998, and incorporated
herein by reference).
10.15 Guaranty by the Company of the indemnification obligation of *
the Designs Partner dated as of October 31, 1998 in favor of
LS & Co. (included as Exhibit 10.3 to the Company's Current
Report On Form 8-K dated December 3, 1998, and incorporated
herein by reference).
10.16 Asset Purchase Agreement between LOS and the Company relating *
to the sale by the Company of 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).
10.17 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).
10.18 Non-Negotiable Promissory Note between the Company and *
Atlantic Harbor, Inc., formerly know 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).
51
<PAGE>
10.19 Asset Purchase Agreement dated as of September 30, 1998 *
between the Company and LOS relating to the purchase by the
Company of 16 Dockers(R) Outlet and nine Levi's(R) Outlet
stores (included as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated December 6, 1995, and incorporated
herein by reference).
10.20 Consulting Agreement dated as of October 28, 1999 between the
Company and Jewelcor Management, Inc.
10.21 Consulting Agreement dated as of October 29, 1999 between the
Company and John J. Schultz
10.22 Consulting Agreement dated as of December 15, 1999 between the
Company and George T. Porter, Jr.
10.23 Consulting Agreement dated as of November 14, 1999 between the
Company and Business Ventures International, Inc.
10.24 Employment Agreement dated as of October 16, 1995 between the *
Company and Joel H. Reichman (included as Exhibit 10.1 to the
Company's Current 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 Scott N. Semel (included as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated December 6, 1995,
and incorporated herein by reference).
10.26 Employment Agreement dated as of May 9, 1997 between the *
Company and Carolyn R. Faulkner (included as Exhibit 10.23 to
the Company's Quarterly Report on Form 10-Q dated June 17,
1997, and incorporated herein by reference).
10.27 Employment Agreement dated as of March 31, 2000 between the
Company and David A. Levin
10.28 Severance Agreement dated as of January 12, 2000 between the
Company and Joel H. Reichman
10.29 Severance Agreement dated as of January 20, 2000 between the
Company and Scott N. Semel
10.30 Severance Agreement dated as of January 15, 2000 between the
Company and Carolyn R. Faulkner
10.31 Indemnification Agreement between the Company and James G. *
Groninger, dated December 10, 1998.
10.32 Indemnification Agreement between the Company and Bernard M. *
Manuel, dated December 10, 1998.
10.33 Indemnification Agreement between the Company and Peter L. *
Thigpen, dated December 10, 1998.
10.34 Indemnification Agreement between the Company and Melvin *
Shapiro, dated December 10, 1998.
10.35 Indemnification Agreement between the Company and Joel H. *
Reichman, dated December 10, 1998.
10.36 Indemnification Agreement between the Company and Scott N. *
Semel, dated December 10, 1998.
52
<PAGE>
10.37 Indemnification Agreement between the Company and Carolyn R. *
Faulkner, dated December 10, 1998.
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
23.1 Consent of Deloitte and Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
99 Report of the Company on Form 8-K, dated April 28, 2000 *
concerning certain cautionary statements of the Company to be
taken into account in conjunction with 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.
* Previously filed with the Securities and Exchange Commission.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DESIGNS, INC.
April 28, 2000
By: /s/ David A. Levin
-------------------
David A. Levin
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company in the capacities indicated, on April 28, 2000.
Signatures
/s/ David A. Levin President and Chief Executive Officer
- ---------------------------- (Principal Executive Officer)
David A. Levin
/s/ Kenneth F. Rogers, Jr. Senior Vice President, Chief Financial Officer
- ---------------------------- and Treasurer
Kenneth F. Rogers, Jr. (Principal Financial Officer)
/s/ Seymour Holtzman Chairman of the Board
- ----------------------------
Seymour Holtzman
/s/ George T. Porter, Jr. Director
- ----------------------------
George T. Porter, Jr.
/s/ Joseph Pennacchio Director
- ----------------------------
Joseph Pennacchio
/s/ Robert L. Patron Director
- ----------------------------
Robert L. Patron
/s/ Jeremiah P. Murphy, Jr. Director
- ----------------------------
Jeremiah P. Murphy, Jr.
/s/ Stanley L. Berger Director
- ----------------------------
Stanley L. Berger
/s/ Jesse H. Choper Director
- ----------------------------
Jesse H. Choper
/s/ John J. Schultz Director
- ----------------------------
John J. Schultz
54
<PAGE>
OTHER SHAREHOLDER INFORMATION
Board of Directors
Seymour Holtzman
Chairman of the Board of Directors
Chief Executive Officer
Jewelcor Management, Inc.
Stanley L. Berger
Jesse Choper
Law Professor
University of California Law School
David A. Levin
President and Chief Executive Officer
Jeremiah P. Murphy, Jr.
President of Harvard Coop
Robert L. Patron
President of Business Ventures International, Inc.
Joseph Pennacchio
President of Aurafin
George T. Porter, Jr.
John J. Schultz
Executive Officers
David A. Levin
President and Chief Executive Officer
Kenneth F. Rogers, Jr.
Senior Vice President
Chief Financial Officer and Treasurer
Daniel O. Paulus
Senior Vice President
General Merchandise Manager
Corporate Officers
Lisa Brennan
Vice President
Planning
Alan B. Gruber
Vice President
Director of Stores
55
<PAGE>
Martin Goldstein
Vice President
Real Estate and Construction
Shelly E. Mokas
Vice President
Controller
Mary Ann Ryan
Vice President
Human Resources
Jeffrey M. Unger
Vice President
Corporate Development
Robert Wilbur
Vice President
Chief Information Officer
Corporate Offices
66 B Street
Needham, MA 02494
(781) 444-7222
Financial Information
Requests for financial information should be directed to the Investor Relations
Department at the company's headquarters: Designs, Inc., 66B Street, Needham, MA
02494, (781) 444-7222. A copy of the Company's Annual Report on Form 10-K for
the fiscal year ended January 29, 2000, filed with the Securities and Exchange
Commission, may be obtained without charge upon request to the Investor
Relations Department.
Annual Meeting
The 2000 Annual Meeting of Stockholders of Designs, Inc. will be held on Monday,
June 26, 2000, at 10:00 a.m. at the Sheraton Needham Hotel, 100 Cabot Street,
Needham, Massachusetts.
Approximate reporting dates for fiscal year 2001 quarterly earnings are:
Quarter 1: May 15, 2000
Quarter 2: August 14, 2000
Quarter 3: November 13, 2000
Quarter 4 and fiscal year end: March 19, 2001
56
<PAGE>
Transfer Agent and Registrar
Inquiries regarding stock transfer requirements, address changes and lost stock
certificates should be directed to:
BankBoston
c/o Boston EquiServe Limited Partnership
P.O. Box 8040
Boston, MA 02266-8040
(781) 575-3120
Independent Accountants
Deloitte & Touche
200 Berkeley Street
Boston, Massachusetts 02116
Trademarks
Boston Trading Co.(R), Boston Traders(R) and Traders Collection(R) are
registered trademarks of Designs, Inc.
Levi's(R) and Dockers(R) are registered trademarks, and Original Levi's
Store(TM) is a trademark, of Levi Strauss & Co.
57
Exhibit 4.5 Notice to Holders dated November 10, 1999
Designs, Inc.
DESIGNS, INC.
Notice to Holders of Rights
November 10, 1999
Please be advised that on October 11, 1999, the Board of Directors of Designs,
Inc. (the "Company") acted to terminate the Shareholder Rights Agreement dated
as of May 1, 1995, as amended, between the Company and its rights agent (the
"Agreement"). In connection therewith, the Company will redeem all issued and
outstanding Rights owned by the Company's stockholders of the close of business
on Wednesday, November 10, 1999 (the "Redemption Record Date"). As you may know,
the Rights trade one for one with the shares of the Company's Common Stock and
the number of Rights you own is equal to the number of shares of Common Stock
you own. Following the Redemption Record Date, the Rights will terminate and be
of no further effect, except that stockholders will be entitled to receive $0.01
per Right owned as of the Redemption Record Date (the "Redemption Price"). The
Company anticipates that holders of Rights as of the close of business on the
Redemption Record Date will be paid the Redemption Price in cash on or about
Monday, November 15, 1999.
If you have any questions concerning the Company's redemption of the Rights or
the termination of the Agreement, please contact the Company's transfer agent,
Boston Equiserve, by calling (781) 575-3400.
Designs, Inc.
Corporate Headquarters
66 B Street, Needham, MA 02194 (617)444-7222 Fax (617) 444-8999
Exhibit 10.7
Amendment No. 1 to
Amended and Restated Trademark License Agreement Dated
October 31, 1998 between Designs, Inc.
And Levi Strauss & Co.
This Amendment No. 1 is entered into as of March 22, 2000 and amends that
certain Amended and Restated Trademark License Agreement dated October 31, 1998
by and between Designs, Inc. and Levi Strauss & Co. (the "Agreement").
The parties hereby agree that Section 19 of the Agreement is deleted in
its entirety and substituted with the following language:
"19. Licensee Assignment. The rights granted to Licensee are personal in
nature. Licensee may not assign this Agreement or any rights granted under this
Agreement, or delegate any of its obligations under this Agreement, without
first obtaining the approval of LS&CO. Any such assignment without the prior
approval of LS&CO, shall be null and void and of no force or effect. Any "Change
of Control" of Licensee shall be considered and assignment of this Agreement by
Licensee.
"Change of Control" means:
(i) any consolidation or merger of Licensee in which Licensee is not the
continuing or surviving corporation or after which the shareholders of
Licensee on the date hereof cease to hold at least 50% or more of the
combined voting power of Licensee;
(ii) any sale of all or substantially all the assets of Licensee to any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934)(the "Exchange Act") other than to a then
existing shareholder or group of shareholders of Licensee owning 75% or
more of the combined voting power of Licensee's then outstanding
securities;
(iii) any person, entity or group, as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act becomes or is discovered to be a beneficial
owner (as defined in Rule 13d-3 under the Exchange Act as in effect on the
date hereof) directly or indirectly of securities of Licensee representing
50% or more of the combined voting power of Licensee's then outstanding
securities on a fully converted, fully diluted basis; or
(iv) (a) any person, entity or group as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act becomes or is discovered to be a beneficial
owner (as defined in Rule 13d-3 under the Exchange Act as in effect on the
date hereof) directly or indirectly of securities of Licensee representing
10% or more of the
<PAGE>
combined voting power of Licensee's then outstanding securities on a fully
converted, fully diluted basis and (b) that person, entity or group
causes, either directly or indirectly, any change in the composition of
the current Board of Directors pursuant to which a majority of the current
members of the Board cease to serve as directors of Licensee.
Licensee shall notify LS&CO. of any Change in Control within fourteen (14) days
after its occurrence. If the prior approval of LS&CO. is not obtained with
respect to any change of Control of Licensee, LS&CO shall be entitled, in its
sole discretion, to terminate this Agreement at any time during the ninety (90)
day period after the date upon which LS&CO. receives from Licensee notice of the
Change in Control or otherwise learns of the Change in Control."
All other terms and conditions of the Agreement remain in full force and
effect.
DESIGNS, INC. LEVI STRAUSS & CO.
By: /s/ John J. Schultz __________________________
Name: John J. Schultz Name:
Title: Chief Executive Office Title
and President
By: /s/ Kenneth F. Rogers, Jr.
Kenneth F. Rogers, Jr.
Senior Vice President,
Chief Financial Officer & Treasurer
Exhibit 10.13
FOURTH AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Amended and Restated Loan and Security Agreement is
made as of the 13 day of March, 2000 by and between
Fleet Retail Finance Inc. f/k/a BankBoston Retail Finance Inc. (in
such capacity, the "Agent"), as Agent for the Lenders party to a certain
Amended and Restated Loan and Security Agreement dated as of June 4, 1998,
the Lenders party thereto, and
Designs, Inc. (the "Borrower"), a Delaware corporation with its
principal executive offices at 66 B Street, Needham, Massachusetts 02194
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H:
WHEREAS, on June 4, 1998, the Agent, the Lenders and the Borrower entered
in a certain Amended and Restated Loan and Security Agreement (as amended and in
effect, the "Agreement"); and
WHEREAS, the Agent, the Lenders and the Borrower desire to modify certain
of the provisions of the Agreement as set forth herein.
NOW, THEREFORE, it is hereby agreed among the Agent, the Lenders and the
Borrowers as follows:
1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined shall have the same meaning herein as in the
Agreement.
2. Amendment to Article 1. The provisions of Article 1 of the Agreement
are hereby amended
<PAGE>
(a) by adding the following at the end of clause (a) of
the definition of "Fixed Charge Coverage Ratio":
, plus for all calculation periods commencing with
the Borrower"s fiscal year ending January 29, 2000 through the
fiscal year ending January, 2001, the sum of $10,358,855.00
(b) by adding the following provision at the end of the definition
of "Inventory Advance Rate":
Notwithstanding the foregoing provisions of the above
table, for the period commencing as of March 1, 2000 through and
including July 14, 2000 only, the Inventory Advance Rate shall be
sixty-five percent (65%). After July 14, 2000, the provisions of the
above table shall apply.
3. Amendment to Article 2. The provisions of Article 2 of the Agreement
are hereby amended as follows:
(a) Section 2-12 of the Agreement is hereby amended by
deleting "June 4, 2000" from subclause (b) in the fifth (5th)
line thereof, and substituting "May 4, 2001" in its stead.
(b) Section 2-15(b)(i) of the Agreement is hereby
amended by deleting the words "Five Million Dollars
($5,000,000.00)" and substituting the words "Ten Million
Dollars ($10,000,000.00)" in its stead.
4. Amendment to Exhibits. The provisions of Exhibit 5-13 to the Loan
Agreement are hereby amended to provide that the Minimum Tangible
Net Worth required for the Fiscal Quarter ending January 29, 2000
and each fiscal quarter ending thereafter shall be in an amount of
$52,000,000.00 less the impact, if any, of any reduction to the
Borrower's "deferred income tax asset" reflected on the Borrower's
balance sheet.
5. Amendment Fee. In consideration of the Agent's and the Lenders'
entering into this Fourth
<PAGE>
Amendment, the Borrower shall pay the Agent an Amendment Fee (so
referred to herein) in the sum of $15,000.00. The Amendment Fee
shall be payable in three installments of $5,000.00 each, the first
being payable on the date hereof and the other installments due on
the first day of May, 2000 and June, 2000. Notwithstanding the
foregoing, in the event that the Amendment Fee has not been paid in
full as of the Termination Date, any remaining unpaid balance
thereof shall be payable in full on the Termination Date. The
Amendment Fee shall be fully earned upon the execution of this
Fourth Amendment and shall not be subject to refund or rebate under
any circumstances.
6. Ratification of Loan Documents. Except as provided herein, all terms
and conditions of the Agreement on the other Loan Documents remain
in full force and effect. Without limiting the generality of the
foregoing, the parties hereto ratify and confirm that the LOS
Acquisition shall not be included in the calculation of the
Borrower"s compliance with any of the following sections of the
Agreement: 4-18(b), 4- 19(b), 4-19(c).
7. Miscellaneous.
(a) This Fourth Amendment to Amended and Restated
Loan and Security Agreement may be executed in several counterparts
and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which
together shall constitute one instrument.
(b) This Fourth Amendment to Amended and Restated
Loan and Security Agreement expresses the entire understanding of
the parties with respect to the transactions contemplated hereby. No
prior negotiations or discussions shall limit, modify, or otherwise
affect the provisions hereof.
(c) Any determination that any provision of this Fourth
Amendment or any application hereof
<PAGE>
is invalid, illegal or unenforceable in any respect and in any
instance shall not affect the validity, legality, or enforceability
of such provision in any other instance, or the validity, legality
or enforceability of any other provisions of this Fourth Amendment
to Amended and Restated Loan and Security Agreement.
(d) The Borrower shall pay on demand all costs and expenses of
the Agent and each Lender, including, without limitation, reasonable
attorneys' fees in connection with the preparation, negotiation,
execution and delivery of this Fourth Amendment to Amended and
Restated Loan and Security Agreement.
(e) The Borrower warrants and represents that the Borrower has
consulted with independent legal counsel of the Borrower's selection
in connection with this Fourth Amendment and is not relying on any
representations or warranties of the Agent or any Lender or their
respective counsel in entering into this Fourth Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto caused this Fourth Amendment
to be executed and their seals to be hereto affixed as of the date first above
written.
AGENT
FLEET RETAIL FINANCE INC.
By: /s/ James R. Dore
Name: James R. Dore
Title: Vice President
LENDERS
FLEET RETAIL FINANCE INC.
By /s/ James R. Dore
Name: James R. Dore
Title: Vice President
WELLS FARGO BUSINESS CREDIT,
INC.
By: /s/ Scott Fiore
Name: Scott Fiore
Title: AVP
BORROWER
DESIGNS, INC.
By: /s/Kenneth F. Rogers, Jr.
Name: Kenneth F. Rogers, Jr.
Title: Sr.VP,CFO & Treasurer
By: /s/ John J. Schultz
Name: John J. Schultz
Title: President & CEO
Exhibit 10.20
Consulting Agreement
This Consulting Agreement (this "Agreement") is entered into and effective
as of October 28, 1999 (the "Effective Date"), by and between Designs, Inc., a
Delaware corporation (the "Corporation"), with its principal executive offices
located at 66 B Street, Needham, Massachusetts 02494, and Jewelcor Management,
Inc., a Nevada corporation (the "Independent Contractor"), having its principal
executive offices located at 100 North Wilkes-Barre Boulevard, Wilkes-Barre,
Pennsylvania 18702.
Recitals
WHEREAS, the Corporation desires to retain the Independent Contractor to
act as a consultant to assist in developing and assist in implementing a
strategic plan for the Corporation and for other related consulting services to
which the parties may agree, as described in Schedule A attached hereto and
incorporated herein by reference (the "Services"); and
WHEREAS, the Independent Contractor agrees to perform the Services for the
Corporation under the terms and conditions set forth in this Agreement, it being
expressly understood that the Independent Contractor shall perform Services as
an independent contractor and nothing contained herein shall be construed to be
inconsistent with this relationship or status;
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Corporation and the Independent Contractor hereby agree as follows:
Section One
Representations and Warranties of the Independent Contractor
The Independent Contractor represents, warrants, covenants and agrees
that:
(a) the Independent Contractor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada
and is duly qualified and in good standing as a foreign corporation
in each jurisdiction where its performance of Services requires such
qualification;
(b) the Independent Contractor has all necessary power and authority to
execute and deliver this Agreement and to perform all of its
obligations under this Agreement;
(c) this Agreement has been duly and validly authorized, executed and
delivered by the Independent Contractor, and constitutes the valid
and binding obligation of the Independent Contractor, and is
enforceable against the Independent Contractor in accordance with
its terms; and
(d) the execution, delivery and performance by the Independent
Contractor of this Agreement does not (1) violate or conflict with
any provision of the Independent Contractor's charter or by-laws;
(2) violate, conflict with, or result in a breach or termination of
(or require any consent or approval under) any agreement, license,
arrangement or understanding, whether written or oral, to which the
Independent Contractor, its agents or employees (or any one of them)
is a party; or (3) violate
<PAGE>
any law, judgment, decree, order, rule or regulation applicable to
the Independent Contractor, its agents or employees (or any one of
them).
Section Two
Representations and Warranties of the Corporation
The Corporation represents, warrants, covenants and agrees that:
(a) the Corporation is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) the Corporation has all necessary power and authority to execute and
deliver this Agreement and to perform all of its obligations under
this Agreement;
(c) this Agreement has been duly and validly authorized, executed and
delivered by the Corporation, and constitutes the valid and binding
obligation of the Corporation, and is enforceable against the
Corporation in accordance with its terms; and
(d) the execution, delivery and performance by the Corporation of this
Agreement does not (1) violate or conflict with any provision of the
Corporation's Certificate of Incorporation or by-laws; (2) violate,
conflict with, or result in a breach or termination of (or require
any consent or approval under) any agreement, license, arrangement
or understanding, whether written or oral, to which the Corporation
is a party; or (3) violate any law, judgment, decree, order, rule or
regulation applicable to the Corporation.
Section Three
Nature of the Services
In accordance with the terms and conditions of this Agreement, the
Independent Contractor shall, to the extent requested from time to time by the
Corporation, perform consulting Services for the benefit of the Corporation with
respect to all matters relating to or affecting all items contained in Schedule
A attached hereto. The Independent Contractor shall perform such additional
Services as may be agreed to by both parties from time to time in writing which,
when so agreed, shall be deemed incorporated into this Agreement. The
Independent Contractor shall perform Services at the direction of the President
and Chief Executive Officer of the Corporation (or another executive officer of
the Corporation as may be designated from time to time by the Board of Directors
of the Corporation). As a part of the Independent Contractor's consulting
Services, the Independent Contractor shall review, analyze, and make suggestions
to the Corporation on all matters included in Schedule A attached hereto. The
Independent Contractor agrees and stipulates that this Agreement is a personal
service contract under which Services shall be performed by particular agents
and employees of the Independent Contractor who are subject to the approval of
the Corporation from time to time. The Corporation initially approves Seymour H.
Holtzman, Richard L. Huffsmith, James Verano, Joseph F. Litchman, and Brian A.
Bufalino, together with support staff directly reporting to and under the
personal supervision of such individuals as required for such Services, as
individuals to perform Services hereunder. The Independent Contractor shall
furnish the Corporation with a properly completed Request for Taxpayer
Identification Number and Certification on Form W-9, upon receipt of said Form
W-9 from the Corporation.
2
<PAGE>
Section Four
Compensation
Subject to the provisions of this Section 4, the consideration to be
furnished to the Independent Contractor by the Corporation for the Services
rendered by the Independent Contractor under this Agreement shall consist of (a)
a non-qualified stock option described in Section 4.1 hereof; (b) to the extent
that the total compensation for the Services so rendered as finally determined
in accordance with Section 4.2 hereof exceeds the fair market value of such
stock option, cash payments (or, at the election of the Independent Contractor,
shares of the Corporation's Common Stock, $0.01 par value per share ("Common
Stock"), in lieu of cash payments, equal in value to such cash payments); and
(c) the reimbursement of actual and direct out-of-pocket expenses incurred by
the Independent Contractor in the rendering of Services under this Agreement.
4.1 The Corporation shall grant the Independent Contractor a non-qualified
stock option exercisable for up to 400,000 shares of Common Stock at a purchase
price equal to $1.15625 per share, which price per share is equal to the closing
price on the Effective Date of shares of Common Stock as reported by the NASDAQ
Stock Market, Inc. (the "Stock Option"). The Stock Option shall become fully
vested immediately following the termination of the Corporation's Shareholder
Rights Agreement dated as of May 1, 1995, as amended. The Stock Option shall
expire and no longer be exercisable after April 30, 2002. The Stock Option shall
be evidenced by a Non-Qualified Stock Option Agreement substantially in the form
of the form of option agreement attached as Schedule B hereto. The Corporation,
in consultation with such independent consultants as the Board of Directors of
the Corporation may deem appropriate, shall determine the fair market value of
the Stock Option as of the Effective Date and such determination shall be
binding on the Corporation and the Independent Contractor.
4.2 Within fifteen (15) days following the end of each calendar month
during the term of this Agreement, the Independent Contractor shall furnish the
Corporation with an invoice with respect to the month then ended, which, pending
the determination of the final compensation rate for Services as contemplated by
this Section 4.2, shall reflect the Independent Contractor's estimated base rate
for such Services. Each invoice for Services shall include or be preceded by an
election of whether the Independent Contractor wishes to receive its
compensation in the form of cash or shares of Common Stock. The Board of
Directors of the Corporation, in consultation with such independent consultants
as the Board or a committee thereof may deem appropriate and based upon the
advice of such consultants, shall reasonably determine in good faith the final
rate of compensation for the Services on a basis consistent with rates for such
Services prevailing in the market for comparable consulting services, and
whether the amounts of any invoices are consistent therewith. The determination
of the Board based upon such advice shall be binding on the Corporation and the
Independent Contractor. If the Independent Contractor elects to receive shares
of Common Stock in respect of Services in any month, then the number of shares
of Common Stock so issued shall be determined using the closing price of Common
Stock as reported by the NASDAQ Stock Market, Inc. on the fifteenth (15th) day
of the month following the month in which such Services were rendered.
4.3 To the extent, if any, that the total compensation for the Services
rendered as finally determined in accordance with Section 4.2 hereof may be less
than the value of the Stock Option and the amounts invoiced by the Independent
Contractor, the amounts payable in respect of such invoices shall be
appropriately reduced or the Services to be provided by the Independent
3
<PAGE>
Contractor shall be appropriately extended or expanded, or additional services
provided, or both, to adjust for any such excess as reasonably determined by the
Board. The fair market value of the Stock Option shall be the first compensation
applied towards the amounts owed the Independent Contractor for Services
rendered.
4.4. Subject to Section 15 hereof, the Corporation shall reimburse the
Independent Contractor, within thirty (30) days following receipt of
documentation that satisfies the Corporation's travel and expense reimbursement
policies, an amount in cash equal to the actual and direct cost of all
reasonable out-of-pocket expenses incurred by the Independent Contractor in the
rendering of Services under this Agreement. The Independent Contractor hereby
acknowledges that it has received in writing, read and understands the
Corporation's travel and expense reimbursement policies in effect as of the
Effective Date.
Section Five
Duration
The term of this Agreement shall be for a period of six (6) months
commencing on October 28, 1999, and ending on April 28, 2000 (the "Expiration
Date"). However, either party may terminate this Agreement at any time prior to
the Expiration Date upon thirty (30) days prior written notice to the other
party. The provisions of Sections 5, 11, 12, 13 and 14 hereof shall survive any
such expiration or early termination of this Agreement.
Section Six
Place of Work
It is understood that the Services shall be rendered primarily from the
Independent Contractor's offices in Wilkes-Barre, Pennsylvania and Boca Raton,
Florida, but that any approved agent or employee of the Independent Contractor
shall, upon request of the Corporation, travel to the Corporation's executive
offices located at 66 B Street, Needham, Massachusetts, or such other places as
may be designated by the Corporation.
Section Seven
Time Devoted To Work
In performing the Services, the hours that approved agents and employees
of the Independent Contractor work on any given day shall be entirely within the
Independent Contractor's control and the Corporation shall rely upon the
Independent Contractor to determine the number of hours as is reasonably
necessary to fulfill the spirit and purpose of this Agreement.
Section Eight
Status of Independent Contractor
The Independent Contractor and the Corporation acknowledge and agree that
the Independent Contractor shall perform the Services hereunder as an
"independent contractor" and not as agent or employee of the Corporation, and
nothing herein shall be construed to be inconsistent with this relationship or
status. The Independent Contractor, its agents and employees shall have no
express or implied authority to act for, represent, bind or obligate the
Corporation in any manner whatsoever. Accordingly, it is expressly understood
and agreed between the parties hereto that the Independent Contractor is solely
responsible for all labor and expenses in connection with the performance of
every obligation of the Independent Contractor
4
<PAGE>
hereunder. The Independent Contractor assumes the responsibility for furnishing
the Services hereunder and shall withhold and pay when due all employment taxes
required by federal, state and local laws, including, without limitation, all
social security and withholding taxes, and contributions for unemployment and
compensation funds. The Independent Contractor acknowledges and understands that
the Corporation will not maintain worker's compensation, health or liability
insurance on behalf of the Independent Contractor.
Section Nine
Materials and Equipment
Except as provided herein, the Independent Contractor shall furnish, at
its own expense, all materials and equipment necessary to carry out the terms of
this Agreement.
Section Ten
Work Standards
The Independent Contractor shall adhere to professional standards and
shall perform all Services required under this Agreement in a manner consistent
with generally accepted procedural standards.
Section Eleven
Copyrights and Patents
The Corporation shall own all copyrights and/or patents developed by the
Independent Contractor while performing the Services provided under this
Agreement. All improvements, discoveries, ideas, inventions, concepts, trade
names, trademarks, service marks, logos, processes, products, computer programs
or software, subroutines, source codes, object codes, algorithms, machines,
apparatuses, items of manufacture or composition of matter, or any new uses
therefore or improvements thereon, or any new designs or modifications or
configurations of any kind, or work of authorship of any kind, including without
limitation, compilations and derivative works, and techniques (whether or not
copyrightable or patentable) conceived, developed, reduced to practice or
otherwise made by the Independent Contractor, or any of the Independent
Contractor's agents or employees, and in any ways related to the rendering of
Services under this Agreement shall become property of the Corporation. The
Independent Contractor agrees to assign, and hereby does assign (and hereby
agrees to cause its agents and employees to assign), to the Corporation any and
all copyrights, patents and propriety rights in any such invention to the
Corporation, together with the right to file and/or own wholly without
restrictions applications for United States and foreign patents, trademark
registration and copyright registration and any patent, or trademark or
copyright registration issuing thereon.
Section Twelve
Privileged and Confidential Information
12.1 The Corporation and the Independent Contractor acknowledge that the
Corporation has acquired and developed, and will continue to acquire and
develop, information related to its business and its industry which is secret
and confidential in character and is and will continue to be of great and unique
value to the Corporation and its subsidiaries and affiliates. The term
"confidential information" as used in this Agreement shall mean all trade
secrets, propriety information and other data or information (and any tangible
evidence, record or representation thereof), whether prepared, conceived or
developed by an employee of the
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Corporation or received by the Corporation from an outside source (including the
Independent Contractor), which is in the possession of the Corporation, which is
maintained in confidence by the Corporation or any subsidiary or affiliate of
the Corporation or which might permit the Corporation or any subsidiary or
affiliate of the Corporation or any of their respective customers to obtain a
competitive advantage over competitors who do not have access to such trade
secrets, proprietary information, or other data or information, including,
without limitation, information concerning the Corporation's seasonal product
line plans, store and brand image and trade dress developments and strategies,
business plans, real estate leasing terms, conditions and plans, occupancy
costs, customers, suppliers, designs, advertising plans, marketing plans
merchandising plans, market studies and forecasts, competitive analyses, pricing
policies, employee lists, and the substance of agreements with landlords,
tenants, subtenants, customers, suppliers and others. The term "confidential
information" also includes information that the Corporation has in its
possession from third parties, that such third parties claim to be confidential
or proprietary, and which the Corporation has agreed to keep confidential.
However, the term "confidential information" as used in this Agreement shall not
include information that is generally known to the public or in the trade as a
result of having been disclosed by the Corporation in a press release or in a
filing by the Corporation with the U.S. Securities and Exchange Commission. The
Independent Contractor shall keep and maintain all confidential information in
complete secrecy, and shall not use for itself or others, or divulge to others,
any knowledge, data or other information relating to any matter which is
confidential information relating to the Corporation obtained by the Independent
Contractor as a result of its Services, unless authorized in writing by the
Corporation in advance of such use or disclosure. All written information made
available to the Independent Contractor by the Corporation, which concerns the
business activities of the Corporation, shall be the Corporation's property and
shall, if requested in writing by the Corporation, be delivered to it on the
termination or expiration of this Agreement.
12.2 The Independent Contractor acknowledges that money alone will not
adequately compensate the Corporation for breach of any confidentiality
agreement herein and, therefore, agrees that in the event of the breach or
threatened breach of such agreement, in addition to other rights and remedies
available to the Corporation, at law, in equity or otherwise, the Corporation
shall be entitled to injunctive relief compelling specific performance of, or
other compliance with, the terms hereof, and such rights and remedies shall be
cumulative.
Section Thirteen
Indemnification
13.1 The Independent Contractor shall defend, indemnify and hold harmless
the Corporation (including, without limitation, the Corporation's successors,
assigns, subsidiaries, affiliates and contractors and their respective officers,
directors, employees, agents and other representatives) from and against all
liabilities, losses, claims, actions, damages, expenses (including but not
limited to attorneys' fees), suits and assessments (whether proven or not) based
upon or arising out of damage or injury (including death) to persons or property
caused by Independent Contractor in connection with the performance of Services,
or based upon any violation of any applicable statute, law, ordinance, code or
regulation. The Independent Contractor shall also defend, indemnify and hold
harmless the Corporation against all liability and loss in connection with, and
shall assume full responsibility for, payment of all federal, state, or local
income taxes imposed or required under applicable laws with respect to Services
performed and compensation paid the Independent Contractor under this Agreement.
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13.2 Notwithstanding anything contained in the preceding paragraph, the
Corporation shall defend, indemnify and hold harmless the Independent Contractor
(including, without limitation, the Independent Contractor's successors,
assigns, subsidiaries, affiliates and contractors and their respective officers,
directors, employees, agents and other representatives) from and against all
liabilities, losses, claims, actions, damages, expenses (including but not
limited to attorneys' fees), suits and assessments (whether proven or not) based
upon or arising out of damage or injury (including death) to persons or property
caused by the Corporation in connection with the Corporation's performance of
its obligations under this Agreement (including, but not limited to, claims
based upon the material supplied to the Independent Contractor by the
Corporation and utilized by the Independent Contractor in performing the
Services), or based upon any violation of any applicable statute, law,
ordinance, code or regulation.
Section Fourteen
Compliance with Laws
The parties agree that all obligations to be performed by the parties
under this Agreement shall be performed in compliance with all then applicable
federal, state and local laws and regulations.
Section Fifteen
Approvals
15.1 In addition to approvals required by other Sections of this
Agreement, the Independent Contractor shall seek to obtain the Corporation's
written approval in advance of all expenditures in excess of four thousand
dollars ($4,000.00) incurred in connection with the rendering of Services and
for which the Independent Contractor seeks reimbursement from the Corporation.
In addition, all estimates presented to the Corporation by the Independent
Contractor for the Corporation's consideration and/or approval shall be
carefully prepared and shall be based upon reasonable assumptions using the
Independent Contractor's best judgment.
15.2 All approvals by the Corporation must be in writing and shall be
sought from the President and Chief Executive Officer of the Corporation, or
such other person that the Board of Directors may designate in writing from time
to time. As of the date of this Agreement the President and Chief Executive
Officer of the Corporation is John J. Schultz. If the Corporation fails to
approve in writing any matter submitted for approval within fifteen (15) days
from the date of its submission, then the matter submitted for approval shall be
deemed to be disapproved.
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Section Sixteen
Notices
All notices and other communications required or permitted to be given
under this Agreement by one party to another shall be in writing and the same
shall be deemed effective when delivered (i) in person, (ii) by United States
certified or registered first class or priority mail, return receipt requested,
(iii) by nationally-recognized overnight delivery or courier service, or (iv) by
facsimile transmission (781-449-8666 for the Corporation, and 570-820-7014 for
the Independent Contractor), and addressed to the party's principal offices set
forth on page one of this Agreement, or at such other address or facsimile
telephone number as may be designated in writing by such party to the other in
accordance with the requirements of this Section 16.
Section Seventeen
Governing Law
The place of this Agreement, its status, or forum is at all times in the
County of Norfolk, Commonwealth of Massachusetts, in which County and
Commonwealth all matters, whether sounding in contract or in tort relating to
the validity, construction, interpretation, and enforcement of this Agreement,
shall be determined. This Agreement shall be construed and enforced according to
the laws of Massachusetts without regard to its principles of conflicts of laws.
Any action on the Agreement or arising out of its terms and conditions shall be
instituted and litigated in the courts of the Commonwealth of Massachusetts. In
accordance, the parties submit to the jurisdiction of the courts of the
Commonwealth of Massachusetts. The prevailing party in any such litigation shall
be entitled to recover its reasonable attorneys' fees in addition to any damages
that may result from a breach of this Agreement.
Section Eighteen
Miscellaneous
This Agreement may not be modified, amended, or waived, except by a
writing executed by both parties hereto. This Agreement, and all attached or
referenced schedules, exhibits and attachments, constitutes the full and entire
understanding and agreement between the two parties with regard to the subject
matter hereof and supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter. The section headings herein are
for convenience of reference only, are not part of this Agreement and shall have
no effect on the interpretation of this Agreement or the provisions hereof.
Neither this Agreement nor any interest therein, or claim thereunder, shall be
assigned or transferred by the Independent Contractor to any party or parties.
If any provision of this Agreement shall to any extent be invalid or
unenforceable, such invalid or unenforceable provision shall be reformed to the
extent required to make it valid and enforceable to the maximum extent possible
under law, and the remainder of this Agreement shall not be affected thereby,
with each provision hereof being valid and enforceable to the fullest extent
permitted by law. This Agreement shall be binding upon, and inure to the benefit
of, the parties and their respective successors and permitted assigns. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have signed, sealed and delivered this
Consulting Agreement in duplicate, each of which is deemed an original, as of
the Effective Date.
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ATTEST: DESIGNS, INC.
/s/ Jeffrey M. Unger By: /s/ John J. Schultz
(Signature)
Print Name: John J. Schultz
Print Title: President and Chief
Executive Officer
/s/ Jeffrey M. Unger By: /s/ Kenneth F. Rogers, Jr.
(Signature)
Print Name: Kenneth F. Rogers, Jr.
Print Title: Senior Vice President, Chief
Financial Officer and Treasurer
ATTEST: JEWELCOR MANAGEMENT, INC.
/s/ Joseph A. Lakowski By: /s/ Richard L. Huffsmiths
(Signature)
Print Name: Richard L. Huffsmiths
Print Title: Vice President/ General
Counsel
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SCHEDULE A
Consulting Agreement
Between
JEWELCOR MANAGEMENT, INC.
And
DESIGNS, INC.
Dated as of
October 28, 1999
SERVICES
The services to be performed by the Independent Contractor are to assist
in developing and assist in implementing a strategic operating plan, which
assistance shall include:
(a) assist in seeking to reduce operating expenses and overhead,
merchandising, budgeting, financing, real estate, insurance,
corporate development, and investor relations;
(b) assist in seeking to identify and hire certain management level
employees;
(c) assist in analysis and negotiation of business relationships;
(d) assist in analysis, drafting and negotiation of arrangements with
certain executive officers and others; and
(e) such other services as the Board of Directors may reasonably request
from time to time.
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SCHEDULE B
Form of Non-Qualified Stock Option
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DESIGNS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
400,000 October 28, 1999
------- ----------------
No. of Shares Date
Designs, Inc., a Delaware corporation (the "Company"), hereby grants to
Jewelcor Management, Inc., a Nevada corporation
- --------------------------------------------------------------------------------
(the "Optionee"), an Option to purchase on or prior to April 28, 2002 (the
"Expiration Date") all or any part of 400,000 shares (the "Option Shares") of
the Company's Common Stock, $0.01 par value per share ("Common Stock"), at a
price of $1.15625 per share in accordance with the schedule set forth in Section
1 hereof. This Option shall be governed by the laws of The Commonwealth of
Massachusetts, without regard to its principles of conflicts of laws.
1. Vesting Schedule. This Option shall become vested and exercisable with
respect to the following number of Option Shares according to the timetable set
forth below:
Cumulative
Percentage of Option Shares Percentage
Becoming Available for Exercise Available
------------------------------- ---------
Before November 11, 1999 0% 0%
On and after November 11, 1999 100% 100%
2. Manner of Exercise. The Optionee may exercise this Option only in the
following manner: from time to time on or prior to the Expiration Date of this
Option, the Optionee may give written notice to the Company of its election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. Said notice shall specify the number of shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (1) in cash, by certified or bank check or other
instrument acceptable to the Board of Directors of the Company; or (2) in the
form of shares of Common Stock that are not then subject to any restrictions
(subject to the discretion of the Board of Directors of the Company); or (3) by
the Optionee delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the option
purchase price; provided that in the event the Optionee chooses to pay the
option purchase price as so provided, the Optionee and the broker shall comply
with such procedures and enter into such agreements of indemnity and other
agreements as the Board of Directors of the Company shall prescribe, if any, as
a condition of such payment procedure. Payment instruments will be received
subject to collection.
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The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment
therefor, as set forth above, and any agreement, statement or other evidence as
the Company may require to satisfy to itself that the issuance of Option Shares
to be purchased pursuant to the exercise of Options and any subsequent resale of
the shares will be in compliance with applicable laws and regulations.
If requested upon the exercise of this Option, certificates for shares may
be issued in the name of the Optionee jointly with another person, and the
foregoing representations shall be modified accordingly.
Notwithstanding any other provision hereof, no portion of this Stock
Option shall be exercisable after the Expiration Date hereof.
3. Non-transferability of Option. This Option shall not be transferable by
the Optionee and shall be exercisable only by the Optionee, except, upon written
notice to the Company, the Optionee may transfer this Option to an entity wholly
owned by the Optionee.
4. Option Shares. The Option Shares are shares of the Common Stock of the
Company as constituted on the date of grant of this Option. In the event that
the Company effects a stock dividend, stock split or similar change in
capitalization affecting Common Stock, the Board of Directors of the Company
shall make appropriate adjustments in (i) the number of Option Shares remaining
subject to this Option, and (ii) the purchase price per share at which the
Optionee may purchase Option Shares hereunder. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Board of
Directors, in its sole discretion may make such substitution or adjustment in
the number of Option Shares purchasable pursuant to this Option and in the
purchase price per share at which the Optionee may purchase Option Shares
hereunder at it may determine and as may be permitted by the terms of such
transaction, or accelerate, amend or terminate this Option upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of the Option Shares hereunder, shall require payment or other
consideration which the Board of Directors deems equitable in the
circumstances).
5. No Special Rights. This Option will not confer upon the Optionee any
additional rights other than those described herein.
6. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock which may be purchased by
exercise of this Option unless and until a certificate or certificates
representing such shares are duly issued and delivered to the Optionee. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
7. Qualification under Section 422. It is understood and intended that the
Option granted hereunder shall not qualify as an "incentive stock option" as
defined in Section 422 of the Code.
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8. Miscellaneous. Notices hereunder shall be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered to
Optionee at the address set forth below or, in either case, at such other
address for a party as such party may subsequently furnish to the other party in
writing.
DESIGNS, INC.
By: /s/ Kenneth F. Rogers, Jr.
(Signature)
Print Name: Kenneth F. Rogers, Jr.
Print Title: Senior VP & CFO
Receipt of the foregoing Option is acknowledged and its terms and
conditions are hereby agreed to:
JEWELCOR MANAGEMENT, INC.
Date: March 31, 2000 By: /s/ Richard L. Huffsmiths
(Signature)
Print Name: Richard L. Huffsmiths
Print Title: Vice President/General Counsel
100 North Wilkes-Barre Boulevard
Wilkes-Barre, Pennsylvania 18702
14
Exhibit 10.21
Consulting Agreement
This Consulting Agreement (this "Agreement") is entered into and effective
as of October 28, 1999 (the "Effective Date"), by and between Designs, Inc., a
Delaware corporation (the "Corporation"), with its principal executive offices
located at 66 B Street, Needham, Massachusetts 02494, and John J. Schultz, an
individual residing at 142 Wilton Road West, Ridgefield, Connecticut 06877 (the
"Independent Contractor").
Recitals
WHEREAS, the Corporation desires to retain the Independent Contractor to
perform the services described in Schedule A attached hereto and incorporated
herein by reference (the "Services"); and
WHEREAS, the Independent Contractor agrees to perform the Services for the
Corporation under the terms and conditions set forth in this Agreement, it being
expressly understood that the Independent Contractor shall perform Services as
an independent contractor and nothing contained herein shall be construed to be
inconsistent with this relationship or status.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Corporation and the Independent Contractor hereby agree as follows:
Section One
Representations and Warranties of the Independent Contractor
The Independent Contractor represents, warrants, covenants and agrees
that:
(a) this Agreement has been duly and validly authorized, executed and
delivered by the Independent Contractor, and constitutes the valid
and binding obligation of the Independent Contractor, and is
enforceable against the Independent Contractor in accordance with
its terms; and
(b) the execution, delivery and performance by the Independent
Contractor of this Agreement does and will not (1) violate, conflict
with, or result in a breach or termination of (or require any
consent or approval under) any agreement, license, arrangement or
understanding, whether written or oral, to which the Independent
Contractor is a party; or (2) violate any law, judgment, decree,
order, rule or regulation applicable to the Independent Contractor.
Section Two
Representations and Warranties of the Corporation
The Corporation represents, warrants, covenants and agrees that:
(a) the Corporation is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) the Corporation has all necessary power and authority to execute and
deliver this Agreement and to perform all of its obligations under
this Agreement;
<PAGE>
(c) this Agreement has been duly and validly authorized, executed and
delivered by the Corporation, and constitutes the valid and binding
obligation of the Corporation, and is enforceable against the
Corporation in accordance with its terms; and
(d) the execution, delivery and performance by the Corporation of this
Agreement does and will not (1) violate or conflict with any
provision of the Corporation's Certificate of Incorporation or
by-laws; (2) violate, conflict with, or result in a breach or
termination of (or require any consent or approval under) any
agreement, license, arrangement or understanding, whether written or
oral, to which the Corporation is a party; or (3) violate any law,
judgment, decree, order, rule or regulation applicable to the
Corporation.
Section Three
Nature of the Services
In accordance with the terms and conditions of this Agreement, the
Independent Contractor shall, to the extent requested from time to time by the
Corporation, perform consulting Services for the benefit of the Corporation with
respect to all matters relating to or affecting all items contained in Schedule
A attached hereto. The Independent Contractor shall perform such additional
Services as may be agreed to by both parties from time to time in writing which,
when so agreed, shall be deemed incorporated into this Agreement. The
Independent Contractor shall perform Services at the direction, and subject to
the supervision, of the Board of Directors of the Corporation. As a part of the
Independent Contractor's consulting Services, the Independent Contractor shall
review, analyze, and make suggestions to the Corporation on all matters included
in Schedule A attached hereto. The Independent Contractor agrees and stipulates
that this Agreement is a personal service contract under which Services shall be
performed by the Independent Contractor. The Independent Contractor shall
furnish the Corporation with a properly completed Request for Taxpayer
Identification Number and Certification on Form W-9. The Corporation shall
forward the appropriate Form W-9 to the Independent Contractor.
Section Four
Compensation
4.1 As consideration for the Services to be rendered by the Independent
Contractor under this Agreement, the Corporation shall:
(a) Pay the Independent Contractor the sum of Two Thousand Dollars
($2,000.00), in cash, for each day (consisting of at least eight hours of work
which may be spread among one or more days) during which the Independent
Contractor performs meaningful Services beyond work performed to fulfill the
Independent Contractor's duties as a member of the Corporation's Board of
Directors and its committees, such amount payable in arrears monthly following
the Corporation's receipt of an invoice that describes in reasonable detail the
Services performed daily during the month.
(b) As of the Effective Date and on January 3, 2000 deliver to the
Independent Contractor a non-qualified stock option, each exercisable for up to
15,000 shares of the Corporation's Common Stock, $0.01 par value per share
("Common Stock"), at a purchase per share equal to the closing price of shares
of Common Stock as reported by the NASDAQ Stock Market, Inc. on the Effective
Date and on January 3, 2000, respectively. Each such stock option
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<PAGE>
shall be become immediately exercisable on their respective dates of grant. Each
such stock option shall expire ten (10) years following the date of grant. Each
such stock option shall be evidenced by a Non-Qualified Stock Option Agreement
substantially in the form of the form of option agreement attached as Schedule B
hereto.
4.2 Subject to Section 15 hereof, the Corporation shall reimburse the
Independent Contractor within thirty (30) days following receipt of
documentation that satisfies the Corporation's travel and expense reimbursement
policies, an amount equal to the actual and direct cost of all reasonable
out-of-pocket expenses incurred by the Independent Contractor in the rendering
of Services under this Agreement. The Independent Contractor hereby acknowledges
that it has received in writing, read and understands the Corporation's travel
and expense reimbursement policies in effect as of the Effective Date.
Section Five
Duration
The term of this Agreement shall commence on the Effective Date and shall
continue in full force and effect until February 3, 2001, unless and until
terminated earlier by the Corporation or the Independent Contractor, with or
without cause, by giving the other party thirty (30) days advance written
notice. The provisions of Sections 5, 11, 12, 13 and 14 hereof shall survive any
such expiration or early termination of this Agreement.
Section Six
Place of Work
It is understood that the Services shall be rendered primarily from the
Corporation's principal executive offices in Needham, Massachusetts, but that
the Independent Contractor shall from time to time travel to such other places
as may be necessary to perform Services for the benefit of the Corporation.
Section Seven
Time Devoted To Work
In performing the Services, the hours that the Independent Contractor
works on any given day shall be entirely within the Independent Contractor's
control and the Corporation shall rely upon the Independent Contractor to
determine the number of hours reasonably necessary to fulfill the spirit and
purpose of this Agreement.
Section Eight
Status of Independent Contractor
The Independent Contractor and the Corporation acknowledge and agree that
the Independent Contractor shall perform the Services hereunder as an
"independent contractor" and not as an employee of the Corporation, and nothing
herein shall be construed to be inconsistent with this relationship or status.
Accordingly, it is expressly understood and agreed between the parties hereto
that the Independent Contractor is solely responsible for all labor and expenses
in connection with the performance of every obligation of the Independent
Contractor hereunder. The Independent Contractor assumes the responsibility for
furnishing the Services hereunder and shall withhold and pay when due all
employment taxes required by federal, state and local laws,
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<PAGE>
including, without limitation, all social security and withholding taxes, and
contributions for unemployment compensation funds. The Independent Contractor
acknowledges and understands that the Corporation will not maintain worker's
compensation, health or liability insurance on behalf of the Independent
Contractor.
Section Nine
Materials and Equipment
Except as provided herein, the Independent Contractor shall furnish, at
his own expense, all materials and equipment, if any, necessary to carry out the
terms of this Agreement.
Section Ten
Work Standards
The Independent Contractor shall adhere to professional standards and
shall perform all Services required under this Agreement in manner consistent
with generally accepted procedural standards.
Section Eleven
Copyrights and Patents
The Corporation shall own all copyrights and/or patents developed by the
Independent Contractor while performing the Services provided under this
Agreement. All improvements, discoveries, ideas, inventions, concepts, trade
names, trademarks, service marks, logos, processes, products, computer programs
or software, subroutines, source codes, object codes, algorithms, machines,
apparatuses, items of manufacture or composition of matter, or any new uses
therefore or improvements thereon, or any new designs or modifications or
configurations of any kind, or work of authorship of any kind, including,
without limitation, compilations and derivative works, and techniques (whether
or not copyrightable or patentable) conceived, developed, reduced to practice or
otherwise made by the Independent Contractor and in any way related to the
rendering of Services under this Agreement shall become property of the
Corporation. The Independent Contractor agrees to assign, and hereby does
assign, to the Corporation any and all copyrights, patents and propriety rights
in any such invention to the Corporation, together with the right to file and/or
own wholly without restrictions applications for United States and foreign
patents, trademark registration and copyright registration and any patent, or
trademark or copyright registration issuing thereon.
Section Twelve
Privileged and Confidential Information
12.1 The Corporation and the Independent Contractor acknowledge that the
Corporation has acquired and developed, and will continue to acquire and
develop, information related to its business and its industry which is secret
and confidential in character and is and will continue to be of great and unique
value to the Corporation and its subsidiaries and affiliates. The term
"confidential information" as used in this Agreement shall mean all trade
secrets, propriety information and other data or information (and any tangible
evidence, record or representation thereof), whether prepared, conceived or
developed by an employee of the Corporation or received by the Corporation from
an outside source (including the Independent Contractor), which is in the
possession of the Corporation, which is maintained in confidence by
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the Corporation or any subsidiary or affiliate of the Corporation or which might
permit the Corporation or any subsidiary or affiliate of the Corporation or any
of their respective customers to obtain a competitive advantage over competitors
who do not have access to such trade secrets, proprietary information, or other
data or information, including, without limitation, information concerning the
Corporation's seasonal and product line plans, store and brand image and trade
dress developments and strategies, business plans, real estate leasing terms,
conditions and plans, occupancy costs, customers, suppliers, designs,
advertising plans, marketing plans, merchandising plans, market studies and
forecasts, competitive analyses, pricing policies, employee lists, and the
substance of agreements with landlords, tenants, subtenants, customers,
suppliers and others. The term "confidential information" also includes
information that the Corporation has in its possession from third parties, that
such third parties claim to be confidential or proprietary, and which the
Corporation has agreed to keep confidential. However, the term "confidential
information" as used in this Agreement shall not include information that is
generally known to the public or in the trade as a result of having been
disclosed by the Corporation in a press release or in a filing by the
Corporation with the U.S. Securities and Exchange Commission. The Independent
Contractor shall keep and maintain all confidential information in complete
secrecy, and shall not use for himself or others, or divulge to others, any
knowledge, data or other information relating to any matter which is
confidential information relating to the Corporation obtained by the Independent
Contractor as a result of his Services, unless such use or disclosure is
required by law or is authorized in writing by the Corporation in advance of
such use or disclosure. All written information made available to the
Independent Contractor by the Corporation, which concerns the business
activities of the Corporation, shall be the Corporation's property and shall, if
requested in writing by the Corporation, be delivered to it on the termination
or expiration of this Agreement.
12.2 The Independent Contractor acknowledges that money alone will not
adequately compensate the Corporation for breach of any confidentiality
agreement herein and, therefore, agrees that in the event of the breach or
threatened breach of such agreement, in addition to other rights and remedies
available to the Corporation, at law, in equity or otherwise, the Corporation
shall be entitled to injunctive relief compelling specific performance of, or
other compliance with, the terms hereof, and such rights and remedies shall be
cumulative.
Section Thirteen
Indemnification
13.1 The Independent Contractor shall defend, indemnify and hold harmless
the Corporation (including, without limitation, the Corporation's successors,
assigns, subsidiaries, affiliates and contractors and their respective officers,
directors, employees, agents and other representatives) from and against all
liabilities, losses, claims, actions, damages, expenses (including but not
limited to attorneys' fees), suits and assessments (whether proven or not) based
upon or arising out of damage or injury (including death) to persons or property
caused by Independent Contractor in connection with the performance of Services,
or based upon any violation of any applicable statute, law, ordinance, code or
regulation. The Independent Contractor shall also defend, indemnify and hold
harmless the Corporation against all liability and loss in connection with, and
shall assume full responsibility for, payment of all federal, state, or local
income taxes imposed or required under applicable laws with respect to Services
performed and compensation paid the Independent Contractor under this Agreement.
13.2 Notwithstanding anything contained in the preceding paragraph, the
Corporation shall defend, indemnify and hold harmless the Independent Contractor
(including, without
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limitation, the Independent Contractor's heirs and survivors, and his other
successors, assigns, affiliates and contractors) from and against all
liabilities, losses, claims, actions, damages, expenses (including but not
limited to attorneys' fees), suits and assessments (whether proven or not) based
upon or arising out of damage or injury (including death) to persons or property
caused by the Corporation in connection with the Corporation's performance of
its obligations under this Agreement (including, but not limited to, claims
based upon the material supplied to the Independent Contractor by the
Corporation and utilized by the Independent Contractor in performing the
Services), or based upon any violation of any applicable statute, law,
ordinance, code or regulation.
Section Fourteen
Compliance with Laws
The parties agree that all obligations to be performed by the parties
under this Agreement shall be performed in compliance with all then applicable
federal, state and local laws and regulations.
Section Fifteen
Approvals
15.1 In addition to approvals required by other Sections of this
Agreement, the Independent Contractor shall seek to obtain the Corporation's
written approval in advance of all expenditures in excess of two thousand
dollars ($2,000.00) incurred in connection with the rendering of Services and
for which the Independent Contractor seeks reimbursement from the Corporation.
In addition, all estimates presented to the Corporation by the Independent
Contractor for the Corporation's consideration and/or approval shall be
carefully prepared and shall be based upon reasonable assumptions using the
Independent Contractor's best judgment.
15.2 All approvals by the Corporation must be in writing and shall be
sought from the Chief Financial Officer of the Corporation, or such other person
that the Board of Directors may designate in writing from time to time. If the
Corporation fails to approve in writing any matter submitted for approval within
fifteen (15) days from the date of its submission, then the matter submitted for
approval shall be deemed to be disapproved.
Section Sixteen
Notices
All notices and other communications required or permitted to be given
under this Agreement by one party to another shall be in writing and the same
shall be deemed effective when delivered (i) in person, (ii) by United States
certified or registered first class or priority mail, return receipt requested,
(iii) by nationally-recognized overnight delivery or courier service, or (iv) by
facsimile transmission (781.449.8666 for the Corporation, and 203.438.3852 for
the Independent Contractor), and addressed to the party's principal offices set
forth on page one of this Agreement, or at such other address or facsimile
telephone number for a party as may be designated in writing by such party to
the other in accordance with the requirements of this Section 16.
6
<PAGE>
Section Seventeen
Governing Law
The place of this Agreement, its status, or forum is at all times in the
County of Norfolk, Commonwealth of Massachusetts, in which County and
Commonwealth all matters, whether sounding in contract or in tort, relating to
the validity, construction, interpretation, and enforcement of this Agreement,
shall be determined. This Agreement shall be construed and enforced according to
the laws of Massachusetts without regard to its principles of conflicts of laws.
Any action on the Agreement or arising out of its terms and conditions shall be
instituted and litigated in the courts of the Commonwealth of Massachusetts. In
accordance, the parties submit to the jurisdiction of the courts of the
Commonwealth of Massachusetts. The prevailing party in any such litigation shall
be entitled to recover reasonable attorneys' fees in addition to any damages
that may result from a breach of this Agreement.
Section Eighteen
Miscellaneous
This Agreement may not be modified, amended, or waived, except by a
writing executed by both parties hereto. This Agreement, and all attached or
referenced schedules, exhibits and attachments, constitutes the full and entire
understanding and agreement between the two parties with regard to the subject
matter hereof and supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter. The section headings herein are
for convenience of reference only, are not part of this Agreement and shall have
no effect on the interpretation of this Agreement or the provisions hereof.
Neither this Agreement nor any interest therein, or claim thereunder, shall be
assigned or transferred by the Independent Contractor to any party or parties.
If any provision of this Agreement shall to any extent be invalid or
unenforceable, such invalid or unenforceable provision shall be reformed to the
extent required to make it valid and enforceable to the maximum extent possible
under law, and the remainder of this Agreement shall not be affected thereby,
with each provision hereof being valid and enforceable to the fullest extent
permitted by law. This Agreement shall be binding upon, and inure to the benefit
of, the parties and their respective successors and permitted assigns. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have signed, sealed and delivered this
Consulting Agreement in duplicate, each of which is deemed an original, as of
the Effective Date.
ATTEST: DESIGNS, INC.
/s/ Anthony E. Hubbard By: /s/ Kenneth F. Rogers, Jr.
(Signature)
Print Name: Kenneth F. Rogers, Jr.
Print Title: Sr. VP & CFO
WITNESS:
___________________________ /s/ John J. Schultz
(Signature)
Print Name: John J. Schultz
8
<PAGE>
SCHEDULE A
Consulting Agreement
Between
JOHN J. SCHULTZ.
And
DESIGNS, INC.
Dated as of
October 28, 1999
SERVICES
The Services to be performed by the Independent Contractor, for so long as
the Independent Contractor holds the offices of President and Chief Executive
Officer of the Corporation, are:
A. to carry out the duties as are commonly incident to a President and
Chief Executive Officer of a corporation that operates retail stores
located in and outside of the United States and that has securities
that are publicly traded on a national securities exchange or quoted
in an automated interdealer quotation system; and
B. to carry out such other duties as the Board of Directors of the
Corporation may from time to time designate.
The Services to be performed by the Independent Contractor, in the event
that the Independent Contractor shall not hold the offices of President and
Chief Executive Officer of the Corporation and this Agreement remains in effect,
shall be to carry out those duties as the Board of Directors of the Corporation
may designate.
9
<PAGE>
SCHEDULE B
Form of Non-Qualified Stock Option Agreement
10
<PAGE>
DESIGNS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
15,000 October 28, 1999
------ ----------------
No. of Shares Date
Designs, Inc., Delaware corporation (the "Company"), hereby grants to
John J. Schultz
(the "Optionee") an Option to purchase on or prior to October 28, 2009 (the
"Expiration Date") all or any part of 15,000 shares (the "Option Shares") of the
Company's Common Stock, $0.01 par value per share ("Common Stock"), at a price
of $1.15625 per share, subject to the terms and conditions set forth herein.
This Option shall be governed by the laws of Massachusetts, without regard to
its principles of conflicts of laws.
1. Vesting. This Option is immediately and fully vested and is exercisable
with respect to all of the Option Shares.
2. Manner of Exercise. The Optionee may exercise this Option only in the
following manner: from time to time on or prior to the Expiration Date of this
Option, the Optionee may give written notice to the Company of his election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. Said notice shall specify the number of shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (1) in cash, by certified or bank check or other
instrument acceptable to the Board of Directors of the Company; or (2) in the
form of shares of Common Stock that are not then subject to any restrictions
(subject to the discretion of the Board of Directors of the Company); or (3) by
the Optionee delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the option
purchase price; provided that in the event the Optionee chooses to pay the
option purchase price as so provided, the Optionee and the broker shall comply
with such procedures and enter into such agreements of indemnity and other
agreements as the Board of Directors of the Company shall prescribe, if any, as
a condition of such payment procedure. Payment instruments will be received
subject to collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment
therefor, as set forth above, and any agreement, statement or other evidence as
the Company may require to satisfy to itself that the issuance of Option Shares
to be pursuant to the exercise of Options and any subsequent resale of the
shares will be in compliance with applicable laws and regulations.
If requested upon the exercise of this Option, certificates for shares may
be issued in the name of the Optionee jointly with another person, or in the
name of the executor or administrator of the Optionee's estate.
Notwithstanding any other provision hereof, no portion of this Stock
Option shall be exercisable after the Expiration Date hereof.
3. Non-transferability of Option. This Option shall not be transferable by
the Optionee otherwise than by will or by the laws of descent and distribution
and this Option shall be exercisable, during the Optionee's lifetime, only by
the Optionee.
11
<PAGE>
4. Option Shares. The Option Shares are shares of the Common Stock of the
Company as constituted on the date of grant of this Option. In the event that
the Company effects a stock dividend, stock split or similar change in
capitalization affecting Common Stock, the Board of Directors of the Company
shall make appropriate adjustments in (i) the number of Option Shares remaining
subject to this Option, and (ii) the purchase price per share at which the
Optionee may purchase Option Shares hereunder. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Board of
Directors, in its sole discretion may make such substitution or adjustment in
the number of Option Shares purchasable pursuant to this Option and in the
purchase price per share at which the Optionee may purchase Option Shares
hereunder at it may determine and as may be permitted by the terms of such
transaction, or accelerate, amend or terminate this Option upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of the Option Shares hereunder, shall require payment or other
consideration which the Board of Directors deems equitable in the
circumstances).
5. No Special Rights. This Option will not confer upon the Optionee any
additional rights other than those described herein.
6. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock which may be purchased by
exercise of this Option unless and until a certificate or certificates
representing such shares are duly issued and delivered to the Optionee. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
7. Qualification under Section 422. It is understood and intended that the
Option granted hereunder shall not qualify as an "incentive stock option" as
defined in Section 422 of the Code.
12
<PAGE>
8. Miscellaneous. Notices hereunder shall be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered to
Optionee at the address set forth below or, in either case, at such other
address for a party as such party may subsequently furnish to the other party in
writing.
DESIGNS, INC.
By: /s/ Kenneth F. Rogers, Jr.
(Signature)
Print Name: Kenneth F. Rogers, Jr.
Print Title: Sr. VP &CFO
Receipt of the foregoing Option is acknowledged and its terms and
conditions are hereby agreed to:
Date: _________________ /s/ John J. Schultz
(Signature)
Print Name: John J. Schultz
Address: ____________________________
____________________________
13
Exhibit 10.22
Consulting Agreement
This Consulting Agreement (this "Agreement") is entered into and effective
as of December 15, 1999 (the "Effective Date"), by and between Designs, Inc., a
Delaware corporation (the "Corporation"), with its principal executive offices
located at 66 B Street, Needham, Massachusetts 02494, and George T. Porter, Jr.,
an individual residing at 2804 NW Cumberland Road, Portland, Oregon 97210 (the
"Independent Contractor").
Recitals
WHEREAS, the Corporation desires to retain the Independent Contractor to
perform the services described in Schedule A attached hereto and incorporated
herein by reference (the "Services"); and
WHEREAS, the Independent Contractor agrees to perform the Services for the
Corporation under the terms and conditions set forth in this Agreement, it being
expressly understood that the Independent Contractor shall perform Services as
an independent contractor and nothing contained herein shall be construed to be
inconsistent with this relationship or status.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Corporation and the Independent Contractor hereby agree as follows:
Section One
Representations and Warranties of the Independent Contractor
The Independent Contractor represents, warrants, covenants and agrees
that:
(a) this Agreement has been duly and validly authorized, executed and
delivered by the Independent Contractor, and constitutes the valid
and binding obligation of the Independent Contractor, and is
enforceable against the Independent Contractor in accordance with
its terms; and
(b) the execution, delivery and performance by the Independent
Contractor of this Agreement does and will not (1) violate, conflict
with, or result in a breach or termination of (or require any
consent or approval under) any agreement, license, arrangement or
understanding, whether written or oral, to which the Independent
Contractor is a party; or (2) violate any law, judgment, decree,
order, rule or regulation applicable to the Independent Contractor.
Section Two
Representations and Warranties of the Corporation
The Corporation represents, warrants, covenants and agrees that:
(a) the Corporation is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
<PAGE>
(b) the Corporation has all necessary power and authority to execute and
deliver this Agreement and to perform all of its obligations under
this Agreement;
(c) this Agreement has been duly and validly authorized, executed and
delivered by the Corporation, and constitutes the valid and binding
obligation of the Corporation, and is enforceable against the
Corporation in accordance with its terms; and
(d) the execution, delivery and performance by the Corporation of this
Agreement does and will not (1) violate or conflict with any
provision of the Corporation's Certificate of Incorporation or
by-laws; (2) violate, conflict with, or result in a breach or
termination of (or require any consent or approval under) any
agreement, license, arrangement or understanding, whether written or
oral, to which the Corporation is a party; or (3) violate any law,
judgment, decree, order, rule or regulation applicable to the
Corporation.
Section Three
Nature of the Services
In accordance with the terms and conditions of this Agreement, the
Independent Contractor shall, to the extent requested from time to time by the
Corporation, perform consulting Services for the benefit of the Corporation with
respect to all matters relating to or affecting all items contained in Schedule
A attached hereto. The Independent Contractor shall perform such additional
Services as may be agreed to by both parties from time to time in writing which,
when so agreed, shall be deemed incorporated into this Agreement. The
Independent Contractor shall perform Services at the direction, and subject to
the supervision, of the President and Chief Executive Officer of the Corporation
(or another executive officer of the Corporation as may be designated from time
to time by the President and Chief Executive Officer or the Board of Directors
of the Corporation). As a part of the Independent Contractor's consulting
Services, the Independent Contractor shall review, analyze, and make suggestions
to the Corporation on all matters included in Schedule A attached hereto. The
Independent Contractor agrees and stipulates that this Agreement is a personal
service contract under which Services shall be performed by the Independent
Contractor. The Independent Contractor shall furnish the Corporation with a
properly completed Request for Taxpayer Identification Number and Certification
on Form W-9. The Corporation shall forward the appropriate Form W-9 to the
Independent Contractor.
Section Four
Compensation
4.1 As consideration for the Services to be rendered by the Independent
Contractor under this Agreement, the Corporation shall:
(a) Pay the Independent Contractor the sum of Two Thousand Dollars
($2,000.00), in cash, for each day (consisting of at least eight hours of work
which may be spread among one or more days) during which the Independent
Contractor performs meaningful Services beyond work performed to fulfill the
Independent Contractor's duties as a member of the Corporation's Board of
Directors and its committees, such amount payable in arrears monthly following
the Corporation's receipt of an invoice that describes in reasonable detail the
Services performed daily during the month.
2
<PAGE>
(b) As of the Effective Date and on January 3, 2000 deliver to the
Independent Contractor a non-qualified stock option exercisable for up to 15,000
shares of the Corporation's Common Stock, $0.01 par value per share ("Common
Stock"), at a purchase per share equal to the closing price of shares of Common
Stock as reported by the NASDAQ Stock Market, Inc. on the Effective Date and on
January 3, 2000, respectively. Each such stock option shall be become
immediately exercisable on their respective dates of grant. Each such stock
option shall expire ten (10) years following the date of grant. Each such stock
option shall be evidenced by a Non-Qualified Stock Option Agreement
substantially in the form of the form of option agreement attached as Schedule B
hereto.
4.2 Subject to Section 15 hereof, the Corporation shall reimburse the
Independent Contractor within thirty (30) days following receipt of
documentation that satisfies the Corporation's travel and expense reimbursement
policies, an amount equal to the actual and direct cost of all reasonable
out-of-pocket expenses incurred by the Independent Contractor in the rendering
of Services under this Agreement. The Independent Contractor hereby acknowledges
that it has received in writing, read and understands the Corporation's travel
and expense reimbursement policies in effect as of the Effective Date.
Section Five
Duration
The term of this Agreement shall commence on the Effective Date and shall
continue in full force and effect until February 3, 2001, unless and until
terminated earlier by the Corporation or the Independent Contractor, with or
without cause, by giving the other party thirty (30) days advance written
notice. The provisions of Sections 5, 11, 12, 13 and 14 hereof shall survive any
such expiration or early termination of this Agreement.
Section Six
Place of Work
It is understood that the Services shall be rendered primarily from the
Independent Contractor's principal office in Portland, Oregon, but that the
Independent Contractor shall, upon request of the Corporation, travel to the
Corporation's executive offices located at 66 B Street, Needham, Massachusetts,
or such other places as may be designated by the Corporation.
Section Seven
Time Devoted To Work
In performing the Services, the hours that the Independent Contractor
works on any given day shall be entirely within the Independent Contractor's
control and the Corporation shall rely upon the Independent Contractor to
determine the number of hours reasonably necessary to fulfill the spirit and
purpose of this Agreement.
3
<PAGE>
Section Eight
Status of Independent Contractor
The Independent Contractor and the Corporation acknowledge and agree that
the Independent Contractor shall perform the Services hereunder as an
"independent contractor" and not as an employee of the Corporation, and nothing
herein shall be construed to be inconsistent with this relationship or status.
Accordingly, it is expressly understood and agreed between the parties hereto
that the Independent Contractor is solely responsible for all labor and expenses
in connection with the performance of every obligation of the Independent
Contractor hereunder. The Independent Contractor assumes the responsibility for
furnishing the Services hereunder and shall withhold and pay when due all
employment taxes required by federal, state and local laws, including, without
limitation, all social security and withholding taxes, and contributions for
unemployment compensation funds. The Independent Contractor acknowledges and
understands that the Corporation will not maintain worker's compensation, health
or liability insurance on behalf of the Independent Contractor.
Section Nine
Materials and Equipment
Except as provided herein, the Independent Contractor shall furnish, at
his own expense, all materials and equipment, if any, necessary to carry out the
terms of this Agreement.
Section Ten
Work Standards
The Independent Contractor shall adhere to professional standards and
shall perform all Services required under this Agreement in manner consistent
with generally accepted procedural standards.
Section Eleven
Copyrights and Patents
The Corporation shall own all copyrights and/or patents developed by the
Independent Contractor while performing the Services provided under this
Agreement. All improvements, discoveries, ideas, inventions, concepts, trade
names, trademarks, service marks, logos, processes, products, computer programs
or software, subroutines, source codes, object codes, algorithms, machines,
apparatuses, items of manufacture or composition of matter, or any new uses
therefore or improvements thereon, or any new designs or modifications or
configurations of any kind, or work of authorship of any kind, including,
without limitation, compilations and derivative works, and techniques (whether
or not copyrightable or patentable) conceived, developed, reduced to practice or
otherwise made by the Independent Contractor and in any way related to the
rendering of Services under this Agreement shall become property of the
Corporation. The Independent Contractor agrees to assign, and hereby does
assign, to the Corporation any and all copyrights, patents and propriety rights
in any such invention to the Corporation, together with the right to file and/or
own wholly without restrictions applications for United States and foreign
patents, trademark registration and copyright registration and any patent, or
trademark or copyright registration issuing thereon.
4
<PAGE>
Section Twelve
Privileged and Confidential Information
12.1 The Corporation and the Independent Contractor acknowledge that the
Corporation has acquired and developed, and will continue to acquire and
develop, information related to its business and its industry which is secret
and confidential in character and is and will continue to be of great and unique
value to the Corporation and its subsidiaries and affiliates. The term
"confidential information" as used in this Agreement shall mean all trade
secrets, propriety information and other data or information (and any tangible
evidence, record or representation thereof), whether prepared, conceived or
developed by an employee of the Corporation or received by the Corporation from
an outside source (including the Independent Contractor), which is in the
possession of the Corporation, which is maintained in confidence by the
Corporation or any subsidiary or affiliate of the Corporation or which might
permit the Corporation or any subsidiary or affiliate of the Corporation or any
of their respective customers to obtain a competitive advantage over competitors
who do not have access to such trade secrets, proprietary information, or other
data or information, including, without limitation, information concerning the
Corporation's seasonal and product line plans, store and brand image and trade
dress developments and strategies, business plans, real estate leasing terms,
conditions and plans, occupancy costs, customers, suppliers, designs,
advertising plans, marketing plans, merchandising plans, market studies and
forecasts, competitive analyses, pricing policies, employee lists, and the
substance of agreements with landlords, tenants, subtenants, customers,
suppliers and others. The term "confidential information" also includes
information that the Corporation has in its possession from third parties, that
such third parties claim to be confidential or proprietary, and which the
Corporation has agreed to keep confidential. However, the term "confidential
information" as used in this Agreement shall not include information that is
generally known to the public or in the trade as a result of having been
disclosed by the Corporation in a press release or in a filing by the
Corporation with the U.S. Securities and Exchange Commission. The Independent
Contractor shall keep and maintain all confidential information in complete
secrecy, and shall not use for himself or others, or divulge to others, any
knowledge, data or other information relating to any matter which is
confidential information relating to the Corporation obtained by the Independent
Contractor as a result of his Services, unless such use or disclosure is
required by law or is authorized in writing by the Corporation in advance of
such use or disclosure. All written information made available to the
Independent Contractor by the Corporation, which concerns the business
activities of the Corporation, shall be the Corporation's property and shall, if
requested in writing by the Corporation, be delivered to it on the termination
or expiration of this Agreement.
12.2 The Independent Contractor acknowledges that money alone will not
adequately compensate the Corporation for breach of any confidentiality
agreement herein and, therefore, agrees that in the event of the breach or
threatened breach of such agreement, in addition to other rights and remedies
available to the Corporation, at law, in equity or otherwise, the Corporation
shall be entitled to injunctive relief compelling specific performance of, or
other compliance with, the terms hereof, and such rights and remedies shall be
cumulative.
5
<PAGE>
Section Thirteen
Indemnification
13.1 The Independent Contractor shall defend, indemnify and hold harmless
the Corporation (including, without limitation, the Corporation's successors,
assigns, subsidiaries, affiliates and contractors and their respective officers,
directors, employees, agents and other representatives) from and against all
liabilities, losses, claims, actions, damages, expenses (including but not
limited to attorneys' fees), suits and assessments (whether proven or not) based
upon or arising out of damage or injury (including death) to persons or property
caused by Independent Contractor in connection with the performance of Services,
or based upon any violation of any applicable statute, law, ordinance, code or
regulation. The Independent Contractor shall also defend, indemnify and hold
harmless the Corporation against all liability and loss in connection with, and
shall assume full responsibility for, payment of all federal, state, or local
income taxes imposed or required under applicable laws with respect to Services
performed and compensation paid the Independent Contractor under this Agreement.
13.2 Notwithstanding anything contained in the preceding paragraph, the
Corporation shall defend, indemnify and hold harmless the Independent Contractor
(including, without limitation, the Independent Contractor's heirs and
survivors, and his other successors, assigns, affiliates and contractors) from
and against all liabilities, losses, claims, actions, damages, expenses
(including but not limited to attorneys' fees), suits and assessments (whether
proven or not) based upon or arising out of damage or injury (including death)
to persons or property caused by the Corporation in connection with the
Corporation's performance of its obligations under this Agreement (including,
but not limited to, claims based upon the material supplied to the Independent
Contractor by the Corporation and utilized by the Independent Contractor in
performing the Services), or based upon any violation of any applicable statute,
law, ordinance, code or regulation.
Section Fourteen
Compliance with Laws
The parties agree that all obligations to be performed by the parties
under this Agreement shall be performed in compliance with all then applicable
federal, state and local laws and regulations.
Section Fifteen
Approvals
15.1 In addition to approvals required by other Sections of this
Agreement, the Independent Contractor shall seek to obtain the Corporation's
written approval in advance of all expenditures in excess of two thousand
dollars ($2,000.00) incurred in connection with the rendering of Services and
for which the Independent Contractor seeks reimbursement from the Corporation.
In addition, all estimates presented to the Corporation by the Independent
Contractor for the Corporation's consideration and/or approval shall be
carefully prepared and shall be based upon reasonable assumptions using the
Independent Contractor's best judgment.
15.2 All approvals by the Corporation must be in writing and shall be
sought from the President and Chief Executive Officer of the Corporation, or
such other person that the Board of
6
<PAGE>
Directors may designate in writing from time to time. As of the date of this
Agreement the President and Chief Executive Officer of the Corporation is John
J. Schultz. If the Corporation fails to approve in writing any matter submitted
for approval within fifteen (15) days from the date of its submission, then the
matter submitted for approval shall be deemed to be disapproved.
Section Sixteen
Notices
All notices and other communications required or permitted to be given
under this Agreement by one party to another shall be in writing and the same
shall be deemed effective when delivered (i) in person, (ii) by United States
certified or registered first class or priority mail, return receipt requested,
(iii) by nationally-recognized overnight delivery or courier service, or (iv) by
facsimile transmission (781.449.8666 for the Corporation, and 503.223.7232 for
the Independent Contractor), and addressed to the party's principal offices set
forth on page one of this Agreement, or at such other address or facsimile
telephone number for a party as may be designated in writing by such party to
the other in accordance with the requirements of this Section 16.
Section Seventeen
Governing Law
The place of this Agreement, its status, or forum is at all times in the
County of Norfolk, Commonwealth of Massachusetts, in which County and
Commonwealth all matters, whether sounding in contract or in tort, relating to
the validity, construction, interpretation, and enforcement of this Agreement,
shall be determined. This Agreement shall be construed and enforced according to
the laws of Massachusetts without regard to its principles of conflicts of laws.
Any action on the Agreement or arising out of its terms and conditions shall be
instituted and litigated in the courts of the Commonwealth of Massachusetts. In
accordance, the parties submit to the jurisdiction of the courts of the
Commonwealth of Massachusetts. The prevailing party in any such litigation shall
be entitled to recover reasonable attorneys' fees in addition to any damages
that may result from a breach of this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
7
<PAGE>
Section Eighteen
Miscellaneous
This Agreement may not be modified, amended, or waived, except by a
writing executed by both parties hereto. This Agreement, and all attached or
referenced schedules, exhibits and attachments, constitutes the full and entire
understanding and agreement between the two parties with regard to the subject
matter hereof and supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter. The section headings herein are
for convenience of reference only, are not part of this Agreement and shall have
no effect on the interpretation of this Agreement or the provisions hereof.
Neither this Agreement nor any interest therein, or claim thereunder, shall be
assigned or transferred by the Independent Contractor to any party or parties.
If any provision of this Agreement shall to any extent be invalid or
unenforceable, such invalid or unenforceable provision shall be reformed to the
extent required to make it valid and enforceable to the maximum extent possible
under law, and the remainder of this Agreement shall not be affected thereby,
with each provision hereof being valid and enforceable to the fullest extent
permitted by law. This Agreement shall be binding upon, and inure to the benefit
of, the parties and their respective successors and permitted assigns. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have signed, sealed and delivered this
Consulting Agreement in duplicate, each of which is deemed an original, as of
the Effective Date.
ATTEST: DESIGNS, INC.
Anthony E. Hubbard By: /s/ John J. Schultz
(Signature)
Print Name: John J. Schultz
Print Title: President & CEO
WITNESS:
___________________________ /s/ George T. Porter, Jr.
(Signature)
Print Name: George T. Porter, Jr.
8
<PAGE>
SCHEDULE A
Consulting Agreement
Between
GEORGE T. PORTER, JR.
And
DESIGNS, INC.
Dated as of
December 15, 1999
SERVICES
The Services to be performed by the Independent Contractor are to analyze,
consult with and advise the Corporation, as requested from time to time by the
Corporation, with regard to any or all of its merchandising strategies and
operations and its procurement of merchandise from vendors including:
(a) review the merchandise procurement policies, practices and
strategies with regard to each of the Corporation's merchandise
vendors, including review, analysis and advice concerning the terms
and conditions of merchandise under which the Corporation purchases
merchandise from vendors;
(b) attendance at, as necessary and appropriate, meetings, trade shows
and other events for the purpose of advising the Corporation as to
strategy towards fostering optimal operational synergies between the
Corporation and merchandise vendors; and
(c) such other related consulting services as may be agreed upon by the
Corporation and the Independent Contractor in accordance with
Section 3 of this Agreement.
9
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SCHEDULE B
Form of Non-Qualified Stock Option Agreement
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DESIGNS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
15,000 December 15, 1999
------ -----------------
No. of Shares Date
Designs, Inc., Delaware corporation (the "Company"), hereby grants to
George T. Porter, Jr.
(the "Optionee") an Option to purchase on or prior to December 15, 2009 (the
"Expiration Date") all or any part of 15,000 shares (the "Option Shares") of the
Company's Common Stock, $0.01 par value per share ("Common Stock"), at a price
of $1.4375 per share, subject to the terms and conditions set forth herein. This
Option shall be governed by the laws of Massachusetts, without regard to its
principles of conflicts of laws.
1. Vesting. This Option is immediately and fully vested and is exercisable
with respect to all of the Option Shares.
2. Manner of Exercise. The Optionee may exercise this Option only in the
following manner: from time to time on or prior to the Expiration Date of this
Option, the Optionee may give written notice to the Company of his election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. Said notice shall specify the number of shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (1) in cash, by certified or bank check or other
instrument acceptable to the Board of Directors of the Company; or (2) in the
form of shares of Common Stock that are not then subject to any restrictions
(subject to the discretion of the Board of Directors of the Company); or (3) by
the Optionee delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the option
purchase price; provided that in the event the Optionee chooses to pay the
option purchase price as so provided, the Optionee and the broker shall comply
with such procedures and enter into such agreements of indemnity and other
agreements as the Board of Directors of the Company shall prescribe, if any, as
a condition of such payment procedure. Payment instruments will be received
subject to collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment
therefor, as set forth above, and any agreement, statement or other evidence as
the Company may require to satisfy to itself that the issuance of Option Shares
to be pursuant to the exercise of Options and any subsequent resale of the
shares will be in compliance with applicable laws and regulations.
If requested upon the exercise of this Option, certificates for shares may
be issued in the name of the Optionee jointly with another person, or in the
name of the executor or administrator of the Optionee's estate.
Notwithstanding any other provision hereof, no portion of this Stock
Option shall be exercisable after the Expiration Date hereof.
3. Non-transferability of Option. This Option shall not be transferable by
the Optionee otherwise than by will or by the laws of descent and distribution
and this Option shall be exercisable, during the Optionee's lifetime, only by
the Optionee.
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4. Option Shares. The Option Shares are shares of the Common Stock of the
Company as constituted on the date of grant of this Option. In the event that
the Company effects a stock dividend, stock split or similar change in
capitalization affecting Common Stock, the Board of Directors of the Company
shall make appropriate adjustments in (i) the number of Option Shares remaining
subject to this Option, and (ii) the purchase price per share at which the
Optionee may purchase Option Shares hereunder. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Board of
Directors, in its sole discretion may make such substitution or adjustment in
the number of Option Shares purchasable pursuant to this Option and in the
purchase price per share at which the Optionee may purchase Option Shares
hereunder at it may determine and as may be permitted by the terms of such
transaction, or accelerate, amend or terminate this Option upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of the Option Shares hereunder, shall require payment or other
consideration which the Board of Directors deems equitable in the
circumstances).
5. No Special Rights. This Option will not confer upon the Optionee any
additional rights other than those described herein.
6. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock which may be purchased by
exercise of this Option unless and until a certificate or certificates
representing such shares are duly issued and delivered to the Optionee. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
7. Qualification under Section 422. It is understood and intended that the
Option granted hereunder shall not qualify as an "incentive stock option" as
defined in Section 422 of the Code.
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8. Miscellaneous. Notices hereunder shall be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered to
Optionee at the address set forth below or, in either case, at such other
address for a party as such party may subsequently furnish to the other party in
writing.
DESIGNS, INC.
By: /s/ John J. Schultz
(Signature)
Print Name: John J. Schultz
Print Title: President & CEO
Receipt of the foregoing Option is acknowledged and its terms and
conditions are hereby agreed to:
Date: _________________ /s/ George T. Porter, Jr.
(Signature)
Print Name: George T. Porter, Jr.
Address: ____________________________
____________________________
13
Exhibit 10.23
Consulting Agreement
This Consulting Agreement (this "Agreement") is entered into and effective
as of November 14, 1999 (the "Effective Date"), by and between Designs, Inc., a
Delaware corporation (the "Corporation"), with its principal executive offices
located at 66 B Street, Needham, Massachusetts 02494, and Business Ventures
International, Inc., a Florida corporation (the "Independent Contractor"),
having its principal offices located at 641 Seneca Road, Great Falls, Virginia
22066.
Recitals
WHEREAS, the Corporation desires to retain the Independent Contractor to
perform the services described in Schedule A attached hereto and incorporated
herein by reference (the "Services"); and
WHEREAS, the Independent Contractor agrees to perform the Services for the
Corporation under the terms and conditions set forth in this Agreement, it being
expressly understood that the Independent Contractor shall perform Services as
an independent contractor and nothing contained herein shall be construed to be
inconsistent with this relationship or status.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Corporation and the Independent Contractor hereby agree as follows:
Section One
Representations and Warranties of the Independent Contractor
The Independent Contractor represents, warrants, covenants and agrees
that:
(a) the Independent Contractor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Florida;
(b) the Independent Contractor has all necessary power and authority to
execute and deliver this Agreement and to perform all of its
obligations under this Agreement;
(c) this Agreement has been duly and validly authorized, executed and
delivered by the Independent Contractor, and constitutes the valid
and binding obligation of the Independent Contractor, and is
enforceable against the Independent Contractor in accordance with
its terms; and
(d) the execution, delivery and performance by the Independent
Contractor of this Agreement does not (1) violate or conflict with
any provision of the Independent Contractor's charter or by-laws;
(2) violate, conflict with, or result in a breach or termination of
(or require any consent or approval under) any agreement, license,
arrangement or understanding, whether written or oral, to which the
Independent Contractor, its agents or employees (or any one of them)
is a party; or (3) violate any law, judgment, decree, order, rule or
regulation applicable to the Independent Contractor, its agents or
employees (or any one of them).
<PAGE>
Section Two
Representations and Warranties of the Corporation
The Corporation represents, warrants, covenants and agrees that:
(a) the Corporation is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) the Corporation has all necessary power and authority to execute and
deliver this Agreement and to perform all of its obligations under
this Agreement;
(c) this Agreement has been duly and validly authorized, executed and
delivered by the Corporation, and constitutes the valid and binding
obligation of the Corporation, and is enforceable against the
Corporation in accordance with its terms; and
(d) the execution, delivery and performance by the Corporation of this
Agreement does not (1) violate or conflict with any provision of the
Corporation's Certificate of Incorporation or by-laws; (2) violate,
conflict with, or result in a breach or termination of (or require
any consent or approval under) any agreement, license, arrangement
or understanding, whether written or oral, to which the Corporation
is a party; or (3) violate any law, judgment, decree, order, rule or
regulation applicable to the Corporation.
Section Three
Nature of the Services
In accordance with the terms and conditions of this Agreement, the
Independent Contractor shall, to the extent requested from time to time by the
Corporation, perform consulting Services for the benefit of the Corporation with
respect to all matters relating to or affecting all items contained in Schedule
A attached hereto. The Independent Contractor shall perform such additional
Services as may be agreed to by both parties from time to time in writing which,
when so agreed, shall be deemed incorporated into this Agreement. The
Independent Contractor shall perform Services at the direction, and subject to
the supervision, of the President and Chief Executive Officer of the Corporation
(or another executive officer of the Corporation as may be designated from time
to time by the President and Chief Executive Officer or the Board of Directors
of the Corporation). As a part of the Independent Contractor's consulting
Services, the Independent Contractor shall review, analyze, and make suggestions
to the Corporation on all matters included in Schedule A attached hereto. The
Independent Contractor agrees and stipulates that this Agreement is a personal
service contract under which Services shall be performed by particular agents
and employees of the Independent Contractor who are subject to the approval of
the Corporation from time to time. The Corporation initially approves only
Robert L. Patron ("Patron") as an individual to perform Services hereunder. The
Independent Contractor shall furnish the Corporation with a properly completed
Request for Taxpayer Identification Number and Certification on Form W-9. The
Corporation shall forward the appropriate Form W-9 to the Independent
Contractor.
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<PAGE>
Section Four
Compensation
4.1 As consideration for the Services to be rendered by the Independent
Contractor under this Agreement, the Corporation shall:
(a) Pay the Independent Contractor the sum of Two Thousand Dollars
($2,000.00), in cash, for each day (consisting of at least eight hours of work
which may be spread among one or more days) during which Patron (and any other
approved agent or employee of the Independent Contractor) performs meaningful
Services beyond work performed to fulfill Patron's duties as a member of the
Corporation's Board of Directors and its committees, such amount payable in
arrears monthly following the Corporation's receipt of an invoice that describes
in reasonable detail the Services performed daily during the month.
(b) As of the Effective Date and on January 3, 2000 deliver to the
Independent Contractor a non-qualified stock option, each exercisable for up to
15,000 shares of the Corporation's Common Stock, $0.01 par value per share
("Common Stock"), at a purchase per share equal to the closing price of shares
of Common Stock as reported by the NASDAQ Stock Market, Inc. on the Effective
Date and on January 3, 2000, respectively. Each such stock option shall be
become immediately exercisable on their respective dates of grant. Each such
stock option shall expire ten (10) years following the date of grant. Each such
stock option shall be evidenced by a Non-Qualified Stock Option Agreement
substantially in the form of the form of option agreement attached as Schedule B
hereto.
4.2 Subject to Section 15 hereof, the Corporation shall reimburse the
Independent Contractor within thirty (30) days following receipt of
documentation that satisfies the Corporation's travel and expense reimbursement
policies, an amount equal to the actual and direct cost of all reasonable
out-of-pocket expenses incurred by the Independent Contractor in the rendering
of Services under this Agreement. The Independent Contractor hereby acknowledges
that it has received in writing, read and understands the Corporation's travel
and expense reimbursement policies in effect as of the Effective Date.
Section Five
Duration
The term of this Agreement shall commence on the Effective Date and shall
continue in full force and effect until February 3, 2001, unless and until
terminated earlier by the Corporation or the Independent Contractor, with or
without cause, by giving the other party thirty (30) days advance written
notice. The provisions of Sections 5, 11, 12, 13 and 14 hereof shall survive any
such expiration or early termination of this Agreement.
Section Six
Place of Work
It is understood that the Services shall be rendered primarily from the
Independent Contractor's principal office in Great Falls, Virginia, but that
Patron (and any other approved agent or employee of the Independent Contractor)
shall, upon request of the Corporation, travel
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<PAGE>
to the Corporation's executive offices located at 66 B Street, Needham,
Massachusetts, or such other places as may be designated by the Corporation.
Section Seven
Time Devoted To Work
In performing the Services, the hours that Patron and other approved
agents or employees of the Independent Contractor work on any given day shall be
entirely within the Independent Contractor's control and the Corporation shall
rely upon the Independent Contractor to determine the number of hours reasonably
necessary to fulfill the spirit and purpose of this Agreement.
Section Eight
Status of Independent Contractor
The Independent Contractor and the Corporation acknowledge and agree that
the Independent Contractor shall perform the Services hereunder as an
"independent contractor" and not as agent or employee of the Corporation, and
nothing herein shall be construed to be inconsistent with this relationship or
status. The Independent Contractor, its agents and employees shall have no
express or implied authority to act for, represent, bind or obligate the
Corporation in any manner whatsoever. Accordingly, it is expressly understood
and agreed between the parties hereto that the Independent Contractor is solely
responsible for all labor and expenses in connection with the performance of
every obligation of the Independent Contractor hereunder. The Independent
Contractor assumes the responsibility for furnishing the Services hereunder and
shall withhold and pay when due all employment taxes required by federal, state
and local laws, including, without limitation, all social security and
withholding taxes, and contributions for unemployment compensation funds. The
Independent Contractor acknowledges and understands that the Corporation will
not maintain worker's compensation, health or liability insurance on behalf of
the Independent Contractor.
Section Nine
Materials and Equipment
Except as provided herein, the Independent Contractor shall furnish, at
its own expense, all materials and equipment, if any, necessary to carry out the
terms of this Agreement.
Section Ten
Work Standards
The Independent Contractor shall adhere to professional standards and
shall perform all Services required under this Agreement in manner consistent
with generally accepted procedural standards.
Section Eleven
Copyrights and Patents
The Corporation shall own all copyrights and/or patents developed by the
Independent Contractor while performing the Services provided under this
Agreement. All improvements,
4
<PAGE>
discoveries, ideas, inventions, concepts, trade names, trademarks, service
marks, logos, processes, products, computer programs or software, subroutines,
source codes, object codes, algorithms, machines, apparatuses, items of
manufacture or composition of matter, or any new uses therefore or improvements
thereon, or any new designs or modifications or configurations of any kind, or
work of authorship of any kind, including, without limitation, compilations and
derivative works, and techniques (whether or not copyrightable or patentable)
conceived, developed, reduced to practice or otherwise made by the Independent
Contractor, or any of the Independent Contractor's agents or employees, and in
any way related to the rendering of Services under this Agreement shall become
property of the Corporation. The Independent Contractor agrees to assign, and
hereby does assign (and hereby agrees to cause its agents and employees to
assign), to the Corporation any and all copyrights, patents and propriety rights
in any such invention to the Corporation, together with the right to file and/or
own wholly without restrictions applications for United States and foreign
patents, trademark registration and copyright registration and any patent, or
trademark or copyright registration issuing thereon.
Section Twelve
Privileged and Confidential Information
12.1 The Corporation and the Independent Contractor acknowledge that the
Corporation has acquired and developed, and will continue to acquire and
develop, information related to its business and its industry which is secret
and confidential in character and is and will continue to be of great and unique
value to the Corporation and its subsidiaries and affiliates. The term
"confidential information" as used in this Agreement shall mean all trade
secrets, propriety information and other data or information (and any tangible
evidence, record or representation thereof), whether prepared, conceived or
developed by an employee of the Corporation or received by the Corporation from
an outside source (including the Independent Contractor), which is in the
possession of the Corporation, which is maintained in confidence by the
Corporation or any subsidiary or affiliate of the Corporation or which might
permit the Corporation or any subsidiary or affiliate of the Corporation or any
of their respective customers to obtain a competitive advantage over competitors
who do not have access to such trade secrets, proprietary information, or other
data or information, including, without limitation, information concerning the
Corporation's seasonal and product line plans, store and brand image and trade
dress developments and strategies, business plans, real estate leasing terms,
conditions and plans, occupancy costs, customers, suppliers, designs,
advertising plans, marketing plans, merchandising plans, market studies and
forecasts, competitive analyses, pricing policies, employee lists, and the
substance of agreements with landlords, tenants, subtenants, customers,
suppliers and others. The term "confidential information" also includes
information that the Corporation has in its possession from third parties, that
such third parties claim to be confidential or proprietary, and which the
Corporation has agreed to keep confidential. However, the term "confidential
information" as used in this Agreement shall not include information that is
generally known to the public or in the trade as a result of having been
disclosed by the Corporation in a press release or in a filing by the
Corporation with the U.S. Securities and Exchange Commission. The Independent
Contractor shall keep and maintain all confidential information in complete
secrecy, and shall not use for itself or others, or divulge to others, any
knowledge, data or other information relating to any matter which is
confidential information relating to the Corporation obtained by the Independent
Contractor as a result of its Services, unless authorized in writing by the
Corporation in advance of such use or disclosure. All written information made
available to the Independent Contractor by the Corporation, which concerns the
business activities of the Corporation, shall be the Corporation's property and
shall,
5
<PAGE>
if requested in writing by the Corporation, be delivered to it on the
termination or expiration of this Agreement.
12.2 The Independent Contractor acknowledges that money alone will not
adequately compensate the Corporation for breach of any confidentiality
agreement herein and, therefore, agrees that in the event of the breach or
threatened breach of such agreement, in addition to other rights and remedies
available to the Corporation, at law, in equity or otherwise, the Corporation
shall be entitled to injunctive relief compelling specific performance of, or
other compliance with, the terms hereof, and such rights and remedies shall be
cumulative.
Section Thirteen
Indemnification
13.1 The Independent Contractor shall defend, indemnify and hold harmless
the Corporation (including, without limitation, the Corporation's successors,
assigns, subsidiaries, affiliates and contractors and their respective officers,
directors, employees, agents and other representatives) from and against all
liabilities, losses, claims, actions, damages, expenses (including but not
limited to attorneys' fees), suits and assessments (whether proven or not) based
upon or arising out of damage or injury (including death) to persons or property
caused by Independent Contractor in connection with the performance of Services,
or based upon any violation of any applicable statute, law, ordinance, code or
regulation. The Independent Contractor shall also defend, indemnify and hold
harmless the Corporation against all liability and loss in connection with, and
shall assume full responsibility for, payment of all federal, state, or local
income taxes imposed or required under applicable laws with respect to Services
performed and compensation paid the Independent Contractor under this Agreement.
13.2 Notwithstanding anything contained in the preceding paragraph, the
Corporation shall defend, indemnify and hold harmless the Independent Contractor
(including, without limitation, the Independent Contractor's successors,
assigns, subsidiaries, affiliates and contractors and their respective officers,
directors, employees, agents and other representatives) from and against all
liabilities, losses, claims, actions, damages, expenses (including but not
limited to attorneys' fees), suits and assessments (whether proven or not) based
upon or arising out of damage or injury (including death) to persons or property
caused by the Corporation in connection with the Corporation's performance of
its obligations under this Agreement (including, but not limited to, claims
based upon the material supplied to the Independent Contractor by the
Corporation and utilized by the Independent Contractor in performing the
Services), or based upon any violation of any applicable statute, law,
ordinance, code or regulation.
Section Fourteen
Compliance with Laws
The parties agree that all obligations to be performed by the parties
under this Agreement shall be performed in compliance with all then applicable
federal, state and local laws and regulations.
6
<PAGE>
Section Fifteen
Approvals
15.1 In addition to approvals required by other Sections of this
Agreement, the Independent Contractor shall seek to obtain the Corporation's
written approval in advance of all expenditures in excess of two thousand
dollars ($2,000.00) incurred in connection with the rendering of Services and
for which the Independent Contractor seeks reimbursement from the Corporation.
In addition, all estimates presented to the Corporation by the Independent
Contractor for the Corporation's consideration and/or approval shall be
carefully prepared and shall be based upon reasonable assumptions using the
Independent Contractor's best judgment.
15.2 All approvals by the Corporation must be in writing and shall be
sought from the President and Chief Executive Officer of the Corporation, or
such other person that the Board of Directors may designate in writing from time
to time. As of the date of this Agreement the President and Chief Executive
Officer of the Corporation is John J. Schultz. If the Corporation fails to
approve in writing any matter submitted for approval within fifteen (15) days
from the date of its submission, then the matter submitted for approval shall be
deemed to be disapproved.
Section Sixteen
Notices
All notices and other communications required or permitted to be given
under this Agreement by one party to another shall be in writing and the same
shall be deemed effective when delivered (i) in person, (ii) by United States
certified or registered first class or priority mail, return receipt requested,
or (iii) by nationally-recognized overnight delivery or courier service
requiring a signature acknowledging receipt, and addressed to the party's
principal offices set forth on page one of this Agreement, or at such other
address or facsimile telephone number for a party as may be designated in
writing by such party to the other in accordance with the requirements of this
Section 16.
Section Seventeen
Governing Law
The place of this Agreement, its status, or forum is at all times in the
County of Norfolk, Commonwealth of Massachusetts, in which County and
Commonwealth all matters, whether sounding in contract or in tort relating to
the validity, construction, interpretation, and enforcement of this Agreement,
shall be determined. This Agreement shall be construed and enforced according to
the laws of Massachusetts without regard to its principles of conflicts of laws.
Any action on the Agreement or arising out of its terms and conditions shall be
instituted and litigated in the courts of the Commonwealth of Massachusetts. In
accordance, the parties submit to the jurisdiction of the courts of the
Commonwealth of Massachusetts. The prevailing party in any such litigation shall
be entitled to recover its reasonable attorneys' fees in addition to any damages
that may result from a breach of this Agreement.
7
<PAGE>
Section Eighteen
Miscellaneous
This Agreement may not be modified, amended, or waived, except by a
writing executed by both parties hereto. This Agreement, and all attached or
referenced schedules, exhibits and attachments, constitutes the full and entire
understanding and agreement between the two parties with regard to the subject
matter hereof and supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter. The section headings herein are
for convenience of reference only, are not part of this Agreement and shall have
no effect on the interpretation of this Agreement or the provisions hereof.
Neither this Agreement nor any interest therein, or claim thereunder, shall be
assigned or transferred by the Independent Contractor to any party or parties.
If any provision of this Agreement shall to any extent be invalid or
unenforceable, such invalid or unenforceable provision shall be reformed to the
extent required to make it valid and enforceable to the maximum extent possible
under law, and the remainder of this Agreement shall not be affected thereby,
with each provision hereof being valid and enforceable to the fullest extent
permitted by law. This Agreement shall be binding upon, and inure to the benefit
of, the parties and their respective successors and permitted assigns. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have signed, sealed and delivered this
Consulting Agreement in duplicate, each of which is deemed an original, as of
the Effective Date.
ATTEST: DESIGNS, INC.
/s/ Anthony E. Hubbard By: /s/ John J. Schultz
(Signature)
Print Name: John J. Schultz
Print Title: President & CEO
ATTEST: BUSINESS VENTURES INTERNATIONAL, INC.
/s/ Lynn Patron By: /s/ Robert Patron
(Signature)
Print Name: Robert Patron
Print Title:
8
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SCHEDULE A
Consulting Agreement
Between
BUSINESS VENTURES INTERNATIONAL, INC.
And
DESIGNS, INC.
Dated as of
November 14, 1999
SERVICES
The Services to be performed by the Independent Contractor are to analyze,
consult with and advise the Corporation, as requested from time to time by the
Corporation, with regard to any or all of its real estate matters including:
(a) review of the financial terms and structure of all proposed
transactions and existing agreements and arrangement involving the
Corporation and the leasing or acquisition of real estate and/or
other type of real estate transaction;
(b) review of all documents related to all proposed transactions and
existing agreements and arrangements involving the Corporation and
the leasing or acquisition of real estate and/or other type of real
estate transaction, such documents to include, without limitation,
leases, options, lease amendments, lease terminations, option
exercise notices, site plans, financial analyses and brokerage
and/or consulting agreements;
(c) direct involvement, as requested by the Corporation, in negotiation
of proposed transactions and re-negotiation of existing agreements
and arrangements involving the Corporation and the leasing or
acquisition of real estate and/or other type of real estate
transaction;
(d) site visits, as necessary and appropriate, including travel for the
purpose of evaluating and or negotiating transactions with respect
to the Corporation's interest or potential interest in real estate;
and
(e) such other related consulting services as may be agreed upon by the
Corporation and the Independent Contractor in accordance with
Section 3 of this Agreement.
9
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SCHEDULE B
Form of Non-Qualified Stock Option Agreement
10
<PAGE>
DESIGNS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
15,000 November 14, 1999
------ -----------------
No. of Shares Date
Designs, Inc., a Delaware corporation (the "Company"), hereby grants to
Business Ventures International, Inc., a Florida corporation
- --------------------------------------------------------------------------------
(the "Optionee"), an Option to purchase on or prior to November 14, 2009 (the
"Expiration Date") all or any part of 15,000 shares (the "Option Shares") of the
Company's Common Stock, $0.01 par value per share ("Common Stock"), at a price
of $1.375 per share, subject to the terms and conditions set forth herein. This
Option shall be governed by the laws of The Commonwealth of Massachusetts,
without regard to its principles of conflicts of laws.
1. Vesting. This Option is immediately and fully vested and is exercisable
with respect to all of the Option Shares.
2. Manner of Exercise. The Optionee may exercise this Option only in the
following manner: from time to time on or prior to the Expiration Date of this
Option, the Optionee may give written notice to the Company of its election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. Said notice shall specify the number of shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (1) in cash, by certified or bank check or other
instrument acceptable to the Board of Directors of the Company; or (2) in the
form of shares of Common Stock that are not then subject to any restrictions
(subject to the discretion of the Board of Directors of the Company); or (3) by
the Optionee delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the option
purchase price; provided that in the event the Optionee chooses to pay the
option purchase price as so provided, the Optionee and the broker shall comply
with such procedures and enter into such agreements of indemnity and other
agreements as the Board of Directors of the Company shall prescribe, if any, as
a condition of such payment procedure. Payment instruments will be received
subject to collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment
therefor, as set forth above, and any agreement, statement or other evidence as
the Company may require to satisfy to itself that the issuance of Option Shares
to be purchased pursuant to the exercise of Options and any subsequent resale of
the shares will be in compliance with applicable laws and regulations.
If requested upon the exercise of this Option, certificates for shares may
be issued in the name of the Optionee jointly with another person, and the
foregoing representations shall be modified accordingly.
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Notwithstanding any other provision hereof, no portion of this Stock
Option shall be exercisable after the Expiration Date hereof.
3. Non-transferability of Option. This Option shall not be transferable by
the Optionee and shall be exercisable only by the Optionee, except, upon written
notice to the Company, the Optionee may transfer this Option to any of (a) an
entity wholly-owned by Robert L. Patron, (b) an entity wholly-owned by the
Optionee, or (c) a trust established by Robert L. Patron for estate planning
purposes.
4. Option Shares. The Option Shares are shares of the Common Stock of the
Company as constituted on the date of grant of this Option. In the event that
the Company effects a stock dividend, stock split or similar change in
capitalization affecting Common Stock, the Board of Directors of the Company
shall make appropriate adjustments in (i) the number of Option Shares remaining
subject to this Option, and (ii) the purchase price per share at which the
Optionee may purchase Option Shares hereunder. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Board of
Directors, in its sole discretion may make such substitution or adjustment in
the number of Option Shares purchasable pursuant to this Option and in the
purchase price per share at which the Optionee may purchase Option Shares
hereunder at it may determine and as may be permitted by the terms of such
transaction, or accelerate, amend or terminate this Option upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of the Option Shares hereunder, shall require payment or other
consideration which the Board of Directors deems equitable in the
circumstances).
5. No Special Rights. This Option will not confer upon the Optionee any
additional rights other than those described herein.
6. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock which may be purchased by
exercise of this Option unless and until a certificate or certificates
representing such shares are duly issued and delivered to the Optionee. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
7. Qualification under Section 422. It is understood and intended that the
Option granted hereunder shall not qualify as an "incentive stock option" as
defined in Section 422 of the Code.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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8. Miscellaneous. Notices hereunder shall be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered to
Optionee at the address set forth below or, in either case, at such other
address for a party as such party may subsequently furnish to the other party in
writing.
DESIGNS, INC.
By: John J. Schultz
(Signature)
Print Name:
Print Title:
Receipt of the foregoing Option is acknowledged and its terms and
conditions are hereby agreed to:
BUSINESS VENTURES INTERNATIONAL, INC.
Date: Febraury 23, 2000 By: /s/ Robert Patron
(Signature)
Print Name: Robert Patron
Print Title: 2/23/00
641 Senaca Road
Great Falls, Virginia 22066
13
Exhibit 10.27
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of March 31, 2000,
between DESIGNS, INC., a Delaware corporation with an office at 66 B Street,
Needham, Massachusetts, 02494 (the "Company"), and David A. Levin, residing at
150 Monadnock Road, Chestnut Hill, Massachusetts 02467 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires that Executive be employed to serve in a
senior executive capacity with the Company, and Executive desires to be so
employed by the Company, upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and the mutual promises,
representations and covenants herein contained, the parties hereto agree as
follows:
1. EMPLOYMENT
The Company hereby employs Executive and Executive hereby accepts
such employment, subject to the terms and condition herein set forth. Executive
shall hold the office of President and Chief Executive Officer reporting to the
Board of Directors of the Company (the "Board of Directors").
2. TERM
The initial term of employment under this Agreement shall begin on
April 10, 2000 (the "Employment Date") and shall continue for a period of two
(2) years from that date, subject to prior termination in accordance with the
terms hereof. However, by written notice to Executive on or prior to the first
anniversary of the Employment Date, the Company has the option to extend the
initial term of employment under this Agreement for an additional one year,
until the third anniversary of the Employment Date. Thereafter, this Agreement
shall automatically be renewed for successive one-year terms on each anniversary
of the Employment Date unless either party shall give the other at least ninety
(90) days written notice prior to such anniversary date that it will not renew
this Agreement.
3. COMPENSATION
(a) As compensation for the employment services to be rendered by
Executive hereunder, including all services as an officer and director if
requested, of the Company and any of its subsidiaries and affiliates, the
Company agrees to pay to Executive, and Executive agrees
<PAGE>
to accept, payable in equal installments in accordance with Company practice, an
annual base salary of $375,000.
(b) In addition to the annual base salary, Executive will be
entitled to receive an annual bonus of up to fifty percent (50%) of his annual
base salary (the "Discretionary Bonus Amount") depending on the performance of
the Company. The Compensation Committee of the Board of Directors shall
determine, in its sole discretion, the amount of the bonus to be paid to
Executive. However, if the Company meets its annual projections for its fiscal
budget plan, as approved by the Board of Directors, the Company shall pay
Executive shall receive a bonus from the Discretionary Bonus amount equal to ten
percent (10%) of his annual base salary.
4. OPTIONS
(a) The Company shall grant to the Executive 75,000 options under
the Company's 1992 Stock Incentive Plan and an additional 225,000 non-qualified
options which are exercisable at a purchase price per share equal to the closing
price of the Common Stock on March 30, 2000. The options will vest pro rata over
a three (3) years period commencing on the Employment Date, with one third of
the total vesting and becoming exercisable on each of the first, second and
third anniversaries of the Employment Date. If on the first anniversary date of
the Employment Date, the Company does not extend the Agreement for an additional
year as discussed in paragraph (2) hereof, the 300,000 options will vest pro
rata over a two (2) year period commencing on the Employment Date, with one half
of the total vesting and becoming exercisable on each of the first and second
anniversaries of the Employment Date. If this Agreement is terminated, then all
options which are not fully vested will be forfeited immediately. The Company
will register at its expense, when any of the 225,000 shares subject to
non-qualified options become vested and exercisable by Executive.
(b) The Executive's options will vest immediately if there is a
"change in control" as defined in the Company's 1992 Stock Incentive Plan.
5. EXPENSES
The Company shall pay or reimburse Executive, in accordance with the
Company's policies and procedures and upon presentment of suitable vouchers, for
all reasonable business and travel expenses which may be incurred or paid by
Executive in connection with his employment hereunder. Executive shall comply
with such restrictions and shall keep such records as the Company may deem
necessary to meet the requirements of the Internal Revenue Code of 1986, as
amended from time to time, and regulations promulgated thereunder.
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6. OTHER BENEFITS
(a) Executive shall be entitled to such vacations and to participate
in and receive any other benefits customarily provided by the Company to its
senior management personnel (including any profit sharing, pension, 401(k),
short and long-term disability insurance, hospital, major medical insurance and
group life insurance plans in accordance with the terms of such plans), all as
determined from time to time by the Compensation Committee of the Board of
Directors.
(b) The Company shall, during the term of Executive's employment
hereunder, provide Executive with an automobile allowance in the amount of
$600.00 per month.
7. DUTIES
(a) Executive shall perform such duties and functions as the Board
of Directors of the Company shall from time to time determine and Executive
shall comply in the performance of his duties with the policies of, and be
subject to the direction of, the Board of Directors. Executive shall serve as an
officer of the Company without further compensation.
(b) At the request of the Board of Directors, Executive shall serve,
without further compensation, as an executive officer and/or director of any
subsidiary or affiliate of the Company and, in the performance of such duties,
Executive shall comply with the directives and policies of the Board of
Directors of each such subsidiary or affiliate.
(c) The Company shall use its best efforts to cause Executive to be
appointed to the Board of Directors of the Company and the next Annual Meeting
of Stockholders and Executive shall serve as a Director without further
compensation.
(d) During the term of this Agreement, Executive shall devote
substantially all of his time and attention, vacation time and absences for
sickness excepted, to the business of the Company, as necessary to fulfill his
duties. Executive shall perform the duties assigned to him with fidelity and to
the best of his ability. Notwithstanding anything herein to the contrary,
subject to the foregoing, Executive may engage in other activities so long as
such activities do not unreasonably interfere with Executive's performance of
his duties hereunder and do not violate Section 10 hereof.
(e) Nothing in this Section 7 or elsewhere in this Agreement shall
be construed to prevent Executive from investing or trading in nonconflicting
investments as he sees fit for his own account, including real estate, stocks,
bonds, securities, commodities or other forms of investments, provided such
activities do not unreasonably interfere with Executive's performance of his
duties hereunder.
(f) The principal location at which the Executive shall perform his
duties hereunder shall be at the Company's offices in Needham, Massachusetts or
at such other location as may be designated from time to time by the Board of
Directors of the Company.
3
<PAGE>
Notwithstanding the foregoing, Executive shall perform such services at such
other locations as may be required for the proper performance of his duties
hereunder, and Executive recognizes that such duties may involve travel.
8. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION
(a) Executive's employment hereunder may be terminated at any time:
(i) upon the determination by the Board of Directors that
Executive's performance of his duties has not been fully satisfactory for any
reason which would not constitute justifiable cause (as hereinafter defined)
upon thirty (30) days' prior written notice to Executive; or
(ii) upon the determination by the Board of Directors that
there is justifiable cause (as hereinafter defined) for such termination upon
ten (10) days' prior written notice to Executive.
(b) Executive's employment shall terminate upon:
(i) the death of Executive; or
(ii) the "disability" of Executive (as hereinafter defined in
subsection (c) herein) pursuant to subsection (g) hereof.
(c) For the purposes of this Agreement, the term "disability" shall
mean the inability of Executive, due to illness, accident or any other physical
or mental incapacity, substantially to perform his duties for a period of three
(3) consecutive months or for a total of six (6) months (whether or not
consecutive) in any twelve (12) month period during the term of this Agreement,
as reasonably determined by the Board of Directors of the Company after
examination of Executive by an independent physician reasonably acceptable to
Executive.
(d) For the purposes hereof, the term "justifiable cause" shall mean
and be limited to: any repeated willful failure or refusal to perform any of the
duties pursuant to this Agreement where such conduct shall not have ceased
within 10 days following written warning from the Company; Executive's
conviction (which, through lapse of time or otherwise, is not subject to appeal)
of any crime or offense involving money or other property of the Company or its
subsidiaries or affiliates or which constitutes a felony in the jurisdiction
involved; Executive's performance of any act or his failure to act, as to which
if Executive were prosecuted and convicted, a crime or offense involving money
or property of the Company or its subsidiaries or affiliates, or a crime or
offense constituting a felony in the jurisdiction involved, would have occurred;
any unauthorized disclosure by Executive to any person, firm or corporation
other than the Company, its subsidiaries or affiliates and their respective
directors, officers and employees (or other persons fulfilling similar
functions), of any confidential information or trade secret of the Company or
any of its subsidiaries or affiliates; any attempt by Executive to secure any
4
<PAGE>
personal profit in connection with the business of the Company or any of its
subsidiaries and affiliates; or the engaging by Executive in any business other
than the business of the Company and its subsidiaries and affiliates which
unreasonably interferes with the performance of his duties hereunder. Upon
termination of Executive's employment for justifiable cause, this Agreement
shall terminate immediately and Executive shall not be entitled to any amounts
or benefits hereunder other than such portion of Executive's annual salary and
reimbursement of expenses pursuant to Section 5 hereof as has been accrued
through the date of his termination of employment.
(e) If the Company terminates this Agreement without "justifiable
cause" as provided in paragraph 8 (a) (i) above, the Company shall pay Executive
the lesser of: (i) the base salary for the remaining term of this Agreement or
(ii) an amount equal to one half of the Executive's annual base salary. If the
remaining term of this Agreement on the date of termination is more than the six
(6) month period for which Executive is compensated pursuant to (ii) above, the
Executive must make a good faith effort to find new employment and mitigate his
alleged damages and any costs and expenses to the Company. The Company will pay
any amount due and owing under (i) and (ii) above in accordance with the payment
schedule in 3 (a), until set amount is payable in full.
(f) If Executive shall die during the term of his employment
hereunder, this Agreement shall terminate immediately. In such event, the estate
of Executive shall thereupon be entitled to receive such portion of Executive's
annual salary and reimbursement of expenses pursuant to Section 5 as has been
accrued through the date of his death.
(g) Upon Executive's "disability", the Company shall have the right
to terminate Executive's employment. Notwithstanding any inability to perform
his duties, Executive shall be entitled to receive his base salary and
reimbursement of expenses pursuant to Section 5 as provided herein until he
begins to receive long-term disability insurance benefits under the policy
provided by the Company pursuant to Section 6 hereof. Any termination pursuant
to this subsection (g) shall be effective on the later of (i) the date 30 days
after which Executive shall have received written notice of the Company's
election to terminate or (ii) the date he begins to receive long-term disability
insurance benefits under the policy provided by the Company pursuant to Section
6 hereof.
(h) Upon the resignation of Executive in any capacity, that
resignation will be deemed to be a resignation from all offices and positions
that Executive holds with respect to the Company and any of its subsidiaries and
affiliates.
(i) In the event Executive is terminated without justifiable cause
(as defined herein) within one (1) year after a Change of Control has occurred,
Executive shall receive in full satisfaction of any obligation relating to
Executive's employment or the termination thereof the greater of: (a) the base
salary for the remaining term of this Agreement, or (b) an amount equal to
5
<PAGE>
the current base salary for one (1) year. The Company must make a lump sum
payment of all money due and owing within fifteen (15) days of termination.
(j) For the purposes of the paragraph 8, "Changes of Control" shall
mean (i) any sale of all or substantially all of the assets of the Company to
any person or group of related persons within the meaning of Section 13 (d) of
the Securities Exchange Act of 1934, as amended ("Group"), (ii) any acquisition
by any person or Group of shares of capital stock of the Company representing
more than 50% of the aggregate voting power of the outstanding capital stock of
the Company entitled under ordinary circumstances to elect the Directors of the
Company ("Voting Stock") or (iii) any replacement of a majority of the Board of
Directors of the Company over the twelve-month period following the acquisition
of shares of the capital stock of the Company representing more than 10% of the
Voting Stock by any person or Group which does not currently own more than 10%
of such Voting Stock (unless such replacement shall have been approved by the
vote of the majority of the Directors then in office who either were members of
the Board of Directors at the beginning of such twelve-month period or whose
elections as Directors was previously so approved).
9. REPRESENTATION AND AGREEMENTS OF EXECUTIVE
(a) Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required hereunder, and that there are
no employment contracts or understandings, restrictive covenants or other
restrictions, whether written or oral, preventing the performance of his duties
hereunder.
(b) Executive agrees to submit to a medical examination and to
cooperate and supply such other information and documents as may be required by
any insurance company in connection with the Company's obtaining life insurance
on the life of Executive, and any other type of insurance or fringe benefit as
the Company shall determine from time to time to obtain.
10. NON-COMPETITION
(a) Executive agrees that during his employment by the Company and
during the one year period following the termination of Executive's employment
hereunder (the "Non-Competitive Period"), Executive shall not, directly or
indirectly, as owner, partner, joint venturer, stockholder, employee, broker,
agent, principal, trustee, corporate officer, director, licensor, or in any
capacity whatsoever, engage in, become financially interested in, be employed
by, render any consultation or business advice with respect to, or have any
connection with, any business which is competitive with products or services of
the Company or any of its subsidiaries and affiliates, in any geographic area in
the United States of America where, at the time of the termination of his
employment hereunder, the business of the Company or any of its subsidiaries and
affiliates was being conducted or was proposed to be conducted in any manner
whatsoever; provided, however, that Executive may own any securities of any
corporation which is engaged in such business and is publicly owned and traded
but in an amount not to exceed at any one time one
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<PAGE>
percent (1%) of any class of stock or securities of such corporation. In
addition, Executive shall not, during the Non-Competitive Period, notify
directly or indirectly, request or cause any suppliers or customers with whom
the Company or any of its subsidiaries and affiliates has a business
relationship to cancel or terminate any such business relationship with the
Company or any of its subsidiaries and affiliates or solicit, interfere with or
entice from the Company any employee (or former employee) of the Company.
(b) If any portion of the restrictions set forth in this Section 10
should, for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) Executive acknowledges that the Company conducts business
throughout the Eastern portion of United States (all states east of the
Mississippi River and Missouri) , that its sales and marketing prospects are for
continued expansion throughout the United States and that, therefore, the
territorial and time limitations set forth in this Section 10 are reasonable and
properly required for the adequate protection of the business of the Company and
its subsidiaries and affiliates. In the event any such territorial or time
limitation is deemed to be unreasonable by a court of competent jurisdiction,
Executive agrees to the reduction of the territorial or time limitation to the
area or period which such court shall deem reasonable.
(d) The existence of any claim or cause of action by Executive
against the Company or any subsidiary or affiliate shall not constitute a
defense to the enforcement by the Company or any subsidiary or affiliate of the
foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
11. INVENTIONS AND DISCOVERIES
(a) Upon execution of this Agreement and thereafter Executive shall
promptly and fully disclose to the Company, and with all necessary detail for a
complete understanding of the same, all existing and future developments,
know-how, discoveries, inventions, improvements, concepts, ideas, writings,
formulae, processes and Methods (whether copyrightable, patentable or otherwise)
made, received, conceived, acquired or written during working hours, or
otherwise, by Executive (whether or not at the request or upon the suggestion of
the Company) during the period of his employment with, or rendering of advisory
or consulting services to, the Company or any of its subsidiaries and
affiliates, solely or jointly with others in or relating to any activities of
the Company or its subsidiaries and affiliates known to him as a consequence of
his employment or the rendering of advisory and consulting services hereunder
(collectively the "Subject Matter").
(b) Executive hereby assigns and transfers, and agrees to assign and
transfer, to the Company, all his rights, title and interest in and to the
Subject Matter, and Executive further agrees to deliver to the Company any and
all drawings, notes, specifications and data relating to the Subject Matter, and
to execute, acknowledge and deliver all such further papers,
7
<PAGE>
including applications for copyrights or patents, as may be necessary to obtain
copyrights and patents for any thereof in any and all countries and to vest
title thereto to the Company. Executive shall assist the Company in obtaining
such copyrights or patents during the term of this Agreement, and any time
thereafter on reasonable notice and at mutually convenient times, and Executive
agrees to testify in any prosecution or litigation involving any of the Subject
Matter; provided, however, that Executive shall be compensated in a timely
manner at the rate of $1,000 per day (or portion thereof), plus out-of-pocket
expenses incurred in rendering such assistance or giving or preparing to give
such testimony if it is required after the termination of this Agreement.
12. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
(a) Executive shall not, during the term of this Agreement, or at
any time following termination of this Agreement, directly or indirectly,
disclose or permit to be known (other than as is required in the regular course
of his duties (including without limitation disclosures to the Company's
advisors and consultants) or as required by law (in which case Executive shall
give the Company prior written notice of such required disclosure) or with the
prior written consent of the Board of Directors of the Company), to any person,
firm or corporation, any confidential information acquired by him during the
course of, or as an incident to, his employment or the rendering of his advisory
or consulting services hereunder, relating to the Company or any of its
subsidiaries and affiliates, the directors of the Company or its subsidiaries
and affiliates, any supplier or customer of the Company or any of their
subsidiaries and affiliates, or any corporation, partnership or other entity
owned or controlled, directly or indirectly, by any of the foregoing, or in
which any of the foregoing has a beneficial interest, including, but not limited
to, the business affairs of each of the foregoing. Such confidential information
shall include, but shall not be limited to, proprietary technology, trade
secrets, patented processes, research and development data, know-how, market
studies and forecasts, financial data, competitive analyses, pricing policies,
employee lists, personnel policies, the substance of agreements with customers,
suppliers and others, marketing or dealership arrangements, servicing and
training programs and arrangements, supplier lists, customer lists and any other
documents embodying such confidential information. This confidentiality
obligation shall not apply to any confidential information which thereafter
becomes publicly available other than pursuant to a breach of this Section 12(a)
by Executive.
(b) All information and documents relating to the Company and its
affiliates as hereinabove described (or other business affairs) shall be the
exclusive property of the Company, and Executive shall use commercially
reasonable best efforts to prevent any publication or disclosure thereof. Upon
termination of Executive's employment with the Company, all documents, records,
reports, writings and other similar documents containing confidential
information, including copies thereof then in Executive's possession or control
shall be returned and left with the Company.
8
<PAGE>
13. SPECIFIC PERFORMANCE
Executive agrees that if he breaches, or threatens to commit a
breach of, any of the provisions of Sections 10, 11 or 12 (the "Restrictive
Covenants"), the Company shall have, in addition to, and not in lieu of, any
other rights and remedies available to the Company under law and in equity, the
right to have the Restrictive Covenants specifically enforced by a court of
competent jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the Company and that
money damages would not provide an adequate remedy to the Company.
Notwithstanding the foregoing, nothing herein shall constitute a waiver by
Executive of his right to contest whether a breach or threatened breach of any
Restrictive Covenant has occurred.
14. AMENDMENT OR ALTERATION
No amendment or alteration of the terms of this Agreement shall be
valid unless made in writing and signed by both of the parties hereto.
15. GOVERNING LAW
This Agreement 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.
16. SEVERABILITY
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES
Any notices required or permitted to be given hereunder shall be
sufficient if in writing, and if delivered by hand or courier, or sent by
certified mail, return receipt requested, to the addresses set forth above or
such other address as either party may from time to time designate in writing to
the other, and shall be deemed given as of the date of the delivery or at the
expiration of three days in the event of a mailing.
18. WAIVER OR BREACH
It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed as a waiver of
any subsequent breach by that same party.
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19. ENTIRE AGREEMENT AND BINDING EFFECT
This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof, supersedes all prior agreements, both
written and oral, between the parties with respect to the subject matter hereof,
and shall be binding upon and inure to the benefit of the parties hereto and
their respective legal representatives, heirs, distributors, successors and
assigns.
20. SURVIVAL.
Except as otherwise expressly provided herein, the termination of
Executive's employment hereunder or the expiration of this Agreement shall not
affect the enforceability of Sections 5, 8, 10, 11, 12 and 13 hereof.
21. FURTHER ASSURANCES
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS
The Section headings appearing in this Agreement are for the
purposes of easy reference and shall not be considered a part of this Agreement
or in any way modify, demand or affect its provisions.
23. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, under
seal, as of the date and year first above written.
DESIGNS, INC.
By: /s/ JOHN J. SCHULTZ 3/31/2000
-------------------------------
Its: PRESIDENT & CEO
------------------------------
/s/ DAVID LEVIN
-----------------------------------
David Levin
10
Exhibit 10.28
SEVERANCE AGREEMENT
This Severance Agreement is made and entered into as of this 12 day of
January, 2000 by and between Designs, Inc. (the "Company"), a corporation
organized and existing under the laws of Delaware with a principal place of
business at 66 B Street, Needham, Massachusetts 02494, and Joel H. Reichman
("Reichman"), an individual residing at 46 Ralph Road, Marblehead, Massachusetts
01945.
WHEREAS, the Company and Reichman are parties to an Employment Agreement
dated as of October 16, 1995 (the "Employment Agreement") whereby Reichman was
employed as President and Chief Executive Officer of the Company; and
WHEREAS, the Company and Reichman wish to resolve Reichman's separation
from employment with the Company and establish the terms of Reichman's severance
arrangement.
NOW THEREFORE, in consideration of the promises and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Separation Date. The Company and Reichman agree that the effective date
of Reichman's separation from the Company was November 19, 1999 (the "Separation
Date"). From and after the Separation Date, Reichman was no longer an employee
of the Company and had no further duties or responsibilities to act on behalf of
the Company, except as provided herein.
2. Severance Payments. The Company shall pay Reichman the aggregate sum of
Five Hundred Seventy Three Thousand Five Hundred Fifty Seven Dollars and Fifty
Cents ($573,557.50) (the "Severance Payment"), in accordance with the attached
Payment Schedule. Payments shall be made by direct deposit to Reichman's account
and are deemed paid on the date the deposits are made. Reichman shall be liable
for, and shall pay
<PAGE>
in full when due, any and all local, state and federal income taxes related to
the Severance Payment. Reichman will receive a Form 1099 from the Company at the
end of each calendar year. To the extent Reichman accepts employment after the
Separation Date, the Company agrees that the Severance Payment may not be offset
by any amount he receives from a future employer.
3. Medical/Dental Insurance. To the extent permitted by the applicable
insurance policies, the Company shall continue to provide Reichman with family
medical and dental insurance coverage during the period from the Separation Date
until May 31, 2000, at Reichman's sole cost and expense. Thereafter, Reichman
shall be entitled to apply for and receive continuation of medical insurance
coverage at his sole cost and expense through COBRA until November 30, 2001. The
current cost for Reichman's family medical and dental insurance coverage for the
period from the Separation Date until May 31, 2000 is set forth on the attached
Payment Schedule and the costs shall be deducted from the Severance Payment due
to Reichman from the Company.
4. Vehicle. The Company shall transfer all of its rights, title and
interest in the 1997 Range Rover HSE 4.6 vehicle to Reichman in "AS IS"
condition. The Company hereby acknowledges and agrees that Reichman purchased
the vehicle from the Company for $26,442.50 in an arm's length transaction.
5. Family Discount Card. Reichman shall be permitted to retain his Family
Discount Card ("Card") until the date of the last Severance Payment, at which
time Reichman shall immediately return the Card to the Company. Reichman shall
only be permitted to use the Card to purchase merchandise for his immediate
family.
6. Legal Fees. In the event either party breaches any of such party's
obligations under this Severance Agreement, the non-breaching party shall be
entitled to recover all reasonable costs incurred by such non-breaching party in
enforcing the terms of the Severance Agreement, including reasonable attorneys'
fees. The prevailing party shall be entitled to recover its reasonable
attorneys' fees and expenses in any litigation that arises out of or relates to
this Severance Agreement.
7. Options. Reichman hereby acknowledges and agrees that any and all
incentive stock options, non-qualified stock options and/or any other stock
options granted
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to him during his employment with the Company shall expire and/or terminate as
of the date of this Severance Agreement.
8. Continued Assistance. Reichman agrees that he will devote whatever time
is necessary after the Separation Date to work with and assist the Company in
any litigation, arbitration or other proceeding that is currently pending or
threatened involving the Company, which shall include, but not be limited to,
testifying at any deposition, hearing, proceeding or trial and meeting with
representatives of the Company to discuss the factual history of such matters.
The Company agrees to compensate Reichman for all reasonable out of pocket
expenses associated with his cooperation pursuant to this paragraph. The Company
agrees further to schedule such assistance/cooperation at such times as to
minimize inconvenience and/or disruption to Reichman's professional and personal
schedule.
9. References. All responses to any inquiries made to the Company
regarding Reichman's employment references shall be limited to providing dates
of employment, title and salary information. If additional information is
requested, the Company may state that the foregoing information is the only
information that the Company can provide or words to that effect.
10. Non-disparagement. The Company agrees that its officers and directors
will not make any public or private statement that disparages Reichman unless
required by law and that it will use its best efforts to have its agents,
employees and consultants comply with this provision. Reichman agrees that he
will not make any public or private statement which disparages the Company or
its officers, directors, employees or consultants unless required by law, and
that he will use his best efforts to have his agents and consultants comply with
this provision.
11. Confidentiality. The parties hereto agree that the terms and
conditions of this Severance Agreement shall be treated as confidential and
shall not be disclosed except as necessary to their respective employees,
officers, directors and financial, investment and legal advisors, as required by
law, or to enforce the terms of this Severance Agreement. Reichman may also
disclose the terms and conditions of the Severance Agreement to his immediate
family. In the event Reichman and/or the Company disclose the terms and
conditions of the Severance Agreement to any of the foregoing persons or
entities, they
3
<PAGE>
shall advise such persons and/or entities that the terms and conditions of this
Severance Agreement are confidential and that they shall not disclose the
information to any other person or entity. Notwithstanding the foregoing, the
parties acknowledge and agree (i) that disclosure of this Severance Agreement
and/or the material terms thereof will likely be required by the Company in its
filings with the Securities and Exchange Commission, and (ii) that the Severance
Agreement or the material terms thereof may be disclosed to State Street Bank
and Trust Company.
12. Non-Disclosure.
(a) Reichman agrees that he will not disclose to any person or
entity, either orally or in written form, except as required by law, any
confidential information relating to the Company or any of its
subsidiaries and affiliates, the directors of the Company or its
subsidiaries and affiliates, any client of the Company or any of its
subsidiaries and affiliates, or any corporation, partnership or other
entity owned or controlled, directly or indirectly, by any of the
foregoing, or in which any of the foregoing has a beneficial interest,
including, but not limited to, the business affairs of each of the
foregoing. Such confidential information shall include, but shall not be
limited to, proprietary technology, trade secrets, patented processes,
research and development data, know-how, market studies and forecasts,
competitive analyses, pricing policies, employee lists, personnel
policies, the substance of agreements with customers, suppliers and
others, marketing or dealership arrangements, servicing and training
programs and arrangements, customer lists and any other documents,
including copies of such information in electronic form, embodying such
confidential information.
(b) The non-disclosure obligation set forth above shall not apply to
any information (i) which was in the public domain at the time of
disclosure or (ii) which thereafter fell into the public domain without
any fault of Reichman and which was not disclosed in violation of any
similar non-disclosure obligation by any other person.
(c) Reichman hereby represents that he left with the Company all
documents, computer disks, records, reports, writings and other similar
documents containing confidential information, including copies thereof
then in his possession
4
<PAGE>
or control, except those documents which are his personal copies of
documents relating to the terms and conditions of his employment with or
resignation from the Company. Reichman further represents that, except as
provided herein, he returned to the Company all other assets and/or
property belonging to the Company.
13. Non-Competition and Non-Solicitation.
(a) Reichman agrees that during the period commencing on the
Separation Date and ending on November 19, 2001, he shall not work for
Levi Strauss & Co., and he shall not, directly or indirectly, as owner,
partner, joint venturer, stockholder, employee, broker, agent, principal,
trustee, corporate officer, director, licensor, or in any capacity
whatsoever, engage or assist any person or entity to engage in the Levi's
or Dockers outlet business in any location in any geographic area in the
United States or Puerto Rico; provided, however, that Reichman may own any
securities of any corporation which is engaged in such business and is
publicly owned and traded but in an amount not to exceed at any one time
one percent (1%) of any class of stock or securities of such corporation.
(b) During the period commencing on the Separation Date and ending
on November 19, 2001, Reichman shall not request any suppliers or
customers with whom the Company has a business relationship to cancel or
terminate any such business relationship with the Company or solicit any
employee of the Company to leave the Company's employ. Notwithstanding the
foregoing, nothing contained herein shall constitute the Company's
approval or acquiescence of any actions taken by Reichman after November
19, 2001 to seek to cause the cancellation or termination of any business
relationship between the Company and any third party and the Company
reserves the right to assert any claims it may have against Reichman
arising out of his conduct.
(c) Except for the limitations and restrictions contained in this
Severance Agreement, Reichman and the Company agree that the
post-employment restrictions contained in the Employment Agreement,
including without limitation the post employment competition restrictions
contained in paragraph 9 of the Employment Agreement are hereby waived and
released and shall have no further force or effect, such that Reichman
shall be entitled to accept future employment.
5
<PAGE>
14. Reichman Release. Reichman hereby voluntarily and irrevocably
releases and forever discharges the Company and its subsidiaries (including
their successors and assigns) and each of their current and former officers,
directors, shareholders, employees, consultants, representatives and agents
(hereinafter the "Company Releasees") from all charges, complaints, claims,
promises, agreements, obligations, causes of action, damages, and debts
(including attorneys' fees and costs actually incurred), known or unknown, which
Reichman has, had, or hereinafter may have, directly or indirectly, relating to
or arising out of any conduct pertaining to the most recent proxy contest and
annual meeting of the Company or relating to or arising out of his employment
with or services performed for the Company, from the beginning of the world to
the day of the date of this Severance Agreement, including, without limitation,
all claims for breach of contract, all claims arising out of or relative to
Reichman's employment with the Company and the termination thereof and any
claims Reichman may have under the Employment Agreement, all claims for breach
of an implied covenant of good faith and fair dealing, intentional or negligent
misrepresentation, any acts or omissions by the Company Releasees, and unlawful
discrimination under the common law or any statute (including, without
limitation, Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e, et
seq., the Age Discrimination in Employment Act of 1967, 29 U.S.C. ss.621, et
seq., the Employee Retirement Income Security Act, 29 U.S.C. ss.1001, et seq,
and the Americans with Disabilities Act of 1990, 42 U.S.C. ss.12101, et seq.)
Notwithstanding the foregoing, this Release shall not release or limit
Reichman's rights to indemnification under the terms of the By-Laws of the
Company and under the Indemnification Agreement between Reichman and the Company
dated as of December 10, 1998, as in effect on the date hereof, or to enforce
this Severance Agreement or bring claims for breach thereof.
15. Company Release. The Company, on behalf of itself and its officers,
directors, agents, representatives, subsidiaries, consultants and shareholders
(hereinafter the "Company Releasors") hereby voluntarily and irrevocably
releases and forever discharges Reichman and his heirs and survivors from any
and all charges, complaints, claims, promises, agreements, obligations, causes
of action, damages and debts, (including attorneys' fees and costs actually
incurred), known or unknown, that the Company Releasors, individually or
jointly, have, had or hereinafter may have, directly or indirectly,
6
<PAGE>
relating to or arising out of any conduct pertaining to the most recent proxy
contest and annual meeting of the Company or relating to or arising out of
Reichman's employment with or services performed for the Company from the
beginning of the world to the day of the date of this Severance Agreement,
including, without limitation, all claims for breach of contract, all claims for
breach of an implied covenant of good faith and fair dealing, intentional or
negligent misrepresentation, mismanagement, nondisclosure, or any acts or
omissions by Reichman during the course of his employment or any claims the
Company may have under the Employment Agreement. Notwithstanding the foregoing,
this release shall not limit the Company's rights to enforce this Severance
Agreement or to bring any claims for breach thereof.
16. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Severance Agreement or the breach thereof shall, to the fullest
extent permitted by law, be settled by arbitration in any forum and form agreed
upon by the parties or, in the absence of such an agreement, under the auspices
of the American Arbitration Association ("AAA") in Boston, Massachusetts, in
accordance with the rules of the AAA, including, but not limited to, the rules
and procedures applicable to the selection of arbitrators. Judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. This Section 16 shall be specifically enforceable. Notwithstanding the
foregoing, this Section 16 shall not preclude either party from pursuing a court
action for the sole purpose of obtaining a temporary restraining order or a
preliminary injunction in circumstances in which such relief is appropriate;
provided, however, that any other relief shall be pursued through an arbitration
proceeding pursuant to this Section 16.
17. Trust Agreement. Reichman hereby relinquishes any and all rights,
title and interest that he had, has or may have in, arising out of or relating
to the Trust Agreement ("Trust Agreement") made as of May 12, 1999 by and
between the Company and State Street Bank and Trust Company ("State Street") or
the assets held thereunder. Reichman agrees and consents to the termination of
the Trust Agreement and the return of all trust assets by State Street to the
Company and shall execute any and all documents necessary to accomplish the
termination and return of trust assets. If Reichman fails to execute the
foregoing documents within forty eight (48) hours after receipt of a written
request from the Company, the Company can suspend the payment of the Severance
Payments until
7
<PAGE>
Reichman executes said documents. Notwithstanding the foregoing, this shall not
release or limit Reichman's rights to indemnification under the terms of the
By-Laws of the Company and under the Indemnification Agreement between Reichman
and the Company dated as of December 10, 1998, as in effect on the date hereof.
18. Nature of Agreement. Reichman and the Company acknowledge and agree
that this Severance Agreement is a severance and settlement agreement and shall
not constitute an admission of liability and wrongdoing on the part of either
party.
19. Notices. All notices, requests, demands, and other communications
provided for by this Severance Agreement shall be sufficient if in writing and
delivered in person or sent by registered or certified mail, postage prepaid, to
the other party at the address first above written, or at such other address as
to which the party gives notice, with a copy to:
For the Company: Designs, Inc.
66 B Street
Needham, MA 02494
Attn: Corporate Counsel
and
Peter Smith, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022-39903
For Reichman: Karen E. Schneck
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Copies of all Notices must be delivered or sent in the same manner that
they are sent or delivered to the parties hereto.
20. Entire Agreement. This Severance Agreement is the entire agreement
between the parties relating to the subject matter hereof. The Employment
Agreement shall terminate effective upon the signing of this Severance
Agreement, at which time it shall become null and void.
8
<PAGE>
21. Voluntary Assent. Reichman and the Company affirm that no other
promises or agreements of any kind have been made to or with them by any person
or entity whatsoever to cause them to sign the Severance Agreement, and that
they fully understand the meaning and intent of this Severance Agreement.
Reichman and the Company state and represent that they have had an opportunity
to fully discuss and review the terms of this Severance Agreement with an
attorney, that they have read this Severance Agreement carefully and understand
the contents hereof, that they freely and voluntarily assent to all of the terms
and conditions hereof and that they sign their name of their own free act.
22. Binding Effect. This Severance Agreement shall inure to the benefit
of and be binding upon the Company and Reichman, their respective successors,
executors, administrators, heirs and permitted assigns.
23. Amendment. This Severance Agreement may be amended or modified only
by a written instrument signed by Reichman and a duly authorized representative
of the Company.
24. Severability. In case any provisions of this Severance Agreement
shall be determined by an arbitrator or court of competent jurisdiction to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Severance Agreement shall not in any way be
affected or impaired thereby.
25. Future Cooperation. At any time after execution and exchange of this
Severance Agreement and from time to time, Reichman and the Company, upon
written request from either party to the other, shall execute and deliver such
further documents or instruments as may be reasonably necessary to more fully
effectuate the intention of the parties hereto but limited to such
amplification, definition or effectuation strictly consistent with the terms and
provisions hereof.
26. Applicable Law. This Severance Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
27. Opportunity to Consider; Revoke. Reichman acknowledges that he has
been afforded an opportunity to take at least twenty-one (21) days to consider
this Severance Agreement and has been advised to consult with the attorneys of
his choice prior to executing this Severance Agreement. Reichman acknowledges
that he has had an
9
<PAGE>
adequate opportunity to review this Severance Agreement before its execution.
The parties understand and acknowledge that Reichman will have a period of seven
(7) calendar days following his execution of this Severance Agreement in which
to revoke his consent to this Severance Agreement. Such revocation must be in
writing and shall be transmitted to the Company such that it is actually
received prior to the expiration of the seven-day revocation period.
28. Counterparts. This Severance Agreement may be executed in two (2)
signature counterparts, each of which shall constitute an original, but all of
which taken together shall constitute one and the same instrument.
Executed as a sealed instrument this 15 day of January, 2000.
DESIGNS, INC.
By:/s/ John J. Schultz /s/ Joel H. Reichman
Its: Chief Executive Officer Joel H. Reichman
Hereunto duly authorized
By:Jeffrey M. Unger
Its: Vice President of Corporate Development
Hereunto duly authorized
10
<PAGE>
Joel Reichman Severance Payment Schedule
Insurance
Payment Deduction BI-Weekly Payment
7-Jan 2000 $11,195.10 $0.00 $11,195.10
7-Jan 2000 $25,000.00 $ 266.37 $ 24,733.63
21-Jan 2000 $11,195.10 $ 266.37 $ 10,928.73
4-Feb 2000 $11,195.05 $ 474.79 $ 10,720.26
18-Feb 2000 $11,195.05 $ 450.00 $ 10,745.05
3-Mar 2000 $11,195.05 $ 474.79 $ 10,720.26
17-Mar 2000 $11,195.05 $ 450.00 $ 10,745.05
31-Mar 2000 $11,195.05 $ 266.37 $ 10,928.68
14-Apr 2000 $11,195.05 $ 474.90 $ 10,720.15
28-Apr 2000 $11,195.05 $ 450.00 $ 10,745.05
12-May 2000 $11,195.05 $ 474.90 $ 10,720.15
26-May 2000 $11,195.05 $ 450.00 $ 10,745.05
9-Jun 2000 $11,195.05 $ 266.37 $ 10,928.68
23-Jun 2000 $11,195.05 $ 11,195.05
7-Jul 2000 $11,195.05 $ 11,195.05
21-Jul 2000 $11,195.05 $ 11,195.05
4-Aug 2000 $11,195.05 $ 11,195.05
18-Aug 2000 $11,195.05 $ 11,195.05
1-Sep 2000 $11,195.05 $ 11,195.05
15-Sep 2000 $11,195.05 $ 11,195.05
29-Sep 2000 $11,195.05 $ 11,195.05
13-Oct 2000 $11,195.05 $ 11,195.05
27-Oct 2000 $11,195.05 $ 11,195.05
10-Nov 2000 $11,195.05 $ 11,195.05
24-Nov 2000 $11,195.05 $ 11,195.05
8-Dec 2000 $11,195.05 $ 11,195.05
22-Dec 2000 $11,195.05 $ 11,195.05
5-Jan 2001 $11,195.05 $ 11,195.05
19-Jan 2001 $11,195.05 $ 11,195.05
2-Feb 2001 $11,195.05 $ 11,195.05
16-Feb 2001 $11,195.05 $ 11,195.05
2-Mar 2001 $11,195.05 $ 11,195.05
16-Mar 2001 $11,195.05 $ 11,195.05
30-Mar 2001 $11,195.05 $ 11,195.05
13-Apr 2001 $11,195.05 $ 11,195.05
27-Apr 2001 $11,195.05 $ 11,195.05
11-May 2001 $11,195.05 $ 11,195.05
25-May 2001 $11,195.05 $ 11,195.05
8-Jun 2001 $11,195.05 $ 11,195.05
22-Jun 2001 $11,195.05 $ 11,195.05
6-Jul 2001 $11,195.05 $ 11,195.05
20-Jul 2001 $11,195.05 $ 11,195.05
3-Aug 2001 $11,195.05 $ 11,195.05
17-Aug 2001 $11,195.05 $ 11,195.05
31-Aug 2001 $11,195.05 $ 11,195.05
14-Sep 2001 $11,195.05 $ 11,195.05
28-Sep 2001 $11,195.05 $ 11,195.05
12-Oct 2001 $11,195.05 $ 11,195.05
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<PAGE>
26-Oct 2001 $11,195.05 $ 11,195.05
9-Nov 2001 $11,195.05 $ 11,195.05
23-Nov 2001 $11,195.05 $ 11,195.05
Total $573,557.50 $ 4,764.86 $ 568,792.64
12
Exhibit 10.29
SEVERANCE AGREEMENT
This Severance Agreement is made and entered into as of this 20th day of
January, 2000, by and between Designs, Inc. (the "Company"), a corporation
organized and existing under the laws of Delaware with a principal place of
business at 66 B Street, Needham, Massachusetts 02494, and Scott N. Semel
("Semel"), an individual residing at 54 Knob Hill Street, Sharon, Massachusetts
02067.
WHEREAS, the Company and Semel are parties to an Employment Agreement
dated as of October 16, 1995 (the "Employment Agreement") whereby Semel was
employed as Senior Vice President, General Counsel and Secretary of the Company,
which agreement expires October 15, 2000; and
WHEREAS, the Company and Semel agree to terminate the Employment Agreement
on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the promises and conditions set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Resignation. In consideration of the terms and conditions of this
Severance Agreement, Semel hereby tenders his resignation to the Company
effective January 20, 2000 (the "Resignation Date"), and the Company accepts his
resignation to be effective on the Resignation Date. From and after the
Resignation Date, Semel shall no longer be an employee of the Company and shall
have no further duties or responsibilities on behalf of the Company, except as
provided herein.
2. Severance Payments. The Company shall pay Semel the aggregate sum of
Five Hundred Thirty Thousand Seven Hundred Seventeen Dollars and Forty Cents
($530,717.40) (the "Severance Payment"), in accordance with the attached Payment
Schedule. Payments shall be made by direct deposit into Semel's account into
which direct deposits are currently being made by the Company or into such other
account as Semel may direct in writing, and the Company shall send or cause to
be sent to Semel written confirmation of each such
<PAGE>
deposit. Semel shall be responsible for payment of any and all of his local,
state and federal income taxes related to the Severance Payment. Semel will
receive a Form 1099 from the Company at the end of each calendar year.
3. Security. Within five business days after the Resignation Date, as a
condition to the effectiveness of this Severance Agreement, the Company shall
obtain and shall provide to Semel an irrevocable letter of credit, in a form
reasonable satisfactory to Semel in the aggregate amount of Five Hundred Thirty
Thousand Seven Hundred Seventeen Dollars and Forty Cents ($530,717.40), which
shall secure the outstanding balance remaining from time to time of the
Severance Payment obligation set forth in paragraphs 2 and 10 hereof. The amount
of the letter of credit may be reduced from time to time by an amount not to
exceed the amount, as of the date of said reduction, of the severance payments
theretofore made to Semel pursuant to paragraph 2 hereof and the
deductions/setoffs theretofore made pursuant to paragraphs 4 and 5 hereof, as
reflected on the attached Payment Schedule. Nothing contained in this paragraph
shall be construed to limit the Company's indemnification obligations to Semel
pursuant the Company's By-laws ("By-Laws") and the Indemnification Agreement
dated as of December 10, 1998 ("Indemnification Agreement") between Semel and
the Company.
4. Medical/Dental Insurance. The Company shall continue to provide Semel
with family medical and dental insurance coverage, on the same terms and
conditions that it provides such coverage to its employees, through July 15,
2000. Thereafter, Semel shall be entitled to apply for and receive continuation
of medical insurance coverage at his sole cost and expense through COBRA until
January 15, 2002, at the Company's COBRA rate. Semel's costs for the family
medical and dental insurance coverage for the period from the Resignation Date
until July 15, 2000 are set forth on the attached Payment Schedule and the costs
shall be deducted from the Severance Payments due to Semel from the Company.
5. Car. Semel shall purchase from the Company in "AS IS" condition, and
the Company shall sell to Semel and transfer title thereof to Semel as of the
Resignation Date, the black Audi automobile (vehicle identification
#WAUBG84DOVN000944) which the Company has provided for his use during his
employment at the Company, at a price of $26,935.51. Semel shall pay the
purchase price in three (3) installments, as provided in the
2
<PAGE>
attached Payment Schedule, by setting off said amounts against the amounts due
from the Company to Semel as Severance Payments.
6. Benefits and Perquisites. The Company further agrees that:
(a) The Company shall reimburse Semel for all business and
automobile repair and gasoline expenses reasonably incurred by him through
the Resignation Date in connection with his work as an employee of the
Company, including without limitation all travel expenses, in accordance
with the Company's policies applicable to its senior executives and upon
submission of appropriate documentation thereof.
(b) The Company shall maintain a voicemail address for Semel at the
Company until April 1, 2000.
(c) Until April 1, 2000, the Company shall maintain an e-mail
address for Semel at the Company and shall, at least daily (on business
days), forward all e-mail messages addressed to Semel at the Company's
provided address to his e-mail address outside the Company, which address
Semel shall provide to the Company in writing.
7. Legal Fees. In the event either party breaches any of such party's
obligations under this Severance Agreement, the non-breaching party shall be
entitled to recover all reasonable costs incurred by such non-breaching party in
enforcing the terms of this Severance Agreement, including reasonable attorneys'
fees. The prevailing party shall be entitled to recover its reasonable
attorneys' fees and expenses in any litigation for enforcement of this Severance
Agreement.
8. Family Discount Card. Semel shall be permitted to retain his Family
Discount Card ("Card") until the date of the last Severance Payment, at which
time Semel shall immediately return the Card to the Company. Semel shall only be
permitted to use the Card to purchase merchandise for his immediate family.
9. Options. Semel hereby acknowledges and agrees that any and all
incentive stock options, non-qualified stock options and/or any other stock
options granted to him while an employee of the Company, (including but not
limited to the Thirteen Thousand Three Hundred Thirty-Five (13,335) incentive
stock options granted to him on April 1, 1996 pursuant to the 1992 Stock
Incentive Plan and the Twenty-Six Thousand Six Hundred Sixty-Five (26,665)
non-qualified stock options granted to him on April 1, 1996) shall expire and/or
terminate on the Resignation Date.
3
<PAGE>
10. Acceleration. The Severance Payment shall be accelerated and the
entire balance shall become immediately due and payable upon written Notice from
Semel to the Company upon the occurrence of any of the following events of
default:
(a) The Company defaults in its obligation to make payment when due
of any of the installments of the Severance Payment as provided in
paragraph 2 hereof, and fails to cure said payment default within five (5)
business days after receipt of Notice thereof; or
(b) The Company declares itself bankrupt or insolvent under any
federal or state bankruptcy or insolvency law, or an involuntary petition
in bankruptcy is filed against the Company and is not withdrawn or
dismissed within thirty (30) days of filing thereof.
11. Continued Cooperation. Semel agrees that, from the Resignation Date
through the later of November 8, 2001 or the final resolution of the litigation
pending between the Company and Atlantic Harbor, Inc. f/k/a Boston Trading.
Ltd., Inc., Arnold W. Kline and Jack Stahl, he will assist the Company in any
litigation, arbitration or other proceeding that is currently pending involving
the Company, which assistance may include, but is not limited to, testifying at
any deposition, hearing, proceeding or trial and meeting with representatives of
the Company to discuss the factual history of such matters. Semel agrees to
devote up to thirty-six (36) days in any twelve (12) month period to consulting
with the Company as provided above. Such assistance shall be at times and places
reasonably convenient to Semel and shall not be scheduled to unreasonably
interfere with the performance of Semel's personal or employment commitments.
The parties agree that in the event Semel devotes more than thirty six (36) days
in any twelve (12) month period to consulting with the Company as provided
above, the Company will pay Semel a reasonable consulting fee for any additional
time. The Company acknowledges and agrees that it shall indemnify and hold Semel
harmless from any claims arising out of his providing these ongoing services to
the Company. If, in the reasonable opinion of the Company's outside counsel,
Semel needs personal legal counsel in connection with the performance of his
responsibilities hereunder, the Company's outside legal counsel shall represent
Semel and the Company shall pay all costs of such representation. If the
Company's outside legal counsel determines that they cannot represent Semel, the
Company at its
4
<PAGE>
sole expense, shall retain other legal counsel of its choice to represent Semel.
Whether the representation is by the Company's outside legal counsel or other
legal counsel retained by the Company to represent Semel, such representation
shall be at the Company's sole expense. Nothing contained in this paragraph
shall be construed as providing the Company with any rights to determine the
form or substance of any testimony given by Semel in litigation, arbitration or
other proceedings, it being understood that Semel is required to and shall at
all times testify to the best of his knowledge and belief.
12. References. All inquiries made to the Company or to any agent or
consultant for the Company regarding employment references for Semel shall be
directed to the Vice President of Human Resources of the Company, and only the
Vice President of Human Resources shall respond thereto. The response to any
inquiry regarding Semel's employment, absent prior written approval from Semel,
shall be limited to a statement that Company policy limits the information that
the Company can provide to providing dates of employment, title and salary
information or words to that effect, and solely providing that information.
13. Non-disparagement. Except as required by law, the Company agrees that
it will not, directly or through its officers and directors, make any public or
private statement that disparages Semel and that it will use its best efforts to
have its agents, employees and consultants comply with this provision. The
Company will not encourage or direct its employees, agents or consultants to
make any statements that disparage Semel. Except as required by law, Semel
agrees that he will not make any public or private statement which disparages
the Company, its past and present officers, directors, or known employees or
consultants of the Company and that he will use his best efforts to have his
agents comply with this provision. The parties agree that the best efforts
requirement set forth above shall be satisfied if they send their respective
employees, agents and consultants a memorandum stating that they should not make
any public or private statement that disparages the other party. Nothing
contained in this paragraph shall be construed as imposing liability on any
party for testimony given by any person under oath to the best of his/her
knowledge and belief in any trial, arbitration or administrative proceeding.
14. Public Announcement. Unless otherwise agreed by both parties in
writing, any press release, public statement or other filing or disclosure by
either party hereto regarding
5
<PAGE>
Semel's resignation shall be limited to a statement that Semel has resigned to
pursue other interests.
15. Confidentiality. The parties hereto agree that the terms and
conditions of this Severance Agreement shall be treated as confidential and
shall not be disclosed except as necessary to their respective employees,
officers, directors, and/or tax, personal, financial, investment and legal
advisors , as required by law, or to enforce the terms of this Severance
Agreement. Notwithstanding the foregoing, the parties hereto acknowledge and
agree (i) that the disclosure of this Severance Agreement and/or the material
terms thereof will likely be required by the Company in its filings with the
Securities and Exchange Commission and (ii) that the Severance Agreement and/or
material terms thereof may be disclosed to State Street Bank and Trust Company.
16. Non-Disclosure.
(a) Semel agrees that he will not disclose to any person or entity,
either orally or in written form, except as required by law, any
confidential information relating to the Company or any of its
subsidiaries and affiliates, the directors of the Company or its
subsidiaries and affiliates, any client of the Company or any of its
subsidiaries and affiliates, or any corporation, partnership or other
entity owned or controlled, directly or indirectly, by any of the
foregoing, or in which any of the foregoing has a beneficial interest,
including, but not limited to, the business affairs of each of the
foregoing. Such confidential information shall include, but shall not be
limited to, proprietary technology, trade secrets, patented processes,
research and development data, know-how, market studies and forecasts,
competitive analyses, pricing policies, employee lists, personnel
policies, the substance of agreements with customers, suppliers and
others, marketing or dealership arrangements, servicing and training
programs and arrangements, customer lists and any other documents,
including copies of such information in electronic form, embodying such
confidential information.
(b) The non-disclosure obligation set forth above shall not apply to
any information which was in the public domain at the time of disclosure
or which thereafter fell into the public domain without any fault of Semel
and which was not
6
<PAGE>
disclosed, to Semel's knowledge, in violation of any similar
non-disclosure obligation by any other person.
17. Return of Company Property. Within five business days after the
Resignation Date, Semel shall leave with the Company all documents, records,
reports, writings and other similar documents containing confidential
information, including copies thereof then in Semel's possession or control,
except those documents which are Semel's personal copies of documents relating
to the terms and conditions of his employment with or resignation from the
Company. Except as otherwise provided in this Agreement, Semel will return to
the Company, on or before the Resignation Date, all other assets and/or property
belonging to the Company.
18. Non-Competition and Non-Solicitation.
(a) Semel agrees that during the period commencing on the
Resignation Date and ending on November 8, 2001, he shall not work for
Levi Strauss & Co., and he shall not, directly or indirectly, as owner,
partner, joint venturer, stockholder, employee, broker, agent, principal,
trustee, corporate officer, director, licensor, or in any capacity
whatsoever, engage or assist any person or entity to engage in the Levi's
or Dockers outlet business in any location in any geographic area in the
United States or Puerto Rico; provided, however, that Semel may own any
securities of any corporation which is engaged in such business and is
publicly owned and traded but in an amount not to exceed at any one time
one percent (1%) of any class of stock or securities of such corporation;
and, provided further that the noncompetition obligations set forth above
shall not apply if, at the time of the allegedly competitive activity, the
Company is no longer in the competing business.
(b) During the period commencing on the Resignation Date and ending
on November 8, 2001, Semel shall not request any suppliers or customers
with whom the Company has a business relationship to cancel or terminate
any such business relationship with the Company or solicit any employee of
the Company to leave the Company's employ. Notwithstanding the foregoing,
nothing contained herein shall be construed as acquiescence by the Company
of any action by Semel after October 26, 2001 to seek to cause the
cancellation or termination of any business relationship between the
Company and any third party. .
7
<PAGE>
19. Semel Release. Semel hereby voluntarily and irrevocably releases and
forever discharges the Company and its subsidiaries (including their successors
and assigns) and each of their current and former officers, directors,
shareholders, employees, consultants, representatives and agents from all
charges, complaints, claims, promises, agreements, obligations, causes of
action, damages, and debts (including attorneys' fees and costs actually
incurred), known or unknown, which Semel has, had, or hereinafter may have, from
the beginning of the world to the day of the date of this Severance Agreement,
including, without limitation, all claims related to or arising out of any
conduct pertaining to any proxy contest, consent solicitation or annual meeting
of the Company, all claims for breach of contract, all claims arising out of or
relative to Semel's employment with the Company and the termination thereof and
any claims Semel may have under the Employment Agreement, all claims for breach
of an implied covenant of good faith and fair dealing, intentional or negligent
misrepresentation, any acts or omissions by the Company, and unlawful
discrimination under the common law or any statute (including, without
limitation, Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e, et
seq., the Age Discrimination in Employment Act of 1967, 29 U.S.C. ss.621, et
seq., the Employee Retirement Income Security Act, 29 U.S.C. ss.1001, et seq,
and the Americans with Disabilities Act of 1990, 42 U.S.C. ss.12101, et seq.)
Notwithstanding the foregoing, this release shall not release or limit Semel's
rights to indemnification under the terms of the By-Laws of the Company and
under the Indemnification Agreement between Semel and the Company dated as of
December 10, 1998, as in effect on the date hereof, to enforce this Severance
Agreement or to bring claims for breach thereof.
20. Company Release. The Company, on behalf of itself and its officers,
directors, employees, agents, representatives, subsidiaries, consultants and
shareholders (hereinafter the "Company Releasors") hereby voluntarily and
irrevocably releases and forever discharges Semel and his heirs and survivors
from any and all charges, complaints, claims, promises, agreements, obligations,
causes of action, damages and debts, (including attorneys' fees and costs
actually incurred), known or unknown, that the Company Releasors, individually
or jointly, have, had or hereinafter may have, from the beginning of the world
to the day of the date of this Severance Agreement, including, without
limitation, all claims related to or arising out of any conduct pertaining to
any proxy contest, consent solicitation or annual
8
<PAGE>
meeting of the Company, all claims for breach of contract, all claims for breach
of an implied covenant of good faith and fair dealing, intentional or negligent
misrepresentation, mismanagement, nondisclosure, or any acts or omissions by
Semel during the course of his employment or otherwise. Notwithstanding the
foregoing, this release shall not release or limit the Company's right to
enforce this Severance Agreement or to bring any claims for breach thereof.
21. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Severance Agreement or the breach thereof shall, to the fullest
extent permitted by law, be settled by arbitration in any forum and form agreed
upon by the parties or, in the absence of such an agreement, under the auspices
of the American Arbitration Association ("AAA") in Boston, Massachusetts, in
accordance with the rules of the AAA, including, but not limited to, the rules
and procedures applicable to the selection of arbitrators. Judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. This Section 21 shall be specifically enforceable. Notwithstanding the
foregoing, this Section 21 shall not preclude either party from pursuing a court
action for the sole purpose of obtaining a temporary restraining order or a
preliminary injunction in circumstances in which such relief is appropriate;
provided, however, that any other relief shall be pursued through an arbitration
proceeding pursuant to this Section 21.
22. Trust Agreement. Semel hereby relinquishes any and all rights, title
and interest that he had, has or may have in, arising out of or relating to the
Trust Agreement ("Trust Agreement") made as of May 12, 1999 by and between the
Company and State Street Bank and Trust Company ("State Street") or the assets
held thereunder. Semel agrees and consents to the termination of the Trust
Agreement and the return of all trust assets by State Street to the Company and
shall execute any and all documents required by State Street to accomplish said
termination and return of trust assets, so long as said documents have no affect
whatsoever on Semel's rights under this Severance Agreement. If Semel wrongfully
fails to execute the foregoing documents within forty eight (48) business hours
after receipt of a written request from the Company, the Company may suspend the
payments of the Severance Payment until Semel executes such documents. Any
suspended payments will be paid to Semel within twenty four (24) business hours
after the execution of the documents. Notwithstanding the foregoing, this
provision shall not release or limit Semel's rights to
9
<PAGE>
indemnification under the terms of the By-Laws of the Company and/or under the
Indemnification Agreement.
23. Nature of Agreement. Semel and the Company acknowledge and agree that
this Severance Agreement is a severance and settlement agreement and shall not
constitute an admission of liability and wrongdoing on the part of either party.
24. Notices. All notices, requests, demands, and other communications
provided for by this Severance Agreement shall be sufficient if in writing and
delivered in person or sent by registered or certified mail, postage prepaid, or
by overnight delivery service, to the other party as follows, or to such other
address as to which the party gives notice:
To the Company: Designs, Inc.
66 B Street
Needham, MA 02494
Attn: Corporate Counsel
With a copy to:
Peter Smith, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022-39903
To Semel: Mr. Scott N. Semel
54 Knob Hill Street
Sharon, MA 02067
With a copy to:
Marjorie Sommer Cooke, Esq.
Cooke, Clancy & Gruenthal, LLP
150 Federal Street
Boston, MA 02110
Copies of all Notices must be delivered or sent in the same manner that
they are sent or delivered to the parties hereto.
25. Entire Agreement. This Severance Agreement is the entire agreement
between the parties relating to the subject matter hereof. The Employment
Agreement shall terminate effective January 20, 2000, at which time it shall
become null and void.
26. Binding Effect. This Severance Agreement shall inure to the benefit of
and be binding upon the Company and Semel, their respective successors,
executors, administrators, heirs and permitted assigns. The Company represents
that the individuals signing this
10
<PAGE>
Severance Agreement on behalf of the Company are authorized to sign this
document and bind the Company.
27. Amendment. This Severance Agreement may be amended or modified only by
a written instrument signed by Semel and a duly authorized representative of the
Company.
28. Severability. In case any provisions of this Severance Agreement shall
be determined by an arbitrator or court of competent jurisdiction to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Severance Agreement shall not in any way be
affected or impaired thereby.
29. Future Cooperation. At any time after execution and exchange of this
Severance Agreement and from time to time, Semel and the Company, upon written
request from either party to the other, shall execute and deliver such further
documents or instruments as may be reasonably necessary to more fully effectuate
the intention of the parties hereto but limited to such amplification,
definition or effectuation strictly consistent with the terms and provisions
hereof.
30. Applicable Law. This Severance Agreement shall be governed by the laws
of the Commonwealth of Massachusetts.
31. Opportunity to Consider; Revoke. Semel acknowledges that he has been
afforded an opportunity to take at least twenty-one (21) days to consider this
Severance Agreement and has been advised to consult with the attorneys of his
choice prior to executing this Severance Agreement. Semel acknowledges that he
has had an adequate opportunity to review this Severance Agreement before its
execution. The parties understand and acknowledge that Semel will have a period
of seven (7) calendar days following his execution of this Severance Agreement
in which to revoke his consent to the Severance Agreement. Such revocation must
be in writing and shall be transmitted to the Company such that it is actually
received prior to the expiration of the seven-day revocation period.
32. Counterparts. This Severance Agreement may be executed in two (2)
signature counterparts, each of which shall constitute an original, but all of
which taken together shall constitute one and the same instrument.
Executed as a sealed instrument this 13 day of January, 2000
11
<PAGE>
DESIGNS, INC.
By:/s/ John J. Schultz /s/ Scott N. Semel
Its: Chief Executive Officer Scott N. Semel
Hereunto duly authorized
By:./s/ Jeffrey M. Unger
Its: Vice President of Corporate Development
Hereunto duly authorized
12
<PAGE>
(400)
Irrevocable Standby Letter of Credit Date: January 20, 2000
BENEFICIARY (98) DELIVERY BY COURIER SERVICES
Scott N. Semel Credit Number:
54 Knobhill Street (330) (58)S-069 STBY-50088032
Sharon, Ma 02067 Opener's Reference No.
SCOTT N. SEMEL
Dear Sir or Madam:
BY ORDER OF:
DESIGNS, INC.
ATTN: KENNETH ROGERS
66 B STREET
NEEDHAM, MA 02494
We hereby open in your favor our (68) Irrevocable Standby Letter of Credit for
the account of DESIGNS, INC. for a sum or sums not exceeding a total of US
DOLLARS 530,717.40 (FIVE HUNDRED THIRTY THOUSAND SEVEN HUNDRED SEVENTEEN AND
40/100 US DOLLARS) available by your draft(s) at SIGHT on OURSELVES effective
January 19, 2000 and expiring at OUR COUNTERS on January 31, 2002.
The draft(s) must be accompanied by your signed statement reading as any of the
three following paragraphs:
"The amount of this draft represents the funds due me as a result of the
acceleration of payments aggregating US $__________ as provided for by the terms
of a Severance Agreement dated 1/20/00 between me and Designs, Inc. by reason of
Designs, Inc.'s failure to pay me US$________ which payment was due on
____________ under the Severance Agreement the conditions of which payment have
been fully satisfied, and as to which a notice of default was delivered to
Designs, Inc. and remains uncured after a lapse of at least 5 days after receipt
of notice thereof."
"The amount of this draft represents the funds due me as a result of the
acceleration of payments aggregating US $__________ as provided for by the terms
of a Severance Agreement dated 1/20/00 between me and Designs, Inc. by reason of
the filing against Designs, Inc. of an involuntary petition in bankruptcy which
is not withdrawn or dismissed with 30 days of filing."
Special Conditions:
It is a condition of this Letter of Credit that the maximum sum payable under
this Letter of Credit shall be reduced by the amount of US$11,340.12 on every
other Thursday starting with
13
<PAGE>
February 17, 2000, and continuing through November 8, 2001, and by the amount of
US$9,071.88 on November 22, 2001, without amendment, so as to leave no balance
as of January 1, 2002. Notwithstanding the foregoing, in the event the
Beneficiary presents any draft to the drawee bank pursuant to the preceding
paragraph, from and after the date of presentment, no further reductions shall
be made in the maximum sum payable under the Letter of Credit.
Each draft must bear upon its face the clause "Drawn under Letter of Credit No.
50088032 of BankBoston N.A., Boston, MA."
Except so far as otherwise expressly stated herein, this letter of credit is
subject to the "Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500."
We hereby agree that drafts drawn under and in compliance with the terms of this
letter of credit will be duly honored if presented to the above-mentioned drawee
bank on or before January 31, 2002, or any extended date as set forth herein.
(240) kindly address all correspondence regarding this letter of credit to the
attention of our Letter of Credit Operations, P.O. Box 1763, BOSTON, MA 02105,
attention Navin Bhojani, mentioning our reference number as it appears above.
Telephone inquiries can be made to Navin Bhojani at 617-434-3062
Very truly yours,
(291)
/s/ KENNETH F. ROGERS, JR.
------------------------------
Authorized Official
14
<PAGE>
Scott Semel Severance Payment Schedule
Health Ins
Payment Deduct Auto Payment BI-Weekly Payment
4-Feb 2000 $ 11,340.12 $ 124.20 $ 11,215.92
18-Feb 2000 $ 11,340.12 $ 219.15 $ 11,120.97
3-Mar 2000 $ 11,340.12 $ 219.15 $ 11,120.97
17-Mar 2000 $ 11,340.12 $ 219.15 $ 11,120.97
31-Mar 2000 $ 11,340.12 $ 219.15 $ 11,120.97
14-Apr 2000 $ 11,340.12 $ 11,340.12
28-Apr 2000 $ 11,340.12 $ 219.15 $ 11,120.97
12-May 2000 $ 11,340.12 $ 219.15 $ 11,120.97
26-May 2000 $ 11,340.12 $ 219.15 $ 11,120.97
9-Jun 2000 $ 11,340.12 $ 219.15 $ 11,120.97
23-Jun 2000 $ 11,340.12 $ 219.15 $ 11,120.97
7-Jul 2000 $ 11,340.12 $ 219.15 $ 11,120.97
21-Jul 2000 $ 11,340.12 $ 11,340.12
4-Aug 2000 $ 11,340.12 $ 11,340.12
18-Aug 2000 $ 11,340.12 $ 11,340.12
1-Sep 2000 $ 11,340.12 $ 11,340.12
15-Sep 2000 $ 11,340.12 $ 11,340.12
29-Sep 2000 $ 11,340.12 $ 11,340.12
13-Oct 2000 $ 11,340.12 $ 11,340.12
27-Oct 2000 $ 11,340.12 $ 11,340.12
10-Nov 2000 $ 11,340.12 $ 11,340.12
24-Nov 2000 $ 11,340.12 $ 11,340.12
8-Dec 2000 $ 11,340.12 $ 11,340.12
22-Dec 2000 $ 11,340.12 $ 11,340.12
5-Jan 2000 $ 11,340.12 $ 11,340.12
19-Jan 2001 $ 11,340.12 $ 11,340.12
2-Feb 2001 $ 11,340.12 $ 11,340.12
16-Feb 2001 $ 11,340.12 $ 11,340.12
2-Mar 2001 $ 11,340.12 $ 11,340.12
16-Mar 2001 $ 11,340.12 $ 11,340.12
30-Mar 2001 $ 11,340.12 $ 11,340.12
13-Apr 2001 $ 11,340.12 $ 11,340.12
27-Apr 2001 $ 11,340.12 $ 11,340.12
11-May 2001 $ 11,340.12 $ 11,340.12
25-May 2001 $ 11,340.12 $ 11,340.12
8-Jun 2001 $ 11,340.12 $ 11,340.12
22-Jun 2001 $ 11,340.12 $ 11,340.12
6-Jul 2001 $ 11,340.12 $ 11,340.12
20-Jul 2001 $ 11,340.12 $ 11,340.12
3-Aug 2001 $ 11,340.12 $ 11,340.12
17-Aug 2001 $ 11,340.12 $ 11,340.12
31-Aug 2001 $ 11,340.12 $ 11,340.12
14-Sep 2001 $ 11,340.12 $ 11,340.12
28-Sep 2001 $ 11,340.12 8,978.50 $ 2,361.62
12-Oct 2001 $ 11,340.12 $ 8,978.50 $ 2,361.62
26-Oct 2001 $ 11,340.12 $ 8,978.51 $ 2,361.61
9-Nov 2001 $ 9,071.88 $ 9,071.88
Total $530,717.40 $ 2,315.70 $ 26,935.51 $ 501,466.19
15
Exhibit 10.30
SEVERANCE AGREEMENT
This Severance Agreement is made and entered into as of January 15, 2000,
by and between Designs, Inc. (the "Company"), a corporation organized and
existing under the laws of Delaware with a principal place of business at 66 B
Street, Needham, Massachusetts 02494, and Carolyn Faulkner ("Faulkner"), an
individual residing at 252 Main Street, West Newbury, Massachusetts 01985.
WHEREAS, the Company and Faulkner are parties to an Employment Agreement
dated as of May 9, 1997 (the "Employment Agreement") whereby Faulkner was
employed as Vice President and Chief Financial Officer of the Company, which
agreement expires May 8, 2000; and
WHEREAS, the Company and Faulkner agree to terminate the Employment
Agreement on the terms and conditions hereinafter set forth and establish the
terms of Faulkner's severance arrangement.
NOW THEREFORE, in consideration of the promises and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Resignation. In consideration of the terms and conditions of this
Severance Agreement, Faulkner hereby tenders her resignation to the Company
effective as of January 15, 2000 (the "Resignation Date"), and the Company
accepts her resignation to be effective on the Resignation Date. From and after
the Resignation Date, Faulkner shall no longer be an employee of the Company and
shall have no further duties or responsibilities on behalf of the Company except
as provided herein.
2. Severance Payments. The Company shall pay Faulkner the aggregate sum of
Four Hundred Twenty Thousand Dollars and No Cents ($420,000.00) (the "Severance
Payment"), in accordance with the attached Payment Schedule. Payments shall be
made by direct deposit to Faulkner's account and are deemed paid on the date the
deposits are
<PAGE>
made. Faulkner shall be liable for, and shall pay in full when due, any and all
local, state and federal income taxes related to the Severance Payment. Faulkner
will receive a Form 1099 from the Company at the end of each calendar year.
3. Medical/Dental Insurance. To the extent participation is permitted by
the terms of the applicable insurance policies and plans, the Company shall
continue to provide Faulkner with family medical and dental insurance coverage
through July 31, 2000, on the same terms and conditions that it provides such
coverage to its employees. Thereafter, Faulkner shall be entitled to apply for
and receive continuation of medical insurance coverage at her sole cost and
expense until January 31, 2002, consistent with and subject to the provisions of
COBRA. While under COBRA an employee who terminates employment generally is
eligible to elect to continue his or her health coverage for up to 18 months
from either the employment termination date or, as here, the date of loss of
coverage if later, Faulkner and the Company acknowledge that there are
exceptions under COBRA to this general rule. Faulkner's current costs for the
family medical and dental insurance coverage for the period from January 15,
2000 until July 31, 2000 is set forth on the attached Payment Schedule and the
costs shall be deducted from the Severance Payment due to Faulkner from the
Company. In the event Faulkner is employed by any person or entity after the
Resignation Date, she shall obtain family medical and dental insurance coverage
through her new employer as soon as possible under the terms of the applicable
plans and the Company shall be released from its obligations under this section
to provide any such coverage, including coverage pursuant to COBRA. Faulkner
shall notify the Company of the commencement of such new coverage within 10 days
of the commencement date.
4. Vehicle. Faulkner may retain possession of the 1997 BMW 528 vehicle
currently leased by the Company and used by Faulkner for the remainder of the
original lease term, which expires in July 2000. The Company shall continue to
pay the lease payments and insurance costs on the vehicle until the expiration
of the original lease term. However, after the Resignation Date, Faulkner shall
be responsible for, at her sole cost and expense, all operating, repair and
maintenance costs and any other costs related to the use and operation of the
vehicle. Upon expiration of the lease, Faulkner shall have the option of
purchasing the vehicle pursuant to the terms of the lease, if permitted under
the lease,
2
<PAGE>
and shall pay all costs related to the purchase. In the event Faulkner does not
purchase the vehicle upon expiration of the lease, she shall immediately return
the vehicle to the lessor in good repair and condition, normal wear and tear
excepted. Any and all security deposits shall remain the property of the Company
and shall be returned to the Company upon expiration of the lease. With the
exception of the monthly lease payments, upon expiration of the vehicle lease,
Faulkner shall pay any and all costs due to the lessor.
5. Benefits and Perquisites. The Company shall reimburse Faulkner for all
business and automobile repair and gasoline expenses reasonably incurred by her
through the Resignation Date in connection with her work as an employee of the
Company, including without limitation all travel expenses, in accordance with
the Company's policies applicable to its senior executives and upon submission
of appropriate documentation thereof.
6. Legal Fees. In the event either party breaches any such party's
obligations under this Severance Agreement, the non-breaching party shall be
entitled to recover all reasonable costs incurred by such non-breaching party in
enforcing the terms of the Severance Agreement, including reasonable attorneys'
fees. The prevailing party shall be entitled to recover its reasonable
attorney's fees and expenses in any litigation that arises out of or relates to
this Severance Agreement.
7. Options. Faulkner hereby acknowledges and agrees that any and all
incentive stock options, non-qualified stock options and/or any other stock
options granted to her during her employment at the Company shall expire and/or
terminate as of the Resignation Date.
8. Continued Cooperation. Without further consideration, Faulkner agrees
that she shall be reasonably available upon request to consult with and assist
the Company in the current Internal Revenue Service Audits, which shall include
but is not limited to testifying at any deposition, hearing, proceeding or trial
and meeting with representatives of the Company and/or Internal Revenue Service
to discuss the factual history of such matters, and assist in connection with
the transition of other financial matters, provided that Faulkner shall not be
required to devote a major portion of her time to such services and such
services shall not unreasonably interfere with the performance of other
employment or consulting duties Faulkner may have.
3
<PAGE>
9. References. All responses to any inquiries made to the Company or to
any agent or consultant for the Company regarding employment references for
Faulkner shall be limited to providing dates of employment, title and salary
information. If additional information is requested, the Company may state that
the foregoing information is the only information that the Company can provide
or words to that effect.
10. Non-disparagement. Faulkner agrees that she will not make any public
or private statement which criticizes or disparages the Company or its officers,
directors, employees or consultants and will use her best efforts to have her
agents comply with this provision.
11. Confidentiality. Faulkner agrees that she will treat the terms and
conditions of this Severance Agreement as confidential and that she will not
disclose said terms and conditions to any person or entity, except to her
immediate family, as required by law, to enforce the terms hereof and/or as
necessary to her personal financial and legal advisors. In the event Faulkner
discloses any of the terms and conditions of this Severance Agreement to any of
the foregoing persons or entities, she shall advise them that the terms and
conditions of this Severance Agreement are confidential and that they shall not
be disclosed to any other person or entity. Faulkner acknowledges and agrees
that the disclosure of this Severance Agreement and/or the material terms
thereof will likely be required by the Company in its filings with the
Securities and Exchange Commission.
12. Non-Disclosure.
(a) Faulkner agrees that she will not disclose to any person or
entity, either orally or in written form, except as required by law, any
confidential information relating to the Company or any of its
subsidiaries and affiliates, the directors of the Company or its
subsidiaries and affiliates, any client of the Company or any of its
subsidiaries and affiliates, or any corporation, partnership or other
entity owned or controlled, directly or indirectly, by any of the
foregoing, or in which any of the foregoing has a beneficial interest,
including, but not limited to, the business affairs of each of the
foregoing. Such confidential information shall include, but shall not be
limited to, proprietary technology, trade secrets, patented processes,
research and development data, know-how, market studies and forecasts,
competitive analyses, pricing policies, employee lists, personnel
policies, the
4
<PAGE>
substance of agreements with customers, suppliers and others, marketing or
dealership arrangements, servicing and training programs and arrangements,
customer lists and any other documents, including copies of such
information in electronic form, embodying such confidential information.
(b) The non-disclosure obligation set forth above shall not apply to
any information (i) which was in the public domain at the time of
disclosure or (ii) which thereafter fell into the public domain without
any fault of Faulkner and which was not disclosed in violation of any
similar non-disclosure obligation by any other person.
(c) On or before the Resignation Date, Faulkner shall leave with the
Company all documents, computer disks, records, reports, writings and
other similar documents containing confidential information, including
copies thereof then in Faulkner's possession or control, except those
documents which are Faulkner's personal copies of documents relating to
the terms and conditions of her employment with or resignation from the
Company. Faulkner represents that, as of the Resignation Date, she has
returned to the Company all other assets and/or property belonging to the
Company.
13. Non-Competition and Non-Solicitation.
(a) Faulkner agrees that during the period commencing on the
Resignation Date and ending on January 31, 2002, she shall not work for
Levi Strauss & Co., and she shall not, directly or indirectly, as owner,
partner, joint venturer, stockholder, employee, broker, agent, principal,
trustee, corporate officer, director, licensor, or in any capacity
whatsoever, engage or assist any person or entity to engage in the Levi's
or Dockers outlet business in any location in any geographic area in the
United States or Puerto Rico; provided, however, that Faulkner may own any
securities of any corporation which is engaged in such business and is
publicly owned and traded but in an amount not to exceed at any one time
one percent (1%) of any class of stock or securities of such corporation.
(b) During the period commencing on the Resignation Date and ending
on January 31, 2002, Faulkner shall not request any suppliers or customers
with whom the Company has a business relationship to cancel or terminate
any such
5
<PAGE>
business relationship with the Company or solicit any employee of the
Company to leave the Company's employ. Notwithstanding the foregoing,
nothing contained herein shall constitute the Company's approval or
acquiescence of any actions taken by Faulkner after January 31, 2002 to
seek to cause the cancellation or termination of any business relationship
between the Company and any third party and the Company reserves the right
to assert claims against Faulkner arising out of her conduct.
14. Faulkner Release. Faulkner hereby voluntarily and irrevocably releases
and forever discharges the Company and its subsidiaries (including their
successors and assigns) and each of their current and former officers,
directors, shareholders, employees, consultants, representatives and agents
(hereinafter the "Company Releasees") from any and all charges, complaints,
claims, promises, agreements, actions, obligations, causes of action, damages,
and debts (including attorneys' fees and costs actually incurred), known or
unknown, which Faulkner has, had, or hereinafter may have, directly or
indirectly, from the beginning of the world to the day of the date of this
Severance Agreement, including, without limitation, all claims related to or
arising out of any conduct pertaining to the most recent proxy contest, consent
solicitation and/or annual meeting of the Company, all claims related to or
arising out of her employment with or services performed for the Company, all
claims for breach of contract, all claims arising out of or relative to
Faulkner's employment with the Company and the termination thereof and any
claims Faulkner may have under the Employment Agreement, all claims for breach
of an implied covenant of good faith and fair dealing, all claims for
intentional or negligent misrepresentation, all claims relating to any acts or
omissions by the Company Releasees, and all claims for unlawful discrimination
under the common law or any statute (including, without limitation, Title VII of
the Civil Rights Act of 1964, 42 U.S.C. ss.2000e, et seq., the Age
Discrimination in Employment Act of 1967, 29 U.S.C.ss.621, et seq., the Employee
Retirement Income Security Act, 29 U.S.C.ss.1001, et seq, and the Americans with
Disabilities Act of 1990, 42 U.S.C.ss.12101, et seq.) Notwithstanding the
foregoing, this release shall not release or limit Faulkner's rights to
indemnification under the terms of the By-Laws of the Company and under the
Indemnification Agreement between Faulkner and
6
<PAGE>
the Company dated as of December 10, 1998, as in effect on the date hereof, or
to enforce this Severance Agreement or bring claims for breach thereof.
15. Company Release. The Company, on behalf of itself and its officers,
directors, agents, representatives, subsidiaries, consultants and shareholders
(hereinafter the "Company Releasors") hereby voluntarily and irrevocably
releases and forever discharges Faulkner and her heirs and survivors from any
and all charges, complaints, claims, promises, agreements, obligations, causes
of action, damages and debts, (including attorneys' fees and costs actually
incurred), known or unknown, that the Company Releasors, individually or
jointly, have, had or hereinafter may have, directly or indirectly, from the
beginning of the world to the day of the date of this Severance Agreement,
including, without limitation, all claims for breach of contract, relating to or
arising out of any conduct pertaining to the most recent proxy contest, consent
solicitation and/or annual meeting of the Company or relating to or arising out
of Faulkner's employment with or services performed for the Company, all claims
for breach of an implied covenant of good faith and fair dealing, all claims for
intentional or negligent misrepresentation, mismanagement, nondisclosure, or any
acts or omissions by Faulkner during the course of her employment or any claims
the Company may have under the Employment Agreement. Notwithstanding the
foregoing, this release shall not release or limit the Company's rights to
enforce this Severance Agreement or to bring any claims for breach thereof.
16. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Severance Agreement or the breach thereof shall, to the fullest
extent permitted by law, be settled by arbitration in any forum and form agreed
upon by the parties or, in the absence of such an agreement, under the auspices
of the American Arbitration Association ("AAA") in Boston, Massachusetts, in
accordance with the rules of the AAA, including, but not limited to, the rules
and procedures applicable to the selection of arbitrators. Judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. This Section 16 shall be specifically enforceable. Notwithstanding the
foregoing, this Section 16 shall not preclude either party from pursuing a court
action for the sole purpose of obtaining a temporary restraining order or a
preliminary injunction in circumstances in which such relief is appropriate;
provided, however, that any other relief shall be pursued through an arbitration
proceeding pursuant to this Section 16.
7
<PAGE>
17. Trust Agreement. Faulkner hereby relinquishes any and all rights,
title and interest that she had, has or may have in, arising out of or relating
to the Trust Agreement ("Trust Agreement") made as of May 12, 1999 by and
between the Company and State Street Bank and Trust Company ("State Street") or
the assets held thereunder. Faulkner agrees and consents to the termination of
the Trust Agreement and the return of all trust assets by State Street to the
Company and shall execute any and all documents necessary to accomplish the
termination and return of trust assets. If Faulkner fails to execute the
foregoing documents within forty eight (48) hours after receipt of a written
request from the Company, the Company can suspend the payments of the Severance
Payment until Faulkner executes such documents. Notwithstanding the foregoing,
this provision shall not release or limit Faulkner's rights to indemnification
under the terms of the By-Laws of the Company and under the Indemnification
Agreement between Faulkner and the Company dated as of December 10, 1998, as in
effect on the date hereof.
18. Nature of Agreement. Faulkner and the Company acknowledge and agree
that this Severance Agreement is a severance and settlement agreement and shall
not constitute an admission of liability and wrongdoing on the part of either
party.
19. Notices. All notices, requests, demands, and other communications
provided for by this Severance Agreement shall be sufficient if in writing and
delivered in person or sent by registered or certified mail, postage prepaid, to
the other party at the address first above written, or at such other address as
to which the party gives notice, with a copy to:
For the Company: Designs, Inc.
66 B Street
Needham, MA 02494
Attention: Corporate Counsel
and
Peter Smith, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022-39903
For Faulkner: Sandra Sue McQuay, Esq.
Sullivan Weinstein & McQuay
Two Park Place
Boston, MA 02116
8
<PAGE>
20. Entire Agreement. This Severance Agreement is the entire agreement
between the parties relating to the subject matter hereof. The Employment
Agreement shall terminate effective as of January 15, 2000, at which time it
shall become null and void.
21. Voluntary Assent. Faulkner and the Company affirm that no other
promises or agreements of any kind have been made to or with them by any person
or entity whatsoever to cause them to sign the Severance Agreement, and that
they fully understand the meaning and intent of this Severance Agreement.
Faulkner and the Company state and represent that they have had an opportunity
to fully discuss and review the terms of this Severance Agreement with an
attorney, that they have read this Severance Agreement carefully and understand
the contents hereof, that they freely and voluntarily assent to all of the terms
and conditions hereof and that they sign their name of their own free act.
22. Binding Effect. This Severance Agreement shall inure to the benefit of
and be binding upon the Company and Faulkner, their respective successors,
executors, administrators, heirs and permitted assigns.
23. Amendment. This Severance Agreement may be amended or modified only by
a written instrument signed by Faulkner and a duly authorized representative of
the Company.
24. Severability. In case any provisions of this Severance Agreement shall
be determined by an arbitrator or court of competent jurisdiction to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Severance Agreement shall not in any way be
affected or impaired thereby.
25. Future Cooperation. At any time after execution and exchange of this
Severance Agreement and from time to time, Faulkner and the Company, upon
written request from either party to the other, shall execute and deliver such
further documents or instruments as may be reasonably necessary to more fully
effectuate the intention of the parties hereto but limited to such
amplification, definition or effectuation strictly consistent with the terms and
provisions hereof.
26. Applicable Law. This Severance Agreement shall be governed by the laws
of the Commonwealth of Massachusetts.
9
<PAGE>
27. Opportunity to Consider; Revoke. Faulkner acknowledges that she has
been afforded an opportunity to take at least twenty-one (21) days to consider
this Severance Agreement and has been advised to consult with the attorneys of
her choice prior to executing this Severance Agreement. Faulkner acknowledges
that she has had an adequate opportunity to review this Severance Agreement
before its execution. The parties understand and acknowledge that Faulkner will
have a period of seven (7) calendar days following her execution of this
Severance Agreement in which to revoke her consent to this Severance Agreement.
Such revocation must be in writing and shall be transmitted to the Company such
that it is actually received prior to the expiration of the seven-day revocation
period.
28. Counterparts. This Severance Agreement may be executed in two (2)
signature counterparts, each of which shall constitute an original, but all of
which taken together shall constitute one and the same instrument.
Executed as a sealed document as of the date and year first written above.
DESIGNS, INC.
By: /s/ John J. Schultz /s/ Carolyn Faulkner
Its: Chief Executive Officer Carolyn Faulkner
Hereunto duly authorized
By: /s/ Jeffrey M. Unger
Its: Vice President of Corporate Development
Hereunto duly authorized
10
<PAGE>
Carolyn Faulkner Severance Payment Schedule
Payment Insurance Deduction BI-Weekly Payment
28-Jan 2000 $ 8,400.00 $ 124.20 $ 8,275.80
4-Feb 2000 $ 8,400.00 $ 90.45 $ 8,309.55
18-Feb 2000 $ 8,400.00 $ 90.45 $ 8,309.55
3-Mar 2000 $ 8,400.00 $ 90.45 $ 8,309.55
17-Mar 2000 $ 8,400.00 $ 90.45 $ 8,309.55
31-Mar 2000 $ 8,400.00 $ 8,400.00
14-Apr 2000 $ 8,400.00 $ 90.45 $ 8,309.55
28-Apr 2000 $ 8,400.00 $ 90.45 $ 8,309.55
12-May 2000 $ 8,400.00 $ 90.45 $ 8,309.55
26-May 2000 $ 8,400.00 $ 90.45 $ 8,309.55
9-Jun 2000 $ 8,400.00 $ 90.45 $ 8,309.55
23-Jun 2000 $ 8,400.00 $ 90.45 $ 8,309.55
7-Jul 2000 $ 8,400.00 $ 90.45 $ 8,309.55
21-Jul 2000 $ 8,400.00 $ 90.45 $ 8,309.55
4-Aug 2000 $ 8,400.00 $ 8,400.00
18-Aug 2000 $ 8,400.00 $ 8,400.00
1-Sep 2000 $ 8,400.00 $ 8,400.00
15-Sep 2000 $ 8,400.00 $ 8,400.00
29-Sep 2000 $ 8,400.00 $ 8,400.00
13-Oct 2000 $ 8,400.00 $ 8,400.00
27-Oct 2000 $ 8,400.00 $ 8,400.00
10-Nov 2000 $ 8,400.00 $ 8,400.00
24-Nov 2000 $ 8,400.00 $ 8,400.00
8-Dec 2000 $ 8,400.00 $ 8,400.00
22-Dec 2000 $ 8,400.00 $ 8,400.00
5-Jan 2001 $ 8,400.00 $ 8,400.00
19-Jan 2001 $ 8,400.00 $ 8,400.00
2-Feb 2001 $ 8,400.00 $ 8,400.00
16-Feb 2001 $ 8,400.00 $ 8,400.00
2-Mar 2001 $ 8,400.00 $ 8,400.00
16-Mar 2001 $ 8,400.00 $ 8,400.00
30-Mar 2001 $ 8,400.00 $ 8,400.00
13-Apr 2001 $ 8,400.00 $ 8,400.00
27-Apr 2001 $ 8,400.00 $ 8,400.00
11-May 2001 $ 8,400.00 $ 8,400.00
25-May 2001 $ 8,400.00 $ 8,400.00
8-Jun 2001 $ 8,400.00 $ 8,400.00
22-Jun 2001 $ 8,400.00 $ 8,400.00
6-Jul 2001 $ 8,400.00 $ 8,400.00
20-Jul 2001 $ 8,400.00 $ 8,400.00
3-Aug 2001 $ 8,400.00 $ 8,400.00
17-Aug 2001 $ 8,400.00 $ 8,400.00
31-Aug 2001 $ 8,400.00 $ 8,400.00
14-Sep 2001 $ 8,400.00 $ 8,400.00
28-Sep 2001 $ 8,400.00 $ 8,400.00
12-Oct 2001 $ 8,400.00 $ 8,400.00
26-Oct 2001 $ 8,400.00 $ 8,400.00
11
<PAGE>
9-Nov 2001 $ 8,400.00 $ 8,400.00
23-Nov 2001 $ 8,400.00 $ 8,400.00
7-Dec 2001 $ 8,400.00 $ 8,400.00
Total $420,000.00 $ 1,209.60 $ 418,790.40
12
EX-11
EARNINGS PER SHARE
Exhibit 11. Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Fiscal Years Ending
January 29, 2000 January 30, 1999 January 31, 1998
--------------------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C>
Basic EPS Computation
Numerator:
Net income (loss) $ (12,493) $ (18,541) $ (29,063)
Denominator:
Weighted average common shares outstanding 16,088 15,810 15,649
--------- --------- -----------
Basic EPS $ (0.78) $ (1.17) $ (1.86)
========= ========= ===========
Diluted EPS Computation
Numerator:
Net income (loss) $ (12,493) $ (18,541) $ (29,063)
Denominator:
Weighted average common shares outstanding 16,088 15,810 15,649
Stock Options, excluding anti-dilutive options
of 114, 80 and 34 shares for January 29, 2000,
January 30, 1999 and January 31, 1998,
respectively -- -- --
--------- --------- -----------
Total Shares 16,088 15,810 15,649
--------- --------- -----------
Diluted EPS $ (0.78) $ (1.17) $ (1.86)
========= ========= ===========
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
Designs Securities Corporation
(a Massachusetts securities corporation)
Designs JV Corp.
(a Delaware corporation)
Designs Acquisition Corp.
(a Delaware corporation)
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-22957, 33-32690, 33-32687 and 33-52892 on Form S-8 of our report dated April
11, 2000, appearing in this Annual Report on Form 10-K of Designs, Inc. for the
year ended January 29, 2000.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 16, 1999, included in this Form 10-K, into
registration statements previously filed by Designs, Inc. on Form S-8 (Reg.
Nos. 33-22957, 33-32690, 33-32687 and 33-52892).
Boston, Massachusetts /s/ ARTHUR ANDERSEN LLP
April 28, 2000
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Reg. Nos. 33-22957, 33-32690, 33-32687 and 33-52892) of
Designs, Inc. of our report dated March 17, 1998, except as to the segment
information for the year ended January 31, 1998 presented in Note N, for which
the date is April 29, 1999 relating to the consolidated financial statements
which appear in this Form 10-K.
Boston, Massachusetts
April 25, 2000 /s/ PRICEWATERHOUSECOOPERS, LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 0
<SECURITIES> 2,365
<RECEIVABLES> 83
<ALLOWANCES> 0
<INVENTORY> 57,022
<CURRENT-ASSETS> 62,432
<PP&E> 43,671
<DEPRECIATION> 26,934
<TOTAL-ASSETS> 95,077
<CURRENT-LIABILITIES> 42,808
<BONDS> 0
0
0
<COMMON> 167
<OTHER-SE> 52,102
<TOTAL-LIABILITY-AND-EQUITY> 95,077
<SALES> 192,192
<TOTAL-REVENUES> 192,192
<CGS> 144,752
<TOTAL-COSTS> 144,752
<OTHER-EXPENSES> 56,511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,207
<INCOME-PRETAX> (10,278)
<INCOME-TAX> 2,215
<INCOME-CONTINUING> (12,493)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,493)
<EPS-BASIC> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
