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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period
Ended May 4, 2002 Commission File Number 0-15898
DESIGNS, INC.
(Exact name of registrant as
specified in its charter)
Delaware 04-2623104
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
555 Turnpike Street, Canton, MA 02021
(Address of principal executive offices) (Zip Code)
(781) 828-9300
(Registrant's telephone
number, including area code)
Indicate by "X" 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
The number of shares of common stock outstanding as of June 17, 2002 was
15,994,010.
DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
May 4, 2002 and February 2, 2002
(In thousands, except share data)
May 4, February 2,
2002 2002
ASSETS (unaudited)
---------- ----------
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable 278 491
Inventories 69,273 57,734
Deferred income taxes 1,082 652
Prepaid expenses 3,012 2,887
---------- ----------
Total current assets 73,645 61,764
Property and equipment, net of
accumulated depreciation and amortization 20,052 20,912
Other assets:
Deferred income taxes 7,326 7,326
Other assets 1,072 899
---------- ----------
Total assets $ 102,095 $ 90,901
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,367 $ 7,074
Accrued expenses and other current liabilities 9,769 11,120
Accrued rent 2,651 2,541
Notes payable 33,641 27,752
---------- ----------
Total current liabilities 61,428 48,487
---------- ----------
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized, none issued - -
Common Stock, $0.01 par value, 50,000,000 shares
authorized, 17,622,000 and 17,608,000 shares issued
at May 4, 2002 and February 2, 2002,
respectively 176 176
Additional paid-in capital 56,237 56,189
Retained earnings (7,099) (5,304)
Treasury stock at cost, 3,040,000 shares
at May 4, 2002 and February 2, 2002,
respectively (8,450) (8,450)
Loan to executive (197) (197)
---------- ----------
Total stockholders' equity 40,667 42,414
---------- ----------
Total liabilities and stockholders' equity $ 102,095 $ 90,901
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
---------------------
May 4, May 5,
2002 2001
---------------------
Sales $ 36,441 $ 39,395
Cost of goods sold including
occupancy 28,448 29,990
--------------------
Gross profit 7,993 9,405
Expenses:
Selling, general and administrative 9,077 9,706
Depreciation and amortization 1,411 1,396
--------------------
Total expenses 10,488 11,102
--------------------
Operating loss (2,495) (1,697)
--------------------
Interest expense, net 353 546
--------------------
Loss before income taxes (2,848) (2,243)
Benefit for income taxes (1,053) ( 875)
--------------------
Net loss $(1,795) $(1,368)
====================
Loss per share- Basic and Diluted $( 0.12) $ (0.09)
Weighted average number of common
shares outstanding
- Basic and Diluted 14,576 14,459
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
--------------------------
May 4, May 5,
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss $ (1,795) $ (1,368)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 1,411 1,396
Issuance of common stock and options 33 30
Loss on sale or disposal of fixed assets (26) (8)
Changes in operating assets and liabilities:
Accounts receivable 213 (101)
Inventories (11,539) (10,051)
Prepaid expenses (125) 324
Other assets (202) (31)
Reserve for severance and store closings - (216)
Income taxes (430) (515)
Accounts payable 8,293 4,706
Accrued expenses and other current liabilities (1,324) 786
Accrued rent 110 113
----------- -----------
Net cash used for operating activities (5,381) (4,935)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (523) (1,959)
Proceeds from disposal of property and equipment - 7
----------- -----------
Net cash used for investing activities (523) (1,952)
----------- -----------
Cash flows from financing activities:
Net borrowings under credit facility 5,889 6,886
Issuance of common stock under option program 15 1
----------- -----------
Net cash provided by financing activities 5,904 6,887
----------- -----------
Net change in cash and cash equivalents - -
Cash and cash equivalents:
Beginning of the year - -
----------- -----------
End of the period $ - $ -
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments necessary for a
fair presentation of the interim financial statements. These financial
statements do not include all disclosures associated with annual financial
statements and, accordingly, should be read in conjunction with the notes to
the Company's audited consolidated financial statements for the year ended
February 2, 2002 (included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission). The information set
forth in these statements may be subject to normal year-end adjustments. The
information reflects all adjustments that, in the opinion of management, are
necessary to present fairly the Company's results of operations, financial
position and cash flows for the periods indicated. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and 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. The Company's business historically
has been seasonal in nature and the results of the interim periods presented
are not necessarily indicative of the results to be expected for the full
year.
2. Credit Facility
The Company had on December 7, 2000 amended and restated its credit facility
with Fleet Retail Finance Inc. (the "Amended Credit Agreement"). The Amended
Credit Agreement, which was further amended subsequent to the end of the first
quarter of fiscal 2003, as discussed below, principally provided for an
extension of the credit facility to November 30, 2003, reduced the borrowing
costs and tied future interest costs to excess borrowing availability,
eliminated all existing financial performance covenants and adopted a minimum
availability covenant, increased the amount that could potentially be borrowed
by increasing the advance rate formula to 68% from 60% of the Company's eligible
inventory, provided the Company the ability to enter into further stock buyback
programs and reduced the total commitment from $50 million to $45 million. Under
the Amended Credit Agreement, the Company was also able to issue documentary and
standby letters of credit up to $10 million. The Company's obligations under
the Amended Credit Agreement continued to be secured by a lien on all of its
assets. The Company was subject to a prepayment penalty for the first two
years of the extended facility. The Amended Credit Agreement continued to
include certain covenants and events of default customary for credit
facilities of this nature, including change of control provisions and
limitations on payment of dividends by the Company.
At May 4, 2002, the Company had borrowings of approximately $33.6 million
outstanding under this credit facility and had two outstanding standby
letters of credit totaling approximately $2.3 million. Average borrowings
outstanding under this facility during the first three months of fiscal
2003 were approximately $29.5 million. The Company had average unused excess
availability under this facility of approximately $6.7 million during
the first three months of fiscal 2003, and unused availability of $4.3 million
at May 4, 2002. The Company was in compliance with all debt covenants under
the Amended Credit Agreement at May 4, 2002.
Subsequent to the end of the first quarter on May 14, 2002, the credit facility
was further amended in connection with the financing for the Company's
acquisition of substantially all of the assets of Casual Male Corp. and certain
of its subsidiaries ("Casual Male"). See Note 5 below for further discussion
regarding the acquisition.
3. Earnings Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
requires the computation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the respective
period. Diluted earnings per share is determined by giving effect to the
exercise of stock options using the treasury stock method. The following table
provides a reconciliation of the number of shares outstanding for basic and
diluted earnings per share.
For the three months ended
(In thousands) May 4, 2002 May 5, 2001
- -----------------------------------------------------------------------------
Basic weighted average common
shares outstanding 14,576 14,459
Stock options, excluding the effect
of anti-dilutive options for 764 and 557
shares for the three months ended May 4, 2002
and May 5, 2001, respectively -- --
Diluted weighted average shares -------- -------
outstanding 14,576 14,459
Options to purchase 178,350 shares of the Company's common stock for the
three months ended May 4, 2002 and options to purchase 228,600 shares of the
Company's common stock for the three months ended May 5, 2001, were excluded
from the computations of diluted earnings per share, in each case because the
exercise price of such options was greater than the average market price per
share of Common Stock for the periods reported.
4. Related Party Transactions
Effective as of April 28, 2002, the Board of Directors approved the extension
of the existing consulting agreement with Jewelcor Management Inc. ("JMI") for
an additional one-year term commencing on April 29, 2002 and ending on April 28,
2003. As payment for services rendered under this agreement, the Company issued
to JMI 60,659 non-forfeitable and fully vested shares of the Company's common
stock. The fair value of those shares on April 29, 2002, the date of issuance,
was $276,000 or $4.55 per share. Seymour Holtzman, Chairman of the Board of
Directors of the Company, is President and Chief Executive Officer of JMI, and
indirectly, with his wife, is the principal beneficial owner of the stock of
JMI.
5. Subsequent Event- Acquisition of Assets
On May 14, 2002, pursuant to an Asset Purchase Agreement entered into as of May
2, 2002, the Company completed the acquisition of Casual Male for a purchase
price of approximately $170 million, plus the assumption of certain operating
liabilities. The Company was selected as the highest and best bidder for the
Casual Male assets at a bankruptcy court ordered auction commencing on May 1,
2002 and concluding on May 2, 2002. The U.S. Bankruptcy Court for the Southern
District of New York subsequently granted its approval of the acquisition of
Casual Male on May 7, 2002.
Casual Male is a leading independent specialty retailer of fashion, casual and
dress apparel for big and tall men, with annual sales that exceed $350 million
Casual Male sells its branded merchandise through various channels of
distribution including full price and outlet retail stores, direct mail and the
internet. Casual Male had been operating under the protection of the U.S.
Bankruptcy Court since May 2001.
Under the terms of the asset purchase agreement, the Company acquired
substantially all of Casual Male's assets including, but not limited to, the
inventory and fixed assets of approximately 475 retail store locations and
various intellectual property. In addition, the Company assumed certain
operating liabilities, including but not limited to, existing retail store
lease arrangements and the existing mortgage for Casual Male's corporate office,
which is located in Canton, Massachusetts.
The Casual Male acquisition, along with the payment of certain related fees and
expenses, was completed with funds provided by: (i) approximately $30.2 million
in additional borrowings from the Company's amended three-year $120.0 million
senior secured credit facility with the Company's bank, Fleet Retail Finance,
Inc. ("FRFI"), (ii) $15.0 million from a three-year term loan with a subsidiary
of FRFI, (iii) proceeds from the private placement of $24.5 million principal
amount of 12% senior subordinated notes due 2007 together with detachable
warrants to acquire 1,715,000 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), at an exercise price of $.01 per share, and
additional detachable warrants to acquire 1,176,471 shares of Common Stock at an
exercise price of $8.50 per share, (iv) proceeds from the private placement of
$11.0 million principal amount of 5% senior subordinated notes due 2007, (v)
approximately $82.5 million of proceeds from the private placement of
approximately 1.4 million shares of Common Stock and 180,162 shares of newly
designated Series B Convertible Preferred Stock, par value $0.01 per share
("Series B Preferred Stock") (equivalent to approximately 18.0 million shares of
Common Stock, conditioned upon shareholder approval for conversion), and (vi)
the assumption of a mortgage note in the principal amount of approximately $12.2
million.
This transaction is described more fully in the Company's Current Report on Form
8-K filed on May 23, 2002 and Current Reports on Form 8-K/A filed on May 23,
2002 and June 14, 2002.
Part I. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RECENT EVENTS
Acquisition
On May 14, 2002 the Company completed the acquisition of substantially all of
the assets of Casual Male and certain subsidiaries ("Casual Male") for a
purchase price of approximately $170 million, plus the assumption of certain
operating liabilities. The Company was selected as the highest and best bidder
at a bankruptcy court ordered auction commencing on May 1, 2002 and concluding
on May 2, 2002. The U.S. Bankruptcy Court for the Southern District of New York
subsequently granted its approval of the acquisition of Casual Male on May 7,
2002.
Casual Male is a leading independent specialty retailer of fashion, casual and
dress apparel for big and tall men, with annual sales that exceed $350 million.
Casual Male sells its branded merchandise through various channels of
distribution including full price and outlet retail stores, direct mail and the
internet. Casual Male had been operating under the protection of the U.S.
Bankruptcy Court since May 2001.
Under the terms of the asset purchase agreement, the Company acquired
substantially all of Casual Male's assets including, but not limited to, the
inventory and fixed assets of approximately 475 retail store locations and
various intellectual property. In addition, the Company will also assume
certain operating liabilities, including but not limited to, existing retail
store lease arrangements and the existing mortgage for Casual Male's corporate
office, which is located in Canton, Massachusetts.
The Casual Male acquisition, along with the payment of certain related fees and
expenses, was completed with funds provided by: (i) approximately $30.2 million
in additional borrowings from the Company's amended three-year $120.0 million
senior secured credit facility with the Company's bank, Fleet Retail Finance,
Inc. ("FRFI"), (ii) $15.0 million from a three-year term loan with a subsidiary
of FRFI, (iii) proceeds from the private placement of $24.5 million principal
amount of 12% senior subordinated notes due 2007 together with detachable
warrants to acquire 1,715,000 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), at an exercise price of $.01 per share, and
additional detachable warrants to acquire 1,176,471 shares of Common Stock at an
exercise price of $8.50 per share, (iv) proceeds from the private placement of
$11.0 million principal amount of 5% senior subordinated notes due 2007, (v)
approximately $82.5 million of proceeds from the private placement of
approximately 1.4 million shares of Common Stock and 180,162 shares of newly
designated Series B Convertible Preferred Stock, par value $0.01 per share
("Series B Preferred Stock") (equivalent to approximately 18.0 million shares of
Common Stock, conditioned upon shareholder approval for conversion), and (vi)
the assumption of a mortgage note in the principal amount of approximately $12.2
million.
Proposed Corporate Name Change
In view of the significance of the Casual Male acquisition to the growth and
future identity of the Company, the Board of Directors will be recommending to
its stockholders at the Company's Annual Meeting of Stockholders scheduled for
August 8, 2002 that the Company change its name to "Casual Male Retail Group,
Inc." The Company believes that Casual Male will be a significant future
contributor to the Company's overall business and that it will be important to
align the customer and investor identification of the Company with the Casual
Male store concept.
Planned Divestiture
On June 11, 2002, the Company announced that it planned to divest its loss
prevention services subsidiary, LP Innovations ("LPI"), enabling the business to
become an independent company operating under its existing LPI management. LPI,
a subsidiary of Casual Male, was acquired as part of Casual Male acquisition.
LPI, which provides loss prevention services and system solutions primarily to
the retail industry, is expected either to be sold to a company outside of the
retail sector, or to be subject to a distribution of LPI stock pro-rata to
the Company's stockholders, which in either case will result in the LPI business
being held by an independent company. Any public stock received by Designs in
the sale of LPI will be distributed pro rata to the Company's stockholders.
RESULTS OF OPERATIONS
Sales
Sales for the first quarter of fiscal 2003, which ended May 4, 2002, were
$36.4 million as compared to sales of $39.4 million in the first quarter of
fiscal 2002. Comparable store sales for the first quarter decreased 9%. The
first quarter sales performance primarily reflected the unseasonably cold
weather experienced during the month of April, which resulted in significantly
reduced customer traffic in the outlet malls. The Company believes that its
merchandise inventories are well positioned and at appropriate levels in
anticipation of an increase in customer traffic in the warmer weeks of
spring. Comparable stores are retail locations that have been open at least 13
months. Of the 105 stores that the Company operated at May 4, 2002, 95
were comparable stores.
Gross Profit Margin
Gross profit margin, inclusive of occupancy costs, was 21.9% for the first
quarter of fiscal 2003 as compared to 23.9% in the first quarter of the
prior year. The majority of the decrease in margin was due to the deleveraging
of occupancy costs to sales of 1.9 percentage points. The Company's initial
merchandise margins continue to be lower than expectations due to a lack of
availability of close-out merchandise, therefore resulting in the Company having
to purchase higher cost merchandise. The Company's markdowns rates on
merchandise were consistent with the prior year.
The Company has made several opportunistic purchases of higher margin fall
merchandise which the Company expects will benefit gross margin in the second
half of fiscal 2003.
Selling, General and Administrative Expenses
Set forth below is certain information concerning the Company's selling,
general and administrative expenses for the three months ended May 4, 2002 and
May 5, 2001, respectively.
(In thousands, except May 4, 2002 May 5, 2001
percentage data) $ % of sales $ % of sales
- --------------------------------------------------------------------------
For the three months ended:
Store payroll $ 4,354 11.9% $ 4,986 12.7%
Other SG&A $ 4,723 13.0% $ 4,720 12.0%
The majority of the decrease in total selling, general and administrative
expense was a result of improvements in store payroll, which decreased 0.8% as a
percentage of sales. The Company continues to focus on its cost reduction
efforts and expects to continue to show favorable decreases over the prior year.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended May 4, 2002
increased slightly by 1.1% from the prior year primarily due to the opening of
new stores and the remodeling of existing stores.
Interest Expense, Net
Net interest expense was $353,000 and $546,000 for the three months ended
May 4, 2002 and May 5, 2001, respectively. The decrease was attributable to
favorable interest rates on borrowings under the Company's revolving credit
facility as compared to the prior year.
Net Loss
Net loss for the three months ended May 4, 2002 was $1.8 million or $0.12 per
diluted share as compared to a net loss of $1.4 million or $0.09 per diluted
share for the three months ended May 5, 2001. The decrease in earnings in the
first quarter as compared to the prior year was primarily due to the sales
shortfall experienced in April as a result of the unseasonably cold weather and
consequently reduced customer traffic.
SEASONALITY
Historically, the Company has experienced seasonal fluctuations in revenues and
income with increases occurring during the Company's third and fourth quarters
as a result of "Fall" and "Holiday" seasons. Although the Company's business is
principally located in outlet centers, the Company continues to experience a
significant portion of its revenue and income in the second half of the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for working capital, essentially inventory
requirements, and capital expenditures. Because the Company's retail stores are
primarily in the outlet channel of distribution, opportunistically acquiring
close-out merchandise is an integral part of the Company's business. In
addition, the Company's capital expenditure program has included projects for
new store openings, remodeling existing stores, and improvements in its systems
infrastructure. For fiscal 2003, the Company expects that much of the Company's
capital requirements will be used for expansion of its Candies(R) and Ecko
Unltd.(R) outlet stores.
As previously discussed, the Company's recent acquisition of Casual Male was
funded through a combination of the issuance of new debt and new equity. The
Company anticipates that cash flow from operations and availability under the
Company's amended $120 million credit facility with FRFI will be sufficient to
meet all debt payments and operating needs of the business.
During the first three months of fiscal 2003, cash used for operations was $5.4
million as compared to cash used for operations of $4.9 million for the first
three months of the prior year. Cash from operations as compared to the prior
year decreased $1.7 million due primarily to timing of merchandise receipt of
inventory and the decrease in earnings during the first quarter as compared to
last year.
At May 4, 2002, total inventory equaled $69.3 million, compared to $57.7
million at February 2, 2002. This increase in inventory is in part seasonal
and reflects the receipt of merchandise in preparation for the late spring and
summer selling seasons and certain opportunistic purchases of inventory. The
Company stocks its Levi's(R)/Dockers(R) Outlet stores with Levi's(R) and
Dockers(R) manufacturing overruns, merchandise specifically manufactured for
The outlet stores and discontinued lines and irregulars all purchased
primarily from Levi Strauss & Co. By their nature, manufacturing overruns, and
discontinued or irregular merchandise, including the most popular Levi Strauss
& Co. styles of merchandise, and the breadth of the mix of this merchandise, are
subject to limited availability. As previously discussed, the availability of
such close-out merchandise has been limited for the Company's spring and summer
selling seasons and the Company has had to supplement its merchandise offerings
with higher cost merchandise from Levi Strauss & Co. The Company has acted on
several opportunistic purchases which should benefit the fall selling season.
The Company will continue to evaluate additional opportunities to purchase
quantities of Levi's(R), Dockers(R) and Slates(R) brand products.
Total cash outlays for capital expenditures, net of landlord allowances, for
The first three months of fiscal 2003 were $523,000 compared to $3.2 million
during the first three months of fiscal 2002. During the first three months of
fiscal 2003, the Company opened four new Candies(r) outlet stores, three of
which were carve-outs from the Company's existing Levi's(R)/Dockers(R) Outlet
stores. The Company's fourth Candies(r) Outlet store to open in the first
quarter of fiscal 2003 was in Las Vegas, Nevada and represents the Company's
first of several West Coast locations to be opened in fiscal 2003.
The Company expansion plan for fiscal 2003 includes a total of 15 to 20 new
outlet store openings which will include additional Candies(r) outlet stores as
well as EcKo Unltd.(r) outlet stores.
During the first three months of fiscal 2003, a portion of the Company's cash
needs came from borrowings under its bank credit facility. At May 4, 2002,
the Company had borrowings of approximately $33.6 million outstanding under
this credit facility and had two outstanding standby letters of credit
totaling approximately $2.3 million.
The Company's working capital at May 4, 2002 was approximately $12.2
million, compared to $13.3 million at February 2, 2002. This decrease in
working capital was primarily attributable to capital expenditures incurred for
new and remodeled stores.
The foregoing discussion of the Company's results of operations, liquidity,
capital resources and capital expenditures includes certain forward-looking
information. Such forward-looking information requires management to make
certain estimates and assumptions regarding the Company's expected strategic
direction and the related effect of such plans on the financial results of
the Company. Accordingly, actual results and the Company's implementation
of its plans and operations may differ materially from forward-looking
statements made by the Company. The Company encourages readers of this
information to refer to Exhibit 99 to the Company's Form 8-K,
filed with the Securities and Exchange Commission on April 28,
2000, which identifies certain risks and uncertainties that may have an
impact on future earnings and the direction of the Company.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the financial position and results of
operations of the Company are routinely subject to a variety of risks,
including market risk associated with interest rate movements on borrowings.
The Company regularly assesses these risks and has established policies and
business practices to seek to protect against the adverse effect of these and
other potential exposures.
The Company utilizes cash from operations and short-term borrowings to
fund its working capital needs. Borrowings under the Company's bank credit
agreement, which expires in November 2003, bear interest at variable rates
based on FleetBoston, N.A.'s prime rate or the London Interbank Offering
Rate ("LIBOR"). These interest rates at May 4, 2002 were 4.75% for prime based
borrowings and included various LIBOR contracts with interest rates ranging from
3.870% to 4.374%. Based upon sensitivity analysis as of May 4, 2002, a 10%
increase in interest rates would result in a potential cost to the Company of
approximately $140,000 on an annualized basis. In addition, the Company has
available letters of credit as sources of financing for its working capital
requirements.
Part II. Other Information
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 6. Exhibits and Reports on Form 8-K
A. Reports on Form 8-K:
None.
B. Exhibits:
3.1 Restated Certificate of Incorporation of the Company, as
amended (included as Exhibit 3.1 to Amendment No. 3 of the
Company's Registration Statement on Form S-1 (No. 33-13402),
and incorporated herein by reference). *
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, as amended, dated June 22, 1993 (included as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
dated June 17, 1996, and incorporated herein by reference). *
3.3 Certificate of Designations, Preferences and Rights of a
Series of Preferred Stock of the Company established Series A
Junior Participating Cumulative Preferred Stock dated May 1,
1995 (included as Exhibit 3.2 to the Company's Annual Report
on Form 10-K dated May 1, 1996 and incorporated herein by
reference). *
3.4 Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of Series B Convertible Preferred
Stock dated May 14, 2002 (included as Exhibit 3.1 to the Company's
Form 8-K filed on May 23, 2002 and incorporated herein by reference). *
3.5 By-Laws of the Company, as amended (included as Exhibit 3.4 to
the Company's Quarterly Report on Form 10-Q dated December 12,2000,
and incorporated herein by reference). *
10.1 1992 Stock Incentive Plan, as amended (included as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q dated September 18,
2001 and incorporated herein by reference). *
10.2 License Agreement between the Company and Levi Strauss & Co.
dated as of April 14, 1992 (included as Exhibit 10.8 to the
Company's Annual Report on Form 10-K dated April 29, 1993, and
incorporated herein by reference). *
10.3 Amended and Restated Trademark License Agreement between the
Company and Levi Strauss & Co. dated as of October 31, 1998
(included as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated December 3, 1998, and incorporated herein by
reference). *
10.4 Amendment to the Amended and Restated Trademark License
Agreement dated March 22, 2000 (included as Exhibit 10.7 to
the Company's Form 10-K dated April 28, 2000, and incorporated
herein by reference). *
10.5 Second Amended and Restated Loan and Security Agreement dated
as of December 7, 2000 among the Company and Fleet Retail
Finance Inc., as agent for the Lender(s) identified therein.
(included as Exhibit 10.12 to the Company's Form 10-Q dated
December 12, 2000, and incorporated herein by reference). *
10.6 Third Amended and Restated Loan and Security Agreement dated
as of May 14, 2002, by and among Fleet Retail Finance, Inc.,
as Administrative Agent and Collateral Agent, the Lenders
identified therein, Designs, Inc., as Borrowers' Representative,
and Designs, Inc. and Designs Apparel, Inc., as Borrowers.
(included as Exhibit 10.9 to the Company's Current Report on
Form 8-K/A filed on May 23, 2002, and incorporated herein by
reference). *
10.7 Amendment and Distribution Agreement dated as of October 31,
1998 among the Designs Partner, the LOS Partner and the OLS
Partnership (included as Exhibit 10.2 to the Company's Current
Report on Form 8-K dated December 3, 1998, and incorporated
herein by reference). *
10.8 Guaranty by the Company of the indemnification obligation of
the Designs Partner dated as of October 31, 1998 in favor of
LS & Co. (included as Exhibit 10.3 to the Company's Current
Report on Form 8-K dated December 3, 1998, and incorporated
herein by reference). *
10.9 Asset Purchase Agreement dated as of September 30, 1998
between the Company and Levi's Only Stores relating to the purchase
by the Company of 16 Dockers(R) Outlet and nine Levi's(R) Outlet stores
(included as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated December 3, 1998, and incorporated herein by
reference). *
10.10 Consulting Agreement dated as of December 15, 1999 between the
Company and George T. Porter, Jr. (included as Exhibit 10.22
to the Company's Annual Report on Form 10-K dated April 28, 2000,
and incorporated herein by reference). *
10.11 Extension to Consulting Agreement, dated as of April 28, 2001,
between the Company and Jewelcor Management, Inc. (included as
Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q dated
September 18, 2001 and incorporated herein by reference). *
10.12 Employment Agreement dated as of March 31, 2000 between the
Company and David A. Levin (included as Exhibit 10.27 to the
Company's Annual Report on Form 10-K dated April 28, 2000, and
incorporated herein by reference). *
10.13 Amendment to Employment Agreement dated as of March 31, 2000
between the Company and David A. Levin. (included as Exhibit 10.19 to
the Company's Quarterly Report on Form 10-Q dated June 19, 2001, and
incorporated herein by reference). *
10.14 Secured Promissory Note dated as of June 26, 2000 between the
Company and David A. Levin (included as Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q dated September 12, 2000,
and incorporated herein by reference). *
10.15 Pledge and Security Agreement dated June 26, 2000 between the
Company and David A. Levin (included as Exhibit 10.29 to the
Company's Quarterly Report on Form 10-Q dated September 12, 2000,
and incorporated herein by reference). *
10.16 Employment Agreement dated as of August 14, 2000 between the
Company and Dennis R. Hernreich (included as Exhibit 10.30 to the
Company's Quarterly Report on Form 10-Q dated September 12, 2000,
and incorporated herein by reference). *
10.17 Amendment to Employment Agreement dated as of August 14, 2000
between the Company and Dennis R. Hernreich(included as Exhibit 10.23
to the Company's Quarterly Report on Form 10-Q dated June 19,2001,
and incorporated herein by reference). *
10.18 Employment Agreement dated as of October 22, 2001 between the
Company and Ronald N. Batts (incorporated as Exhibit 10.25 to the
Company's Quarterly Report on Form 10-Q dated December 14, 2001,
and incorporated herein by reference). *
10.19 Retail Store License Agreement dated as of January 9, 2002 between
the Company and Candie's, Inc. (incorporated as Exhibit 10.23 to the
Company's Annual Report on Form 10-K dated May 1, 2002 and
incorporated herein by reference). *
10.20 Retail Store License Agreement Amendment No. 1 dated as of
January 15, 2002 between the Company and Candie's, Inc. (incorporated
as Exhibit 10.24 to the Company's Annual Report on Form 10-K dated
May 1, 2002 and incorporated herein by reference). *
10.21 Asset Purchase Agreement entered into as of May 2, 2002, by and among
the Company and Casual Male Corp. and certain subsidiaries (included
as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
May 23, 2002 and incorporated herein by reference). *
10.22 Amended and Restated Note Agreement, dated as of April 26, 2002,
and amended and restated as of May 14, 2002, among the Company,
certain subsidiaries of the Company and the purchasers identified
therein (included as Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on May 23, 2002 and incorporated herein by reference). *
10.23 Form of 12% Senior Subordinated Note due 2007 (included as
Exhibit 10.3 to the Company's Current Report on Form 8-K filed on
May 23, 2002 and incorporated herein by reference). *
10.24 Form of 5% Subordinated Note due April 26, 2007 (included as
Exhibit 10.4 to the Company's Current Report on Form 8-K filed on
May 23, 2002 and incorporated herein by reference). *
10.25 Form of Warrant to Purchase Shares of Common Stock (aggregating
787,500 shares)(included as Exhibit 10.5 to the Company's Current
Report on Form 8-K filed on May 23, 2002 and incorporated herein by
reference). *
10.26 Form of Warrant to Purchase Shares of Common Stock (aggregating
927,500 shares, subject to shareholder approval)(included as
Exhibit 10.6 to the Company's Current Report on Form 8-K filed on
May 23, 2002 and incorporated herein by reference). *
10.27 Form of Warrant to Purchase Shares of Common Stock (aggregating
1,176,471 shares, subject to shareholder approval)(included as
Exhibit 10.7 to the Company's Current Report on Form 8-K filed on
May 23, 2002 and incorporated herein by reference). *
10.28 Registration Rights Agreement entered into as of April 26, 2002, by
and between the Company and the persons party thereto
(included as Exhibit 10.8 to the Company's Current Report on Form 8-K
filed on May 23, 2002 and incorporated herein by reference). *
10.29 Sourcing Agreement dated May 1, 2002, between the Company and
Kellwood Company.
10.30 Extension to Consulting Agreement, dated as of April 28, 2002,
between the Company and Jewelcor Management, Inc.
18.1 Letter of Preferability from Ernst & Young dated June 13, 2001 (included
as Exhibit 18.1 to the Company's Quarterly Report on Form 10-Q dated June
19,2001 and incorporated herein by reference). *
99 Current Report on Form 8-K, dated April 28, 2000 concerning
certain cautionary statements of the Company to be taken into account
in conjunction with consideration and review of the Company's publicly-
disseminated documents (including oral statements made by others on
behalf of the Company) that include forward looking information. *
* Previously filed with the Securities and Exchange Commission.
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.
DESIGNS, INC.
Date: June 18, 2002 By: /S/ DENNIS R. HERNREICH
Dennis R. Hernreich, Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
SOURCING AGREEMENT
This sourcing agreement (this "Agreement") is dated May 1, 2002, and is between
DESIGNS, INC., a Delaware corporation ("Designs"), and KELLWOOD COMPANY, a
Delaware corporation ("Kellwood").
Designs is engaged in the business of retail sale of apparel and accessories
("Merchandise") at retail locations throughout the United States. Designs has
submitted a bid to acquire, subject to Section 363 of the U.S. Bankruptcy Code,
substantially all the assets of Casual Male Corp., a Massachusetts corporation,
and certain related entities (collectively, "Casual Male"; that acquisition, the
"Casual Male Acquisition") and has entered into an agreement with
Kellwood under which Kellwood has agreed, subject only to the execution and
delivery of this Agreement, to lend $10 million to Designs on a subordinated
basis, in exchange for a promissory note from Designs to Kellwood (the "Note")
to be applied by the Company in whole or in part to fund a portion of the
proposed purchase price of the Casual Male Acquisition.
As a condition to the parties' entering into and performing their obligations
under the above referenced agreement and the Note, , the parties are entering
into this Agreement.
The parties therefore agree as follows:
Article 1
SOURCING AND SUPPLY SERVICES
1.1 Sourcing and Supply Services. Kellwood shall manufacture or cause to be
manufactured Merchandise for sale to Designs (which for purposes of Article 1
and Article 2 will be deemed to include Designs or any of its Affiliates,
including those operating the business acquired from Casual Male), in accordance
with orders placed with Kellwood by Designs (such Merchandise when ordered by
Designs from Kellwood under this Agreement, "Products"). During the term of
this Agreement, the products and services to be provided by Kellwood hereunder
will be non-exclusive, and subject to Section 1.2, Designs will have the right
to source Merchandise from any Person, it being understood that Kellwood will
not have any obligation with respect to Merchandise sourced from such other
Persons.
1.2 Minimum Quantity. Each Contract Year, provided the Casual Male
acquisition has been consummated, Designs shall place with Kellwood orders for
Products having not less than the following aggregate whole Product Cost ( the
"Minimum Quantity") (not including the Merchandise currently being supplied by
Kellwood to Designs which includes Dockers Exact(r) and Slates(r) product for
Designs Levis/Dockers outlet stores), so long as such Products, satisfactory to
Designs in quality and quantity, are timely supplied by Kellwood at reasonably
competitive prices:
Contract Year 1 $50,000,000
Contract Year 2 $52,500,000
Contract Year 3 $55,125,000
Contract Year 4 $57,881,250
Contract Year 5 $60,775,312
Contract Year 6 $63,814,077
Contract Year 7 $67,004,780
(a) For purposes of this Agreement, "Product Cost" of any Products means
the wholesale price of those Products invoiced by Kellwood to Designs, which
includes the Cost of Goods Sold (as defined in Section 2.3) and the related
Margins (as defined in Section 2.2).
(b) Designs and Kellwood shall cooperate in good faith to assure that
the prices charged or proposed to be charged to Designs by Kellwood are
reasonably competitive.
(c) In the event that the aggregate Product Cost of Designs' purchases
of Products from Kellwood in any Contract Year shall be less than the Minimum
Quantity for such Contract Year specified in (a) above, then (i) the Minimum
Quantity specified in (a) above for the immediately following Contract Year
shall be increased by the amount of such shortfall, up to 20% of the Minimum
Quantity so specified for the Contract Year in which such shortfall
occurred, and (ii) Designs shall pay to Kellwood as liquidated damages an amount
equal to 15.5% of the amount of such shortfall (if any) in excess of 20% of such
Minimum Quantity so specified for such Contract Year. In the event that the
Minimum Quantity for any such following Contract Year has been so increased by
up to 20% of the shortfall from the preceding Contract Year, then to the extent,
if any, that the aggregate cost of Designs' purchases of Products from
Kellwood in such immediately following Contract Year shall be less than the
Minimum Quantity for such following Contract Year (as so increased), Designs
shall pay to Kellwood as liquidated damages an amount equal to 15.5% of such
shortfall in such following Contract Year, and no further payment or adjustment
shall be due and no further increase shall be made by reason of such past
shortfalls in the Minimum Quantity specified for any subsequent Contract Year.
1.3 Purchasing Procedure. At its expense, Designs shall prepare and deliver
reasonably detailed Product specifications in writing to Kellwood.
(a) Kellwood shall then promptly supply Designs with samples of the
Products so ordered.
(b) If such samples are satisfactory to Designs in quality and the
Product Cost is competitive, Designs shall then, using purchase orders in a form
reasonably acceptable to Kellwood (including providing for a commercially
reasonable schedule for delivery), authorize Kellwood to manufacture and sell to
Designs those Products in the quantities specified in such purchase orders.
(c) Kellwood shall then promptly confirm those orders in writing and use
commercially reasonable efforts to comply with the specifications and timing
requirements of Designs.
(d) Designs may, at its expense and if it deems appropriate, cause its
employees and representatives to travel to Kellwood's offices and to facilities
of Kellwood in connection with the purchase of Merchandise.
(e) Designs may return to Kellwood for full credit any Products that
Designs , in good faith, determines to be commercially defective. To the extent
that any defective product, together with any claims, as specified in Section
2.5, exceeds 5% of the Minimum Quantity for the Contract Year, as specified in
Section 1.2, such amount will be credited for purposes of determining Designs'
compliance with its obligations under Section 1.2.
1.4 Forecasts by Designs. In order to facilitate Kellwood's sourcing of
Products, Designs shall provide Kellwood from time to time and as reasonably
requested by Kellwood with forecasts of the quantity and type of Merchandise
Designs intends to purchase under this Agreement in the reasonably foreseeable
future, but in no event more than six months ahead of placing orders.
1.5 Maintenance of Records by Kellwood; Audit Rights. Kellwood shall provide
to Designs summary and detailed invoice and Cost of Goods Sold information
with respect to each purchase order Designs places under this Agreement.
Kellwood shall maintain reasonably complete and accurate records of all Products
ordered, in process, finished, or in transit sufficient to support such invoices
and Cost of Goods Sold and shall at the request of Designs provide reasonable
access to, or copies of, those records.
1.6 Post-Order Responsibility. Once a purchase order has been submitted to
Kellwood, Designs may not materially modify or cancel that order without
Kellwood's prior written consent, which shall not unreasonably be withheld.
Designs may, however, modify or cancel without Kellwood's prior written consent
a purchase order submitted to Kellwood if Kellwood fails to comply in any
material respect with the terms of that purchase order, in which case the rights
of Designs will be governed by the terms of that purchase order. Designs shall
bear all out-of-pocket costs reasonably incurred by Kellwood as a result of any
material modification or cancellation of a purchase order by Designs. Kellwood
shall promptly advise Designs of any anticipated problems or delays in
production or delivery and shall use commercially reasonable efforts to resolve
any such problems.
1.7 Involvement by Kellwood Personnel. Kellwood will provide the dedicated
services of such Kellwood personnel as may be reasonably necessary for the full
performance of this Agreement.
Article 2
DELIVERY AND PAYMENT
2.1 Delivery of Products. Kellwood will be deemed to have completed delivery
of any Products, and title risk of loss with respect to those Products will pass
to Designs, F.O.B. Kellwood's shipping point.
(a) Kellwood will be responsible for clearing Products through customs
in foreign and domestic ports.
2.2 Margin. The Product Cost for Products provided by Kellwood under this
Agreement shall include a margin (the "Margin") equal to 15.5% of such Product
Cost.
2.3 Cost of Goods Sold. The Product Cost charged by Kellwood to Designs and
its Affiliates for any Products will be Kellwood's wholesale price of those
Products, which includes the Cost of Goods Sold (as defined in Section 2.3) and
the related Margins (as defined in Section 2.2.) The "Cost of Goods Sold" for
each shipment of Products means actual costs for pre-production, plus sourcing
or production costs, which will be comprised of the product purchase price or,
if manufactured, the direct materials, direct labor and manufacturing overhead;
plus freight-in, duty, commissions, or any other direct costs of purchasing or
manufacturing the product. In addition, Cost of Goods Sold shall include
properly allocable warehousing and distribution costs.
2.4 Payments for Products. On the later of (1) the date on which Products are
delivered F.O.B. Kellwood shipping point and (2) the date designated in the
purchase order for delivery of those Products, if that date is 10 days or more
after the date of actual delivery of those Products, Kellwood shall notify
Designs of the total amount due to Kellwood for the Product Cost for such
Products. Within 60 days of Kellwood's presentation to Designs of Kellwood's
invoice for any Products (the end of that 60-day period, the "Payment
Deadline"), Designs or one of its Affiliates shall pay to Kellwood the Product
Cost for those Products by wire transfer of immediately available funds to an
account designated by Kellwood. Any amounts not paid by the Payment Deadline
will accrue interest daily from the Payment Deadline until paid in full at an
annual rate equal to the lesser of (1) the prime rate announced by Citibank,
N.A. from time to time plus 3% and (2) the maximum rate allowed by law.
2.5 Claims. Kellwood shall, at the request of Designs, accept the return of
Products rejected by Designs and, at the request of Designs, process appropriate
claims against Kellwood or any third-party source of those rejected Products,
including without limitation claims for refund or credit. To the extent that
any financial settlement, payment, or other financial concession actually
effected in connection with any such claims, and all such financial settlements,
payments, or other financial concessions, together with the Product Cost of any
defective Product, as specified in 1.3(e)exceeds 5% of the Minimum Quantity for
the Contract Year, as specified in Section 1.2, such amount will be credited for
purposes of determining Designs' compliance with its obligations under Section
1.2.
Article 3
TERM AND TERMINATION
3.1 Term. Unless terminated earlier as provided in this Agreement, the term
of this Agreement is from the date of this Agreement until midnight on February
7, 2010, the last day of Designs' 2009-2010 fiscal year.
3.2 Termination. This Agreement may be terminated as follows:
(1) at any time by written agreement of Kellwood and Designs;
(2) by Designs upon 15 days' notice to Kellwood if any representation made in
this Agreement by Kellwood was materially inaccurate when made, remains
materially inaccurate, and is not cured prior to expiration of the 15-day
period;
(3) by Kellwood upon 15 days' notice to Designs if any representation made in
this Agreement by Designs was materially inaccurate when made, remains
materially inaccurate, and is not cured prior to expiration of the 15-day
period;
(4) by Designs immediately upon notice to Kellwood if Kellwood has materially
breached any of its obligations under this Agreement and either of the
following applies:
(A) that breach can reasonably be cured within a 60-day period from the
date Designs notifies Kellwood of that breach and Kellwood has not
cured that breach prior to expiration of that 60-day period; or
(B) that breach cannot reasonably be cured within that 60-day period and
Kellwood does not commence curing that breach within that 60-day
period and proceed diligently toward completing that cure, which
cure must in any event be completed prior to expiration of a 120-day
period from the date Designs notifies Kellwood of that breach;
(5) by Kellwood immediately upon notice to Designs if Designs has materially
breached any of its obligations under this Agreement and either of the
following applies:
(A) that breach can reasonably be cured within a 60-day period from the
date Kellwood notifies Designs of that breach and Designs has not
cured that breach prior to expiration of that 60-day period; or
(B) that breach cannot reasonably be cured within that 60-day period and
Designs does not commence curing that breach within that 60-day
period and proceed diligently toward completing that cure, which
cure must in any event be completed prior to expiration of a 120-day
period from the date Kellwood notifies Designs of that breach;
(6) by Designs immediately upon notice to Kellwood if there occurs a
Bankruptcy Event with respect to Kellwood;
(7) by Kellwood immediately upon notice to Designs if there occurs a
Bankruptcy Event with respect to Designs; and
(8) by either party upon notice to the other in the event that (x) the Casual
Male Acquisition shall not have been consummated prior June 28, 2002 or
(y) performance of this Agreement is rendered impossible for 180
consecutive days due to any Event of Force Majeure (as defined in Section
6.1).
3.3 Effects of Termination. In the event of the expiration or termination of
this Agreement for any reason, Kellwood will have no further liability or
obligation to Designs under this Agreement except as otherwise provided in this
Agreement, and except that this Agreement will govern the rights and obligations
of the parties with respect to all orders for Products placed prior to
expiration or termination of this Agreement.
3.4 Return of Materials. In the event of expiration or any termination of
this Agreement for whatever reason, then within 15 calendar days following sale
or other disposition of all Products delivered pursuant to this Agreement each
party shall return to the other party all samples, books, records, designs, and
materials of any kind belonging to the other party and all copies thereof.
3.5 Confidentiality. Neither party may disclose to any other Person any
Confidential Information belonging to the other party that was disclosed under
this Agreement. Upon the expiration or termination of this Agreement, each
party will cease to use the other party's Confidential Information and shall
return to the other party all tangible Confidential Information provided to it
by the other party.
3.6 Copyright, Patent and Trademark Rights. Each of the parties reserves all
property rights, including copyright, patent, and trademark rights, in all of
their respective materials, publications, research, software, data, devices,
designs, concepts, and trade names in connection with the products and services
provided by Kellwood to Designs under this Agreement.
Article 4
REPRESENTATIONS
4.1 Representations of Designs. Designs represents to Kellwood as follows:
(a) Designs is a corporation validly existing and in good standing under
the law of the State of Delaware.
(b) Designs' board of directors has duly authorized Designs to execute
and deliver this Agreement and the Note and perform its obligations under
this Agreement and the Note, and no other corporate proceedings of Designs
are necessary with respect thereto.
(c) Each of this Agreement and the Note constitutes the valid and
binding obligation of Designs, enforceable in accordance with its terms,
except as enforceability is limited by (A) any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally, or (B) general principles of equity, whether considered
in a proceeding in equity or at law.
(d) Designs' execution and delivery of this Agreement and the Note and
performance of its obligations hereunder and thereunder does not (1)
violate any provision of the certificate of incorporation or bylaws of
Designs as currently in effect, (2) conflict with, result in a breach of,
constitute a default under (or an event that, with notice or lapse of time
or both, would constitute a default under), accelerate the performance
required by, result in the creation of any Lien upon any of the properties
or assets of Designs under, or create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under, any
Contract to which Designs is a party or by which any properties or assets
of Designs are bound, or (3) violate any Law or Order to which Designs is
subject, except, in the case of (2) or (3) above, for such conflict,
breach, default, acceleration, Lien, or right, or notice as would not,
individually or in the aggregate, have a material adverse effect on
Designs and its subsidiaries taken as a whole.
(e) Designs is not required to obtain the Consent of any Person,
including the Consent of any party to any Contract to which Designs is a
party, in connection with execution and delivery of this Agreement and the
Note and performance of its obligations hereunder.
4.2 Representations of Kellwood. Kellwood represents to Designs as follows:
(a) Kellwood is a corporation validly existing and in good standing
under the law of the State of Delaware.
(b) Kellwood's Executive Committee of the board of directors has duly
authorized Kellwood to execute and deliver this Agreement and perform its
obligations under this Agreement, and no other corporate proceedings of
Kellwood are necessary with respect thereto.
(c) This Agreement constitutes the valid and binding obligation of
Kellwood, enforceable in accordance with its terms, except as
enforceability is limited by (A) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally, or (B) general principles of equity, whether considered in a
proceeding in equity or at law.
(d) Kellwood's execution and delivery of this Agreement and performance
of its obligations hereunder does not (1) violate any provision of the
certificate of incorporation or bylaws of Kellwood as currently in effect,
(2) conflict with, result in a breach of, constitute a default under (or
an event that, with notice or lapse of time or both, would constitute a
default under), accelerate the performance required by, result in the
creation of any Lien upon any of the properties or assets of Kellwood
under, or create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under, any Contract to which
Kellwood is a party or by which any properties or assets of Kellwood are
bound, or (3) violate any Law or Order to which Kellwood is subject,
except, in the case of (2) or (3) above, for such conflict, breach,
default, acceleration, Lien, or right, or notice as would not,
individually or in the aggregate, have a material adverse effect on
Kellwood.
(e) Kellwood is not required to obtain the Consent of any Person,
including the Consent of any party to any Contract to which Kellwood is a
party, in connection with execution and delivery of this Agreement and
performance of its obligations hereunder.
Article 5
PRODUCT LIABILITY
5.1 Warranty. Kellwood warrants that each Product supplied to Designs under
this Agreement will:
(a) be of merchantable quality, and fit for its purpose;
(b) be free of any defects in the design, materials or workmanship;
(c) be supplied free of all liens, claims and encumbrances; and
(d) conform to all applicable consumer product labeling and safety
standards.
5.2 Product Liability Insurance. Kellwood shall obtain and maintain product
liability insurance on the Products supplied and such insurance will include a
broad form Vendor's Endorsement covering Designs.
Article 6
MISCELLANEOUS
6.1 Force Majeure. Neither Designs nor Kellwood will be liable for any delays
in the performance of this Agreement due to force majeure and causes beyond its
reasonable control (each, a "Event of Force Majeure"), including without
limitation fires, strikes, disputes, war, civil commotion, terrorist attacks,
epidemics, floods, accidents, delays, shortages and laws, regulations, or
requests of any Governmental Authority. Upon occurrence of an Event of Force
Majeure, Designs will not be relieved of its obligations to make timely payments
in accordance with this Agreement.
6.2 Status of Relationship. Kellwood's relationship with Designs under this
Agreement is solely that of an independent contractor, and nothing contained in
this Agreement will be deemed (1) to create a partnership or joint venture
between Designs and Kellwood, (2) to cause Kellwood to be responsible in any way
for the debts, liabilities, or obligations of Designs, or (3) to give either
party the authority to bind or act for the other in any respect, except as
specifically provided in this Agreement.
6.3 Governing Law. This Agreement is governed by the laws of the State of New
York, without giving effect to principles of conflict of laws.
6.4 Jurisdiction; Service of Process. Any Proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement must be
brought against any of the parties in the courts of the State of New York,
County of New York, or, if it has or can acquire jurisdiction, in the United
States District Court for the Southern District of New York, and each
of the parties consents to the jurisdiction of those courts (and of the
appropriate appellate courts) in any such Proceeding and waives any objection to
venue laid therein. Process in any such Proceeding may be served by sending or
delivering a copy of the process to the party to be served at the address and in
the manner provided for the giving of notices in Section 6.5. Nothing in this
Section 6.4, however, affects the right of any party to serve legal process in
any other manner permitted by law.
6.5 Notices. Every notice or other communication required or contemplated by
this Agreement must be in writing and sent by one of the following methods: (1)
personal delivery, in which case delivery is deemed to occur the day of
delivery; (2) certified or registered mail, postage prepaid, return receipt
requested, in which case delivery is deemed to occur the day it is
officially recorded by the U.S. Postal Service as delivered to the intended
recipient; (3) next-day delivery to a U.S. address by recognized overnight
delivery service such as Federal Express, in which case delivery is deemed to
occur upon receipt; or (4) facsimile transmission, with written confirmation
from the recipient of receipt of the transmission, in which case delivery is
deemed to occur on the day of transmission (if transmitted by 5:00 p.m. New York
time on a Business Day) or the next Business Day (if transmitted any other
time). In each case, a notice or other communication sent to a party must be
directed to the address for that party set forth below, or to another address
designated by that party by written notice:
If to Kellwood, to:
Kellwood Compnany
600 Kellwood Parkway
Chesterfield, MO 63017
Attention: Thomas H. Pollihan, Esq.,
Senior Vice-President, Secretary and General Counsel
Facsimile: 314-576-3388
If to Designs, to:
Designs, Inc.
66 B Street
Needham, MA 02494
Attention: President
Facsimile: (781) 433-7462
6.6 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
6.7 Amendment; Waiver. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties. No waiver
by any party of any breach by any party of any of its obligations under this
Agreement or any inaccuracy in any representation by any party in this Agreement
will be deemed to extend to any other breach or inaccuracy or affect in any way
any rights arising by virtue of any other breach or inaccuracy.
6.8 Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire agreement between the parties
pertaining to the subject matter of this Agreement and supersede all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, of the parties. In the event of any direct conflict between
this Agreement and any term of any purchase order of Designs with respect to
Products purchased under this Agreement, this Agreement will govern.
6.9 Counterparts. This Agreement may be executed in several counterparts,
each of which is an original and all of which together constitute one and the
same instrument.
6.10 Assignment. No party may assign any of its rights or obligations under
this Agreement without the prior consent of the other parties, except that
Designs may at any time assign to any Affiliate of Designs any of its rights and
obligations under this Agreement, on condition that concurrently with that
assignment Kellwood, Designs, and that Affiliate enter into an amendment to this
Agreement that (1) makes that Affiliate a party to this Agreement and (2)
provides that Designs guarantees performance by that Affiliate of the assigned
obligations.(a) This Agreement is binding in all respects upon, and inures to
the benefit of, the successors and permitted assigns of the parties.
6.11 Reporting. Designs shall promptly furnish to Kellwood (i) monthly
unaudited financial statements in form and reasonably satisfactory to Kellwood,
(ii) a copy of each Borrowing Base Certificate furnished by Designs to its
senior lenders, and (iii) such other information as to the financial condition
of Designs as Kellwood shall reasonably request.
6.12 Definitions. When used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any given Person, any other Person at
the time directly or indirectly controlling, controlled by or under common
control with that Person, or (2) any director, officer or employee of that
Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person through ownership of voting
securities.
"Bankruptcy Event" means with respect to any Person any of the following:
(1) the institution by that Person of bankruptcy or insolvency proceedings;
(2) the consent of that Person to the institution of bankruptcy or insolvency
proceedings against that Person;
(3) the filing by that Person of a petition seeking reorganization or release
under applicable law, or the consent by that Person to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of that Person or of any
substantial part of the property of that Person;
(4) the making by that Person of an assignment for the benefit of creditors;
and
(5) the entry of an Order by a court having jurisdiction adjudging that Person
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of or in respect
of that Person under applicable law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of that
Person, or of any substantial part of the property of that Person, or
ordering the winding up or liquidation of the affairs of that Person, and
(A) that Person consents to that decree or order or (B) that decree or
order remains unstayed and in effect for more than 60 consecutive days.
"Confidential Information" of either party means any confidential or
proprietary information of that party, and includes but is not limited to
current or anticipated products, processes, know-how, customers, sales,
business affairs, contractual arrangements, and the identity of
Representatives, but does not include the following:
(1) information that is or becomes generally available to the public other
than as a result of a breach of this Agreement by the receiving party or
its Representatives;
(2) information that was within the receiving party's possession or knowledge
prior to its being furnished to the receiving party by or on behalf of the
disclosing party, on condition that the source of that information was not
known by the receiving party to be bound by a confidentiality agreement
with or other contractual, legal or fiduciary obligation of
confidentiality to the disclosing party;
(3) information that is or becomes available to the receiving party on a non-
confidential basis from a source other than the disclosing party or any of
its Representatives, on condition that that source was not known after
reasonable inquiry by the receiving party to be bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the disclosing party or any other party with respect to
that information; or
(4) information that is independently developed by the receiving party without
use of Confidential Information or otherwise in a manner not consistent
with this Agreement.
"Consent" means any approval, consent, ratification, filing, declaration,
registration, waiver, or other authorization (including any Permit).
"Contract" means any written or unwritten agreement, contract, obligation,
promise, arrangement, or undertaking that is legally binding, including
any amendment or supplement thereto.
"Contract Year" means the fiscal year of Designs, except that Contract
Year 1 begins on the date of this Agreement and ends at midnight on
January 31, 2004, the last day of Designs' 2003-2004 fiscal year.
"Governmental Authority" means any (1) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (2) federal,
state, local, municipal, foreign, or other government, (3) governmental or
quasi-governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other
tribunal, including an arbitral tribunal), (4) multi-national organization
or body, and (5) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.
"Law" means any federal, state, local, municipal, foreign, international,
multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Lien" means any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on
use, voting, transfer, receipt of income, or exercise of any other
attribute of ownership.
"Order" means any award, decision, injunction, judgment, order, ruling,
consent decree, subpoena, or verdict entered, issued, made, or rendered by
any court, arbitral tribunal, administrative agency, or other Governmental
Body.
"Permit" means any approval, consent, license, permit, waiver, or other
authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Authority or pursuant to any Law.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union,
Governmental Authority or other entity.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Authority.
"Representative" means, with respect to any Person, any director, officer,
employee, agent, consultant, advisor, or other representative of that
Person, including legal counsel, accountants, and financial advisors.
The undersigned are executing this Agreement on the date stated in the
introductory clause.
KELLWOOD COMPANY
By:
Name:
Title:
DESIGNS, INC.
By:
Name:
Title:
As of April 28, 2002
Jewelcor Management, Inc.
100 North Wilkes-Barre Boulevard
Wilkes-Barre, PA 18702
Ladies and Gentlemen:
This will confirm the agreement between Jewelcor Management, Inc. (the
"Independent Contractor") and Designs, Inc. (the "Corporation")
regarding the extension of the term of the Consulting Agreement between
the Independent Contractor and the Corporation dated as of April 29,
2000 (the "Agreement"), and previously extended as of April 28, 2001
for a period of one year commencing on April 29, 2001 and ending on
April 28, 2002.
1. The term of the Agreement shall be extended for an additional period
of one (1) year commencing on April 29, 2002 and ending on April 28,
2003. Unless the context otherwise requires, April 28, 2003 shall be
the "Expiration Date" of the Agreement as so extended.
2. Subject to the provisions of Section 4 of the Agreement, the
consideration to be furnished to the Independent Contractor by the
Corporation for the Services rendered by the Independent Contractor
under the Agreement during the period from April 29, 2002 through April
28, 2003 shall consist of (a) 60,659 non-forfeitable, fully paid and
non-assessable shares of the Corporation's Common Stock (the fair value
of which Common Stock on April 29, 2002, the date of the extension of
the Agreement as set forth herein, was $276,000 or $4.55 per share) and
(b) the reimbursement of actual and direct out-of-pocket expenses
incurred by the Independent Contractor in the rendering of Services
under the agreement.
The remaining terms of the Agreement shall remain in full force and
effect without change. For the avoidance of doubt, the parties hereby
agree and acknowledge that the foregoing extension does not change the
compensation or other rights or obligations of the parties originally
provided in the Agreement with respect to any prior period.
Very truly yours,
Designs, Inc.
Agreed and Accepted:
Jewelcor Management, Inc.