SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _________________ to ________________ .
Commission file number 1-11812
STARTER CORPORATION
(exact name of registrant as specified in its charter)
Delaware 06-0872266
- - -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
370 James Street, New Haven, Connecticut 06513
-----------------------------------------------
(Address of principal executive offices, including zip code)
(203) 781-4000
--------------
(Registrant's telephone number, including area code)
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
---------- ------------
26,840,007 shares of common stock, $.01 par value, were outstanding as of May 3,
1996.
1
<PAGE>
INDEX
STARTER CORPORATION
Page Number
PART 1 Financial Information
ITEM 1 Consolidated Financial Statements (unaudited)
Consolidated balance sheets - March 31, 1996,
December 31, 1995 and March 31, 1995 3-4
Consolidated statements of operations - Three months
ended March 31, 1996 and March 31, 1995 5
Consolidated statements of cash flows - Three months
ended March 31, 1996 and March 31, 1995 6
Notes to consolidated financial statements -
March 31, 1996 7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II Other Information
ITEM 6 Exhibits and Reports on Form 8-K 12
Signature 13
2
<PAGE>
STARTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE><CAPTION>
March 31, 1996 December 31, 1995 March 31, 1995
-------------- ----------------- --------------
(unaudited) (note) (unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,940 $ 4,506 $ (1,699)
Accounts receivable - trade, less
allowance for doubtful accounts of
$3,800 at March 31, 1996, $3,800 at
December 31, 1995 and
$4,000 at March 31, 1995 $38,4504 4,564 49,686
Inventories 61,404 61,460 55,484
Prepaid expenses and other assets 15,539 16,682 14,766
Deferred income taxes 9,629 9,629 15,888
--------- -------- ---------
Total current assets 127,962 136,841 134,125
Property, plant and equipment
Land and building 12,846 12,835 12,823
Machinery and equipment 16,366 16,268 15,555
Leasehold improvements 3,424 3,376 2,693
------ --------- --------
32,636 32,479 31,071
Less accumulated depreciation
and amortization 6,734 6,159 4,430
------- --------- --------
25,902 26,320 26,641
Other assets:
Other assets (primarily trademarks) 2,622 2,640 2,344
Deferred income taxes 523 523 1,121
Other investments 1,362 1,362 1,362
Total other assets 4,507 4,525 4,827
---------- --------- -----
Total assets $158,371 $167,686 $165,593
======== ======== ========
</TABLE>
3
<PAGE>
STARTER CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except share data)
<TABLE><CAPTION>
March 31, 1996 December 31, 1995 March 31, 1995
-------------- ----------------- --------------
(unaudited) (note) (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Notes payable to banks $ 21,765 $ 21,729 $ 28,038
Accounts payable 8,490 8,585 5,814
Accrued commissions 2,044 2,980 2,883
Accrued licensing fees 6,358 7,517 9,446
Accrued expenses 13,036 14,763 11,371
Accrued advertising 4,591 7,692 5,705
Current portion of
long-term debt 1,749 1,749 1,844
Total current liabilities 58,033 65,015 65,101
Long-term debt, less
current portion 7,442 7,828 9,191
Stockholders' equity
Convertible Preferred stock
($.01 par value) 5,000,000
authorized shares, 408,164
shares issued at December 31,
1995 and March 31, 1995 4 4
Common Stock ($.01 par value)
50,000,000 shares authorized;
issued 26,838,707 at March 31,
1996, 26,425,643 at December
31, 1995 and 26,413,648 at
March 31, 1995 268 264 264
Additional paid in capital 75,162 75,133 75,047
Retained earnings 17,466 19,442 15,986
------ ------ --------
Total stockholders' equity 92,896 94,843 91,301
------- ------ ------
Total liabilities and
stockholders' equity $158,371 $167,686 $165,593
======== ======== ========
</TABLE>
Note: The consolidated balance sheet at December 31, 1995 has been derived
from the audited financial statements at that date, but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
4
<PAGE>
STARTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE><CAPTION>
Three Months Ended
March 31,
--------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 59,295 $ 66,710
Cost of sales 41,109 47,646
------ ------
18,186 19,064
Royalty income 622 456
Selling, general & administrative expenses 21,471 22,514
------ ------
Loss from operations (2,663) (2,994)
Other income 98 23
Interest expense (679) (749)
------ ----
Loss before income taxes (3,244) (3,720)
Income tax benefit (1,268) (1,487)
--------- ------
Net loss $ (1,976) $ (2,233)
========== =========
Loss per share $ ( .07) $ (.08)
========== =========
Average common and common
equivalent shares 26,836,256 26,821,824
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
STARTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss (1,976) $ (2,233)
Adjustments to reconcile net loss
to net cash provided (used) by operating
activities:
Depreciation and amortization 718 654
Provision for bad debts 24 269
Changes in operating assets and liabilities:
Accounts receivable 6,090 2,604
Inventories 56 21,719
Prepaid expenses and other assets 1,143 (1,750
Accounts payable and accrued expenses (7,018) (15,708)
-------- --------
Net cash provided (used) by operating activities (963) 5,555
Cash flows from investing activities
Purchase of property, plant and equipment (157) (732)
Other, net (125) (14)
-------- --------
Net cash used by investing activities (282) (746)
Cash flows from financing activities
Repayment of long-term borrowings (386) (391)
Net borrowings (repayments) on credit arrangements 36 (11,620)
Net proceeds from sale of common stock 29 24
------- ---------
Net cash used by financing activities (321) (11,987)
----- -------
Net decrease in cash and cash equivalents (1,566) (7,178)
------- ------
Cash and cash equivalents - beginning of period 4,506 5,479)
----- ------
Cash and cash equivalents (deficiency) - end
of period $ 2,940 ($1,699)
======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
STARTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
1) Basis of Presentation
The accompanying unaudited consolidated financial statements of STARTER
Corporation ("the Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The Company has experienced, and expects to continue to experience, variability
in net sales and net income (loss) from quarter to quarter. Therefore, the
results of the interim periods presented herein are not necessarily indicative
of the results to be expected for any other interim period or the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1995 included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
2) Inventories
Inventories were as follows (in thousands):
March 31, December 31, March 31,
1996 1995 1995
------ ------ ------
Raw materials $12,055 $11,226 $8,685
Work in process 1,114 847 247
Finished goods 48,235 49,387 46,552
-------- -------- --------
$61,404 $61,460 $55,484
======= ======= =======
7
<PAGE>
3) Commitments and Contingencies
In September 1994, a consolidated and amended class action lawsuit was filed
against the Company and certain directors and officers, alleging, among other
things, that they failed to make certain disclosures. In addition, the Company
is a party to various lawsuits incidental to its business. Management believes
that the class action lawsuit and the other various lawsuits will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
4) Reclassification
Certain prior year amounts have been reclassified to conform with the current
year presentation.
8
<PAGE>
ITEM 2
STARTER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's business is seasonal with higher sales reported in the second half
of the year due to the higher price points of a significant portion of the
Company's products which are sold during the fall and holiday seasons. The
seasonality of the Company's business also affects borrowings under the
Company's revolving credit agreement. The amount outstanding under the
revolving credit agreement fluctuates as a result of seasonal demands for the
Company's products. Traditional quarterly fluctuations in the Company's
business may vary in the future depending upon, among other things, changes in
order cycles and product mix.
The Company's business is vulnerable to a number of factors beyond its control.
These include (1) player strikes, (2) owner lockouts, (3) work stoppages, (4)
the granting of additional licenses to competitors, some of which have greater
financial resources and manufacturing capabilities than the Company, and (5)
changes in consumer tastes and enthusiasm for spectator sports. The Company's
business can also be affected by other matters which impact the retail
marketplace, including increased credit and inventory exposure, consolidation
and resulting decline in the number of retailers and other cyclical economic
factors. The Company seeks to minimize inventory exposure by encouraging
retailers to place orders five to six months in advance of the date products are
scheduled to be delivered.
A substantial portion of the Company's products are manufactured through
arrangements with independent contractors located in Korea and, to a lesser
extent, other foreign countries. In addition, the Company's import operations
are subject to constraints imposed by bilateral textile agreements between the
United States and a number of foreign countries. The agreements impose quotas
on the amount and type of goods which can be imported into the United States
from these countries. The Company's operations may be adversely affected by
political instability resulting in the disruption of trade from foreign
countries in which the Company's contractors and suppliers are located, the
imposition of additional regulations relating to imports, or duties and taxes
and other charges on imports. The Company is unable to predict whether any
additional regulations, duties, taxes, quotas or other charges may be imposed on
the importation of its products. The assessment of any of these items could
result in increases in the cost of such imports and affect the sales or
profitability of the Company. In addition, the failure of one or more
manufacturers to ship some or all of the Company's orders could impact the
Company's ability to deliver products to its customers on time. Delays in
delivery could result in missing certain retailing seasons with respect to some
or all of the Company's products or could otherwise adversely affect the
Company.
9
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of operations.
Quarter Ended March 31,
-----------------------
1996 1995
---- ----
Net Sales 100.0% 100.0%
Cost of sales (69.3) (71.4)
------ -----
Gross profit 30.7 28.6
Royalty income 1.0 .6
Selling, general & administrative expenses (36.2) (33.7)
------ ------
Loss from operations (4.5) (4.5)
Other income (expense) - net .1 --
Interest expense (1.1) (1.1)
----- -----
Loss before income taxes (5.5) (5.6)
Income tax benefit (2.2) (2.3)
----- -----
Net loss (3.3%) (3.3%)
====== ======
Quarter Ended March 31, 1996 compared to Quarter Ended March 31, 1995
- - ---------------------------------------------------------------------
Net sales for the quarter ended March 31, 1996 were $59,295,000 as compared to
$66,710,000 for the quarter ended March 31, 1995, an 11.1% decrease. The
decrease in sales is primarily attributable to the sale in 1995 of approximately
$7,000,000 of excess inventory, coupled with the continuing slowdown of apparel
sales at the retail level.
Gross profit for the quarter ended March 31, 1996 was $18,186,000 or 30.7% of
net sales as compared to $19,064,000 or 28.6% for the quarter ended March 31,
1995. The increased margin is primarily related to the disposition of certain
written down inventory at depressed margins during the first quarter of 1995
(3.4%) partially offset by higher distribution costs and variances (1.3%) during
the first quarter of 1996.
10
<PAGE>
Royalty income for the first quarter of 1996 increased to $622,000 from $456,000
in the first quarter of 1995 primarily as a result of the addition of new
domestic licensees offset by reduced royalties from distributors, primarily in
Australia and Canada.
Selling, general and administrative expenses decreased to $21,471,000 for the
quarter ended March 31, 1996 as compared to $22,514,000 for the quarter ended
March 31, 1995. The decrease is primarily attributable to decreased
advertising and promotional expenses of $2,389,000 as a result of a shift in the
timing of expenditures compared to 1995. This decrease was partially offset by
increased salaries and wages of $722,000 associated with the addition of senior
and middle management personnel hired throughout 1995 and increased outlet store
expenses associated with the expansion to fifteen stores at March 31, 1996 as
compared to eight at March 31, 1995.
Interest expense decreased to $679,000 for the quarter ended March 31, 1996 from
$749,000 for the quarter ended March 31, 1995, primarily attributable to
decreased overall borrowings.
Liquidity and Capital Resources
The Company's financial condition at March 31, 1996 was relatively consistent
with that of December 31, 1995. The Company's current ratio and working capital
were 2.2 and $70,000,000, respectively, at March 31, 1996 as compared to 2.1 and
$72,000,000 at December 31, 1995. Cash used by operations for the quarter ended
March 31, 1996 was $963,000 as compared to cash provided by operations of
$5,555,000 for the quarter ended March 31, 1995. The reduction in inventory in
the first quarter of 1995, combined with reductions in accounts receivable,
resulted in cash generated from operations in the first quarter of 1995. Cash
generated by operations, together with the Company's existing revolving credit
agreement is expected, under current conditions, to finance the Company's
planned operations in 1996.
Impact of Inflation
The Company has not experienced significant price increases from product
suppliers in the recent past, nor has it experienced any significant impact from
inflationary factors.
Impact of Recently Issued Accounting Pronouncements
The Company does not expect that any recently issued accounting standards will
have a material impact on the Company's operating results, financial position or
liquidity.
11
<PAGE>
Part II - Other Information
Item 6: Exhibits and reports on Form 8-K
(a) Exhibits
10.28 STARTER Corporation Incentive Compensation Plan
effective as of January 1, 1995
10.29 Form of Employment Agreement by and between STARTER
Corporation and John M. Tucker dated as of January 1, 1996
11 Computation of net loss per share for the three months
ended March 31, 1996 and for the three months ended
March 31, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended March 31, 1996.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARTER CORPORATION
DATE: MAY 8, 1996 /s/ Lawrence C. Longo, Jr.
------------------------------------------
Lawrence C. Longo, Jr.
Chief Financial Officer and Chief
Accounting Officer
13
Exhibit 10(28)
STARTER CORPORATION
-------------------
INCENTIVE COMPENSATION PLAN
---------------------------
1. PURPOSE. The purpose of this Plan is to enable Starter
-------
Corporation to establish a procedure to reward employees who are Participants
for their efforts, dedication and assistance in enhancing the operations of the
Company by providing a cash incentive in addition to current compensation.
2. DEFINITIONS. For all purposes hereunder, the following words, when
-----------
capitalized, shall have the meanings set forth below:
a. Administrator - means the Director of Human Resources of the
-------------
Company or other employee appointed each year by the President of the Company to
assist in the operation of the Plan including calculation of the Standard Bonus
of each Participant.
b. Applicable Bonus Year - means the Bonus Year to which a
----------------------
particular award or calculation applies.
c. Bonus - means the cash bonus that may be awarded to each
-----
Participant pursuant to Article 3 of this Plan.
d. Bonus Index - means the percentage determined by dividing (i)
-----------
the Company's Return on Assets by (ii) the Incentive Standard.
e. Bonus Pool - means an amount equal to 10% of the Company's
----------
Target Earnings.
1
<PAGE>
f. Bonus Year - means a calendar year during which the Plan is in
----------
effect.
g. Committee - means the President of the Company, the Director of
---------
Human Resources and any other employee if any who may be appointed by the
President to determine the Standard Bonus of each Participant.
h. Company - means Starter Corporation and any of its operating
-------
subsidiaries. Any action which the Company is authorized to take hereunder may
be taken by the President of the Company or his designee.
i. Company Return on Assets - means a percentage equal to Target
-------------------------
Earnings for the Applicable Bonus Year divided by the average of the Company's
assets as shown on its balance sheets as of (i) the first day of the Applicable
Bonus Year and (ii) the last day of the Applicable Bonus Year.
j. Designated Beneficiary - The person or entity designated by a
-----------------------
Participant or former Participant on a Beneficiary Designation Form filed with
the Director of Human Resources of the Company to receive a benefit hereunder to
be distributed after the death of such Participant or former Participant.
k. Effective Date - means January 1, 1995.
--------------
l. Employee Grade - means a grade level assigned by the Company to
--------------
its non-executive salaried employees for the Applicable Bonus Year.
m. Executive Employee - means an employee of the Company who
-------------------
reports directly to the President of the Company
2
<PAGE>
n. Hourly Participant - means a Participant whose compensation is
------------------
determined solely on an hourly basis.
o. Incentive Standard - means the Industry Return on Assets.
------------------
p. Industry - means the Standard & Poor Textile Apparel
--------
Manufacturer Index as currently defined.
q. Industry Return 0n Assets - means the average pre-tax return on
-------------------------
assets of the Industry Companies based on the financial statements filed by the
Industry Companies with the Securities and Exchange Commission and prepared in
accordance with generally accepted accounting principles for the fiscal year of
each company within such immediately preceding the Applicable Bonus Year.
r. Participant - means a full-time hourly or salaried employee of
-----------
the Company other than the Chief Executive Officer and the President whose full-
time employment commenced on or prior to October 31 and who is so employed on
December 31 of the Applicable Bonus Year. With respect to a Participant whose
full time employment commences before November 1 of any Plan year, the Bonus of
such Participant for such Applicable Plan Year shall be pro-rated to reflect the
total number of days during which such Participant was a full time employee of
the Company during such Applicable Bonus Year.
s. Plan - means the Starter Corporation Incentive Compensation
----
Plan.
3
<PAGE>
t. Senior Management Employee - means an employee of the Company
--------------------------
who is a member of the management executive committee appointed by the President
as of the first day of the Applicable Bonus Year.
u. Standard Bonus - means the amount established by the Committee
--------------
as the Bonus for an individual Participant for an Applicable Bonus Year if the
Bonus Index is 100%.
v. Target Earnings - means the net income of the Company for the
---------------
Applicable Bonus Year before taxes, and extraordinary items, and before any
other bonuses to employees of the Company as stated on the face of the statement
of income of the audited statement of the Company
3. AWARD AND PAYMENT OF BONUS.
--------------------------
A. Subject to the provisions set forth below for each calendar year
commencing January 1, 1995, and until this Plan is terminated, a Bonus will be
awarded and paid to each Hourly Participant and to each salaried Participant
based upon such salaried Participant's Position Level established by the
Administrator. Subject to paragraph B of this Article 3, for each Bonus Year,
the Bonus of a Participant shall be determined as follows:
(1) If the Bonus Index is less than 50%, then no Bonus shall be
awarded to any Participant hereunder.
(2) If the Bonus Index is between 50% and 70% inclusive, then
all Hourly Participants and all salaried Participants except Senior Management
and
4
<PAGE>
Executive Employees shall receive 60% of the Standard Bonus. No other
Participant shall be entitled to a Bonus hereunder.
(3) If the Bonus Index is between 71% and 99% inclusive, then
all Hourly Participants and all salaried Participants except Executive Employees
shall receive 80% of the Standard Bonus. No other Participant shall be entitled
to a Bonus hereunder.
(4) If the Bonus Index is 100%, then all Participants shall
receive 100% of the Standard Bonus.
(5) If the Bonus Index is between 101% and 115% inclusive, then
all Participants shall receive 120% of the Standard Bonus.
(6) If the Bonus Index is between 116% and 130% inclusive, then
all Participants shall receive 140% of the Standard Bonus.
(7) If the Bonus Index is between 131% and 145% inclusive, then
all Participants shall receive 160% of the Standard Bonus.
(8) If the Bonus Index is between 146% and 165% inclusive, then
all Participants shall receive 180% of the Standard Bonus [or up to 40% or 50%
of base pay depending on the Participant's position in the Company].
(9) If the Bonus Index is above 165%, then all Participants
shall receive 200% of the Standard Bonus [or up to a maximum of 40% or 50% of
base pay depending on Participant's position in the Company].
Payment of any Bonus awarded herein shall be paid to a Participant or former
Participant on or before March 15 of the calendar year following the Applicable
Bonus
5
<PAGE>
Year. In the event that a Participant is deceased at the time payment is to be
made, the Bonus will be paid to the Designated Beneficiary of Participant or, if
none, to the estate of the deceased Participant.
B. Notwithstanding the determination of Bonus payments as provided
in Paragraph A above to the contrary, the aggregate Bonus payments with respect
to any Bonus Year shall not exceed the Bonus Pool for such Bonus Year. In the
event that the aggregate Bonus payments for any Bonus Year, calculated pursuant
to paragraph A above, exceeds the Bonus Pool established for a Bonus Year, then
the payment to each Participant shall be reduced in the same proportion as the
aggregate amount of such payments would exceed the Bonus Pool for such Bonus
Year.
4. NON-ALIENATION OF BENEFITS. No right or benefit under this Plan
--------------------------
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same shall be void ab initio. No right or
-- ------
benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities, or torts of the person entitled to such benefits. If
any Participant hereunder shall become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right or benefit
hereunder, then such right or benefit may, in the discretion of the Company,
cease and terminate, and in such event, the Company may hold or apply the same
or any part thereof for the benefit of the Participant, his or her spouse,
children, or other dependents, or any of them, in such manner and in such
proportion as the Company may deem proper.
6
<PAGE>
5. AMENDMENT OR TERMINATION OF PLAN. The Company may amend or
--------------------------------
terminate this Plan at any time without any obligation or responsibility to any
Participant (past or present) except with respect to any Bonus due for a prior
Bonus Year.
6. NOTICE. All notices under this Plan shall be in writing and shall be
------
deemed effective when sent to the person to be notified via U.S. Postal Service,
Certified Mail, Return Receipt Requested, if to the Company to its Secretary, at
the Company's business address and if to a Participant, at his or her last known
address as carried on the Company's personnel records.
7. GENDER. As used herein, the masculine pronoun shall include the
------
feminine gender and the feminine pronoun shall include the masculine.
8. LIMITATION OF RIGHTS. Nothing contained in this Plan shall be
---------------------
construed to limit in any way the right of the Company to terminate a
Participant's employment at any time or be evidence of any agreement or
understanding, express or implied, that the Company will employ a Participant in
any particular position or at any particular rate or remuneration for any
particular period of time.
7
Exhibit 10(29)
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of January 1, 1996, by and between STARTER
CORPORATION, a Delaware corporation with a principal place of business at 370
James Street, in the City and County of New Haven and State of Connecticut (the
"Company") and JOHN M. TUCKER, residing at 8 Griffing Pond Road, in the Town of
Branford, County of New Haven and State of Connecticut (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to induce the Executive to enter into its
employ for the period provided in this Agreement, and the Executive is willing
to accept such employment with the Company on a full-time basis, all in
accordance with the terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto do hereby covenant and
agree as follows:
1. Employment.
----------
(a) The Company hereby employs the Executive, and the Executive
hereby accepts such employment with the Company, for the period set forth in
Paragraph 2 hereof, all upon the terms and conditions hereinafter set forth.
(b) As a condition to the Executive's employment by the Company, the
Executive affirms and represents that he is under no obligation to any former
employer or other party which is in any way inconsistent with, or which imposes
any restriction upon, the Executive's acceptance of employment hereunder with
the Company, the employment of the Executive by the Company, or the Executive's
undertakings under this Agreement.
1
<PAGE>
2. Term of Employment. Unless earlier terminated as hereinafter provided,
------------------
the term of the Executive's employment under this Agreement shall be for a
period beginning as of January 1, 1996 and ending on December 31, 1998
("Employment Term").
3. Duties. During the Employment Term, the Executive shall be employed
------
as the President and Chief Operating Officer of the Company and shall perform
such duties as would normally be associated with such position. Except during
vacation periods and reasonable periods of absence due to sickness, personal
injury or other disability, the Executive shall throughout the Employment Term
devote his full business time and attention to the services required of him
hereunder and shall use his best efforts to advance the business and interests
of the Company in a manner consistent with the duties of his position. It shall
specifically not be a violation of this Agreement for the Executive to: (a)
serve on any corporate, civic or charitable board or committee; (b) serve for
compensation on the board or committee of any Company which Executive in his
discretion determines does not interfere with his performance under this
Agreement; (c) deliver lectures, fulfill speaking engagements or teach at
educational institutions; (d) participate in personal investments, so long as
any such activity does not materially interfere with the Executive's performance
under this Agreement.
4. Salary and Bonus.
----------------
(a) Annual Base Salary. As compensation for the services to be
------------------
performed by the Executive hereunder during the Employment Term, the Company
shall pay to the Executive an annual base salary of Five Hundred Thousand
($500,000.00)
2
<PAGE>
Dollars, subject to adjustment as hereinafter provided (the "Annual Base
Salary"). The Executive's Annual Base Salary shall be payable in equal bi-
weekly installments subject to applicable withholding and payroll taxes, and
such other deductions as may be required under the Company's employee benefit
plans.
(b) Annual Bonus Compensation. In addition to the Annual
-------------------------
Base Salary, the Executive may be entitled during the Employment Term to the
following:
(i) First Level Bonus. An annual performance-based
-----------------
compensation bonus, at the discretion of the Board of Directors of the Company
("Board") or any duly authorized committee appointed by the Board ("Committee"),
of up to Seventy-Five (75%) Percent of Annual Base Salary, based upon attainment
of objective performance goals established by the Board or the Committee ("First
Level Bonus"); and
(ii) Second Level Bonus. An annual bonus, at the discretion of
------------------
the Board or the Committee, of up to an additional Seventy-Five (75%) Percent of
Annual Base Salary, based upon an increase in the price per share of the value
of the Company's common stock during such applicable year in accordance with
objective criteria established by the Board or the Committee ("Second Level
Bonus").
The First Level Bonus and the Second Level Bonus are sometimes collectively
referred to herein as the "Annual Bonus Compensation".
5. Benefits. In addition to the payments set forth in Paragraph 4 to
--------
be paid to the Executive during the Employment Term, the Executive shall:
(a) be eligible to participate in all employee
fringe benefits and any pension plan that may
be provided by the Company for its key
executive employees in accordance with the
provisions of any such plans;
3
<PAGE>
(b) participate in any life or other similar
insurance plans and/or medical and health
plans or other employee welfare benefit plans
that may be provided by the Company for its
key executive employees in accordance with
the provisions of any such plans;
(c) be entitled to annual paid vacation in
accordance with past practice of the Company
but not fewer than four (4) weeks per annum;
and
(d) be entitled to sick leave and sick pay in
accordance with any Company policy that may
be applicable to key executive employees.
6. Death and Disability
--------------------
(a) In the event that the Executive dies or becomes totally and
permanently disabled during the Employment Term, this Agreement shall terminate
and the Company shall pay to the Executive, the Estate of the Executive, or the
Executive's designee, the following:
(i) Any unpaid Annual Base Salary due to the Executive through
the Executive's next regular pay day;
(ii) Any unpaid Annual Bonus Compensation earned by Executive
pursuant to Paragraph 4(b) above for the annual period immediately preceding the
Executive's death or total and permanent disability;
(iii) Any Annual Bonus Compensation earned by Executive
pursuant to Paragraph 4(b) above for the pro-rata period of the year in which
the Executive dies or becomes permanently and totally disabled; and
4
<PAGE>
(iv) An amount equal to twenty-five (25%) percent of Executive's
Annual Base Salary for each full year of full time employment with the Company
but not to exceed One Hundred (100%) percent of Executive's Annual Base Salary.
(b) Any amounts due to Executive (or Executive's estate or designee
as the case may be) pursuant to subparagraphs (i) and (ii) of Paragraph 6(a)
above shall be paid in full on the day which would have been the Executive's
next regular pay day following such death or total and permanent disability,
subject to applicable taxes and deductions. Any amounts due to Executive (or
Executive's estate or designee as the case may be) pursuant to subparagraphs
(iii) and (iv) of Paragraph 6(a) above shall be paid in twenty-six (26) bi-
weekly installments, commencing with the Company's fourth regular pay period,
following Executive's death or permanent and total disability, subject to
applicable taxes and deductions as set forth in Paragraph 4 in respect to Annual
Base Salary. Prior to any payment for total and permanent disability hereunder,
the Company shall be furnished with written certification signed by a physician
satisfactory to Company that Executive is totally and permanently incapable of
performing his duties hereunder due to mental or physical causes.
7. Expenses.
--------
The Company shall upon submission of expense reports
acceptable to the Company, reimburse the Executive for all reasonable expenses
incurred by the Executive in connection with the performance of his obligations
hereunder in accordance with past practice of the Company.
5
<PAGE>
8. Confidential Information. The Executive shall maintain in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company which shall be obtained by Executive
during his employment and which shall not be or become public knowledge. After
termination of Executive's employment, except as may be required by law,
Executive shall not, without the prior written consent of the Company,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
9. Termination. The Executive's employment hereunder shall
-----------
terminate upon the occurrence of any of the following:
(a) the death of the Executive; or
(b) the inability of the Executive to perform his duties as a result
of total and permanent disability ; or
(c) termination of the Executive's employment hereunder by the
Company at any time "for cause", as hereinafter defined, such termination to
take effect immediately upon delivery of notice from the Company to the
Executive pursuant to Paragraph 13 of this Agreement, in which event this
Agreement shall terminate and the Company shall have no further obligations
hereunder.
For purposes of this Agreement, the term "for cause" shall mean (i) an
act or acts of personal dishonesty by Executive resulting in adverse
consequences or damage of reputation to the Company, or (ii) violation by
Executive of his obligations under Paragraph 3 hereof which are not remedied in
a reasonable period of time after receipt of written notice from the Company.
6
<PAGE>
10. Covenant Not to Compete. In consideration of the execution of
-----------------------
this Agreement and the compensation to be paid to Executive hereunder, the
Executive agrees that during the Employment Term and for a period of two (2)
years from the date on which the Employment Term expires or the Executive's
employment with the Company is terminated for any reason whatsoever or for no
reason (whichever is later), he will not directly or indirectly engage or invest
in, or be employed by any other corporation, partnership, trust, firm or other
persons or entities engaged in activities similar to those of the Company under
licenses similar to those granted to the Company or under any brand names
stipulated by the Company during the Employment Term or as of the date of the
Executive's termination of employment ("Restricted Products"); provided however
that nothing contained in this Paragraph 10 shall be deemed to prohibit the
Executive from acquiring or holding, solely as an investment, publicly traded
securities of any corporation so long as such securities do not, in the
aggregate, constitute more than five (5%) percent of any class or series of
outstanding securities of such corporation.
Executive acknowledges that it will be difficult, if not impossible,
to measure in money the damage that will be suffered by the Company in the event
that Executive fails to comply with the covenants and restrictions set forth in
this Paragraph 10 and that in such event the Company will not have an adequate
remedy at law. Therefore, Executive agrees that the Company in such event shall
be entitled to injunctive relief, both temporary and permanent, to enforce such
covenants or restrictions, or any of them, in any court having jurisdiction
thereof, in addition to such other equitable and legal remedies which may be
available to it, and in the event that any action or actions should be
instituted in equity to
7
<PAGE>
enforce any restriction or covenant hereunder, no party will raise the defense
that there is an adequate remedy at law. This Paragraph 10 shall survive the
termination of this Agreement.
11. Non-Assignability.
-----------------
(a) Neither this Agreement nor any right or interest hereunder shall
be assignable by the Executive, his beneficiaries, or legal representatives
without the Company's prior written consent; provided, however, that nothing in
-------- -------
this subparagraph (a) shall preclude (i) the Executive from designating a
beneficiary to receive any benefit payable hereunder upon his death, or (ii) the
executors, administrators, or other legal representatives of the Executive or
his estate from assigning any rights hereunder to the person or persons entitled
thereunto.
(b) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to execution,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, Company shall be
8
<PAGE>
Starter Corporation and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Binding Effect. This Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective heirs, successors,
legal representatives and assigns.
13. Notice. Any notice required or permitted to be given under this
------
Agreement shall be sufficient if in writing and either delivered in person (to
the Executive if such notice is for the Executive) or sent by certified or
registered mail, postage prepaid, or by a nationally recognized overnight
courier service or transmitted via telecopier to the number designated
hereafter, if to the Company, at the Company's principal office at 370 James
Street, New Haven, Connecticut 06513 (telecopier number (203) 624-8954)
ATTENTION: David A. Beckerman, and if to the Executive at his home address most
recently filed with the Company, or to such other address or addresses and
telecopier numbers as either party shall have designated in writing to the other
party hereto.
14. Law Governing. This Agreement and all of its terms and provisions
-------------
shall be governed by and construed in accordance with the laws of the State of
Connecticut.
15. Severability. If any provision of this Agreement shall be determined
------------
to be invalid, illegal or unenforceable in whole or in part, neither the
validity of the remaining part of such provision nor the validity of any other
provision of this Agreement shall in any way be affected thereby.
16. Waiver. Failure to insist upon strict compliance with any of the
------
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or
9
<PAGE>
condition, nor shall any waiver or relinquishment of any right or power
hereunder at any one or more times be deemed a waiver or relinquishment of such
right or power at any other time or times.
17. Entire Agreement; Modifications. This Agreement constitutes the
-------------------------------
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements, oral and written, between the parties hereto
with respect to the subject matter hereof. This Agreement may be modified or
amended only by an instrument in writing signed by both parties hereto.
18. Arbitration. Except as provided in Paragraph 10, any
-----------
controversy or claim arising between the parties hereto relating to, arising out
of, or in any way connected with this Agreement or any term or condition hereof
or the performance by any party of its obligations hereunder (including, without
limitation, any controversy or claim relating to fraud, negligence,
unintentional misrepresentation, strict liability under any theory of law, or
any other controversy or claim of whosoever nature) shall be settled by
arbitration to be held in New Haven, Connecticut, in accordance with the rules
then obtaining of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator(s) may be entered in any Court having
jurisdiction thereof or application may be made to such court for judicial
acceptance of any award and an order of enforcement, as the case may be. The
parties each consent to any personal jurisdiction necessary to subject
themselves and each of them to such arbitration and to such award and such
judgment and such order of enforcement.
10
<PAGE>
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have duly executed and
delivered this Agreement as of the day and year first above written.
STARTER CORPORATION
BY: /s/ David A. Beckerman
___________________________
David A. Beckerman
Its Chairman and
Chief Executive Officer
/s/ John M. Tucker
___________________________
JOHN M. TUCKER
11
Exhibit 11
EXHIBIT 11
STARTER CORPORATION
-------------------
Statement re: Computation of Net Loss Per Share
(in thousands, except per share data)
Net Loss per Share
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------- ---------------
Average shares outstanding 26,836,256 26,821,824
========== ==========
Net loss $ (1,976) $ (2,233)
=========== ===========
Per share amount $ (.07) (.08)
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,940
<SECURITIES> 0
<RECEIVABLES> 42,250
<ALLOWANCES> (3,800)
<INVENTORY> 61,404
<CURRENT-ASSETS> 127,962
<PP&E> 32,636
<DEPRECIATION> (6,734)
<TOTAL-ASSETS> 158,371
<CURRENT-LIABILITIES> 58,033
<BONDS> 7,422
0
0
<COMMON> 268
<OTHER-SE> 92,628
<TOTAL-LIABILITY-AND-EQUITY> 158,371
<SALES> 59,295
<TOTAL-REVENUES> 60,015
<CGS> 41,109
<TOTAL-COSTS> 21,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 679
<INCOME-PRETAX> (3,244)
<INCOME-TAX> (1,268)
<INCOME-CONTINUING> (1,976)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,976)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
