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NAUTICA ENTERPRISES, INC.
(Name of Registrant as Specified in Its Charter)
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BARINGTON COMPANIES EQUITY PARTNERS, L.P.,
JEWELCOR MANAGEMENT, INC., RCG AMBROSE
MASTER FUND, LTD. and RAMIUS SECURITIES, LLC
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
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Barington Companies Group
Presentation to the Stockholders of:
Nautica Enterprises, Inc.
June 2003
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Agenda
I. Barington Companies Group Platform
II. Nautica Operational Overview
III. Summary
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Barington Companies Group Platform
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Our Stockholder Group
o Barington Companies Equity Partners, L.P.
Small-cap, value-oriented investment fund managed by James
Mitarotonda
Invests in companies where it can act as a catalyst to enhance
shareholder value
o Jewelcor Management, Inc.
Private investment company managed by Seymour Holtzman
Actively involved with management of companies in which it invests to
enhance shareholder value
Chairman of the Board, Casual Male Retail Group, Inc. (NASDAQ: CMRG)
o Ramius Capital Group, LLC
$3+ billion multi-strategy investment fund
Manages Ramius Securities, LLC, a diversified hedge fund, and RCG
Ambrose, an arbitrage fund
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Our Rationale for Seeking Board Representation
o We believe that Nautica's current board and management have not fulfilled
their obligation to stockholders to maximize value
Nautica brand has lost competitiveness and retail strength
Prior to the public filing of our proxy materials, Nautica's stock
price had fallen approximately 50% during the two-year period ended
June 6, 2003
o Nautica's current board has a limited number of independent members
(i.e. persons who do not have a material relationship with the Company)
who represent the interests of stockholders
Announced in recent proxy materials that it "plans to nominate two
new independent directors by the 2004 annual meeting"
o Nautica's board needs a greater independent voice that:
Represents the interests of all stockholders
Advocates the maximization of shareholder value
o As stockholders, we felt compelled to seek additional independent
representation, not next year - but now!
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Our Nominees - Intentions
o We are nominating two individuals to Nautica's board who will:
Enhance its independence, as consistent with the Company's goals
Represent the interests of stockholders
o Our nominees to Nautica's board are highly-qualified candidates who
possess:
Strong industry and management skills
Significant operating and financial experience
A track record of creating long-term value
o Our nominees are focused on maximizing shareholder value for all
stockholders
o Our nominees look forward to working alongside the other board members
to enhance value for Nautica's stockholders
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Our Nominee Qualifications - William J. Fox
o Chairman, President and Chief Executive Officer of AKI, Inc., an
international multi-sensory marketing company
Clients include leading companies in the beauty care, personal care
and fashion industries
o Co-Chairman of the Board of Loehmanns Holdings Inc., a women's
specialty apparel retailer
o Formerly Chief Financial Officer and Director of Revlon, Inc., a global
cosmetics company, and a Senior Vice President of MacAndrews & Forbes,
an investment firm
Obtained extensive consumer product and retailing expertise while
involved with Revlon and MacAndrews & Forbes subsidiaries, including
New World Entertainment and The Coleman Company
o Certified Public Accountant
o Has served on several audit committees
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Our Nominee Qualifications - James A. Mitarotonda
o Chairman, President and Chief Executive Officer of Barington Companies
Equity Partners, L.P.
Founded in 2000
o President and Chief Executive Officer and a Director of MM Companies,
Inc.
As a member of the board of directors, authorized a cash distribution
to stockholders and a wind-down of the existing underperforming
business
o Co-Chairman, Co-President and Co-Chief Executive Officer of Liquid Audio,
Inc.
Was elected to the board of directors as part of a group opposed by
management
As a member of the board of directors, authorized a cash distribution
to stockholders and the wind-down of the existing underperforming
business
o Observer to the board of FairMarket, Inc., an on-line auction company
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Our Proposals
o Elect each of our nominees and re-elect all the incumbent directors
other than Mr. Charles H. Scherer and Mr. John Varvatos
We believe that Messrs. Scherer and Varvatos lack the independence,
appropriate qualifications and commitment this board needs
Mr. Scherer serves as managing partner of Hughes Hubbard & Reed LLP,
a law firm that has received nearly $3.5 million in legal fees from
Nautica over the past three years
The brother-in-law of Nautica's Chairman, President and Chief
Executive Officer is a partner at Hughes Hubbard & Reed LLP
John Varvatos is President of a Nautica subsidiary
John Varvatos has attended fewer than 75% of the Company's board
meetings and received a "withhold vote" recommendation from
Institutional Shareholder Services due to poor attendance
o Amend the Company's By-laws to allow stockholders who own 10% or more
of Nautica's stock to call a special meeting
Places more control in the hands of owners
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Our Strategy to Enhance Shareholder Value
o Reduce operating expenses in order to improve profitability and enhance
cash flow
o Formulate a more cohesive operating strategy to bolster the Nautica
brand in the retail market place
Explore mass channel opportunities for Earl Jean
o Review the Company's use of capital in order to maximize returns on
equity
o Restructure executive compensation packages so that compensation is
tied to specified improvement levels in shareholder value
o Review change of control provisions in certain Nautica contracts that
may limit shareholder value
o Explore value-enhancing strategic initiatives, including a possible
sale or merger of the Company
Combination with a women's apparel company would add needed diversity
and provide expertise for both the Nautica and John Varvatos lines
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Our Strategy to Improve Corporate Democracy
o Separate the role of Chairman and Chief Executive Officer at the Company
Provides for greater executive independence
Enhances corporate governance
o Terminate the Company's "poison pill" or stockholder rights plan
The plan imposes penalties on stockholders seeking to acquire 15% or
more of the Company's stock
Limits stockholders' ability to sell their stock
o Eliminate the prohibition on stockholder action by written consent
Allows stockholders to act without the need for a stockholders
meeting
o Allow stockholders who own 10% or more of Nautica's stock to call a
special meeting
Allows stockholders to have a greater voice in the direction of the
Company
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Nautica Operational Overview
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Nautica Operational Issues
o Delays in reducing SG&A costs despite the Company's reduced business
prospects
o Unsuccessful development of strategic plan to improve Nautica brand
o Ineffective brand expansion and diversification strategy that has been
slow to yield returns
o Executive compensation packages which contain payment terms that are
not aligned with the interests of stockholders
o Change of control provisions in Company contracts that have the
potential to misalign the interests of stockholders and the board
We believe that disappointing oversight of Nautica's operations by the current
board of directors has led to a material reduction in shareholder value
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Stock Price Performance
o Stock has fallen approximately 47.2% during the two-year period ended June
6, 2003 (the end of the week before the Barington Companies group first
filed proxy materials with the SEC for the current election contest)
CHART
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High Operating Costs
o Nautica's SG&A as a percentage of sales increased to 36.7% in FY 2003
from 31.6% in FY 2001
Tommy Hilfiger SG&A/Sales: FY 2003 at 33.5% vs. FY 2001 at 30.1%
Polo SG&A/Sales: FY 2003 at 37.1 % vs. FY 2001 at 36.9%
o As a result, operating income margin has fallen to 7.3% in FY 2003 from
11.5% in FY 2001
Tommy Hilfiger operating margin: FY 2003 at 10.4% vs. FY 2001 at
10.5%
Polo operating margin: FY 2003 at 12.4% vs. FY 2001 at 10.8%
o Management expects SG&A levels to remain at FY 2003 levels during FY
2004
We believe that management has been slow to address high operating costs despite
continued revenue sluggishness and reduced business prospects
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Unsuccessful Development of Strategic Plan
o Men's Sportswear has experienced consistent sales reductions due to
weak sell-through at retail
FY 2003 net sales fell 9.2%
FY 2004 net sales expected to decrease 13%-15%
o Women's Jeans not performing at profitability levels targeted by
management
Repositioned for Fall/Holiday 2003
o Earl Jean women's business experiencing weakness
o Increased competition at department store and specialty retail channels
resulting in further markdowns at retail level
We believe that management has failed to execute a successful plan to revive
the Nautica brand in the retail marketplace
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Ineffective Brand Expansion and Diversification Strategy
o Nautica Europe underperforming
Transitioned to a license arrangement in April 2003
After-tax charge of $6-$7 million taken in April 2003
o Rockefeller Plaza store performing below management's expectations
Pursuing cost reductions and exploring remerchandising strategies
To date have taken a $6.5 million after-tax charge
o Paid approximately $65 million (12x fair value) for Earl Jean in April
2001
Business not performing at targeted levels
Expected to return cumulative EBITDA of only $10 million by FY 2004
Possible future payments to seller of up to $21 million based on
earn-out
o John Varvatos performing below management's expectations
We believe that management's brand expansion and diversification strategy has
created minimal value for stockholders
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Executive Compensation Misaligned
o David Chu, Vice Chairman, receives 50% of the net royalty income earned
by Nautica Apparel, Inc. for the Nautica name and trademark
Earned compensation from this agreement of $8.8 million, $7.8 million
and $9.2 million in FY 2001, FY 2002 and FY 2003, respectively
o Harvey Sanders, Chairman, President and Chief Executive Officer, earned a
cash bonus of nearly $500,000 in FY 2003, an increase of $335,000 over the
prior year, or 200+%
Increase in bonus despite decreases in the Company's operating
margins (11.5% vs. 7.3%) and returns on equity (16.2% vs. 8.9%) over
the past two fiscal years
o These executive payments were made despite the nearly 50% decrease in
Nautica's stock price over the past two years
We believe that Nautica's board has failed to address executive compensation
levels which are not aligned with the interests of stockholders
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Change of Control Provisions Misaligned
o Employment agreements for Harvey Sanders, David Chu and John Varvatos
provide that if the Company's current directors fail to constitute a
majority of the board, a change of control has occurred and:
These individuals receive a lump sum payment, aggregating $9.3
million
Stock options previously granted would become fully vested and
exercisable
o According to John Varvatos's employment agreement, if Harvey Sanders
ceases to be employed by the Company during Mr. Varvatos's term of
employment, Nautica is obligated to spin-off or sell its subsidiary,
John Varvatos Company, or make specified payments to Mr. Varvatos
Limits board's ability to make executive changes
Forces board to monetize subsidiary regardless of operating condition
We believe that Nautica's board has approved change of control provisions in
Company contracts that have the potential to misalign the interests of the board
and stockholders
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Summary
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Focused on Maximizing Value of Nautica Stock
o We believe that Nautica's current board and management have not fulfilled
their obligation to shareholders to maximize value
o Our nominees are independent and bring experience to Nautica's board to
represent the interests of all stockholders
This is consistent with the Company's announced plan to name two, new
independent directors by 2004 annual meeting
o Our nominees are highly-qualified and independent with broad industry,
management and financial experience
o Our nominees are focused on working constructively with the existing
Nautica board to implement the Company's strategic plan
o Our nominees are committed to our proposals to enhance shareholder
value and improve corporate democracy
Barington Companies group recommends that you adopt our proposals to maximize
value for all stockholders
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