UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the fiscal year ended December 31, 1999.
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities exchange
Act of 1934. For the transition period from _________ to_________.
Commission File No. 000-20201
HAMPSHIRE GROUP, LIMITED
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-0967107
---------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
215 COMMERCE BOULEVARD
ANDERSON, SOUTH CAROLINA 29625
------------------------------------------------------------------------
(Address, Including Zip Code, of Registrant's Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code) (864) 225-6232
Securities registered pursuant to Section 12(b) of the Act:(Title of class)None.
Securities registered pursuant to Section 12(g) of the Act: (Title of class)
Common Stock, $.10 Par Value.
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 20, 2000, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $0.10 per share, held by
non-affiliates, computed by reference to the closing sale's price of the
Registrant's Common Stock as reported by the NASDAQ National Market, was
approximately $14.4 million. Shares of Common Stock held, directly or
indirectly, by each director and executive officer and by each person who owns
5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 20, 2000, the Registrant had outstanding 4,115,314 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement, relative to its
2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
<PAGE>
HAMPSHIRE GROUP, LIMITED
1999 ANNUAL REPORT
Table of Contents
Page
Part I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
Part III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 17
Signature Page 20
Reports of Independent Accountants F-2 - F-3
Consolidated Financial Statements F-4
Financial Statement Schedules F-26
Quarterly Financial and Stock Data F-29
2
<PAGE>
PART I
ITEM 1 - BUSINESS
GENERAL
- -------
Hampshire Group, Limited ("Hampshire Group" or the "Company") operates two
business segments - Apparel and Investments. Hampshire Designers, Inc., the
Apparel Segment, is the largest manufacturer of sweaters in North America.
Hampshire Investments, Limited was organized in March 1997, for the purpose of
making long-term, diversified investments.
Information with respect to sales, operating income and identifiable assets
attributable to the business segments appears in Management's Discussion and
Analysis of Financial Condition commencing on Page 11 of this report.
Hampshire Group, through a predecessor firm, has been engaged in the manufacture
of sweaters since 1956. In 1992, the Company had an initial public offering of
one million shares of its common stock.
Strengths and Strategy
- ----------------------
The Company's primary strength is its ability to design, develop, and deliver
quality products within a given price range, while providing superior levels of
customer service. The Company has developed superior international
sourcing abilities.
The process for the design and development of the Company's products depends on
whether the product is branded or private-label. In the branded business, the
products first are designed through the Company's experienced design team,
incorporating aspects of the latest fashion trends together with the consistent
appeal of the brand name. These products are further refined in collaboration
with manufacturing, resulting in a high-quality product to meet certain price
points. For private-label business, the products are designed by coordinating
efforts with the retailers to ensure that the consumer appeal is being
satisfied.
The quality of the garments is ensured in a variety of ways. For those goods
produced in the Company's facilities, each garment is manufactured using the
finest quality yarns and each must undergo a rigorous quality assurance program.
For goods that are sourced outside the Company, several techniques are utilized.
In some instances, multi-staged inspection processes, including direct field
audits, are performed by Company employees, and occasionally by the customers'
quality control personnel, to ensure that the quality demands of the customers
are being met. In international sourcing, the Company utilizes both sourcing
agents and inspection agencies to assure that those goods manufactured outside
meet the same high quality standards required by the customers.
- -------------------------------------------------------------------------------
"Cautionary Disclosure Regarding Forward-Looking Statements"
When used in this document in general and in the Outlook Section of Management's
Discussion and Analysis in particular, the words "expects", "anticipates" and
similar expressions are intended to identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business, in this report, as well as the Company's other filings
under the Securities Exchange Act of 1934.
3
<PAGE>
Superior customer service is provided from the Company's domestic distribution
facilities using the Company's Quick Response program and an Electronic Data
Interchange ("EDI") system that links the Company's computers electronically to
those of many of its major customers. By providing just-in-time delivery of
merchandise through the centralized location of its distribution facilities in
the United States and through sophisticated order fulfillment techniques, the
Company provides an important service to its customers.
The Company is a leading supplier in the women's sweater moderate-price category
and has expanded into the higher-priced segments of both the women's and men's
sweater market. The Company, in addition to being the largest sweater
manufacturer in North America, has expanded its product lines to include other
apparel. This expansion has been possible through the Company's world-wide
sourcing capabilities.
The acquisition of San Francisco Knitworks, Inc. ("SFK") and Segue, Limited
("Segue") expanded the Company's business into the women's better sweater market
and Segue has afforded the Company the vehicle to expand into other apparel
markets. The acquisition of Winona Knitting Mills ("Winona") expanded the
sweater business by providing a strong customer base in the men's sweater
market. The Company's men's sweater business has been further extended by
obtaining licenses to produce sweaters under nationally known brands covering
the entire range of men's sweaters sold by department stores.
To diversify the asset base, the Company has established Hampshire Investments,
Limited to invest primarily in domestic and international real properties.
SWEATER OPERATIONS
- ------------------
The Company is the largest manufacturer of sweaters in North America. This
business consists of Designers Originals branded sweaters and private-label
women's sweaters, novelty imported women's sweaters, designer-branded women's
sweaters and men's private-label and branded sweaters.
With the expansion of the import program of Segue and the addition of the
licenses for the designer branded men's sweaters, the breakdown of sales consist
of approximately 50% women's sweaters and 50% men's sweaters. Further, the 1999
sales consisted of approximately 50% branded and 50% private-label sweaters.
Designers Originals(R)
- ----------------------
The Company's first sweater product line, on which the Company was built, sells
under the Designers Originals brand name. The brand enjoys strong consumer
recognition and loyalty for its superior value, excellent fit, classic styling
and large color selection. Designers Originals sweaters are sold in the
moderate-price women's market, but possess details usually found only on more
expensive sweaters. The sweaters, which generally sell in the $30-$40 range, are
full-fashion (knit-to-body shape) and dyed slowly in an open vat process. Most
are made of the Company's branded, cashmere-like acrylic yarn named Luxelon(R)
and are styled primarily in classic designs for which there are continuing
customer demands. Despite very competitive market conditions, the strength of
the brand, along with well-accepted new styles featuring surface stitches,
enabled Designers Originals to retain its market share in 1999 and remain the
single largest North American supplier of sweaters to department stores.
The Company's customer base has decreased in actual numbers due to the
consolidation of the retail industry; however, management believes that the
number of stores serviced by the Company has not decreased. The Company has
historical relationships with many of its approximately 900 customers which
include department stores such as May Company, Federated Department Stores, JC
Penney, Dillard Department Stores and specialty stores. The sweaters are sold
by the Company's sales force and independent sales representatives with senior
management participating in the presentations to the larger accounts.
The Company maintains rigorous quality control in order to satisfy the strict
standards required by its customers. Quality control consists of light
inspection by photospectrometer of each dye lot for shade consistency and lamp
examination of all sweaters after assembly for knitting defects.
4
<PAGE>
Quality evaluation includes three full inspections of each garment - after
dyeing, after finishing, and during folding and packaging. The manufacturing
facilities used by the Company have been evaluated and are highly rated to the
quality standards of our customers, including Lands' End and JC Penney.
The Company utilizes Quick Response automatic re-ordering through EDI for many
of its customers. Because of the consistent demand for the products, the Company
is able to maintain a sizable finished goods inventory which allows the Company
to fill most reorders in less than 72 hours.
Private-Label
- -------------
The Company's private-label sweaters are designed in a coordinated
effort with the customers and are produced to desired specifications for sale
under labels of a number of retailers and apparel companies. These sweaters
consist primarily of full-fashion cotton sweaters manufactured domestically at
the Company's facilities in Virginia, California and Puerto Rico, utilizing the
same processes employed for manufacture of the branded Designers Originals
sweaters. The Company maintains the high quality standards required by its
private-label customers including Lands' End, Lord & Taylor and Sears.
Novelty Import Line
- -------------------
The Company, through Segue's international sourcing capability, designs and
imports patterned and novelty sweaters for sales primarily in the women's
moderate-priced market. These sweaters, which are marketed under the brand names
Designers Originals Sport(R), Designers Originals Studio(R), and Moving Bleu(R),
were among the Company's fastest-growing lines in 1999.
Men's Branded and Private-Label Line
- ------------------------------------
The sweaters, made from natural fibers, including wool and cotton, are sold
primarily under private-labels of retailers and apparel companies, including
Eddie Bauer, Lands' End, L.L. Bean and Woolrich. The branded men's line,
including American Portrait(R), Berwick(R), Lake Harmony Rowing Club(TM) and
Landscape(R), are sold to retailers, including Dillard Department Stores,
Federated Department Stores and JC Penney.
Men's Designer Branded Lines
- ----------------------------
The Company is licenced to produce and sell men's sweaters under the following
brands: Jantzen(R), Geoffrey Beene(R), Ron Chereskin(R) and Robert Stock(R).
These brands cover the entire range of men's department store offerings, from
middle-of-the-road, "main floor" styles to fashion-forward, designer sweaters
for the "better" departments of our customers. In 1999 the Company signed a
licensing agreement with Levi Strauss & Co. to produce and sell men's sweaters
under the Dockers(R) label beginning with the Fall 2000 line. Management
believes that Dockers is one of the most successful brands in the young adult
apparel market. The branded sweaters are designed by the licensor and produced
internationally by contractors to the specifications of the Company.
The sweaters are sold to large department and specialty stores across the United
States. Major customers include Federated Department Stores, May Company, JC
Penney, Mercantile Stores, Belk, Sears and Kohl. The lines are sold by both
employees and independent representatives.
Other Apparel
- -------------
Under the Moving Bleu and Designers Studio labels, Segue produces a business-
casual line for women which incorporates woven fabrics. Segue's product category
includes related separates, such as blazers, blouses, skirts and pants, in the
moderate-price category. Segue's customers include Dress Barn, Federated
Department Stores, May Company, Sears, Kohls and Goodys. The Company will
continue to expand its product lines through internal development and seek
strategic acquisitions.
Competition
- -----------
Competitive conditions in the sweater market were difficult throughout 1999,
continuing a trend which began in the prior year. Competition is primarily based
on product design, price, quality and service. While the Company faces
competition from a large number of sweater manufacturers located in the United
States, its primary competition comes from manufacturers located in Southeast
Asia.
5
<PAGE>
The foreign competitors benefit from production cost advantages which are offset
in part by United States import quota and tariff protection. The Company
competes with the Southeast Asian suppliers by providing superior service and
quicker turn around time. The Company continues its development of international
sourcing relationships in areas where manufacturing costs are competitive.
Domestic manufacturing has been reduced, and in some instances the programs have
been blended with imported products in order to remain competitive.
INVESTMENT OPERATIONS
- ---------------------
Hampshire Investments, Limited ("Hampshire Investments") was established by the
Company in 1997 to diversify the asset base of the Company and to increase
stockholder value in the long term. In 1997 Hampshire Investments invested
approximately $5 million in Russian real property and in a mutual fund holding
common stock of natural resource companies in Russia. In 1998 the subsidiary
recorded a $2.5 million pre-tax charge for asset impairment primarily due to the
devaluation of the Russian ruble.
The balance of the investments have been made primarily in real property and
publicly traded apparel and textile stocks. Hampshire Investments' assets
include real property for development and rental income and at the end of 1999,
the value of its investments was approximately $24.2 million, of which
approximately 68% represented real estate.
The investment decisions of Hampshire Investments are primarily made by Ludwig
Kuttner, Chief Executive Officer of the Company, who has privately invested both
in diversified operating businesses and in real property developments over the
past 25 years.
Seasonality
- -----------
Although the Company sells apparel throughout the year, the sweater business is
highly seasonal, with approximately 70% of sales occurring during the fall and
winter months.
Backlog
- -------
The sales order backlog for the apparel segment was approximately $59.7 million
as of March 3, 2000, compared with approximately $34.7 million as of March 5,
1999. The timing of the placement of seasonal orders by customers affects the
backlog; accordingly, a comparison of backlog from year to year is not
indicative of a trend in sales for the year.
Trademarks
- ----------
The Company considers its trademarks to have value in the marketing of its
products; therefore, all significant trademarks of the Company are registered.
The Company has entered into licensing agreements to manufacture and market
men's sweaters and knit shirts under certain trademarks for which it pays a
royalty fee. The licensing agreements are normally for a three-year initial term
with an option to renew providing the Company achieves a specified sales level
during the term.
Electronic Information Systems
- ------------------------------
In order to schedule manufacturing, fill customer orders, transmit shipment data
to the customers' distribution centers and invoice electronically, the Company
has developed a number of integrated EDI applications. Approximately 60% of all
orders are received electronically. These orders are generated by the customers'
computer systems based on their inventory levels. The Company's advance ship
notices and invoices are sent to customers electronically, which results in the
timely updating of the customer's inventory system.
6
<PAGE>
Customer Concentration
- ----------------------
The Company had sales to three major customers (defined as sales in excess of
10% of total sales) which as a percentage of total sales accounted for
approximately 36%, 33% and 35% for 1999, 1998 and 1997, respectively. The
Company's five largest customers accounted for approximately 51% of the
Company's consolidated sales in 1999, compared with 48% in 1998 and 47% in 1997.
Credit and Collection
- ---------------------
The Company manages its credit and collection functions on a consolidated basis
by evaluating, approving and monitoring the credit lines of its customers.
Credit limits are determined by past payment history and financial information
obtained from credit agencies and other sources. The Company believes that its
credit and collection staff has been a significant factor in maximizing sales
opportunities while minimizing bad debt losses.
Employees
- ---------
As of March 3, 2000, the Company had approximately 1,500 full-time employees and
10 part-time employees. The Company and its employees are not parties to any
collective bargaining agreements except for the hourly employees of San
Francisco Knitworks, Inc., where Unite Labor Union represents approximately 80
employees under an agreement expiring in May 2001.
Governmental Regulation
- -----------------------
The Company's business is subject to regulation by federal, state and local
governmental agencies dealing with the protection of the environment.
Certain of these regulations, which include provisions regulating air quality,
water quality, disposal of waste products and employee safety, are technical in
nature and require extensive controls to assure compliance with their
provisions. The Company believes that it has operated, and intends to continue
to operate, in full compliance with these regulations.
As a result of various bilateral agreements between the United States and
certain foreign countries negotiated under the framework established by the
Arrangement Regarding International Trade in Textiles, Hampshire Designers
benefits from import quota and tariff protection in certain categories of its
sweater business, which quotas and tariffs are expected to continue in some form
for the foreseeable future. The bilateral agreements impose quotas on the amount
and type of competing goods which may be shipped into the United States.
The World Trade Organization was established in 1995 as the governing body for
international trade between the United States and 140 foreign countries. This
Agreement, over a ten-year period, gradually reduces tariffs and expands quotas
between member countries. The profitability of the apparel business could be
adversely affected if the quotas and tariffs were substantially reduced or
eliminated.
The North American Free Trade Agreement ("NAFTA"), approved in 1993 by the
United States, Canada and Mexico, will, over time, eliminate quota and tariffs
among these three countries.
7
<PAGE>
<TABLE>
ITEM 2 - PROPERTIES
The Company leases its Anderson, South Carolina corporate office and its New
York sales office and showroom. All of the operating subsidiaries of the Company
lease manufacturing plants and distribution centers, except Hampshire Brands
which owns its distribution center.
<CAPTION>
- ------------------------------------------------------------------------------
Square Lease
Properties Footage Expiration(1)
- --------------------------------------------------- ------- ------------
<S> <C> <C>
Corporate Offices - Anderson, South Carolina 10,500 04/30/06
Sales Office and Showroom - New York, New York 24,000 08/31/11
Hampshire Designers:
Distribution Center - Anderson, South Carolina 57,000 04/30/06
Knitting and Finishing Plant - Chilhowie, Virginia 92,500 08/30/08
Knitting Plant - Quebradillas, Puerto Rico 193,200 06/30/02
Finishing Plant - Quebradillas, Puerto Rico 23,050 06/30/06
Hampshire Brands:
Distribution Center - Winona, Minnesota 36,000 Owned
San Francisco Knitworks:
Manufacturing Plant - San Francisco, California 27,500 08/01/06
Winona Knitting Mills:
Knitting and Finishing Plant - Winona, Minnesota 110,000 06/01/07
Distribution Center - Winona, Minnesota 40,000 10/31/07
- -------------------------------------------------------------------------------
<FN>
(1) Assuming the exercise of all options to renew.
</FN>
</TABLE>
ITEM 3 - LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company's management believes that no currently
pending litigation, to which it is a party, will have a material adverse effect
on its consolidated financial condition, results of operations or cash flows.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
8
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded over-the-counter on the NASDAQ National
Market System ("NASDAQ") under the symbol "HAMP". The quarterly high and low bid
quotations on NASDAQ for 1998 and 1999 are presented on Page F-29 of this Annual
Report on Form 10-K. These quotations reflect the inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
As of March 20, 2000, the Company had approximately 900 stockholders of record.
The Company has not declared any dividends with respect to its Common Stock,
subsequent to the effective date of its 1992 initial public offering. Any
determination to pay dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors may deem relevant. The Senior Note Agreement, which closed in June
1998, contains covenants placing limitations on "restricted payments", which
includes payment of cash dividends. See Note 9 to the consolidated financial
statements.
The available balance at December 31, 1999 to make restricted payments,
including any cash dividends which may be approved, was approximately $2.1
million.
9
<PAGE>
<TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
(in thousands, except per share data)
INCOME STATEMENT DATA (1)
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $151,317 $168,688 $140,807 $117,575 $84,924
Cost of goods sold 121,617 133,769 107,726 88,395 62,161
----------------------------------------------
Gross profit 29,700 34,919 33,081 29,180 22,763
Other revenue 2,005 507 43 942 1,357
----------------------------------------------
31,705 35,426 33,124 30,122 24,120
Selling, general and
administrative expenses 25,111 24,971 21,156 19,494 16,861
Asset impairment charge 725 2,500 - 667 -
----------------------------------------------
Income from operations 5,869 7,955 11,968 9,961 7,259
Other income (expense):
Interest expense (1,967) (1,696) (824) (716) (488)
Interest income 729 243 363 195 297
Other 1,465 502 (139) (90) 262
----------------------------------------------
Income before income taxes 6,096 7,004 11,368 9,350 7,330
Income tax (provision) benefit:
Current (563) (1,471) (2,649) (1,780) (998)
Deferred (337) 194 200 3,900(2) 278
----------------------------------------------
Income from continuing operations $5,196 $5,727 $8,919 $11,470 $ 6,610
==============================================
Income per share from Basic $1.27 $1.39 $2.27 $2.99 $1.82
----------------------------------------------
continuing operations: Diluted $1.22 $1.29 $2.00 $2.62 $1.66
----------------------------------------------
Weighted average number Basic 4,100 4,128 3,856 3,778 3,560
----------------------------------------------
shares outstanding: Diluted 4,257 4,443 4,465 4,379 3,992
----------------------------------------------
- -------------------------------------------------------------------------------
BALANCE SHEET DATA
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995(3)
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 23,831 $ 13,886 $ 12,003 $20,385 $10,034
Working capital 56,141 51,283 36,303 37,220 29,675
Total assets 103,594 100,848 80,585 71,930 66,438
-------------------------------------------------
Long-term debt (less current portion),
deferred compensation and
redeemable preferred stock 27,039 22,505 7,166 10,869 13,817
Total debt (4) 28,457 24,287 10,577 14,364 18,569
Common stockholders' equity (5) 67,326 63,403 57,710 47,275 34,755
-------------------------------------------------
Book value per share $16.36 $15.03 $13.96 $12.17 $9.21
-------------------------------------------------
<FN>
(1) The Statements of Income have been restated to reflect the revenues and
expenses of discontinued operations as income (loss) from discontinued
operations.
(2) Net income for 1996 includes a $3.9 million adjustment to the Company's
deferred tax account, and earnings per share include $0.89 relative to the
adjustment.
(3) Includes the results of operations of Winona Knitting Mills
from October 11, 1995.
(4) Includes long-term debt, current portion thereof, borrowing under lines of
credit, related party debt, deferred compensation and redeemable preferred
stock.
(5) There were no cash dividends declared on common stock during any of the
periods presented above.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF COMPANY SEGMENTS
The following table sets forth information with respect to the segments of the
Company's business.
<CAPTION>
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales Apparel $151,317 $168,688 $140,807
- -------------------------------------------------------------------------------
Gross profit Apparel 29,700 34,919 33,081
19.6% 20.7% 23.5%
- -------------------------------------------------------------------------------
Rental revenue Investments 2,005 507 43
- -------------------------------------------------------------------------------
Selling, general and Apparel 20,715 21,966 18,350
administrative expenses Investments(1) 1,242 482 100
Corporate (2) 3,154 2,523 2,706
-----------------------------------
25,111 24,971 21,156
16.6% 14.8% 15.0%
Asset impairment charge 725 2,500 -
-----------------------------------
25,836 27,471 21,156
- -------------------------------------------------------------------------------
Income from operations Apparel 8,685 12,953 14,731
Investments 318 (2,475) (57)
Corporate (3,134) (2,523) (2,706)
-----------------------------------
Income from operations 5,869 7,955 11,968
3.9% 4.7% 8.5%
Interest expense (1,967) (1,696) (824)
Interest income 729 243 363
Other income (expense) (2) 1,465 502 (139)
-----------------------------------
Income before income taxes and
discontinued operations $ 6,096 $ 7,004 $11,368
- -------------------------------------------------------------------------------
Revenue by United States $152,296 $169,086 $140,850
geographic area (3) Russia 303 99 -
Europe 723 10 -
-------------------------------------
$153,322 $169,195 $140,850
- -------------------------------------------------------------------------------
<FN>
(1) Selling, general and administrative expenses of Hampshire Investments
includes depreciation of $607,000, $180,000 and $21,000 for 1999, 1998
and 1997, respectively.
(2) Selling, general and administrative expenses for corporate includes
$744,000 and $169,000 for 1999 and 1998, respectively, expense resulting
from the market gain in the Company's Deferred Compensation Plan, and other
income includes a like amount recording the increase in the market value of
the underlying securities.
(3) Additional segment data is provided in Note 18 of the consolidated
financial statements included in this Annual Report.
</FN>
</TABLE>
RESULTS OF OPERATIONS
1999 Compared With 1998
- -----------------------
Consolidated income from continuing operations of the Company for the year ended
December 31, 1999 was $5,196,000, or $1.22 per share on a diluted basis as
compared with $5,727,000, or $1.29 per share on a diluted basis, for the
preceding year.
Consolidated net sales of the Company were $151,317,000 in 1999 compared with
$168,688,000 in 1998. The 10.3% decrease in net sales is attributed primarily to
the men's non-branded lines. A large customers of the Winona Knitting Mills
Division ("Winona") eliminated from its catalog a product which had generated
substantial sales units in previous years. Non-delivery and delivery of
11
<PAGE>
substandard quality of products to Winona by contractors also resulted in loss
of sales. These factors accounted for approximately 64.0% of the decrease in net
sales of the Company.
Approximately 25.3% of the decrease in net sales resulting from a decrease in
net sales of the orlon women's sweaters resulting from price competition. The
balance of the decrease in net sales resulted primarily from a change in product
mix and average price of units sold.
Revenues of Hampshire Investments were $2,005,000 in 1999 compared with $507,000
in 1998. The increase resulted from a large percentage of the real estate units
being renovated and leased in 1999.
Gross margin of the Company's apparel segment in 1999 was 19.6% percent of net
sales, a 1.1 percentage-point reduction compared with the prior year. The
reduction is primarily attributed to reduced prices and to reduced unit volume
in respect to men's non-branded sweaters.
Selling, general and administrative expenses ("SG&A") of the Company were
$25,111,000 in 1999 compared with $24,971,000 in 1998. The increase was
primarily due to the increased expenses in the Brands Division, including
initial expenses of launching the Dockers brand in 2000. As a percent of net
sales, SG&A was 16.6% of net sales in 1999, a 1.8 percentage point increase over
1998.
Income from operations was $5,869,000 in 1999, compared with $7,955,000, which
included a $2,500,000 asset impairment charge in the Investments segment, in
1998. The income from operations for 1999 includes $725,000 of impairment
charges which were recognized for the estimated losses on distribution center
assets in the Brands Division and the reduction in the value of certain foreign
investments. For the year 2000, products of the Brands Division will be
distributed through third-party warehouses. The balance of the decrease resulted
principally from the reduction in net sales and gross margin as explained above.
Other income consists primarily of $744,000 gain on market value of securities
held in the Company's Deferred Compensation Plan (and a like amount was charged
against selling, general and administrative expenses as compensation of
executives), $270,000 lease revenue from the hosiery equipment retained by the
Company and $100,000 consulting fee collected from Vision Legwear, Inc.
The income tax provision was reduced to $900,000 in 1999 compared with
$1,277,000 in 1998. The 3.4 percentage point decrease in the effective tax rate
from 18.2% in 1998 to 14.8% for 1999 is primarily the result of a smaller
percentage of taxable income being generated in the United States and an in-
creased deferred state tax credit. The effective tax rate is lower than the
statutory rate because substantially all of the income of the Company's Puerto
Rican subsidiary is exempt from federal regular income taxes pursuant to an
election under Section 936 of the Internal Revenue Code. Section 936 will be
phased-out by the year 2005.
12
<PAGE>
1998 Compared With 1997
- -----------------------
The consolidated income of the Company from continuing operations for the year
ended December 31, 1998 was $5,727,000, or $1.29 per share on a diluted basis.
Compared with income from continuing operations of $8,919,000, or $2.00 per
share on a diluted basis, for the preceding year. The income from continuing
operations for 1998 included a $2,500,000 charge for asset impairment
principally to reflect the devaluation of the ruble on certain Russian
investments, which amounted to a reduction of $0.56 per share on a diluted
basis.
Consolidated net sales of the Company from continuing operations increased 19.8%
to $168,688,000 in 1998 from $140,807,000 in 1997. The increase in net sales can
be attributed primarily to the success achieved by Segue in developing strong
sales and worldwide sourcing relationships and the sales of Hampshire Brands. Of
the overall 19.8% increase, growth in unit volume accounted for 25.8% of the
increase, offset by a 6.0% decrease resulting from change in product mix and
average price of units sold. The decrease is principally the result of price
reductions from intense competition in the sweater market.
Gross profit from the Company's apparel segment increased $1,838,000, or 5.6%;
however, as a percent of net sales the gross margin decreased 2.8 percentage
points to 20.7%. The decrease can be attributed primarily to intense competition
which resulted in lower prices and lower margins.
Hampshire Investments had a net loss of $2,545,000 for the year ended December
31, 1998. The loss included the $2,500,000 write-down of foreign investments
resulting principally from the devaluation of the Russian ruble.
Selling, general and administrative expenses ("SG&A") from continuing operations
of the Company were $24,971,000 in 1998 compared with $21,156,000 in 1997. The
increase occurred primarily because of increased commission and shipping costs
directly associated with the sales generated by Hampshire Brands. As a percent
of net sales, SG&A was 14.8%, a 0.2 percentage point reduction from the previous
year.
Income from operations was $10,455,000 for the year 1998, excluding the
$2,500,000 asset impairment charge of the Investments segment, compared with
$11,968,000 for the previous year. The decrease resulted principally from the
increase in SG&A costs from 1997.
The income tax provision decreased to $1,277,000 in 1998 compared with
$2,449,000 in 1997. The 3.3 percentage point decrease in the effective tax rate
from 21.5% in 1997 to 18.2% for 1998 is primarily the result of a smaller
percentage of taxable income being generated in the United States and an
increased deferred state tax credit.
During the fourth quarter of 1998, the Company decided to dispose of the hosiery
business and reported results of the segment as discontinued operations. For the
year ended December 31, 1998, the Hosiery segment generated net sales of
$24,118,000 and an after-tax loss of $214,000. The Hosiery segment has been
treated as a discontinued operation in the consolidated financial statements and
an after-tax accrual of $500,000 was charged against 1998 income for estimated
loss on disposal of the assets.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity and capital requirements of the Company relate to funding working
capital for current operations (principally funding the buildup in inventories
13
<PAGE>
and accounts receivable which reach their maximum seasonal requirements in the
third quarter), servicing long-term debt and funding the investments of
Hampshire Investments. The primary resources to meet the liquidity and capital
requirements include funds generated by operations, revolving credit lines and
long-term notes.
The Company has increased its principal credit facility shared with three
commercial banks. The credit facility consists of a $55 million line of credit
and letter of credit facility. Advances are limited to the lesser of: (1) $55
million; or (2) the sum of 85% of the eligible accounts receivable and a
seasonal adjustment of $12 million during the period from March 1 to October 31.
The facility is subject to renegotiation on or before May 26, 2000. The Company
expects to renew or replace the current facility prior to its expiration.
Advances under the facility bear interest at the bank's prime rate or, at the
option of the Company, a fixed rate for a fixed term. The loans are
collateralized pari passu with the Senior Notes by the trade accounts receivable
of Hampshire Designers and the common stock of all the subsidiaries of the
Company. Letters of credit issued under the facility are collateralized by the
inventory shipped pursuant to the letters of credit.
The Company also has other credit facilities which in the aggregate allow the
Company to borrow an additional $7 million, of which $4 million is limited to
use for international letters of credit. The maximum advances outstanding during
1999 under all lines of credit was $21,350,000. The average amount outstanding
during the period beginning July 1 through November 19, 1999 (the only period of
the borrowings) was approximately $11,750,000. At December 31, 1999 there were
no advances outstanding.
During 1998, the Company sold $15 million of 7.05% long-term notes to two
insurance companies (the "Senior Notes") with repayment terms of seven equal
annual installments commencing January 2002. Interest is payable semi-annually
and the loan is collateralized pari passu with the Company's revolving credit
facility.
The Company's credit facility and Senior Notes contain certain covenants which
require certain financial performance, including minimum net worth and specified
current ratio and fixed charge coverage ratios, and which restricts the sale of
assets and restricts certain payments, including dividends and investments. The
Company was in compliance with the loan covenants at December 31, 1999.
The Company ended 1999 with cash and cash equivalents totaling $23,831,000, an
increase of $9,945,000 over the previous year. Net income of $5,196,000 for
1999, plus depreciation and amortization for $4,968,000 are the primary
contributing factors. In addition, net cash of $3,560,000 was generated from the
sale of the Hosiery Division, $4,627,000 from a decrease in accounts receivable
and $3,389,000 from a decrease in inventory compared with 1998. The decrease
in both accounts receivable and inventory resulted primarily from sales being
shifted to earlier months of the fourth quarter and reduced sales in the fourth
quarter of 1999.
Capital expenditures were reduced from $3,094,000 in 1998 to $915,000 in 1999 as
the Company's business has become more dependent on outside sourcing, thus
reducing manufacturing capital requirements. In addition, in 1999 the Company
invested approximately $8 million in real property for Hampshire Investments.
The Board of Directors of the Company has authorized management to purchase from
time-to-time in the open market shares of its common stock. During 1999, the
Company purchased 151,172 shares of common stock for $1,345,000. Such purchases
were made to provided shares to be issued by the Company's Common Stock Purchase
Plan and Stock Option Plan.
Management believes that cash flow from operations, available borrowings under
the credit facilities and other long-term borrowing will provide adequate
resources to meet the Company's capital requirements and operational needs for
the foreseeable future.
14
<PAGE>
OUTLOOK
The Company believes that the primary reason for its success in recent years has
been its ability to offer new products and the highest level of quality and
services to its customers. Management is committed to continuing to offer such
quality and services to its customers. Management knows that price competition
in the sweater market can adversely affect earnings of the Company. Therefore,
Management continues to shift the emphasis from its own domestic manufacturing
to international sourcing from contractors.
Over the past five years, the retail industry has consolidated through
acquisitions and mergers. Further, retailers have concentrated more volume with
a fewer number of vendors. The Company has responded by increasing its
utilization of foreign sources and by reducing its dependence upon domestic
manufacturing.
Seasonality
- -----------
The Company's apparel business, particularly the sale of sweaters to its
customers, is highly seasonal with the majority of sales occurring in the third
and fourth quarters of the year.
Effects of Changing Prices
- --------------------------
The Company is subject to the effects of changing prices. It has generally been
able to pass along inflationary increases in its costs by increasing the prices
for its products, however, market conditions sometimes preclude this practice.
Accounting Standards Not Yet Adopted
- ------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether the derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. SFAS No. 137 was issued by the FASB in June
1999, and it delayed implementation of the statement. As a result, SFAS No.
133 will not become effective for the Company until January 1, 2001. Management
of the Company has not yet evaluated the effects of SFAS 133 on the Company's
financial position, results of operations or cash flows.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The long-term debt of the Company is at fixed interest rates which were at
market when the debt was issued, but are below market interest rates at December
31, 1999. The short-term debt of the Company has variable interest rates based
on the prime rate of the financial institution purchasing the debt. The Company
had no short-term debt outstanding at December 31, 1999.
In purchasing sweaters from foreign manufacturers, the Company uses letters of
credit which require the payment of dollars upon receipt of bills of lading for
the sweaters. Prices are fixed in dollars at the time letters of credit are
issued.
With the exception of its 70% owned subsidiary, Hampshire Investments does not
issue or own foreign indebtedness. Hampshire Investments either purchases
foreign based assets with dollars or with foreign currency purchased with
dollars. Real property which is owned by Hampshire Investments and which is
located outside the United States is leased for either US dollars or other
stable currency. The primary market risk which Hampshire Investments has with
respect to foreign currencies is the impact that fluctuations in such currencies
have on the businesses of the lessees of such real property.
Hampshire Investments limits its market risk in the common stock of publicly
traded apparel companies primarily by limiting the amount of its investments so
that aggregate investments do not exceed one-half of annual net income of the
Company and by closely monitoring each of its investments.
15
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be presented in this Item 8 is presented commencing
on Page F-1 of this Annual Report on Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As reported in the Form 8-K, PricewaterhouseCoopers LLP was terminated as
independent accountants of the Company on October 14, 1999. The change in
independent accountants from PricewaterhouseCoopers LLP to Deloitte & Touche LLP
was recommended by the Audit Committee and approved by the Board of Directors of
the Company.
The independent accountants' reports on the financial statements of the Company
for the fiscal years ended December 31, 1999, 1998 and 1997 did not contain an
adverse opinion or a disclaimer of opinion, nor were they qualified as to
uncertainty, audit scope, or accounting principles.
There were no disagreements with accountants on accounting and financial
disclosure during the three fiscal years ended December 31, 1999, 1998 and 1997.
PART III
Certain information required to be presented in this Part III of this Annual
Report on Form 10-K is omitted in that the Registrant will file a Definitive
Proxy Statement pursuant to Regulation 14A (the "Proxy Statement") not later
than 120 days after the end of the fiscal year which is incorporated herein by
reference thereto.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required to be presented in this Item 10 is incorporated herein by reference to
the Company's 2000 Proxy Statement.
ITEM 11 - EXECUTIVE COMPENSATION
The information concerning executive compensation required to be presented in
this Item 11 is incorporated herein by reference to the Company's 2000 Proxy
Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners and
management required to be presented in this Item 12 is incorporated herein by
reference to the Company's 2000 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
required to be presented in this Item 13 is incorporated herein by reference to
the Company's 2000 Proxy Statement.
16
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this Annual Report on Form 10-K.
(1)Financial Statements
(2)Financial Statement Schedules
The financial statements and financial statement schedules are listed on
the Index to the Consolidated Financial Statements on Page F-1 of this
Annual Report on Form 10-K. All other schedules have been omitted because
the required information is shown in the consolidated financial statements
or notes thereto, or they are not applicable.
(3)Exhibits
Exhibit No. Description Footnote
----------- ---------------------------------------------- --------
(3)(A) Restated Certificate of Incorporation of
Hampshire Group, Limited 2
(3)(A)(1) Certificate of Amendment to the Certificate of
Incorporation of Hampshire Group, Limited 2
(3)(A)(2) Amended and Restated By-Laws of Hampshire Group,
Limited 2
(10)(A)(3) Employment Agreement between Hampshire Group, Limited
and Ludwig Kuttner dated as of January 1, 1998 3
(10)(B)(1) Form of Hampshire Group, Limited 1992 Stock Option
Plan Amended and Restated effective June 7, 1995 2
(10)(C)(1) Form of Hampshire Group, Limited and Affiliates
Common Stock Purchase Plan for Directors and
Executives Amended and Restated effective
June 7, 1995 2
(10)(D)(1) Form of Hampshire Group, Limited and Subsidiaries
401(k) Retirement Savings Plan 2
(10)(D)(2) Form of Hampshire Group, Limited Voluntary Deferred
Compensation Plan for Directors and Executives
Amended and Restated December 30, 1997 2
(10)(H)(1) Note Purchase Agreement between Hampshire Group,
Limited, Phoenix Home Life Mutual Insurance Company
and The Ohio National Life Insurance Company dated
May 15, 1998 3
(10)(H)(2) Credit Agreement and Guaranty between Hampshire
Group, Limited and The Chase Manhattan Bank,
Republic National Bank of New York and NationsBank,
N.A. Dated May 28, 1998 3
(1) Incorporated by reference to the Company's 1996 Annual Report on Form 10-K.
(2) Incorporated by reference to the Company's 1997 Annual Report on Form 10-K.
(3) Incorporated by reference to the Company's 1998 Annual Report on Form 10-K.
(4) Incorporated by reference to the Company's June 15, 1999 Report on Form 8-K
(Exhibits continued on next page)
17
(Exhibits continued from previous page)
Exhibit No. Description Footnote
----------- ---------------------------------------------- --------
(10)(J)(3) Lease Agreement between Hampshire Designers,
Inc. and Leslie R. Woodworth, et al for the
Winona, Minnesota manufacturing plant dated
October 10, 1995 2
(10)(J)(4) Lease Agreement between the Hampshire Designers,
Inc. and Pete Woodworth and Joyce Woodworth for
the La Crescent, Minnesota manufacturing plant
dated October 10, 1995 2
(10)(J)(5) Renewed Lease Agreement between Hampshire
Designers, Inc. and Commerce Center Associates,
Inc. for the Company's Anderson, South Carolina
corporate offices dated August 1, 1998 3
(10)(J)(6) Renewed Lease Agreement between Hampshire Designers,
Inc. and Commerce Center Associates, Inc. for the
Company's Anderson, South Carolina distribution center
dated August 1, 1998 3
(10)(K)(3) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated September 22, 1995 2
(10(L)(1) Industrial Tax Exemption between Glamourette Fashion
Mills, Inc. and the Commonwealth of Puerto Rico,
Office of Industrial Tax Exemption, dated
September 17, 1996 1
(10)(M) Agreement between Glamourette Fashion Mills, Inc. and
The Commonwealth of Puerto Rico on Repatriation of
Earnings (the "Closing Agreement"), dated June 30, 1993 2
(10)(O) Loan and Security Agreement between Hampshire
Designers, Inc. and Central Fidelity National Bank
dated February 8, 1995 1
(10)(R) Restated Term Note between MetLife Capital Corporation
and Hampshire Designers, Inc., dated July 30, 1998 3
(10)(S) Revolving Line of Credit Agreement between Merchants
National Bank and Hampshire Group, Limited dated
April 1, 1996. 1
(10)(T) Amendment to Credit Agreement between MTB Bank and
Segue (America) Limited dated June 19, 1996. 1
(10)(U) Agreement between Hampshire Designers, Inc. and
Vision Legwear LLC, dated May 27, 1999 for the
disposal of the hosiery business. 4
(Exhibits continued on next page)
18
<PAGE>
(Exhibits continued from previous page)
Exhibits filed herewith:
-----------------------
(3)(B)(6) Merger Agreement between Hampshire Designers, Inc.
and Segue (America) Limited dated December 30, 1999
(10)(H)(3) Third Amendment to Credit Agreement and guarantee
between Hampshire Group, Limited and The Chase
Manhattan Bank, Republic National Bank of New York
and NationsBank N.A.dated June 22, 1999
(10)(J)(7) Lease Agreement between Hampshire Designers, Inc.
and Peter Woodworth and Joyce Woodworth for the
Winona, Minnesota Distribution Center dated
June 15, 1999.
(10)(T)(1) Amendment to Credit Agreement between MTB Bank and
Segue (America) Limited dated July 14, 1999
(21) Subsidiaries of the Company
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
A report on Form 8-K was filed on October 14, 1999 and a related Form 8-K/A
was filed on October 29, 1999 regarding the Change of Independent
Accountants from PricewaterhouseCoopers LLP to Deloitte & Touche LLP.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson
and the State of South Carolina on this 28th day of March 2000.
HAMPSHIRE GROUP, LIMITED
By: /s/ LUDWIG KUTTNER
-------------------------
Ludwig Kuttner
President and Chief Executive Officer
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ LUDWIG KUTTNER Chairman of the Board of Directors March 28, 2000
Ludwig Kuttner President and Chief Executive Officer
(Principal Executive Officer)
/s/ CHARLES W. CLAYTON Vice President, Secretary, Treasurer March 28, 2000
Charles W. Clayton and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ HERBERT ELISH Director March 28, 2000
Herbert Elish
/s/ HARVEY L. SPERRY Director March 28, 2000
Harvey L. Sperry
/s/ EUGENE WARSAW Director March 28, 2000
Eugene Warsaw
/s/ JOEL GOLDBERG Director March 28, 2000
Joel Goldberg
/s/ PETER W. WOODWORTH Director March 28, 2000
Peter W. Woodworth
20
<PAGE>
HAMPSHIRE GROUP, LIMITED
Index To Consolidated Financial Statements
Page
------
Reports of Independent Accountants F-2 - F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Income F-5
Consolidated Statements of Comprehensive Income F-6
Consolidated Statements of Cash Flows F-7 - F-8
Consolidated Statements of Stockholders' Equity F-9
Notes to Consolidated Financial Statements F-10 - F-25
Financial Statement Schedules
II. Valuation and Qualifying Accounts and Reserves F-27
III. Real Estate and Accumulated Depreciation F-28 - F-29
Quarterly Financial and Stock Data F-30
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Hampshire Group, Limited
Anderson, South Carolina
We have audited the accompanying consolidated balance sheet of Hampshire Group,
Limited (the "Company") as of December 31, 1999, and the related consolidated
statements of income, comprehensive income, stockholders' equity, and cash flows
for the year then ended. Our audit also included the financial statement
schedules for the year ended December 31, 1999 listed in the index at F-1. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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 financial position of the Company as of December 31,
1999, and the 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 schedules for
the year ended December 31, 1999, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------
Deloitte & Touche LLP
Greenville, South Carolina
March 8, 2000
F-2
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Hampshire Group, Limited:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Hampshire Group, Limited and its subsidiaries at December 31, 1998, and the
results of their operations and their cash flows for each of the two years in
the period then ended in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedules listed in the accompanying index present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
to material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for the opinion express above.
/s/ PRICEWATERHOUSECOOPERS LLP
- -----------------------------------
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 11, 1999
F-3
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
December 31, 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Current assets:
Cash and cash equivalents $ 23,831 $ 13,886
Available-for-sale securities 207 549
Accounts receivable trade - net 16,732 24,194
Other accounts receivable 2,294 1,428
Inventories 17,400 20,789
Deferred tax asset 4,202 4,006
Assets held for sale - 774
Other current assets 704 597
----------------------
Total current assets 65,370 66,223
Property, plant and equipment - net 10,149 13,677
Real property investments - net 16,538 8,679
Long-term investments - net 4,537 5,238
Trading securities held in retirement trust 2,101 1,087
Deferred tax asset 1,969 2,416
Intangible assets - net 2,553 3,390
Other assets 377 138
----------------------
$103,594 $100,848
======================
-------------------------------------------------------------------
LIABILITIES Current liabilities:
Current portion of long-term debt $ 1,418 $ 1,782
Accounts payable 3,787 5,772
Accrued expenses and other liabilities 4,024 7,386
----------------------
Total current liabilities 9,229 14,940
Long-term debt 24,170 20,777
Deferred compensation 2,869 1,728
----------------------
Total liabilities 36,268 37,445
----------------------
Commitments and contingencies
------------------------------------------------------------------
STOCKHOLDERS'Common stock, $.10 par value; 4,183,447
EQUITY (1999) and 4,253,492 (1998) shares
issued and 4,115,314 (1999) and
4,218,246 (1998) outstanding 418 425
Additional paid-in capital 27,762 28,276
Retained earnings 40,182 35,459
Accumulated other comprehensive loss (334) (188)
Treasury stock, 68,133 (1999) and 35,246
(1998) shares at cost (702) (569)
----------------------
Total stockholders' equity 67,326 63,403
----------------------
$103,594 $100,848
======================
------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>
December 31, 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $151,317 $168,688 $140,807
Cost of goods sold 121,617 133,769 107,726
----------------------------
Gross profit 29,700 34,919 33,081
Rental revenue 2,005 507 43
----------------------------
31,705 35,426 33,124
Selling, general and administrative
expenses 25,111 24,971 21,156
Asset impairment charge 725 2,500 -
----------------------------
Income from operations 5,869 7,955 11,968
Other income (expense):
Interest expense (1,967) (1,696) (824)
Interest income 729 243 363
Other 1,465 502 (139)
----------------------------
Income before provision for income taxes
and discontinued operations 6,096 7,004 11,368
Income tax (provision) benefit:
Current (563) (1,471) (2,649)
Deferred (337) 194 200
----------------------------
Income from continuing operations 5,196 5,727 8,919
Income (loss) from discontinued
operations - net of income tax of
$127 and $57 - (214) 87
Loss from disposal of discontinued
operations - net of income tax of
$294 - (500) -
----------------------------
Net income 5,196 5,013 9,006
Preferred stock dividend requirements - - (167)
----------------------------
Net income applicable to common stock $ 5,196 $ 5,013 $ 8,839
============================
------------------------------------------------------------------
Income per share from Basic $1.27 $1.39 $2.27
----------------------------
continuing operations: Diluted $1.22 $1.29 $2.00
----------------------------
Net income per share: Basic $1.27 $1.21 $2.29
----------------------------
Diluted $1.22 $1.13 $2.02
----------------------------
Weighted average number Basic 4,100 4,128 3,856
----------------------------
of shares outstanding: Diluted 4,257 4,443 4,465
----------------------------
------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<CAPTION>
December 31, 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $5,196 $5,013 $9,006
----------------------------
Other comprehensive income (loss):
Unrealized holding gains (losses)
on securities arising during
periods (105) 41 (141)
Reclassification adjustment for
amount included in net income (127) (198) -
----------------------------
Other comprehensive loss (232) (157) (141)
Income tax benefit 86 58 52
----------------------------
Net other comprehensive loss (146) (99) (89)
----------------------------
Comprehensive income $5,050 $4,914 $8,917
============================
-------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
F-6
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
December 31, (in thousands) 1999 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,196 $ 5,013 $ 9,006
Loss (income) from discontinued
operations - 214 (87)
Loss from disposal of discontinued
operation - 500 -
----------------------------
Income from continuing operations 5,196 5,727 8,919
Adjustments to reconcile income from
continuing operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,968 4,397 3,508
Asset impairment charge 725 2,500 -
Loss (gain) on sales of property
and equipment (15) 1 4
Gain on sales of available-for-
sale securities (127) (198) -
Deferred income tax provision (benefit) 337 (781) (200)
Deferred compensation costs for
executive officers 135 231 103
Tax benefit relating to common stock
plans 49 227 100
Net change in operating assets and liabilities,
net of effects of acquired or disposed
companies:
Receivables 4,627 (7,397) (4,270)
Inventories 3,389 (6,383) (4,312)
Accounts payable (1,985) 2,000 340
Accrued expenses and other liabilities (3,363) (370) 2,277
Other assets (184) (42) (93)
----------------------------
Net cash provided by (used in)
continuing operations 13,752 (88) 6,376
Net cash provided by (used in)
discontinued operations 3,560 (820) 957
----------------------------
Net cash provided by (used in)
operating activities 17,312 (908) 7,333
------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (915) (3,094) (4,400)
Proceeds from sales of property and
equipment 24 580 4
Purchases of available-for-sale securities (308) (1,247) (853)
Proceeds from sales of available-for-sale
securities 545 1,363 -
Purchase of real property and other
investments (8,029) (8,551) (6,900)
Loans and advances to investees (1,656) (651) -
Repayments of loans and advances by
investees 762 88 138
Business purchase price adjustment (375) (265) -
----------------------------
Net cash used in investing activities (9,952) (11,777) (12,011)
------------------------------------------------------------------------
(Consolidated Statements of Cash Flows continued on next page.)
F-7
</TABLE>
<PAGE>
<TABLE>
(Consolidated Statements of Cash Flow continued from previous page.)
<CAPTION>
December 31, (in thousands) 1999 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long-term debt 4,840 16,948 1,645
Debt issuance costs - (112) -
Repayment of long-term debt (1,811) (2,939) (2,947)
Proceeds from issuance of common stock - 375 90
Repurchase of common stock warrants - - (1,000)
Cash dividends on preferred stock - - (167)
Payments of deferred compensation to
executive officers (8) - -
Proceeds from issuance of treasury stock 889 1,044 118
Purchases of treasury stock (1,325) (748) (1,443)
-----------------------------
Net cash provided by (used in)
financing activities 2,585 14,568 (3,704)
-----------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 9,945 1,883 (8,382)
Cash and cash equivalents - beginning of
year Cash and cash equivalents -
end of year 13,886 12,003 20,385
-----------------------------
$23,831 $13,886 $12,003
=============================
-----------------------------------------------------------------------
Supplementary disclosure of cash flow information
-----------------------------------------------------------------------
Cash paid during the year for:Interest $2,706 $1,434 $1,329
Income taxes 571 2,692 2,152
Non-cash investing activity:
Settlement of San Francisco Knitworks
purchase price dispute -
return of Company stock held in escrow 725 - -
Long-term debt - acquisition of real property - 575 -
-----------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
F-8
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
Year Ended December 31, 1997, 1998 and 1999
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - January 1, 1997 3,885,503 $489 $23,853 $23,111
Net income for the year - - - 9,006
Additional shares issued
for business acquisition 14,223 1 264 -
Preferred stock conversion 276,995 27 3,267 -
Purchase of treasury stock (91,615) - - -
Shares issued under the
common stock plans 50,019 2 88 (92)
Repurchase of stock warrant - - (98) (902)
Repurchase of subsidiary stock - - - (70)
Tax benefit relating to
common stock plans - - 100 -
Deferred compensation payable
in Company shares 276,616 - - -
Shares held in trust for deferred
compensation liability (276,616) - - -
Unrealized loss on available-
for-sale securities - net - - - -
Dividends on preferred stock - - - (167)
- -------------------------------------------------------------------------------
Balance - December 31, 1997 4,135,125 419 27,474 30,886
Net income for the year - - - 5,013
Additional shares issued
for business acquisition 17,952 2 204 -
Purchase of treasury stock (44,200) - - -
Shares issued under the
common stock plans 109,369 4 371 (440)
Tax benefit relating to
common stock plans - - 227 -
Deferred compensation payable
in Company shares 314,050 - - -
Shares held in trust for deferred
compensation liability (314,050) - - -
Unrealized loss on available-
for-sale securities - net - - - -
- -------------------------------------------------------------------------------
Balance - December 31, 1998 4,218,246 425 28,276 35,459
Net income for the year - - - 5,196
Escrow shares retired (90,625) (9) (716) -
Purchase of treasury stock (149,175) - - -
Shares issued under the
common stock plans 136,868 2 153 (473)
Tax benefit relating to
common stock plans - - 49 -
Deferred compensation payable
in Company shares 331,478 - - -
Shares held in trust for deferred
compensation liability (331,478) - - -
Unrealized loss on available-
for-sale securities - net - - - -
- -------------------------------------------------------------------------------
Balance - December 31, 1999 4,115,314 $418 $27,762 $40,182
===============================================================================
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of changes in Stockholders' Equity
(Continued)
<CAPTION>
Accumulated
Other
Comprehensive Treasury Total
Loss Stock
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - January 1, 1997 - ($ 78) $47,275
Net income for the year - - 9,006
Additional shares issued
for business acquisition - - 265
Preferred stock conversion - - 3,294
Purchase of treasury stock - (1,443) (1,443)
Shares issued under the
common stock plans - 541 539
Repurchase of stock warrant - - (1,000)
Repurchase of subsidiary stock - - (70)
Tax benefit relating to
common stock plans - - 100
Deferred compensation payable
in Company shares - 2,456 2,456
Shares held in trust for deferred
compensation liability - (2,456) (2,456)
Unrealized loss on available-
for-sale securities - net ($89) - (89)
Dividends on preferred stock - - (167)
- -------------------------------------------------------------------------------
Balance - December 31, 1997 (89) (980) 57,710
Net income for the year - - 5,013
Additional shares issued
for business acquisition - - 206
Purchase of treasury stock - (748) (748)
Shares issued under the
common stock plans - 1,159 1,094
Tax benefit relating to
common stock plans - - 227
Deferred compensation payable
in Company shares - 2,903 2,903
Shares held in trust for deferred
compensation liability - (2,903) (2,903)
Unrealized loss on available-
for-sale securities - net (99) - (99)
- -------------------------------------------------------------------------------
Balance - December 31, 1998 (188) (569) 63,403
Net income for the year - - 5,196
Escrow shares retired - - (725)
Purchase of treasury stock - (1,325) (1,325)
Shares issued under the
common stock plans - 1,192 874
Tax benefit relating to
common stock plans - - 49
Deferred compensation payable
in Company shares - 3,039 3,039
Shares held in trust for deferred
compensation liability - (3,039) (3,039)
Unrealized loss on available-
for-sale securities - net (146) - (146)
- -------------------------------------------------------------------------------
Balance - December 31, 1999 ($334) ($ 702) $67,326
===============================================================================
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
F-9
<PAGE>
HAMPSHIRE GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Hampshire Group, Limited (the "Company"), through its subsidiaries, is engaged
in the apparel business and investing in and holding of real estate and equity
securities. The Company, with headquarters in Anderson, South Carolina, operates
apparel manufacturing and distribution plants in South Carolina, California,
Minnesota, Virginia and Puerto Rico. The Company's products are sold primarily
in the United States through various retail and mail-order companies. The
investment company, with subsidiaries located in the United Kingdom and the
Czech Republic, acquires real properties and equity securities primarily in the
United States, Russia and Eastern Europe, for the purpose of long-term
investments.
The significant accounting policies used in the preparation of the accompanying
consolidated financial statements are as follows:
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries, Hampshire Designers, Inc. and its subsidiaries (collectively,
"Hampshire Designers") and Hampshire Investments, Limited and its subsidiaries,
including Hampshire Praha s.r.o. (70% owned) located in the Czech Republic
(collectively, "Hampshire Investments"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
Cash Equivalents
- ----------------
Cash equivalents consist of highly liquid investments with initial maturities of
ninety days or less. Interest bearing amounts were approximately $20.9 million
and $13.0 million at December 31, 1999 and 1998, respectively.
Available-For-Sale Securities
- -----------------------------
The Company owns certain equity securities which it has classified as
available-for-sale. These securities are stated at fair value, with unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. Realized gains and losses on the disposal of available-for-sale
securities are determined using the specific-identification method and are
included in the results of operations for the period of the transaction.
Management determines the appropriate classification of securities at the time
of purchase.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out ("LIFO") method for domestic inventories of Hampshire
Designers and using the first-in, first-out ("FIFO") method for all other
domestic inventory and inventory located in Puerto Rico.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are recorded at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives of
the assets. Additions and major replacements or improvements are capitalized,
while maintenance costs and minor replacements are charged to expense as
incurred. The cost and accumulated depreciation of assets sold or retired are
removed from the accounts and any gain or loss is included in the results of
operations for the period of the transaction.
Real Property Investments
- -------------------------
Real property investments are recorded at cost. The Company provides for
depreciation using the straight-line method over 15 years, which is the
estimated useful lives of the assets. Additions and major replacements or
improvements are capitalized, while maintenance costs and minor replacements are
charged to expense as incurred. The cost and accumulated depreciation of assets
sold or retired are removed from the accounts and any gain or loss is included
in the results of operations for the period of the transaction.
F-10
<PAGE>
Long-Term Investments
- ---------------------
Long-term investments are recorded at cost. Investments in real estate
partnerships are subsequently adjusted for equity increases or decreases
reported by the entity and reduced for any asset impairment.
Intangible Assets
- -----------------
Intangible assets consist primarily of goodwill which is being amortized over 10
years on a straight-line basis (see Note 7). The Company continually monitors
conditions that may affect the carrying value of its intangible assets. Should
conditions indicate potential impairment of such assets, the Company would
undertake the necessary studies and evaluate projected future undiscounted cash
flows to determine the extent of impairment, if any.
Foreign Currency Translation
- ----------------------------
Foreign currency transactions are translated into U.S. dollars at prevailing
exchange rates. The balance sheet of the Company's consolidated foreign entity,
excluding equity, was translated into U.S. dollars at current exchange rates at
year end. The statement of operations for the Company's consolidated foreign
entity was translated at average exchange rates. The adjustments resulting from
the translation of these financial statements were not significant and therefore
not included in comprehensive income. Also, net transaction gains (losses) were
not significant in 1999, 1998 or 1997.
Financial Instruments
- ---------------------
The Company's financial instruments primarily consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
long-term debt. The fair value of long-term debt is disclosed at Note 9. The
carrying amounts of the other financial instruments are considered a reasonable
estimate of fair value at December 31, 1999 and 1998, due to the short-term
nature of the items.
Revenue Recognition
- -------------------
The Company recognizes revenue upon shipment of goods to customers. Rental
revenue is recognized on a straight-line basis over the terms of the related
leases.
Advertising Costs
- -----------------
The Company recognized advertising costs, including the costs of co-op
advertising arrangements, as incurred. Advertising costs were $1,145,000,
$757,000 and $333,000 in 1999, 1998 and 1997, respectively.
Income Taxes
- ------------
Income taxes are recognized during the year in which transactions enter into
the determination of income for financial reporting purposes, with deferred
taxes being provided for temporary differences between the basis of assets and
liabilities for financial reporting purposes and the basis for income tax
reporting purposes.
Use of Estimates
- ----------------
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the accounting period. The Company's most significant financial statement
estimates include the allowance for doubtful accounts and customer allowances,
income tax valuation allowance (see Note 10) and the reserve for self-insured
health liabilities. Management determines the estimate of the allowance for
doubtful accounts and customer allowances considering a number of factors,
including historical experience, aging of the accounts, provisions for
allowances based on specific agreements with customers and the current credit
worthiness of its customers. The Company self-insures, with various insured
stop-loss limitations, its health claims. Management determines the estimate of
the reserve for self-insurance considering a number of factors, including
historical experience, third-party claims administration and actuarial
assessment of the liabilities for reported claims and claims incurred but not
reported. Management believes that its estimates provided in the financial
statements, including those for the previously described items, are reasonable.
However, actual results could differ from these estimates.
F-11
<PAGE>
Earnings Per Common Share
- -------------------------
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), requires dual presentation of basic and diluted earnings per share
on the face of the income statement for entities with complex capital
structures. Basic earnings per common share is computed by dividing net income
by the weighted-average number of shares outstanding for the year. Diluted
earnings per common share is computed similarly; however, it is adjusted for the
effects of the assumed exercise of the Company's outstanding options and
warrants.
Comprehensive Income
- --------------------
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"), establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company currently has
one item, unrecognized gain or loss on available-for-sale securities, that is
presented in other comprehensive income.
Accounting Standards Not Yet Adopted
- ------------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), was issued. SFAS 133 requires all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether the derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction. SFAS No.
137 delayed implementation of the statement and as a result, it will not become
effective for the Company until January 1, 2001. Management of the Company has
not yet evaluated the effects of SFAS 133 on the Company's financial position,
results of operations or cash flows.
Presentation of Prior Year Data
- -------------------------------
Certain reclassifications have been made to data of prior years to conform with
the current-year presentation.
Note 2 - Available-for-Sale Securities
- --------------------------------------
A summary of available-for-sale securities at December 31, 1998 and 1997 is set
forth in the table below.
Gains or losses on the sale of securities (not significant in any year) have
been reported in the Consolidated Statements of Income under Other Income.
Unrealized gains or losses have been reported in the Consolidated Statements of
Comprehensive Income.
(in thousands) 1999 1998
- -------------------------------------------------
Original cost $ 736 $ 847
Unrealized gains - 15
Unrealized losses (529) (313)
- -------------------------------------------------
Fair market value $ 207 $ 549
=================================================
Note 3 - Accounts Receivable and Major Customers
- ------------------------------------------------
The Company performs ongoing evaluations of the credit worthiness of its
customers and maintains allowances for potential credit losses. The Company
generally does not require collateral for its trade receivables. The accounts
receivable are stated net of allowances for doubtful accounts and returns and
allowances of $5,074,000 and $3,672,000 at December 31, 1999 and 1998,
respectively.
The Company sells principally to department stores, mail-order catalog
businesses, chain stores, mass merchandisers and other retailers located in the
United States. The Company had sales to three major customers (defined as sales
in excess of 10% of total sales ) which as a percentage of total sales accounted
for approximately 36%, 33% and 35% for 1999, 1998 and 1997, respectively. At
December 31, 1999 and 1998, 55% and 41%, respectively, of the trade receivables
were due from these three customers.
F-13
<PAGE>
Note 4 - Inventories
- --------------------
The components of inventories at December 31, 1999 and 1998 are set forth in the
table below.
Approximately 42% and 39% of total inventories were valued using the LIFO method
at December 31, 1999 and 1998, respectively.
(in thousands) 1999 1998
- ------------------------------------------------
Finished goods $14,072 $14,904
Work-in-progress 2,503 3,460
Raw materials and supplies 2,626 4,126
- ------------------------------------------------
19,201 22,490
Less - Excess of current cost
over LIFO carrying value (1,801) (1,701)
- ------------------------------------------------
Total $17,400 $20,789
================================================
Note 5 - Property, Plant and Equipment
- --------------------------------------
The components of property, plant and equipment at December 31, 1999 and 1998
are set forth in the table below.
Depreciation expense was $3,874,000, $3,797,000 and $3,202,000, respectively,
for the years ended December 31, 1999, 1998 and 1997.
In 1999, a $300,000 impairment charge was recognized for certain equipment
deemed to be impaired.
Estimated
(in thousands) Useful Lives 1999 1998
- ------------------------------------------------------------------------------
Land $ 242 $ 324
Buildings and improvements 15-45 years 2,541 3,879
Leasehold improvements 5-10 years 4,653 4,515
Machinery and equipment 3-7 years 26,358 25,298
Furniture and fixtures 3-7 years 1,416 1,227
Transportation equipment 3-5 years 105 122
- ------------------------------------------------------------------------------
Total cost 35,315 35,365
Less - Accumulated depreciation (25,166) (21,688)
- ------------------------------------------------------------------------------
Total $10,149 $13,677
==============================================================================
Note 6 - Real Property and Long-Term Investments
- ------------------------------------------------
The Company, through its investments subsidiary, has made direct investments in
real property for the purposes of generating rental revenue. These properties
consist of commercial facilities in the United States and abroad and are carried
at historical cost, net of a $1,850,000 asset impairment charge recorded in
1998. (In 1999, commercial property in the United States, includes $2,272,000
representing the cost of the hosiery plants transferred to this classification,
and accumulated depreciation includes $2,054,000 for the same property.)
Depreciation is provided over the estimated useful lives of the property, which
is 15 years. Depreciation expense was $607,000 and $180,000 for the years ended
December 31, 1999 and 1998, respectively.
Real Property Investments
- ------------------------------------------------------
(in thousands) 1999 1998
- ------------------------------------------------------
Commercial property:
United States $13,428 $5,933
Russia 2,889 2,141
Europe 3,083 806
- ------------------------------------------------------
19,400 8,880
Less: Accumulated depreciation (2,862) (201)
- ------------------------------------------------------
Total $16,538 $8,679
======================================================
Long-term investments consist principally of common stock of non-publicly traded
companies. Management intends that these investments will be held on a long-term
basis. The carrying values set forth in the adjacent table are shown net of
asset impairment charges of $425,000 recorded in 1999 and $650,000 recorded in
1998 for certain assets deemed to be permanently impaired.
Long-Term Investments
- ------------------------------------------------------
(in thousands) 1999 1998
- ------------------------------------------------------
United States $2,268 $1,909
Russia 131 131
Europe 2,138 3,198
- ------------------------------------------------------
Total $4,537 $5,238
======================================================
F-13
<PAGE>
Note 7 - Intangible Assets
- --------------------------
In connection with the acquisition of San Francisco Knitworks, the Company
recorded a $350,000 reduction of goodwill in 1999 as a result of the favorable
settlement of a purchase price contingency. In connection with the acquisition
of Winona Knitting Mills, the Company recorded an additional $413,000 and
$530,000 in goodwill in 1998 and 1997, respectively, as a result of certain
payments made in accordance with the contingent purchase price agreement.
Activity in intangible assets for the years ended December 31, 1999, 1998 and
1997 is summarized in the table below.
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------
Balance - beginning of year $3,390 $3,385 $3,161
Purchase price adjustments (350) 413 530
Amortization during year (487) (420) (306)
Other - 12 -
- ----------------------------------------------------------------
Balance - end of year $2,553 $3,390 $3,385
================================================================
Note 8 - Accrued Expenses and Other Liabilities
- -----------------------------------------------
Accrued expenses and other liabilities at December 31, 1999 and 1998 are
summarized in the table below.
(in thousands) 1999 1998
- ------------------------------------------------------
Compensation $1,055 $1,870
Medical and health care 334 956
Workers' compensation 100 629
Co-op advertising 658 563
Interest 47 821
Income taxes 299 709
Other 1,531 1,838
- ------------------------------------------------------
Total $4,024 $7,386
======================================================
Note 9 - Borrowings
- -------------------
Revolving Credit Agreement
- --------------------------
The Company's principal credit facility is with three participating commercial
banks ("Revolving Credit Agreement"). The credit facility consists of a $55
million combined line of credit and letter of credit facility. Advances under
the facility are limited to the lesser of $55 million, or the sum of 85% of the
eligible accounts receivable, plus a seasonal adjustment of up to $12 million
during the period March 1 to October 31. The next annual renewal of the facility
is May 24, 2000.
Advances under the facility bear interest at either the bank's prime rate or, at
the option of the Company, a fixed rate of LIBOR plus 1.5%, for a fixed term.
The loan is collateralized, pari passu with the Senior Notes, by the trade
accounts receivable of Hampshire Designers, other than certain factored trade
accounts receivable. In addition, letters of credit issued under the facility
are collateralized by the inventory shipped pursuant to the letters of credit.
The Company has also pledged as collateral a $5 million insurance policy on the
life of its Chairman and the common stock of its subsidiaries, and such
subsidiaries guarantee the performance of the Company. No advances were
outstanding under the credit line at December 31, 1999 or 1998, and therefore,
approximately $19 million was available for borrowing under the line of credit
at December 31, 1999.
The Company maintains an unsecured $3 million credit facility for Hampshire
Designers for peak period financing. The line is available for short-term
borrowings not to exceed one year and to fund letters of credit. Advances on the
facility bear interest, at the Company's option, at the bank's prime rate or the
one-month LIBOR rate plus 1.87%. No advances were outstanding under the line at
December 31, 1999 or 1998. For a subsidiary of Hampshire Designers, the Company
maintains with a bank a $4 million facility which is used primarily to fund
F-14
<PAGE>
international letters of credit. Advances on the facility bear interest at the
bank's prime rate and are collateralized by the inventory purchased pursuant
thereto and are guaranteed by Hampshire Group, Limited. Outstanding letters of
credit of all lines totaled approximately $8 million at December 31, 1999.
Factoring Agreement
- -------------------
The Winona Division has a factoring agreement pursuant to which it sells
approximately 40% of its accounts receivable to a factor, without recourse. The
accounts are factored on a 45-day maturity basis, but the Company may request
advances up to 80% of the uncollected balance of the receivables, with such
advances bearing interest at the prime rate plus 1%. The agreement requires a
commission rate of 1% of the factored accounts receivable.
Senior Notes Agreement
- ----------------------
The Senior Notes are collateralized pari passu with the Company's Revolving
Credit Agreement by the trade accounts receivable of Hampshire Designers, other
than certain factored trade accounts receivable. The Company has also pledged as
collateral a $5 million insurance policy on the life of its Chairman and the
common stock of its subsidiaries, and such subsidiaries guarantee the
performance of the Company under the Agreements, hereafter defined.
Financial Covenants
- -------------------
Both the Revolving Credit Agreement and the Senior Note Agreement (the
"Agreements") contain covenants which require certain financial performance and
restrict certain payments by the Company and the Restricted Subsidiaries
(defined as Hampshire Designers, Inc. and its subsidiaries), including advances
to the Company's non-restricted subsidiary, defined as Hampshire Investments,
Limited and it subsidiaries. The covenants require maintenance of a consolidated
tangible net worth not less than $43 million plus 50% of the net income for the
year 1998 and each succeeding year; an average current ratio of not less than
1.75 to 1.00; a fixed charge ratio of consolidated income for fixed charges for
the period of four consecutive fiscal quarters most recently ended of at least
2.50 times consolidated fixed charges for such period and restricts funded debt
to capitalization ratio not to exceed 0.45 to 1.00. The Agreements also require
a short-term debt cleanup of 45 days during any 12-month period, restrict the
sale of assets and restrict payments by the Company of cash dividends to
stockholders and investments in and loans or advances to the non-restricted
subsidiary. At December 31, 1999 approximately $2.1 million was available for
restricted payment, including the payment of cash dividends if any had been
declared. (There was no short-term debt outstanding for the first six months of
the year.) The Company was in compliance with the loan covenants at December
31, 1999.
F-15
<PAGE>
<TABLE>
Long -Term Debt
- ---------------
<CAPTION>
Long-term debt at December 31, 1999 and 1998 is composed of:
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>>
Senior Notes payable to two insurance companies in seven
annual installments of $2,142,857 commencing January 2002,
interest at 7.05% per annum, payable semi-annually,
collateralized pari passu with the Revolving Credit
Facility $15,000 $15,000
Debt collateralized by real property
- ------------------------------------
Note payable to a mortgage company in monthly
installments of $12,326, including interest at
7.36% through 2008 1,660 1,684
Note payable to a bank in monthly installments of
$12,113, including interest at 9.25% through 2004 1,572 -
Note payable to a bank in monthly installments of
$10,990 including interest at 9.25% through 2019 1,188 -
Notes payable to a foreign bank in quarterly
installments of $41,612, plus interest at 7.5%
through 2004 1,773 -
Note payable to a bank in monthly installments of
$12,350, including interest at 7.5% through 2007 858 922
Note payable to a bank in monthly installments of
$8,300, including interest at 8.06% through 2008 557 597
Other notes payable collateralized by real estate payable
in monthly installments of $9,400, including interest
at various rates from 7.25% to 8.00% with maturities
through 2025 1,030 1,075
Debt collateralized by machinery and equipment
- ----------------------------------------------
Notes payable to an insurance company in monthly
installments of $47,683 including interest at various
rates from 7.85% to 7.90% through 2000 446 1,152
Notes payable to a bank in monthly installments of
$30,150, plus interest, at LIBOR plus 1.75%, adjusted
quarterly, through 2001 351 713
Note payable to a bank in monthly installments of
$15,805, including interest at 8.25% through 2002 439 599
Other notes payable in monthly installments of
approximately $18,000, including interest at various
rates from 5.88% to 10.3% through 2007 374 439
Unsecured debt
- --------------
Note payable to Minnesota Economic Development Division
in monthly installments of $4,378, including interest at
4.0% through 2007 340 378
- -------------------------------------------------------------------------------
Total debt 25,588 22,559
Less - Amount payable within one year (1,418) (1,782)
- -------------------------------------------------------------------------------
Amount payable after one year $24,170 $20,777
===============================================================================
</TABLE>
Maturities of long-term debt as of December 31, 1999 are summarized in the
table below.
Year (in thousands)
- ---------------------------------
2000 $ 1,418
2001 772
2002 2,744
2003 3,176
2004 4,902
Thereafter 12,576
- ---------------------------------
Total $25,588
=================================
F-16
<PAGE>
Senior Notes are collateralized pari passu with the Revolving Credit Facility by
the accounts receivable of the Restricted Subsidiary of the Company and the
common stock of all subsidiaries. The net book value of the assets
collateralizing the debt on real property at December 31, 1999 was approximately
$11.7 million. The net book value of the assets collateralizing the debt on
machinery and equipment at December 31, 1999 was approximately $2.5 million.
The fair value of the debt at December 31, 1999, based on current market
interest rates for the Company discounted to present value, is approximately
$24.6 million.
Note 10 - Income Taxes
- ----------------------
The components of income tax expense for the years ended December 31, 1999, 1998
and 1997 are set forth in the table below.
(in thousands) 1999 1998 1997
- --------------------------------------------------
Current:
Federal $ 98 $1,068 $2,201
State 380 271 311
Puerto Rico 85 132 137
- --------------------------------------------------
563 1,471 2,649
- --------------------------------------------------
Deferred:
Federal 469 28 (200)
State (132) (222) -
- --------------------------------------------------
337 (194) (200)
- --------------------------------------------------
Total $900 $1,277 $2,449
==================================================
The domestic, Puerto Rico and foreign components of income (loss) before income
taxes are set forth in the table below.
(in thousands) 1999 1998 1997
- ---------------------------------------------------
Domestic $2,268 $5,244 $ 6,230
Puerto Rico 4,654 4,183 5,138
Foreign (826) (2,423) -
- ---------------------------------------------------
Income before income taxes $6,096 $7,004 $11,368
===================================================
A reconciliation of the provision (benefit) for income taxes computed by
applying the statutory federal income tax rate to income from continuing
operations before income taxes and the Company's actual provision for income
taxes is set forth in the table below.
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------
Tax provision at federal statutory rate $2,073 $2,381 $3,865
Increase (decrease) in tax arising from:
Effect of exemption of Puerto Rico
earnings from United States tax (1,582) (1,422) (1,747)
Puerto Rico taxes on income, including
withholding taxes 85 132 137
State taxes, less federal
income tax benefit 119 85 174
Foreign operating losses 281 85 -
Other (76) 16 20
- -----------------------------------------------------------------
$ 900 $1,277 $2,449
=================================================================
F-17
<PAGE>
A summary of the temporary differences and carryforwards giving rise to deferred
income tax assets and liabilities as of December 31, 1999 and 1998 is set forth
in the table below.
(in thousands) 1999 1998
- -----------------------------------------------------------------
Deferred income tax assets:
Allowances for receivables $ 659 $ 936
Inventories - 199
Write-down of assets not currently deductible 219 925
Accrued liabilities and other temporary
differences 3,303 2,359
Unrealized losses on available-for-sale
securities 196 110
Provision for discontinued operations - 294
Net operating loss carryforwards 2,565 3,039
Tax credit carryforwards 1,283 697
- -----------------------------------------------------------------
Gross deferred income tax assets 8,225 8,559
Deferred income tax liabilities:
Inventories (173) -
Property, plant and equipment (12) (268)
- -----------------------------------------------------------------
Gross deferred income tax liabilities (185) (268)
- -----------------------------------------------------------------
Valuation allowance for deferred income tax
assets (1,869) (1,869)
- -----------------------------------------------------------------
Net deferred income tax assets $6,171 $6,422
=================================================================
Recognized as follows in the accompanying consolidated balance sheets.
(in thousands) 1999 1998
- -------------------------------------------------
Deferred tax asset - current $4,202 $4,006
Deferred tax asset - noncurrent 1,969 2,416
- -------------------------------------------------
Total $6,171 $6,422
=================================================
The net operating loss carryforwards for federal income tax purposes expire as
set forth in the table below.
(in thousands) Year Regular Tax
- ------------------------------------------
2002 $1,139
2003 1,845
2004 411
2005 2,429
2009 1,366
- ------------------------------------------
Total $7,190
==========================================
As a result of the sale of the Company's common stock pursuant to the Offering,
the Company generally is not permitted to utilize more than $1.7 million of the
net operating loss carryovers existing as of the completion of the Offering in
any single tax year. To the extent such net operating loss carryforward
limitation is not utilized in any tax year, it may be carried forward to
subsequent tax years and consequently will increase the subsequent years'
limitation.
Substantially all of the income of Glamourette Fashion Mills, Inc.
("Glamourette") was effectively exempt from Puerto Rico income tax by an
extended tax grant under the Puerto Rico Tax Incentives Act of 1987 (the "Act").
The grant allows partial exemption from income, property and municipal taxes.
Under the extension of the grant, the Company has been granted 90% exemption
from Puerto Rico income taxes, and 75% exemption from property taxes and
municipal taxes through the year 2010 and will be subject to tollgate taxes
F-18
<PAGE>
ranging from 0% to 5% on dividends. Absent this exemption, Glamourette's
earnings would be subject to Puerto Rican income tax at rates of up to 39%.
Glamourette has made an election under Section 936 of the Internal Revenue code
pursuant to which Glamourette's earnings are exempt from US taxes. However,
dividends received from Glamourette, together with certain other items, enter
into the computation of the US alternative minimum tax ("AMT"). Due to the
Section 936 exemption and the relative portion of Glamourette's earnings to
other US taxable income in prior years, management estimated that the Company
would, more likely than not, be a perpetual AMT taxpayer. Accordingly, since NOL
deductions are limited in calculating AMT, the Company had, prior to 1996,
determined that a valuation allowance was required with respect to NOL
carryforwards and AMT credit carryforwards. During 1996, Section 936 was
repealed and is being phased out over a 10-year period. As a result, the Company
believes that during this phase-out period it will incur regular US tax
liabilities and therefore will receive the benefit of a significant portion of
the NOL and AMT credit carryforwards.
The Company received dividends from Glamourette of approximately $6 million, $2
million and $5 million in 1999, 1998 and 1997, respectively. The Company has
approximately $9 million of Glamourette's undistributed earnings which it
considers permanently invested. Additionally, any undistributed earnings of
other foreign subsidiaries are expected to be indefinitely reinvested overseas.
For this reason, deferred income taxes have not been provided thereon.
During 1999, the Internal Revenue Service made an examination of the Company's
consolidated tax return for the year ended December 31, 1996. The examination
resulted in an adjustment letter in the amount of $65,000 deficiency being
issued which was accepted by the Company.
Note 11 - Commitments and Contingencies
- ---------------------------------------
The Company leases premises and equipment under operating leases having terms
from monthly to 7 years. At December 31, 1999, future minimum lease payments
under leases ("lessee") having an initial or remaining non-cancelable term in
excess of one year were as set forth in the table below.
The Company also leases certain owned real estate properties of its Investment
segment. Future minimum lease receipts by the Company for leases ("lessor")
having an initial or remaining non-cancelable item in excess of one year were as
set forth in the adjacent table.
Rent expenses for operating leases were $1,501,000, $1,532,000 and $1,596,000 in
1999, 1998 and 1997, respectively.
Rental revenue was $2,005,000, $507,000 and $43,000 in 1999, 1998 and 1997,
respectively.
Year Lessee Lessor
- -------------------------------------
(in thousands)
- -------------------------------------
2000 $1,500 $1,573
2001 1,238 1,358
2002 1,012 1,185
2003 885 1,011
2004 569 476
Thereafter 708 1,225
- ------------------------------------
Total $5,912 $6,828
====================================
The Company is, from time to time, involved in litigation incidental to the
conduct of its business. Management believes that no currently pending
litigation to which it is a party will have a material adverse effect on the
Company's consolidated financial condition, results of operations, or cash flow.
Note 12 - Capitalization
- ------------------------
The Company's authorized capital stock consists of 10,000,000 shares of common
stock and 1,000,000 shares of serial preferred stock each having a par value of
$0.10 per share. The Board of Directors is authorized to provide for the
issuance of preferred stock in such series and having such designations, voting
powers, preferences and other rights and restrictions as the Board of Directors
shall determine.
Effective December 30, 1997 all outstanding shares of preferred stock were
converted into shares of Hampshire Group, Limited common stock.
Note 13 - Stock Options, Warrants and Compensation Plans
- --------------------------------------------------------
In 1994, the Company registered 750,000 shares of its common stock under the
Securities Act of 1933, as amended. This action was in regards to the Hampshire
Group, Limited 1992 Stock Option Plan and the Hampshire Group, Limited Common
Stock Purchase Plan for Directors and Executives. Of these shares, 350,000 have
been issued under these plans.
Beginning in 1996, the Board of Directors of the Company authorized the
repurchase of shares of the Company's common stock, some of which would be used
to offset the dilution caused by the issuance of shares under the Stock Option
Plan and Stock Purchase Plan. The Company's repurchase of shares of common stock
are recorded as "Treasury Stock" and result in a reduction of "Stockholders'
Equity". When treasury shares are reissued, the Company uses a weighted average
cost method and the excess of repurchase cost over reissuance price is treated
as a reduction of "Retained Earnings".
Stock Options
- -------------
Options to purchase Hampshire Group, Limited Common Stock are granted at the
discretion of the Company's Board of Directors to executives and key employees
of the Company and its subsidiaries. No option may be granted with an exercise
price less than fair market value per share of common stock at the date of
grant. All options have a maximum term of 10 years and become fully exercisable
after a maximum of 5 years from the date of grant.
Stock option activity is set forth in the table below.
Number of Weighted Average
Options Exercise Price
- -------------------------------------------------------------------------
Outstanding - December 31, 1996 455,813 $ 7.87
Granted 50,000 14.50
Exercised (29,556) 6.98
Canceled or expired (45,625) 14.16
- -------------------------------------------------------------------------
Outstanding - December 31, 1997 430,632 8.33
Granted 52,945 16.31
Exercised (65,767) 8.15
Canceled or expired (5,794) 10.77
- -------------------------------------------------------------------------
Outstanding - December 31, 1998 412,016 9.23
Granted 76,650 8.72
Exercised (143,718) 6.94
Canceled or expired (54,235) 10.95
- -------------------------------------------------------------------------
Outstanding - December 31, 1999 290,713 $10.18
- -------------------------------------------------------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), allows
companies to adopt the fair value based method of accounting or to continue
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
25") and related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense was recognized in 1999, 1998 or 1997. Additionally, in
accordance with SFAS 123, the Company is required to disclose fair value
information about its stock-based employee compensation plans for all periods
presented. If compensation expense for the Company's stock-based compensation
plans had been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS 123, the Company's net
income and earnings per share would have been reduced as per the "pro forma"
amounts in the accompanying table.
F-20
<PAGE>
In order to estimate compensation cost, the Black-Scholes model was employed
using the assumptions set forth in the adjacent table. 1999 1998 1,997
1999 1998 1997
- -------------------------------------------------------
Expected life (years) 6.16 5.24 4.37
Expected volatility 22.46% 22.73% 18.60%
Dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 4.95% 5.14% 6.54%
Weighted-average fair values
of options granted $2.71 $5.33 $5.07
- -------------------------------------------------------
The adjacent table sets forth the effect on net income and diluted earnings per
share had compensation cost been determined under SFAS 123.
(in thousands) 1999 1998 1997
- ---------------------------------------------------------
Net income: As reported $5,196 $5,013 $9,006
----------------------------
Pro forma $5,022 $4,927 $8,930
----------------------------
Diluted earnings As reported $1.22 $1.13 $2.02
----------------------------
per share: Pro forma $1.18 $1.11 $2.00
- ---------------------------------------------------------
A summary of the status of options outstanding at December 31, 1999 is set forth
in the table below.
Options Outstanding Options Exercisable
- ----------------------------------------------------- ------------------------
Number Range of Weighted Weighted Number Weighted
Outstanding Exercise Average Average Exercisable Average
12/31/99 Prices Exercise Price Remaining Life 12/31/99 Exercise Price
- ----------------------------------------------------- ------------------------
31,818 $6.00-$ 6.19 $ 6.13 2.13 31,818 $ 6.13
42,882 7.50- 7.87 7.52 1.32 42,882 7.52
126,363 8.25- 9.90 9.19 3.49 58,863 9.32
48,250 11.00-12.13 11.60 3.84 46,500 11.58
9,900 12.50-14.50 14.40 4.42 7,550 14.37
30,000 18.13 18.13 6.50 7,500 18.13
1,500 22.69 22.69 5.50 750 22.69
- -------------------------------------------------------------------------------
290,713 $ 6.00-$22.69 $10.18 3.44 195,863 $ 9.13
===============================================================================
Warrants to Purchase Common Stock
- ---------------------------------
In December 1990, the Company issued warrants to purchase 338,182 shares of the
Company's common stock at an exercise price of $6.19 per share through December
31, 2000. The aggregate consideration for such warrants was $250,000. During
1997, the Company repurchased for $1 million ($7.534 per share), 132,728 of
these warrants leaving a balance of 205,454 outstanding.
Common Stock Purchase Plan
- --------------------------
Pursuant to the Hampshire Group, Limited 1992 Common Stock Purchase Plan for
Directors and Executives ("Stock Purchase Plan"), non-employee directors may
elect to use their fees as directors to purchase common stock of the Company.
Under the same provision, key executives may elect to use up to 10% of their
annual salaries and up to 40% of their annual bonuses to purchase common stock
of the Company under the Plan.
The number of shares of common stock to be delivered is determined, with respect
to non-employee directors, by dividing the amount of director fees elected to be
used to purchase common stock in each quarter by 95% of the fair market value of
the Company's common stock at the end of the calendar quarter. The number of
shares of common stock to be delivered with respect to annual salaries of key
executives is determined by dividing the amount so elected to be used for the
purchase of common stock by 90% of the Company's common stock at the end of the
calendar quarter. The number of shares of common stock to be delivered with
respect to annual bonuses of key executives is determined by dividing the amount
elected to be used for the purchase of common stock by 90% of the lower of: (1)
F-21
<PAGE>
the average of the fair market value of the Company's common stock at the end of
each calendar quarter, or (2) the fair market value of the Company's common
stock as of the end of the plan year.
The participating directors and executives, in the aggregate, elected to use
approximately $345,000, $487,000 and $735,000 of their compensation for 1999,
1998 and 1997, respectively, to purchase common stock of the Company under the
Stock Purchase Plan. The Company has established a trust to which it delivers
the shares of the Company's common stock to satisfy such elections following the
end of each plan year. Alternatively, the Company may contribute cash to the
trust in an amount sufficient to enable the trustee to purchase in the open
market, the number of shares of common stock which the Company would be required
to deliver. The deferred compensation liability and the Company's shares are
presented as offsetting amounts in the stockholders' equity section.
Voluntary Deferred Compensation Plan
- ------------------------------------
The Company has a Hampshire Group, Limited Deferred Voluntary Compensation Plan
for Directors and Executives (the "Top Hat Plan"). Pursuant to the plan, key
executives may elect to defer up to 20% of the total compensation in each year
with said deferrals being invested in mutual funds external to the Company. In
1999, 1998 and 1997 the participants deferred $270,000, $430,000 and $547,000,
respectively, with the resulting liability being included as deferred
compensation in the accompanying consolidated balance sheets. To fund the
deferred compensation liability, the Company has invested the amounts deferred
by the executives in certain mutual funds which are presented as "Trading
securities held in retirement trust" in the accompanying consolidated balance
sheets. The market value of these mutual funds at December 31, 1999 and 1998,
was $2,101,000 and $1,087,000, respectively, which equal the liability of the
Company at the respective date. Since both the deferred liability and the
related mutual funds are marked to market, there is no effect on net income.
Company Deferred Compensation Plan
- ----------------------------------
As a condition of their employment agreements, the Company contributes $100,000
annually to a deferred compensation plan on behalf of the Chief Executive
Officer and $10,000 annually on behalf of the Chief Financial Officer. At the
option of the executive, the cumulative amount may be invested in the Company,
accruing interest at 110% of the Applicable Federal Long Term Interest Rate, or
may be invested in other funds.
Note 14 - Retirement Savings Plan
- ---------------------------------
The Company has a Hampshire Group, Limited and Subsidiaries 401(k) Retirement
Savings Plan under which all employees may participate after having completed at
least one year of service and having reached the age of twenty years. The
Company's matching contribution is determined annually at the discretion of the
Board of Directors and was $297,000, $345,000 and $346,000 in 1999, 1998 and
1997, respectively. Such matching contributions vest fully over seven years of
employment.
Note 15 - Related Party Transactions
- ------------------------------------
The Company leases certain buildings from an affiliated company. Ludwig Kuttner,
Chief Executive Officer of the Company, and his wife together own approximately
18% of the voting stock of the affiliate. Rent expense under such leases was
$216,000, $208,000 and $200,000 in 1999, 1998 and 1997, respectively. The
Company also leases certain buildings from a director of the Company, Peter
Woodworth, his wife and certain of his relatives. Rent expense under such leases
was $201,000, $179,000 and $162,000, respectively, for 1999, 1998 and 1997. The
terms of these leases were approved by the Board of Directors of the Company
based on independent confirmation that the leases are fair and reasonable and
are at market terms.
F-22
<PAGE>
Mr. Harvey L. Sperry, a director of the Company, is a partner in the law firm of
Willkie Farr & Gallagher. The firm has served as legal counsel to the Company
since 1977 and in such capacity was paid fees in the amount of $57,000, $128,000
and $38,000 during the years 1999, 1998 and 1997, respectively. Dr. Joel
Goldberg, a director of the Company, is a principle in Career Consultants, Inc.,
which has provided human resource consulting services to the Company since 1997
and in such capacity was paid fees in the amount of $7,000, $18,000 and $5,000
during the years 1999, 1998 and 1997, respectively.
Oliver Kuttner, the son of the Chairman and Chief Executive Officer of the
Company is managing certain renovations on the real estate owned by Hampshire
Investments located in Charlottesville, Virginia. During 1999 and 1998, the
Company paid Mr. Kuttner $20,000 and $10,000, respectively, and he will receive
as additional, 30% of the net cash flow of the real property after Hampshire
Investments has received a 10% return on its investment.
Note 16 - Discontinued Operations
- ---------------------------------
In 1998, the Board of Directors of the Company approved a formal plan to
discontinue the operations and sell the assets of the Hosiery Division, which
was engaged in the manufacture and sale of ladies' and children's hosiery and
socks. Accordingly, the operating results of the Hosiery Division have been
reflected as discontinued operations in the accompanying 1998 and 1997
consolidated statements of income.
On June 1, 1999, the Company sold the assets of its Hosiery Division, consisting
principally of inventory and certain machinery and equipment, to a company
controlled by the president and six other management employees of the Hosiery
Division at the time of sale (the "Purchaser"). The $4,600,000 purchase price
consisted of $500,000 cash; a $1,883,000 note bearing interest at 8.25% per
annum, due January 2006 and secured by the machinery and equipment which was
transferred ("8.25% Note"); a non-voting unit of the Purchaser in the amount of
$275,000; the assumption by the Purchaser of current liabilities of the Company
in the amount of $850,000 and a note of the Company in the amount of $1,092,000
and due July 1, 2002, for which the Company remains primarily liable. The
Company also retains contingent liability with respect to note obligations of
the Company in the amount of $1,092,000 which were assumed by the Purchaser as
part of the purchase price.
The Company leased to the Purchaser two manufacturing plants for a period of
three years on a triple net basis with annual rent of $126,000. At the end of
the lease, the Purchaser has an option to purchase the plants for $840,000 or to
extend the lease for three additional years at an increased annual rent. The
Company also leased machinery and equipment located at the two plants for a
period of four years at an annual rent of $324,000. The Purchaser has an option
at the end of the lease to either renew the lease at fair market rental value or
purchase the machinery and equipment at fair market value. Further, the Company
has agreed to provide consulting services to the Purchaser for an annual fee of
$100,000 for a three year period.
The Company has agreed with a financial institution which is providing working
capital financing to the Purchaser, to subordinate its rights under the two
leases and the 8.25% Note for a period of 120 days after notice of any default
under the leases or the 8.25% Note which would otherwise permit the Company to
terminate the leases or enforce the obligation of the Purchaser to pay the
unpaid principal of the 8.25% Note. Through December 31, 1999, no event of
default has occurred.
The difference between the book basis of the assets sold and the selling price
has been established as a reserve against the 8.25% Note. No gain on the sale
will be recognized until such time as the Note is collected and the Company has
been relieved of its primary responsibilities under the $1,092,000 note assumed
by the Purchaser.
Net sales for the Hosiery Division for the years ended December 31, 1998 and
1997 were $24,118,000 and $23,621,000, respectively. Operating results for 1998,
F-23
<PAGE>
restated on a discontinued operations basis was an operating loss of $214,000,
which combined with the after-tax accrual of $500,000 for estimated loss on
disposal of the Hosiery assets, amounts to $0.16 per share on a diluted basis.
For the year 1997, the Hosiery Division produced a profit of $87,000, or $0.02
per share on a diluted basis.
<TABLE>
Note 17 - Earnings Per Share
- ----------------------------
Set forth in the table below is a reconciliation by year of the numerator and
the denominator of the basic and diluted earnings per share ("EPS")
computations.
<CAPTION>
For the Year 1997 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $9,006
Less: Preferred stock dividends (167)
- -------------------------------------------------------------------------------
Basic EPS:
Income from continuing operations $8,919 $2.27
Income from discontinued operations -
net of $57 income taxes 87 0.02
----------------------------------------
Income available to common stockholders 9,006 3,856 2.29
Effect of dilutive securities:
Convertible preferred stock 167 254 (0.11)
Options/warrants - 355 (0.16)
- -------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
plus assumed conversions $8,839 4,465 $2.02
===============================================================================
For the Year 1998 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS:
Income from continuing operations $5,727 $1.39
Loss from discontinued operations -
net of $127 income taxes (214) (0.05)
Loss from disposal of discontinued
operations - net of $294 income taxes (500) (0.13)
----------------------------------------
Net income 5,013 4,128 1.21
Effect of dilutive securities:
Options/warrants - 315 (0.08)
- -------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders $5,013 4,443 $1.13
===============================================================================
For the Year 1999 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS:
Net income $5,196 4,100 $1.27
Effect of dilutive securities:
Options/warrants - 157 (0.05)
- -------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders $5,196 4,257 $1.22
===============================================================================
</TABLE>
Note 18 - Industry Segments and Geographical Areas
- --------------------------------------------------
The Company operates in two industry segments - Apparel and Investments. The
Apparel segment includes sales of apparel, primarily women's and men's tops,
both knitted and woven. The products are sold to customers throughout the United
States of America including major department stores, specialty retail stores and
catalog companies. Some of the Company's major customers operate both retail and
mail-order businesses; therefore, it is impossible for the Company to determine
sales to the individual markets. The Investments segment makes investments both
domestically and internationally, principally in real property.
F-24
<PAGE>
<TABLE>
Industry Segment Data
<CAPTION>
Year Ended December 31, (in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales Apparel $151,317 $168,688 $140,807
Rental revenue Investments 2,005 507 43
----------------------------------
$153,322 $169,195 $140,850
- -------------------------------------------------------------------------------
Gross profit Apparel $ 29,700 $ 34,919 $ 33,081
19.6% 20.7% 23.5%
- -------------------------------------------------------------------------------
Interest expense Apparel $ 599 $ 1,262 $713
Investments 514 99 -
Corporate 854 335 111
-----------------------------------
$1,967 $ 1,696 $824
- -------------------------------------------------------------------------------
Income from operations Apparel $8,685 $12,953 $14,731
Investments 318 (2,475) (57)
Corporate (3,134) (2,523) (2,706)
-----------------------------------
$5,869 $7,955 $11,968
- -------------------------------------------------------------------------------
Income tax provision - net Apparel $2,453 $2,867 $3,298
Investments 286 96 (14)
Corporate (1,839) (1,686) (835)
-----------------------------------
$900 $1,277 $2,449
- -------------------------------------------------------------------------------
Identifiable assets Apparel $ 52,212 $60,080 $49,778
Investments 24,213 15,505 8,290
Corporate 27,169 20,708 15,386
-----------------------------------
103,594 96,293 73,454
Discontinued
business - 4,555 7,131
-----------------------------------
$103,594 $100,848 $80,585
- -------------------------------------------------------------------------------
Capital expenditures Apparel $843 $3,084 $4,346
Investments 64 5 -
Corporate 8 5 54
-----------------------------------
$915 $3,094 $4,400
- -------------------------------------------------------------------------------
Depreciation and Apparel $4,091 $4,195 $3,459
amortization Investments 636 180 21
Corporate 241 22 28
-----------------------------------
$4,968 $4,397 $3,508
- -------------------------------------------------------------------------------
Revenue by United States $152,296 $169,086 $140,850
geographic area Russia 303 99 -
Europe 723 10 -
-----------------------------------
$153,322 $169,195 $140,850
- -------------------------------------------------------------------------------
Long-lived assets excluding United States $20,970 $19,464 $16,759
long-term investments Russia 2,766 2,086 2,461
Europe 2,951 806 -
-----------------------------------
$26,687 $22,356 $19,220
- -------------------------------------------------------------------------------
Long-term investments United States $2,268 $1,909 $ 837
Russia 131 131 -
Europe 2,138 3,198 2,214
-----------------------------------
$4,537 $5,238 $3,051
- -------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
Note 19 - Subsequent Event (unaudited)
- -------------------------------------
During 1999, Hampshire Investments purchased two promissory notes in the
aggregate principal amount of $775,000. The issuers have defaulted under the
notes; and on March 30, 2000, the Chairman and Chief Executive Officer of the
Company entered into an agreement to purchase the notes from Hampshire
Investments for their aggregate principal amount.
F-26
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<CAPTION>
Balance at Charged to Other Balance
beginning sales and Deduc- Adjust- at end
of year expenses tions ments of year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
- ----------------------------
Allowance for doubtful
accounts $ 797 $ 223 ($ 204) - $ 816
Allowance for returns and
adjustments 2,050 3,925 (3,496) - 2,479
- -------------------------------------------------------------------------------
Year Ended December 31, 1998
- ----------------------------
Allowance for doubtful
accounts $ 816 ($ 351)(1)($ 12) - $ 453
Allowance for returns and
adjustments 2,479 4,296 (3,556) - 3,219
- -------------------------------------------------------------------------------
Year Ended December 31, 1999
- ----------------------------
Allowance for doubtful
accounts $ 453 $ 81 ($ 99) ($ 100)(2)$ 335
Allowance for returns and
adjustments 3,219 7,313 (5,543) (250)(2) 4,739
- -------------------------------------------------------------------------------
<FN>
(1) Negative provision for doubtful accounts resulted from change in
estimate for the Hosiery and Mary Jane Marcasiano Divisions.
(2) Elimination of reserves of the Hosiery Division.
</FN>
</TABLE>
F-27
<PAGE>
<TABLE>
SCHEDULE III
1 of 2
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 1999
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
---------------------------- ---------------
Encum- Land and Building
Properties brances Land Buildings Buildings Improvements
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNITED STATES
- -------------
Amity Mall-Shopping Center
Amityville, New York $ 557 $ 187 $ 664 $ 851 $ 69
Commercial Building
Charlottesville, Virginia - 285 397 682 1,503
Hidden Creek Development
Blanco, Texas - 999 - 999 167
Merrick Properties
Huntingdon, New York 1,572 620 1,500 2,120 54
PA Properties
Washington, D.C. 2,200 764 1,687 2,451 150
Teall Properties
Syracuse, New York 1,188 585 1,076 1,661 2
Manufacturing Plant
Spruce Pine, North Carolina - 83 2,189 2,272 -
Office Building
West Palm Beach, Florida 243 135 301 436 11
- -------------------------------------------------------------------------------
Total United States
Real Property 5,760 3,658 7,814 11,472 1,956
- -------------------------------------------------------------------------------
St Petersburg, Russia
- ---------------------
Bolshaya Knonushennaya
No. 15, Apt. No. 2 - - 152 152 190
Nevsky 64, Apt. No. 43 - - 330 330 237
Nevsky 43, Apt. No. 1 - - 255 255 274
Nevsky 11, Apt. No. 6 - - 182 182 145
Millionnaya 29 - - 210 210 183
Nevsky 23, Apt. No. 4 - - 155 155 152
Nevsky 11, Apt. No. 6 - - 182 182 150
Nevsky 23, Apt. No. 20 - - 203 203 228
Nevsky 64, Apt. No. 39 - - 130 130 99
Nevsky 11, Apt. No. 8 - - 160 160 145
Nevsky 13, Apt. No. 9 - - 101 101 88
Millonaya 11, Embankment - - 175 175 112
Millonaya 29, Flat No. 5 - - 200 200 3
Nevsky 64, Apt. No. 42 - - 60 60 70
Millionnaya 29 - - 168 168 -
- -------------------------------------------------------------------------------
Total Russian Real Property - - 2,663 2,663 2,076
Real Property Write-Down - - - - -
- -------------------------------------------------------------------------------
Net Russian Real Property - - 2,663 2,663 2,076
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED REAL ESTATE AND ACCUMULATED DEPRECIATION (continued)
(in thousands)
December 31, 1999
<CAPTION>
Gross Amount at Which
Carried at End of Period
-------------------------------
Building
and Accumulated
Properties Land Improvements Total Depreciation
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES
- -------------
Amity Mall-Shopping Center
Amityville, New York $ 187 $ 733 $ 920 $ 102
Commercial Building
Charlottesville, Virginia 285 1,900 2,185 (66)
Hidden Creek Development
Blanco, Texas 1,166 - 1,166 -
Merrick Properties
Huntingdon, New York 620 1,554 2,174 (25)
PA Properties
Washington, D.C. 764 1,837 2,601 (153)
Teall Properties
Syracuse, New York 585 1,078 1,663 (48)
Manufacturing Plant
Spruce Pine, North Carolina 83 2,189 2,272 (2,074)
Office Building
West Palm Beach, Florida 135 312 447 (38)
- -------------------------------------------------------------------------------
Total United States
Real Property 3,825 9,603 13,428 (2,506)
- -------------------------------------------------------------------------------
St Petersburg, Russia
- ---------------------
Bolshaya Knonushennaya
No. 15, Apt. No. 2 - 342 342 (3)
Nevsky 64, Apt. No. 43 - 567 567 (22)
Nevsky 43, Apt. No. 1 - 529 529 (34)
Nevsky 11, Apt. No. 6 - 327 327 (21)
Millionnaya 29 - 393 393 (19)
Nevsky 23, Apt. No. 4 - 307 307 (12)
Nevsky 11, Apt. No. 6 - 332 332 (22)
Nevsky 23, Apt. No. 20 - 431 431 (17)
Nevsky 64, Apt. No. 39 - 229 229 (9)
Nevsky 11, Apt. No. 8 - 305 305 (3)
Nevsky 13, Apt. No. 9 - 189 189 (4)
Millonaya 11, Embankment - 287 287 -
Millonaya 29, Flat No. 5 - 203 203 -
Nevsky 64, Apt. No. 42 - 130 130 -
Millionnaya 29 - 168 168 -
- -------------------------------------------------------------------------------
Total Russian Real Property - 4,739 4,739 (166)
Real Property Write-Down - (1,850) (1,850) -
- -------------------------------------------------------------------------------
Net Russian Real Property - 2,889 2,889 (166)
- -------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE>
<TABLE>
SCHEDULE III
2 of 2
(continued)
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 1999
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
---------------------------- ---------------
Encum Land and Building
Properties brances Land Buildings Buildings Improvements
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BUCHAREST, ROMANIA
- ------------------
Jean Texier Street,
No. 7, Apt. No. 1 - - 174 174 -
Nicolae Balcescu Blvd.
No. 5, Apt. No. 32 - - 47 47 -
Nicolae Balcescu Blvd.
No. 5, Apt. No. 35 - - 88 88 -
Television Blvd.
Apt. No. 1 - - 73 73 23
Urban District 1,
Str. Naum Rimniceanu nr.
2-4, B1.5 Apt No. 7 - - 32 32 9
Urban District 1,
Calea Dorobantitor nr.
134-138, sc. A Apt No. 4 - - 26 26 16
- -------------------------------------------------------------------------------
Total Romanian
Real Property - - 440 440 48
- -------------------------------------------------------------------------------
PRAGUE, Czech Republic
- ----------------------
Office Building, No. 1,
Husinecka Praha 894 - 1,456 1,456 -
Office Building, No. 2,
Belgicka Praha 879 - 1,139 1,139 -
- -------------------------------------------------------------------------------
Total Czech Republic
Real Property 1,773 - 2,595 2,595 -
- -------------------------------------------------------------------------------
$7,533 $3,658 $13,512 $17,170 $4,080
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at End of Period
-------------------------------
Building
and Accumulated
Properties Land Improvements Total Depreciation
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BUCHAREST, ROMANIA
- ------------------
Jean Texier Street,
No. 7, Apt. No. 1 - 174 174 (14)
Nicolae Balcescu Blvd.
No. 5, Apt. No. 32 - 47 47 (4)
Nicolae Balcescu Blvd.
No. 5, Apt. No. 35 - 88 88 (7)
Television Blvd.
Apt. No. 1 - 96 96 (7)
Urban District 1,
Str. Naum Rimniceanu nr.
2-4, B1.5 Apt No. 7 - 41 41 (1)
Urban District 1,
Calea Dorobantitor nr.
134-138, sc. A Apt No. 4 - 42 42 -
- -------------------------------------------------------------------------------
Total Romanian
Real Property - 488 488 (33)
- -------------------------------------------------------------------------------
PRAGUE, Czech Republic
- ----------------------
Office Building, No. 1,
Husinecka Praha - 1,456 1,456 (121)
Office Building, No. 2,
Belgicka Praha - 1,139 1,139 (36)
- -------------------------------------------------------------------------------
Total Czech Republic
Real Property - 2,595 2,595 (157)
- -------------------------------------------------------------------------------
$3,825 $15,575 $19,400 ($2,862)
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Depreciation and amortization of the Company's investment in buildings and
improvements reflected in the statements of operations are calculated over the
estimated useful lives of the assets as follows:
Base Building 15 years
Improvements Over remaining useful lives of the building
The aggregate cost for income tax purposes was approximately $21,250 at December
31, 1999.
The changes in total real estate assets and accumulated depreciation for the
period ending December 31, 1999 are as follows:
Total Real Estate Assets
- -------------------------
Balance, beginning of period $8,880
Acquisitions 6,419
Additions and improvements 1,829
Hosiery real estate reclassification (1,850)
- -----------------------------------------------
Balance, end of period $19,400
===============================================
Accumulated Depreciation
- ------------------------
Balance, beginning of period ($ 201)
Depreciation (607)
Hosiery real estate reclassification (2,054)
- -----------------------------------------------
Balance, end of period ($2,862)
===============================================
F-29
<PAGE>
<TABLE>
Quarterly Financial and Stock Data (unaudited)
(in thousands, except per share data and stock prices)
<CAPTION>
Annual
In 1998 Quarter Ended Mar. 28 Jun. 27 Sept. 26 Dec. 31 Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales previously reported $26,180 $28,599 $60,215 $77,812 $192,806
Less sales of discontinued
operations (4,487) (5,358) (6,288) (7,985) (24,118)
-------------------------------------------------
Net sales of continuing
operations 21,693 23,241 53,927 69,827 168,688
- -------------------------------------------------------------------------------
Gross profit previously reported 4,423 5,067 12,136 16,607 38,233
Less gross profit of discontinued
operations (404) (678) (874) (1,358) (3,314)
-------------------------------------------------
Gross profit of continuing
operations 4,019 4,389 11,262 15,249 34,919
- -------------------------------------------------------------------------------
Operating income (loss)
previously reported (1,465) (848) 2,270 8,166 8,123
Income (loss) of discontinued
operations 350 87 (90) (515) (168)
-------------------------------------------------
Operating income (loss) of
continuing operations (1,115) (761) 2,180 7,651 7,955
- -------------------------------------------------------------------------------
Income (loss) of continuing
operations ($ 878) ($668) $ 704 $6,569 $5,727
Net income (loss) applicable
to common stock (1,158) (800) 663 6,308 5,013
- -------------------------------------------------------------------------------
Income (loss) of
continuing - Basic ($0.21) ($0.16) $0.18 $1.59 $1.39
-------------------------------------------------
operations - Diluted (0.21) (0.16) 0.16 1.50 1.29
- -------------------------------------------------------------------------------
Net income (loss) per common
share - Basic ($0.28) ($0.19) $0.16 $1.52 $1.21
-------------------------------------------------
- Diluted (0.28) (0.19) 0.15 1.44 1.13
- -------------------------------------------------------------------------------
Common stock price: High $19.00 $20.38 $18.25 $13.25 $20.38
-------------------------------------------------
Low 18.50 20.38 18.12 10.00 10.00
- -------------------------------------------------------------------------------
Annual
In 1999 Quarter Ended Apr. 3 Jul. 3 Oct. 2 Dec. 31 Total
- -------------------------------------------------------------------------------
Net sales $20,392 $19,184 $54,425 $57,316 $151,317
Gross profit 4,093 3,212 11,039 11,356 29,700
Operating income (loss) (1,082) (1,413) 4,848 3,516 5,869
- -------------------------------------------------------------------------------
Net income (loss) applicable
to common stock ($940) ($1,373) $3,811 $3,698 $5,196
- -------------------------------------------------------------------------------
Net income (loss) per
common share - Basic ($0.22) ($0.34) $0.94 $0.91 $1.27
------------------------------------------------
- Diluted (0.22) (0.34) 0.90 0.89 1.22
- -------------------------------------------------------------------------------
Common stock price: High $13.00 $13.00 $14.25 $11.50 $14.25
Low 7.75 5.00 8.75 7.62 5.00
- -------------------------------------------------------------------------------
</TABLE>
F-30
<PAGE>
HAMPSHIRE GROUP, LIMITED
1999 EXHIBIT INDEX
Exhibit No. Description
- ----------- ----------------------------------------------------------
(3)(B)(6) Merger Agreement between Hampshire Designers, Inc. and
Segue (America) Limited dated December 30, 1999
(10)(H)(3) Third Amendment to Credit Agreement and Guarantee between
Hampshire Group, Limited and The Chase Manhattan Bank,
Republic National Bank of New York and NationsBank N.A.
dated June 22, 1999
(10)(J)(7) Lease Agreement between Hampshire Designers, Inc. and Peter
Woodworth and Joyce Woodworth for the Winona, Minnesota
Distribution Center dated June 15, 1999.
(10)(T)(1) Amendment to Credit Agreement between MTB Bank and
Segue (America) Limited dated July 14, 1999
(21) Subsidiaries of the Company
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
MERGER AGREEMENT
MERGER AGREEMENT, dated as of December 1, 1999, between Hampshire
Designers, Inc. ("Hampshire Designers"), a Delaware corporation, and Segue
(America) Limited ("Segue"), also a Delaware corporation.
WITNESSETH:
WHEREAS, Hampshire Designers and Segue are corporations duly organized and
existing under the laws of the State of Delaware;
WHEREAS, on the date hereof, Hampshire Designers is a wholly-owned
subsidiary of Hampshire Group, Limited, a Delaware corporation ("Hampshire
Group"), and Segue is a wholly-owned subsidiary of Hampshire Designers;
WHEREAS, the respective Boards of Directors of Hampshire Designers and
Segue have determined that it is advisable and in the best interests of each of
them that Segue merge with and into Hampshire Designers upon the terms and
subject to the conditions herein provided;
WHEREAS, the Board of Directors of Hampshire Designers has duly adopted and
approved this Agreement and directed that it be executed by the undersigned
officers of Hampshire Designers and submitted to a vote of the sole shareholder
of Hampshire Designers;
WHEREAS, the sole shareholder of Hampshire Designers has duly adopted and
approved this Agreement;
WHEREAS, the Board of Directors of Segue has duly adopted and approved this
Agreement and directed that it be executed by the undersigned officers of Segue
and submitted to a vote of the sole shareholder of Segue; and
WHEREAS, the sole shareholder of Segue has duly adopted and approved this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Hampshire Designers and Segue hereby agree as follows:
1. Merger. A merger (the "Merger") shall be effected whereby Segue shall be
merged with and into Hampshire Designers, and Hampshire Designers shall be the
surviving corporation (hereinafter referred to as the "Surviving Corporation").
The Merger shall become effective on the __ day of December, 1999 (the
"Effective Time").
2. Capital Stock Prior to the Effective Time. On the date hereof, (a)
Hampshire Designers has the authority to issue 1,000 shares of common stock, par
value $1 per share (the "Hampshire Designers Common Stock"), of which 1,000
shares are issued and outstanding, and 1,000 shares of preferred stock, par
value $1 per share (the "Hampshire Designers Preferred Stock," and together with
the Hampshire Designers Common Stock, the "Hampshire Designers Stock"), of which
no shares are issued and outstanding; and (b) Segue has the authority to issue
5,000 shares of common stock, par value $.10 per share (the "Segue Common
<PAGE>
Stock"), of which 400 shares are issued and outstanding, and 5,000 shares of
preferred stock, par value $100 per share (the "Segue Preferred Stock," and
together with the Segue Common Stock, the "Segue Stock"), of which 1,800 shares
are issued and outstanding. On the date hereof, all of the issued and
outstanding shares of Hampshire Designers Stock are owned by Hampshire Group and
all of the issued and outstanding shares of Segue Stock are owned by Hampshire
Designers.
3. Governing Documents, Directors and Officers.
a. Governing Documents. Immediately prior to the Effective Time, the
Certificate of Incorporation and By-laws of Hampshire Designers shall be
the Certificate of Incorporation and By-laws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof and applicable law.
b. Directors. Immediately prior to the Effective Time, the directors
of Hampshire Designers shall be the directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation.
c. Officers. Immediately prior to the Effective Time, the officers of
Hampshire Designers shall be the officers of the Surviving Corporation,
each to hold office in accordance with the By-laws of the Surviving
Corporation.
4. Effect of Merger on Stock and Stock Certificates. At and after the
Effective Time, all of the issued and outstanding shares of Hampshire Designers
Stock shall remain the issued and outstanding shares of the Surviving
Corporation. Hampshire Designers, as the Surviving Corporation, shall assume all
of the liabilities of Segue as set forth in paragraph 5(c) below, and no cash or
other consideration shall be paid or delivered for shares of the Segue Stock,
and all of such shares and the certificates representing such shares shall be
canceled and retired without any action on the part of the holder of record
thereof.
5. Succession and Assumption.
a. Property. At and after the Effective Time, the separate corporate
existence of Segue shall cease and the Surviving Corporation shall be
vested with and possess all of Hampshire Designers' right, title and
interest in and to the business, assets and liabilities of Segue, including
without limitation, all personal and real property in which Segue had an
interest before the Effective Time.
b. Corporate Acts, Employees etc. All corporate acts and agreements of
Segue that were duly authorized and effective prior to the Effective Time
shall be taken for all purposes as the acts and agreements of the Surviving
Corporation. The employees, agents and independent contractors of Segue
shall become the employees, agents and independent contractors of the
Surviving Corporation.
c. Creditors' Rights. Notwithstanding anything to the contrary herein,
the rights of bona fide creditors of Segue and any liens of such creditors
upon any of the business or property of Segue prior to the Effective Time
shall be preserved and unimpaired, and all debts, liabilities and duties of
Segue shall become the debts, liabilities and duties of the Surviving
Corporation.
6. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Segue such deeds and other instruments, and there
shall be taken or caused to be taken by the Surviving Corporation all such
further and other actions, as shall be appropriate or necessary in order to
vest, perfect or confirm in the Surviving Corporation the title to and
possession of all property, interests, assets, rights, privileges, immunities,
powers and authority of Segue, and otherwise to carry out the purposes of this
Agreement. The officers and directors of the Surviving Corporation are fully
authorized to take any and all such actions, in the name and on behalf of Segue
or otherwise, and to execute and deliver any and all such deeds, documents and
other instruments.
7. Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented by written agreement of the parties hereto at the
direction of their respective Boards of Directors at any time prior to the
Effective Time with respect to any of the terms contained herein.
8. Termination and Abandonment. At any time prior to the Effective Time,
this Agreement may be terminated and the Merger may be abandoned by the Boards
of Directors of either Hampshire Designers or Segue, or both, notwithstanding
approval of this Agreement by the shareholders of Hampshire Designers and/or
Segue.
IN WITNESS HEREOF, the undersigned have executed this Agreement as of the
date first above written.
HAMPSHIRE DESIGNERS, INC. SEGUE (AMERICA) LIMITED
By: /s/ Ludwig Kuttner By: /s/ Eugene Warsaw
- ------------------------------ -----------------------------
Ludwig Kuttner Eugene Warsaw
Chairman Chief Executive Officer
<PAGE>
STATE OF DELAWARE
CERTIFICATE OF MERGER OF
DOMESTIC CORPORATIONS
Pursuant to Title 8, Section 251c of the Delaware General Corporation Law,
the undersigned corporation executed the following Certificate of Merger:
FIRST: The name of the surviving corporation is Hampshire Designers, Inc., and
the name of the corporation being merged into this surviving corporation is
Segue (America) Limited.
SECOND: The Agreement of Merger has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations.
THIRD: The name of the surviving corporation is Hampshire Designers, Inc., a
Delaware corporation.
FOURTH: The Certificate of Incorporation of the surviving corporation shall be
its Certificate of Incorporation.
FIFTH: The merger is to become effective on December 31, 1999.
SIXTH: The Agreement of Merger is on file at 215 Commerce Boulevard, Anderson,
South Carolina 29625, the place of business of the surviving corporation.
SEVENTH: A copy of the Agreement of Merger will be furnished by the surviving
corporation on request without cost, to any stockholder of the constituent
corporations.
IN WITNESS WHEREOF, said surviving corporation has caused this certificate to be
signed by an authorized officer, the 1st day of December, A.D., 1999.
By: /s/ Ludwig Kuttner
---------------------------------------
(Authorized Officer)
Name: Ludwig Kuttner
Title: Chairman
<PAGE>
Exhibit (10)(H)(3)
- ------------------
MTB Bank
90 Broad Street
New York, NY 10004-2290
(212) 858-3300
Fax: 858-3449
July 14, 1999
Segue (America) Limited
c/o Hampshire Group Limited
215 Commerce Boulevard
Anderson, South Carolina 29621
Attention: Mr. Charles Clayton
Re: Renewal of Credit Facility
Dear Mr. Clayton:
Reference is made to the Credit Agreement dated February 15, 1995 executed by
and between Segue (America) Limited, formerly named Vintage, Inc., a Delaware
corporation (the "Borrower") and MTB Bank (the "Bank") and the Letter of Credit
and Security Agreement, the Corporate Guarantee executed by Hampshire Group
Limited (the "Corporate Guarantor") and other related loan documents executed in
connection therewith (collectively, the "Loan Documents"). All capitalized terms
used herein and not defined shall have the meanings set forth in the Credit
Agreement.
Effective July 14, 1999, the Borrower and the Bank hereby agree to amend the
Credit Agreement as follows:
The definition of Termination Date set forth in Section I(f) of the Credit
Agreement is hereby amended by deleting the date "April 30, 1999" therefrom
and inserting the date "April 30, 2000" in its place.
Each of the Loan Documents is hereby amended to give effect to the foregoing and
except as amended hereby, each such Loan Document remains in full force and
effect in accordance with its terms.
The Corporate Guarantor acknowledges and confirms that the term "Obligations"
referred to in the Corporate Guarantee executed by it includes, without
limitation, the indebtedness, liabilities and obligations of the Borrower under
the Credit Agreement, as amended hereby. The foregoing amendment shall not
affect or impair in any way the validity, binding effect or enforceability of
any Loan Document to which the Borrower or the Corporate Guarantor is party, and
the Borrower's and Guarantor's obligations and the Bank's rights and remedies
thereunder shall continue in full force and effect, notwithstanding such
amendment.
1
<PAGE>
If the foregoing is acceptable to you, kindly execute both copies of this
letter, returning it to MTB Bank, 90 Broad Street, New York, New York
10004-2290, Attn: Mr. Richard Assaf no later than July 31, 1999. Upon receipt by
the Bank of counterparts of this letter duly executed by all the parties listed
below by such date, this letter shall become a binding agreement between the
Bank and the other signatories hereto as of the date first above written.
Very truly yours,
MTB BANK
/s/ Saul M. Langer
- -------------------------------
Saul M. Langer
Senior Vice President
Chief Lending Officer
Accepted and Agreed:
SEGUE (AMERICA) LIMITED,
formerly named VINTAGE, INC.
By: /s/ Horace D. Padgett, Jr.
- ----------------------------------------
Name: Horace D. Padgett, Jr.
Title: Vice President - Finance
HAMPSHIRE GROUP LIMITED,
as Corporate Guarantor
By: /s/ Charles W. Clayton
- ---------------------------------------
Name: Charles W. Clayton
Title: Chief Financial Officer
2
<PAGE>
Exhibit (10)(J)(7)
- -------------------
LEASE
BETWEEN
PETE WOODWORTH AND JOYCE WOODWORTH
HUSBAND AND WIFE
LESSOR,
AND HAMPSHIRE DESIGNERS, INC.
LESSEE,
WAREHOUSE D/C
902 E. 2ND ST.
WINONA, MINNESOTA
LEASE DATE: JUNE 15,1999
LEASE
THIS LEASE (this "Lease"), dated as of the 15th day of June, 1999, is made
by and among PETE WOODWORTH and JOYCE WOODWORTH, husband and wife, having an
address at 702 Main Street, Winona, Minnesota 55987 ("Lessor") and HAMPSHIRE
DESIGNERS, INC., a corporation organized under the laws of the State of Delaware
having an address at P.O. Box 2667, 215 Commerce Boulevard, Anderson, South
Carolina 29622 ("Lessee").
A. Lessor is the owner of the Demised Premises (hereinafter defined).
B. Lessor desires to lease to Lessee, and Lessee desires to lease from
Lessor, the Demised Premises.
NOW, THEREFORE for good and valuation consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee agree as
follows:
ARTICLE I - Premises
1.1. Demised Premises. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, for the Term (hereinafter defined), at the rental, and upon all of
the Term covenants and conditions set forth herein, the following (collectively,
the "Demised Premises"):
(a) that certain real property located at 902 E. 2nd St., Winona, Minnesota
and described in Exhibit A attached hereto and made a part hereof, together with
any buildings and improvements now or hereafter located therein or thereon
(collectively, the "Real Property");
(b) all right, title and interest, if any, of Lessor in and to any land
lying in the bed of any street, road or avenue, open or proposed, in front of or
adjoining the Real Property to the center line;
(c) all right, title and interest, if any, of Lessor in and to any strips
and gores of land adjacent to, abutting, or used in connection with the Real
Property, and in and to easements, if any, ensuring to the benefit of the Real
Property or the fee owner;
Lease dated June 15, 1999 1
Woodworth / Hampshire Designers, Inc.
<PAGE>
(d) any appurtenances and hereditaments belonging or in any wise
appertaining to the Real Property; and
(e) any and all personal property located at the Real Property owned by
Lessor and used in connection with the operation of the Real Property as a
manufacturing and/or warehouse facility; and
(f) any and all leases, tenancies and occupancy agreements in any way
affecting the Real Property.
ARTICLE II - Term
2.1. Initial Term. The term of this Lease (as the same may be extended, the
"Term") shall commence on the date hereof (the "Commencement Date") and shall
continue until Oct.31, 2004 (the "Initial Term").
2.2. Renewal Options.
(a) Lessee shall have the option to extend the Term on all of the terms and
provisions contained in this Lease, except for the payment of Rent, for a three
year renewal term (the "First Renewal Term") following the expiration of the
Initial Term of this Lease, by giving written notice to Lessor of the exercise
of this option to extend the Term not later than 135 days prior to the
expiration of the Initial Term.
ARTICLE III - Rent
3.1. Fixed Rent
(a) The term "Lease Year" shall mean each 12-month period commencing on
Nov.1 of each year succeeding through end of the previous Lease Year. The
initial Lease Year shall commence on the Commencement Date and shall end on Oct.
31 of the year after the date of this Lease. Lessee shall, during the Term, pay
to Lessor at such place as Lessor shall designate in writing, from time to time,
and, except as expressly provided herein, without offset, counterclaim, defense
or demand therefor, the following annual minimum rentals (hereinafter, the
"Fixed Rent"):
(i) during the initial Three Lease Years, $95,107.50 per annum
($7,925.63/Month); and
(ii) during each succeeding Lease Year after the first three years
(e.g. 6/99 - 10/02) (including, without limitation, any Lease Year
occurring during any renewal term hereunder) an amount per annum which
equals (x) the Fixed Rent for the preceding Lease Year, plus (y) 4% of the
Fixed Rent for the preceding Lease Year, (e. g. starting 11/02 - 11/03)
(b) The Fixed Rent shall be payable monthly in advance on the first day of
each month, in equal monthly installments equal to one-twelfth (1/12) of the
Fixed Rent.
Lease dated June 15, 1999 2
Woodworth / Hampshire Designers, Inc.
<PAGE>
(c) Fixed Rent for any period during the Term which is for less than one
calendar month shall be prorated based on the number of calendar days in such
calendar month that falls within the Term.
3.2. Additional Rent. Lessee shall, during the Term pay to Lessor at such place
as Lessor shall designate in writing, from time to time, and except as expressly
provided herein, without offset, counterclaim, defense or demand thereof,
additional rent ("Additional Rent") consisting of all other sums of money that
become due from Lessee and payable to Lessor hereunder. Fixed Rent and
Additional Rent are hereinafter collectively referred to as "Rent".
ARTICLE IV - Use
The Demised Premises shall be used for manufacturing, warehousing, storage,
distributing, general office purposes and/or any other lawful purposes. Lessee
shall obtain, at its sole cost and expense, all licenses, approvals and permits
required for Lessee's use and occupancy of the Demised Premises. Lessee shall
not use or permit the use of the Demised Premises, in violation of an applicable
law, statute, ordinance, code, rule, regulation order or decree, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, the Resource Conservation and Recovery Act, and so-called
"Superfund" or "Superlien" law, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous, toxic
or dangerous waste, substance or material, as now or at any time hereafter in
effect.
ARTICLE V. - Compliance With Law
5.1. Lessor Compliance. Lessor covenants and agrees with Lessee that during the
Term, the Demised Premises shall, but without regard to the use for which Lessee
will use the Demised Premises, comply with all applicable laws, statutes,
ordinances, rules, regulations and orders of all federal, state, municipal and
local governmental authorities having jurisdiction over the Demised Premises,
including, building and zoning codes, regulations and ordinances and
environmental codes, regulations and laws, including those related to pollution
and contamination (collectively "Governmental Laws"). If it is determined that
this covenant has been violated, then it shall be the obligation of Lessor,
after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation.
5.2. Lessee Compliance. Lessee shall, at Lessee's expense, promptly comply with
all Governmental Laws relating to the Demised Premises in effect during the Term
or any part of the Term regulating the use by Lessee of the Demised Premises.
5.3. Contests. Lessee shall have the right, to the extent permitted by law, at
its own expense to contest the validity and/or applicability of any Governmental
Laws relating the Demised Premises by appropriate proceedings diligently
conducted in good faith, and, notwithstanding the provisions of Paragraph 5.2
hereof, Lessee's compliance with such contested Governmental Laws may be
postponed or deferred during the pendency of such proceeding so long as neither
the Demised Premises nor any part thereof would, by reason of such noncompliance
be, in the reasonable judgment of Lessor, in danger of being forfeited or lost
and Lessor shall not be subject to any criminal or civil liability.
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ARTICLE VI - Condition of the Demised Premises
Lessee hereby agrees to accept the Demised Premises in accordance with the
terms of this Lease, subject to all Governmental Laws and restrictions of record
governing and regulating the use of the Demised Premises, and accepts this Lease
subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto.
ARTICLE VII - Maintenance and Repairs
7.1. Lessee Repair Obligations. Lessee shall, at its expense, take good care of
the Demised Premises, the fixtures, and appurtenances therein and any of
Lessee's trade fixtures, furnishings, equipment and personal property
(collectively, "Lessee's Property"). Except as provided in Paragraph 7.2, Lessee
shall be responsible for and shall promptly make all repairs, interior and
exterior, structural and nonstructural, ordinary and extraordinary, in and to
the Demised Premises. Lessee, at its expense, shall be responsible for the
repair, maintenance and replacement of all mechanical, electrical, sanitary,
heating, ventilating, air-conditioning and other fixtures and equipment in the
Demised Premises (the "Building System").
7.2. Lessor Repair Obligations. Lessor agrees, at its sole cost and expense, to
make any and all repairs and replacements of the roof of the Demised Premises.
ARTICLE VIII - Surrender
On the last day of the Term, or on any sooner termination of this Lease,
Lessee shall surrender the Demised Premises to Lessor in the same condition as
when received by Lessee broom clean, ordinary wear and tear and damage due to
perils beyond the reasonable control of Lessee excepted. These perils include,
but are not limited to, fire, earthquake, flood, windstorm and other so-called
"acts of God", vandalism, malicious mischief, and sprinkler damage.
ARTICLE IX - Lessor's and Lessee's Rights
If either party fails to perform its obligations hereunder, the other may
at its option (but shall not be required to) put the same in good order,
condition and repair, upon thirty (30) days written notice to the non-performing
party (which written notice shall not be required in the case of an emergency)
and the cost thereof, together with interest thereon at the Lease Interest Rate
(as defined in Paragraph 21.3) shall become due and payable from the
non-performing party to the other party within ten (10) days after demand by the
performing party; provided, however, if the obligation of the non-performing
party is not capable of being performed within such thirty (30) day period and
if the non-performing party is diligently endeavoring to perform such
obligation, the performing party shall not perform such obligation. All such
work performed by the performing party shall be performed in a good and
workmanlike manner, in compliance with all Governmental Laws. Neither Lessee nor
Lessor shall perform any such work until such time as it has received all
necessary permits, licenses and approvals from the applicable state, county and
municipal governmental authorities having jurisdiction over the Demised Premises
("Governmental authorities"). If either party performs any such work, such party
shall, at all times, keep the Demised Premises free of liens and encumbrances
for labor and materials.
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ARTICLE X - Alterations and Improvements
10. 1. Lessee Alterations. Lessee shall have the right, at its own cost and
expense, to make such alterations and changes in and to the Demised Premises as
it shall deem expedient or necessary for its purposes. All such work shall be
done in a good and workmanlike manner, and in accordance with all Governmental
Laws. Lessor shall execute and deliver upon request of Lessee such reasonable
instrument or instruments embodying the approval of Lessor which may be required
by any Governmental Authority for the purpose of obtaining any license, permit
or approval for the making of alterations or changes in, to or upon the Demised
Premises, Lessee agreeing to pay for any such license, permit or approval.
Lessee shall not make any alterations to the Demised Premises until such time as
it has received all required permits, licenses and approvals from the applicable
Governmental Authority.
10.2. Removal of Improvements. Any and all alterations, improvements and
installations made by Lessee in, to or upon the Demised Premises, as well as any
fixtures installed on the Demised Premises by Lessee, at Lessee's option, may be
removed from the Demised Premises at any time and from time to time during the
Term and shall remain the property of Lessee during and at the expiration of the
Term of this Lease, provided that, if any such alterations, improvements,
installations and/or fixtures are removed by Lessee, any damage caused by such
removal shall be promptly repaired by Lessee at its sole cost and expense.
ARTICLE XI - Insurance
11. 1. Insurance Coverage.
(a) Lessee shall, at Lessee's cost and expense maintain the following
insurance issued in the names of Lessor and Lessee as their interests may
appear:
(i) a policy of standard fire and extended coverage insurance on all
buildings and improvements included in the Demised Premises with vandalism
and malicious mischief endorsements, to the extent of full replacement
value; and
(ii) a policy of general public liability insurance against claims for
personal injury or property damage, with such limits as may be reasonably
requested by Lessor from time to time, but not more than Two Million
Dollars ($2,000,000) in respect of bodily injury or death and One Million
Dollars ($1,000,000) for property damage.
(b) All such insurance policies shall provide that any proceeds shall be
made payable to Lessee in accordance with the terms of this Lease.
(c) All such insurance policies may, at the option of Lessee, be effected
by blanket and/or umbrella policies issued to Lessee covering the Demised
Premises and other properties owned or leased by Lessee or its affiliates.
(d) Lessor shall not obtain or continue to maintain any separate or
additional insurance which is contributing in the event of loss unless it is
properly endorsed and otherwise satisfactory to Lessee in all respects.
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11.2. Certificates. All insurance provided for under this Lease shall be
effected under valid enforceable policies issued by insurers of recognized
responsibility and who are reasonably acceptable to Lessor and licensed to do
business in the State of Minnesota. Such insurance may be carried by Lessee as a
part of blanket coverage for such insurance covering all premises owned or
leased by Lessee wherever located. Certificates of Insurance evidencing the
current existence of such coverage shall be delivered by Lessee to Lessor,
together with satisfactory evidence of payment of the premium on such policies.
To the extent obtainable, all such policies shall contain agreements by the
insurers that such policies shall not be canceled except upon thirty days' prior
written notice to each named insured and loss payee, including Lessor.
11.3. Adjustments. All policies of insurance required herein shall name Lessor
and Lessee as the insureds as their respective interest may appear. The loss, if
any, under said policies referred to in this Article 11 shall be adjusted with
the insurance companies by Lessee to the extent that Lessee is obligated to
repair or restore the Demised Premises pursuant to Article XII hereof and by
Lessor in the event that Lessee is not so obligated to restore.
11.4. Proceeds. All proceeds payable by reason of any loss or damage to the
Demised Premises, or any portion thereof, and insured under any policy of
insurance required by this Article I I shall be paid to Lessee and shall be used
only for reconstruction or repair, as the case may be, of any damage to or
destruction of the Demised Premises, or any portion thereof. Any excess proceeds
of insurance remaining after the completion of the restoration or reconstruction
of the Demised Premises shall be retained by Lessee. In the event Lessee is not
required or does not elect to repair and restore, and this Lease expires or is
terminated, all such insurance proceeds shall be paid to and retained by Lessor.
ARTICLE XII - Damage or Destruction
12.1. Restoration. Subject to the provisions (if Paragraph 12.2 hereof, Lessee
covenants that in the event of damage to all or a portion of the Demised
Premises by fire or any other cause, similar or dissimilar, insured or uninsured
(a "Casualty"), Lessee will promptly, at its sole cost and expense, restore or
repair the Demised Premises so damaged or destroyed as nearly as possible to the
condition it was in immediately prior to such Casualty, or with such changes or
alterations as Lessee shall elect to make in conformity with Article 10 hereof,
whether or not any costs or expenses of such restoration exceeds the amount of
the insurance proceeds received in connection with such damage or destruction.
Such restoration, shall be commenced promptly and prosecuted with reasonable
diligence, unavoidable delays excepted.
12.2. Termination Option. Notwithstanding the provisions of Paragraph 12.1
hereof, in the event that at any time during the Term all or a portion of the
Demised Premises are damaged to the extent that, in Lessee's reasonable
judgment, either (x) the cost of the necessary repairs or restoration would
exceed fifty percent (50%) of the estimated marked value of the Demised Premises
as determined by the Winona county Assessor's Office for the year in which such
damage shall have occurred or (y) the necessary repairs or restoration would not
be substantially completed within six (6) months from the date of said casualty,
Lessee may terminate this Lease upon delivery of written notice to Lessor within
sixty (60) days after the occurrence of the casualty causing such damage and
Lessee shall be released from any liability under this Lease accruing from and
after the date of Lessor's receipt of said notice. In the event that Lessee
terminates this Lease as provided in the immediately preceding sentence, all
insurance proceeds resulting from said casualty shall be paid to and retained by
Lessor.
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ARTICLE XIII - Taxes
13. 1. Impositions. Lessee covenants and agrees to pay or cause to be paid, as
hereinafter provided, to the Governmental Authority imposing the same, all of
the following items ("Impositions") not later than the date on which same are
due without the payment of any fines, penalties or interest: (a) real property
taxes and assessments assessed and levied against the Demised Premises or any
part thereof, (b) personal property taxes, (c) water, water meter and sewer
rents, rates and charges, and (d) fines, penalties and other similar or like
governmental charges applicable to the foregoing and any interest or costs with
respect thereto only to the extent such fines, penalties and other similar or
like governmental charges are incurred by reason of Lessee's wrongful act or
omission or Lessee's failure fully and promptly to comply with any provisions of
this Lease. Each such Imposition, or installment thereof, during the Term shall
be paid prior to the last day the same may be paid without fine, penalty,
interest or additional cost; provided, however, that if, by law, any Imposition
may at the option of the taxpayer be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same in such installments and shall be
responsible for the payment of such installments only.
13.2. Evidence of Payment. If Lessee is paying any Imposition directly to the
Governmental Authority imposing the same, then Lessee, from time to time upon
the request of Lessor, shall furnish to Lessor, within the earlier of (i) thirty
(30) days after the date when such Imposition is due and payable under this
Lease, or (ii) thirty (30) days after the date when an official receipt of the
Governmental Authority imposing the same is received, such official receipt or,
if no such receipt has been received by Lessee, other evidence reasonably
satisfactory to Lessor, evidencing the payment of the Imposition.
13.3. Excluded Taxes. Nothing herein contained shall require Lessee to pay
municipal, state or federal income, inheritance, estate, succession, transfer or
gift taxes of Lessor, or any corporate franchise tax imposed upon Lessor or any
gross income or gross receipts taxes to the extent the same are imposed on
Lessor in lieu of net income taxes or corporate franchise taxes.
13.4. Apportionments. Any Imposition, relating to a fiscal period of the
imposing Governmental Authority, a part of which period is included within the
Term and a part of which is included in a period of time before the Commencement
Date or after the expiration of the Term (whether or not such Imposition shall
be assessed, levied, confirmed, imposed upon or in respect of or become a lien
upon the Demised Premises, or shall become payable, during the Term) shall be
apportioned between Lessor and Lessee as of the Commencement Date or the date of
expiration of the Term, as the case may be, so that Lessee shall pay that
portion of such Imposition which that part of such fiscal period included in the
period of time after the Commencement Date and before the date of expiration of
the Term.
13.5. Contests.
(a) Lessee shall have the right, to the extent permitted by law, at its own
expense to contest the amount or validity, in whole or in part, of any
Imposition by appropriate proceedings diligently conducted in good faith, and,
notwithstanding the provisions of Paragraph 13.1 hereof, the payment of such
contested Imposition may be postponed or deferred so long as neither the Demised
Premises nor any part thereof, nor any part of the rents, issues and profits
thereof, would, by reason of such postponement or deferment, be, in the
reasonable judgment of Lessor, in danger of being forfeited or lost and Lessor
shall not be subject to any criminal or civil liability.
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(b) Lessee shall have the right, to the extent permitted by law, and at
Lessee's sole cost and expense, to seek a reduction in the valuation of the
Demised Premises assessed for real property tax purposes and to prosecute any
action or proceeding in connection therewith. Lessor shall fully cooperate with
Lessee in any such proceeding.
(c) Lessor shall not be required to join in any proceedings referred to in
Paragraphs 13.5(a) and (b) hereof unless the provisions of any law, rule or
regulation at the time in effect shall require that such proceedings be brought
by and/or in the name of Lessor, in which event, Lessor shall join and cooperate
in such proceedings or permit the same to be brought in its name, but shall not
be liable for the payment of any costs or expenses in connection with any such
proceedings and Lessee shall reimburse Lessor for any and all reasonable costs
or expenses which lessor may sustain or incur in connection with any such
proceedings.
ARTICLE XIV - Utilities and Services
14.1. Lessor Representation. Lessor represents and warrants that the Demised
Premises are equipped with all plumbing equipment, electrical facilities and
lighting fixtures and equipment, heating, air conditioning, ventilating, and
other appurtenant equipment and facilities necessary or appropriate for Lessee's
use of the Demised Premises in the manner used prior to the date hereof or as
otherwise required by Governmental Laws. Lessee will pay, or cause to be paid
all charges for electricity, power, gas, oil, water and other utilities used in
connection with the Demised Premises during the term of this Lease.
14.2. No Services. Lessor shall not be obligated to furnish utilities or
services to the Demised Premises.
ARTICLE XV - Assignment
15.1. Except as expressly permitted in this Lease, Lessee shall not voluntarily
or by operation of law assign all or any part of Lessee's interest in this
Lease, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold, condition or delay. Any attempted assignment without such
consent shall be void and shall constitute a breach of this Lease, unless the
same is expressly permitted hereunder.
15.2. Notwithstanding the provisions of Paragraph 15.1 hereof, Lessee may assign
this Lease, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, to any person or entity
which acquired all the assets of Lessee as a going concern of the business that
is being conducted on the Demised Premises, or to any person or entity having,
in Lessor's reasonable judgment, a net worth greater than the net worth of
Lessee prior to such assignment, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease and provided that Lessee shall remain
liable for all of its obligations to be performed or observed under this Lease.
For purposes of the foregoing definition, "control" (including "control by" and
"under common control with") shall mean ownership of not less than fifty percent
(50%) of each class of the authorized and outstanding stock of a corporation and
not less than fifty percent (50%) of all of the legal and equitable interests in
a partnership or other business entity.
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ARTICLE XVI - Defaults; Remedies
16.1. Defaults. If any of the following events shall occur (each, a "Default"
and collectively "Defaults":
(a) the failure by Lessee to make any payment of Rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of ten (10) days after written notice from Lessor to
Lessee;
(b) the failure by Lessee to observe or perform any of the material
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in Paragraph 16.1 (a) above, where such failure
shall continue for a period of thirty (30) days after written notice thereof
from Lessor to Lessee specifying, in reasonable detail, how Lessee has failed to
perform: provided, however, that if Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then Lessee shall not be
deemed to be in Default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion; and
(c) the filing by Lessee of a voluntary petition in bankruptcy or the
institution against Lessee of proceedings in bankruptcy which proceedings shall
not be stayed or discharged within ninety (90) days; or the appointment of a
receiver of Lessee's assets, which is not stayed or discharged within ninety
(90) days.
16.2. Remedies. In the event of any such Default, Lessor may at any time
thereafter, with or without notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default
or breach:
(a) terminate Lessee's right to possession of the Demised Premises by any
lawful means, in which case this Lease shall terminate, and Lessee shall
immediately surrender possession of the Demised Premises to Lessor. In such
event, Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of the Default including, but not limited to, the cost of
recovering possession of the Demised Premises; expenses of reletting including
costs of necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and any real estate commission actually paid; and the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the Term after the time of such award
exceeds the aggregate rental value of the Demised Premises for the same period;
or
(b) pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the State of Minnesota.
16.3. Lessor's Self-Help Remedy. If lessee shall fail, after thirty (30) days
notice from Lessor, to perform any of the covenants, terms or conditions
required to be performed by Lessee hereunder (except that in the event of an
emergency, the notice shall either be dispensed with or shortened as reasonably
required by the nature of the emergency), in addition to the provisions of this
Article 16, Lessor may do whatever is reasonably necessary for the performance
thereof for the account and at the expense of Lessee. In the event Lessor shall
pay any money by reason of said failure Lessee shall repay any such reasonable
sums so paid on its behalf together with Interest thereon which shall be deemed
Rent, and the same shall be payable within 30 days after presentation of the
request for payment, accompanied by Lessor's statement submitted to Lessee by
Lessor showing in all reasonable
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detail the expense of Lessor, why incurred, to whom payment was made and the
calculations of and supporting bills or records showing Lessor's expenditures.
16.4. Lessee's Self-Help Remedy. If Lessor shall fail, after thirty (30) days
notice from Lessee, to perform any of the covenants, terms or conditions
required to be performed by Lessor hereunder (except that in the event of an
emergency, the notice shall either be dispensed with or shortened as reasonably
required by the nature of the emergency), Lessee may do whatever is reasonably
necessary for the performance thereof for the account and at the expense of
Lessor. In the event Lessee shall pay any money by reason of said failure,
Lessor shall repay any such reasonable sums so paid on its behalf together with
Interest thereon, and the same shall be payable within 30 days after
presentation of the request for payment, accompanied by Lessee's statement
submitted to Lessor by Lessee showing in all reasonable detail the expense of
Lessee, why incurred, to whom payment was made and the calculations of and
supporting bills or records showing Lessee's expenditures. If Lessor shall fail
to reimburse Lessee within thirty (30) days after receipt of Lessee's request
for reimbursement for money expended by Lessee under this Paragraph 16.4, Lessee
may set-off against Rent, next becoming due to Lessor, such amount together with
interest at the Lease Interest Rate from the date expended until Lessee has
recouped the money due it under this Paragraph 16.4.
16.5. In the event Lessor elects to terminate this Lease as provided in
Paragraph 16.1 hereof, and this Lease is so terminated, and possession of the
Demised Premises is surrendered by Lessee in accordance with Article VIII
hereof, except as specified in Paragraph 16.2 hereof, neither Lessor nor Lessee
shall have any claim against the other for money owed or damages resulting from
a breach of this Lease, regardless of whether the claim accrued prior to or
subsequent to the termination of this Lease, except with respect to provisions
herein which expressly survive any termination or expiration of this Lease.
Except for the expressed exclusively of remedy in the event of a
termination of this Lease as hereinabove provided in the first paragraph of this
Paragraph 16.5, no remedy herein or otherwise conferred upon or reserved to
Lessor or Lessee shall be considered exclusive of any other remedy, but the same
shall be distinct, separate and cumulative and shall be in addition to every
other remedy given under this Lease, or now or hereafter existing at law or in
equity or by statute. Every power and remedy given by this Lease to Lessor, or
Lessee, may be exercised from time to time as often as occasion may arise, or as
may be deemed expedient. No delay or omission of Lessor or Lessee to exercise
any right or power arising from any default on the part of the other shall
impair any such right or power, or shall be construed to be a waiver of such
default or any other default or an acquiescence thereto. The consent or approval
by Lessor or Lessee to or of any act by the other requiring such consent or
approval shall not be deemed to waive or render unnecessary the consent or
approval to or of any subsequent similar acts by Lessor or Lessee, as the case
may be.
16.6. Lessee Termination Right.
(a) Without limiting the provisions of Paragraph 16.5 and in addition to
all other remedies which the Lessee may have as stated elsewhere in this Lease,
at law or in equity, including the right to seek specific performance or
injunctive relief, Lessee shall have the right, but not the obligation, on
notice to lessor, to terminate this Lease if lessor shall fail to perform any of
the terms, covenants and obligations of lessor herein.
Lease dated June 15, 1999 10
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(b) With respect to defaults as to which this Lease does not provide any
grace period or opportunity to cure, Lessor shall have thirty (30) days after
receipt of such notice from Lessee to cure the default giving rise to Lessee's
right to so terminate this Lease; provided, however, that if Lessors' default is
such that more than thirty (30) days are reasonably required for its cure, then
Lessor shall not be deemed to be in default if Lessor commenced such cure within
said 30-day period and thereafter diligently prosecutes such cure to completion.
(c) If Lessor cures the default within the period set forth in Paragraph
16.6(b), this Lease shall not terminate and shall continue in full force and
effect. If Lessor falls to cure the default within said cure period, Lessee
shall give notice to Lessor or Lessor's failure to cure the same and this Lease
shall terminate, as if by passage of time, on the date set forth in Lessee's
notice of termination.
ARTICLE XVII - Condemnation
If the Demised Premises or any portion thereof are taken under the power of
eminent domain, or sold under the threat of the exercise of said power (all of
which are herein called "Condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title to or
possession of the Demised Premises of such portion thereof, whichever first
occurs. If more than 40% of the floor area of the Demised Premises, or more than
40% of the paring area included in the Demised Premises and used by Lessee, is
taken by Condemnation (or such lesser percentage if the remaining parking area
is insufficient for the reasonable needs of Lessee or would cause a violation of
any Governmental Law), Lessee may, at Lessee's option, to be exercised in
writing within twenty (20) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within twenty (20) days
after the condemning authority shall have taken title to or possession of the
Demised Premises or any part thereof) terminate this Lease as of the later of
the date on which the condemning authority takes title to or possession of the
Demised Premises or any part thereof. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Demised Premises remaining, except that the Rent shall
be reduced from the date of the taking in a reasonable proportion based on the
amount of the Demised Premises so taken and the value or utility of such portion
so taken to the operation of Lessee's business on the Demised Premises. Any
dispute as to such reduction in rent may be submitted by either party to
arbitration in accordance with Article XX hereof. Any award for the taking of
all or any part of the Demised Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Lessor; provided, however, that Lessee shall be entitled to any award made as
compensation for diminution in value of the Lessee's leasehold estate, business
loss, moving expenses, loss of or damage to the Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated by
reason of such Condemnation, Lessor shall, to the extent of an award received by
Lessor in connection with such Condemnation, repair any damage to the Demised
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority.
Notwithstanding anything which may be to the contrary in this Article XVII,
in connection with any taking, Lessee shall be entitled to make a separate
claim, and to prove and receive an award for (a) the diminution in value of
Lessee's leasehold estate, (b) the value of Lessee's property to the extent the
same is taken, and (c) any moving allowance and other expenses permitted by law.
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ARTICLE XVIII. - INTENTIONALLY OMITTED
ARTICLE XIX - Purchase
19.1. If Lessor desire to see or otherwise transfer its interest in the Demised
Premises to a third party and has received a bona-fide offer with respect
thereto (the "Offer"), Lessor must first deliver to Lessee a notice (the
"Offering Notice") offering to sell the Demised Premises to Lessee at the price
and on the other terms and conditions contained in the Offer (the "Offering
Terms").A true, correct and complete copy of the offer shall be delivered along
with the Offering Notice. Lessee shall have 30 days after it receives the Offer
Notice to notify Lessor whether it will purchase the Demised Premises at the
Offering Terms. If Lessee notifies Lessor that it will purchase the Demised
Premises, Lessee and lessor shall thereafter with reasonable promptness, enter
into a contract for the sale of the Demised Premises at the Offering Terms and
on such other terms and conditions as are customary in contacts of sale for the
sale of property similar to the Demised Premises. If Lessee fails to notify
Lessor that it will purchase the Demised Premises within the time period
specified above, Lessor may sell the Demised Premises to such third party,
provided that if (x) the sales to such third party is closed more than one year
following the delivery of the Offer Notice to Lessee or (y) the sale to such
third party is made on terms more favorable to such third party than the
Offering Terms, then Lessor must again offer the Demised Premises to Lessee in
accordance with this Article XIX before any such third party can become
effective. The provisions of this, Article XIX shall apply to every Offer
received by Lessor with respect to the Demised Premises. Notwithstanding
anything to the contrary contained in this Article XIX, Pete Woodworth shall
have the right, such right being personal to Pete Woodworth, to transfer his
interest in the Demised Premises to his spouse or one or more of his children
without first offering to sell the Demised Premises to Lessee as provided
herein.
ARTICLE XX - Arbitration
20.1. Arbitration. In each case expressly specified in this Lease in which it
shall become necessary to resort to arbitration, such arbitration shall be
determined in the manner provided in this Article 20.
20.2. Arbitration Procedure. The party desiring such arbitration shall give
written notice to that effect to the other party and shall in such notice (the
"First Notice") appoint an impartial person of recognized competence in the
field involved, having not less than ten (10) years' experience in the county in
which the Demised Premises are located, as arbitrator on its behalf. Within ten
(10) days thereafter, the other party shall by written notice to the original
party appoint a second impartial person of recognized competence in such field,
having not less than ten (10) years' experience in the county in which the
Demised Premises are located, as arbitrator on behalf of such other party.
Within ten (10) days thereafter, the arbitrators thus appointed shall appoint a
third similarly qualified impartial person of recognized competence in such
field, and such three arbitrators shall as promptly as possible determine such
matter, provided, however, that:
(i) if the second arbitrator shall not have been appointed as aforesaid,
the first arbitrator shall proceed to determine such matter; and
Lease dated June 15, 1999 12
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<PAGE>
(ii) if the two arbitrators appointed by the parties shall be unable to
agree, within ten days after the appointment of the second arbitrator, upon the
appointment of a third arbitrator, they shall give written notice of such
failure to agree to the parties, and, if the parties fail to agree upon the
selection of such third arbitrator within ten days after the arbitrators
appointed by the parties give notice as aforesaid, then within five days
thereafter either of the parties upon written notice to the other party hereto
may request such appointment by the American Arbitration Association (or any
organization successor thereto), or in its absence, refusal, failure or
inability to act, may apply for a court appointment of such arbitrator.
20.3. Rules. The arbitration shall be conducted, to the extent consistent with
this Article XX, in accordance with the then prevailing rules of the American
Arbitration Association (or any organization successor thereto). The arbitrators
shall render their decision and award, upon the concurrence of at least two of
their number, within thirty (30) days after the appointment of the third
arbitrator. Such decision and award shall be in writing and counterpart copies
thereof shall be delivered to each of the parties. In rendering such decision
and award, the arbitrators shall not add to, subtract from or otherwise modify
the provisions of this Lease. Judgment may be had on the decision and award of
the arbitrators so rendered.
20.4. Fees. Each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator and all other expenses of the arbitration shall be borne by
the parties equally.
ARTICLE XXI - General Provisions
21.1. Estoppel Certificates.
(a) Lessee shall at any time upon not less than twenty (20) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor or any
party designated by Lessor a statement in writing (i) certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the Rent and other charges are paid in
advance, if any, (ii) acknowledging, as of the date of the certificate, that, to
its actual knowledge, there are no unsecured Defaults or events which with the
giving of notice or the passage of time or both would constitute a Default or
specifying such Defaults or events, if any are claimed and (iii) any other
information reasonably requested by Lessor. Such statement shall be binding on
Lessee and may be relied upon by Lessor or any other party designated by Lessor
to whom such certificate is delivered.
(b) Lessor shall at any time upon not less than twenty (20) days prior
written notice from Lessee execute, acknowledge and deliver to Lessee or any
party designated by Lessee a statement in writing (1) certifying that this lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the Rent and other charges are paid in
advance, if any, (ii) acknowledging, as of the date of the certificate, that, to
its actual knowledge, there are no unsecured Defaults or events which with the
giving of notice or the passage of time or both would constitute a Default or
specifying such Defaults or events, if any are claimed and (iii) any other
information reasonably requested by Lessee. Such statement shall be binding on
Lessor and may be
Lease dated June 15, 1999 13
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<PAGE>
relied upon by Lessee or any other party designated by Lessee to whom such
certificate is delivered.
21.2. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
21.3. Interest on Past-Due Obligations. Except as expressly provided herein, any
amount due hereunder to either Lessor or Lessee from the other party which is
not paid when due and any amount paid by Lessor or Lessee on behalf of the other
in accordance with the terms hereof shall bear interest from the date due or the
date paid, as applicable, at the lesser of (a) the greater of 2% in excess of
the prime or base rate of interest announced by Citibank N.A. at its principal
office in New York City, New York (the "Lease Interest Rate"), and (b) the
maximum rate of interest permitted by applicable law with respect to said
amounts. Payment of such interest shall not excuse or cure any Default or event
of default by Lessee under this Lease; provided, however, that interest shall
not be payable on late charges incurred by Lessee nor on any amounts upon which
late charges are paid by Lessee.
21.4. Captions. Article and paragraph captions are not a part hereof and are for
convenience of reference only.
21.5. Incorporation of Prior Agreements; Amendments. This Lease contains the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof. All prior agreements or understandings pertaining to the
subject matter hereof shall be of no force or effect. This Lease may only be
amended or modified in writing, signed by parties in interest at the time of
such amendment or modification.
21.6. Notices. Any notices required or permitted to be given hereunder shall be
sufficient if in writing and given at the addresses of Lessor and Lessee first
set forth above. Notices shall be sufficient if sent by certified mail, return
receipt requested, postage pre-paid; nationally recognized overnight courier
service; or by hand. Notices sent (i) by certified mail, return receipt
requested shall be deemed received three (3) days after deposit in a United
States mail box, postage prepaid, (ii) by nationally recognized overnight
courier service shall be deemed received on (1) business day after delivery to
such courier service; and (iii) by hand shall be deemed delivered upon receipt.
A copy of any notice of default sent to Lessor shall be sent to Ron Benson,
Esq., 174 Main Street, Winona, Minnesota 55987. A copy of any notice of default
sent to Lessee shall be sent to Willkie Farr & Gallagher, 787 Seventh Avenue,
New York, New York 10019, Attn: Harvey Sperry, Esq. Any notice to Lessee shall
be addressed to Mr. Ed Hurley, 305 New Court Road, Anderson, SC 29625.
21.7. Waivers. No waiver by either party of any term or provision hereof shall
be deemed a waiver of any other provision hereof or of any subsequent breach by
the other of the same or any of the provision. Lessor's consent to or approval
of any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of Rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
Rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such Rent.
21.8. Recording. Lessee shall not record this Lease without Lessor's prior
written consent. The parties hereto shall contemporaneously herewith execute and
record, at Lessee's expense, a Memorandum of lease in the form attached hereto
as Exhibit B.
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<PAGE>
21.9. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
21.10. Binding Effect; Choice of Law. This Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns,
heirs, distributees, executors, administrators and personal representatives.
This Lease shall be governed by the laws of the State in which the Demised
Premises is located.
21.11. Subordination. (a) Provided Lessor obtains and delivers to Lessee a
subordination, nondisturbance and attornment agreement in form and substance
acceptable to Lessee (which provides, among other things, that so long as the
Lessee is not in default beyond applicable notice and grace periods under this
Lease, its possession of the Demised Premises in accordance with the Terms of
this Lease shall not be distributed) (the "SNDA") from the holder of any present
or future mortgage or deed of trust encumbering the Demised Premises (a
"Mortgagee"), then this Lease shall be subject and subordinate to the lien of
the mortgage or deed of trust, specifically referenced in such SNDA.
(b) If at any time a Mortgagee or any party claiming by or through a
Mortgagee shall succeed to the rights of Lessor as Lessor under this Lease,
whether through foreclosure action, assignment or deed in lieu of foreclosure or
otherwise (a "Successor Lessor"), at the request of such Successor Lessor, and
upon the written agreement of such Successor Lessor to accept Lessee's
attornment, Lessee shall attorn to and recognize such Successor lessor as
Lessee's lessor under this Lease. In confirmation of such attornment, Lessee
shall promptly execute, acknowledge and deliver any instrument that Lessor or
such Successor Lessor requests to evidence such attornment. Upon any such
attornment, this Lease shall continue in full force and effect as, or as if it
were, a direct lease between such Successor Lessor and Lessee upon all of the
then executory terms, conditions and covenants as are set forth in this Lease
and which shall be applicable after such attornment, except that the successor
Lessor shall not be:
(i) liable for any prior act or mission of Lessor;
(ii) subject to any offsets or defenses which Lessee may have against
Lessor;
(iii) bound by any payment of Rent which Lessee might have made to
Lessor for more than one month in advance of the date the same was due
under this Lease or bound by any security or other deposits not actually
received by such Successor Lessor;
(iv) bound by any obligation to make any payment to Lessee, or provide
any services or perform any repairs, maintenance or restoration provided
for under this Lease to be performed before the date that the Successor
Lessor becomes the Lessor of Lessee;
(v) bound by any obligation to construct any improvements on the
Demised Premises; or
(vi) bound by any modification of this Lease made without the written
consent of such Successor Lessor or the Mortgagee through which such
Successor Lessor is claiming its interest, where such consent is required
under the terms of the documents evidencing its loan to Lessor, after
written notice has been given to Lessee of the existence of such Successor
Lessor or Mortgagee.
Lease dated June 15, 1999 15
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<PAGE>
(vii) If any act or omission of Lessor would give Lessee the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Lessee shall not exercise
such right until (a) Lessee gives notice of such act or omission to Lessor
and to each Mortgagee whose name and address were previously furnished to
Lessee and (b) a reasonable period of time when such Mortgagee become
entitled under its Mortgage to remedy same (which reasonable period shall
in no event be less than the period to which Lessor is entitled under this
Lease or otherwise, after similar notice, to effect such remedy or be
longer than 45 days after notice from Lessee to Mortgagee of such act or
omission).
21.12. Lessor's Access. Subject to Lessee's reasonable security regulations,
Lessor and Lessor's agents shall have the right to enter the Demised Premises at
reasonable times upon reasonable notice for the purpose of inspecting the same,
showing the same to prospective purchasers, Lenders, or Lessees, and making such
alterations, repairs, improvements or additions to the Demised Premises as
Lessor deems necessary or desirable. Any time during the last one hundred eighty
(180) days of the Term, Lessor may place on or about the Demised Premises any
ordinary "For Lease" sign.
21.13. Consents. Wherever in this Lease the consent of one party is required to
an act of the other party such consent shall not be unreasonably withheld,
conditioned or delayed.
21.14. Quiet Possession. Upon Lessee paying the Rent reserved hereunder and
observing and performing all of the material covenants, conditions and
provisions on Lessee's part to be observed and performed hereunder, Lessee shall
have quiet possession of the Demised Premises for the entire Term hereof subject
to all of the provisions of this Lease.
21.15. Signage. During the period in which Lessee occupies the Demised Premises,
Lessee shall have the right to place signs on the Demised Premises. All signs
erected or placed on the Demised Premises by Lessee shall comply with all
applicable Governmental Laws.
21.16. Brokers. Lessor and Lessee each covenant, warrant and represent to the
other that no broker was instrumental in bringing about or consummating this
Lease and that neither Lessor nor Lessee has had dealings with any broker or
other person concerning the leasing of the Demised Premises. Lessor and Lessee
shall each identify and hold the other harmless against and from any claims for
any brokerage commissions or fees, and all costs, expense and liabilities in
connection therewith, including, without limitation, attorneys' fees and expense
(a) in connection with such claim if any broker or other person claims to have
had dealings with the indemnifying party and/or (b) in connection with the
enforcement of a party's rights under this Paragraph 21.16.
21.17. Indemnities.
(a) Lessor shall indemnify, defend and hold harmless Lessee, its officers,
agents, employees, parents, subsidiaries and affiliate organizations, from and
against any claims, suites, loss, costs, (including attorneys' fees and
disbursements and cleanup cost), damages, expenses and liabilities, including
claims by reason of property damage or personal injury (including death) of
whatsoever nature against them individually or collectively (collectively
referred to as "Claims") arising out of the ownership or maintenance of the
Demised Premises by Lessor (to the extent such maintenance by Lessor is required
hereunder) or to the extent the same results from Lessor's actions or in actions
arising from any acts, incidents, events, occurrences, or omissions which
occurred or took place prior to the
Lease dated June 15, 1999 16
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<PAGE>
effective date of this Lease including, but not limited to, those related to
ownership, tenancy, possession, construction, operation, or use by Lessor or any
other party of the Demised Premises or which result in pollution, contamination
or seepage and all maters relating to environmental waste disposal laws,
regulations, or issues, other than Claims relating to the gross negligence or
willful misconduct of Lessee, its officers, agents, employees, parents,
subsidiaries and affiliate organizations. This provision shall survive any
termination or expiration of this Lease.
(b) Lessee shall indemnify, defend and hold harmless Lessor, its officers,
agents, employees, parent, subsidiaries and affiliate organizations, from and
against any and all Claims arising out of the use or maintenance of the Demised
Premises by Lessee, its officers, agents, employees, parents, subsidiaries and
affiliate organizations and the exercise by Lessee of enjoyment of the
privileges herein granted or by reason of any act or omission of Lessee, its
officers, agents, employees, parents, subsidiaries and affiliate organizations,
from or in connection with this Lease, other than Claims arising from the gross
negligence or willful misconduct of Lessor and other Lessees of the Demised
Premises and their respective officers, agents, employees, parents, subsidiaries
and affiliate organizations. This provision shall survive any termination or
expiration of this Lease.
21.18. Unavoidable Delays. In the event of any Unavoidable Delays (hereinafter
defined) under this Lease, the time of performance of the covenants and
obligations under this Lease in question shall automatically be extended for a
period of time equal to the aggregate period of the Unavoidable Delays.
"Unavoidable Delays" shall mean delays due to (i) strikes, lockouts, acts of
God, governmental restrictions or peremptions, enemy action, riot, civil
commotion, storms, fire, floods, earthquakes, or the inability to obtain labor
or materials due to governmental restrictions, (ii) the wrongful failure of
either party hereto to grant any consent or approval to the other party hereto,
(iii) fire or other casualty or other causes beyond the control of the parties
hereto and (iv) the breach or default of either party hereto in the performance
of its obligations under this Lease which directly prevents the other party from
proceeding to perform its obligations hereunder.
21.19. Authorization. Lessor and Lessee each represents to the other that all
necessary authorizations, consents and approvals required in connection with the
execution and delivery of this Lease have been obtained and that the entering
into of this Lease does not violate the organizational documents of such party
or any agreement, court order or law to which such party is subject.
21.20. No Partnership. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Lessor and
Lessee, or to create any relationship between the parties other than that of a
lessor and a lessee.
21.21. Release of Liabilily. Lessor hereby release Lessee from all liabilities
arising out of loss or damage to the Demised Premises (except any damage to
Lessee's leasehold improvements which Lessee is required to insure under the
terms of this Lease) caused by perils covered under fire and extended coverage
insurance policies or all risk property insurance.
21.22. Mortgage Defaults. If Lessor shall default under any mortgage encumbering
its interest in the Demised Premises, Lessee shall have the night to cure such
default and shall be entitled to offset the amounts paid by Lessee to so cure
such default against any amounts due to Lessor hereunder. Lessor shall promptly
notify Lessee of any default by Lessor under any such Mortgage and shall
promptly deliver a copy to Lessee of any notices sent by either Lessor or the
Mortgagee under such Mortgage.
Lease dated June 15, 1999 17
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<PAGE>
21.23. Ownership of Demised Premises. Lessor represents and warrants to Lessee
that Lessor is the fee owner of the Demised Premises and that Exhibit A
constitutes a true, correct and accurate description of the Real Property.
The parties hereto have executed this Lease as of the date set forth above.
LESSOR:
/s/ Pete Woodworth /s/ Joyce Woodworth
- -------------------------- ---------------------------
Pete Woodworth Joyce Woodworth
LESSEE:
HAMPSHIRE DESIGNERS, INC.
By:/s/ H. Edward Hurley By: /s/ Horace D. Padgett Jr.
- -------------------------- -------------------------------
Name: H. Edward Hurley Name: Horace D. Padgett, Jr.
Title: Chief Operating Officer Title: Vice President - Finance
Lease dated June 15, 1999 18
Woodworth / Hampshire Designers, Inc.
<PAGE>
Exhbit (10)(T)(1)
- ----------------
THIRD AMENDMENT TO CREDIT AGREEMENT AND GUARANTY
This Third Amendment to the Credit Agreement and Guaranty ("Third
Amendment") dated as of June 22, 1999 amends the Credit Agreement and Guaranty
(the "Credit Agreement") dated as of May 28, 1998, as amended from time to time,
by and among Hampshire Group, Limited ("Borrower"), Hampshire Designers, Inc.,
Hampshire Investments, Limited, Glamourette Fashion Mills, Inc., San Francisco
Knitworks, Inc. and Segue (America), Limited (individually a "Guarantor" and
collectively the "Guarantors"), The Chase Manhattan Bank, Republic National Bank
of New York and NationsBank, N.A. (collectively the "Banks") and The Chase
Manhattan Bank ("Agent").
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and Agent are parties to
the Credit Agreement, and
WHEREAS, Borrower, the Guarantors, the Banks and Agent desire to amend the
Credit Agreement as set forth herein;
NOW THEREFORE, in consideration of the promises and the mutual agreements
contained herein, the sufficiency of which is hereby acknowledged, and intending
to be legally bound, the parties agree that the Credit Agreement shall be
amended as follows:
1. All capitalized terms not otherwise defined herein shall the meaning
given such terms in the Credit Agreement.
2. The definition of Revolving Credit Commitment in Section 1.01 of the
Credit Agreement shall be amended in its entirety by substituting the following:
"'Revolving Credit Commitment' means the commitment of the Banks to lend
pursuant to their Pro Rata Share, Fifty-Five Million ($55,000,000.00)
Dollars to the Borrower pursuant to the terms of this Agreement"
3. The definition of Revolving Credit Termination Date in Section 1.01 of
the Credit Agreement shall be amended in its entirety by substituting the
following:
<PAGE>
"'Revolving Credit Termination Date' means May 24, 2000 unless earlier
extended by Borrower and Banks in accordance with the letter in form of
Exhibit D annexed hereto."
4. The definition of Pro Rata Share in Section 1.01 of the Credit Agreement
shall be amended by adding to said definition the following paragraph and chart
and in no other way shall it be amended:
As of June 22, 1999, the amount of each Bank's revolving credit commitment
and its pro rata share of such revolving credit commitment is as follows:
"Bank Commitment Pro Rata Share
---------- ---------------------- -------------------
Chase $22,000,000 40%
NationsBank $18,150,000 33%
Republic $14,850,000 27%"
5. Section 4.01 of the Credit Agreement shall be amended by substituting
the following for the chart after the colon in that section and in no other way
shall it be amended:
"Bank Pro Rata Share
--------------- -----------------
NationsBank 33%
Republic 27%"
6. Section 9.01(5) of the Credit Agreement shall be amended in its entirety
by substituting the following:
"(5) Unsecured Debt owing to the parties listed on Schedule 9.01 or to such
other institutional lenders, from time to time, approved by the Agent, in
writing prior to the making of any loan, advance or issuing a letter of
credit, which Agent's approval shall not be unreasonably withheld and will
be based on the financial strength of such lender at the time of the
request in an aggregate amount not to exceed $10,965,000 at any one time
outstanding, provided however that the Borrower and each Guarantor shall
not incur loans and advances in an amount exceeding $5,000,000."
7. The representations and warranties contained in the Credit Agreement are
correct, on and as of the date of this Third Amendment as though made on and as
of the date of the Third Amendment (except to the extent such representations or
warranties expressly relate to an earlier date) and no Event of Default has
occurred and is continuing on and as of the date of this Third Amendment, except
those that have been waived, if any, by the Banks and the Agent in writing.
<PAGE>
8. Simultaneously with the execution of this Agreement, Borrower shall
execute promissory notes to each of the Banks to evidence the Revolving Credit
Loans, as amended.
9. Except as herein specifically provided, no other amendment, changes, or
modifications to the Credit Agreement or any of the Loan Documents are intended
or implied.
10. Borrower and each Guarantor confirms and agrees that the Credit
Agreement, as hereby amended, and each Loan Document to which Borrower and each
Guarantor is a party is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects.
11. This Third Amendment shall be governed by and construed in accordance
with the internal laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed by the respective officers hereunder duly authorized as of the day
and year first above written.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
HAMPSHIRE INVESTMENTS LIMITED
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
<PAGE>
GLAMOURETTE FASHION MILLS, INC.
By: /s/ Charles W. Clayton
- -----------------------------
Title: Vice President
SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
- -----------------------------
Title: Vice President
SEGUE (AMERICA) LIMITED
By: /s/ Charles W. Clayton
----------------------------
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Abby Parsonnet
- -----------------------------
Title:
THE CHASE MANHATTAN BANK
By: /s/ Abby Parsonnet
- -----------------------------
Title:
REPUBLIC NATIONAL BANK OF NEW YORK
By: /s/ George Commander
- -----------------------------
Title:
NATIONSBANK N.A.
By: /s/ Richard Stanland
- -------------------------------
Title: Sr. Vice President
<PAGE>
PROMISSORY NOTE
$22,000,000.00 June 22, 1999
HAMPSHIRE GROUP, LIMITED (the "Borrower"), a corporation organized under
the laws of Delaware, for value received, hereby promises to pay to the order of
THE CHASE MANHATTAN BANK (the "Lender") at its office at 270 Park Avenue, New
York, NY 10017, the principal sum of Twenty Two Million ($22,000,000.00) Dollars
or, if less, the amount loaned by the Lender to the Borrower pursuant to the
Credit Agreement and Guaranty referred to below, in lawful money of the United
States of America and in immediately available funds, on the date(s) and in the
manner provided in said Credit Agreement and Guaranty. The Borrower also
promises to pay interest on the unpaid principal balance hereof, for the period
such balance is outstanding at said office in like money, at the rates of
interest as provided in the Credit Agreement described below, on the date(s) and
in the manner provided in said Credit Agreement and Guaranty.
The date and amount of each type of Loan made by the Lender to the Borrower
under the Credit Agreement referred below, and each payment of principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note (or, at the discretion of the Lender, at any other time), endorsed
by the Lender on the schedule attached hereto or any continuation thereof and
all such notations by Lender shall be conclusive on Borrower absent manifest
error.
This the Note referred to in that certain Credit Agreement and Guaranty (as
amended from time to time the "Credit Agreement") dated as of May 28, 1998,
among the Borrower, The Chase Manhattan Bank, Republic National Bank of New
York, NationsBank, N.A. and The Chase Manhattan Bank, as Agent and the
Guarantors described therein and evidences the Loans made by the Lender
thereunder. All terms not defined herein shall have the meanings given to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
Schedule to Promissory Note
Date Amount Interest Interest Amount Total Notation
of Loan Rate Period of Loan Made By
Payment Balance
<PAGE>
PROMISSORY NOTE
$18,150,000.00 June 22, 1999
HAMPSHIRE GROUP, LIMITED (the "Borrower"), a corporation organized under
the laws of Delaware, for value received, hereby promises to pay to- the order
of NATIONSBANK, N.A. (the "Lender") at its office at 3005 North Main Street,
Anderson, South Carolina 29621 the principal sum of Eighteen Million, One
Hundred Fifty Thousand ($18,150,000.00) Dollars or, if less, the amount loaned
by the Lender to the Borrower pursuant to the Credit Agreement and Guaranty
referred to below, in lawful money of the United States of America and in
immediately available funds, on the date(s) and in the manner provided in said
Credit Agreement and Guaranty. The Borrower also promises to pay interest on the
unpaid principal balance hereof, for the period such balance is outstanding at
said office in like money, at the rates of interest as provided in the Credit
Agreement described below, on the date(s) and in the manner provided in said
Credit Agreement and Guaranty.
The date and amount of each type of Loan made by the Lender to the Borrower
under the Credit Agreement referred below, and each payment of principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note (or, at the discretion of the Lender, at any other time), endorsed
by the Lender on the schedule attached hereto or any continuation thereof and
all such notations by Lender shall be conclusive on Borrower absent manifest
error.
This the Note referred to in that certain Credit Agreement and Guaranty (as
amended from time to time the "Credit Agreement") dated as of May 28, 1998,
among the Borrower, The Chase Manhattan Bank, Republic National Bank of New
York, NationsBank, N.A. and The Chase Manhattan Bank, as Agent and the
Guarantors described therein and evidences the Loans made by the Lender
thereunder. All terms not defined herein shall have the meanings given to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- --------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
Schedule to Promissory Note
Date Amount Interest Interest Amount Total Notation
of Loan Rate Period of Loan Made By
Payment Balance
<PAGE>
PROMISSORY NOTE
$14,850,000.00 June 22, 1999
HAMPSHIRE GROUP, LIMITED (the "Borrower"), a corporation organized under
the laws of Delaware, for value received, hereby promises to pay to the order of
REPUBLIC NATIONAL BANK OF NEW YORK (the "Lender") at its office at 452 Fifth
Avenue, New York, NY 10018, the principal sum of Fourteen Million, Eight Hundred
Fifty Thousand ($14,850,000.00) Dollars or, if less, the amount loaned by the
Lender to the Borrower pursuant to the Credit Agreement and Guaranty referred to
below, in lawful money of the United States of America and in immediately
available funds, on the date(s) and in the manner provided in said Credit
Agreement and Guaranty. The Borrower also promises to pay interest on the unpaid
principal balance hereof, for the period such balance is outstanding at said
office in like money, at the rates of interest as provided in the Credit
Agreement described below, on the date(s) and in the manner provided in said
Credit Agreement and Guaranty.
The date and amount of each type of Loan made by the Lender to the Borrower
under the Credit Agreement referred below, and each payment of principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note (or, at the discretion of the Lender, at any other time), endorsed
by the Lender on the schedule attached hereto or any continuation thereof and
all such notations by Lender shall be conclusive on Borrower absent manifest
error.
This the Note referred to in that certain Credit Agreement and Guaranty (as
amended from time to time the "Credit Agreement") dated as of May 28, 1998,
among the Borrower, The Chase Manhattan Bank, Republic National Bank of New
York, NationsBank, N.A. and The Chase Manhattan Bank, as Agent and the
Guarantors described therein and evidences the Loans made by the Lender
thereunder. All terms not defined herein shall have the meanings given to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- ---------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
Schedule to Promissory Note
Date Amount Interest Interest Amount Total Notation
of Loan Rate Period of Loan Made By
Payment Balance
<PAGE>
HAMPSHIRE GROUP, LIMITED
SCHEDULE OF SUBSIDIARIES
December 31, 1999
Percentage of Voting
State/Country Securities Owned by
Name of Subsidiary of Incorporation Immediate Parent
- -------------------------------------------------------------------------------
Hampshire Designers, Inc. Delaware 100
Glamourette Fashion Mills, Inc. Delaware 100
San Francisco Knitworks, Inc. Delaware 100
Hampshire Investments, Limited Delaware 100
Hampshire Investments London, Limited England 100
Keynote Services, Limited Hong Kong 100
Hampshire Praha S.R.O. Czech Republic 70
Exhibit (23)
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-86312 of Hampshire Group, Limited on Form S-8/S-3 of our report dated March
8, 2000 on Hampshire Group, Limited for the year ended December 31, 1999,
appearing on page F-2 in this Annual Report on Form 10-K.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------
Deloitte & Touche LLP
Greenville, South Carolina
March 30, 2000
<PAGE>
Exhibit (23)(A)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3/S-8 (No. 33-86312) of Hampshire Group, Limited of our
report dated March 11, 1999 relating to the financial statements and financial
statement schedules appearing on page F-3.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
Atlanta, Georgia
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED
STATEMENT OF INCOME FILED AS A PART OF THE YEAR-END REPORT ON FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE YEAR-END
REPORT ON FORM 10-K.
</LEGEND>
<CIK> 0000887150
<NAME> CHARLES W. CLAYTON
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 23,831
<SECURITIES> 207
<RECEIVABLES> 22,321
<ALLOWANCES> (3,295)
<INVENTORY> 17,400
<CURRENT-ASSETS> 65,370
<PP&E> 35,315
<DEPRECIATION> (25,166)
<TOTAL-ASSETS> 103,594
<CURRENT-LIABILITIES> 9,229
<BONDS> 0
0
0
<COMMON> 418
<OTHER-SE> 66,908
<TOTAL-LIABILITY-AND-EQUITY> 103,594
<SALES> 151,317
<TOTAL-REVENUES> 153,322
<CGS> 121,617
<TOTAL-COSTS> 121,617
<OTHER-EXPENSES> 23,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,967
<INCOME-PRETAX> 6,096
<INCOME-TAX> 900
<INCOME-CONTINUING> 5,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,196
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.22
</TABLE>
