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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1996
COMMISSION FILE NUMBER 1-11722
CHIC BY H.I.S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3494627
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1372 BROADWAY, NEW YORK, NEW YORK 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 302-6400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock New York Stock Exchange, Inc.
$0.01 par value
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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 [ ].
As of January 21, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $47,214,492 based
upon the closing market price of a share of Common Stock on the New York Stock
Exchange as reported by the Wall Street Journal.
As of January 21, 1997, the registrant had 9,753,868 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Annual Report to Stockholders for the
fiscal year ended November 2, 1996 are incorporated by reference into Parts I
and II hereof.
(2) Portions of the registrant's Proxy Statement, which has been filed
with the Securities and Exchange Commission, for the Annual Meeting of
Stockholders to be held on February 28, 1997 are incorporated by reference into
Part III hereof.
* * * * * * *
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained or incorporated by reference in this filing, the matters discussed or
incorporated by reference herein are forward- looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance, or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those set forth
below under the heading "Additional Cautionary Statements" as well as the
following: general economic and business conditions; industry capacity; fashion,
apparel and other industry trends; competition; overseas expansion; the loss of
major customers; changes in demand for the Company's products; cost and
availability or raw materials; changes in business strategy or development
plans; quality of management; and availability, terms and deployment of capital.
Special attention should be paid to the forward- looking statements contained
herein including, but not limited to, statements relating to the Company's
ability to obtain sufficient financial resources to meet its capital expenditure
and working capital needs, financial risks associated with customers
experiencing financial difficulties, the benefits expected to be derived from
the restructuring and Mexican plant opening described in this report,
international expansion and competition.
ADDITIONAL CAUTIONARY STATEMENTS
DEPENDENCE ON MAJOR CUSTOMERS. The Company's two largest customers,
Kmart Corporation ("K-Mart") and Target, a division of Dayton Hudson Corporation
("Target"), together accounted for approximately 37% and 38% of the Company's
consolidated net sales during fiscal 1995 and fiscal 1996, respectively. Each of
these customers accounted for more than ten percent of the Company's
consolidated net sales in such periods. The loss of either K-Mart or Target
could have an adverse effect on the results of the Company's operations. In
addition, several of the Company's licensees sell products bearing the Company's
trademarks to the same retailers, including K-Mart. The Company has no long-term
commitments or long-term contracts with any of its customers.
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RECENT APPAREL INDUSTRY TRENDS. Competition in the apparel industry has
been exacerbated by the recent consolidations and closings of major stores. Like
many of its competitors, the Company sells to certain retailers who have
recently experienced financial difficulties and some of whom are currently
operating under the protection of the federal bankruptcy laws. Although the
Company monitors the financial condition of its customers, the Company cannot
predict what effect, if any, the financial condition of such customers will have
on the Company. The Company believes that developments to date within these
companies have not had a material adverse effect on the Company's financial
position or results of operations. Although the Company currently does not
manufacture in foreign countries for the domestic market, the Company expects to
begin manufacturing in fiscal 1997 at a plant in Mexico and, as new
opportunities arise for manufacturing in foreign countries for the domestic
market (either through subcontractors or on a direct basis), such as
opportunities presented by the North American Free Trade Agreement or changes in
international economic conditions, the Company and its competitors may avail
themselves of any advantages of manufacturing in foreign countries, which may
tend to increase competition.
NATURE OF INDUSTRY; DEPENDENCE ON JEANS. The apparel industry is highly
competitive and characterized generally by ease of entry. Many of the Company's
competitors are substantially larger and have greater financial, marketing and
other resources than the Company. The Company's revenues are derived principally
from sales of jeans products. Although the Company's products for the domestic
market have historically been less sensitive to fashion trends than higher
fashion lines, the apparel industry is subject to rapidly changing consumer
preferences, which may have an adverse effect on the results of the Company's
operations if the Company materially misjudges such preferences.
DEPENDENCE ON KEY PERSONNEL. The Company depends on the services of
certain key personnel, including Mr. Burton M. Rosenberg, the Chairman of the
Board and Chief Executive Officer of the Company. The Company believes that the
loss of the services of any of these key personnel could have an adverse effect
on the results of the Company's operations.
RISKS OF DOING BUSINESS OVERSEAS. The Company's sales and earnings
attributable to its European operations have generally been increasing in recent
years and may in the future constitute a greater proportion of the Company's
sales and earnings. In general, the Company believes that the demand for jeans
in foreign markets is more susceptible to changes in fashion preferences than in
the domestic market. In addition, it is not possible to predict accurately the
effect that the continued elimination of trade barriers among members of the
European Union will have on the Company's operations in Europe. The Company is
also expanding its activities in Eastern Europe, where economic, political and
financial conditions are changing rapidly, and expects to commence manufacturing
operations in Mexico in fiscal 1997. In general, there can be no assurance that
the results of the Company's European operations or any operations in Mexico
that the Company may establish will not be adversely affected by factors such as
restrictions on transfer of funds, political instability, competition, the
relative strength of the U.S. dollar, changes in fashion preferences and general
economic conditions.
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ABSENCE OF DIVIDENDS. The Company has not, in recent years, paid any
cash or other dividends on its Common Stock, and there can be no assurance that
the Company will pay cash dividends in the foreseeable future. As a holding
company, the ability of the Company to pay dividends is dependent upon the
receipt of dividends or other payments from its subsidiaries. The Company's
domestic credit agreements (the "Loan Agreements") contain certain limitations
on the Company's ability to pay dividends In addition, an agreement between the
Company's wholly owned German subsidiary ("Sportswear"), and one of its lenders
would prohibit Sportswear from paying dividends to the Company under certain
circumstances.
LEVERAGE AND FINANCIAL COVENANTS. Although the Company's initial public
offering in February 1993 and the other components of its refinancing plan (the
"Refinancing Plan") improved the Company's operating and financial flexibility,
the Company continues to have indebtedness that could adversely affect its
ability to respond to changing business and economic conditions. At November 2,
1996, the Company had an aggregate of approximately $74.4 million of
indebtedness (including capital leases) outstanding and the Company's
stockholders' equity was approximately $80.9 million. In addition, the Company's
Loan Agreements contain covenants that impose certain operating and financial
restrictions on the Company. Such restrictions affect, and in many respects
limit or prohibit, among other things, the ability of the Company to incur
additional indebtedness, create liens, sell assets, engage in mergers or
acquisitions, make capital expenditures and pay dividends.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Chic by H.I.S, Inc. (the "Company") was incorporated in Delaware in
December 1988 under the name Henry I. Siegel Holding Corp. and changed its name
to Chic by H.I.S, Inc. on December 15, 1992. All references herein to the
"Company" include Chic by H.I.S, Inc. and its domestic and foreign subsidiaries
unless otherwise indicated by the context.
The Company designs, manufactures and markets moderately priced, basic
style, cotton denim jeans, casual pants and shorts for women, girls, men and
boys, which are sold throughout the United States principally through mass
merchandisers. The Company also markets similar apparel in Europe, primarily in
Germany. In the United States, women's and girls' jeans and casual pants are
generally marketed under the CHIC(R) brand name, and men's and boys' jeans and
casual pants are generally marketed under the H.I.S(R) brand name, while in
Europe all of the Company's apparel is sold under the H.I.S brand name.
The Company also licenses the use of its trademark, primarily the CHIC
brand name, to manufacturers of a variety of products that the Company does not
manufacture, including women's sportswear, intimate apparel, shirts,
accessories, hosiery and footwear. Many of these products are sold by the same
retailers that sell the Company's products and are generally promoted at the
retail level in a manner that complements the Company's products. In the United
States, the Company sells its apparel primarily to mass merchandisers. The
Company's marketing and advertising strategy emphasizes the quality, comfortable
fit and competitive pricing of its jeans and pants. The Company believes that
its ability to respond quickly to its domestic customers' needs, as a result of
its experienced manufacturing capabilities and its state-of-the-art ordering,
inventory and management information systems, gives it an advantage over many of
its competitors, particularly those which import finished goods. The Company's
excellence in servicing mass merchandisers has been recognized by industry-wide
awards and, in the opinion of management, is an important asset in maintaining
and broadening its business.
Information with respect to sales, operating income and identifiable
assets attributable to each of the Company's geographic areas appears in Note 10
of Notes to Consolidated Financial Statements on page 27 of the Company's Annual
Report to Stockholders for the fiscal year ended November 2, 1996 (the "Annual
Report to Stockholders") and is incorporated herein by reference.
UNITED STATES OPERATIONS
The effects of the United States recession, which began in fiscal 1990,
were also apparent in fiscal 1991 as United States sales decreased. United
States sales increased during fiscal 1992 primarily as a result of greater sales
to major mass merchandiser customers, which generally gained market share in the
jeans market relative to other retailers, and an improving United States
economy. During fiscal 1993, United States sales remained relatively constant.
During fiscal 1994, United States sales increased primarily due to increased
advertising. During fiscal 1995, United States sales remained relatively
constant. During fiscal 1996, United States sales decreased primarily as a
result of a shrinking market share and substantial price competition.
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In 1996, the Company made changes in advertising, marketing and
manufacturing policies. During the first and fourth quarters of fiscal 1996,
management authorized and committed the Company to undertake significant
downsizing and operational changes which, during 1996, resulted in restructuring
and special charges of $30 million.
The charge in the first quarter included the closing of certain
manufacturing facilities in Tennessee and Kentucky. These first quarter closures
resulted in the termination of approximately 940 employees and resulted in a
total charge against earnings aggregating $15 million. In the fourth quarter,
the Company identified additional manufacturing facilities to be closed. The
Company has also started to move certain manufacturing operations to Mexico,
although as of November 2, 1996 no actual operations have begun there. The
additional closures will result in the termination of approximately 700
employees, and resulted in a total charge against earnings aggregating $15
million.
APPAREL
WOMEN'S AND GIRLS' JEANS
The Company's principal product line is women's and girls' jeans
marketed under the CHIC and CHIC KIDS brand names, respectively, and other brand
names owned by the Company, including SUNSET BLUES(R). The Company believes that
its women's jeans were the best selling women's jeans to masS merchandisers in
the United States in 1996 based on the N.P.D. Report dated July, 1996. The
Company's jeans are available in a variety of finishes, such as prewashed and
stone washed. By altering the laundry time and ingredients used in the finishing
process, the Company is able to produce various colors and shades in denim
products.
The Company was the originator of "proportioned to fit" jeans for
women, which it introduced in 1975. The Company's women's and girls' jeans are
designed to provide a more comfortable fit by tailoring their measurements to a
woman's or girl's height in addition to her waist size. Each size is offered for
sale in a variety of inseam lengths. Women's and girls' jeans are available in a
relaxed fit, slim fit and classic fit.
CHIC jeans are offered in four general size categories: CHIC misses is
offered in sizes 2 to 20 in petite, average and tall lengths; CHIC juniors is
offered in sizes 1 to 15 in petite, average and tall lengths; CHIC plus is
offered in sizes 18 to 26 in petite and average lengths; and CHIC KIDS is
offered in sizes 7 to 14 for young girls.
Currently, the Company's women's jeans are generally priced to sell at
retail for between $15.88 and $21.99, with most products priced to sell at
retail for $19.99. The Company's girls' jeans are generally priced to sell at
retail for between $14.99 and $16.99.
WOMEN'S AND GIRLS' CASUAL PANTS AND SHORTS
The Company markets women's casual pants and shorts under the CHIC
brand name and girls' casual pants and shorts under the CHIC KIDS brand name.
The Company's casual pants are available in the same "proportioned to fit" sizes
as CHIC jeans. The Company believes that CHIC pants have the same advantages as
CHIC jeans in terms of fit, quality and value. Casual pants are generally more
fashion-oriented and are more susceptible than basic jeans to changing consumer
preferences. The Company's two primary casual pant styles, the "CHIC Spectator"
which is made of 100% cotton wrinkle resistant, and the "CHIC Schooners," which
is all-cotton, are both basic design casual pants.
2
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Currently, the Company's women's casual pants are generally priced to
sell at retail for between $16.99 and $21.99, with most products priced to sell
at retail for $18.99. The Company's women's casual shorts are generally priced
to sell at retail for between $12.99 and $14.99; girls' casual pants are
generally priced to sell at retail for between $13.99 and $16.99; and girls'
casual shorts are generally priced to sell at retail for between $9.99 and
$11.99.
WOMEN'S AND GIRLS' JEAN SHORTS
The Company markets women's and girls' jean shorts under the CHIC and
CHIC KIDS brand names, respectively. Traditional five-pocket jean shorts
constitute the Company's core product in this line. The Company complements this
basic product with jean shorts that are slightly more fashion-oriented.
Currently, the Company's women's jean shorts are generally priced to sell at
retail for between $14.99 and $18.99. The Company's girls' jean shorts are
generally priced to sell at retail for between $14.99 and $17.99.
MEN'S AND BOYS' JEANS AND JEAN SHORTS AND MEN'S CASUAL PANTS AND SHORTS
The Company markets men's and boys' jeans and jean shorts and men's
casual pants and shorts under the H.I.S brand name. The Company offers its men's
and boys' apparel in a broad range of sizes, colors, fabrics and finishes. All
of the men's and boys' five-pocket jeans manufactured by the Company are
available in two styles: a relaxed fit and a classic fit. The Company offers
men's jeans in 38 different sizes by waist and inseam length. Boys' jeans are
offered in sizes 8 to 18 in regular fit and slim fit.
The Company's line of men's casual pants is marketed under the H.I.S
label and is available in casual, classic and basic styles that are generally
more fashion-oriented and are more susceptible than its men's or boys' jeans to
changing consumer preferences.
Currently, the Company's men's jeans are generally priced to sell at
retail for between $16.99 and $21.99, with most products priced to sell at
retail for $19.99; boys' jeans are generally priced to sell at retail for
between $14.99 and $16.99; jean shorts are generally priced to sell at retail
for between $14.99 and $16.99; casual pants are generally priced to sell at
retail for between $17.99 and $19.99; and casual shorts are generally priced to
sell at retail for between $12.99 and $16.99.
SALES AND DISTRIBUTION
During fiscal 1996, the Company sold its products to more than 3,000
retailers, which the Company believes operate over 16,000 stores in the United
States. The Company also started to sell merchandise in the Canadian market.
Most of the Company's sales in fiscal 1996 were made to mass merchandisers and
the remainder were made primarily to department and specialty stores. Sales of
the CHIC and H.I.S product lines to the Company's two largest accounts, Kmart
Corporation and Target, accounted for approximately 56% of United States sales.
Sales are made primarily through the Company's full-time sales force
and also through showrooms and trade shows, with an emphasis on selling to mass
merchandisers. The Company has a direct sales force, which includes individuals
located in the Company's New York City showroom as well as showrooms in Chicago,
Dallas and other locations. The Company pays only sales commissions to its
salespeople. Although the Company pays a base salary to its regional sales
managers, a portion of the income of such managers is in the form of incentive
bonuses, traditionally based on increases in the Company's sales. Each
salesperson is equipped with a personal computer that has a direct satellite
linkup with the mainframe located in the Company's executive offices, which
allows each salesperson to access readily various types of information such as
product availability. The Company maintains its principal showroom in New York
and additional showrooms in Chicago and Dallas to service regional markets.
Each showroom is staffed by local sales representatives.
3
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The Company currently operates eight retail stores in Tennessee and
Kentucky that sell seconds and closeouts of CHIC and H.I.S brand merchandise,
including licensed products. At the present time, the Company does not intend to
increase significantly the number of its retail stores.
The Company's warehouse and distribution center facility is located in
Bruceton, Tennessee. All sewn goods are shipped from the Company's eleven
assembly plants to Bruceton by the Company's own fleet of tractors and trailers
and are then washed, either at the Company's facilities or an outside launderer,
pressed, warehoused and distributed to the Company's customers throughout the
United States and Canada.
Substantially all of the Company's sales in the United States and
Europe are to retailers. For the year ended November 2, 1996, sales to two major
customers (with sales in excess of 10% of total sales) approximated 25.5% and
12.2% of consolidated net sales on an individual basis. For the year ended
November 4, 1995, sales to two major customers approximated 23.2% and 14.0% on
an individual basis. For the year ended November 5, 1994, two major customers
accounted for approximately 22.3% and 13.1% of total sales on an individual
basis. The receivables from the two major customers at November 2, 1996
represent approximately 41.3% of the total accounts receivable balance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company reviews a customer's credit history before extending
credit. An allowance for possible losses is established based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
MARKETING, ADVERTISING AND PROMOTION
The Company advertises its products nationwide through television and
print media. The Company's advertising strategy emphasizes the quality,
comfortable fit and competitive pricing of its jeans and pants. At the national
level, the Company's advertising is image oriented. Television commercials
promote the CHIC name and are designed to create a personality for the brand.
The Company believes that such strategy has enabled CHIC to become a nationally
recognized brand name for women's apparel.
Consumer advertising for the Company's CHIC line of products is done
primarily through network and cable television and, to a lesser extent,
magazines. National television advertisements are generally run during the fall
back-to-school, spring and Christmas selling seasons. Print advertising of the
CHIC line consists primarily of spreads in magazines oriented toward women. The
Company's advertising of its H.I.S line has been accomplished primarily through
the use of print advertising. The Company placed H.I.S advertisements in major
national magazines that generally appeal to male readers. The Company targets
women in the 18-49 age group for its CHIC brand women's products, with and
emphasis on the 18-34 age group, and targets men in the 18-49 age group for its
H.I.S brand men's products. The Company believes that consumers of its products
are generally in the moderate-income bracket.
The Company supplements its national advertising campaign through the
use of cooperative advertising in radio and newspaper media, in which the
Company's products are among those featured by various retailers in their
advertisements. Under the Company's cooperative advertising program, which is
generally standard in the industry, the Company will pay towards approved
advertising up to two percent of the store's total purchases from the Company
during the preceding semi-annual period. In addition, the Company advertises to
retailers through print advertisements in a variety of trade magazines and
newspapers.
The Company is seeking a larger share of the domestic mass merchandise
market for its men's and boys' jeans under the H.I.S brand name. To attain such
increase, the Company has allocated a larger portion of its total advertising
budget to the H.I.S brand.
4
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The Company believes that there are opportunities for increasing the
Company's share of the mass merchandise market for men's jeans in the United
States, which the Company believes is substantially larger than the market for
women's jeans. Based on its reputation as a reliable supplier of branded women's
jeans and its previous history as a manufacturer of men's jeans and other
apparel under the H.I.S brand name, the Company believes that opportunities
exist to penetrate further the mass merchandise and specialty store market for
men's jeans. The Company has begun to focus on selling men's jeans to the same
mass merchandisers and specialty stores that carry CHIC women's jeans. The
Company anticipates that there will be a positive correlation between an
increase in advertising and an increase in sales, but there can be no assurance
that the Company will realize its objective of increasing its share of the men's
and boys' jeans market, which is highly competitive and in which the Company
currently has only a limited presence.
The Company works with retailers to provide custom displays to stores.
The Company provides to its customers, free of charge, a variety of point of
sale display materials such as signs, size markers, graphics, in-store posters,
photographs and other visual supports.
PRODUCT DESIGN
The Company's two in-house merchandising groups develop jeans and
casual pants product lines, respectively, including the pricing and packaging
for each line. The merchandising groups interpret market trends by visiting
retail stores throughout the United States, Canada and Europe, attending trade
shows, working with textile mills and retailers and conducting market research.
The Company also researches and tests denim finishes in its Hickman laundry
facility in order to develop new wash finishes to add to the Company's product
mix.
After the merchandising groups have researched the retail market and
domestic fabric market, consulted with the various fashion and color forecasting
services to which the Company subscribes and decided on the details to be
incorporated into the new lines, prototype samples, fit, colors and packaging
are developed in the New York office. The prototypes are then sent to the
Company's main manufacturing facility in Bruceton, Tennessee, which produces a
manufactured sample.
In keeping with the Company's emphasis on a quality fit, the garment
has several fit evaluations using a professional fit model from prototype stage
to a finished manufactured garment. The samples produced in Tennessee are
evaluated for fit, color and finish and then sent to the sales force to display
to prospective customers. When the garment has been sold and the first
production run of garments is produced, a full size range is sent to New York
where the garment is fitted on models of various sizes to allow the
merchandisers to make any final adjustments that may be needed to improve the
fit and appearance of the new lines for different body types.
MANUFACTURING AND RAW MATERIALS
The Company performs all phases of the manufacturing process in
converting raw materials into finished goods. The Company believes that it is
the only major manufacturer of moderately priced jeans in the United States to
purchase all of its raw materials domestically and to manufacture all of its
products in North America. Consequently, the Company enjoys a shorter lead time
in filling orders than is usually associated with competitors that rely on
imports of finished goods or offshore manufacturing processes.
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The Company currently buys finished fabric in bulk from domestic
suppliers and generally has no supply contracts with terms longer than three
months. The Company believes that through its domestic suppliers it is able to
obtain good quality materials in a timely manner at competitive prices. During
fiscal 1996, the Company purchased approximately 40.0% of its raw materials from
two suppliers, which were the only companies supplying more than 10% of the
Company's raw materials during fiscal 1996. The Company maintains a portion of
its inventories in commodity raw materials, which consist mainly of cotton
fabrics, including denim and twills. These raw materials, the Company believes,
are readily available from numerous domestic and foreign sources. Although the
Company relies heavily on certain suppliers for its raw material needs, the
Company believes that the loss of any one source of raw materials, though no
such loss is presently anticipated, would not have a material adverse effect on
its business since many other alternative, comparable sources are readily
available.
The Company operates manufacturing facilities in Tennessee, Alabama,
Kentucky and Mississippi. The Company has purchased and is renovating a
substantial manufacturing facility in Durango, Mexico. Production from this
facility is expected to begin during the second fiscal quarter of 1997 and the
production will be used for the United States market. Concurrent with the
Company's purchase and renovation of its proposed manufacturing facility in
Durango, Mexico, the Company closed certain United States manufacturing
facilities and is currently planning to match production with demand by closing
additional United States facilities.
With its manufacturing systems, which the Company believes are
state-of-the-art, the Company is usually capable of converting raw material into
a finished garment and delivering such garment to the retailer within three
weeks from the date the Company receives the retailer's order as compared to
importers, which the Company believes generally take eight to ten weeks from the
date of order to delivery of a finished garment to the retailer. The Company's
facilities and systems, together with exclusively domestic sourcing of fabric
and other raw materials, enable it to adapt to changing consumer preferences
quickly and to respond swiftly to customer orders. In addition, by reducing the
time needed to manufacture a finished garment, the Company is able to keep
inventory at minimal levels. By limiting inventory and avoiding many of the
shipping and warehousing costs faced by overseas importers, the Company believes
that it is currently able to offset any benefits it would derive from reduced
labor costs were it to manufacture in overseas countries for the United States
market. Although the Company currently has no plans to manufacture in overseas
countries for the domestic market, as new opportunities arise for manufacturing
in overseas countries for the domestic market (either through subcontractors or
owning facilities), the Company intends to evaluate the possible advantages and
disadvantages of manufacturing in overseas and other foreign countries.
The Company generally cuts fabric only after receiving confirmed
purchase contracts from customers. Each contract is for a specified amount of
product at a specified price and usually provides for several preliminary,
staggered delivery dates. Customers then place specific orders for delivery
against such contract. By manufacturing in response only to a confirmed purchase
contract, the Company is able to determine its finished inventory needs in
advance of such delivery dates so as to be able to respond quickly to a
customer's order and at the same time minimize its finished inventory risk.
Occasionally, based on agreements with customers, preliminary delivery dates are
extended. The postponement of a delivery date may cause the Company to lose
sales it otherwise might have made to the customer for the period during which
delivery is eventually made. Should a delivery date be postponed, the Company is
often able to arrange with its suppliers to delay delivery of raw materials the
Company has ordered.
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The Company uses its own fleet of tractors and trailers to pick up raw
materials from its suppliers and transport such raw materials to the Company's
central manufacturing headquarters in Bruceton, Tennessee. In Bruceton, the
fabric is cut and trimmed and then shipped by the Company's fleet to one of the
Company's ten assembly plants where the garments are sewn. Assembled garments
are then sent to Hickman Laundry for laundry processing and returned to Bruceton
for final finishing and pressing.
EUROPEAN OPERATIONS
In Europe, where mass merchandisers have limited market share, the
Company's H.I.S brand jeans are sold primarily through department stores and
mail order catalogs. Most of the Company's sales in Europe are made in Germany.
European sales in fiscal 1991 increased as a result of the new pricing strategy
and market opportunities created by German reunification. The unusually high
demand for H.I.S products created in fiscal 1991 by expansion of the German
market as a result of the reunification, however, was not duplicated in fiscal
1992 and, aggravated by a weakening German economy, resulted in decreased sales
volume. Primarily as a result of increased advertising, European sales increased
in fiscal 1993 through fiscal 1996.
The Company markets women's and men's jeans and casual pants under the
H.I.S brand name primarily in Germany and, to a lesser extent, Austria and
Switzerland, as well as other European countries. As in the United States, the
Company's core business in Europe is basic, five-pocket denim jeans. The Company
believes that its jeans were the best selling women's jeans in Germany during
fiscal 1996.
Prior to fiscal 1997, the Company had been licensing the H.I.S brands
for sale in the Czech Republic for the previous three years. Commencing fiscal
1997 the Company ended the licensing arrangement and is marketing its products
directly with its own contracting, sales force and distribution center.
The Company believes that in many European countries basic jeans, such
as those manufactured by the Company, are perceived to be a fashion item as well
as a basic, functional product and are therefore worn in a broader range of
settings than in the United States, which contributes to a high level of demand
for jeans in Europe. The Company believes that approximately 50 million pairs of
women's and men's jeans are sold in Germany each year, and that approximately
one-half of such jeans sold do not bear a recognized brand name. Due to their
fashion versatility and the absence of mass merchandisers and discount
retailers, jeans are priced much higher, in relative terms, at the retail level
in Europe than in the United States.
The Company's European headquarters are located in Garching, Germany
(outside of Munich), where the Company has its own staff of merchandising,
sales, production, management and finance personnel. The Company does not own
any manufacturing facilities in Europe, but currently has long-term agreements
with approximately thirty five manufacturers in the Czech Republic, Germany,
Greece, Italy, Malta, Portugal, Tunisia and Turkey, where the Company believes
quality products can be manufactured at competitive prices. Due to the large
number of manufacturers, the Company believes that the termination of any
existing manufacturing contract would not have a material adverse effect on its
operations. All of the raw materials used to assemble the jeans and pants are
purchased by the Company in Europe and are readily available from numerous
suppliers. Raw materials are shipped to subcontractors in foreign countries for
assembly. Finished goods are shipped by the subcontractors to the Company's
distribution center in Garching, Germany for washing, finishing, warehousing and
then shipment to the Company's customers.
7
<PAGE>
Most European customers are traditional department stores such as
Kaufhof AG, Mac Fash TextilHandels-GessellschaftmbH, Hertie Waren-und Kaufhaus
GmbH, Horten AG and specialty stores such as Leffers AG and Peek & Cloppenburg
KG in Germany. Other significant customers include German-based Otto Versand
GmbH & Co., the world's largest mail-order firm, and Quelle, Europe's largest
mail-order firm, as well as Spar Osterreichische Warenhandels-AG (Hervis
Modekaufhaus GmbH), one of the largest retail operations in Austria.
The Company employs a merchandising staff that creates styles and
selects fabrics designed to meet the demands of the European consumer. Twenty
commissioned salespersons service approximately 2,000 retail accounts and
mail-order houses. The Company's European advertising is aimed at men and women
between the ages of 16 and 39 through television and print media.
It is not possible to predict accurately the effect that the continued
elimination of trade barriers among members of the European Union will have on
the Company's operations in Europe. The Company considers other Western European
countries, such as the United Kingdom, France and Italy, to be extremely
competitive markets and does not anticipate that it will seek to expand sales
significantly in such countries.
CENTRAL OFFICE AND COMPUTER SYSTEM
The Company maintains its principal executive offices in New York City
from which it provides its department managers with integrated information with
respect to inventory, production, manufacturing and distribution operations as
well as financial matters. The Company believes that it has a state-of-the-art
computer information system, substantially all of the software for which was
developed internally. This sophisticated system allows the Company's salespeople
to enter sales orders electronically. Many large customers submit their orders
directly to the Company over an electronic data interchange system via
satellite. Such linkups allow the Company to process customer orders quickly,
reducing the lead time between orders and deliveries.
Major customers customarily place confirmed purchase contracts for a
total unit quantity by price, style and delivery date. Through point of sale
data collection devices, many of these customers monitor their sales to
consumers and report directly to the Company their over-the-counter level of
sales as well as the desired inventory levels they wish to maintain at their
individual stores. On a weekly basis the Company receives information as well as
detailed shipment orders for each of the stores of such customers. These
detailed store orders are designed to replenish the inventory levels of the
individual retail stores, which the Company is generally able to do in five to
eight business days.
The Company also receives on a daily basis orders taken by its sales
force. These orders are electronically transmitted to the Company by members of
the sales force through their own computer terminals which are connected to the
Company's main computer system via satellite. Such orders are then
electronically reviewed for style, color, size, creditworthiness and requested
delivery dates. If the results of such reviews are satisfactory, the orders are
considered to be confirmed purchase contracts and are added to backlog.
The computer system allows the Company to monitor production in real
time, so that the location and status of every cut and production plan in every
factory is known at any moment in time. In the highly competitive apparel
industry, the Company believes that its "just-in-time" ability to respond
quickly to customer demand gives it a significant advantage over many of its
competitors, especially with respect to mass merchandisers.
8
<PAGE>
LICENSING
Pursuant to approximately 30 license agreements between the Company and
various manufacturers and/or importers, such licensees produce and market a
variety of products under the CHIC name and/or H.I.S name including: sportswear,
intimate apparel, accessories, hosiery and footwear. Most of these products
complement apparel products marketed by the Company.
The Company began licensing its trademarks in fiscal 1989. Licensing
revenues have increased from approximately $0.8 million in fiscal 1990, the
first full year of licensing operations, to approximately $6.4 million in fiscal
1996.
The current license agreements expire on various dates through 2000.
Many of the agreements, however, permit the licensee to renew its agreement,
subject to certain conditions, prior to expiration, generally for an additional
three-year period. The majority of the agreements require that licensees pay a
specified guaranteed minimum royalty to the Company at the beginning of each
quarter during the term of the licensing agreement and then pay a certain
percentage (generally five percent) of the licensee's net sales of products
bearing a trademark licensed by the Company. Such payments are due within 30
days after the end of each quarter, against which amount the guaranteed royalty
is deducted. Generally, each licensee is required to spend specified amounts for
advertising and promotion of the licensed products and most licensees offer a
matching cooperative advertising plan to retailers for advertising in weekly
circulars that are used by some retailers to advertise sale items. The Company
has received no indication from its licensees that they intend to terminate
their licensing agreement with the Company prior to its expiration.
The Company's strategy is to identify market leaders in their
respective fields who will generate increased sales over an extended period of
time and entrench the brand names in key categories. The Company often consults
with its largest customers to identify and evaluate potentially suitable
licensees. In evaluating a potential licensee, the Company considers the
experience, financial stability, manufacturing performance and marketing ability
of the potential licensee. It also evaluates the marketability of the products
proposed to be licensed and the compatibility of such products with other
products manufactured or licensed by the Company. The Company believes that
strong consumer acceptance of the CHIC and/or H.I.S brand name and the care that
the Company uses in selecting suitable licensees have been major contributors to
the success of its licensing program.
During the past year, the Company introduced Men's Knit and Woven
Shirts under a licensing agreement with Santana Ltd., a highly regarded importer
of Men's Shirts. The Company believes that the expansion of licensed products
under the H.I.S. name will have a significant impact on the brand's growth in
the future. The Company continues to explore opportunities to expand the H.I.S.
licensing program to other related products.
By increasing consumer awareness of its brand names through expanded
advertising of its products, and continuing to use care in selecting suitable
licensees, the Company anticipates that it will be able to strengthen its
licensing business. As the demand for licensed products expands, competition
will increase among licensors and no assurance can be given that the Company
will be able to expand or maintain its market position with respect to various
licensed goods in the future. In addition, no assurance can be given that demand
will continue to expand.
9
<PAGE>
The Company coordinates the efforts of its licensees in a number of
ways. The Company communicates its color schemes, styling and market trends to
its licensees prior to each season, presents a coordinated in-store presentation
of proprietary and licensed products, and coordinates the advertising of the
family of CHIC and/or H.I.S. products through planned promotions.
As a general policy matter, in the United States the Company licenses
its brand names for use only on products it does not manufacture.
COMPETITION
The apparel industry is highly competitive and characterized generally
by ease of entry. Although the Company's products have been historically less
sensitive to fashion trends than higher fashion lines, the apparel industry is
subject to rapidly changing consumer preferences, which may have an adverse
effect on the results of the Company's operations if the Company does not
accurately judge such preferences. Among the factors that shape the competitive
environment are quality of garment construction and design, price, fit, brand
name, style and color selection, advertising and the manufacturer's ability to
respond quickly to the retailer on a national basis. Customer and consumer
acceptance and support are also important aspects of competition in this
industry. The Company believes that its ability to market its products though
its broad distribution network, which consists primarily of mass merchandisers,
is important to its ability to compete. The Company also believes that its
continued success will depend upon its ability to remain competitive in these
areas.
The Company competes with numerous domestic and foreign manufacturers,
many of which are larger or are associated with companies with substantially
greater resources than the Company. The Company faces competition in sales on
both the retail and consumer level. In general, mass merchandisers limit their
product selection to moderately priced products. Accordingly, the Company
believes that the domestic jeans market with respect to sales to mass
merchandisers is stratified by a more narrow price range than sales to
consumers, who might be willing to buy products in a broader price range. Since
certain retailers generally carry only moderately priced products, particularly
mass merchandisers, the Company competes for sales to such retailers only with
companies that market similarly priced products.
The Company considers its significant competitive advantages to be the
high consumer recognition and acceptance of the CHIC brand name and its ability
to respond quickly to its customers' needs as a result of the Company's
experienced manufacturing capabilities and advanced computer information system.
Although brand recognition is an important element of competition in the apparel
business, in the mass merchandising retail industry, brand recognition is less
significant in the marketing of casual pants than in the marketing of jeans.
Most mass merchandisers carry only casual pants bearing their own private label
and a limited number, if any, of other brands of casual pants. Consequently,
with respect to its mass merchandising customers, the Company's casual pants
compete with fewer brands than its jeans.
In Germany, Austria and Switzerland, the Company competes in a higher
priced market against various European and multinational companies, including
Mustang Bekleidungswerke, manufacturer of MUSTANG brand jeans, and Levi Strauss,
manufacturer of LEVI'S brand jeans. The Company believes that its pricing
strategy in Europe, which is to position its products in the price range below
the range for Levi Strauss, along with its reputation in Europe for marketing
jeans in a variety of sizes especially suited for women, distinguishes it from
its competitors in Europe. Certain jeans suppliers, such as Levi Strauss, have
traditionally spent more than the Company on advertising in Europe. The Company
believes that increased advertising in Europe has increased the Company's market
share by attracting consumers who traditionally have bought unbranded products.
10
<PAGE>
BACKLOG
The Company's backlog consists of confirmed purchase contracts. At
November 2, 1996, the Company had unfilled customer orders of approximately
$97.9 million of merchandise, of which approximately $53.2 million were for
domestic orders and approximately $44.7 million (based on the exchange rate for
the deutsche mark on November 2, 1996) were for European orders, compared to
approximately $166.4 million at November 4, 1995, of which approximately $128.5
million were for domestic orders and approximately $37.9 million (based on the
exchange rate for the deutsche mark on November 4, 1995) were for European
orders. The Company believes that the change in backlog in the United States and
Europe is attributable largely to the performance of the Company's products in
over-the counter sales by its customers which leads to the placement of future
orders. Substantially all of the unfilled orders at November 2, 1996 are
expected to be shipped before the end of the Company's fiscal year ending
November 1, 1997. The Company believes that in the past it has shipped at least
95% of its confirmed purchase contracts. The Company has not generally
experienced difficulty in filling orders on a timely basis.
SEASONALITY
Demand for the Company's apparel products and its level of sales
fluctuate moderately during the course of the calendar year as a result of
seasonal buying trends. A moderate surge in sales of denim jeans and casual
pants generally occurs during the fall back-to-school and Christmas holiday
selling seasons (the Company's third and fourth quarter, respectively). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Seasonality of Business-Quarterly Results." To balance these
fluctuations in demand, the Company has developed competitively priced packages
of jean shorts and casual shorts, which are sold primarily during the Company's
first and second quarters. This enables the Company to market to the year-round
apparel needs of consumers, thereby stabilizing production levels at the
Company's manufacturing facilities during traditionally slower periods.
TRADEMARKS
Several of the Company's trademarks, including CHIC and H.I.S, are
registered in the United States Patent and Trademark Office. These registrations
expire on various dates through 2005, subject to renewal. From time to time the
Company adopts new trademarks in connection with the marketing of its products.
The Company considers its trademarks to be significant assets of the Company and
to have significant value in the marketing of its products.
The Company has registered and filed applications for various
trademarks, including H.I.S, which is the primary trademark used by the Company
to market its products in Europe, in approximately 20 countries throughout the
world, primarily Germany, Austria and Switzerland. The Company believes that
these foreign trademarks constitute significant assets and are material to its
European marketing operations.
EMPLOYEES
As of November 2, 1996, the Company employed approximately 3,200
full-time people in the United States, most of whom work in Tennessee. The
Company believes that it is one of the largest private employers in the State of
Tennessee. As of November 2, 1996, the Company employed approximately 150 people
in Europe.
None of the Company's employees are represented by a union. The Company
believes that its relationship with its employees is good.
The Company believes that all of its manufacturing facilities are in
material compliance with applicable occupational health and safety laws.
11
<PAGE>
RECENT DEVELOPMENTS - SUBSEQUENT EVENTS
In December 1996, the Company negotiated the prepayment of the
outstanding balance of the senior notes payable of $43.0 million. The prepayment
was funded through the Company's existing revolving credit agreement.
On January 27, 1997, the Company announced that it had retained a
managing underwriter for a proposed initial public offering that will result in
the sale by the Company of a significant minority interest in the Company's
wholly-owned German subsidiary h.i.s. sportswear GmbH headquartered in Munich.
The sale is expected to occur in the second quarter of 1997. Consummation of the
sale would be subject to market conditions, approval by the Company's Board of
Directors, receipt of a fairness opinion from the Company's financial adviser,
execution of an underwriting agreement and other definitive documentation and
satisfaction of certain legal and regulatory requirements.
12
<PAGE>
ITEM 2. PROPERTIES
The Company owns its principal manufacturing and distribution
facilities which are located in Tennessee. The Company leases additional
facilities, including its corporate headquarters and showrooms in New
York City, and other offices, factories, warehouses, showrooms and retail stores
in the United States, Germany, Austria and Switzerland from unrelated third
parties. The Company's principal owned and leased properties are described in
the chart below.
PRINCIPAL OWNED AND LEASED PROPERTIES
<TABLE>
<CAPTION>
Location Square Footage Owned/Leased
-------- -------------- ------------
<S> <C> <C> <C>
North America
Manufacturing and Assembly Facilities......... Belmont, MS 102,900 Leased
Bruceton, TN 200,094 Owned
Bruceton, TN 150,000 Owned
Camden, TN 41,022 Owned
Durango, Mexico 108,000 Owned
Fulton, KY 17,000 Leased
Gleason,TN 53,103 Owned
Hickman, KY 280,000 Leased
Monticello, KY 58,000 Owned
Phil Campbell, AL 48,000 Leased
Saltillo, TN 48,028 Owned
South Fulton, TN 70,269 Owned
Tiptonville, TN 52,790 Owned
Trezevant, TN 42,008 Owned
Warehouse and Distribution.................... Bruceton, TN 422,087 Owned
Showrooms..................................... Chicago, IL 1,242 Leased
Dallas, TX 1,325 Leased
New York, NY 8,721 Leased
Retail Stores................................. Bowling Green, KY 7,200 Leased
Bruceton, TN 5,500 Leased
Clarksville, IN 6,420 Leased
Cookeville, KY 11,200 Leased
Goodlettsville, TN 5,310 Leased
Louisville, KY 7,100 Leased
Murfreesboro, TN 5,200 Leased
Paducah, KY 5,000 Leased
Machine Shop and Equipment Warehouse.......... Bruceton, TN 41,000 Owned
Bruceton, TN 12,000 Owned
Corporate Offices............................. New York, NY 34,034 Leased
Europe
Office and Warehouse.......................... Prague, Czech Republic 1,534 Leased
Garching, Germany 90,000 Leased
Warsaw, Poland 8,216 Leased
Showrooms..................................... Bergheim, Austria 2,000 Leased
Prague, Czech Republic 347 Leased
Berlin, Germany 600 Leased
Munich, Germany 1,500 Leased
Neuss, Germany 1,100 Leased
Warsaw, Poland 137 Leased
Zurich, Switzerland 700 Leased
</TABLE>
The Company believes that its existing facilities are well maintained,
in good operating condition and are adequate for its present level of operations
and sufficient to accommodate any increased output for the foreseeable future
after consideration of the operational changes made during fiscal 1996.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to
the conduct of its business. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
consolidated financial condition or results of operations.
ENVIRONMENTAL MATTERS
The Company believes it is in material compliance with all applicable
environmental laws to which it is subject, including, among others, the Federal
Water Pollution Control Act, and the Tennessee Solid Waste Disposal Act.
Although the Company is unable to predict what legislation or regulations may be
adopted in the future with respect to environmental protection and what their
impact on the Company may be, compliance with existing legislation and
regulations has not had a material adverse effect on its capital expenditures,
results of operations or competitive position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is included under the captions
"PRICE RANGE OF COMMON STOCK" and "DIVIDEND POLICY" on page 28 of the Annual
Report to Stockholders and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included under the caption
"SELECTED CONSOLIDATED FINANCIAL DATA" on page 10 of the Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is included under the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" on page 11 of the Annual Report to Stockholders and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, notes thereto, report of
independent certified public accountants thereon and quarterly financial
information (unaudited) appearing in the Annual Report to Stockholders and made
a part of the Annual Report to Stockholders are incorporated herein by
reference.
Except as specifically set forth herein and elsewhere in this Form
10-K, no information appearing in the Annual Report to Stockholders is
incorporated by reference into this report and the Annual Report to Stockholders
shall not be deemed to be filed, as part of this report or otherwise, pursuant
to the Securities and Exchange Act of 1934.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included under the captions
"ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS" on pages 5 through 8 of the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
February 28,1997 (the "1997 Proxy Statement") and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"EXECUTIVE COMPENSATION" on pages 9 through 15 of the 1997 Proxy Statement and
is incorporated herein by reference, except that the subsections entitled
"Report of Compensation Committee on Executive Compensation" appearing on pages
13 through 14 and "Performance Graph" appearing on page 15 of the 1997 Proxy
Statement shall not be deemed to be so incorporated.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is included under the caption
"PRINCIPAL STOCKHOLDERS OF THE COMPANY" on pages 3 through 5 of the 1997 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" on page 16 of the Company's
1997 Proxy Statement and is incorporated herein by reference.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed or incorporated by reference as
a part of this report:
1. The financial statements which are incorporated by reference
from the Annual Report to Stockholders pursuant to Item 8 as
follows:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at November 4, 1995 and November
2, 1996
Consolidated Statements of Operations For the Years Ended
November 5, 1994, November 4, 1995 and November 2, 1996
Consolidated Statement of Stockholders' Equity For the Years
ended November 5, 1994, November 4, 1995 and November 2, 1996
Consolidated Statement of Cash Flows for the Years Ended
November 5, 1994, November 4, 1995 and November 2, 1996
Notes to Consolidated Financial Statements
2. The schedule and report of independent certified public
accountants thereon, listed on the Index to Financial
Statement Schedules attached hereto.
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
17
<PAGE>
(c) Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 No.
33-56270).
3.2 By-laws of the Company. (Incorporated herein by reference
to Exhibit 3.4 to the Company's Registration Statement on
Form S-1 No. 33- 56270).
4.1 Loan Agreement, dated as of May 1, 1990, between the
Industrial Development Board of the County of Carroll (the
"ID Board") and Henry I. Siegel Company, Inc. ("Siegel").
(Incorporated herein by reference to Exhibit 4.12 to the
Company's Registration Statement on Form S-1 No.
33-56270).
4.2 Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of December 15, 1994, among the
Company, NationsBank of North Carolina, N.A.
("NationsBank"), National Westminster Bank USA ("NatWest")
and The Bank of New York ("BONY"). (Incorporated herein by
reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 5, 1994).
4.3 Amendment Agreement, dated June 8, 1995, among the
Company, NationsBank, NatWest and BONY. (Incorporated
herein by reference to Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 4,
1995).
4.4 Waiver and Amendment Agreement No. 2, dated as of February
2, 1996, among the Company, NationsBank, NatWest and BONY.
(Incorporated herein by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 4, 1995).
4.5 Amendment Agreement No. 3, dated as of December 31, 1996,
among the Company, NationsBank and Fleet Bank (f/k/a
NatWest).
4.6 Lease, dated as of September 1, 1993, between the ID Board
and Siegel. (Incorporated herein by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 6, 1993).
4.7 Lease, dated as of August 1, 1994, between the City of
Hickman, Kentucky, and H.I.S Kentucky, Inc. (Incorporated
herein by reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 5,
1994).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.8 Note Agreement, dated as of June 30, 1995, by the Company
and each of the Purchasers listed on Schedule 1 thereto
(the "Note Agreement"). (Incorporated herein by reference
to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended August 5, 1995).
4.9 Waiver and Amendment Agreement, dated as of February 14,
1996, among the Company and each of the Purchasers listed
on Schedule I attached to the Note Agreement.
(Incorporated herein by reference to Exhibit 4.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 4, 1995).
4.10 Lease, dated as of February 1, 1995, between Fulton
County, Kentucky and H.I.S Kentucky, Inc. (Incorporated
herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended May 6,
1995).
4.11 Loan Agreement, dated as of April 1, 1995, between the ID
Board and Siegel. (Incorporated herein by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form
10-Q for the quarter ended May 6, 1995).
9.1 Voting Trust Agreement ("Voting Trust Agreement 1"), dated
as of January 11, 1989, among Milan Danek, Stephen Weiner
and Burton M. Rosenberg, as voting trustee. (Incorporated
herein by reference to Exhibit 9.1 to the Company's
Registration Statement on Form S-1 No.
33-56270).
9.2 Amendment No. 1, dated as of November 24, 1992, to Voting
Trust Agreement 1 among Milan Danek, Stephen Weiner and
Burton M. Rosenberg, as voting trustee. (Incorporated
herein by reference to Exhibit 9.2 to the Company's
Registration Statement on Form S-1 No. 33-56270.)
9.3 Voting Trust Agreement, dated as of June 27, 1990, among
Nancy Siegel and Hillary Siegel and Burton M. Rosenberg,
as voting trustee. (Incorporated herein by reference to
Exhibit 9.3 to the Company's Registration Statement on
Form S-1 No. 33-56270.)
9.4 Voting Trust Agreement, dated as of February 2, 1993,
among Roland Kimberlin, Robert Luehrs, Harvey Schulman and
Burton M. Rosenberg, as voting trustee. (Incorporated
herein by reference to Exhibit 9.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 6,
1993).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.1 Registration Rights Agreement, dated as of November 20,
1992, among the Company, Chrysler Capital Corporation,
Whirlpool Financial Corporation, NatWest, B.T. Expedition,
Inc. and Jesse S. Siegel. (Incorporated herein by
reference to Exhibit 4.14 to the Company's Registration
Statement on Form S-1 No. 33-56270).
10.2 Registration Rights Agreement, dated January 22, 1993,
among the Company and its stockholders as of such date.
(Incorporated herein by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10- K for the fiscal year
ended November 6, 1993).
10.3 Representatives' Warrant Agreement, dated as of February
18, 1993, among the Company, Nomura Securities
International, Inc., Josephthal Lyon & Ross Incorporated
and Tucker Anthony Incorporated, including Form of
Representatives' Warrant Certificate. (Incorporated herein
by reference to Exhibit 4.5 to the Company's Annual Report
on Form 10- K for the fiscal year ended November 6, 1993).
10.4 Amended and Restated Consulting Agreement, dated September
23, 1988, between Siegel and Jesse S. Siegel.
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 No.
33-56270).
10.5 Employment Agreement, dated as of March 15, 1996, among
the Company, Siegel and Burton M. Rosenberg.
10.6 Employment Agreement, dated as of March 15, 1996, among
the Company, Siegel and Roland L. Kimberlin.
10.7 Employment Agreement, dated as of March 15, 1996, among
the Company, Siegel and Robert F. Luehrs.
10.8 Employment Agreement, dated as of March 15, 1996, among
the Company, Siegel and Stephen Weiner.
10.10 Lease, dated November 1989, between Tishomingo County,
Mississippi, and Siegel. (Incorporated herein by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 No. 33- 56270).
10.11 Lease, dated December 1, 1989, between Tishomingo County,
Mississippi, and Siegel. (Incorporated herein by reference
to Exhibit 10.15 to the Company's Registration Statement
on Form S-1 No. 33- 56270).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.12 Agreement of Lease, dated as of May 10, 1985, between
Nineteen New York Properties Limited Partnership and
Siegel. (Incorporated herein by reference to Exhibit 10.16
to the Company's Registration Statement on Form S-1 No.
33-56270).
10.13 Lease, dated November 1, 1968, between Keystone Associates
and Siegel, as amended. (Incorporated herein by reference
to Exhibit 10.17 to the Company's Registration Statement
on Form S-1 No. 33-56270).
10.14 Lease, dated September 11, 1979, between the Mayor and
Board of Aldermen of the Town of Tiptonville, Lake County,
Tennessee, and Siegel. (Incorporated herein by reference
to Exhibit 10.18 to the Company's Registration Statement
on Form S-1 No. 33-56270).
10.15 Chic by H.I.S, Inc. 1993 Stock Option Plan and First
Amendment thereto. (Incorporated herein by reference to
Exhibit 10.19 to the Company's Registration Statement on
Form S-1 No. 33-56270).
10.16 Chic by H.I.S, Inc. 1995 Stock Option Plan for Non-
Employee Directors. (Incorporated herein by reference to
Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the fiscal year ended November 5, 1994).
10.17 Phoenix Home Life Insurance Plan (Disability Plan).
(Incorporated herein by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 No.
33-56270).
10.18 Pension Plan for Eligible Employees, including amendments
I through III thereto). (Incorporated herein by reference
to Exhibit 10.21 to the Company's Registration Statement
on Form S-1 No. 33-56270).
10.19 Security Agreement, dated as of May 1, 1990, between the
ID Board and Siegel. (Incorporated herein by reference to
Exhibit 10.22 to the Company's Registration Statement on
Form S-1 No. 33-56270).
10.20 Guaranty Agreement, dated as of May 1, 1990, by the
Company in favor of Trust Company Bank, as trustee.
(Incorporated herein by reference to Exhibit 10.23 to the
Company's Registration Statement on Form S-1 No.
33-56270).
10.21 Letter, dated May 11, 1990, from the Company and Siegel to
Bayerische Hypotheken-Und Weschsel-Bank AG. (Incorporated
herein by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-1 No. 33-56270).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.22 Lease, dated October 27, 1986, between Sportswear and
Erbengemeinschaft Kellerer, including an amendment
thereto. (Translated). (Incorporated herein by reference
to Exhibit 10.28 to the Company's Registration Statement
on Form S-1 No. 33-56270).
10.23 Agreement, dated December 28, 1992, between Commerzbank
and Sportswear. (Translated). (Incorporated herein by
reference to Exhibit 10.29 to the Company's Registration
Statement on Form S-1 No. 33- 56270).
10.24 Agreement, dated December 18, 1992, among Deutsche Bank,
Sportswear, Siegel and the Company. (Translated).
(Incorporated herein by reference to Exhibit 10.30 to the
Company's Registration Statement on Form S-1 No.
33-56270).
10.25 Agreement, dated June 26, 1991, between Hypo Bank and
Sportswear. (Translated). (Incorporated herein by
reference to Exhibit 10.31 to the Company's Registration
Statement on Form S-1 No. 33-56270).
10.26 Licensing and Cooperation Agreement, dated November 2,
1990, between Sportswear and Odevni Prumysl, Statni
Podnik. (Incorporated herein by reference to Exhibit 10.32
to the Company's Registration Statement on Form S-1 No.
33-56270).
10.27 Licensing Agreement, dated May 29, 1992, between
Sportswear and CONSINVEST Ltd. (Translated). (Incorporated
herein by reference to Exhibit 10.33 to the Company's
Registration Statement on Form S-1 No. 33-56270).
10.28 Guaranty Agreement, dated as of September 1, 1993, by the
Company in favor of First American National Bank, as
Trustee. (Incorporated herein by reference to Exhibit
10.31 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 6, 1993).
10.29 Guaranty Agreement, dated as of August 1, 1994, by the
Company in favor of First American National Bank.
(Incorporated herein by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 5, 1994).
10.30 Amended and Restated Limited Guaranty Agreement, dated as
of December 15, 1994, by h.i.s Limited in favor of
NationsBank. (Incorporated herein by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 5, 1994).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.31 Amended and Restated Limited Guaranty Agreement, dated as
of December 15, 1994, by Chic by H.I.S Licensing
Corporation in favor of NationsBank. (Incorporated herein
by reference to Exhibit 10.31 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 5,
1994).
10.32 Amended and Restated Limited Guaranty Agreement, dated as
of December 15, 1994, by Chic Holdings Corp. in favor of
NationsBank. (Incorporated herein by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 5, 1994).
10.33 Amended and Restated Limited Guaranty Agreement, dated as
of December 15, 1994, by Siegel in favor of NationsBank.
(Incorporated herein by reference to Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 5, 1994).
10.34 Amended and Restated Limited Guaranty Agreement, dated as
of December 15, 1994, by H.I.S Kentucky, Inc. in favor of
NationsBank. (Incorporated herein by reference to Exhibit
10.34 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 5, 1994).
10.35 Guaranty Agreement, dated as of February 1, 1995, by the
Company in favor of First American National Bank, as
trustee. (Incorporated herein by reference to Exhibit 10.3
of the Company's Quarterly Report on Form 10-Q for the
quarter ended May 6, 1995).
10.36 Guaranty Agreement, dated as of April 1, 1995, by the
Company in favor of First American National Bank, as
trustee. (Incorporated herein by reference to Exhibit 10.4
of the Company's Quarterly Report on Form 10-Q for the
quarter ended May 6, 1995).
10.37 Guaranty Agreement, dated as of June 30, 1995, by Siegel
in favor of the Purchasers listed on Annex 1 thereto.
(Incorporated herein by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 5, 1995).
10.38 Guaranty Agreement, dated as of June 30, 1995, by Chic
Holdings Corp. in favor of the Purchasers listed on Annex
1 thereto. (Incorporated herein by reference to Exhibit
10.3 of the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1995).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.39 Guaranty Agreement, dated as of June 30, 1995, by Chic by
H.I.S Licensing Corporation in favor of the Purchasers
listed on Annex 1 thereto. (Incorporated herein by
reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q for the quarter ended August 5, 1995).
10.40 Guaranty Agreement, dated as of June 30, 1995, by H.I.S
Kentucky, Inc. in favor of the Purchasers listed on Annex
1 thereto. (Incorporated herein by reference to Exhibit
10.5 of the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1995).
10.41 Guaranty Agreement, dated as of June 30, 1995, by h.i.s
Limited in favor of the Purchasers listed on Annex 1
thereto. (Incorporated herein by reference to Exhibit 10.6
of the Company's Quarterly Report on Form 10-Q for the
quarter ended August 5, 1995).
13.1 Annual Report to Stockholders of the Company for the
fiscal year ended November 2, 1996 (including attachment
thereto).
21.1 Subsidiaries of the Company. (Incorporated herein by
reference to Exhibit 21.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 5, 1994).
27 Financial Data Schedule
99.1 Press Release of the Company dated January 17, 1997.
<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on January 28, 1997.
CHIC BY H.I.S, INC.
By /s/ Burton M. Rosenberg
---------------------------
(Burton M. Rosenberg)
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Burton M. Rosenberg
- ----------------------------- Chairman of the Board, January 28, 1997
(Burton M. Rosenberg) Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stuart Jaeger
- ----------------------------- Acting Chief Financial Officer January 28, 1997
(Stuart Jaeger) and Treasurer
(Principal Financial Officer)
/s/ Stuart Jaeger
- ----------------------------- Secretary and Controller January 28, 1997
(Stuart Jaeger) (Principal Accounting Officer)
/s/ Milan Danek
- ----------------------------- Director January 28, 1997
(Milan Danek)
/s/ Richard K. Howe
- ----------------------------- Director January 28, 1997
(Richard K. Howe)
/s/ Hirsh Jacobson
- ----------------------------- Director January 28, 1997
(Hirsh Jacobson)
/s/ Rica Spector
- ----------------------------- Director January 28, 1997
(Rica Spector)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Roland L. Kimberlin
- ----------------------------- Director January 28, 1997
(Roland L. Kimberlin)
/s/ Robert F. Luehrs
- ----------------------------- Director January 28, 1997
(Robert F. Luehrs)
/s/ Jesse S. Siegel
- ----------------------------- Director January 28, 1997
(Jesse S. Siegel)
/s/ Harvey Silverman
- ----------------------------- Director January 28, 1997
(Harvey Silverman)
/s/ Edward J. Walsh, Jr.
- ----------------------------- Director January 28, 1997
(Edward J. Walsh, Jr.)
</TABLE>
<PAGE>
FINANCIAL STATEMENT SCHEDULE
Report of Independent Certified Public Accountants on
Financial Statement Schedule S - 1
Schedule II- Valuation and Qualifying Accounts S - 2
All other schedules are not submitted because they are not required or because
the required information is included in the financial statements or notes
thereto.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Chic by H.I.S., Inc. and Subsidiaries
The audits referred to in our report dated December 31,1996, relating to the
consolidated financial statements of Chic by H.I.S., Inc. and Subsidiaries,
which is referred to in Item S of this Form 10-k, included the audit of the
accompanying financial statement schedule. This financial statement schedule is
the responsibility of the Company's management Our responsibility is to express
an opinion on this financial Statement schedule based on our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
New York, New York
December 31, 1996
S-1
<PAGE>
CHIC BY H.I.S, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 5, 1994
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------- ------------------ ---------------- ------------------ ---------------
BALANCE AT BALANCE
BEGINNING OF AT END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- -------------------- ------------------ ---------------- ------------------ ---------------
<S> <C> <C> <C> <C>
RESERVE FOR
UNCOLLECTIBLE ACCOUNTS
AND RETURNS AND
ALLOWANCES $270 $0 $1 $269
============= =========== ============= ===========
YEAR ENDED
NOVEMBER 4 , 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------- ------------------ ---------------- ------------------ ---------------
BALANCE AT BALANCE
BEGINNING OF AT END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- -------------------- ------------------ ---------------- ------------------ ---------------
RESERVE FOR
UNCOLLECTIBLE ACCOUNTS
AND RETURNS AND
ALLOWANCES $269 $102 $0 $371
============ =========== ============= ===========
YEAR ENDED
NOVEMBER 2, 1996
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------- ------------------ ---------------- ------------------ ---------------
BALANCE AT BALANCE
BEGINNING OF AT END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- -------------------- ------------------ ---------------- ------------------ ---------------
RESERVE FOR
UNCOLLECTIBLE ACCOUNTS
AND RETURNS AND
ALLOWANCES $371 $0 $246 $125
============= =========== ============= ===========
</TABLE>
S-2
Exhibit 4.5
AMENDMENT AGREEMENT NO. 3
-------------------------
AMENDMENT AGREEMENT NO. 3, dated as of December 31, 1996 (this
"Agreement"), among Chic by H.I.S, Inc. (the "Borrower"), NationsBank, N.A.
(f/k/a NationsBank of North Carolina, N.A.), as agent (the "Agent"), and each of
the banks party to the Loan Agreement (the "Banks"). Capitalized terms used
herein and not otherwise defined herein have the respective meanings given to
them in the Loan Agreement.
RECITALS
--------
WHEREAS, the Borrower, the Agent and the Banks are parties to an Amended
and Restated Revolving Credit and Term Loan Agreement, dated as of December 15,
1994, (as amended on June 8, 1995, and as further amended on February 2, 1996,
the "Loan Agreement");
WHEREAS, the Borrower has requested that the Agent and the Banks consent
to an amendment of the Loan Agreement; and
WHEREAS, the Agent and the Banks have agreed to such amendment of the Loan
Agreement on the terms and subject to the conditions contained in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
I. AMENDMENTS
1.1 Section 2.06 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:
2.06 Use of Proceeds. The proceeds of the Revolving Loans shall be
used by the Borrower only to (a) refinance existing Indebtedness of the
Borrower prior to the Closing Date that was incurred pursuant to the
Original Agreement; (b) finance the Borrower's working capital and general
corporate requirements in the ordinary course of business; and (c) repay
the Indebtedness (in whole or in Part) described in Section 8.01(h)
hereof, including all accrued interest and any other amounts that may be
payable in connection with the repayment of such Indebtedness. Except as
permitted in this Section 2.06 or otherwise in this Agreement, in no
instance may proceeds be used to reduce debt of Borrower to another
lender.
1.2 Schedule 6.11 to the Loan Agreement is hereby amended by
substituting for such schedule revised Schedule 6.11 attached hereto.
1
<PAGE>
II. MISCELLANEOUS
2.1 The term "Loan Agreement" as used in each of the Loan Documents shall
hereafter mean the Loan Agreement as amended by this Agreement. Except as herein
specifically agreed, the Loan Agreement is hereby ratified and confirmed and
shall remain in full force and effect according to its terms.
2.2 Each of the Borrower, the Agent and the Banks represents and warrants
as follows:
(a) It has taken all necessary action to authorize the execution,
delivery and performance of this Agreement.
(b) This Agreement has been duly executed and delivered by such
Person and constitutes such Person's legal, valid, and binding obligations,
enforceable in accordance with its terms, except as such enforceability may be
subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting creditor's rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority or third
party is required in connection with the execution, delivery or performance by
such Person of this Agreement.
2.3 The Borrower represents and warrants to the Banks that (a) the
representations and warranties of the Borrower set forth in Section 6 of the
Loan Agreement (as amended by this Agreement) are true and correct as of the
date hereof and (b) no unwaived event has occurred and is continuing which
constitutes a Default or Event of Default.
2.4 This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument.
2.5 THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NORTH CAROLINA.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
CHIC BY H.I.S, INC.
By: /s/ Burton M. Rosenberg
--------------------------------------
Name: Burton M. Rosenberg
Title: Chief Executive Officer
NATIONSBANK, N.A., in its capacity as
Agent and as a Bank
By: /s/ E. Phifer Helms
--------------------------------------
Name: E. PHIFER HELMS
--------------------------------
Title: Senior Vice-President
--------------------------------
FLEET BANK (f/k/a NATWEST BANK,
N.A.)
By: /s/ George Commander
--------------------------------------
Name: George Commander
--------------------------------
Title: Senior Vice President
--------------------------------
3
<PAGE>
Schedule 6.11
Subsidiaries
------------
Jurisdiction of
Name Incorporation
- ---- -------------
Henry I. Siegel Company, Inc. Delaware
Chic Holdings Corp. Delaware
h.i.s. sportswear GmbH Germany
Chic by H.I.S. Licensing Corporation Delaware
h.i.s. Limited Delaware
H.I.S. Kentucky, Inc. Delaware
h.i.s. sportswear Ges.m.b.H Austria
HIS JEANSWEAR AG Switzerland
H.i.s. Czechoslovakia spol.s.r.o. Czechoslovakia
9037-7532 Quebec Inc. Quebec, Canada
Chic by H.I.S. de Mexico, S.A. de C.V. Mexico
HIS Polska Poland
4
Exhibit 10.5
EMPLOYMENT AGREEMENT FOR BURTON M. ROSENBERG
EMPLOYMENT AGREEMENT, dated as of March 15, 1996, among
CHIC BY H.I.S, INC., a Delaware corporation ("Holding"), HENRY I. SIEGEL
COMPANY, INC., a Delaware corporation and a wholly owned subsidiary of Holding
(the "Corporation"), and BURTON M. ROSENBERG (the "Executive").
The Executive has heretofore been employed by the Corporation, and
the Executive and the Corporation desire to continue such employment, upon the
terms and conditions set forth herein.
Accordingly, the parties agree as follows:
1. EMPLOYMENT AND ACCEPTANCE.
The Corporation hereby employs the Executive and the Executive
hereby accepts employment from the Corporation for the Term (as hereinafter
defined). As of the opening of business on the Effective Date (as defined in Sec
tion 4), this Agreement supersedes all agreements, written or oral, between the
Executive and the Corporation and Holding relating to terms of employment.
2. DUTIES AND AUTHORITY.
2.1 DUTIES. During the Term, the Executive shall devote his
full time and energies to the business and affairs of the Corporation. The
Executive agrees to use his best efforts, skill and abilities to promote the
Corporation's interests; to serve as the Chief Executive Officer of the
Corporation and to perform all the duties necessary or appropriate for the
management of the Corporation's business and also such duties (consistent with
his status as set forth in sections 2.2 and 2.3) as may be assigned to him by
the board of directors of the Corporation (the "Board of Directors") and the
board of directors of Holding.
<PAGE>
2
2.2 AUTHORITY. The Executive shall be the Chief Executive
Officer of the Corporation, subject to the supervision of the Board of Directors
and the board of directors of Holding (which supervision, subject to the
applicable provisions of law governing the obligations of boards of directors,
shall be such as is customarily exercised over a chief executive officer of a
corporation). During the Term, the Corporation shall not confer on any other
officer or employee authority, responsibility or powers superior or equal to the
authority, responsibility or powers vested in Executive hereunder.
2.3 MEMBER OF THE BOARD. During the Term, the Executive
shall be appointed or elected to serve as a member of the Board of Directors.
3. LOCATION.
The duties to be performed by the Executive hereunder shall be
performed primarily at the principal office of the Corporation, currently
located in the City of New York, subject to reasonable travel requirements on
behalf of the Corporation.
4. TERM OF EMPLOYMENT.
The initial term of the Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Date") and shall end on the
fifth anniversary of the Effective Date, unless sooner terminated pursuant to
Section 6; PROVIDED, HOWEVER, that such initial term shall be extended
automatically for successive one-year periods unless either party gives the
other party at least 90 days' prior written notice of its or his intent not to
allow such extension to become effective (such initial term and automatic
extensions thereof, through the expiration of the last
<PAGE>
3
thereof or the date of any earlier termination thereof pursuant to Section 6, is
referred to herein as the "Term"). As used herein, the term "Scheduled
Termination Date" shall refer to the date the Term would have ended had there
been no earlier termination pursuant to Section 6.
5. COMPENSATION, EXPENSES AND BENEFITS.
5.1 SALARY. During the Term, the Corporation shall pay the
Executive a salary of $393,750 per year (the "Base Salary"), payable in equal
weekly installments, less such deductions or amounts to be withheld as shall be
required by applicable law and regulations.
5.2 INCREASE. The Base Salary may be increased on each
February 1 of the Term, beginning February 1, 1997, at the discretion of the
board of directors of Holding.
5.3 AUTOMOBILE AND EXPENSES. The Corporation shall provide the
Executive with an automobile and such other means of transportation as is
reasonable for fulfilling his responsibilities and shall pay or reimburse the
Executive for all transportation, hotel and living expenses incurred by the
Executive on business trips outside the New York City metropolitan area, and for
all other business and entertainment expenses reasonably incurred or paid by him
during the Term in the performance of his services under this Agreement, upon
presentation of expense statements or vouchers or such other supporting
information as the Corporation may require.
<PAGE>
4
5.4 VACATION. The Executive shall be entitled to reasonable
annual periods of vacation (not less than an aggregate of four weeks in any
calendar year) with full pay and allowances.
5.5 FRINGE BENEFITS. In addition to the compensation and
expenses to be paid under this Section 5, the Executive shall be entitled to all
rights and benefits for which he shall be eligible under any participation or
extra compensation plan, pension, life insurance, health insurance,
hospitalization and other forms of insurance, as well as all other so-called
"fringe" benefits which the Corporation provides for its executives
(collectively, the "Fringe Benefits"). The Corporation agrees that any
significant Fringe Benefits accorded or granted to the Executive shall not be
less than the Fringe Benefits accorded or granted to any other of the
Corporation's employees.
6. TERMINATION.
The Corporation may terminate the Executive's employment hereunder
(i) for cause (as defined in Section 6.1) or (ii) if the Executive becomes
permanently and seriously disabled, either physically or mentally (pursuant to
Section 6.2).
6.1 TERMINATION FOR CAUSE. If the Executive shall be lawfully
discharged for cause during the Term, the Corporation's obligation to pay
compensation or other amounts payable hereunder to or for the benefit of the
Executive shall terminate on the date of such discharge. Such termination may
take place only upon the initiative of the board of directors of Holding. As
used herein the term "for cause" shall be limited to the Executive's malfeasance
and shall mean the Executive's (i) willful, material and bad faith failure to
perform his duties
<PAGE>
5
hereunder after written notice by the board of directors of Holding specifying
in reasonably detailed terms the alleged failure to follow such board of
directors' written, lawful directives and including in said notice the opinion
of the board of directors of Holding that there has been such failure, provided
that such failure shall continue for at least 30 days following such notice;
(ii) gross and willful misconduct that is materially and demonstrably injurious
to the Corporation or (iii) conviction of a felony after affirmance of such
conviction in any final appeal thereof. The term "for cause" shall not include a
bona fide disagreement over policy matters so long as the Executive does not
willfully and materially violate specific, lawful written directions from the
Chief Executive Officer with respect to policies adopted by the Executive.
6.2 PERMANENT DISABILITY. If during the Term the Executive
shall become permanently and seriously disabled, either physically or mentally,
so that he is absent from his office due to such disability and otherwise unable
substantially to perform his services hereunder for periods aggregating 120
business days during any twelve month period, the Corporation may, upon 30 days'
written notice to the Executive, given after the day on which such periods of
disability shall have equaled such aggregate, terminate the Executive's
employment at the discretion of the board of directors of Holding. Such
termination shall not take effect if during such 30-day period the Executive has
demonstrated that he has recovered from such permanent and serious disability by
returning to substantial performance of his duties hereunder. Notwithstanding
such termination, (i) the Corporation shall continue to pay the Executive his
full salary up to and including the date of such termination and (ii) thereafter
and until the later of the Scheduled Termination Date or the date that is
<PAGE>
6
36 months after the effective date of the Executive's termination for
disability, but in no event later than the date the Executive has reached age 65
(the "Disability Pay Termination Date"), the Corporation shall pay the Executive
fifty percent of the Executive's Base Salary as in effect on the date of such
termination, as disability pay, less the sum of (a) any other disability
payments received by the Executive from the Corporation or from insurance
provided by the Corporation and (b) two-thirds of any earned income received by
the Executive from full-time executive employment commencing after the
Executive's recovery from such disability. After the date of the termination of
the Executive's employment under this Section 6.2, the Executive shall be
entitled to continue to receive the Fringe Benefits referred to in Section 5.5
until the Disability Pay Termination Date.
6.3 DEATH. In the event of the Executive's death during the
Term, the Executive's employment under this Agreement shall terminate and the
Executive's surviving spouse or, if there is no surviving spouse, the
Executive's estate, shall be entitled to receive the compensation provided for
hereunder to the last day of the sixth full month after which the Executive's
death occurs.
7. COVENANT NOT TO COMPETE; CONFIDENTIALITY; REMEDIES.
7.1 COVENANT NOT TO COMPETE. The Executive recognizes that
the services to be performed by the Executive hereunder are special, unique and
extraordinary. Accordingly, for all purposes hereunder or in respect hereof, the
Executive agrees that during the Term, and in the event that the Executive's
employment is terminated for cause pursuant to Section 6.1 or the Executive
resigns prior to the expiration of the Term, then for one year after the
effective date of such
<PAGE>
7
termination or resignation, the Executive will not, directly or indirectly, as
an officer, director, stockholder, partner, associate, employee, consultant,
owner, agent, creditor, co-venturer or otherwise, become or be interested in or
be associated with, nor shall he accept any gratuity from, any other
corporation, firm or business engaged, in the United States, in a business which
is materially competitive with any material business operated by the Corporation
on the Effective Date. The Executive's ownership, directly or indirectly, of not
more than three percent of the issued and outstanding stock (or debt obligations
aggregating not more than $250,000) of any corporation the shares of which are
traded on a national securities exchange or regularly traded in the
over-the-counter market shall not be deemed to be a violation of the provisions
of this Section 7.1. Neither will it constitute a violation of this Section 7.1
for the Executive to own, directly or indirectly, securities of any entity not
more than fifteen percent of whose revenues are derived from businesses that
compete with businesses of the Corporation.
7.2 CONFIDENTIALITY. The Executive shall not divulge to anyone
(other than to directors or employees of the Corporation or its affiliates or in
connection with the proper business and affairs of the Corporation or any of its
affiliates), either during or at any time after the termination of his
employment, any information constituting a trade secret that was acquired by him
during his employment by the Corporation concerning the Corporation's and its
affiliates' customer lists or processes or any other of its trade secrets and
which thereafter does not become publicly known other than by the Executive's
unauthorized disclosure thereof. The Executive acknowledges that any such
information constituting a trade
<PAGE>
8
secret is of a confidential and secret character and of great value to the
Corporation and its affiliates.
7.3 REMEDIES. The Corporation shall be entitled, in addition
to any other right and remedy it may have at law or at equity, to an injunction
enjoining or restraining the Executive from any material violation or threatened
violation of the covenants contained in Sections 7.1 and 7.2, and the Executive
hereby consents to the issuance of such injunction; PROVIDED, HOWEVER, the
foregoing shall not prevent the Executive from contesting the issuance of any
such injunction on the ground that no violation or threatened violation of
Sections 7.1 and 7.2 has occurred. If any of the restrictions contained in this
Section 7 shall be deemed to be unenforceable by reason of the extent, duration
or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Section 7 shall
then be enforceable in the manner contemplated hereby. The term "affiliate" as
used herein shall mean any corporation, partnership, or other entity or
enterprise which, directly or indirectly, controls, is controlled by, or is
under common control with, another entity.
8. NOTICES.
Any notice or other communication required to or which may be given
to any party hereunder shall be in writing and shall be deemed effective if
delivered personally or if mailed by registered or certified mail, postage
prepaid, addressed to such party as follows (the third business day following
the date of mailing of any such notice is deemed the date of delivery thereof):
<PAGE>
9
To the Executive:
Burton M. Rosenberg
20 Cayuga Road
Scarsdale, New York 10583
To the Corporation:
Henry I. Siegel Company, Inc.
1372 Broadway
New York, New York 10018
Attention: Board of Directors
To Holding:
Chic by H.I.S, Inc.
1372 Broadway
New York, New York 10018
Attention: Board of Directors
With copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Bruce A. Gutenplan, Esq.
Any party may change the persons and addresses to which notices or
other communications are to be sent by giving written notice of such change to
the other party in the manner provided herein for giving notice.
9. MISCELLANEOUS.
9.1 NO ASSIGNMENT. This Agreement is personal in its nature
and none of the parties hereto shall assign or transfer this Agreement or any
rights or obligations hereunder, except that the Corporation may assign this
Agreement and its rights and obligations hereunder in connection with any
transfer, sale or other disposition of all or substantially all of its assets,
in which event this Agreement shall
<PAGE>
10
be binding upon and inure to the benefit of the successor entity of the
Corporation and such successor entity shall discharge and perform all the
obligations of the Corporation hereunder.
9.2 CHOICE OF LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE.
9.3 NO WAIVER. If any party should waive any breach of any
provision of this Agreement, such party will not thereby be deemed to have
waived any preceding or succeeding breach of the same provision or any breach of
any other provision of this Agreement.
9.4 AMENDMENTS. This instrument is the entire agreement of the
parties with respect to the subject matter hereof and may not be amended, supple
mented, canceled or discharged except by a written instrument executed by the
parties hereto. The parties do not intend to confer any benefit hereunder on any
third person, except as otherwise provided in Section 6.3.
9.5 HEADINGS. Section headings are inserted herein for
convenience only and do not constitute a part, and shall not affect the meaning
or interpretation, of this Agreement.
<PAGE>
11
9.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
HENRY I. SIEGEL COMPANY, INC.
By: /s/ Burton Rosenberg
-----------------------------------
Name: Burton Rosenberg
Title: Chief Executive Officer
CHIC BY H.I.S, INC.
By: /s/ Burton Rosenberg
-----------------------------------
Name: Burton Rosenberg
Title: Chief Executive Officer
/s/ Burton M. Rosenberg
-----------------------------------
Burton M. Rosenberg
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT FOR ROLAND L. KIMBERLIN
EMPLOYMENT AGREEMENT, dated as of March 15, 1996, among CHIC BY
H.I.S, INC., a Delaware corporation ("Holding"), HENRY I. SIEGEL COMPANY, INC.,
a Delaware corporation and a wholly owned subsidiary of Holding (the
"Corporation"), and ROLAND L. KIMBERLIN (the "Executive").
The Executive has heretofore been employed by the Corporation, and
the Executive and the Corporation desire to continue such employment, upon the
terms and conditions set forth herein.
Accordingly, the parties agree as follows:
1. EMPLOYMENT AND ACCEPTANCE.
The Corporation hereby employs the Executive and the Executive
hereby accepts employment from the Corporation for the Term (as hereinafter
defined). As of the opening of business on the Effective Date (as defined in Sec
tion 4), this Agreement supersedes all agreements, written or oral, between the
Executive and the Corporation and Holding relating to terms of employment.
2. DUTIES.
During the Term, the Executive shall devote his full time and
energies to the business and affairs of the Corporation. The Executive agrees to
use his best efforts, skill and abilities to promote the Corporation's
interests; to serve as the President-Manufacturing Operations of the Corporation
and to perform all the duties necessary or appropriate for the management of the
Corporation's business and also such duties as may be assigned to him by the
Chief Executive Officer of the
<PAGE>
2
Corporation (the "Chief Executive Officer") commensurate with the position of
executive.
3. LOCATION.
The duties to be performed by the Executive hereunder shall be
performed primarily at the principal office of the Corporation, currently
located in the City of Bruceton, Tennessee, subject to reasonable travel
requirements on behalf of the Corporation.
4. TERM OF EMPLOYMENT.
The initial term of the Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Date") and shall end on the
fifth anniversary of the Effective Date, unless sooner terminated pursuant to
Section 6; PROVIDED, HOWEVER, that such initial term shall be extended
automatically for successive one-year periods unless either party gives the
other party at least 90 days' prior written notice of its or his intent not to
allow such extension to become effective (such initial term and automatic
extensions thereof, through the expiration of the last thereof or the date of
any earlier termination thereof pursuant to Section 6, is referred to herein as
the "Term"). As used herein, the term "Scheduled Termination Date" shall refer
to the date the Term would have ended had there been no earlier termination
pursuant to Section 6.
5. COMPENSATION, EXPENSES AND BENEFITS.
5.1 SALARY. During the Term, the Corporation shall pay the
Executive a salary of $341,276 per year (the "Base Salary"), payable in equal
weekly
<PAGE>
3
installments, less such deductions or amounts to be withheld as shall be
required by applicable law and regulations.
5.2 INCREASE. The Base Salary may be increased on each
February 1 of the Term, beginning February 1, 1997, at the discretion of the
board of directors of Holding.
5.3 AUTOMOBILE AND EXPENSES. The Corporation shall provide the
Executive with an automobile and such other means of transportation as is
reasonable for fulfilling his responsibilities and shall pay or reimburse the
Executive for all transportation, hotel and living expenses incurred by the
Executive on business trips outside the Bruceton, Tennessee metropolitan area,
and for all other business and entertainment expenses reasonably incurred or
paid by him during the Term in the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Corporation may require.
5.4 VACATION. The Executive shall be entitled to reasonable
annual periods of vacation (not less than an aggregate of four weeks in any
calendar year) with full pay and allowances.
5.5 FRINGE BENEFITS. In addition to the compensation and
expenses to be paid under this Section 5, the Executive shall be entitled to all
rights and benefits for which he shall be eligible under any participation or
extra compensation plan, pension, life insurance, health insurance,
hospitalization and other forms of insurance, as well as all other so-called
"fringe" benefits which the Corporation provides for its executives
(collectively, the "Fringe Benefits"). The
<PAGE>
4
Corporation agrees that any significant Fringe Benefits accorded or granted to
the Executive shall not be less than the Fringe Benefits accorded or granted to
any other of the Corporation's employees, other than the Chief Executive
Officer.
6. TERMINATION.
The Corporation may terminate the Executive's employment hereunder
(i) for cause (as defined in Section 6.1) or (ii) if the Executive becomes
permanently and seriously disabled, either physically or mentally (pursuant to
Section 6.2).
6.1 TERMINATION FOR CAUSE. If the Executive shall be lawfully
discharged for cause during the Term, the Corporation's obligation to pay
compensation or other amounts payable hereunder to or for the benefit of the
Executive shall terminate on the date of such discharge. Such termination may
take place only upon the initiative of the Chief Executive Officer. As used
herein the term "for cause" shall be limited to the Executive's malfeasance and
shall mean the Executive's (i) willful, material and bad faith failure to
perform his duties hereunder after written notice by the Chief Executive Officer
specifying in reasonably detailed terms the alleged failure to follow the Chief
Executive Officer's written, lawful directives and including in said notice the
opinion of the Chief Executive Officer that there has been such failure,
provided that such failure shall continue for at least 30 days following such
notice; (ii) gross and willful misconduct that is materially and demonstrably
injurious to the Corporation; or (iii) conviction of a felony after affirmance
of such conviction in any final appeal thereof. The term "for cause" shall not
include a bona fide disagreement over policy matters so long as the Executive
<PAGE>
5
does not willfully and materially violate specific, lawful written directions
from the Chief Executive Officer with respect to policies adopted by the
Executive.
6.2 PERMANENT DISABILITY. If during the Term the Executive
shall become permanently and seriously disabled, either physically or mentally,
so that he is absent from his office due to such disability and otherwise unable
substantially to perform his services hereunder for periods aggregating 120
business days during any twelve month period, the Corporation may, upon 30 days'
written notice to the Executive, given after the day on which such periods of
disability shall have equalled such aggregate, terminate the Executive's
employment at the discretion of the Chief Executive Officer. Such termination
shall not take effect if during such 30-day period the Executive has
demonstrated that he has recovered from such permanent and serious disability by
returning to substantial performance of his duties hereunder. Notwithstanding
such termination, (i) the Corporation shall continue to pay the Executive his
full salary up to and including the date of such termination and (ii) thereafter
and until the later of the Scheduled Termination Date or the date that is 36
months after the effective date of the Executive's termination for disability,
but in no event later than the date the Executive has reached age 65 (the
"Disability Pay Termination Date"), the Corporation shall pay the Executive
fifty percent of the Executive's Base Salary as in effect on the date of such
termination, as disability pay, less the sum of (a) any other disability
payments received by the Executive from the Corporation or from insurance
provided by the Corporation and (b) two-thirds of any earned income received by
the Executive from full-time executive employment commencing after the
Executive's recovery from such disability. After the date of the
<PAGE>
6
termination of the Executive's employment under this Section 6.2, the Executive
shall be entitled to continue to receive the Fringe Benefits referred to in
Section 5.5 until the Disability Pay Termination Date.
6.3 DEATH. In the event of the Executive's death during the
Term, the Executive's employment under this Agreement shall terminate and the
Executive's surviving spouse or, if there is no surviving spouse, the
Executive's estate, shall be entitled to receive the compensation provided for
hereunder to the last day of the sixth full month after which the Executive's
death occurs.
7. COVENANT NOT TO COMPETE; CONFIDENTIALITY; REMEDIES.
7.1 COVENANT NOT TO COMPETE. The Executive recognizes that
the services to be performed by the Executive hereunder are special, unique and
extraordinary. Accordingly, for all purposes hereunder or in respect hereof, the
Executive agrees that during the Term, and in the event that the Executive's
employment is terminated for cause pursuant to Section 6.1 or the Executive
resigns prior to the expiration of the Term, then for one year after the
effective date of such termination or resignation, the Executive will not,
directly or indirectly, as an officer, director, stockholder, partner,
associate, employee, consultant, owner, agent, creditor, co-venturer or
otherwise, become or be interested in or be associated with, nor shall he accept
any gratuity from, any other corporation, firm or business engaged, in the
United States, in a business which is materially competitive with any material
business operated by the Corporation on the Effective Date. The Executive's
ownership, directly or indirectly, of not more than three percent of the issued
and outstanding stock (or debt obligations aggregating not more than $250,000)
of any
<PAGE>
7
corporation the shares of which are traded on a national securities exchange or
regularly traded in the over-the-counter market shall not be deemed to be a
violation of the provisions of this Section 7.1. Neither will it constitute a
violation of this Section 7.1 for the Executive to own, directly or indirectly,
securities of any entity not more than fifteen percent of whose revenues are
derived from businesses that compete with businesses of the Corporation.
7.2 CONFIDENTIALITY. The Executive shall not divulge to anyone
(other than to directors or employees of the Corporation or its affiliates or in
connection with the proper business and affairs of the Corporation or any of its
affiliates), either during or at any time after the termination of his
employment, any information constituting a trade secret that was acquired by him
during his employment by the Corporation concerning the Corporation's and its
affiliates' customer lists or processes or any other of its trade secrets and
which thereafter does not become publicly known other than by the Executive's
unauthorized disclosure thereof. The Executive acknowledges that any such
information constituting a trade secret is of a confidential and secret
character and of great value to the Corporation and its affiliates.
7.3 REMEDIES. The Corporation shall be entitled, in addition
to any other right and remedy it may have at law or at equity, to an injunction
enjoining or restraining the Executive from any material violation or threatened
violation of the covenants contained in Sections 7.1 and 7.2, and the Executive
hereby consents to the issuance of such injunction; PROVIDED, HOWEVER, the
foregoing shall not prevent the Executive from contesting the issuance of any
such injunction on the ground that no
<PAGE>
8
violation or threatened violation of Sections 7.1 and 7.2 has occurred. If any
of the restrictions contained in this Section 7 shall be deemed to be
unenforceable by reason of the extent, duration or geographical scope thereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions hereof,
and in its reduced form this Section 7 shall then be enforceable in the manner
contemplated hereby. The term "affiliate" as used herein shall mean any
corporation, partnership, or other entity or enterprise which, directly or
indirectly, controls, is controlled by, or is under common control with, another
entity.
8. NOTICES.
Any notice or other communication required to or which may be given
to any party hereunder shall be in writing and shall be deemed effective if
delivered personally or if mailed by registered or certified mail, postage
prepaid, addressed to such party as follows (the third business day following
the date of mailing of any such notice is deemed the date of delivery thereof):
To the Executive:
Roland L. Kimberlin
8204 Foxview Court
Brentwood, Tennessee 37027
To the Corporation:
Henry I. Siegel Company, Inc.
1372 Broadway
New York, New York 10018
Attention: Chief Executive Officer
<PAGE>
9
To Holding:
Chic by H.I.S, Inc.
1372 Broadway
New York, New York 10018
Attention: Chief Executive Officer
With copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Bruce A. Gutenplan, Esq.
Any party may change the persons and addresses to which notices or
other communications are to be sent by giving written notice of such change to
the other party in the manner provided herein for giving notice.
9. MISCELLANEOUS.
9.1 NO ASSIGNMENT. This Agreement is personal in its nature
and none of the parties hereto shall assign or transfer this Agreement or any
rights or obligations hereunder, except that the Corporation may assign this
Agreement and its rights and obligations hereunder in connection with any
transfer, sale or other disposition of all or substantially all of its assets,
in which event this Agreement shall be binding upon and inure to the benefit of
the successor entity of the Corporation and such successor entity shall
discharge and perform all the obligations of the Corporation hereunder.
9.2 CHOICE OF LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE.
<PAGE>
10
9.3 NO WAIVER. If any party should waive any breach of any
provision of this Agreement, such party will not thereby be deemed to have
waived any preceding or succeeding breach of the same provision or any breach of
any other provision of this Agreement.
9.4 AMENDMENTS. This instrument is the entire agreement of the
parties with respect to the subject matter hereof and may not be amended, supple
mented, canceled or discharged except by a written instrument executed by the
parties hereto. The parties do not intend to confer any benefit hereunder on any
third person, except as otherwise provided in Section 6.3.
9.5 HEADINGS. Section headings are inserted herein for
convenience only and do not constitute a part, and shall not affect the meaning
or interpretation, of this Agreement.
<PAGE>
11
9.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
HENRY I. SIEGEL COMPANY, INC.
By: /s/ Burton M. Rosenberg
-----------------------------------
Burton M. Rosenberg
Chief Executive Officer
CHIC BY H.I.S, INC.
By: /s/ Burton M. Rosenberg
-----------------------------------
Burton M. Rosenberg
Chief Executive Officer
/s/ Roland L. Kimberlin
-----------------------------------
Roland L. Kimberlin
Exhibit 10.7
EMPLOYMENT AGREEMENT FOR ROBERT F. LUEHRS
EMPLOYMENT AGREEMENT, dated as of March 15, 1996, among
CHIC BY H.I.S, INC., a Delaware corporation ("Holding"), HENRY I. SIEGEL
COMPANY, INC., a Delaware corporation and a wholly owned subsidiary of Holding
(the "Corporation"), and ROBERT F. LUEHRS (the "Executive").
The Executive has heretofore been employed by the Corporation, and
the Executive and the Corporation desire to continue such employment, upon the
terms and conditions set forth herein.
Accordingly, the parties agree as follows:
1. EMPLOYMENT AND ACCEPTANCE.
The Corporation hereby employs the Executive and the Executive
hereby accepts employment from the Corporation for the Term (as hereinafter
defined). As of the opening of business on the Effective Date (as defined in Sec
tion 4), this Agreement supersedes all agreements, written or oral, between the
Executive and the Corporation and Holding relating to terms of employment.
2. DUTIES.
During the Term, the Executive shall devote his full time and
energies to the business and affairs of the Corporation. The Executive agrees to
use his best efforts, skill and abilities to promote the Corporation's
interests; to serve as the President of the Corporation and to perform all the
duties necessary or appropriate for the management of the Corporation's business
and also such duties as may be assigned to him by the Chief Executive Officer of
the Corporation (the "Chief Executive Officer") commensurate with the position
of executive.
<PAGE>
2
3. LOCATION.
The duties to be performed by the Executive hereunder shall be
performed primarily at the principal office of the Corporation, currently
located in the City of New York, subject to reasonable travel requirements on
behalf of the Corporation.
4. TERM OF EMPLOYMENT.
The initial term of the Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Date") and shall end on the
fifth anniversary of the Effective Date, unless sooner terminated pursuant to
Section 6; PROVIDED, HOWEVER, that such initial term shall be extended
automatically for successive one-year periods unless either party gives the
other party at least 90 days' prior written notice of its or his intent not to
allow such extension to become effective (such initial term and automatic
extensions thereof, through the expiration of the last thereof or the date of
any earlier termination thereof pursuant to Section 6, is referred to herein as
the "Term"). As used herein, the term "Scheduled Termination Date" shall refer
to the date the Term would have ended had there been no earlier termination
pursuant to Section 6.
5. COMPENSATION, EXPENSES AND BENEFITS.
5.1 SALARY. During the Term, the Corporation shall pay the
Executive a salary of $341,250 per year (the "Base Salary"), payable in equal
weekly installments, less such deductions or amounts to be withheld as shall be
required by applicable law and regulations.
<PAGE>
3
5.2 INCREASE. The Base Salary may be increased on each
February 1 of the Term, beginning February 1, 1997, at the discretion of the
board of directors of Holding.
5.3 AUTOMOBILE AND EXPENSES. The Corporation shall provide the
Executive with an automobile and such other means of transportation as is
reasonable for fulfilling his responsibilities and shall pay or reimburse the
Executive for all transportation, hotel and living expenses incurred by the
Executive on business trips outside the New York City metropolitan area, and for
all other business and entertainment expenses reasonably incurred or paid by him
during the Term in the performance of his services under this Agreement, upon
presentation of expense statements or vouchers or such other supporting
information as the Corporation may require.
5.4 VACATION. The Executive shall be entitled to reasonable
annual periods of vacation (not less than an aggregate of four weeks in any
calendar year) with full pay and allowances.
5.5 FRINGE BENEFITS. In addition to the compensation and
expenses to be paid under this Section 5, the Executive shall be entitled to all
rights and benefits for which he shall be eligible under any participation or
extra compensation plan, pension, life insurance, health insurance,
hospitalization and other forms of insurance, as well as all other so-called
"fringe" benefits which the Corporation provides for its executives
(collectively, the "Fringe Benefits"). The Corporation agrees that any
significant Fringe Benefits accorded or granted to the
<PAGE>
4
Executive shall not be less than the Fringe Benefits accorded or granted to any
other of the Corporation's employees, other than the Chief Executive Officer.
6. TERMINATION.
The Corporation may terminate the Executive's employment hereunder
(i) for cause (as defined in Section 6.1) or (ii) if the Executive becomes
permanently and seriously disabled, either physically or mentally (pursuant to
Section 6.2).
6.1 TERMINATION FOR CAUSE. If the Executive shall be lawfully
discharged for cause during the Term, the Corporation's obligation to pay
compensation or other amounts payable hereunder to or for the benefit of the
Executive shall terminate on the date of such discharge. Such termination may
take place only upon the initiative of the Chief Executive Officer. As used
herein the term "for cause" shall be limited to the Executive's malfeasance and
shall mean the Executive's (i) willful, material and bad faith failure to
perform his duties hereunder after written notice by the Chief Executive Officer
specifying in reasonably detailed terms the alleged failure to follow the Chief
Executive Officer's written, lawful directives and including in said notice the
opinion of the Chief Executive Officer that there has been such failure,
provided that such failure shall continue for at least 30 days following such
notice; (ii) gross and willful misconduct that is materially and demonstrably
injurious to the Corporation or (iii) conviction of a felony after affirmance of
such conviction in any final appeal thereof. The term "for cause" shall not
include a bona fide disagreement over policy matters so long as the Executive
does not willfully and materially violate specific, lawful written directions
from the Chief Executive Officer with respect to policies adopted by the
Executive.
<PAGE>
5
6.2 PERMANENT DISABILITY. If during the Term the Executive
shall become permanently and seriously disabled, either physically or mentally,
so that he is absent from his office due to such disability and otherwise unable
substantially to perform his services hereunder for periods aggregating 120
business days during any twelve month period, the Corporation may, upon 30 days'
written notice to the Executive, given after the day on which such periods of
disability shall have equalled such aggregate, terminate the Executive's
employment at the discretion of the Chief Executive Officer. Such termination
shall not take effect if during such 30-day period the Executive has
demonstrated that he has recovered from such permanent and serious disability by
returning to substantial performance of his duties hereunder. Notwithstanding
such termination, (i) the Corporation shall continue to pay the Executive his
full salary up to and including the date of such termination and (ii) thereafter
and until the later of the Scheduled Termination Date or the date that is 36
months after the effective date of the Executive's termination for disability,
but in no event later than the date the Executive has reached age 65 (the
"Disability Pay Termination Date"), the Corporation shall pay the Executive
fifty percent of the Executive's Base Salary as in effect on the date of such
termination, as disability pay, less the sum of (a) any other disability
payments received by the Executive from the Corporation or from insurance
provided by the Corporation and (b) two-thirds of any earned income received by
the Executive from full-time executive employment commencing after the
Executive's recovery from such disability. After the date of the termination of
the Executive's employment under this Section 6.2, the Executive shall
<PAGE>
6
be entitled to continue to receive the Fringe Benefits referred to in Section
5.5 until the Disability Pay Termination Date.
6.3 DEATH. In the event of the Executive's death during the
Term, the Executive's employment under this Agreement shall terminate and the
Executive's surviving spouse or, if there is no surviving spouse, the
Executive's estate, shall be entitled to receive the compensation provided for
hereunder to the last day of the sixth full month after which the Executive's
death occurs.
7. COVENANT NOT TO COMPETE; CONFIDENTIALITY; REMEDIES.
7.1 COVENANT NOT TO COMPETE. The Executive recognizes that
the services to be performed by the Executive hereunder are special, unique and
extraordinary. Accordingly, for all purposes hereunder or in respect hereof, the
Executive agrees that during the Term, and in the event that the Executive's
employment is terminated for cause pursuant to Section 6.1 or the Executive
resigns prior to the expiration of the Term, then for one year after the
effective date of such termination or resignation, the Executive will not,
directly or indirectly, as an officer, director, stockholder, partner,
associate, employee, consultant, owner, agent, creditor, co-venturer or
otherwise, become or be interested in or be associated with, nor shall he accept
any gratuity from, any other corporation, firm or business engaged, in the
United States, in a business which is materially competitive with any material
business operated by the Corporation on the Effective Date. The Executive's
ownership, directly or indirectly, of not more than three percent of the issued
and outstanding stock (or debt obligations aggregating not more than $250,000)
of any corporation the shares of which are traded on a national securities
exchange or
<PAGE>
7
regularly traded in the over-the-counter market shall not be deemed to be a
violation of the provisions of this Section 7.1. Neither will it constitute a
violation of this Section 7.1 for the Executive to own, directly or indirectly,
securities of any entity not more than fifteen percent of whose revenues are
derived from businesses that compete with businesses of the Corporation.
7.2 CONFIDENTIALITY. The Executive shall not divulge to anyone
(other than to directors or employees of the Corporation or its affiliates or in
connection with the proper business and affairs of the Corporation or any of its
affiliates), either during or at any time after the termination of his
employment, any information constituting a trade secret that was acquired by him
during his employment by the Corporation concerning the Corporation's and its
affiliates' customer lists or processes or any other of its trade secrets and
which thereafter does not become publicly known other than by the Executive's
unauthorized disclosure thereof. The Executive acknowledges that any such
information constituting a trade secret is of a confidential and secret
character and of great value to the Corporation and its affiliates.
7.3 REMEDIES. The Corporation shall be entitled, in addition
to any other right and remedy it may have at law or at equity, to an injunction
enjoining or restraining the Executive from any material violation or threatened
violation of the covenants contained in Sections 7.1 and 7.2, and the Executive
hereby consents to the issuance of such injunction; PROVIDED, HOWEVER, the
foregoing shall not prevent the Executive from contesting the issuance of any
such injunction on the ground that no violation or threatened violation of
Sections 7.1 and 7.2 has occurred. If any of the
<PAGE>
8
restrictions contained in this Section 7 shall be deemed to be unenforceable by
reason of the extent, duration or geographical scope thereof, or otherwise, then
the court making such determination shall have the right to reduce such extent,
duration, geographical scope, or other provisions hereof, and in its reduced
form this Section 7 shall then be enforceable in the manner contemplated hereby.
The term "affiliate" as used herein shall mean any corporation, partnership, or
other entity or enterprise which, directly or indirectly, controls, is
controlled by, or is under common control with, another entity.
8. NOTICES.
Any notice or other communication required to or which may be given
to any party hereunder shall be in writing and shall be deemed effective if
delivered personally or if mailed by registered or certified mail, postage
prepaid, addressed to such party as follows (the third business day following
the date of mailing of any such notice is deemed the date of delivery thereof):
To the Executive:
Robert F. Luehrs
363 Cognewaugh Road
Cos Cob, Connecticut 06807
To the Corporation:
Henry I. Siegel Company, Inc.
1372 Broadway
New York, New York 10018
Attention: Chief Executive Officer
<PAGE>
9
To Holding:
Chic by H.I.S, Inc.
1372 Broadway
New York, New York 10018
Attention: Chief Executive Officer
With copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Bruce A. Gutenplan, Esq.
Any party may change the persons and addresses to which notices or
other communications are to be sent by giving written notice of such change to
the other party in the manner provided herein for giving notice.
9. MISCELLANEOUS.
9.1 NO ASSIGNMENT. This Agreement is personal in its nature
and none of the parties hereto shall assign or transfer this Agreement or any
rights or obligations hereunder, except that the Corporation may assign this
Agreement and its rights and obligations hereunder in connection with any
transfer, sale or other disposition of all or substantially all of its assets,
in which event this Agreement shall be binding upon and inure to the benefit of
the successor entity of the Corporation and such successor entity shall
discharge and perform all the obligations of the Corporation hereunder.
9.2 CHOICE OF LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE.
<PAGE>
10
9.3 NO WAIVER. If any party should waive any breach of any
provision of this Agreement, such party will not thereby be deemed to have
waived any preceding or succeeding breach of the same provision or any breach of
any other provision of this Agreement.
9.4 AMENDMENTS. This instrument is the entire agreement of the
parties with respect to the subject matter hereof and may not be amended, supple
mented, canceled or discharged except by a written instrument executed by the
parties hereto. The parties do not intend to confer any benefit hereunder on any
third person, except as otherwise provided in Section 6.3.
9.5 HEADINGS. Section headings are inserted herein for
convenience only and do not constitute a part, and shall not affect the meaning
or interpretation, of this Agreement.
<PAGE>
11
9.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
HENRY I. SIEGEL COMPANY, INC.
By: /s/ Burton M. Rosenberg
-----------------------------------
Burton M. Rosenberg
Chief Executive Officer
CHIC BY H.I.S, INC.
By: /s/ Burton M. Rosenberg
-----------------------------------
Burton M. Rosenberg
Chief Executive Officer
/s/ Robert F. Luehrs
-----------------------------------
Robert F. Luehrs
Exhibit 10.8
EMPLOYMENT AGREEMENT FOR STEPHEN WEINER
EMPLOYMENT AGREEMENT, dated as of March 15, 1996, among
CHIC BY H.I.S, INC., a Delaware corporation ("Holding"), HENRY I. SIEGEL
COMPANY, INC., a Delaware corporation and a wholly owned subsidiary of Holding
(the "Corporation"), and STEPHEN WEINER (the "Executive").
The Executive has heretofore been employed by the Corporation, and
the Executive and the Corporation desire to continue such employment, upon the
terms and conditions set forth herein.
Accordingly, the parties agree as follows:
1. EMPLOYMENT AND ACCEPTANCE.
The Corporation hereby employs the Executive and the Executive
hereby accepts employment from the Corporation for the Term (as hereinafter
defined). As of the opening of business on the Effective Date (as defined in Sec
tion 4), this Agreement supersedes all agreements, written or oral, between the
Executive and the Corporation and Holding relating to terms of employment.
2. DUTIES.
During the Term, the Executive shall devote his full time and
energies to the business and affairs of the Corporation. The Executive agrees to
use his best efforts, skill and abilities to promote the Corporation's
interests; to serve as the Executive Vice President, National Sales Manager of
the Corporation and to perform all the duties necessary or appropriate for the
management of the Corporation's business and also such duties as may be assigned
to him by the Chief Executive
<PAGE>
2
Officer of the Corporation (the "Chief Executive Officer") commensurate with the
position of executive.
3. LOCATION.
The duties to be performed by the Executive hereunder shall be
performed primarily at the principal office of the Corporation, currently
located in the City of New York, subject to reasonable travel requirements on
behalf of the Corporation.
4. TERM OF EMPLOYMENT.
The initial term of the Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Date") and shall end on the
fifth anniversary of the Effective Date, unless sooner terminated pursuant to
Section 6; PROVIDED, HOWEVER, that such initial term shall be extended
automatically for successive one-year periods unless either party gives the
other party at least 90 days' prior written notice of its or his intent not to
allow such extension to become effective (such initial term and automatic
extensions thereof, through the expiration of the last thereof or the date of
any earlier termination thereof pursuant to Section 6, is referred to herein as
the "Term"). As used herein, the term "Scheduled Termination Date" shall refer
to the date the Term would have ended had there been no earlier termination
pursuant to Section 6.
5. COMPENSATION, EXPENSES AND BENEFITS.
5.1 SALARY. During the Term, the Corporation shall pay the
Executive a salary of $288,750 per year (the "Base Salary"), payable in equal
weekly
<PAGE>
3
installments, less such deductions or amounts to be withheld as shall be
required by applicable law and regulations.
5.2 INCREASE. The Base Salary may be increased on each
February 1 of the Term, beginning February 1, 1997, at the discretion of the
board of directors of Holding.
5.3 AUTOMOBILE AND EXPENSES. The Corporation shall provide the
Executive with an automobile and such other means of transportation as is
reasonable for fulfilling his responsibilities and shall pay or reimburse the
Executive for all transportation, hotel and living expenses incurred by the
Executive on business trips outside the New York, New York metropolitan area,
and for all other business and entertainment expenses reasonably incurred or
paid by him during the Term in the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Corporation may require.
5.4 VACATION. The Executive shall be entitled to reasonable
annual periods of vacation (not less than an aggregate of four weeks in any
calendar year) with full pay and allowances.
5.5 FRINGE BENEFITS. In addition to the compensation and
expenses to be paid under this Section 5, the Executive shall be entitled to all
rights and benefits for which he shall be eligible under any participation or
extra compensation plan, pension, life insurance, health insurance,
hospitalization and other forms of insurance, as well as all other so-called
"fringe" benefits which the Corporation provides for its executives
(collectively, the "Fringe Benefits"). The
<PAGE>
4
Corporation agrees that any significant Fringe Benefits accorded or granted to
the Executive shall not be less than the Fringe Benefits accorded or granted to
any other of the Corporation's employees, other than the Chief Executive
Officer.
6. TERMINATION.
The Corporation may terminate the Executive's employment hereunder
(i) for cause (as defined in Section 6.1) or (ii) if the Executive becomes
permanently and seriously disabled, either physically or mentally (pursuant to
Section 6.2).
6.1 TERMINATION FOR CAUSE. If the Executive shall be lawfully
discharged for cause during the Term, the Corporation's obligation to pay
compensation or other amounts payable hereunder to or for the benefit of the
Executive shall terminate on the date of such discharge. Such termination may
take place only upon the initiative of the Chief Executive Officer. As used
herein the term "for cause" shall be limited to the Executive's malfeasance and
shall mean the Executive's (i) willful, material and bad faith failure to
perform his duties hereunder after written notice by the Chief Executive Officer
specifying in reasonably detailed terms the alleged failure to follow the Chief
Executive Officer's written, lawful directives and including in said notice the
opinion of the Chief Executive Officer that there has been such failure,
provided that such failure shall continue for at least 30 days following such
notice; (ii) gross and willful misconduct that is materially and demonstrably
injurious to the Corporation; or (iii) conviction of a felony after affirmance
of such conviction in any final appeal thereof. The term "for cause" shall not
include a bona fide disagreement over policy matters so long as the Executive
<PAGE>
5
does not willfully and materially violate specific, lawful written directions
from the Chief Executive Officer with respect to policies adopted by the
Executive.
6.2 PERMANENT DISABILITY. If during the Term the Executive
shall become permanently and seriously disabled, either physically or mentally,
so that he is absent from his office due to such disability and otherwise unable
substantially to perform his services hereunder for periods aggregating 120
business days during any twelve month period, the Corporation may, upon 30 days'
written notice to the Executive, given after the day on which such periods of
disability shall have equalled such aggregate, terminate the Executive's
employment at the discretion of the Chief Executive Officer. Such termination
shall not take effect if during such 30-day period the Executive has
demonstrated that he has recovered from such permanent and serious disability by
returning to substantial performance of his duties hereunder. Notwithstanding
such termination, (i) the Corporation shall continue to pay the Executive his
full salary up to and including the date of such termination and (ii) thereafter
and until the later of the Scheduled Termination Date or the date that is 36
months after the effective date of the Executive's termination for disability,
but in no event later than the date the Executive has reached age 65 (the
"Disability Pay Termination Date"), the Corporation shall pay the Executive
fifty percent of the Executive's Base Salary as in effect on the date of such
termination, as disability pay, less the sum of (a) any other disability
payments received by the Executive from the Corporation or from insurance
provided by the Corporation and (b) two-thirds of any earned income received by
the Executive from full-time executive employment commencing after the
Executive's recovery from such disability. After the date of the
<PAGE>
6
termination of the Executive's employment under this Section 6.2, the Executive
shall be entitled to continue to receive the Fringe Benefits referred to in
Section 5.5 until the Disability Pay Termination Date.
6.3 DEATH. In the event of the Executive's death during the
Term, the Executive's employment under this Agreement shall terminate and the
Executive's surviving spouse or, if there is no surviving spouse, the
Executive's estate, shall be entitled to receive the compensation provided for
hereunder to the last day of the sixth full month after which the Executive's
death occurs.
7. COVENANT NOT TO COMPETE; CONFIDENTIALITY; REMEDIES.
7.1 COVENANT NOT TO COMPETE. The Executive recognizes that
the services to be performed by the Executive hereunder are special, unique and
extraordinary. Accordingly, for all purposes hereunder or in respect hereof, the
Executive agrees that during the Term, and in the event that the Executive's
employment is terminated for cause pursuant to Section 6.1 or the Executive
resigns prior to the expiration of the Term, then for one year after the
effective date of such termination or resignation, the Executive will not,
directly or indirectly, as an officer, director, stockholder, partner,
associate, employee, consultant, owner, agent, creditor, co-venturer or
otherwise, become or be interested in or be associated with, nor shall he accept
any gratuity from, any other corporation, firm or business engaged, in the
United States, in a business which is materially competitive with any material
business operated by the Corporation on the Effective Date. The Executive's
ownership, directly or indirectly, of not more than three percent of the issued
and outstanding stock (or debt obligations aggregating not more than $250,000)
of any
<PAGE>
7
corporation the shares of which are traded on a national securities exchange or
regularly traded in the over-the-counter market shall not be deemed to be a
violation of the provisions of this Section 7.1. Neither will it constitute a
violation of this Section 7.1 for the Executive to own, directly or indirectly,
securities of any entity not more than fifteen percent of whose revenues are
derived from businesses that compete with businesses of the Corporation.
7.2 CONFIDENTIALITY. The Executive shall not divulge to anyone
(other than to directors or employees of the Corporation or its affiliates or in
connection with the proper business and affairs of the Corporation or any of its
affiliates), either during or at any time after the termination of his
employment, any information constituting a trade secret that was acquired by him
during his employment by the Corporation concerning the Corporation's and its
affiliates' customer lists or processes or any other of its trade secrets and
which thereafter does not become publicly known other than by the Executive's
unauthorized disclosure thereof. The Executive acknowledges that any such
information constituting a trade secret is of a confidential and secret
character and of great value to the Corporation and its affiliates.
7.3 REMEDIES. The Corporation shall be entitled, in addition
to any other right and remedy it may have at law or at equity, to an injunction
enjoining or restraining the Executive from any material violation or threatened
violation of the covenants contained in Sections 7.1 and 7.2, and the Executive
hereby consents to the issuance of such injunction; PROVIDED, HOWEVER, the
foregoing shall not prevent the Executive from contesting the issuance of any
such injunction on the ground that no
<PAGE>
8
violation or threatened violation of Sections 7.1 and 7.2 has occurred. If any
of the restrictions contained in this Section 7 shall be deemed to be
unenforceable by reason of the extent, duration or geographical scope thereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions hereof,
and in its reduced form this Section 7 shall then be enforceable in the manner
contemplated hereby. The term "affiliate" as used herein shall mean any
corporation, partnership, or other entity or enterprise which, directly or
indirectly, controls, is controlled by, or is under common control with, another
entity.
8. NOTICES.
Any notice or other communication required to or which may be given
to any party hereunder shall be in writing and shall be deemed effective if
delivered personally or if mailed by registered or certified mail, postage
prepaid, addressed to such party as follows (the third business day following
the date of mailing of any such notice is deemed the date of delivery thereof):
To the Executive:
Stephen Weiner
200 Old Palisades Road
Apartment 7B
Fort Lee, New Jersey 07024
To the Corporation:
Henry I. Siegel Company, Inc.
1372 Broadway
New York, New York 10018
Attention: Chief Executive Officer
<PAGE>
9
To Holding:
Chic by H.I.S, Inc.
1372 Broadway
New York, New York 10018
Attention: Chief Executive Officer
With copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Bruce A. Gutenplan, Esq.
Any party may change the persons and addresses to which notices or
other communications are to be sent by giving written notice of such change to
the other party in the manner provided herein for giving notice.
9. MISCELLANEOUS.
9.1 NO ASSIGNMENT. This Agreement is personal in its nature
and none of the parties hereto shall assign or transfer this Agreement or any
rights or obligations hereunder, except that the Corporation may assign this
Agreement and its rights and obligations hereunder in connection with any
transfer, sale or other disposition of all or substantially all of its assets,
in which event this Agreement shall be binding upon and inure to the benefit of
the successor entity of the Corporation and such successor entity shall
discharge and perform all the obligations of the Corporation hereunder.
9.2 CHOICE OF LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE.
<PAGE>
10
9.3 NO WAIVER. If any party should waive any breach of any
provision of this Agreement, such party will not thereby be deemed to have
waived any preceding or succeeding breach of the same provision or any breach of
any other provision of this Agreement.
9.4 AMENDMENTS. This instrument is the entire agreement of the
parties with respect to the subject matter hereof and may not be amended, supple
mented, canceled or discharged except by a written instrument executed by the
parties hereto. The parties do not intend to confer any benefit hereunder on any
third person, except as otherwise provided in Section 6.3.
9.5 HEADINGS. Section headings are inserted herein for
convenience only and do not constitute a part, and shall not affect the meaning
or interpretation, of this Agreement.
<PAGE>
11
9.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
HENRY I. SIEGEL COMPANY, INC.
By: /s/ Burton M. Rosenberg
-----------------------------------
Burton M. Rosenberg
Chief Executive Officer
CHIC BY H.I.S, INC.
By: /s/ Burton M. Rosenberg
-----------------------------------
Burton M. Rosenberg
Chief Executive Officer
/s/ Stephen Weiner
-----------------------------------
Stephen Weiner
[CHIC by H.I.S LOGO]
1996 Annual Report
<PAGE>
Dear Fellow Shareholder:
"It was
the best
of times,
it was the
Worst
of times."
There is a line from the classics, "It was the best of times, it was the worst
of times." That best describes fiscal 1996 for your company.
Women's apparel at the discount store channel of distribution remained
sluggish all year. The poor over-the-counter performance plus the lack of
fashion change combined to develop very severe price competition both at the
retail and wholesale levels.
This poor performance is reflected in our sales, which fell 15.2 percent to
$318,790,000 in the current fiscal year as compared to $376,068,000 for the
previous fiscal year. In fiscal 1995 our earnings per share were $.10. In the
current fiscal year we took restructuring and special charges equal to a loss of
$3.08 per share. Our earnings per share prior to the charges were $.45 per
share.
In North America we have begun construction of a substantial manufacturing
complex in Durango, Mexico. This operation, which will begin production during
the second fiscal quarter of 1997, is designed to become the core of our
developing manufacturing facilities in Mexico.
This development and expansion of production in Mexico required that we
take a charge against our fiscal 1996 earnings.
We have successfully completed a marketing initiative in Canada. The
Chic(R) brand will now be prominently marketed in more than 400 stores
throughout Canada.
Our licensing company has enjoyed a very successful and profitable year,
increasing to more than $125 million of product other than jeans and casual
pants displayed at the retail level.
In Europe, the sales and earnings of our historic marketing areas rose to
new highs for fiscal 1996.
We have begun an aggressive marketing plan to further increase our growth
throughout Europe. In fiscal 1997 we will have full service marketing companies
in both the Czech Republic and Poland. The potential of these marketing areas
based upon population and consumption will increase our current marketing base
by approximately 67%. The initial reception and resultant bookings in both areas
have already exceeded our projections.
Fiscal 1997 will be a transitional year in North America as we complete the
restructuring of our operations. Our brands enjoy an excellent consumer
franchise, this coupled with our marketing initiatives remains a positive. In
Europe our expectations, based upon the consumer franchise of our brand plus our
substantial expansion eastward, should make fiscal 1997 the best year in the
history of our European operations.
Very truly yours,
/s/ Burton M. Rosenberg
Burton M. Rosenberg
Chairman of the Board and
Chief Executive Officer
1
<PAGE>
The Chic brand enjoys the top spot in women's jeans with a 14.1 percent market
share* despite soft mass-market retail sales. In fact, retailers rank Chic No. 2
in performance among all women's mass-market apparel brands, second only to
Hanes.** In licensing, Chic by H.I.S enjoyed another record year. More than 160
products carried the Chic and H.I.S labels, generating $6.4 million for the
company's bottom line. This represents a 10 percent increase over 1995. The Chic
brand will benefit in 1997 from a new print advertising campaign in leading
women's consumer magazines promoting brand image and style. We will allocate
more advertising dollars to our line of khakis as well. Chic is also beginning
to make successful inroads in Canada with additional growth expected in 1997.
*According to the NPD Group **According to a Leo J. Shapiro & Associates
survey for Discount Store News
<PAGE>
CHIC(R)
IS THE
NO.1 BRAND
OF WOMEN'S
JEANS SOLD BY
MASS-MARKET
RETAILERS
[PHOTO]
3
<PAGE>
[PHOTO]
4
<PAGE>
Our H.I.S(R)
brand can
now be found
throughout
Europe with
even more
expansion
on the way.
5
<PAGE>
[PHOTO]
An Outlook
Bolstered by
Manufacturing
& Technology
Strengths
<PAGE>
H.I.S in Europe generated most of the company's good news in 1996,
and that growth should continue in 1997. Today, H.I.S is the No. 2 brand of
adult jeans sold in Germany, Switzerland, and Austria, second only to Levi's.
Our centralized operation in Germany, which is the base for our European
marketing efforts, will remove some of the existing regulatory barriers to
further expansion. H.I.S now has sales offices and distribution centers in the
Czech Republic and Poland as well. o Domestically, Chic by H.I.S has taken a
number of steps to remain competitive. While largely remaining a "Made in the
U.S.A." company, we've expanded our operations into Mexico to continue producing
a quality product at a lower price. This move matches our leading competitors,
all of whom now have their products made offshore. o Our Vendor Managed
Inventory software provides us with a state-of-the-art computer capability for
tracking our customers' inventory needs by individual stores.
The system's ability to transmit information via satellite is allowing us to
adapt it to European customers as well.
7
<PAGE>
JEANS
KHAKIS
SPORTS
WEAR
SHORTS
[PHOTO]
8
<PAGE>
ALL
ABOUT
CHIC
BY
H.I.S
Chic by H.I.S, Inc., manufactures and markets jeans, casual pants, and shorts
sold principally through mass-market retailers. The Company can proudly trace
its origins back to 1923. In the United States and Canada, the Chic brand is
designed for women and girls, while H.I.S is tailored for men and boys. The
company also markets a H.I.S for HER line of jeans. All the Company's products
are sold under the H.I.S brand for the European market. In addition, Chic by
H.I.S licenses a variety of apparel products under the H.I.S and Chic brand
names. o As we enter the challenges of the 21st century, we at Chic by H.I.S
recognize our responsibilities to our customers, our employees, our communities,
and our stockholders. In an effort to fulfill these responsibilities we commit
ourselves to: o Creatively maintaining our goal of being a leading domestic and
international supplier of fashionable family apparel. o Having a corporate sense
of responsibility to our customers, our communities, and our environment. o
Insuring a long-term growth of profits through a commitment to customer
satisfaction. o Continually seeking to improve our products, in quality, in
service, and in value. o Honoring an atmosphere of honesty, integrity, and trust
in our fellow workers, which encourages a spirit of shared responsibility and
commitment. o Individual recognition of each person's creative ability to
perform successfully and with merit. o Setting standards of ethical
responsibility to enhance the culture of our company, the prosperity of our
people, and the continual pursuit of excellence.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Chic by H.I.S, Inc. and Subsidiaries
The following financial information is qualified by reference to, and should
be read in conjunction with, the Consolidated Financial Statements of the
Company and related notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The selected consolidated
financial information for each of the five fiscal years in the period ended
November 2, 1996 is derived from the Consolidated Financial Statements of the
Company which have been audited by BDO Seidman, LLP.
<TABLE>
Income Statement Data: Fiscal Year Ended
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands, except share
and per share amounts) Nov. 7, 1992 Nov. 6, 1993 Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
United States $ 235,355 $ 236,025 $ 276,932 $ 277,896 $ 212,121
Europe 51,782 68,598 77,283 98,172 106,669
- ----------------------------------------------------------------------------------------------------------------------------------
$ 287,137 $ 304,623 $ 354,215 $ 376,068 $ 318,790
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit:
United States $ 46,081 $ 50,776 $ 53,526 $ 32,598 $ 26,325
Europe 19,613 27,058 31,985 39,554 43,737
- ----------------------------------------------------------------------------------------------------------------------------------
$ 65,694 $ 77,834 $ 85,511 $ 72,152 $ 70,062
- ----------------------------------------------------------------------------------------------------------------------------------
Licensing revenues $ 4,006 $ 4,390 $ 4,878 $ 5,773 $ 6,359
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and
administrative expenses $ 51,237 $ 64,407 $ 68,066 $ 69,415 $ 61,295
Restructuring and special
charges -- -- -- -- 30,000
Special non-recurring
charge due to change in
accounting for
advertising -- -- 5,928 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
United States $ 16,079 $ 11,927 $ 8,424 $ (16) $ (25,256)
Europe 2,384 5,890 7,971 8,526 10,382
- ----------------------------------------------------------------------------------------------------------------------------------
$ 18,463 $ 17,817 $ 16,395 $ 8,510 $ (14,874)
Interest and finance costs 16,761 8,186 3,677 6,129 6,544
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes, extraordinary items
and cumulative effect of
change in accounting
method 1,702 9,631 12,718 2,381 (21,418)(1)
Provision for income taxes 1,264 3,886 2,660 1,369 4,146
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
method $ 438 $ 5,745 $ 10,058 $ 1,012 $ (25,564)
Extraordinary items 1,001 (770) -- -- --
Cumulative effect of change
in accounting method -- -- 431 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,439 $ 4,975 $ 10,489 $ 1,012 $ (25,564)
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common
share:
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
method $ .29 $ .80 $ 1.03 $ .10 $ (2.62)(1)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .94 $ .69 $ 1.08 $ .10 $ (2.62)
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares and share
equivalents outstanding 1,524,627 7,229,161 9,726,032 9,753,868 9,753,868
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends -- -- -- -- --
Balance Sheet Data: Fiscal Year Ended
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands, except share
and per share amounts) Nov. 7, 1992 Nov. 6, 1993 Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Working capital $ 73,054 $ 97,048 $ 109,280 $ 123,394 $ 100,769
Total assets 160,909 183,257 212,703 239,525 188,260
Short-term debt, including
current portion of capital
lease obligations 13,744 4,873 1,274 7,202 1,614
Long-term debt, including
capital lease obligations 114,197 49,117 54,240 86,261 72,806
Stockholders' equity $ 4,628 $ 99,856 $ 110,868 $ 113,427 $ 80,878
(1) Income before extraordinary items and cumulative effect of change in
accounting method was $4,436, or $.45 per share, before the effect of the
restructuring and special charges.
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following comments should be read in conjunction with the Consolidated
Financial Statements and Notes contained therein.
Results of Operations. The following table sets forth selected operating
data as a percentage of net sales for the periods indicated.
Fiscal Year 1994 1995 1996
- ------------------------------------------------------------------------------
Net sales
United States 78.2% 73.9% 66.5%
Europe 21.8 26.1 33.5
- ------------------------------------------------------------------------------
Consolidated 100.0 100.0 100.0
Gross margin
United States 19.3 11.7 12.4
Europe 41.4 40.3 41.0
- ------------------------------------------------------------------------------
Consolidated 24.1 19.2 22.0
Licensing revenues 1.4 1.5 2.0
Selling, general and
administrative expenses 20.9 18.5 19.2
Restructuring and special
charges -- -- 9.4
Operating income (loss) 4.6 2.2 (4.7)
Interest and finance costs 1.0 1.6 2.1
Income (loss) before
provision for income
taxes and extraordinary
item 3.6 .6 (6.7)
Provision for income taxes .8 .3 1.3
Cumulative effect of
change in accounting
principle .1 -- --
Net income (loss) 2.9% .3% (8.0)%
FISCAL YEAR ENDED NOVEMBER 2, 1996 ("FISCAL 1996") COMPARED TO FISCAL YEAR
ENDED NOVEMBER 4, 1995 ("FISCAL 1995")
Net Sales. Net sales for fiscal 1996 decreased $57.3 million, or 15.2%, from
$376.1 million for fiscal 1995 to $318.8 million. In fiscal 1996, United
States sales decreased $65.8 million, or 23.7%, to $212.1 million as a result
of the Company's shrinking market share and substantial price competition. As
of November 2, 1996, the Company had a total backlog of confirmed domestic
purchase orders of $53.2 million as compared to $128.5 million on November 4,
1995. In fiscal 1996, European sales increased by $8.5 million, or 8.7%, to
$106.7 million attributable primarily to the Company's continued penetration
of the European market. As of November 2, 1996, the Company had a backlog of
confirmed European purchase orders of $44.7 million, an increase of 17.9%
compared to $37.9 million on November 4, 1995.
Gross Profit. Gross profit for fiscal 1996 decreased $2.1 million, while the
gross margin increased to 22.0% from 19.2%. The decrease in the gross profit
was due primarily to the decrease in domestic net sales in the current year.
The increase in gross margin was primarily the result of a change in product
mix and the decreased use of outside contractors.
Licensing Revenues. For the Company as a whole, licensing income increased
$.6 million for fiscal 1996, or 10.2%, from $5.8 million for fiscal 1995 to
$6.4 million for fiscal 1996. Licensing revenues generated in the United
States increased by approximately $.2 million, and licensing revenues
generated in Europe increased by $.4 million. The increase in licensing income
was due primarily to an increase in sales by existing licensees.
SG&A Expenses. Selling, general and administrative expenses ("SG&A"
expenses) decreased by $8.1 million to $61.3 million in fiscal 1996 as
compared to $69.4 million in fiscal 1995. The decrease in sales volume and the
reduction in advertising expense were the major factors in the decline.
Restructuring and Special Charges. Management made the requisite changes in
advertising, marketing and manufacturing. During the first and fourth quarters
of fiscal 1996, manage-ment authorized and committed the Company to undertake
significant downsizing and operational changes which, during the year,
resulted in restructuring and special charges of $30 million.
11
<PAGE>
The charge in the first quarter included the closing of certain
manufacturing facilities in Tennessee and Kentucky. These first quarter
closures resulted in the termination of approximately 940 employees and
resulted in a total charge against earnings aggregating $15 million. In the
fourth quarter, the Company identified additional manufacturing facilities to
be closed. The Company has also started to move certain manufacturing
operations to Mexico, although as of November 2, 1996 no actual operations
have begun there. The additional closures will result in the termination of
approximately 700 employees, and resulted in a total charge against earnings
aggregating $15 million.
Concurrent with the establishment of its restructuring plan, the Company
evaluated its accounting policy for measuring the recoverability of its long-
lived assets and elected early adoption of SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and Assets to be Disposed Of." The write-off
of property and equipment primarily represents the difference between the
carrying values and fair value of the equipment which has been or will be
disposed of as part of the restruc-turing. Fair value was determined based on
management's estimate of recoverability, net of costs, upon disposition of the
assets, which was not material. The write-off of costs related to the
downsizing of production relates primarily to manufac-turing losses incurred
during the wind-down period at the closed facilities. Start-up costs incurred
relating to the move to Mexico include certain relocation and consulting
costs. Other plant closing costs relate primarily to employee benefits,
severance costs and remaining lease obligations, etc.
The Company has identified additional facilities that will most likely be
closed during fiscal 1997. The majority of fixed assets at these facilities
will be disposed of if such closures take place. The Company intends to
continue the relocation of certain of its manufacturing operations to Mexico
due to the favorable cost structure there; accordingly, the fourth quarter
charge includes approximately $5.4 million to adjust the carrying value of
cutting and other manufacturing equipment at these identified facilities.
Substantially all of the above charges represent non-cash items related to
the write-off of production assets, and other costs related to plant expansion
and excess production costs. The balance of the remaining liability related to
plant closure of $1.1 million is included in other accrued expenses as of
November 2, 1996. The Company expects to complete its restructuring plans
during fiscal 1997.
The charges are summarized below:
(In Thousands) First Quarter Fourth Quarter Total
- ------------------------------------------------------------------------------
Write-downs of property
and equipment $ 7,500 $ 11,000 $ 18,500
Cost inefficiencies,
caused by downsizing 3,800 -- 3,800
Start-up costs relating to
Mexican operations -- 800 800
Other costs 3,700 3,200 6,900
- ------------------------------------------------------------------------------
$ 15,000 $ 15,000 $ 30,000
- ------------------------------------------------------------------------------
Operating Income. Operating income decreased by $23.4 million. In the United
States, there was a loss of $25.3 million in fiscal 1996 primarily
attributable to the restructuring and special charges of $30.0 million.
Excluding the restructuring and special costs, operating income in the United
States increased from virtually nil in fiscal 1995 to $4.7 million in fiscal
1996. This increase is primarily attributable to the decrease in SG&A
expenses, which more than offset the decrease in gross profit. In Europe,
operating income was $10.4 million as compared to $8.5 million for the
comparable period of the previous year. This increase was a result of
continued penetration of the European market resulting in higher sales.
Interest and Finance Costs. Interest and finance costs increased $.4
million, or 6.8%, from $6.1 million for fiscal 1995 to $6.5 million for fiscal
1996 due primarily to higher levels of borrowings in the early part of the
year. At November 2, 1996, the Company had $74.4 million of outstanding debt.
At November 4, 1995, outstanding debt totaled $93.5 million.
Income Taxes. The provision for income taxes for fiscal 1996 was $4.1
million as compared to $1.4 million in fiscal 1995. This increase was due
primarily to the taxes on income from the European operation and the reduction
in the tax benefit recognized related to the Company's deferred tax asset
because of a valuation allowance due to the uncertainty of its ultimate
realization.
Net Income. The net loss for fiscal 1996 was $25.6 million as compared to an
income of $1.0 million in fiscal 1995. The net loss was due primarily to the
restructuring and special charges of $30.0 million.
12
<PAGE>
FISCAL YEAR ENDED NOVEMBER 4, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR
ENDED NOVEMBER 5, 1994 ("FISCAL 1994")
Net Sales. Net sales for fiscal 1995 increased $21.9 million, or 6.2%, from
$354.2 million for fiscal 1994 to $376.1 million. Such a small increase is
directly attributable to the general decline in retail business. In fiscal
1995, United States sales increased $.9 million, or .3%, to $277.9 million. As
of November 4, 1995, the Company had a total backlog of confirmed domestic
purchase orders of $128.5 million, compared to $218.2 million on November 5,
1994. In fiscal 1995, European sales increased by $21.0 million, or 27.2%, to
$98.2 million attributable primarily to the Company's continued penetration of
the European market. As of November 4, 1995, the Company had a backlog of
confirmed European purchase orders of $37.9 million, an increase of 25.9%
compared to $30.1 million on November 5, 1994.
Gross Profit. Gross profit for fiscal 1995 decreased $13.3 million. The
Company generated sales because of outside contracted production. However, the
Company was in a position where it generated sales but little gross profit.
That had a negative impact on the Company's gross margin. Gross margin
decreased to 19.2% from 24.1%. The decrease in the gross profit as a
percentage of net sales in the United States was due primarily to contractor
costs associated with increased production requirements to meet demand.
European gross margin decreased from 41.4% in fiscal 1994 to 40.3% as a result
of product mix.
Licensing Revenues. For the Company as a whole, licensing income increased
$.9 million for fiscal 1995, or 18.4%, from $4.9 million for fiscal 1994 to
$5.8 million for fiscal 1995. Licensing revenues generated in the United
States increased by approximately $.7 million, and licensing revenues
generated in Europe increased by $.2 million. The increase in licensing income
was due primarily to an increase in sales by existing licensees.
SG&A Expenses. Selling, general and administrative expenses ("SG&A"
expenses) decreased by 5.9% to $69.4 million in fiscal 1995. The decrease was
primarily due to the adoption of SOP 93-7 during fiscal 1994 (See Note 1 to
the consolidated financial statements).
Operating Income. Operating income decreased by 49.4% from $16.4 million for
fiscal 1994 to $8.5 million for fiscal 1995. In the United States, there was
substantially no operating income in fiscal 1995 as compared to $8.4 million
in the previous year. The decrease was primarily due to contractor costs
associated with increased production requirements to meet demand. In Europe,
operating income was $8.5 million as compared to $8.0 million for the
comparable period of the previous year. This increase was a result of
continued penetration of the market resulting in higher sales.
Interest and Finance Costs. Interest and finance costs increased $2.4 million,
or 64.9%, from $3.7 million for fiscal 1994 to $6.1 million for fiscal 1995
due primarily to higher levels of borrowings. At November 4, 1995, the Company
had $93.5 million of outstanding debt. At November 5, 1994, outstanding debt
totaled $55.5 million.
Income Taxes. The provision for income taxes of $1.4 million for fiscal 1995,
as compared to $2.7 million for fiscal 1994, reflects the recognition of a
deferred tax asset of $2.4 million attributable to the Company's domestic net
operating loss carryforward (See Note 7 to the consolidated financial
statements).
Net Income. Net income decreased 90.5% to $1.0 million in fiscal 1995, a
decrease of $9.5 from net income of $10.5 million earned in fiscal 1994.
Seasonality of Business--Quarterly Results. The Company experiences seasonal
increases and decreases in its working capital requirements. This pattern
results primarily from the demand for the Company's apparel products and the
level of sales, which fluctuate moderately during the course of the calendar
year as a result of seasonal buying trends. A moderate surge in sales of denim
jeans and casual pants generally occurs during the fall back-to-school and
Christmas holiday selling seasons. Back-to-school merchandise is shipped
primarily during the Company's third quarter, while Christmas merchandise is
shipped primarily during the Company's fourth quarter.
13
<PAGE>
The following table summarizes the net sales, gross profit, operating income
(loss) and net income (loss) of the Company for each of the interim financial
reporting periods in the last two fiscal years.
First Second Third Fourth
(In Thousands) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------
Fiscal Year Ended
November 2, 1996
Net sales $ 70,829 $ 84,344 $ 90,185 $ 73,432
Gross profit 16,173 18,530 17,544 17,815
Restructuring and
special charges 15,000 -- -- 15,000
Operating income
(loss) (10,623) 3,430 5,269 (12,950)
Net income (loss) (13,772) 675 2,281 (14,748)
Per common share:
Income before
restructuring
and special
charges $ 0.12 $ 0.07 $ 0.23 $ 0.03
Net income (loss) (1.41) $ 0.07 $ 0.23 $ (1.51)
Fiscal Year Ended
November 4, 1995
Net sales $ 76,306 $ 107,405 $ 117,024 $ 75,333
Gross profit 16,883 21,107 20,587 13,575
Operating income
(loss) 3,577 5,370 5,000 (5,437)
Net income (loss) 1,424 2,375 2,038 (4,825)
Per common share:
Net income (loss) $ 0.15 $ 0.24 $0.21 $ (0.49)
Liquidity and Capital Resources. The Company's principal capital
requirements have been to fund working capital needs and capital expenditures.
The Company has historically relied primarily on internally generated funds,
trade credit, bank borrowings and other debt offerings to finance these needs.
In fiscal 1996, net cash of $39.5 million was provided by operations, as
compared to $17.1 million used in operations in fiscal 1995 and $22.4 million
provided by operations in fiscal 1994. The decrease from fiscal 1994 to 1995
was primarily due to the decrease in net income of $9.5 millioperations in
fiscal 1994. The decrease from fiscal 1994 to 1995 was primarily due to the
decrease in net income of $9.5 million, the decrease in accounts payable and
accrued liabilities of $13.2 million and the increase in inventories of $13.9
million, which was partially offset by the decrease in accounts receivable of
$5.9 million. The increase from fiscal 1995 to 1996 was primarily due to the
decrease in inventories of $37.3 million and the decrease in accounts
receivable of $6.9 million, which was partially offset by the decrease in
accounts payable and accrued expenses of $6.2 million. The decrease in
inventories and accounts receivable is primarily due to the decrease in net
sales in the United States. Despite the decrease in net income of $26.6
million, approximately $20.0 million related to an increase in non-cash
charges, primarily related to the restructuring and special charges recorded
in fiscal 1996.
Net cash used in investing activities decreased by $20.4 million in fiscal
1996 to $6.6 million and increased by $10.9 million in fiscal 1995 to $27.0
million. Cash used in investing activities has been primarily attributable to
the acquisition and renovation of manufacturing, laundry and warehouse
facilities. These investments were primarily financed by the proceeds of
industrial development revenue bonds (IRBs).
Net cash used in financing activities was $19.2 million, compared with $37.7
million and $6.3 million provided by financing activities in fiscal 1995 and
1994, respectively. In fiscal 1996, the Company repaid $6.5 million in loans
under its revolving line of credit, $10.0 million in senior term loan and $2.7
million in other debt. The increase in fiscal 1995 was primarily due to the
increase in the long-term debt attributable to the replacement of the senior
notes of $23 million, the increase in the revolving line of credit of $6.5
million and the proceeds attributable to the IRBs of $14.8 million.
As of November 2, 1996, the Company had credit agree-ments providing a $37.5
revolving line of credit and $43.0 million in senior notes payable. In
addition, the Company had $26.2 million of IRBs outstanding at November 2,
1996, the proceeds of which were used to finance plant expansions. As of
November 2, 1996, there was no outstanding balance on the revolving line of
credit. In December 1996, the Company negotiated the prepayment of the
outstanding balance of the senior notes payable of $43.0 million. In
connection with the prepayment, the Company agreed to make a $500,000 make-
whole payment. The Company also has foreign financing agreements with three
banks providing term loans aggregating 4,600,000 deutsche marks (approximately
$3,039,000) and lines of credit aggregating 18 million deutsche marks
(approxi- mately $11,893,000). As of November 2, 1996, approximately $3.0
million was outstanding against the foreign term loans. (See Note 4 to the
Consolidated Financial Statements).
14
<PAGE>
The Company has established a major manufacturing facility in Durango,
Mexico. Production from this facility will begin during the second quarter of
fiscal 1997 and the production will be used for the U.S. market. Management
believes that the operation of this facility will enhance future domestic
profit margins and that any capital expenditures required will be covered by
internally generated cash.
The Company has expanded its operations in Europe through the establishment
of a subsidiary in Poland, HIS POLSKA. The Polish operation will be complete
insofar as merchandising, marketing and distributing within the Polish market.
The manufacturing of the merchandise to be sold will be done within Poland.
All manufacturing will be done through the use of outside contracting which
does not require capital expenditures.
The Company is a holding company, and is dependent upon the receipt of
dividends or other payments from its subsidiaries. The Company expects that
cash generated from operations and the credit agreements will provide the
financial resources sufficient to meet its foreseeable working capital and
capital expenditure requirements. There can be no assurance, however, that the
Company will not need to borrow from other sources during such period.
In recent years, certain retail customers have experienced significant
financial difficulties. The Company attempts to minimize its credit risk
associated with these customers by closely monitoring its accounts receivable
balances and their ongoing financial performance and credit status.
Historically, the Company has not experienced material adverse effects from
transactions with these customers. However, considering the customer
concentration of the Company's net sales, any material financial difficulty
experienced by a significant customer could have an adverse effect on the
Company's financial position or results of operations.
Recent Accounting Standards. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of," which requires that certain long-lived assets
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The Company has
elected to early adopt this pronouncement and has reflected the effect of the
impairment of long-lived assets in the restructuring and special charges
recorded in fiscal 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compen-sation," which allows the choice of
either the intrinsic value method or the fair value method of accounting for
employee stock options. The Company anticipates selecting the option to
continue the use of the current intrinsic value method.
Both of these statements are effective for fiscal years beginning after
December 15, 1995.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CHIC BY H.I.S, INC.
We have audited the accompanying consolidated balance sheets of Chic by
H.I.S, Inc. and subsidiaries as of November 4, 1995 and November 2, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended November 2, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chic by
H.I.S, Inc. and subsidiaries as of November 4, 1995 and November 2, 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended November 2, 1996, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and advertising
costs, respectively, in fiscal 1994.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
December 31, 1996
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
Chic by H.I.S, Inc. and Subsidiaries
- ----------------------------------------------------------------------
(In Thousands, except share
data) Nov. 4, 1995 Nov. 2, 1996
- ----------------------------------------------------------------------
ASSETS (Note 4)
CURRENT:
Cash and cash
equivalents $ 15,197 $ 27,178
Accounts receivable--net
of allowance of $371
and $125 for doubtful
accounts (Note 10) 40,181 33,309
Inventories (Note 2) 95,623 58,360
Deferred income taxes
(Note 7) 4,200 5,010
Prepaid expenses and
other current assets 3,438 1,465
- ----------------------------------------------------------------------
Total Current Assets 158,639 125,322
PROPERTY, PLANT AND
EQUIPMENT, NET (Notes 3,
4, 5 and 12) 76,017 61,430
INTANGIBLE ASSET RELATING
TO PENSION (Note 6) 528 396
RESTRICTED FUNDS HELD BY
TRUSTEE (Note 4 (b)(ii)) 409 --
OTHER ASSETS 3,932 1,112
- ----------------------------------------------------------------------
$ 239,525 $ 188,260
- ----------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT:
Current maturities of
long-term debt (Note
4) $ -- $ 750
Revolving bank loan
(Note 4) 6,500 --
Obligations under
capital leases (Note
5) 702 864
Accounts payable 13,515 11,625
Accrued liabilities:
Payroll, payroll taxes
and commissions 4,191 4,639
Income taxes 1,997 2,009
Other 8,340 4,666
- ----------------------------------------------------------------------
Total Current
Liabilities 35,245 24,553
- ----------------------------------------------------------------------
NON-CURRENT:
Long-term debt (Note 4) 84,663 71,444
Pension liability (Note
6) 4,592 10,023
Obligations under
capital leases (Note
5) 1,598 1,362
- ----------------------------------------------------------------------
Total Non-Current
Liabilities 90,853 82,829
- ----------------------------------------------------------------------
COMMITMENTS (Notes 4, 5, 6,
8, 11 and 12)
STOCKHOLDERS' EQUITY (Notes
6 and 9):
Preferred stock, $.01 par
value--shares authorized
10,000,000; none issued -- --
Common stock, $.01 par
value--25,000,000 shares
authorized; 9,753,868
issued and outstanding,
in both years 98 98
Paid-in capital 105,526 105,526
Retained earnings
(deficit) 8,800 (16,764)
Foreign currency
translation adjustment 3,068 1,645
Excess of additional
pension liability over
intangible pension asset (4,065) (9,627)
- ----------------------------------------------------------------------
113,427 80,878
- ----------------------------------------------------------------------
$ 239,525 $ 188,260
- ----------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Chic by H.I.S, Inc. and Subsidiaries
Year ended
- ------------------------------------------------------------------------------
(In Thousands, except share
and per share amounts) Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ------------------------------------------------------------------------------
NET SALES (Note 10) $ 354,215 $ 376,068 $ 318,790
COST OF GOODS SOLD 268,704 303,916 248,728
- ------------------------------------------------------------------------------
Gross profit 85,511 72,152 70,062
LICENSING REVENUES (Note
11) 4,878 5,773 6,359
- ------------------------------------------------------------------------------
90,389 77,925 76,421
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 68,066 69,415 61,295
RESTRUCTURING AND SPECIAL
CHARGES (Note 12) -- -- 30,000
SPECIAL NON-RECURRING
CHARGE DUE TO CHANGE IN
ACCOUNTING FOR
ADVERTISING (Note 1) 5,928 -- --
- ------------------------------------------------------------------------------
Operating income
(loss) before
interest and finance
costs 16,395 8,510 (14,874)
LESS: Interest and finance
costs 3,677 6,129 6,544
- ------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes and cumulative
effect of change in
accounting method 12,718 2,381 (21,418)
PROVISION FOR INCOME TAXES
(Note 7) 2,660 1,369 4,146
- ------------------------------------------------------------------------------
Income (loss) before
cumulative effect of
change in accounting
method 10,058 1,012 (25,564)
- ------------------------------------------------------------------------------
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
METHOD (Note 7) 431 -- --
- ------------------------------------------------------------------------------
NET INCOME (LOSS) $ 10,489 $ 1,012 $ (25,564)
- ------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON
SHARE:
Income (loss) before
cumulative effect of
change in accounting
method $ 1.03 $ .10 $ (2.62)
- ------------------------------------------------------------------------------
Cumulative effect of
change in accounting
method $ .05 $ -- $ --
- ------------------------------------------------------------------------------
Net income (loss) $ 1.08 $ .10 $ (2.62)
- ------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND SHARE
EQUIVALENTS OUTSTANDING 9,726,032 9,753,868 9,753,868
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended November 5, 1994, November 4, 1995, and November 2, 1996
Chic by H.I.S, Inc. and Subsidiaries
<TABLE>
Excess of
additional
pension
liability
Foreign over
Retained currency intangible
Common Paid-in earnings translation pension
(In Thousands) Total stock capital (deficit) adjustment asset
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 6, 1993 $ 99,856 $ 97 $ 104,625 $ (2,701) $ 483 $ (2,648)
Net income 10,489 -- -- 10,489 -- --
Stock options exercised 39 -- 39 -- -- --
Shares issued through
public offering over
allotment (Note 9) 863 1 862 -- -- --
Adjustment of excess of
additional pension
liability over
intangible pension
asset (Note 6) (1,753) -- -- -- -- (1,753)
Foreign currency
translation adjustment 1,374 -- -- -- 1,374 --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 5, 1994 110,868 98 105,526 7,788 1,857 (4,401)
Net income 1,012 -- -- 1,012 -- --
Adjustment of excess of
additional pension
liability over
intangible pension
asset (Note 6) 336 -- -- -- -- 336
Foreign currency
translation adjustment 1,211 -- -- -- 1,211 --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 4, 1995 113,427 98 105,526 8,800 3,068 (4,065)
Net loss (25,564) -- -- (25,564) -- --
Adjustment of excess of
additional pension
liability over
intangible pension
asset (Note 6) (5,562) -- -- -- -- (5,562)
Foreign currency
translation adjustment (1,423) -- -- -- (1,423) --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 2, 1996 $ 80,878 $ 98 $ 105,526 $ (16,764) $ 1,645 $ (9,627)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Chic by H.I.S, Inc. and Subsidiaries
Year ended
- ------------------------------------------------------------------------------
(In Thousands) Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ------------------------------------------------------------------------------
Cash Flows From Operating
Activities:
Net income (loss) $ 10,489 $ 1,012 $ (25,564)
- ------------------------------------------------------------------------------
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Non-cash restructuring
and special charges -- -- 22,599
Depreciation and
amortization 5,931 6,201 3,687
Allowance for doubtful
accounts -- 102 --
Deferred income taxes (1,824) (2,438) (630)
Decrease (increase)
in:
Accounts receivable (762) 5,860 6,872
Inventories (9,918) (13,923) 37,263
Prepaid expenses and
other current
assets 3,030 (1,181) 1,793
Other assets 123 538 (355)
Increase (decrease)
in:
Accounts payable 9,454 (12,118) (1,890)
Accrued liabilities 5,835 (1,110) (4,297)
- ------------------------------------------------------------------------------
Total adjustments 11,869 (18,069) 65,042
- ------------------------------------------------------------------------------
Net cash provided
by (used in)
operating
activities 22,358 (17,057) 39,478
- ------------------------------------------------------------------------------
Cash Flows From Investing
Activities:
Purchase of property,
plant and equipment (16,083) (26,991) (6,582)
- ------------------------------------------------------------------------------
Cash Flows From Financing
Activities:
Repayment of foreign
bank debt (358) -- --
Increase (decrease) in
loans under revolving
line of credit -- 6,500 (6,500)
Repayment of long-term
debt (3,400) (23,578) (10,000)
Increase (decrease) in
long-term debt -- 43,000 (2,081)
Proceeds from issuance
of common stock 902 -- --
Due from trustee -- -- 409
Proceeds from issuance
of Industrial
Development Revenue
Bonds 10,456 14,764 --
Increase in deferred
financing costs (79) (2,144) (114)
Principal payments under
capitalized lease
obligations (1,225) (834) (895)
- ------------------------------------------------------------------------------
Net cash provided by
(used in) financing
activities 6,296 37,708 (19,181)
- ------------------------------------------------------------------------------
Increase (decrease) in
cash and cash
equivalents 12,571 (6,340) 13,715
Effect of exchange rates
on cash 1,878 1,585 (1,734)
Cash and Cash Equivalents,
beginning of period 5,503 19,952 15,197
- ------------------------------------------------------------------------------
Cash and Cash Equivalents,
end of period $ 19,952 $ 15,197 $ 27,178
- ------------------------------------------------------------------------------
Supplemental Disclosures
of Cash Flow
Information:
Cash paid during the
year for:
Interest $ 3,355 $ 7,018 $ 8,869
Taxes 2,224 1,069 4,914
Non-Cash Investing and
Financing Activities:
Capital leases entered
into during the year 949 87 821
Restricted funds held by
trustee from issuance
of Industrial
Development Revenue
Bonds $ 2,708 $ 409 $ --
See accompanying notes to consolidated financial statements.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Chic by H.I.S, Inc. and Subsidiaries
1. SUMMARY OF ACOUNTING POLICIES
(a) Principles of Consolidation. The consolidated financial statements
include the accounts of Chic by H.I.S, Inc. (the "Company") and its wholly-
owned domestic subsidiaries, Henry I. Siegel Company, Inc. ("Siegel") and Chic
Holdings Corp., formed in 1991, and its wholly-owned German subsidiary, h.i.s.
sportswear GmbH ("Sportswear") and their respective subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
(b) Business. The Company designs, manufactures and distributes moderately
priced jeans, casual pants and shorts. The Company is headquartered in New
York City, with manufacturing facilities located in Tennessee, Kentucky,
Mississippi and Alabama. Domestically, the Company markets its jeans and
casual pants primarily to mass merchandisers and to department stores and
specialty stores under the "Chic" and "H.I.S" brand names. Its foreign
operations are conducted by Sportswear, which markets the Company's branded
products in Europe. In addition, the Company derives licensing income from the
use primarily of its "Chic" trade-mark by manufacturers of various products
that the Company does not produce.
(c) Reporting Periods. For financial reporting purposes, the Company reports
on a 52- to 53-week year ending on the first Saturday subsequent to October
31. The fiscal years ended November 5, 1994, November 4, 1995 and November 2,
1996 each contained 52 weeks.
(d) Foreign Currency Translation. The financial statements of the foreign
subsidiary are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation."
Balance sheet accounts are translated at the current exchange rate and income
statement items are translated at the average exchange rate for the period.
Gains and losses resulting from the translation are accumulated in a separate
component of stockholders' equity.
(e) Inventories. Inventories are valued at the lower of cost (first-in,
first-out) or market.
(f) Depreciation. Depreciation of property, plant and equipment is computed
by the straight-line method over the estimated useful life of the respective
assets.
(g) Leased Property Under Capital Leases. Property under capital leases is
amortized over the lives of the respective leases or the useful lives of the
assets.
(h) Advertising Costs. During the fourth quarter of fiscal 1994, the Company
adopted the AICPA Statement of Position (SOP) 93-7, "Reporting on Advertising
Costs." The SOP restricts the deferral of advertising costs, except direct-
response advertising which meets specified criteria, beyond the date incurred
or the date the advertising first takes place. Prior to the adoption of SOP
93-7, these costs were generally expensed over their useful life.
(i) Income Taxes. Effective November 7, 1993, the Company adopted the
liability method specified by SFAS No. 109 "Accounting for Income Taxes."
(j) Earnings per Common Share. Earnings per common share are computed based
upon the weighted average number of outstanding shares of common stock during
the respective years and, when dilutive, common equivalent shares applicable
to assumed exercise of stock options and warrants.
(k) Revenue Recognition. Sales are recognized upon shipment of products or,
in the case of licensing revenues, when products using the Company's brand
name are sold by licensees or minimum guaranteed royalties are due.
(l) Statements of Cash Flows. For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
(m) Stock Options. During 1995, SFAS No. 123 "Accounting for Stock Based
Compensation," which allows a choice of either the intrinsic value method or
the fair value method of account- ing for employee stock options, was issued.
This standard is effective for fiscal years that begin after December 15,
1995. Although the Company has not elected early adoption, it expects to
select the option to continue the use of the current intrinsic value method.
(n) 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
20
<PAGE>
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(o) Long-Lived Assets. In March 1995, the Financial Account-ing Standards
Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," which requires that certain
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. This
standard is effective for fiscal years that begin after December 15, 1995. The
Company has elected to early adopt this pronouncement and has reflected the
effect of the impairment of long-lived assets in the restructuring and special
charges recorded in fiscal 1996 (Note 12).
(p) Fair Value of Financial Instruments. The carrying values of financial
instruments including cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the relatively short maturities
of these instru-ments. The carrying value of long-term debt approximates the
fair value for similar debt issues based on quoted market prices or current
rates offered to the Company for debt of the same maturities.
(q) Presentation of Prior Year Data. Certain reclassifications have been
made to conform prior year data with the current presentation.
2. INVENTORIES
Inventories consist of the following:
(In Thousands) Nov. 4, 1995 Nov. 2, 1996
- ----------------------------------------------------------------------
Raw materials $ 11,852 $ 9,162
Work-in-process 15,877 12,629
Finished goods 67,894 36,569
- ----------------------------------------------------------------------
$ 95,623 $ 58,360
- ----------------------------------------------------------------------
3. PROPERTY PLANT AND EQUIPMENT
Major classes of property, plant and equipment consist of the following:
Estimated
(In Thousands) Nov. 4, 1995 Nov. 2, 1996 useful lives
- ------------------------------------------------------------------------------
Land $ 794 $ 789
Buildings and improvements 54,018 55,538 30 years
Machinery and equipment
(including data
processing and
transportation
equipment) 42,983 22,205 3-7 years
Construction in progress 778 --
- ------------------------------------------------------------------------------
98,573 78,532
Less: Accumulated
depreciation 26,592 19,800
- ------------------------------------------------------------------------------
71,981 58,732
- ------------------------------------------------------------------------------
Equipment under capital
leases 8,060 8,881 7 years
Less: Accumulated
amortization 4,024 6,183
- ------------------------------------------------------------------------------
4,036 2,698
- ------------------------------------------------------------------------------
$ 76,017 $ 61,430
- ------------------------------------------------------------------------------
4. NOTES PAYABLE, LONG-TERM DEBT AND FOREIGN FINANCING AGREEMENTS
Long-term debt consists of the following:
(In Thousands) Nov. 4, 1995 Nov. 2, 1996
- ------------------------------------------------------------------------------
Notes payable--revolving
credit agreement (a) $ 6,500 $ --
Senior term loan (a) 10,000 --
Senior notes payable (a) 43,000 43,000
Industrial Development
Revenue Bonds (b)(i) 3,000 3,000
Industrial Development
Revenue Bonds (b)(ii) 8,700 8,700
Industrial Development
Revenue Bonds (b)(iii) 5,000 5,000
Industrial Development
Revenue Bonds (b)(iv) 9,455 9,455
Foreign bank term loan (c) 5,508 3,039
- ------------------------------------------------------------------------------
91,163 72,194
Less: Current portion 6,500 750
- ------------------------------------------------------------------------------
$ 84,663 $ 71,444
- ------------------------------------------------------------------------------
21
<PAGE>
(a) On June 30, 1993, the Company entered into two financing agreements in
the United States aggregating $40 million, which was used to pay off all
outstanding indebtedness under its former credit facility. The agreements
provided for a $10 million revolving credit line, a $10 million term loan and
$20 million of senior notes. In December 1994, the Company amended the terms
of its revolving credit line to increase the revolving credit facility from
$10.0 million to $37.5 million. Borrowings under the revolving credit bear
interest at either the prime rate or the Eurorate plus 1.25% at the Company's
option. The term loan, which would have been due on June 30, 1997, was repaid
in fiscal 1996. On June 30, 1995, the $20 million of 8.11% senior notes were
replaced by $43 million of new notes consisting of $25 million 7.5% senior
notes due June 30, 2003 and $18 million 7.67% senior notes due June 30, 2005.
In February 1996, the Company amended the terms of the credit agreement,
increasing the interest rate on the $25 million and $18 million senior notes
from 7.5% to 8.375% and 7.67% to 8.545%, respectively, for the period from
February 14, 1996 to November 2, 1996. On November 3, 1996 the interest rates
reverted back to the original 7.5% and 7.67%. In December 1996, the Company
negotiated the prepayment of the outstanding balance of the senior notes
payable of $43.0 million.
The agreements contain various covenants including, among others,
requirements relating to the maintenance of certain financial ratios and
limitations on dividends and other restricted payments. The Company has
obtained waivers where required.
(b)(i) In May 1990, the Company borrowed $4.5 million in connection with the
issuance of Industrial Development Revenue Bonds by the County of Carroll,
Tennessee to construct a manufacturing facility. The bonds which were
scheduled to mature on May 1, 2000 were refinanced in April 1995 through the
issuance of new IRBs in an aggregate principal amount of $3 million. The new
bonds mature April 1, 2005, bear an average interest rate of 7.0% and are
guaranteed by the Company.
(ii) In September 1993, the Company borrowed $8.7 million in connection with
the issuance of Industrial Development Revenue Bonds by the County of Carroll,
Tennessee to construct an addition to the distribution center. The bonds
mature on September 1, 2003, and bear interest at 8% per annum. Principal
payments commence on September 1, 1997. The bonds are collateralized by the
related real estate and are guaranteed by the Company.
(iii) In September 1994, the Company borrowed $5.0 million in connection
with the issuance of Industrial Building Revenue Bonds by the City of Hickman,
Kentucky to (1) acquire land and building, (2) renovate and expand such
manufacturing facility, (3) purchase land and build a laundry facility. The
bonds are payable in annual installments commencing on August 1, 2000. The
bonds, which are not collateralized, mature as follows:
(In Thousands) Interest Rate
- -----------------------------------------------------------------
August 1, 2000 $ 375 6.10%
August 1, 2001 395 6.20%
August 1, 2002 420 6.30%
August 1, 2003 445 6.40%
August 1, 2004 475 6.50%
August 1, 2009 2,890 6.95%
The proceeds of the Industrial Revenue Bonds were held in trust on deposit
with First America Trust Company. These funds were restricted for the Hickman,
Kentucky Projects. These assets were invested in prime commercial paper that
mature within one year and bear interest at approximately 4.6% per annum.
(iv) On February 23, 1995, the Company borrowed approximately $9.45 million
in connection with the issuance of Industrial Development Revenue Bonds by
Fulton County, Kentucky. The proceeds were used to (i) acquire and improve a
tract of land in Fulton County, (ii) construct and equip a laundry facility on
such land, (iii) finance capitalized interest on the bonds during the
construction period and (iv) cover a portion of the costs of the issuance of
the bonds. Principal payments on the bonds are to be made in annual
installments beginning on February 1, 2001 and ending on February 1, 2010. The
bonds on average bear interest at the rate of approximately 7.5% per annum and
mature as follows:
(In Thousands) Interest Rate
- -----------------------------------------------------------------
February 1, 2001 $ 670 7.20%
February 1, 2002 720 7.20%
February 1, 2003 770 7.20%
February 1, 2004 830 7.60%
February 1, 2005 890 7.60%
February 1, 2006 960 7.60%
February 1, 2007 1,030 7.60%
February 1, 2008 1,110 7.50%
February 1, 2009 1,195 7.50%
February 1, 2010 1,280 7.50%
22
<PAGE>
(c) Foreign Financing Agreements (i) In fiscal 1996, Sportswear entered into
financing agree-ments with three banks to provide term loans aggregating
4,600,000 deutsche marks (approximately $3,039,000). The term loans bear an
average interest of 6.1% and mature through fiscal 2000.
(ii) Sportswear has lines of credit with three banks to provide up to 18
million deutsche marks (approximately $11,893,000) at prevailing interest
rates, which approximated 8.0% at November 2, 1996. The lines of credit
generally have no termination date but are reviewed periodically for renewal
at the option of the banks.
(d) Long-term debt maturities are as follows:
Fiscal year ending (In Thousands)
- --------------------------------------------------
1997 $ 750
1998 8,921
1999 8,771
2000 9,892
2001 9,710
Thereafter 34,150
- --------------------------------------------------
$ 72,194
- --------------------------------------------------
5. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into lease/purchase agreements for certain machinery
and equipment. Future minimum lease payments under capital leases, and the
present value of the net minimum lease payments as of November 2, 1996 are as
follows:
Fiscal year ending (In Thousands)
- ----------------------------------------------------
1997 $ 1,015
1998 784
1999 408
2000 159
2001 59
Thereafter 91
- ----------------------------------------------------
2,516
Less: Amount representing
interest 290
- ----------------------------------------------------
Present value of net
minimum lease payments:
Total 2,226
Due within one year 864
- ----------------------------------------------------
Due after one year $ 1,362
- ----------------------------------------------------
6. PENSION PLAN
The Company has a non-contributory defined benefit pension plan for the
eligible employees of Siegel who have met certain service requirements. The
normal retirement age is 65, with early retirement optional at age 62,
provided the length of service requirements, as defined in the plan, have been
met.
Benefits are based upon length of service and a percentage of compensation
subject to limitation. The Company's funding policy is to contribute amounts
determined annually on an actuarial basis that provides for current and future
benefits in accordance with funding requirements of Federal law and
regulations.
The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements at November 4, 1995 and
November 2, 1996:
(In Thousands) Nov. 4, 1995 Nov. 2, 1996
- ----------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation, including
vested benefits of
$15,400 and $20,500 $ (16,600) $ (22,200)
- ----------------------------------------------------------------------
Projected benefit obligation
for services rendered to
date (16,600) (22,200)
Plan assets at fair value,
primarily bonds 11,424 13,221
- ----------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (5,176) (8,979)
Unrecognized net loss from
past experience different
from that assumed 4,065 9,627
Unrecognized prior service
cost 112 84
Unrecognized net obligation
at November 1, 1987 being
recognized over 12 years 415 312
Adjustment required to
recognize minimum
liability (4,592) (10,023)
- ----------------------------------------------------------------------
Accrued pension
liability (5,176) (8,979)
Less: Current portion (584) 1,044
- ----------------------------------------------------------------------
$ (4,592) $ (10,023)
- ----------------------------------------------------------------------
23
<PAGE>
Net pension cost recognized in the consolidated statements of operations
consisted of the following:
Year ended
- ------------------------------------------------------------------------------
(In Thousands) Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ------------------------------------------------------------------------------
Service cost--benefits
earned during the period $ 335 $ 368 $ 358
Interest cost 1,246 1,305 1,403
Actual return on plan
assets 932 (1,351) (202)
Net amortization and
deferral (1,699) 670 (683)
- ------------------------------------------------------------------------------
Net pension cost $ 814 $ 992 $ 876
- ------------------------------------------------------------------------------
Assumptions used in accounting for pension costs are as follows:
1994 1995 1996
- ----------------------------------------------------------------------------
Discount rate 8.5% 8.5% 8.5%
Expected long-term rate of
return on assets 8.5% 8.5% 8.5%
As of October 31, 1996, the mortality assumption has been changed from the
1951 GAM table to the 1983 GAM table. Since the life expectancy rates under
the 1983 GAM table are longer, the effect of the change is to increase the
projected benefit obligation.
7. INCOME TAXES
The components of earnings (loss) before income taxes and the related
provision for income taxes are presented below:
Year ended
- ------------------------------------------------------------------------------
(In Thousands) Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ------------------------------------------------------------------------------
Earnings (loss) before
income taxes:
United States $ 5,180 $ (5,698) $ (31,395)
Europe 7,538 8,079 9,977
- ------------------------------------------------------------------------------
12,718 2,381 (21,418)
- ------------------------------------------------------------------------------
Provision for income
taxes:
Current:
U.S. Federal 1,393 -- --
State and local 300 392 350
Europe 2,360 3,415 4,426
- ------------------------------------------------------------------------------
4,053 3,807 4,776
- ------------------------------------------------------------------------------
Deferred:
U.S. Federal (1,393) (2,438) (630)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total $ 2,660 $ 1,369 $ 4,146
- ------------------------------------------------------------------------------
24
<PAGE>
A reconciliation of the provision for income taxes to the amounts which
would have been recorded using the statutory U.S. Federal income tax rate is
as follows:
Year ended
- ------------------------------------------------------------------------------
(In Thousands) Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ------------------------------------------------------------------------------
Provision for income taxes
at the statutory rate $ 4,324 $ 810 $ (7,282)
Increase (decrease) for
the effect of:
State and local income
taxes, net of Federal
tax benefit 198 259 231
Foreign income taxes (204) 671 1,034
Utilization of net
operating loss
carryforward (2,138) -- --
Change in valuation
allowance -- -- 8,950
Permanent differences 382 (140) 396
Other (net) 98 (231) 817
- ------------------------------------------------------------------------------
Provision for income
taxes $ 2,660 $ 1,369 $ 4,146
- ------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
As of November 4, 1995, the Company had a net deferred tax asset of
approximately $4.2 million primarily attributable to tax credit carryforwards
of $1.0 million and net operating loss carryforwards of $3.2 million. As of
November 2, 1996, the Company has a net deferred tax asset of approximately
$14.0 million, consisting of tax credit carryforwards of $1.0 million and net
operating loss carryforwards and restructuring charges of $14.2 million, which
are partially offset by a deferred tax liability attributable to fixed assets
of approximately $1.2 million. A valuation allowance of approximately $9.0
million has been recorded to reduce the deferred tax asset to the extent its
ultimate realization is uncertain. The Company's net operating loss
carryforwards totaling $16.1 million at November 2, 1996 expire on various
dates from 2009 to 2011.
In addition, the Company had a deferred tax asset attribut-able to an
additional pension liability charged to stockholders' equity of $1.5 million
and $3.7 million as of November 4, 1995 and November 2, 1996, respectively,
for which a full valuation reserve has been provided due to the uncertainty of
its ultimate realization.
No provision has been made for U.S. Federal and foreign withholding taxes on
$8.5 million of the undistributed earnings of the foreign subsidiary from
prior years, as the Company intends to indefinitely reinvest such earnings.
Effective November 7, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." The cumulative effect of this adoption was an increase in
net income of $431,000, or $.05 per share for fiscal 1994.
8. COMMITMENTS
(a) Leases The minimum annual rental commitments under non-cancellable
leases as of November 2, 1996 are as follows (In Thousands):
Real estate Machinery,
and automotive
Fiscal year ending Total buildings equipment, etc.
- ----------------------------------------------------------------------------
1997 $ 2,981 $ 1,970 $ 1,011
1998 2,551 1,854 697
1999 1,844 1,583 261
2000 854 767 87
2001 788 719 69
Thereafter $ 2,805 $ 2,665 $ 140
Rent expense for the years ended November 5, 1994, November 4, 1995 and
November 2, 1996 totaled $4,392,000, $4,125,000 and $3,266,000, respectively.
(b) Consulting and Employment Agreements The Company has employment
agreements with six officers which have initial terms that expire on various
dates through 2001, and a consulting agreement with the former owner of the
business of Siegel, which has an initial term that expires in 1998, which
aggregate $2,375,000 in annual compensation.
25
<PAGE>
9. STOCKHOLDERS' EQUITY
(a) Common Stock. On June 17, 1994, the underwriter of a secondary public
offering of common stock of the Company exercised an over-allotment option
that the Company had granted to the underwriter in connection with the public
stock offering. The Company issued approximately 97,000 shares of common stock
pursuant to the exercise of this over-allotment option.
(b) Stock Options. In February 1993, the Company's stock option plan (the
"Plan") was adopted. Under the Plan, options to purchase an aggregate of not
more than 600,000 shares of common stock may be granted from time to time to
key employees, officers, directors, and consultants of the Company or its
affiliates. Stock appreciation rights related to options ("related SARs") and
stock appreciation rights not related to options ("unrelated SARs") may also
be granted to the aforementioned groups.
The Plan is administered by the Stock Option Committee (the "Committee")
under the Plan. The per share exercise price for stock options may not be less
than 100% of the fair market value of common stock on the date the option is
granted (110% of the fair market value on the date of grant for incentive
stock options if the optionee is more than a 10%-owner of the Company). The
exercise price for unrelated SARs cannot be less than 100% of the common stock
price on the date of grant. For related SARs, the exercise price cannot be
less than 100% of the fair market value of common stock on the date of grant
of the options. Options and SARs may be granted for a term to be determined by
the Committee of not more than ten years from the date of grant.
During 1993 and 1994, stock options were granted to officers and employees
to purchase 477,159 shares of common stock at an exercise price of $11.50 per
share. These options were originally scheduled to vest equally over a period
of three years from date of grant and were exercisable for a term of five
years commencing on the date of grant.
In August 1994, the vesting schedule of all outstanding options was
accelerated and all of such options became immediately exercisable.
On December 9, 1995, the Stock Option Committee approved the replacement of
outstanding options under the Stock Option Plan with new options. The new
options have substantially the same terms as the replaced options except for
the following:
(a) The new options have an exercise price of $5.875 per share, reflecting
the fair market value of a share of Chic common stock on December 9, 1995; and
(b) the new options expire five years from the date of grant, i.e., December
8, 2000.
A summary of activity for the Company's stock option plan is presented
below:
Exercise price
Option shares range per share
- ----------------------------------------------------------------------
Balance, November 6, 1993 480,425 $11.50
Granted 8,250 11.50
Exercised (3,366) 11.50
Cancelled (8,150) 11.50
- ----------------------------------------------------------------------
Balance, November 5, 1994 477,159 $11.50
- ----------------------------------------------------------------------
Granted 78,800 9.875-11.50
Exercised -- --
Cancelled (18,125) 11.50
- ----------------------------------------------------------------------
Balance, November 4, 1995 537,834 $11.50
- ----------------------------------------------------------------------
Granted 20,450 4-5.875
Exercised -- --
Cancelled (32,750) 5.875
- ----------------------------------------------------------------------
BALANCE, NOVEMBER 2, 1996 525,534 $5.875
- ----------------------------------------------------------------------
Year ended
- ---------------------------------------------------------------------------
Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ---------------------------------------------------------------------------
Exercisable 477,159 537,834 525,534
Available for future
grants 122,841 62,166 74,466
In January 1995, the Board of Directors adopted the Chic by H.I.S, Inc. 1995
Stock Option Plan for Non-Employee Directors (the "Formula Plan"), which
permits the award of options to purchase an aggregate of up to 80,000 shares
of common stock of the Company to certain non-employee directors. Awards under
the Formula Plan are made pursuant to a formula that is set forth in the plan.
The Formula Plan was approved by the shareholders in February 1995 and options
to purchase 40,000 shares of common stock, at an exercise price of $9.875 per
share, have been awarded to certain non-employee directors. The outstanding
options became fully exercisable July 1995--six months after the date they
were granted.
26
<PAGE>
10. GEOGRAPHIC INFORMATION
The Company operates primarily in two reportable geographical areas.
Geographic information was:
Year ended
- ------------------------------------------------------------------------------
(In Thousands) Nov. 5, 1994 Nov. 4, 1995 Nov. 2, 1996
- ------------------------------------------------------------------------------
Net sales:
United States $ 276,932 $ 277,896 $ 212,121
Europe 77,283 98,172 106,669
- ------------------------------------------------------------------------------
$ 354,215 $ 376,068 $ 318,790
- ------------------------------------------------------------------------------
Income (loss) from
operations:
United States $ 8,424 $ (16) $(25,256 )
Europe 7,971 8,526 10,382
- ------------------------------------------------------------------------------
$ 16,395 $ 8,510 $ (14,874)
- ------------------------------------------------------------------------------
Identifiable assets:
United States $ 186,138 $ 204,556 $ 156,096
Europe 26,565 34,969 32,164
- ------------------------------------------------------------------------------
$ 212,703 $ 239,525 $ 188,260
- ------------------------------------------------------------------------------
Substantially all of the Company's sales are to retailers throughout the
United States and Europe. Sales to two major customers (with sales in excess
of 10% of total sales) approxi-mated, on an individual basis, 22.3% and 13.1%
for the year ended November 5, 1994, 23.2% and 14.0% for the year ended
November 4, 1995 and 25.5% and 12.2% for the year ended November 2, 1996,
respectively. The receivables from the two major customers at November 4, 1995
and November 2, 1996 represent approximately 43.1% and 41.3%, respectively, of
the total accounts receivable balance. The Company reviews a customer's credit
history before extending credit and obtains credit insurance on certain
account balances. An allowance for possible losses is established based upon
factors surround- ing the credit risk of specific customers, historical trends
and other information.
11. LICENSING REVENUES
The Company has entered into licensing agreements providing for the use of
its trademark, "CHIC" for three- or five-year terms. The Company generally
receives royalty payments of 5% of net sales made by licensees, with
guaranteed minimum payments payable in quarterly installments. Remaining
annual minimum amounts are as follows:
(In Thousands)
- ----------------------------------------------------
1997 $ 2,439
1998 1,269
1999 406
2000 350
2001 200
- ----------------------------------------------------
$ 4,664
- ----------------------------------------------------
12. RESTRUCTURING AND SPECIAL CHARGES
During the first and fourth quarters of fiscal 1996, manage-ment authorized
and committed the Company to undertake significant downsizing and operational
changes which, during the year, resulted in restructuring and special charges
of $30 million.
The charge in the first quarter included the closing of certain
manufacturing facilities in Tennessee and Kentucky. These first quarter
closures resulted in the termination of approximately 940 employees and
resulted in a total charge against earnings aggregating $15 million. In the
fourth quarter, the Company identified additional manufacturing facilities to
be closed. The Company has also started to move certain manufacturing
operations to Mexico, although as of November 2, 1996 no formal operations
have begun there. The additional closures will result in the termination of
approximately 700 employees, and resulted in a total charge against earnings
aggregating $15 million.
Concurrent with the establishment of its restructuring plan, the Company
evaluated its accounting policy for measuring the recoverability of its long-
lived assets and elected early adoption of SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and Assets to be Disposed Of." The write-off
of property and equipment primarily represents the difference between the
carrying values and fair value of the equipment which has been or will be
disposed of as part of the restruc-
27
<PAGE>
turing. Fair value was determined based on management's estimate of
recoverability, net of costs, upon disposition of the assets, which was not
material. The write-off of costs related to the downsizing of production relates
primarily to manufac-turing losses incurred during the wind-down period at the
closed facilities. Start-up costs incurred relating to the move to Mexico
include certain relocation and consulting costs. Other plant closing costs
relate primarily to employee benefits, severance costs and remaining lease
obligations, etc.
The Company has identified additional facilities that will most likely be
closed during fiscal 1997. The majority of fixed assets at these facilities
will be disposed of if such closures take place. The Company intends to
continue the relocation of certain of its manufacturing operations to Mexico
due to the favorable cost structure there; accordingly, the fourth quarter
charge includes approximately $5.4 million to adjust the carrying value of
cutting and other manufacturing equipment at these identified facilities.
Substantially all of the above charges represent non-cash items related to
the write-off of production assets, and other costs related to plant expansion
and excess production costs. The balance of the remaining liability related to
plant closure of $1.1 million is included in other accrued expenses as of
November 2, 1996. The Company expects to complete its plans during fiscal
1997.
The charges are summarized below:
(In Thousands) First Quarter Fourth Quarter Total
- ------------------------------------------------------------------------------
Write-downs of property
and equipment $ 7,500 $ 11,000 $ 18,500
Cost inefficiencies,
caused by downsizing 3,800 -- 3,800
Start-up costs relating to
Mexican operations -- 800 800
Other costs 3,700 3,200 6,900
- ------------------------------------------------------------------------------
$ 15,000 $ 15,000 $ 30,000
- ------------------------------------------------------------------------------
13. DIVIDEND POLICY
The Company has not paid any cash or other dividends on its common stock in
the last two years. As a holding company, the ability of the Company to pay
dividends is dependent upon the receipt of dividends or other payments from
its subsidiaries. The Company is restricted from paying any dividends
according to the Company's domestic credit facility which generally limits the
payment of dividends (aggregated with certain other restricted payments and
restricted invest-ments) by the Company, and by the domestic bank subsid-
iaries to the Company, to 50% of the Company's consolidated net income
computed on a cumulative basis from and after May 8, 1993.
PRICE RANGE OF COMMON STOCK
1995 1996
- ------------------------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------------------------
First Quarter $ 113/8 $ 91/8 $ 61/4 $ 41/2
Second Quarter 111/8 91/2 71/4 43/4
Third Quarter 121/8 101/2 61/2 45/8
Fourth Quarter 101/2 51/4 5 37/8
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "JNS."
As of December 31, 1996, there were 149 stockholders of record.
Design: RKC! (Robinson Kurtin Communications! Inc)
28
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
BURTON M. ROSENBERG
Chief Executive Officer
Chairman of the Board
MILAN DANEK
Managing Director-European Operations
Director
ROLAND L. KIMBERLIN
President-Manufacturing Operations
Director
ROBERT F. LUEHRS
President-Marketing
Director
JOHN CHIN
Chief Financial Officer-Treasurer
STUART JAEGER
Controller-Secretary
STEPHEN WEINER
Executive Vice President
HIRSH JACOBSON
Director (1) (2)
HARVEY SILVERMAN
Chief Financial Officer of Meltzer Enterprises
Director (1) (2)
JESSE S. SIEGEL
Consultant to the Company
Director
EDWARD J. WALSH, JR.
Counsel to Vedder, Price, Kaufman, Kammholz & Day Director (1) (2)
RICHARD HOWE
Co-owner of Penobscot Bay Provisions Co.
Former Executive Vice President of John Hancock
Freedom Securities Corp.
Director (1)
RICA SPECTOR
Dean and Chairperson of Woodmere Middle School
Director (2)
COMMITTEES OF BOARD:
(1) Audit Committee
(2) Compensation Committee
WORLDWIDE LOCATIONS
LOCATIONS UNITED STATES:
Corporate Offices:
New York, NY
SHOWROOMS:
Chicago, IL
Dallas, TX
New York, NY
MANUFACTURING AND DISTRIBUTION:
Belmont, MS
Bruceton, TN
Camden, TN
Clinton, KY
Durango, Mexico
Fulton, KY
Gleason, TN
Hickman, KY
Monticello, KY
Phil Campbell, AL
Saltillo, TN
South Fulton, TN
Tiptonville, TN
Trezevant, TN
LOCATION CANADA:
Quebec, Canada
LOCATIONS EUROPE:
Office and Warehouse:
Garching, Germany
Prague, Czech Republic
Warsaw, Poland
SHOWROOMS:
Bergheim, Austria
Berlin, Germany
Munich, Germany
Neuss, Germany
Prague, Czech Republic
Warsaw, Poland
Zurich, Switzerland
INDEPENDENT PUBLIC ACCOUNTANTS:
BDO Seidman, LLP
New York, NY
TRANSFER AGENT AND REGISTRAR:
Continental Stock Transfer & Trust Company
New York, NY
INVESTOR INQUIRIES:
Investors and other parties with questions, including requests for the
Company's Annual Report on Form 10-K for the fiscal year ended November 2,
1996 should direct such requests in writing to: Investor Relations Dept., Chic
by H.I.S, Inc., 1372 Broadway, New York, NY 10018.
<PAGE>
[PHOTO]
CHIC BY H.I.S, 1372 Broadway New York, NY 10018
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS FILED
AS PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-04-1995
<PERIOD-END> NOV-02-1996
<CASH> 27,178
<SECURITIES> 0
<RECEIVABLES> 33,434
<ALLOWANCES> 125
<INVENTORY> 58,360
<CURRENT-ASSETS> 127,395
<PP&E> 112,471
<DEPRECIATION> 45,641
<TOTAL-ASSETS> 195,733
<CURRENT-LIABILITIES> 29,953
<BONDS> 72,806
0
0
<COMMON> 98
<OTHER-SE> 80,780
<TOTAL-LIABILITY-AND-EQUITY> 195,733
<SALES> 318,790
<TOTAL-REVENUES> 325,149
<CGS> 248,728
<TOTAL-COSTS> 91,459
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (164)
<INTEREST-EXPENSE> 6,544
<INCOME-PRETAX> (21,418)
<INCOME-TAX> 4,146
<INCOME-CONTINUING> (25,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,564)
<EPS-PRIMARY> (2.62)
<EPS-DILUTED> (2.62)
</TABLE>
Exhibit 99.1
FOR IMMEDIATE RELEASE
January 27, 1997 -- Chic by H.I.S, Inc. (New York Stock Exchange
symbol: JNS) announced today that it has retained a managing underwriter for a
proposed initial public offering that will result in the sale by Chic of a
significant minority interest in Chic's wholly-owned German subsidiary h.i.s.
sportswear GmbH headquartered in Munich. The sale is expected to occur in the
second quarter of 1997. Consummation of the sale would be subject to market
conditions, approval by Chic's Board of Directors, receipt of a fairness opinion
from Chic's financial adviser, execution of an underwriting agreement and other
definitive documentation and satisfaction of certain legal and regulatory
requirements.
Upon consummation of the proposed transaction it is anticipated that
the German subsidiary's common stock will be listed on the Frankfurt and Munich
stock exchanges. The securities to be sold in the proposed transaction will not
be registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
The German subsidiary markets women's and men's jeans and casual
pants under the H.I.S. brand name primarily in Germany and, to a lesser extent,
Austria, Switzerland, the Czech Republic, Poland and the Netherlands.
Chic stated that it is considering a variety of uses for the
proceeds to be received by it from the proposed sale, but that ultimately the
use of proceeds will depend on the timing of the sale, the amount of proceeds
actually realized and other factors.
<PAGE>
2
Chic designs, manufactures and markets moderately priced, basic
style, cotton denim jeans, casual pants and shorts for women, girls, men and
boys.
FOR FURTHER INFORMATION: Contact: Chic Public Relations
Department (212-302-6400).
* * *
