SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 29, 2000 (Fiscal 2000)

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 of principal executive offices)

66 B Street, Needham, MA 02494

(Address of principal executive offices) (Zip Code)

(781) 444-7222

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Preferred Stock Purchase Rights

(Title of each Class)

-----------------

Indicate by check mark whether the registrant (1) has filed all reports required

to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during

the preceding 12 months (or for such shorter period that the registrant was

required to file such reports), and (2) has been subject to such filing

requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405

of Regulation S-K is not contained herein, and will not be contained, to the

best of the registrant's knowledge, in definitive proxy or information

statements incorporated by reference in Part III of this Form 10-K or any

amendment to this Form 10-K. |X|

The aggregate market value of the voting stock of the registrant held by

non-affiliates of the registrant, based on the last sales price of such stock on

April 18, 2000 was approximately $14.7 million.

The registrant had 16,441,251 shares of Common Stock, $0.01 par value,

outstanding as of April 18, 2000.

continued

DOCUMENTS INCORPORATED BY REFERENCE

Form 10-K Requirement Incorporated Document

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Part III

Item 10 Directors and Executive All information under the caption

Officers "Nominees for Director and Executive

Officers" in the Company's definitive

Proxy Statement which is expected to be

filed within 120 days of the end of the

fiscal year ended January 29, 2000.

Item 11 Executive Compensation All information under the caption

"Executive Compensation" in the

Company's definitive Proxy Statement

which is expected to be filed within 120

days of the end of the fiscal year ended

January 29, 2000.

Item 12 Security Ownership of All information under the caption

Certain Beneficial Owners "Security Ownership of Certain

Beneficial Owners and Management" in the

Company's definitive Proxy Statement

which is expected to be filed within 120

days of the end of the fiscal year ended

January 29, 2000.

Item 13 Certain Relationships and All information under the caption

Related Transactions "Certain Relationships and Related

Transactions" in the Company's

definitive Proxy Statement which is

expected to be filed within 120 days of

the end of the fiscal year ended January

29, 2000.

DESIGNS, INC.

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Index to Annual Report on Form 10-K

Year Ended January 29, 2000

PART I Page

Item 1. Business........................................................ 4

Item 2. Properties...................................................... 9

Item 3. Legal Proceedings............................................... 9

Item 4. Submission of Matters to a Vote of Security Holders............. 9

PART II

Item 5. Market for Registrant's Common Equity and Related

Shareholder Matters............................................. 10

Item 6. Selected Financial Data......................................... 11

Item 7. Management's Discussion and Analysis of

Financial Condition and Results of Operations................... 12

Item 8. Financial Statements and Supplementary Data..................... 22

Item 9. Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure.......................... 47

PART III

Item 10. Directors and Executive Officers of the Registrant.............. 47

Item 11. Executive Compensation.......................................... 47

Item 12. Security Ownership of Certain Beneficial Owners

and Management.................................................. 47

Item 13. Certain Relationships and Related Transactions.................. 47

The information called for by Items 10, 11, 12 and 13, to the

extent not included in this document, is incorporated herein by

reference to the Company's definitive proxy statement which is

expected to be filed within 120 days after the Company's fiscal

year ending January 29, 2000.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on

Form 8-K........................................................ 48

PART I.

Item 1. Business

Summary

Designs, Inc. (the "Company") is an Outlet retailer based in the United States

selling quality branded apparel and accessories. The Company markets a broad

selection of Levi Strauss & Co. brand merchandise through outlet stores under

the names "Levi's(R)/Dockers(R) Outlet By Designs," "Levi's(R) Outlet By

Designs" and "Dockers(R) Outlet by Designs." The Company uses certain Levi

Strauss & Co. trademarks pursuant to a trademark license agreement with Levi

Strauss & Co.

In fiscal year 2000, the Company continued to re-align its store portfolio and

overhead structure to narrow its business to one focused solely on the

profitable Outlet segment including the Levi's(R) and Dockers(R) Outlet stores.

As part of this re-alignment to an outlet based business, the Company closed its

five remaining Boston Trading Co. (TM)/BTC(TM) mall stores and its five

Buffalo(R) Jeans Factory stores during the fourth quarter of fiscal 2000.

These strategic actions return Designs, Inc. to its core competency as a single

branded outlet operator, with all of its 103 stores devoted exclusively to

selling Levi Strauss & Co. brands of apparel and accessories.

As used throughout this report on Form 10-K, the terms fiscal 2000, 1999 and

1998 refer to the Company's twelve month periods ending January 29, 2000,

January 30, 1999 and January 31, 1998, respectively.

Store Formats

The Company's Levi's(R) Outlet by Designs and Dockers(R) Outlet by Designs

stores are located in outlet centers and are located primarily in the eastern

part of the United States. These stores sell manufacturing overruns, merchandise

specifically manufactured for the outlet stores, discontinued lines and

irregulars purchased directly from Levi Strauss & Co. and its licensees.

Many of the manufacturers' outlet centers in which these stores are located have

matured, resulting in limited increases in customer traffic. The combination of

this maturing of the Levi's(R) and Dockers(R) Outlet by Designs store base,

increased competition, and a limited availability of Levi's(R) and Dockers(R)

product resulted in less then expected comparable store performance in the past

three fiscal years. The Company initiated strategies to overcome this such as

closing unprofitable stores and re-negotiating existing leases.

Management believes that the Company competes with other apparel retailers by

offering superior selection, quality merchandise, knowledgeable in-store service

and competitive price points. The Company stresses product training with its

sales staff and, with the assistance of Levi Strauss & Co. merchandise

materials, provides its sales personnel with substantial product knowledge

training across all product lines.

The following table provides a summary of the number of stores in operation at

year end for the past three fiscal years. Levi Strauss & Co. approves all new

outlet store locations which carry Levi Strauss & Co. brands and use any

trademark owned by Levi Strauss & Co.

(Fiscal 2000) (Fiscal 1999) (Fiscal 1998)

January 29, January 30, January 31,

2000 1999 1998

---- ---- ----

Levi's(R)/Dockers(R) Outlet by Designs 65 59 59

Levi's(R) Outlet previously operated by the Joint

Venture (1) 11 11 --

Levi's(R) Outlet stores acquired (2) 9 9 --

Dockers(R) Outlet stores acquired (2) 18 16 --

Buffalo Jeans(R) Factory Outlets (3) -- 5

Boston Trading Co.(R)(3) -- 3 11

Designs/BTC(TM)(3) -- 6 22

Boston Traders(R) Outlet stores (3) -- 4 12

Joint Venture: (1)

Original Levi's Stores(R) -- -- 11

Levi's(R) Outlets -- -- 11

--- --- ---

Sub-total 103 113 126

=== === ===

(1) In Fiscal 1999, the Company and Levi Strauss & Co. agreed to dissolve and

wind up the Joint Venture between subsidiaries of the two companies. As

part of the dissolution process, on October 31, 1998, the Joint Venture

distributed 11 Levi's(R) Outlet stores to the Company and three Original

Levi's Stores(R) to Levi's Only Stores, Inc., a wholly-owned subsidiary of

Levi Strauss & Co. The remaining eight Original Levi's Stores(R) were

closed by the end of fiscal 1999.

(2) On September 30, 1998, the Company acquired from Levi's Only Stores, Inc.

16 Dockers(R) Outlet stores and nine Levi's(R) Outlet stores for

approximately $9.7 million.

(3) In fiscal 2000, the Company closed, as part of the Company's store closing

programs, its remaining Designs/BTC(TM) stores, Boston Traders(R) outlet

stores, Boston Trading Co.(R) stores and its five Buffalo Jeans(R) Factory

stores. In Fiscal 1999, the Company closed 37 stores as part of the

Company's store closing programs. In fiscal 1998, the Company closed 16

Designs stores and 15 Boston Traders(R) outlet stores.

On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company,

and a subsidiary of Levi's Only Stores Inc. ("LOS"), a wholly-owned subsidiary

of Levi Strauss & Co., entered into a partnership agreement (the "Partnership

Agreement") to sell Levi's(R) brand jeans and jeans-related products. The joint

venture that was established by the Partnership Agreement is known as The

Designs/OLS Partnership (the "OLS Partnership"). In the third quarter of fiscal

1999, the Company and Levi Strauss & Co. agreed to dissolve and wind up the

joint venture between subsidiaries of the two companies. As part of the

dissolution process, on October 31, 1998, the OLS Partnership distributed 11

Levi's(R) Outlet stores to the Company with a net book value of approximately

$6.4 million. In addition, the OLS Partnership distributed to LOS three Original

Levi's Stores(R) located in New York City and Boston, Massachusetts with a net

book value of $5.5 million. The remaining eight Original Levi's Stores(R) owned

by the OLS Partnership were closed during the fourth quarter of fiscal 1999.

The Company's present plans for expansion in fiscal 2001 include opening 5 new

Levi's(R)/Dockers(R) Outlet by Designs stores, one of which will be located in

Puerto Rico, and remodeling 11 existing Levi's(R) Outlet by Designs stores.

During fiscal 2000, the Company initiated a program to remodel or replace its 59

oldest Levi's(R) Outlet by Designs stores to the Company's new store format,

which is a combined Dockers(R) Outlet store and Levi's(R) Outlet store that

separately displays each brand in its own unique environment. Six of these 59

stores were remodeled or relocated in fiscal 2000. The Company plans, barring

unforeseen circumstances, to continue to move, remodel or replace the remaining

50 stores over the next four years.

In fiscal 2001, capital expenditures related to these new and remodeled stores

are expected, barring unforeseen circumstances, to total approximately $5.6

million. The Company continually evaluates the performance of all of its stores

and may, from time to time, decide to close or reduce the size of certain store

locations.

Customer Base

The Company believes that its customer base primarily reflects that of the

Levi's(R) and Dockers(R) brand customer. These stores also continue to attract

foreign travelers shopping for Levi's(R), Dockers(R) and Slates(R) brand apparel

and accessories. The Company's product selection offered is designed to satisfy

the casual apparel needs of customers in all age groups and income brackets.

Merchandising and Distribution

The Company offers a selection of Levi Strauss & Co. brands of merchandise

including manufacturing overruns, merchandise specifically manufactured for the

outlets, discontinued lines and irregulars purchased by the Company directly

from Levi Strauss & Co. and its licensees. By its nature, this merchandise is

subject to limited availability. The Company continues to evaluate and, within

the discretion of management, act upon opportunities to purchase substantial

quantities of Levi's(R), Dockers(R) and Slates(R) brand merchandise offered to

the Company by Levi Strauss & Co.

All merchandising decisions, including pricing, markdowns, advertising and

promotional campaigns, inventory purchases and merchandise allocations, are made

centrally at the Company's headquarters with input from field operations

personnel.

Trademarks

"Dockers(R),""Levi's(R)" and "Slates(R)" are registered trademarks of Levi

Strauss & Co. Buffalo Jeans(R) is a registered trademark of Buffalo DeFrance.

The Company is the owner of the "Boston Traders(R)" and "Traders Collection(R)"

trademarks and certain other trademarks acquired as part of the acquisition of

certain assets of Boston Trading Ltd., Inc. The Company abandoned these

trademarks in fiscal 2000 and, accordingly, the Company has recorded an

impairment charge of $2.4 million related to the writeoff of these trademarks.

See Item 3-Legal Proceedings and Management's Discussion and Analysis "Fiscal

2000 Restructuring and Non-Recurring Charges."

Store Operations

The Company currently employs one Vice President and Director of Store

Operations who reports directly to the Senior Vice President of Merchandising of

the Company. Two regional managers, who report to the Vice President and

Director of Store Operations, are responsible for the operations and

profitability of stores within specific geographic regions.

In order to provide management development and guidance to individual store

managers, the Company employs approximately 15 district managers. Each district

manager is responsible for hiring and developing store managers at the stores

assigned to that manager's area and for the sales and overall profitability of

those stores. District managers report directly to a regional manager.

Levi's(R)/Dockers(R) Outlet by Designs stores are located in manufacturers'

outlet centers and average approximately 12,000 square feet in size. The average

square footage of the Dockers(R) Outlets and Levi's(R) Outlet stores is

approximately 5,200 square feet.

The Company's stores utilize interior design and merchandise layout plans

designed to promote customer identification as a specialty store selling quality

branded apparel and accessories. The merchandise layout is further customized by

store management and the Company's visual merchandising department to suit each

particular store location. The stores prominently display Levi's(R), Dockers(R)

and Slates(R) brand logos and utilize distinctive promotional displays. The

Company uses Levi Strauss & Co. logos and trademarks on store signs with the

permission of Levi Strauss & Co.

Customer Service & Training

"Designs University" was established in fiscal 1996 to implement associate

training and development programs throughout the organization. The Company's

Operational Support and Development team is responsible for developing and

teaching creative programs that will enhance associate performance.

Sales associate expectations are established at all levels of training,

beginning with the Sales Associate Development Program. This program introduces

the associate to the Company's operational policies, product information and

customer service objectives. Through this program, associates are taught that

servicing the customer is the highest priority. Management believes that sales

associates are trained towards accomplishing the goal of reinforcing the

customer's perception of the Company's stores as branded specialty stores and of

differentiating its stores from those of the Company's competitors.

All members of store management participate in the Store Management Development

Program. Associates learn how to perform critical management functions required

to successfully operate a store. The Store Management Development Program

focuses on fundamental operational procedures, expense control and personnel

management.

Each Levi's(R) and Dockers(R) Outlet by Designs store employs approximately 20

associates. Store staffing typically includes a store manager, one or more

assistant managers and shift supervisors, and a team of full-time and part-time

sales associates. Store manager candidates or assistant manager candidates may

also be included on the team in specific stores. The store management team is

responsible for all operational matters in the store, including the hiring and

training of sales associates.

Information Systems

Management Information Systems is an extremely important factor in the

day-to-day operation and continued growth of the Company. Significant resources

were spent last year to ensure that all systems were ready to support the Year

2000. Because of this investment, the Company entered the Year 2000 with no

issues in any of our information systems. All merchandise and financial

functions were completely successful. During fiscal 2000, the Company installed

a new point of sale system that was designed to be Year 2000 compliant and offer

new functionality. Point of sale data, in conjunction with a full complement of

EDI transactions handling invoicing, advance shipment notices, and purchase

orders, are the primary sources of data input for the JDA Merchandise Management

package. The JDA software is designed to enhance the analytical capabilities of

the Company's merchandise and financial functions and to provide an integrated

business approach.

During fiscal 2000, the Company also started revamping its processing center

receiving and shipping processes through the installation of radio frequency

terminals and online systems. Implementations of enhancements to the Point of

Sale system and processing centers expect to be continued throughout the Fiscal

2001.

Advertising

The Company relies on the visibility and recognition of the Levi's(R) and

Dockers(R) brand names, as well as the natural flow of traffic that results from

locating stores in areas of high retail activity including destination outlet

centers and regional malls. The Company's Trademark License Agreement with Levi

Strauss & Co. limits the Company's ability to advertise to billboards and

specific outlet center promotions.

Competition

The United States casual apparel market is highly competitive with many national

and regional department stores, specialty apparel retailers and discount stores

offering a broad range of apparel products similar to those sold by the Company.

The Company considers any casual apparel manufacturer operating in outlet parks

throughout the United States competitors in the casual apparel market.

A majority of the Company's business involves the sale of branded apparel and

accessories sold by or manufactured under license from Levi Strauss & Co. Levi

Strauss & Co. is involved in the highly competitive fashion apparel industry.

Levi's(R)

brand jeans have been impacted by the increased competition from private label

as well as fashion jeans market entrants, plus national sales trends of

Levi's(R) brand products.

Employees

As of January 29, 2000, the Company employed approximately 2,275 associates, of

whom 655 were full-time personnel. The Company hires additional temporary

employees during the peak late summer and holiday seasons.

All qualified full-time employees are entitled, when eligible, to life, medical,

disability and dental insurance and to participate in the Company's 401(k)

retirement savings plan. Store managers, district managers, regional managers

and corporate office employees are eligible to receive incentive compensation

subject to the achievement of specific performance objectives related to sales,

profitability and expense control. Vice Presidents, regional managers and

district managers are also entitled to use an automobile provided by the Company

or to receive an automobile allowance. Sales personnel are compensated on an

hourly basis and, generally, receive no commissions; but from time to time are

eligible to earn sales incentive payments from individual store sales contests.

Regional and district managers, store managers and certain corporate office

employees have been granted stock options. None of the Company's employees are

represented by any collective bargaining agreement.

Item 2. Properties

As of January 29, 2000, the Company operated 103 Levi's(R) Outlet and Dockers(R)

Outlet by Designs stores. All of these stores are leased by the Company directly

from outlet center owners. The store leases are generally five years in length

and contain renewal options extending their terms to between 10 and 15 years.

Most of the Company's outlet store leases provide for annual rent based on a

percentage of store sales, subject to guaranteed minimum amounts.

Sites for store expansion are selected on the basis of several factors intended

to maximize the exposure of each store to the Company's target customers. These

factors include the demographic profile of the area in which the site is

located, the types of stores and other retailers in the area, the location of

the store within the mall and the attractiveness of the store layout. The

Company also utilizes financial models to project the profitability of each

location using assumptions such as the center's sales per square foot averages,

estimated occupancy costs and return on investment requirements. The Company

believes that its selection of locations enables the Company's stores to attract

customers from the general shopping traffic and to generate its own customers

from surrounding areas.

The lease for the Company's headquarters office, which began in November 1995,

is for a period of ten years. The lease provides for the Company to pay all

occupancy costs associated with the land and the 80,000 square foot building.

The Company entered into an agreement, effective April 1, 1998, to sublease

approximately 15,000 square feet to a sublessee for a term of five to eight

years. The Company also entered into a second agreement effective July 1, 1998

to sublease an additional 15,300 square feet to a sublessee for a term of five

to seven years.

Currently, the Company leases a warehouse facility in Orlando, Florida to

process approximately a million units of merchandise. The lease expires in

November 2000 and has two two-year options to extend. The Company also utilizes

a third party distribution center in Mansfield, Massachusetts.

See "Management's Discussion and Analysis of Financial Condition and Results of

Operations - Liquidity and Capital Resources - Capital Expenditures."

Item 3. Legal Proceedings

The Company is a party to litigation and claims arising in the course of its

business. Management does not expect the results of these actions to have a

material adverse effect on the Company's business or financial condition.

In January 1998 Atlantic Harbor, Inc. filed a lawsuit against the Company for

failing to pay the outstanding principal amount of the Purchase Note. In March

1998, the Company filed a counterclaim against Atlantic Harbor, Inc. alleging

that the Company was damaged in excess of $1 million because of the breach of

certain representations and warranties made by Atlantic Harbor, Inc. and its

stockholders concerning the existence and condition of certain foreign trademark

registrations and license agreements. Barring unforeseen circumstances,

management of the Company does not believe that the result of this litigation

will have a material adverse effect on the Company's business or financial

condition.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II.

Item 5. Market for the Registrant's Common Equity and Related Shareholder

Matters

The Company's common stock trades on the Nasdaq National Market tier of The

Nasdaq Stock Market under the symbol "DESI."

The following table sets forth, for the periods indicated, the high and low per

share sales prices for the common stock, as reported on the Nasdaq consolidated

reporting system.

Fiscal Year Ending

January 29, 2000 High Low

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First Quarter 2 25/32 1 27/32

Second Quarter 2 9/16 1 3/8

Third Quarter 1 13/16 1 5/32

Fourth Quarter 1 23/32 1 3/16

Fiscal Year Ending

January 30, 1999 High Low

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First Quarter 2 3/4 1 7/8

Second Quarter 2 1/8 1 1/8

Third Quarter 2 1/32 1 11/32

Fourth Quarter 2 13/16 5/8

As of April 18, 2000, based upon data provided by independent shareholder

communication services and the transfer agent for the common stock, there were

approximately 340 holders of record of common stock and 4,100 beneficial holders

of common stock.

The Company has not paid and does not anticipate paying cash dividends on its

Common Stock. For a description of financial covenants in the Company's loan

agreement that may restrict dividend payments, see Note C of Notes to

Consolidated Financial Statements.

Item 6. Selected Financial Data

Fiscal Years Ended (1)

January 29, January 30, January 31, February 1, February 3,

2000 1999 1998 1997 1996

(Fiscal 2000) (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) (Fiscal 1996)

(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

INCOME STATEMENT DATA:

Sales $ 192,192 $ 201,634 $ 265,726 $ 289,593 $ 301,074

Gross profit, net of occupancy costs 47,440(2) 42,249(3) 38,358(4) 86,229 89,085

Pre-tax income (loss) (10,278)(2) (29,269)(3) (46,562)(4) 10,364 16,515(5)

Net Income (loss) (12,493) (18,541) (29,063) 6,264 9,773

Earnings (loss) per share - basic $ (0.78) $ (1.17) $ (1.86) $ 0.40 $ 0.62

Earnings (loss) per share - diluted $ (0.78) $ (1.17) $ (1.86) $ 0.40 $ 0.61

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Weighted average shares outstanding

for earnings per share - basic 16,088 15,810 15,649 15,755 15,770

Weighted average shares outstanding

for earnings per share - diluted 16,088 15,810 15,649 15,833 15,898

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BALANCE SHEET DATA:

Working capital $ 19,624 $ 24,078 $ 42,104 $ 72,320 $ 64,557

Inventories 57,022 57,925 54,972 79,958 58,008

Property and equipment, net 16,737 17,788 35,307 39,216 36,083

Total assets 95,077 99,317 116,399 141,760 132,649

Shareholders' equity 52,269 63,956 82,380 111,045 106,085

OPERATING DATA:

Net sales per square foot $ 190 $ 187 $ 220 $ 234 $ 265

Number of stores open at fiscal year end 103 113 125 150 157

(1) The Company's fiscal year is a 52 or 53 week period ending on the Saturday

closest to January 31. The fiscal year ended February 3, 1996 covered 53

weeks.

(2) Pre-tax loss for fiscal 2000, includes the $15.2 million charge taken in

the fourth quarter related to inventory markdowns, the abandonment of the

Company's Boston Traders(R) trademark, severance, and the closure of the

Company's 5 remaining Designs/BTC(TM) stores and its five Buffalo(R) Jeans

Factory stores. Of the $15.2 million charge, $7.8 million, or 4.1% of

sales, is reflected in gross margin. The pre-tax loss for fiscal 2000 also

includes $717,000 of non-recurring income related to excess reserves from

the fiscal 1999 restructuring program. The Company also incurred

approximately $3 million in costs related to the Company's recent proxy

solicitation and change in control. These costs are included in Selling,

general and administrative expenses for fiscal 2000.

(3) Pre-tax loss for fiscal 1999 includes the $13.4 million charge taken in

the third quarter related to closing 30 unprofitable stores. Also included

in the pretax loss for fiscal 1999 is the $5.2 million charge related to

the closing of one Designs store, three BTC(TM) stores and four Boston

Traders(R) outlet stores, all eight of which were closed in fiscal 2000.

Of the $5.2 million charge, $800,000, or 0.4% of sales, in reflected in

gross margin. In addition, the Company recognized $2.9 million in

restructuring income in the fourth quarter which was the result of

favorable lease negotiations associated with the original estimated $13.4

million charge.

(4) Pre-tax loss for fiscal 1998 includes the $20 million charge taken in the

second quarter related to the Company's strategy shift and the fourth

quarter charge of $1.6 million for the Company's reduction in work force.

Of the $20 million charge, $13.9 million or 5.2% of sales, is reflected in

gross margin

(5) Includes $2.2 million of non-recurring income related to the fiscal 1994

restructuring program recognized in fiscal year 1996.

Item 7. Management's Discussion and Analysis of Financial Condition and Results

of Operations

The following table provides a five-year history of the total sales results of

the Company, together with a summary of the number of stores in operation and

the change in the Company's comparable store sales. "Changes in comparable store

sales" measures the percentage change in sales in comparable stores, which are

those stores open for at least one full fiscal year.

FISCAL YEARS ENDED (1)

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Jan. 29, Jan. 30, Jan. 31, Feb. 1, Feb. 3,

2000 1999 1998 1997 1996

(Fiscal 2000) (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) (Fiscal 1996)

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Total Sales (In Thousands) $ 192,192 $ 201,634 $ 265,726 $ 289,593 $ 301,074

Number of stores in operation at end of the fiscal year:

Store Type

Designs and BTC(TM) -- 9 22 44 49

Levi's(R) Outlet and Dockers(R) Outlet by Designs(2) 103 95 59 58 58

Buffalo Jeans(R) Factory Outlets -- 5 -- -- --

Boston Trading Co.(R) -- -- 11

Boston Traders(R) outlets -- 4 12 27 35

Joint Venture:

Original Levi's Stores(TM)(2) -- -- 11 11 11

Levi's(R) Outlet stores (2) -- -- 11 10 4

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Total stores 103 113 126 150 157

Comparable stores 87 80 112 142 97

Changes in total sales (5%) (24%) (8%) (4%) 13%

Changes in comparable store sales (1%) (18%) (10%) (5%) 1%

(1) The Company's fiscal year is a 52 or 53 week period ending on the Saturday

closest to January 31. The fiscal year ended February 3, 1996 covered 53

weeks. Comparable store sales for fiscal 1997 were based upon 52-week

comparisons.

(2) During the third quarter of fiscal 1999, the Company and Levi Strauss &

Co. agreed to dissolve and wind up the Joint Venture between subsidiaries

of the two companies. As part of the dissolution process, on October 31,

1998, the Joint Venture distributed 11 Levi's(R) Outlet stores to the

Company and three Original Levi's Stores(TM) to Levi's Only Stores, Inc.,

a wholly-owned subsidiary of Levi Strauss & Co. The remaining 8 Original

Levi's Stores(R) owned by the Joint Venture were closed by the end of

fiscal 1999. On September 30, 1998, the Company acquired from Levi's Only

Stores, Inc. 16 Dockers(R) Outlet stores and 9 Levi's(R) Outlet stores.

RESULTS OF OPERATIONS

RECENT DEVELOPMENTS

Changes in Directors and Executive Officers

At the Company's Annual Meeting of Stockholders which was held on October 4,

1999, the stockholders voted to elect a new slate of directors supported by

Jewelcor Management, Inc., consisting of John J. Schultz, Robert L. Patron,

Jeremiah P. Murphy, Jr., Joseph Pennacchio and Jesse H. Choper. On October 29,

1999, the Board of Directors appointed George Porter, formerly President of

Levi's USA, a division of Levi Strauss & Co., and James Mitarotonda, Chief

Executive Officer and founder of Barington Capital Group, as Directors of the

Company, thereby increasing the size of the Board of Directors to seven members.

On October 20, 1999, the Company announced that Joel H. Reichman, the Company's

President and Chief Executive Officer, resigned and that John J. Schultz, a

newly elected member of the Board, would assume the responsibilities of Chief

Executive Officer on an interim basis. On April 10, 2000, the Company announced

the appointment of David A. Levin as President and Chief Executive Officer.

On April 10, 2000, the Company announced the resignation of James Mitarotonda as

a Director of the Company and the appointment of Seymour Holtzman, who was

subsequently made Chairman of the Board on April 11, 2000, to fill the resulting

vacancy on the Board. In addition, on April 11, 2000, the Board of Directors

appointed David A. Levin and Stanley Berger, one of the original founders of the

Company, as Directors of the Company, increasing the size of the Board of

Directors to nine members.

Shareholders Rights Agreement

On October 29, 1999, the Board of Directors of the Company unanimously voted to

implement the recommendation of the Company's shareholders to terminate the

Company's Shareholders Rights Agreement dated May 1, 1995 between the Company

and its transfer agent, Boston EquiServe. The costs to redeem these rights were

approximately $180,000 and are included in selling, general and administrative

expenses in the Consolidated Statement of Operations for fiscal 2000.

Relationship with Levi Strauss & Co.

On October 25, 1999, Levi Strauss & Co. notified the Company that it believed

that the recent change in the membership of the Company's Board of Directors and

senior management triggered its right to declare a breach under its trademark

license agreement (as amended, the "Outlet License Agreement"). This Agreement

authorizes the Company to use certain Levi Strauss & Co. trademarks in

connection with the operation of the Company's Levi's(R) Outlet by Designs and

Dockers(R) Outlet by Designs stores. On March 22, 2000, Levi Strauss & Co.

informed the Company that it had waived any rights it may have had to terminate

the Outlet License Agreement arising from any transfer of control that might be

deemed to have occurred. Also on March 22, 2000, Levi Strauss & Co. amended the

Outlet License Agreement for certain Change in Control provisions under Section

19 of the agreement.

Fiscal 2000 Restructuring and Impairment Charges

During the fourth quarter of fiscal 2000, the Company recorded a pre-tax charge

of $15.2 million, or $0.59 per share after tax, related to inventory markdowns,

the abandonment of the Company's Boston Traders(R) and related trademarks,

severance, and the closure of the Company's five Buffalo Jeans(R) Factory Stores

and its five remaining Designs stores. Of the $15.2 million charge, $7.8 million

relating to inventory markdowns was reflected in gross margin in fiscal 2000.

This pre-tax charge of $15.2 million included cash costs of approximately $3.6

million related to lease terminations and corporate and store severance, and

approximately $11.6 million of non-cash costs related to inventory markdowns and

the impairment of trademarks and store assets. Based on management's review of

the Company's remaining Levi's(R) and Dockers(R) Outlet by Designs stores, no

additional store closing reserves were needed at January 29, 2000. At January

29, 2000, the remaining reserve balance related to this $15.2 million charge was

$6.7 million, which primarily related to landlord settlements, severance and

markdowns. Of the $6.7 million reserved at yearend, $3.4 million, relating to

markdowns, was included as a reduction of inventory on the consolidated balance

sheet.

As a result of the above charges, the Company recorded a net operating loss for

fiscal 2000. Because of an additional year of net operating losses, the Company

recorded a further write-down of tax assets of $6.0 million or $0.37 per share

after tax attributable to the potential that certain deferred federal and state

tax assets may not be realizable.

The combined earnings and cash flow benefits of this charge are estimated to be

$2.2 million and $1.2 million, respectively, for both fiscal 2001 and 2002.

SALES

Sales for fiscal 2000 were $192.2 million, a decrease of 5%, compared with

fiscal 1999 sales of $201.6 million. Sales for fiscal 1999 decreased 24% to

$201.6 million from $265.7 million in fiscal 1998. The decrease in sales in

fiscal 2000 was due to a 1% decrease in comparable store sales and 23 store

closings in fiscal 2000 and 37 store closings in fiscal 1999. This decrease was

partially offset by sales from new stores of $32.6 million. The decrease in

sales in fiscal 1999 was due to store closings and an 18% decrease in comparable

store sales partially offset by sales from new stores that were opened during

fiscal 1999. Comparable store sales decreases in fiscal 2000 and 1999 were due

primarily to lower sales in men's Levi's(R) brand jeans and tops associated with

limited availability and reduced demand for Levi's(R) brand product. These sales

decreases were partially offset by increased sales of women's Levi's(R) brand

jeans and men's and women's Dockers(R) brand apparel.

GROSS MARGIN

Set forth below are gross margin dollars and gross margin rates as a percentage

of total sales, which includes occupancy costs, for the fiscal years 2000, 1999

and 1998.

Fiscal 2000 Fiscal 1999 Fiscal 1998

Percentage Percentage Percentage

(in thousands) Dollars of sales Dollars of sales Dollars of sales

------- -------- ------- -------- ------- --------

Merchandise margin $ 80,168 41.7% $ 76,876 38.1% $ 92,508 34.8%

Markdown reserves (7,847) (4.1%) (800) (0.4%) (13,900) (5.2%)

Occupancy costs (24,881) (12.9%) (33,827) (16.8%) (40,250) (15.2%)

-------- ----- -------- ----- -------- -----

Gross margin $ 47,440 24.7% $ 42,249 20.9% $ 38,358 14.4%

The improved merchandise margin in fiscal 2000 as compared to fiscal 1999 is due

to the shift in the Company's store portfolio away from lower margin mall-based

stores towards the traditionally higher margin outlet store operations and

approximately a $558,000 benefit from LIFO. Included in gross margin for fiscal

2000 is approximately $7.8 million for markdowns related to reserves established

for aged and excess Outlet store inventory and liquidation markdowns associated

with the ten stores closed in the fourth quarter of fiscal 2000, which were

discussed above. Based on the recent changes in the Company and its shift to an

exclusively outlet business, the Company changed its current markdown strategy

in the fourth quarter of fiscal 2000 in an effort to improve inventory turnover

and significantly reduce the amount of aged merchandise on hand. Included in

gross margin for fiscal 1999 is approximately $800,000 of markdowns related to

store closings in fiscal 1999, discussed below under "Fiscal 1999

Restructuring."

The improvement in merchandise margin in fiscal 1999 as compared to fiscal 1998

was due to the start of the shift away from the lower margin mall-based stores.

In fiscal 1998 the Company also recorded approximately $5.6 million related to

adjustments for inventory shrinkage and reserves against pending resolution of

vendor discussions regarding proof of delivery of certain goods. Also included

in gross margin for fiscal 1998 is approximately $13.9 for markdowns and fabric

cancellation costs related to Boston Traders(R) brand merchandise which was

included in the second quarter charge for the termination of the Company's

private label product development program, discussed below under "Fiscal 1998

Restructuring."

Occupancy costs as a percentage of sales decreased in fiscal 2000 as compared to

fiscal 1999 and 1998, as a direct result of the Company's shift to an all outlet

store portfolio. The Company's outlet store format has a lower occupancy cost

structure as compared to the mall-based and urban store formats that existed in

the prior year.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses as a percentage of sales were 22.6%

or $43.4 million in fiscal 2000, 23.8% or $48.0 million in fiscal 1999 and 24.6%

or $65.3 million in fiscal 1998. The decrease in selling, general and

administrative expenses as a percentage of sales in fiscal 1999 was due to

reduced store payroll expense from lower staffing in response to sales

decreases. Also contributing to this decrease was a series of expense reduction

actions undertaken in fiscal 1998 and fiscal 1999 that are still ongoing.

Selling, general and administrative expenses for fiscal 2000 include

approximately $3.0 million, or $0.12 per share after tax, in expenses associated

with the recent annual stockholders meeting and proxy solicitation. These

expenses consisted of the Company's proxy expenses, expenses reimbursed to

Jewelcor Management, Inc., costs related to the termination of the Company's

Shareholder Rights Agreement, and other costs associated with the

change-in-control.

FISCAL 1999 RESTRUCTURING

During the third quarter of fiscal 1999, the Company announced its plans to

close, through lease terminations and expirations, 14 unprofitable Designs

stores, eight unprofitable Boston Trading Co.(R)/BTC(TM) stores and eight

Original Levi's Stores(TM) operated by the OLS Partnership. This store closing

strategy resulted in the Company recording a pre-tax charge of $13.4 million.

The total cost to close these stores was $10.5 million, which is $2.9 million

less than the original charge, primarily due to favorable landlord negotiations

on lease termination payments. As a result, the Company recognized pre-tax

income of $2.9 million in the fourth quarter of fiscal 1999. Total cash costs

were $4.2 million related to lease terminations, employee severance and other

related expenses. The remainder of the $10.5 million charge consists of non-cash

costs of approximately $6.3 million in store fixed asset write-offs. All of

these stores were closed by the end of fiscal 1999.

In the fourth quarter of fiscal 1999, the Company recorded a pre-tax charge of

$5.2 million, or $0.20 per share after tax, related to the decision to close

three BTC(TM) mall stores, one Designs mall store, and four Boston Traders(R)

Outlet stores and to further reduce corporate headcount. The total cost of

severance and store closings was $717,000 less than the original charge due to

favorable landlord negotiations on lease termination payments. As a result, the

Company recognized income of $717,000 or $0.03 earnings per share after tax in

the fourth quarter of fiscal 2000.

FISCAL 1998 RESTRUCTURING

In the second quarter of fiscal 1998, the Company recorded a pre-tax charge of

$20 million related to its shift in strategy away from the vertically integrated

Boston Traders(R) private label concept to a strategy with greater emphasis on

name brands. This decision involved the liquidation of Boston Traders(R) brand

products, the closure of the Company's New York City product development office

and the closure of 17 Designs stores and 16 Boston Traders(R) Outlet stores.

Total actual costs to close related to this shift in strategy and the closure of

the stores was $19.9 million which included cash costs of $6.0 million related

to lease terminations, the cost of canceling private label fabric commitments,

severance associated with the closing of the New York office, and other

miscellaneous expenses. The remainder of the $19.9 million charge consisted of

non-cash costs of approximately $13.9 million, which included $12.4 million of

markdowns at cost related to the liquidation of Boston Traders(R) brand product

and $1.5 million for write-offs of store fixed assets. Merchandise markdowns and

costs associated with the cancellation of fabric commitments, which total

approximately $13.9 million, were accounted for in cost of goods sold for the

fiscal year ending January 31, 1998. The remaining amounts related to lease

termination costs, asset impairment charges, severance and other costs, were

accounted for in the restructuring charge in the Company's Consolidated

Statements of Operations for the year ending January 31, 1998.

In the fourth quarter of fiscal year 1998, the Company incurred an additional

pre-tax charge of $1.6 million relating primarily to severance, benefits and

other costs associated with a reduction in its home office and field staff. This

reduction in force resulted in the elimination of 47 positions, or approximately

25%, of the Company's headquarters and field management staff. This charge was

accounted for in the restructuring charge in the Company's Consolidated

Statements of Operations for the year ended January 31, 1998. Total actual costs

related to this reduction in staff were $1.4 million as compared to the original

charge of $1.6 million.

Also in fiscal 1998, the Company recorded an impairment charge of $378,000 in

accordance with Statement of Financial Accounting Standards No. 121 ("SFAS

121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived

Assets to be Disposed Of." This charge, which is reflected in "Provision for

impairment of assets, store closings and severances" in the Consolidated

Statements of Operations, reflects the estimated unrecoverable carrying value of

a store's assets as compared to the fair value of those assets based on

projected discounted future cash flows.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense for fiscal year 2000 decreased to $6.5

million from $9.7 million in 1999 and $11.2 million in fiscal 1998, primarily

due to store closings offset slightly by depreciation for new and remodeled

stores. "See Liquidity and Capital Resources --Capital Expenditures."

INTEREST EXPENSE, NET

Net interest expense for fiscal 2000 was $1.2 million compared to $576,000 in

fiscal 1999 and $706,000 in fiscal 1998. This increase, as compared to fiscal

1999, is primarily a result of higher average borrowing levels and increased

interest rates under the Company's credit facility as compared to the prior

year. See "Liquidity and Capital Resources."

NET INCOME (LOSS)

The Company reported a loss of $12.5 million or $0.78 per share for fiscal 2000

as compared with a loss of $18.5 million or $1.17 per share in fiscal 1999 and a

loss of $29.1 million or $1.86 per share in fiscal 1998. Below is a summary of

certain pre-tax charges included in net loss for fiscal 2000, 1999 and 1998:

Fiscal Fiscal Fiscal

(in thousands) 2000 1999 1998

----------------------------------------------------------------------------------------

Summary of Non-recurring Charges:

Store closing, markdown reserve, severance

impairment of asset charge recorded in

the fourth quarter of fiscal 2000 $ 15,252

Excess store closing reserve taken into income

in the fourth quarter of fiscal 2000 (717)

Non-recurring charges incurred related to recent

proxy solicitation and change-in-control 3,007

Write-down of certain tax assets 6,030

Store closing and severance reserve

recorded in the fourth quarter of fiscal 1999 $ 5,200

Store closing reserve recorded in

the third quarter of fiscal 1999 13,400

Excess store closing reserve taken into income

in the fourth quarter of fiscal 1999 (2,900)

Reduction in force recorded in the fourth

quarter of fiscal 1998 $ 1,600

Store closing reserve and abandonment of

vertical integration in the second quarter

of fiscal 1998 20,000

----------------------------------------------------------------------------------------

Total charges $ 23,572 $ 15,700 $ 21,600

Earnings (loss) per share impact of charges, adjusted

for minority interest portion of related charges ($1.06) ($0.61) ($0.81)

Earnings (loss) per share, inclusive of above charges ($0.78) ($1.86) $(1.86)

----------------------------------------------------------------------------------------

Earnings (loss) per share, exclusive of the above

charges $0.27 ($0.56) ($1.05)

SEASONALITY

--------------------------------------------------------------------------------

FISCAL 2000 FISCAL 1999 FISCAL 1998

-------------------------------------------------------------------------------------------------------------

(SALES DOLLARS IN THOUSANDS)

First quarter $ 39,835 20.7% $ 43,400 21.5% $ 55,470 20.9%

Second quarter 42,907 22.3% 47,078 23.4% 64,543 24.3%

Third quarter 56,703 29.5% 58,714 29.1% 77,459 29.1%

Fourth quarter 52,747 27.5% 52,442 26.0% 68,254 25.7%

--------------------------------------------------------------------------------

$192,192 100.0% $201,634 100.0% $265,726 100.0%

A comparison of sales in each quarter of the past three fiscal years is

presented above. The amounts shown are not necessarily indicative of actual

trends, since such amounts also reflect the addition of new stores and the

remodeling and closing of others during these periods. Historically, the Company

has experienced seasonal fluctuations in revenues and income, exclusive of

non-recurring charges, with increases occurring during the Company's third and

fourth quarters as a result of "Fall" and "Holiday" seasons. In recent years,

the Company's focus has shifted towards its outlet store business and the

percentage of mall-based business has declined. Accordingly, the Company's third

and fourth quarters, although continuing to generate a greater proportion of

total sales, have become less significant to total sales as had previously been

the case. This change is due to the seasonality of the Company's outlet business

as compared with the mall-based specialty stores. A comparison of quarterly

sales,

gross profit, net loss and net loss per share for the past two fiscal years is

presented in Note N of Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary cash needs are for operating expenses, including cash

outlays associated with inventory purchases and capital expenditures for new and

remodeled stores, severances and landlord termination payments. The Company

expects that cash flow from operations, short-term revolving borrowings and

trade credit will enable it to finance its current working capital, remodeling

and expansion requirements.

The following table sets forth financial data regarding the Company's liquidity

position at the end of the past three fiscal years:

FISCAL YEARS

----------------------------------------------------------------------------

2000 1999 1998

-----------------------------------------------------------------------------------------------------------------

(DOLLARS IN THOUSANDS)

Cash provided by (used for) operations $ 863 $ 1,936 $(7,182)

Working capital 19,624 24,078 42,104

Current ratio 1.5:1 1.7:1 2.4:1

To date, the Company has financed its working capital requirements, acquisitions

and expansion program with cash flow from operations, borrowings under the

Company's credit facility, and proceeds from common stock offerings. Cash

provided by (used for) operating activities was $863,000, $1.9 million and

($7.2) million in fiscal 2000, 1999 and 1998, respectively. The Company's

improved cash flow from operations in fiscal 1999 is principally due to an

income tax refund of $12.9 million related to 1998 operating losses.

At January 29, 2000, the Company was in a net borrowing position of $22.2

million compared to a net borrowing position of $13.7 million at January 30,

1999. The increased level of borrowing in fiscal 2000 is due to cash outlays

associated with restructuring programs and increased merchandise purchases. The

following table provides a comparative analysis of the Company's cash and

borrowings at the end of fiscal years 2000 and 1999:

(in thousands) January 29, 2000 January 30, 1999

--------------------------------------------------------------------------------

Cash and cash equivalents $ -- $ 153

Borrowings under credit facility 21,202 12,825

Promissory note payable 1,000 1,000

------- -------

Net borrowing position $22,202 $13,672

======= =======

Inventory

At January 29, 2000, total inventories decreased $903,000 to $57.0 million from

$58.0 million at January 30, 1999. This decrease was comprised of the following

components:

Number Number

(In thousands) January 29, 2000 of stores January 30, 1999 of stores

-------------------------------------------------------------------------------------------------------------

Outlet stores $57,022 103 $53,146 100

Specialty stores -- -- 1,802 5

Closed stores -- -- 2,977 8

------- ---- ------- ----

Total inventories $57,022 103 $57,925 113

======= ==== ======= ====

The majority of the increase in inventories in the Outlet stores at January 29,

2000 as compared to the prior year is the result of new stores and an increase

in opportunistic purchases of inventory for the spring and fall seasons, offset

by the $7.8 million of markdowns taken in fiscal 2000, discussed more fully

above. The Company continues to evaluate and, within the discretion of

management, act upon opportunities to purchase substantial quantities of

Levi's(R) and Dockers(R) brand products for its Levi's(R) Outlet and Dockers(R)

outlet stores.

The Company currently leases a warehouse facility in Orlando, Florida, and also

uses a third-party facility in Mansfield, Massachusetts, to receive

approximately half of the Company's merchandise receipts for its stores. In

fiscal 2001, the Company plans to expand its facility in Orlando, Florida, to

receive merchandise for all stores and replenishment to the stores. The

projected additional expense of this operation is approximately $1.5 million,

which is expected to be more than offset by the benefits of improved inventory

turn and reduced shrinkage. The Company anticipates that all capital

expenditures associated with this project will be leased.

The Company's trade payables to Levi Strauss & Co., its principal vendor,

generally are due 30 days after the date of invoice. In fiscal 2000, the Company

was current with all outstanding merchandise payables to vendors.

On June 4, 1998 the Company entered into an Amended and Restated Loan and

Security Agreement with a subsidiary of BankBoston Boston, N.A., BankBoston

Retail Finance Inc. (now known as Fleet Retail Finance, Inc.), as agent for the

lenders named therein (the "Credit Agreement"). The Credit Agreement, which

terminates on June 4, 2001, consists of a revolving line of credit permitting

the Company to borrow up to $50 million. Under this credit facility, the Company

has the ability to cause the lenders to issue documentary and standby letters of

credit up to $5 million. The Company's obligations under the Credit Agreement

are secured by a lien on all of the Company's assets. The ability of the Company

to borrow under the Credit Agreement is subject to a number of conditions

including the accuracy of certain representations and compliance with tangible

net worth and fixed charge coverage ratio covenants. The availability of the

unused revolving line of credit is limited to specified percentages of the value

of the Company's eligible inventory determined under the Credit Agreement,

ranging from 60% to 65%. At the option of the Company, borrowings under this

facility bear interest at Fleet Boston, N.A.'s (formerly known as BankBoston,

N.A.) prime rate or at LIBOR-based fixed rates. The Credit Agreement contains

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. The Company is subject to a prepayment penalty of

$250,000 if the Credit Agreement terminates prior to May 4, 2001.

In the third quarter of fiscal 1999, the Credit Agreement was amended to, among

other things, permit and acknowledge the Company's acquisition of the 25 outlet

stores from Levi's Only Stores, Inc ("LOS") and the transactions associated with

the agreement to dissolve and wind up the OLS Partnership. These amendments

included an increase in the minimum tangible net worth that the Company must

maintain, which was adjusted to recognize the value of the assets distributed to

the Company by the OLS Partnership. Prior to these amendments, the tangible net

worth of the OLS Partnership was excluded from the calculation of the Company's

tangible net worth for purposes of these financial covenants. Subject to certain

limitations and conditions, the Credit Agreement permits the Company, without

the prior permission of its lenders, to consummate certain acquisitions and to

repurchase shares of the Company's Common Stock. These amendments, among other

things, reduced the amount that the Company may expend for such purposes without

obtaining the prior permission of its lender.

On October 14, 1999, the Company was notified that, by virtue of the recent

change in the members of the Company's Board of Directors, a "Change in Control"

occurred within the meaning of the Credit Agreement, giving rise to an event of

default. On October 29, 1999, the lenders, the former BankBoston Retail Finance,

Inc. and the Company entered into an amendment to the Credit Agreement. This

amendment waives the event of default arising because of the "Change in

Control," and includes new events of default for material adverse changes in the

Company's financial condition or its business relationship with Levi Strauss &

Co. compared to the Company's financial condition and its relationship with Levi

Strauss & Co., respectively, as of October 8, 1999.

On March 28, 2000, the Credit Agreement was amended to, among other things,

exclude certain non-recurring charges and tax valuation reserves from the

Company's financial covenants, effective for the fiscal year ending January 29,

2000. As a result, the Company was in compliance with all debt covenants under

the Credit Agreement at the end of the fiscal year.

At January 29, 2000, the Company had borrowings of approximately $21.2 million

outstanding under this facility and had five outstanding standby letters of

credit totaling approximately $4.1 million.

On May 2, 1995, the Company delivered a non-negotiable promissory note in the

principal amount of $1,000,000 in connection with the acquisition of certain

assets of Boston Trading Ltd., Inc. ("Boston Trading") in accordance with the

terms of an Asset Purchase Agreement dated April 21, 1995 among Boston Trading,

its stockholders, Designs Acquisition Corp., and the Company (the "Purchase

Agreement"). The principal amount of the Purchase Note is payable in two equal

annual installments through May 1997. The note bears interest at the published

prime rate and is payable semi-annually from the date of acquisition.

In the first quarter of fiscal 1997, the Company asserted certain

indemnification rights under the Purchase Agreement. In accordance with the

Purchase Agreement, the Company, when exercising its indemnification rights, has

the right, among other courses of action, to offset against the payment of

principal and interest due and payable under the Purchase Note. Accordingly, the

Company did not make the $500,000 payments of principal on the Purchase Note

that were due on May 2, 1996 and May 2, 1997. The Company paid interest on the

original principal amount of the Purchase Note through May 2, 1996 and continued

to pay interest thereafter through January 31, 1998 on $500,000 of principal.

In January 1998, Atlantic Harbor, Inc. filed a lawsuit against the Company for