CHIC BY H.I.S, INC.
1372 BROADWAY
NEW YORK, NEW YORK 10018
------------------------------
AMENDMENT NO.1, DATED FEBRUARY 25, 1998, TO
INFORMATION STATEMENT
PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1
THEREUNDER
------------------------------
INTRODUCTION
This Information Statement (the "Information Statement") is
being mailed on or about February 25, 1998, to the holders of record of shares
of common stock, par value $0.01 per share (the "Common Stock"), of Chic by
H.I.S, Inc., a Delaware corporation (the "Company"), in connection with the
appointment of certain persons to the Board of Directors (the "Board") of the
Company other than at a meeting of the stockholders of the Company. No action is
required by the stockholders of the Company in connection with the election of
such persons. Nevertheless, you are urged to read this Information Statement
carefully.
This Information Statement is being distributed pursuant to
the requirement of Section 14(f) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended, and rule 14f-1 thereunder.
INFORMATION RELATING TO THE COMPANY'S
VOTING SECURITIES
As of the date hereof, the Company has outstanding 9,787,868
shares of Common Stock. Each outstanding share of Common Stock entitles the
record holder thereof to one vote on all matters which are to be presented to
the stockholders for their consideration. The Common Stock is the only issued
and outstanding voting security of the Company.
BACKGROUND OF TRANSACTION AND
CHANGE IN CONTROL
On January 13, 1998 the Company received a letter dated
January 12, 1998 from Herbert A. Denton of Providence Capital, Inc., notifying
the Company of
<PAGE>
2
his intention to nominate 10 individuals for election to the Board at the 1998
Annual Meeting of Stockholders. In order to avoid a costly and time-consuming
election contest and to further the interests of the Company's stockholders, the
Company reached an agreement with Mr. Denton to reconstitute the Board to
broaden representation on the Board. Thereafter, at a special meeting of the
Board held on February 20, 1998, the Board authorized a reduction of its size
from ten to nine members and the Board accepted the resignation of seven of its
members. The members resigning were Milan Danek, Hirsh Jacobson, Roland L.
Kimberlin, Robert F. Luehrs, Jesse S. Siegel, Rica Spector and Edward J. Walsh,
Jr. (the "Resigning Directors"). The continuing Directors are Burton M.
Rosenberg, Richard K. Howe and Harvey Silverman (the "Continuing Directors").
The Board then elected Arnold M. Amster, Herbert A. Denton, Daniel Rubin and
Kenneth Zimmerman (the "New Directors") to fill the vacancies so created. The
newly reconstituted Board will become effective on the 10th day after the filing
and mailing of this Information Statement (the "Effective Date"), and the two
remaining vacancies on the Board will be filled by the unanimous consent of the
Directors.
PRINCIPAL STOCKHOLDERS OF THE COMPANY
The following table sets forth information regarding each
person known by the Company to own beneficially (as such term is defined in Rule
13d-3 under the Exchange Act) more than 5% of the outstanding Common Stock as of
the date hereof. In accordance with the rules promulgated by the Securities and
Exchange Commission, such ownership includes shares currently owned as well as
shares which the named person has the right to acquire within 60 days,
including, but not limited to, shares which the named person has the right to
acquire through the exercise of any option, warrant or right, or through the
conversion of a security.
Number of Shares of Common
Name and Address Stock Percentage of
of Beneficial Owner Beneficially Owned Common Stock
------------------- ------------------ ------------
Burton M. Rosenberg (1) 400,760 4.1%
c/o Chic by H.I.S, Inc.
1372 Broadway
New York, NY 10018
Jesse S. Siegel (2) 1,150,043 11.7
2504 Laguna Terrace
Ft. Lauderdale, FL 33316
Pioneering Management 879,000 9.0
Corporation (3)
60 State Street
Boston, MA 02109
Dimensional Fund Advisors Inc.(4) 539,300 5.5
1299 Ocean Avenue
Santa Monica, CA 90401
<PAGE>
3
Number of Shares of Common
Name and Address Stock Percentage of
of Beneficial Owner Beneficially Owned Common Stock
------------------- ------------------ ------------
Franklin Resources, Inc.(5)(6) 970,100 9.9
777 Mariners Island Blvd.
San Mateo, CA 94404
Arnold M. Amster (6)(7) 714,200 7.3
767 Fifth Avenue
New York, NY 10153
J. Ezra Merkin (6)(8) 880,100 8.9
919 Third Avenue
New York, NY 10022
T. Rowe Price Associates, Inc. (4) 600,000 6.1
100 E Pratt Street
Baltimore, MD 21202
- -------
(1) See footnotes (a) and (j) to the table below.
(2) Includes 10,000 shares of Common Stock Mr. Siegel has the right to
acquire pursuant to outstanding stock options. At the request of Mr.
Siegel, the Company has filed a Registration Statement on Form S-3
under the Securities Act of 1933 with respect to all of the shares
owned by Mr. Siegel.
(3) Based solely on information obtained from a report on Schedule 13G
received by the Company.
(4) Based solely on information obtained from a report on Schedule 13G
filed with the Securities and Exchange Commission.
(5) Includes securities beneficially owned by one or more open or
closed-end investment companies or other managed accounts which are
advised by direct or indirect subsidiaries of Franklin Resources, Inc.,
of which Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin
Advisory Services, Inc. may be deemed to be beneficial owners.
(6) Based solely on information obtained from a report on Schedule 13D
filed with the Securities and Exchange Commission.
(7) Includes 29,000 shares held by Mr. Amster's spouse and 47,500 shares
held by Mr. Amster's spouse, as custodian for their daughter. Also
includes 25,000 shares held by the Amster Foundation, a private family
foundation, controlled by Mr. Amster. Also includes 100,000 shares held
by Amster & Co., an investment limited partnership. Mr. Amster is the
Senior Managing Partner of Amster & Co. Also includes 429,400 shares
held by Flex Holding Corp., a private investment company. Mr. Amster is
the Chairman of the Board of Flex Holding Corp. Mr. Amster disclaims
beneficial ownership to the foregoing shares.
(8) Includes 355,578 shares of Common Stock owned by Gabriel Capital, L.P.
and 524,522 shares of Common Stock owned by Ariel Fund Limited, of
which J. Ezra Merkin and Ariel Management Corp., the Investment Advisor
of Ariel Fund Limited, may be deemed to be the beneficial owner.
To the knowledge of the Company, except as set forth above, no
person beneficially owns more than 5% of the Common Stock.
The following table sets forth beneficial and record ownership
of the Company's Common Stock as of the date hereof with respect to (i) each
Resigning
<PAGE>
4
Director, Continuing Director and New Director of the Company, (ii) each
executive officer named in the Summary Compensation Table under "Executive
Compensation"; (iii) all Continuing Directors, Resigning Directors and executive
officers as a group; and (iv) all New Directors and executive officers as a
group.
Number of Shares of
Common
Name of Stock Beneficially- Percentage of Common Stock
Beneficial Owner Owned Beneficially-Owned
---------------- ------------------- ------------------
Burton M. Rosenberg 400,760(a)(j) 4.1%
Milan Danek 75,306(b) (c)
Richard K. Howe 15,000(d) (c)
Roland L. Kimberlin 397,760(e)(j) 4.1
Robert F. Luehrs 387,260(e)(j) 3.9
Harvey Silverman 10,600(d) (c)
Stephen Weiner 61,877(f) (c)
Herbert A. Denton 85,000(g) (c)
Kenneth Zimmerman 238,600(h) 2.4
Daniel Rubin 74,100(i) (c)
Arnold M. Amster 714,200(k)(l) 7.3
All Continuing Directors 1,833,086 18.3
and Resigning Directors
and executive as a group
(13 persons)
All New Directors and
executive officers as a
group (11 persons) 1,737,343 17.5
- ---------
(a) Includes 30,000 shares of Common Stock that Mr. Rosenberg has the right
to acquire pursuant to outstanding stock options. Also includes 4,000
shares of Common Stock
<PAGE>
5
that Mr. Rosenberg's spouse has the right to acquire pursuant to
outstanding stock options, as to which shares Mr. Rosenberg disclaims
beneficial ownership.
(b) Includes 30,000 shares of Common Stock that Mr. Danek has the right to
acquire pursuant to outstanding stock options.
(c) Represents less than one percent of the issued and outstanding shares
of Common Stock.
(d) Includes 10,000 shares of Common Stock that Messrs. Howe and Silverman
has the right to acquire pursuant to outstanding stock options.
(e) For each of Mr. Kimberlin and Mr. Luehrs, includes 30,000 shares of
Common Stock that each has the right to acquire pursuant to outstanding
stock options. With respect to Mr. Kimberlin, also includes 4,000
shares of Common Stock that his spouse has the right to acquire
pursuant to outstanding stock options, as to which shares Mr. Kimberlin
disclaims beneficial ownership.
(f) Includes 18,000 shares of Common Stock that Mr. Weiner has the right to
acquire pursuant to outstanding stock options and 1,930 shares of
Common Stock held by Mr. Weiner's spouse. Excludes 1,250 shares of
Common Stock held by Mr. Weiner as custodian for his son under the
Uniform Gifts to Minors Act, as to which shares Mr. Weiner disclaims
beneficial ownership.
(g) Includes 1,000 shares owned by Providence Capital, Inc. over which Mr.
Denton exercises sole voting and investment powers and 80,000 shares
owned by Providence Investors, LLC over which Mr. Denton has shared
voting and investment power.
(h) Based solely on information obtained from Mr. Zimmerman; includes an
aggregate of 5,300 shares held by Zachary Zimmerman, Ryan Zimmerman,
Matthew Zimmerman and Nicole Zimmerman, which shares may be deemed
beneficially owned by Mr. Zimmerman.
(i) Includes 25,000 shares owned by Mr. Rubin's father over which Mr. Rubin
has shared voting power.
(j) Includes 356,760 shares of Common Stock owned by Kenbarb Corp., a
Delaware corporation, which shares are deemed to be beneficially owned
by Messrs. Rosenberg, Kimberlin and Luehrs by virtue of their
respective control of 30.1% of the voting power in Kenbarb Corp.
(k) See footnote (5) in the table above.
(l) Includes 29,000 shares held by Mr. Amster's spouse and 47,500 shares
held by Mr. Amster's spouse, as custodian for their daughter. Also
includes 25,000 shares held by the Amster Foundation, a private family
foundation, controlled by Mr. Amster. Also includes 100,000 shares held
by Amster & Co., an investment
<PAGE>
6
limited partnership. Mr. Amster is the Senior Managing Partner of
Amster & Co. Also includes 429,400 shares held by Flex Holding Corp., a
private investment company. Mr. Amster is the Chairman of the Board of
Flex Holding Corp. Mr. Amster disclaims beneficial ownership to the
foregoing shares.
DIRECTORS
Directors generally are elected by the affirmative vote of a
plurality in voting power present in person or represented by proxy and entitled
to vote, and hold office until the next annual meeting of stockholders and until
their successors are duly elected and qualified or until their earlier death,
resignation, removal or disqualification. The two remaining vacancies will be
filled by the unanimous consent of the Directors.
The following table sets forth certain information with
respect to the Continuing Directors and the New Directors. On the Effective
Date, the Board will consist of seven members.
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
Burton M. Rosenberg.......... 66 Chief Executive Officer; 1988
Chairman of the Board;
Director
Richard K. Howe.............. 54 Director 1993
Harvey Silverman............. 63 Director 1993
Arnold M. Amster............. 57 Director (*)
Herbert A. Denton............ 50 Director (*)
Kenneth Zimmerman............ 48 Director (*)
Daniel Rubin................. 49 Director (*)
-----------------
*/ The person becomes a Director as of the Effective Date.
Set forth below is a summary of the business experience of
each person listed in the table above.
Burton M. Rosenberg is the Chief Executive Officer of the
Company and has been a director of the Company since December 1988. Mr.
Rosenberg served as the
<PAGE>
7
Company's Chief Financial Officer from 1969 to 1986 and then as President and
Chief Executive Officer. Mr. Rosenberg has worked over 28 years at the Company.
He holds a B.A. and an M.A. from Brooklyn College, an M.B.A. from Columbia
University, and a Ph.D. in Economics from New York University.
Richard K. Howe has been a director of the Company since May
1993. Since June 1992, Mr. Howe has been a director of Back Bay Restaurant Group
Inc., which is a publicly held company. Prior to June 1992, Mr. Howe was an
executive vice president and a director of Tucker Anthony Incorporated and an
officer or director, or both, of its parent companies and affiliates and
thereafter, until March 1996, served as a consultant to those companies. In
addition, from 1980 to 1987, Mr. Howe was a general partner (1980-82), an
executive vice president and a director of Prescott, Ball & Turben, a
Cleveland-based investment banking firm, and previously was a partner of Squire,
Sanders & Dempsey, a Cleveland-based law firm.
Harvey Silverman became a director of the Company in 1993.
Since 1986, Mr. Silverman has been the Chief Financial Officer and Treasurer of
Objects of Art Ltd., a manufacturer of ladies' sportswear, and Meltzer
Industries Corporation, a manufacturer of children's apparel. Since 1988, Mr.
Silverman has been the President of Judyanna Ltd., a sweater manufacturer. In
addition, since 1991 Mr. Silverman has been the Chairman of the Board of
Quicksilver Development Corp., a computer software developer. Mr. Silverman has
been a certified public accountant since 1962.
Arnold M. Amster has been the Senior Managing Partner of
Amster & Co. and the Chairman of the Board of Flex Holding Corporation, both
private investment companies, and a director of BEM International, a money
management firm since prior to 1990.
Herbert A. Denton has been the President of Providence
Capital, Inc., a private investment firm and registered broker dealer since
1991. He is also a director of Mesa Air Group Inc., the largest
independently-owned airline in the world.
Daniel Rubin has been a Managing Partner of LDR Equities,
which engages in the management of real estate, textile and clothing businesses
since 1996. He has also been the principal stockholder of Trimtex Company, a
textile manufacturer as well as Gorden & Ferguson, a manufacturer of men's and
children outerwear since 1997.
Kenneth Zimmerman was the founder and has been the Chief
Executive Officer, the President and the sole stockholder of Kenar Enterprises,
Ltd., a privately held women's apparel manufacturer and retailer for the past
twenty-one years.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding
the executive officers of the Company:
<PAGE>
8
Name Office or Positions Held
- ---- ------------------------
Burton M. Rosenberg............ Chairman of the Board; Chief Executive Officer
Milan Danek.................... Managing Director, European Operations
Christine Hadjigeorge.......... Treasurer; Chief Financial Officer
Stuart Jaeger.................. Controller; Secretary
Roland L. Kimberlin............ President - Manufacturing Operations
Robert F. Luehrs............... President
Stephen Weiner................. Executive Vice President, National Sales
Manager
For biographical information on Mr. Rosenberg, see
"Directors."
Milan Danek is the Managing Director, European Operations of
the Company and was a director of the Company from 1993 until the Effective
Date. Mr. Danek has worked over 24 years at the Company (during which time he
has served as Managing Director of the Company's German subsidiary) and has
approximately 31 years of industry experience. His previous industry experience
includes three years at Levi Strauss in Germany, where he was the Marketing
Director at the time of his departure, and seven years with the exclusive
distributor of Levi Strauss for southern Germany and Austria.
Roland L. Kimberlin has served as an executive officer of the
Company for more than nine years, most recently as Vice President and President
- - Manufacturing Operations. Mr. Kimberlin was a director of the Company from
1993 until the Effective Date. Prior to joining the Company in 1966, Mr.
Kimberlin was employed by Ashland Oil and Refining Company, where he held a
number of positions, including regional bulk plant manager.
Robert F. Luehrs has been an executive officer of the Company
for over 23 years, and has most recently served as Vice President and President
of the Company. Mr. Luehrs was a director of the Company from 1993 until the
Effective Date. Mr. Luehrs has been employed by the Company for over 38 years
and, prior to assuming his current responsibilities, served in various
capacities, including sales representative and regional sales manager. Mr.
Luehrs has had approximately 41 years experience in the apparel industry.
Christine Hadjigeorge, age 35, has been the Chief Financial
Officer and Treasurer of the Company since February 1997. Prior to joining the
Company, Ms. Hadjigeorge was a partner at BDO Seidman, LLP, a public accounting
firm, where she worked for over twelve years. Ms. Hadjigeorge is a graduate of
the College of William & Mary and a certified public accountant in the state of
New York.
Stuart Jaeger, age 62, has been the Controller of the Company
since 1975 and its Secretary since 1988. Mr. Jaeger has worked over 21 years
with the Company. Prior to
<PAGE>
9
joining the Company, Mr. Jaeger worked for 18 years as an accountant with Brout
& Company.
Stephen Weiner, age 47, has been the Executive Vice President,
National Sales Manager of the Company since 1986. Prior responsibilities with
the Company included serving as a sales trainee, a salesman for the Northern New
England States, the Major New York Accounts Manager and the Sales Manager of
Chains and National Accounts. Mr. Weiner has been employed by the Company for
over 24 years.
Officers are chosen by the Board of Directors annually or at
such other time or times as the Board determines.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to,
earned by or paid to the Chief Executive Officer and the four other most highly
compensated executive officers during the fiscal years ended November 1, 1997,
November 2, 1996 and November 4, 1995 for services rendered in all capacities to
the Company and its subsidiaries.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
LONG-TERM
COMPENSATION
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
FISCAL YEAR SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION ENDED ($) ($) GRANTED (#)
- --------------------------- ------- ------ ----- -----------
<S> <C> <C> <C> <C>
Burton M. Rosenberg.............................. 11/1/97 416,467 40,000 0
Chairman of the Board and Chief 11/2/96 416,467 25,000 0
Executive Officer 11/4/95 403,846 0 10,000
Robert F. Luehrs................................. 11/1/97 320,006 40,000 0
President 11/2/96 328,512 25,000 0
11/4/95 342,324 0 10,000
Roland L. Kimberlin.............................. 11/1/97 360,965 40,000 0
President-Manufacturing Operations 11/2/96 360,965 25,000 0
11/4/95 362,833 0 10,000
Milan Danek...................................... 11/1/97 418,007 40,000 0
Managing Director, European Operations 11/2/96 428,112 25,000 0
11/4/95 397,906 0 10,000
<PAGE>
10
LONG-TERM
COMPENSATION
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
FISCAL YEAR SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION ENDED ($) ($) GRANTED (#)
- --------------------------- ------- ------ ----- -----------
Stephen Weiner................................... 11/1/97 312,048 35,973 0
Executive Vice President, National Sales 11/2/96 293,336 22,500 0
Manager 11/4/95 287,093 0 0
- --------------------
(1) The column designated "Other Annual Compensation" by the Securities and Exchange Commission (the "SEC") for
the reporting of perquisites and other personal benefits has been eliminated because the amounts paid to each
executive officer do not exceed the disclosure threshold established by the SEC pursuant to applicable rules, and no
other compensation required to be reported under that column was awarded to, earned by or paid to any of the
named executive officers during the period covered by the table. In addition, the columns designated by the SEC
for the reporting of certain long-term compensation, including awards of restricted stock and long-term incentive
plan payouts, have been eliminated as no such awards have been granted to date, nor have any such payouts been
made during the period covered by the table, and the column designated "All Other Compensation" has been
omitted as no compensation required to be reported under such column was received.
</TABLE>
<PAGE>
11
OPTION EXERCISES/VALUE OF UNEXERCISED OPTIONS
The following table sets forth certain information concerning
unexercised options to purchase Common Stock of the Company held at the end of
fiscal year 1997 by the named executive officers. None of the named executive
officers exercised any options during fiscal year 1997. No named executive
officer has been awarded stock appreciation rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
SHARES VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY STOCK
NAME ON EXERCISE (#) ($) STOCK OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)(1)
- ---- --------------- --- --------------------------- ------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Burton M. Rosenberg.... 0 $0 30,000 0 $54,390 $0
Milan Danek............ 0 0 30,000 0 54,390 0
Roland L. Kimberlin.... 0 0 30,000 0 54,390 0
Robert F. Luehrs....... 0 0 30,000 0 54,390 0
Stephen Weiner......... 0 0 18,000 0 32,634 0
- --------------------
(1) Based upon the closing sale price of the Common Stock on October 31, 1997 ($7.688) on the New York Stock
Exchange minus the option exercise price ($5.875).
</TABLE>
<PAGE>
12
PENSION PLAN
The following table sets forth the approximate annual benefits
payable upon retirement at age 65 (and upon at least five years of service)
under the Pension Plan for Eligible Employees of Henry I. Siegel Co. (the
"Pension Plan") as a life annuity, based on the average annual salaries and
years of service indicated.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
----------------
AVERAGE ANNUAL COMPENSATION 15 20 25 30 35
- --------------------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$10,000............................. $1,407 $1,67 $1,77 $1,86 $1,95
8 0 4 6
50,000............................. 1,647 1,917 2,010 2,103 2,196
100,000............................. 1,647 1,917 2,010 2,103 2,196
200,000............................. 1,647 1,917 2,010 2,103 2,196
300,000............................. 1,647 1,917 2,010 2,103 2,196
</TABLE>
Compensation used to determine benefits generally includes a
participant's total earned income, wages, salaries and other amounts received
for services rendered to the Company or an affiliate, excluding certain
specified items such as Company contributions to a deferred compensation plan
and amounts realized in connection with stock options or restricted stock.
Annual compensation taken into account under the Pension Plan is limited to
$14,000. Benefits are computed on a single life annuity basis and are not
subject to any offset for social security. With respect to the following
individuals named in the Summary Compensation Table, the annual current covered
compensation under the plan is $14,000, which is substantially less than the
amount set forth under "Salary" in the Summary Compensation Table, and the
estimated current credited years of service are as follows:
Mr. Rosenberg.................................................27 years
Mr. Danek.....................................................23 years
Mr. Kimberlin.................................................30 years
Mr. Luehrs....................................................37 years
Mr. Weiner....................................................22 years
CERTAIN DEATH BENEFITS
Upon recommendation of the Compensation Committee, in the
first quarter of fiscal 1994 the Board of Directors authorized the Company to
pay $5 million to the estate of Burton Rosenberg, $2 million to the estate of
Robert Luehrs, $2 million to the estate of Roland Kimberlin, $2 million to the
estate of Stephen Weiner and $1 million to the estate of Milan Danek upon the
death of Mr. Rosenberg, Mr. Luehrs, Mr. Kimberlin, Mr. Weiner or Mr. Danek,
respec tively, if (i) such executive is an employee of the Company at the time
of his death or (ii) retires in good standing from the Company no earlier than
the date on which such
<PAGE>
13
executive reaches the age of 65 and (iii) if the Company at the time of the
death of such executive is the owner and beneficiary of insurance on his life in
the principal amount to be paid. In March, 1997, the death benefit payable to
the estate of Milan Danek was increased to $2 million. The Company is
authorized, but not required, to maintain life insurance policies on the lives
of these executives naming the Company as beneficiary to support this
obligation, substantially all of which policies the Company currently has in
effect and the proceeds of which policies the Company would intend to pay to the
appropriate executive's estate upon his death.
EMPLOYMENT AGREEMENT
The Company entered into employment agreements with each of
Burton M. Rosenberg, Roland L. Kimberlin, Robert F. Luehrs and Stephen Weiner
(collectively, the "Executive Employment Agreements") effective as of March 15,
1996, as amended on March 17, 1997 and February 20, 1998. Each Executive
Employment Agreement has an initial term of five years and provides that upon
the expiration of the initial term, the initial term will be extended
automatically for successive one-year periods unless either party gives at least
90 days' written notice of his or its intent not to allow such extension to
become effective. The Executive Employment Agreements provide for annual
salaries to Messrs. Rosenberg, Kimberlin, Luehrs and Weiner of $393,750,
$341,276, $341,250 and $288,750, respectively, which may be increased on each
February 1 during the term of their Executive Employment Agreements, at the
discretion of the Board of Directors of the Company. Each Executive Employment
Agreement permits the Company to terminate the employee's employment for cause
(as defined therein) or if the employee becomes permanently and seriously
disabled. If, after a Change in Control, the employees terminate their Executive
Employment Agreements for Good Reason (as defined therein), or if they are
terminated without cause, they are entitled to receive the greater of (a) the
amounts due under their Executive Employment Agreements for the remainder of
their terms of employment or (b) one month of salary for every year of
employment with the Company, limited to twelve months of salary, at the rate in
effect on the day that employment is terminated. In the event that during the
term of the Executive Employment Agreements any of these employees (with the
exception of Stephen Weiner) becomes permanently disabled, either physically or
mentally, resulting in an absence from the office for periods aggregating 120
business days during any 12 month period, the Company shall pay such employee a
monthly benefit (the "Disability Benefit") following the employee's termination
of employment on account of such disability. The Disability Benefit payable
shall be 100% of such employee's monthly salary for the first 24 months of the
employee's disability and 50% of such employee's monthly salary thereafter for
the remainder of the employee's lifetime. The Disability Benefit shall be
reduced (but not below zero), however, by an amount equal to the sum of (a) any
other disability payments received by the employee from the Company, its
subsidiary, Henry I. Siegel Company, or any insurance policy of these entities,
(b) two thirds of any earned income received by the employee for full-time
executive employment with any entity commencing after the payment of a
Disability Benefit begins, and (c) any amount for which the employee is eligible
because of his disability under Federal
<PAGE>
14
social security laws or, prior to age 65, under any Company or Harry I. Siegel
Company sponsored retirement plan. Each Executive Employment Agreement also
contains a covenant not to compete, whereby the employee agrees that during the
term of the agreement, and for up to one year following the employee's
termination of employment, the employee will not, under certain circumstances,
among other things, engage in a business that is materially competitive with any
material business operated by the Company on the effective date of the
agreement.
MANAGEMENT AGREEMENT
The Company's German subsidiary has entered into a management
agreement with Milan Danek effective as of January 13, 1997, as amended on March
10, 1997 (the "Management Agreement"). The Management Agreement, which is
subject to the laws of the Federal Republic of Germany, has an initial term of
five years and provides that upon the expiration of the initial term, the
initial term will be extended automatically for successive one-year periods
unless either party gives at least six months' written notice of his or its
intent not to allow such extension to become effective. The Management Agreement
provides for an annual salary to Mr. Danek in the amount of DM 606,000 ($351,480
based on the exchange rate for the deutsche mark on November 1, 1997), which may
be increased from time to time at the discretion of Supervisory Board of the
Company's German subsidiary (the "Supervisory Board"). Mr. Danek is also
entitled to a Disability Benefit under the same circumstances and on the same
terms as those of Messrs. Rosenberg, Kimberlin, and Luehrs. In addition, Mr.
Danek may receive an additional bonus at the sole discretion of the Supervisory
Board. The Management Agreement also contains a covenant not to compete, whereby
Mr. Danek agrees that during the term of the Management Agreement, and for up to
one year following the expiration of the term, he will not compete with the
Company.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company receive an
annual fee of $12,000 for serving on the Board of Directors. No annual fee is
paid to any officer serving on the Board of Directors. In addition, all
directors (including officers serving as directors) receive a fee of $500 for
each meeting of the Board of Directors or committee meeting attended.
The Company is a party to an Amended and Restated Consulting
Agreement, dated September 23, 1988, with Mr. Jesse S. Siegel (the "Consulting
Agreement"). Mr. Siegel was a director of the Company from February 1993 to
February 1998 and is a former chief executive officer of a predecessor to the
Company. Under the Consulting Agreement, Mr. Siegel agrees to render consulting
services to the Company in the area of manufacturing, marketing and selling
women's apparel as the Company may from time to time request. The Consulting
Agreement has an initial term of ten years and may be extended, at the option of
Mr. Siegel, for up to four additional five-year terms. Mr. Siegel receives an
annual fee of $500,000 pursuant to the Consulting Agreement. The Consulting
Agreement contains a
<PAGE>
15
covenant not to compete, whereby Mr. Siegel agrees that during the term of the
Consulting Agreement and for one year thereafter he will not, under certain
circumstances, among other things, engage in a business that is materially
competitive with any material business operated by the Company on the date of
the Consulting Agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
KENBARB CORP.
Kenbarb Corp. currently owns approximately 3.7% of the issued
and outstanding Common Stock of the Company. All of Kenbarb's outstanding
capital stock is beneficially owned by four officers of the Company: each of Mr.
Burton M. Rosenberg, Mr. Robert F. Luehrs and Mr. Roland L. Kimberlin
beneficially owns 30.1% of the issued and outstanding capital stock of Kenbarb,
and Mr. Harvey Schulman beneficially owns 9.7% of the issued and outstanding
stock of Kenbarb.
TUCKER ANTHONY INCORPORATED
Prior to March 1996, Mr. Richard K. Howe, a director of the
Company, was a consultant to Tucker Anthony Incorporated ("Tucker Anthony"), an
investment banking firm, and prior to June 1992 was an executive vice president
and a director of Tucker Anthony. In February 1996, Tucker Anthony acted as
financial advisor for the Company in connection with the Company's negotiation
of certain waivers of defaults and amendments to the agreements with the holders
of its senior notes and its bank lenders. In 1997, Tucker Anthony acted as
financial advisor for the Company in connection with the adoption of a
shareholder rights plan by the Company and in connection with an initial public
offering of a minority interest in the Company's German subsidiary. Tucker
Anthony is acting as financial advisor for the Company in connection with
matters relating to the 1998 Annual Meeting for the Stockholders and the
solicitation of proxies from shareholders.
BY ORDER OF THE BOARD
/s/ Burton M. Rosenberg
---------------------------
Burton M. Rosenberg
Chief Executive Officer
Date: February 25, 1998
