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LITIGATION
6 Months Ended
Apr. 01, 2016
Commitments and Contingencies Disclosure [Abstract]  
LITIGATION

As disclosed in prior filings, the staff of the U.S. Securities and Exchange Commission (the "SEC") is conducting a formal investigation relating to the Prior Restatement and other matters.

During the first quarter of fiscal 2016, the Company began engaging in discussions with the SEC staff concerning a potential resolution of the investigation. These discussions led to the Company reaching a preliminary understanding with the SEC staff regarding a potential settlement. In this regard, the Company understands that the SEC staff is prepared to recommend that the SEC file a settled administrative enforcement action against the Company alleging violations of the antifraud, periodic and current reporting, internal controls, and books-and-records provisions of the federal securities laws. As part of the proposed settlement, the Company would (i) neither admit nor deny the SEC’s findings, (ii) pay a penalty of $200,000, and (iii) agree to cease-and-desist from committing or causing any violations or future violations of those provisions.

Final resolution of the SEC investigation with respect to the Company is subject to final approval of the settlement by the Commissioners of the SEC. Accordingly, there can be no assurance that the Company’s efforts to resolve the SEC investigation will be successful or that the settlement terms will be as anticipated. The Company also cannot predict the timing of any settlement or, in the event the proposed settlement is not approved, what the ultimate resolution of the SEC investigation will be with respect to the Company.

In addition, during the first quarter of fiscal 2016, the Company became aware that the SEC staff issued “Wells Notices” to two individuals who are no longer associated with the Company - a former Executive Vice President of the Company and a former Controller of the Company’s previously-owned Southern California Braiding, Inc. subsidiary that was the subject of the Prior Restatement. A Wells Notice is an indication that the SEC staff has made a preliminary determination to recommend that the SEC file an enforcement action. Each of these individuals has also reached a preliminary understanding with the SEC staff regarding a potential settlement. The Company cannot predict the outcome of the SEC investigation with respect to these two former employees, including whether their settlements will be approved.

In connection with the Prior Restatement, W. Barry Gilbert, our former chief executive officer and director, voluntarily returned to the Company certain incentive compensation and the proceeds from certain sales of the Company's common stock. These transfers, which were made during the six months ended April 1, 2016, were in the form of cash of $42 thousand and shares of common stock valued at $60 thousand.

In June 2015, W. Barry Gilbert, our former chief executive officer and director commenced an arbitration proceeding against us in connection with the termination of his employment agreement effective February 6, 2015.  Mr. Gilbert alleged that his termination was not for cause as we have claimed and that we breached the terms of our employment agreement with him by not paying the compensation called for under his employment agreement for a termination without cause.

Effective March 16, 2016, the Company entered into a separation agreement with Mr. Gilbert (the "Separation Agreement"). Pursuant to the terms of the Separation Agreement, Mr. Gilbert received a separation benefit of $500 thousand that was paid on March 16, 2016, and he will receive $200 thousand payable by May 16, 2016, $100 thousand payable on both March 16, 2017 and March 16, 2018, and $75 thousand payable on each of March 16, 2019 and March 16, 2020. The expense associated with the separation agreement is included in selling and administrative expenses, a portion of which was recorded in the prior fiscal year. The remaining unpaid amount is included in accrued payroll and related expenses.

The separation benefit is subject to acceleration in the event of certain changes in control of the Company. The Company also released Mr. Gilbert from any and all claims and causes of action directly or indirectly related to Mr. Gilbert’s employment relationship with the Company. In consideration of the foregoing, Mr. Gilbert agreed to release the Company from any and all claims and causes of action arising out of or relating to his previous employment with the Company, as well as certain other covenants set forth in the Separation Agreement.

From time to time, the Company may be involved in other legal action in the ordinary course of its business, but management does not believe that any such other proceedings commenced through the date of the financial statements included in this Form 10-Q. individually or in the aggregate, will have material adverse effect on the Company’s consolidated financial position.