-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N5fOvel0w5qim3c2o6W6RskVk5PGf16A7eZL8g80nbXTi4/9qs4xvLoavVn4NT9U m17PJdWpa1tfstRv2aoSmQ== 0000950123-02-007008.txt : 20020716 0000950123-02-007008.hdr.sgml : 20020716 20020716165703 ACCESSION NUMBER: 0000950123-02-007008 CONFORMED SUBMISSION TYPE: SC TO-I PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20020716 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NAUTICA ENTERPRISES INC CENTRAL INDEX KEY: 0000093736 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 952431048 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SC TO-I SEC ACT: 1934 Act SEC FILE NUMBER: 005-37088 FILM NUMBER: 02704148 BUSINESS ADDRESS: STREET 1: 40 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125415990 MAIL ADDRESS: STREET 1: 40 W 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC COAST KNITTING MILLS INC DATE OF NAME CHANGE: 19751124 FORMER COMPANY: FORMER CONFORMED NAME: STATE O MAINE INC DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NAUTICA ENTERPRISES INC CENTRAL INDEX KEY: 0000093736 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 952431048 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SC TO-I BUSINESS ADDRESS: STREET 1: 40 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125415990 MAIL ADDRESS: STREET 1: 40 W 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC COAST KNITTING MILLS INC DATE OF NAME CHANGE: 19751124 FORMER COMPANY: FORMER CONFORMED NAME: STATE O MAINE INC DATE OF NAME CHANGE: 19920703 SC TO-I 1 y62255sctovi.txt SCHEDULE TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------- SCHEDULE TO (Rule 13e-4) TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------------- NAUTICA ENTERPRISES, INC. (Name of Subject Company (issuer)) NAUTICA ENTERPRISES, INC. (Name of Filing Person (issuer)) Options to Purchase Common Stock, Par Value $0.10 Per Share (Title of Class of Securities) 639089 10 1 (CUSIP Number of Class of Securities) (Underlying Common Stock) Harvey Sanders Chairman, President and Chief Executive Officer Nautica Enterprises, Inc. 40 West 57th Street New York, New York 10019 (212) 541-5757 (Name, address and telephone number of person authorized to receive notices and communications on behalf of filing person) Copy to: Charles M. Modlin, Esq. Modlin Haftel & Nathan LLP 777 Third Avenue New York, New York 10017 (212) 832-1600 Calculation of Filing Fee
Transaction valuation* Amount of filing fee ---------------------- -------------------- $5,596,108 $514.84
* Calculated solely for the purpose of determining the transaction fee. This amount assumes that options to purchase 439,600 shares of common stock of Nautica Enterprises, Inc. having an aggregate value of $5,596,108 as of July 15, 2002 will be exchanged and/or cancelled pursuant to this offer. The aggregate value of such options was determined using the average of the high and low prices of the common stock underlying the options as reported on the Nasdaq National Market on July 15, 2002. The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, is equal to $92 per $1,000,000 in transaction valuation. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Form or Registration No.: Not applicable. Filing party: Not applicable. Date filed: Not applicable. [ ] Check box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [ ] third party tender offer subject to Rule 14d-1. [X] issuer tender offer subject to Rule 13e-4. [ ] going-private transaction subject to Rule 13e-3. [ ] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] ITEM 1. SUMMARY TERM SHEET. The information set forth under "Summary Term Sheet" in the Offer to Exchange Certain Outstanding Options Having an Exercise Price of Over $24.00 for a Future Grant of New Options Under the 1996 Stock Incentive Plan, dated July 16, 2002 (the "Offer to Exchange"), attached hereto as Exhibit (a)(1), is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. (a) The name of the issuer is Nautica Enterprises, Inc., a Delaware corporation (the "Company"), and the address of its principal executive office is 40 West 57th Street, New York, NY 10019. The telephone number of its principal executive office is (212) 541-5757. (b) This Tender Offer Statement on Schedule TO relates to an offer by the Company to certain of its employees to exchange certain options to purchase an aggregate of 439,600 shares of the Company's Common Stock, par value $0.10 per share, having an exercise price greater than $24.00 per share, outstanding under the Company's 1996 Stock Incentive Plan, as amended, (the "1996 Plan") for new options to purchase Common Stock that will be granted in the future under the 1996 Plan (the "New Options"). As of July 15, 2002, options to purchase an aggregate of 5,129,630 shares of the Company's Common Stock were outstanding under the Company's existing stock incentive plans, including options to purchase an aggregate of 3,217,940 shares of the Company's Common Stock outstanding under the 1996 Plan. Also as of July 15, 2002, there were issued and outstanding 33,618,350 shares of the Company's Common Stock. (c) The information set forth in the Offer to Exchange under Section 8 ("Price Range of Shares Underlying the Options") is incorporated herein by reference. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (a) The Company is the filing person. The information set forth under Item 2(a) above is incorporated herein by reference. The information set forth in Schedule A to the Offer to Exchange is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Offer to Exchange under "Summary Term Sheet," Section 2 ("Number of Options; Expiration Date"), Section 4 ("Procedures for Tendering Options"), Section 5 ("Withdrawal Rights and Change of Election"), Section 6 ("Acceptance of Options for Exchange and Issuance of New Options"), Section 7 ("Conditions of the Offer"), Section 9 ("Source and Amount of Consideration; Terms of New Options"), Section 12 ("Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer"), Section 13 ("Legal Matters; Regulatory Approvals"), Section 14 ("Material U.S. Federal Income Tax Consequences"), Section 15 ("Extension of Offer; Termination; Amendment") and Section 16 ("Fees and Expenses") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND ARRANGEMENTS. (e) The information set forth in the Offer to Exchange under Section 3 ("Purpose of the Offer") and Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (a) The information set forth in the Offer to Exchange under Section 3 ("Purpose of the Offer") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 6 ("Acceptance of Options for Exchange and Issuance of New Options") and Section 12 ("Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 3 ("Purpose of the Offer") is incorporated herein by reference. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the Offer to Exchange under Section 9 ("Source and Amount of Consideration; Terms of New Options") and Section 16 ("Fees and Expenses") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 7 ("Conditions to the Offer") is incorporated herein by reference. (d) Not applicable. ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 9. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. (a) Not applicable. ITEM 10. FINANCIAL STATEMENTS. (a) The information set forth (i) in the Offer to Exchange under Section 10 ("Information Concerning Nautica"), Section 17 ("Additional Information"), (ii) on pages F-1 through F-29 of the Company's Annual Report on Form 10-K for its fiscal year ended March 2, 2002 and (iii) on pages 2 through 11 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 1, 2002, is incorporated herein by reference, and is available over the Internet at the World Wide Web site of the Securities and Exchange Commission at http://www.sec.gov. The book value per share of the Company's Common Stock as of July 15, 2002 was $9.57. (b) Not applicable. ITEM 11. ADDITIONAL INFORMATION. (a) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") and Section 13 ("Legal Matters; Regulatory Approvals") is incorporated herein by reference. (b) Not applicable. ITEM 12. EXHIBITS. (a) (1) Offer to Exchange, dated July 16, 2002. (2) Form of Cover Letter from Harvey Sanders, Chairman and Chief Executive Officer 2 of the Company, dated July 16, 2002, with schedule attached thereto. (3) Form of Election Form. (4) Form of Notice to Withdraw from the Offer. (5) Form of Promise to Grant Stock Option(s). (b) Not applicable. (d) (1) The Company's 1996 Stock Incentive Plan, as amended, and form of option agreement for New Options. (2) The Company's 1989 Employee Incentive Stock Plan (incorporated herein by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 2002). (3) The Company's Executive Incentive Stock Option Plan (incorporated herein by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 2002). (4) Option Agreement and Royalty Agreement, each dated July 1, 1987, by and among the Company and David Chu (incorporated herein by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 2002). (g) Not applicable. (h) Not applicable. ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. (a) Not applicable. 3 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct. NAUTICA ENTERPRISES, INC. By: /s/ Harvey Sanders ------------------------------------- Harvey Sanders Chairman, President and Chief Executive Officer Date: July 16, 2002 4 EX-99.A.1 3 y62255exv99waw1.txt OFFER TO EXCHANGE Exhibit (a)1 NAUTICA ENTERPRISES, INC. OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS HAVING AN EXERCISE PRICE OF OVER $24.00 FOR A FUTURE GRANT OF NEW OPTIONS UNDER THE 1996 STOCK INCENTIVE PLAN THIS OFFER AND THE RIGHT TO WITHDRAW FROM THIS OFFER EXPIRE AT 6:00 P.M., EASTERN DAYLIGHT TIME, ON AUGUST 14, 2002, UNLESS THIS OFFER IS EXTENDED JULY 16, 2002 NAUTICA ENTERPRISES, INC. JULY 16, 2002 OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS FOR A FUTURE GRANT OF NEW OPTIONS (THE "OFFER TO EXCHANGE") THIS OFFER AND THE RIGHT TO WITHDRAW FROM THIS OFFER EXPIRE AT 6:00 P.M., EASTERN DAYLIGHT TIME, ON AUGUST 14, 2002, UNLESS THIS OFFER IS EXTENDED. Nautica Enterprises, Inc. ("Nautica") is offering eligible employees the opportunity to exchange certain outstanding options under the Nautica Enterprises, Inc. 1996 Stock Incentive Plan, as amended and as may be further amended from time to time (the "1996 Plan") to purchase shares of Nautica common stock with an exercise price greater than $24.00 per share for a future grant of new options under the 1996 Plan. We are making the offer upon the terms and conditions described in (1) this Offer to Exchange; (2) the related cover letter from Harvey Sanders dated July 16, 2002 (the "Sanders Letter"), (3) the Election Form, and (4) the Notice to Withdraw from the Offer (which together, as they may be amended from time to time, constitute the "offer" or "option exchange program"). Each eligible employee who accepts the offer and remains an employee of Nautica or one of our subsidiaries through the grant date of the new options will receive on a future date an option to purchase 0.70 shares for each share subject to the options tendered, rounded up to the nearest whole share. Subject to the terms and conditions of this offer, we will grant the new options on or about the first business day which is at least six months and one day after the date we cancel the options accepted for exchange. Assuming we do not extend the Expiration Date (as defined below), we presently expect to grant the new options on or about February 18, 2003. You may only tender options for all or none of the outstanding, unexercised shares subject to an individual option grant. All tendered options accepted by Nautica through the offer will be cancelled as promptly as practicable after 6:00 p.m. Eastern Daylight Time on the date the offer ends. The offer is presently scheduled to expire on August 14, 2002 (the "Expiration Date") and we expect to cancel options on August 15, 2002, or as soon as possible thereafter (the "Cancellation Date"). The offer is not conditioned on a minimum number of options being tendered. Participation in the offer is completely voluntary. The offer is subject to conditions that we describe in Section 7 of this Offer to Exchange. Except as provided in the next paragraph, you may participate in the offer if you are an employee of Nautica or one of our subsidiaries as of the date the offer commences and through the Cancellation Date, and you hold options to purchase shares of Nautica common stock issued under the 1996 Plan with an exercise price greater than $24.00 per share. In order to receive a new option pursuant to this offer, you must continue to be an eligible employee as of the date on which the new options are granted, which will be at least six months and one day after the Cancellation Date. The members of our Board of Directors and the executive officers listed on Schedule A to this Offer to Exchange are not eligible to participate. If you tender options for exchange as described in the offer, and we accept your tendered options, then, subject to the terms of this offer, on a future date we will grant you new options under the 1996 Plan. The terms and conditions of any new option grant you receive may differ from the terms and conditions of the options you tender. All new options granted pursuant to this Offer will be non-qualified stock options. Even if you tender incentive stock options for exchange, provided that you remain an employee of Nautica or our subsidiaries on the date the new options are granted, the new options granted to you will be non-qualified stock options. The exercise price per share of the new options will be 100% of the fair market value of Nautica common stock, as determined by the closing price reported by the Nasdaq National Market on the date of grant of the new options. As noted above, each eligible employee who accepts the offer and remains an employee of Nautica or one our subsidiaries through the grant date of the new options will receive an option to purchase 0.70 shares for each share subject to the options tendered, rounded up to the nearest whole share. Unless otherwise provided in the 1996 Plan, each new option granted will vest in accordance with the vesting schedule of the cancelled options, except that no new option will vest or be exercisable earlier than six months after the date of its grant. All of the options eligible to be exchanged would be fully vested earlier than six months after the date that we anticipate granting the new options. Consequently, assuming that new options are granted on February 18, 2003, all new options will become fully vested and exercisable on August 18, 2003. ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THE OFFER, NEITHER WE NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR OPTIONS. WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS. Shares of Nautica common stock are traded on the Nasdaq National Market under the symbol "NAUT." On July 15, 2002, the closing price of our common stock reported on the Nasdaq National Market was $13.02 per share. THIS OFFER TO EXCHANGE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS OFFER TO EXCHANGE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. You should direct questions about the offer or requests for assistance or for additional copies of (1) this Offer to Exchange, (2) the Sanders Letter, (3) the Election Form, and (4) the Notice to Withdraw from the Offer to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019 (telephone no. (212) 841-7266). -ii- IMPORTANT If you wish to tender your options for exchange, you must complete and sign the Election Form in accordance with its instructions and deliver it and any other required schedules by fax, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019, (fax no. (212) 841-7228) before 6:00 p.m. Eastern Daylight Time on August 14, 2002. We are not making the offer to, and we will not accept any tender of options from or on behalf of, optionholders in any jurisdiction in which the offer or the acceptance of any tender of options would not be in compliance with the laws of that jurisdiction. However, we may, at our discretion, take any actions necessary for us to make the offer to optionholders in any of these jurisdictions. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT AND IN THE RELATED COVER LETTER FROM HARVEY SANDERS DATED JULY 16, 2002, THE ELECTION FORM AND THE NOTICE TO WITHDRAW FROM THE OFFER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY NAUTICA. -iii- TABLE OF CONTENTS
PAGE SUMMARY TERM SHEET 1 CERTAIN RISKS OF PARTICIPATING IN THE OFFER 9 ECONOMIC RISKS 9 TAX-RELATED RISKS FOR U.S. RESIDENTS 10 BUSINESS-RELATED RISKS 10 INTRODUCTION 11 THE OFFER 13 Section 1. Eligibility 13 Section 2. Number of Options; Expiration Date 13 Section 3. Purpose of the Offer 14 Section 4. Procedures for Tendering Options 16 Section 5. Withdrawal Rights and Change of Election 17 Section 6. Acceptance of Options for Exchange and Issuance of New Options 18 Section 7. Conditions to the Offer 20 Section 8. Price Range of Shares Underlying the Options 21 Section 9. Source and Amount of Consideration; Terms of New Options 22 Section 10. Information Concerning Nautica 25 Section 11. Interests of Directors and Officers; Transactions and Arrangements Concerning the Options 25 Section 12. Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer 26 Section 13. Legal Matters; Regulatory Approvals 27 Section 14. Material U.S. Federal Income Tax Consequences 27 Section 15. Extension of Offer; Termination; Amendment 29 Section 16. Fees and Expenses 30 Section 17. Additional Information 30 Section 18. Miscellaneous 31 SCHEDULE A - Information Concerning the Directors and Executive Officers of Nautica Enterprises, Inc. A-1
-iv- SUMMARY TERM SHEET The following are answers to some of the questions that you may have about the offer. We urge you to read carefully the remainder of this Offer to Exchange, the accompanying cover letter from Harvey Sanders dated July 16, 2002 (the "Sanders Letter"), the Election Form and the Notice to Withdraw from the Offer, because the information in this summary is not complete, and additional important information is contained in the remainder of this Offer to Exchange, the Sanders Letter, the Election Form and the Notice to Withdraw from the Offer. We have included references to the relevant sections of this Offer to Exchange where you can find a more complete description of the topics in this summary. WHICH SECURITIES ARE ELIGIBLE TO BE EXCHANGED? We are offering to exchange outstanding, unexercised options to purchase shares of common stock of Nautica with an exercise price greater than $24.00 per share which are held by eligible employees and issued under the Nautica Enterprises, Inc. 1996 Stock Incentive Plan, as amended and as may be further amended from time to time (the "1996 Plan"). We will exchange eligible options issued under the 1996 Plan for new options to be granted in the future under the 1996 Plan. The new options will continue to be subject to the terms and conditions of the 1996 Plan. (Section 1) Stock options granted pursuant to the following stock option plans will not be affected in any way: - - 1989 Employee Incentive Stock Plan; and - - Executive Incentive Stock Option Plan. WHO IS ELIGIBLE TO PARTICIPATE? Except as provided in the next paragraph, you may participate in the offer if you are an employee of Nautica or one our subsidiaries as of the date the offer commences and through the Cancellation Date. In order to receive a new option, you must remain an eligible employee as of the date the new options are granted, which will be at least six months and one day after the Cancellation Date. If we do not extend the offer period beyond August 14, 2002, the new options will be granted on or about February 18, 2003. Members of our Board of Directors and the executive officers listed on Schedule A to this Offer to Exchange are not eligible to participate. (Section 1) WHY IS NAUTICA MAKING THE OFFER? We believe granting stock options motivates high levels of performance and provides an effective means of recognizing contributions to the success of our company. The offer provides an opportunity for us to offer eligible employees a valuable incentive to stay with our company. Some of our outstanding options, whether or not they are currently exercisable, have exercise prices that are significantly higher than the current market price of our shares. We believe these options are unlikely to be exercised in the foreseeable future. By making this offer to exchange outstanding options for new options that will have an exercise price at least equal to the fair market value of the shares on the grant date, we hope to provide our eligible employees with the benefit of owning options that over time may have a greater potential to increase in value, create better performance incentives for eligible employees and thereby maximize stockholder value. (Section 3) WHAT ARE THE CONDITIONS TO THE OFFER? The offer is not conditioned on a minimum number of options being tendered. Participation in the offer is completely voluntary. Additional conditions to the offer are described in later in this Offer to Exchange. (Section 7) ARE THERE ANY ELIGIBILITY REQUIREMENTS THAT I MUST SATISFY AFTER THE EXPIRATION DATE OF THE OFFER TO RECEIVE THE NEW OPTIONS? In order to receive a grant of new options through the offer and under the terms of the 1996 Plan, you must continue to be employed by Nautica or one of its subsidiaries as of the date the new options are granted. As discussed below, subject to the terms of this offer, we will not grant the new options until on or about the first business day which is at least six months and one day after the date we cancel the options accepted for exchange. If, for any reason, you do not remain an eligible employee of Nautica or one of its subsidiaries through the date we grant the new options, you will not receive any new options or other consideration in exchange for your tendered options that have been accepted for exchange. (Section 2) In addition, you should note that if, for any reason, you do not remain an eligible employee of Nautica or one of its subsidiaries through the date when your new options would otherwise have vested, none of the new options will vest and you will not be able to exercise any of such options. (Section 9) HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR MY TENDERED OPTIONS? We will grant you new options to purchase 0.70 shares for each share subject to the options you tender, rounded up to the nearest whole share, on the first business day which is at least six months and one day after the date we cancel the options accepted for exchange, provided that you remain an eligible employee of Nautica or one of our subsidiaries on such date. For example, if your old option covered 1,000 shares, your new option will cover 700 shares. New options will be granted under our 1996 Plan, unless prevented by law or applicable regulations, and will be governed by the terms and conditions of the 1996 Plan. All new options will be subject to a new option agreement between you and us. You must execute a new option agreement, which may have different terms and conditions from the option agreement for your old options, before receiving new options. (Section 2) WHEN WILL I RECEIVE MY NEW OPTIONS? We will not grant the new options until on or about the first business day which is at least six months and one day after the date we cancel the options accepted for exchange. Our Board of Directors will select the actual grant date for the new options. If we cancel tendered options on August 15, 2002, which is the scheduled date for the cancellation of the options (the day following the expiration date of the offer), the new options will be granted on or about February 18, 2003. However, if we extend the offer, the new options will be granted on a later date. You must be an eligible employee on the date we grant the new options in order to be eligible to receive them. (Section 6) -2- WHY CAN'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE OFFER? If we were to grant the new options on any date which is earlier than six months and one day after the date we cancel the options accepted for exchange, we would be subject to onerous accounting charges. We would be required for financial reporting purposes to treat the new options as variable awards. This means that we would be required to record the non-cash accounting impact of decreases and increases in the company's share price as a compensation expense for the new options issued under this offer. We would have to continue this variable accounting for these new options until they were exercised, forfeited or terminated. The higher the market value of our shares, the greater the compensation expense we would have to record. By deferring the grant of the new options for at least six months and one day, we believe we will not have to treat the new options as variable awards. (Section 12) IF I TENDER OPTIONS IN THE OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER OPTION GRANTS BEFORE I RECEIVE MY NEW OPTIONS? No. If we accept options you tender in the offer, you may not receive any other option grants before you receive your new options. We will defer until the grant date of your new options any grant of other options for which you may otherwise be eligible before the new option grant date. We may defer the grant to you of these other options if we determine it is necessary for us to do so to avoid incurring compensation expense against our earnings because of accounting rules that could apply to these interim option grants as a result of the offer. (Section 12) WILL I BE REQUIRED TO GIVE UP ALL MY RIGHTS TO THE CANCELLED OPTIONS? Yes. Once we have accepted and cancelled options tendered by you, you will no longer have any rights under those options. (Section 6) WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE? The exercise price per share of the new options will be 100% of the fair market value of Nautica common stock, as determined by the closing price reported by the Nasdaq National Market on the date of grant of the new options. Accordingly, we cannot predict the exercise price of the new options. Because we will not grant new options until on or about the first business day that is at least six months and one day after the date we cancel the options accepted for exchange, the new options may have a higher exercise price than some or all of your cancelled options. We recommend that you evaluate current market quotes for our shares, among other factors, before deciding whether or not to tender your options. (Section 8) WHAT HAPPENS IF THE FAIR MARKET VALUE OF NAUTICA COMMON STOCK ON THE DATE OF GRANT OF THE NEW OPTIONS IS HIGHER THAN THE EXERCISE PRICE OF THE CANCELLED OPTIONS? THERE IS A RISK THAT THE FAIR MARKET VALUE OF OUR COMMON STOCK ON THE DATE OF GRANT OF THE NEW OPTIONS WILL BE HIGHER THAN THE EXERCISE PRICE OF THE CANCELLED OPTIONS. IN THAT EVENT, THE NEW OPTIONS YOU WILL BE GRANTED IN EXCHANGE FOR THE CANCELLED OPTIONS WILL HAVE A HIGHER EXERCISE PRICE THAN THE OLD OPTIONS YOU WILL HAVE HAD CANCELLED. -3- IF MY CURRENT OPTIONS ARE INCENTIVE STOCK OPTIONS, WILL MY NEW OPTIONS BE INCENTIVE STOCK OPTIONS? No. All of the new options granted under this option exchange program will be non-qualified stock options. A non-qualified stock option is an option that is not qualified to be an incentive stock option under the current tax laws. Non-qualified stock options have different tax consequences than incentive stock options, and are not subject to certain holding periods that apply to incentive stock options. (Section 14) IF MY CURRENT OPTIONS ARE NON-QUALIFIED STOCK OPTIONS, WILL MY NEW OPTIONS BE INCENTIVE STOCK OPTIONS OR NON-QUALIFIED STOCK OPTIONS? Yes. All of the new options granted under this option exchange program will be non-qualified stock options. (Section 14) WHY WILL ALL OF THE NEW OPTIONS GRANTED BE NON-QUALIFIED STOCK OPTIONS? Non-qualified stock options are not subject to the one-year holding period prior to exercise applicable to incentive stock options. Granting non-qualified replacement options will allow optionholders to exercise their options six months earlier than they would be able to if the replacement options were granted as incentive stock options. (Section 14) WHEN WILL THE NEW OPTIONS VEST? Unless otherwise provided in the 1996 Plan, each new option granted will vest in accordance with the vesting schedule of the cancelled options, except that no new option will vest or be exercisable earlier than six months after the date of its grant. All of the options eligible to be exchanged would be fully vested earlier than six months after the date that we anticipate granting the new options. Consequently, assuming that new options are granted on February 18, 2003, all new options will become fully vested and exercisable on August 18, 2003. (Section 9) WILL I HAVE TO WAIT LONGER TO PURCHASE COMMON STOCK UNDER MY NEW OPTIONS THAN I WOULD UNDER THE OPTIONS I EXCHANGE? Yes, to the extent your eligible options would otherwise vest prior to August 18, 2003 (or such later date six months after the issuance of the replacement options). The replacement options you receive will not be vested, even if the options you exchange are fully or partially vested, until the six month anniversary of the issuance of the replacement options. (Section 9) WHAT IF NAUTICA ENTERS INTO A MERGER OR OTHER SIMILAR TRANSACTION? It is possible that, prior to the grant of new options, we might effect or enter into an agreement for a merger or other similar transaction. These types of transactions could have substantial effects on our share price, including potentially substantial appreciation in the price of our shares. Depending on the structure of this type of transaction, tendering optionholders might be deprived of any further price appreciation in the shares associated with the new options. For example, if our shares were acquired in a cash merger, the fair market value of our shares, and hence the price at which we grant the new options, would likely be a price at or near the cash price being paid for the shares in the transaction, yielding limited or no financial benefit to a recipient of the new options for that transaction. In addition, in the -4- event of an acquisition of our company for stock, tendering optionholders might receive options to purchase shares of a different issuer. We are also reserving the right, in the event of a merger or similar transaction, to take any actions we deem necessary or appropriate to complete a transaction that our Board of Directors believes is in the best interest of our company and our stockholders. This could include termination of your right to receive replacement options under this offer to exchange. If we were to terminate your right to receive replacement options under this offer in connection with such a transaction, employees and consultants who have tendered options for cancellation pursuant to this offer would not receive options to purchase securities of the acquirer or any other consideration for their tendered options. Optionholders who do not tender their old options in connection with this exchange offer will have their outstanding options treated in accordance with the terms of the plan under which they are granted, and if their options are assumed by the successor to our company in an acquisition, those options would be priced in accordance with the terms of the acquisition transaction. This could potentially result in a greater financial benefit for those optionholders who elected not to participate in this exchange offer if the terms of the acquisition transaction result in a more favorable exercise price for the assumed options which were not tendered. (Section 7) PLEASE NOTE: IF WE ARE ACQUIRED BY ANOTHER COMPANY, WE MAY, IN OUR DISCRETION, TERMINATE YOUR RIGHT TO RECEIVE REPLACEMENT OPTIONS UNDER THIS OPTION EXCHANGE PROGRAM. IN ADDITION, THE ACQUIRING COMPANY MAY, AS PART OF THE TRANSACTION OR OTHERWISE, DECIDE TO TERMINATE SOME OR ALL OF OUR EMPLOYEES PRIOR TO THE GRANT OR VESTING OF NEW OPTIONS UNDER THIS OPTION EXCHANGE PROGRAM. TERMINATION FOR THIS OR ANY OTHER REASON BEFORE THE REPLACEMENT OPTION IS GRANTED MEANS THAT YOU WILL NOT RECEIVE THE REPLACEMENT OPTION, NOR WILL YOU RECEIVE ANY OTHER CONSIDERATION FOR THE OPTIONS THAT WERE CANCELLED. ARE THERE OTHER CIRCUMSTANCES WHERE I WOULD NOT BE GRANTED NEW OPTIONS? Possibly. Although we are not currently aware of any prohibitions under applicable law, it is possible that, even if we accept your tendered options, we will not grant new options to you if we are prohibited in the near future by applicable law or regulations from doing so. Such a prohibition could result from changes in the Securities and Exchange Commission ("SEC") rules, regulations or policies, Nasdaq listing requirements, accounting rules or foreign laws. We will use reasonable efforts to avoid or remedy any such prohibitions, but if it is applicable throughout the period after the date that is at least six months and one day after we cancel the options accepted for exchange (the period after the date we intend to grant the new options), you will not be granted a new option. We do not anticipate any such prohibitions. (Section 7) Also, if you are no longer an eligible employee on the date we grant new options, you will not receive any new options. (Section 1) IF I CHOOSE TO TENDER AN OPTION WHICH IS ELIGIBLE FOR EXCHANGE, DO I HAVE TO TENDER ALL THE OPTIONS IN THAT GRANT? Yes. We are not accepting partial tenders of options. You may tender one or more of your -5- option grants, but you must tender all or none of the unexercised options in each grant. (Section 6) WHAT HAPPENS TO OPTIONS THAT I CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED FOR EXCHANGE? Options that you choose not to tender for exchange or that we do not accept for exchange retain their current exercise price and current vesting schedule and remain outstanding until they expire by their terms. (Section 1) You should note that, if you are a employee who resides in the United States, there is a risk that any incentive stock options you have may be affected, even if you do not participate in the exchange. We believe that you will not be subject to current U.S. federal income tax if you do not elect to participate in the option exchange program. We also believe that the option exchange program will not change the U.S. federal income tax treatment of subsequent grants and exercises of your incentive stock options (and sales of shares acquired upon exercises of such options) if you do not participate in this offer to exchange options. WILL I HAVE TO PAY TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER? If you are a United States resident employee and you exchange your current options for a future grant of new options, you should not be required under current law to recognize income for U.S. federal income tax purposes. Further, at the grant date of the new options you should not be required under current law to recognize income for U.S. federal income tax purposes. However, because all of the new options granted will be non-qualified options, you will be required to recognize ordinary income upon exercise of the options and capital gain upon sale of the shares acquired upon the exercise of the options. We recommend that you consult with your own tax advisor to determine the tax consequences of accepting the offer. If you live, work or are subject to taxation outside the United States, we recommend that you consult with your own tax advisor to determine the tax and social insurance consequences of the offer under the laws of the country in which you live, work or are otherwise subject to taxation. We strongly urge you to read Section 14 of the Offer to Exchange for a discussion of tax consequences which may apply to you as a result of participation in this offer. WHEN WILL MY NEW OPTIONS EXPIRE? Your new options will expire on the same date indicated in the stock option agreement for your cancelled options. (Section 9) WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL I BE NOTIFIED IF IT IS EXTENDED? The offer expires on August 14, 2002, at 6:00 p.m., Eastern Daylight Time, unless we extend it. We may, in our discretion, extend the offer at any time, but we cannot assure you that the offer will be extended or, if extended, for how long. If the offer is extended, we will make a public announcement of the extension no later than 9:00 a.m., Eastern Daylight Time, on the next business day following the previously scheduled expiration of the offer period. (Section 2) -6- HOW DO I TENDER MY OPTIONS? If you decide to tender your options, you must deliver, before 6:00 p.m., Eastern Daylight Time, on August 14, 2002 (or such later date and time as we may extend the expiration of the offer), a properly completed and executed Election Form and any other schedules required by the Election Form via facsimile (fax no. (212) 841-7228), overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019. This is a one-time offer, and we will strictly enforce the tender offer period. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Subject to our rights to extend, terminate and amend the offer, we presently expect that we will accept all properly tendered options promptly after the expiration of the offer. (Section 4) DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY TENDERED OPTIONS? You may withdraw your tendered options, and reject our offer, at any time before the offer expires at 6:00 p.m., Eastern Daylight Time, on August 14, 2002. If we extend the offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. However, if we have not accepted and cancelled your tendered options by September 10, 2002, you may withdraw your tendered options at any time after such date. To withdraw tendered options, you must deliver to us via facsimile, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019 (fax no. (212) 841-7228), a signed Notice to Withdraw from the Offer, with the required information while you still have the right to withdraw the tendered options. Once you have withdrawn options, you may re-tender options only by again following the delivery procedures described above. (Section 5) Please note that if you submit a Notice to Withdraw from the Offer, you will no longer participate in the offer. If you do not wish to withdraw all your tendered options from the Offer, you should not submit a Notice to Withdraw from the Offer. If you wish to change your mind about which options to tender, you must submit a new Election Form. Please read the following question and answer regarding a change in election. CAN I CHANGE MY ELECTION REGARDING PARTICULAR OPTIONS I TENDERED? Yes, you may change your election regarding particular options you previously tendered at any time before the offer expires at 6:00 p.m., Eastern Daylight Time, on August 14, 2002. If we extend the offer beyond that time, you may change your election regarding particular tendered options at any time until the extended expiration of the offer. In order to change your election, you must deliver to us via facsimile, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019 (fax no. (212) 841-7228) a new Election Form, which includes the information regarding your new election, and is clearly dated after your original Election Form. Once we receive a new Election Form submitted by you, your previously submitted Election Form will be disregarded. (Section 5) -7- WHAT DO NAUTICA AND THE BOARD OF DIRECTORS THINK OF THE OFFER? Although our Board of Directors has approved Nautica's decision to make the offer, neither Nautica nor our Board of Directors makes any recommendation as to whether you should tender or not tender your options. You must make your own decision whether or not to tender options. For questions regarding tax implications or other investment-related questions, you should talk to your own legal counsel, accountant and/or financial advisor. WHOM CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER? For additional information or assistance, you should contact: James F.Haneschlager Senior Vice President, Administration & Human Resources Nautica Enterprises, Inc. 40 West 57th Street New York, NY 10019 (212) 841-7266 -8- CERTAIN RISKS OF PARTICIPATING IN THE OFFER Participation in the offer involves a number of potential risks, including those described below. This list and the risk factors under the heading entitled "Forward Looking and Cautionary Statements" in Nautica's Quarterly Report on Form 10-Q for the fiscal quarter ended June 1, 2002 (filed July 16, 2002) highlight the material risks of participating in this offer. Eligible participants should carefully consider these risks and are encouraged to speak with an investment and tax advisor as necessary before deciding to participate in the offer. In addition, we strongly urge you to read the section in this Offer to Exchange discussing U.S. tax consequences, as well as the rest of this Offer to Exchange, along with the cover letter from Harvey Sanders dated July 16, 2002, the Election Form, and the Notice to Withdraw from the Offer, for an expanded discussion of the risks which may apply to you before deciding to participate in the exchange offer. ECONOMIC RISKS PARTICIPATION IN THE OFFER WILL MAKE YOU INELIGIBLE TO RECEIVE ANY OPTION GRANTS UNTIL FEBRUARY 18, 2003 AT THE EARLIEST. Employees are generally eligible to receive option grants at any time that the Board of Directors, Compensation Committee or 1996 Stock Incentive Committee chooses to make them. However, if you participate in the offer, you will not be eligible to receive any option grants until February 18, 2003 at the earliest. IF THE STOCK PRICE INCREASES AFTER THE DATE YOUR TENDERED OPTIONS ARE CANCELLED, YOUR CANCELLED OPTIONS COULD BE WORTH MORE THAN THE REPLACEMENT OPTIONS THAT YOU RECEIVED IN EXCHANGE FOR THEM. By way of example only, if you cancel options with a $26.00 exercise price, and Nautica's stock appreciates to $28.00 when the replacement grants are made, your replacement option will have a higher exercise price than the cancelled option. IF YOU ELECT TO EXCHANGE ANY OPTIONS, YOU WILL RECEIVE FEWER SHARES UNDER THE NEW OPTIONS THAN YOU HAD UNDER THE CANCELLED OPTIONS. Under the terms of the exchange offer, for each share of our common stock covered by the options you elect to cancel, you will receive a replacement option for 0.70 shares, rounded up to the nearest whole share. IF YOUR EMPLOYMENT TERMINATES PRIOR TO THE GRANT OF THE REPLACEMENT OPTION, YOU WILL RECEIVE NEITHER A REPLACEMENT OPTION NOR THE RETURN OF YOUR CANCELLED OPTION. Once your option is cancelled, it has been eliminated completely. Accordingly, if your employment terminates for any reason prior to the grant of the replacement option, you will have the benefit of neither the cancelled option nor the replacement option. Nothing in this offer or the acceptance thereof shall confer upon you any right to continued employment with Nautica or its subsidiaries or limit the right of Nautica or its subsidiaries to terminate your employment at any time. -9- IF YOUR EMPLOYMENT TERMINATES AS A RESULT OF AN ACQUISITION OR MERGER OF NAUTICA PRIOR TO THE GRANT OF THE REPLACEMENT OPTION, YOU WILL RECEIVE NEITHER A REPLACEMENT OPTION NOR THE RETURN OF YOUR CANCELLED OPTION. If Nautica is acquired by another company, that company may, as part of the transaction or otherwise, decide to terminate some or all of our employees prior to the grant of new options under this option exchange program. Termination for this or any other reason before the replacement option is granted means that you will not receive the replacement option, nor will you receive any other consideration for the options that were cancelled. IF YOUR EMPLOYMENT TERMINATES PRIOR TO THE VESTING DATE OF THE REPLACEMENT OPTION, YOU WILL BE UNABLE TO EXERCISE THE REPLACEMENT OPTION. The replacement options will vest no earlier than six months after the date of their grant. If your employment terminates for any reason other than death or disability before the replacement options vest, you will be unable to exercise any replacement option that may have been granted to you. TAX-RELATED RISKS FOR U.S. RESIDENTS IF YOU ELECT TO PARTICIPATE IN THE OPTION EXCHANGE PROGRAM, REGARDLESS OF WHETHER YOU TENDER INCENTIVE STOCK OPTIONS OR NON-QUALIFIED STOCK OPTIONS, ANY REPLACEMENT OPTIONS YOU RECEIVE WILL BE NON-QUALIFIED STOCK OPTIONS. All of the new options to be granted pursuant to this exchange offer will be non-qualified stock options, which are subject to different tax considerations than incentive stock options. With respect to non-qualified stock options: (a) no income is recognized by the optionholder at the time the option is granted; (b) upon exercise of the option, the optionholder recognizes ordinary income in an amount equal to the difference between the option price and the fair market value of the shares on the date of exercise; and (c)) at disposition, any appreciation after the date of exercise is treated as capital gain. EVEN IF YOU ELECT NOT TO PARTICIPATE IN THE OPTION EXCHANGE PROGRAM, YOUR INCENTIVE STOCK OPTIONS MAY BE AFFECTED. If you are an employee who resides in the United States, there is a risk that any incentive stock options you have may be affected, even if you do not participate in the exchange. We believe that you will not be subject to current U.S. federal income tax if you do not elect to participate in the option exchange program. We also believe that the option exchange program will not change the U.S. federal income tax treatment of subsequent grants and exercises of your incentive stock options (and sales of shares acquired upon exercises of such options) if you do not participate in this offer to exchange options. WE STRONGLY RECOMMEND THAT YOU CONSULT WITH YOUR PERSONAL TAX ADVISOR PRIOR TO PARTICIPATING IN THE OPTION EXCHANGE PROGRAM. BUSINESS-RELATED RISKS For a description of risks related to Nautica's business, please see Section 18 of this Offer to Exchange. -10- INTRODUCTION Nautica Enterprises, Inc. ("Nautica") is offering to exchange certain outstanding, unexercised options issued under the Nautica Enterprises, Inc. 1996 Stock Incentive Plan, as amended and as may be further amended from time to time (the "1996 Plan") to purchase shares of common stock of Nautica with an exercise price greater than $24.00 per share which are held by eligible employees for new options to be granted in the future under the 1996 Plan. An "eligible employee" refers to an employee of Nautica or one our subsidiaries as of the date the offer commences and through the Cancellation Date. Members of our Board of Directors and the executive officers listed on Schedule A to this Offer to Exchange are not eligible to participate in the exchange offer. We are making the offer upon the terms and the conditions described in this Offer to Exchange and in the related cover letter from Harvey Sanders dated July 16, 2002 (the "Sanders Letter"), the Election Form and the Notice to Withdraw from the Offer (which together, as they may be amended from time to time, constitute the "offer" or "option exchange program"). Each eligible employee who accepts the offer and remains an eligible employee through the grant date of the new options will receive 0.70 shares subject to the new options for each share subject to the options tendered, rounded up to the nearest whole share. Subject to the terms and conditions of this offer, we will grant the new options on or about the first business day which is at least six months and one day after the date we cancel the options accepted for exchange. The grant date for the new options is expected to be on or about February 18, 2003, unless the offer is extended, in which case the grant date of the new options will be at least six months and one day after the cancellation of the options accepted for exchange. You may only tender all or none of the outstanding, unexercised options subject to an individual option grant. All tendered options accepted by us through the offer will be cancelled on the business day following the date the offer expires or as soon as possible thereafter (the "Cancellation Date"). The offer is not conditioned on a minimum number of options being tendered. The offer is subject to conditions that we describe in Section 7 of this Offer to Exchange. If you tender options for exchange as described in the offer and we accept your tendered options, then, subject to the terms of this offer, we will grant you new options under our 1996 Plan on a future date. The terms and conditions of any new option grant you receive may differ from the terms and conditions of the options you tender. The exercise price per share of the new options will be 100% of the fair market value of Nautica common stock, as determined by the closing price reported by the Nasdaq National Market on the date of grant of the new options. Unless otherwise provided in the 1996 Plan, each new option granted will vest in accordance with the vesting schedule of the cancelled options, except that no new option will vest or be exercisable earlier than six months after the date of its grant. All of the options eligible to be exchanged would be fully vested earlier than six months after the date that we anticipate granting the new options. Consequently, assuming that new options are granted on February 18, 2003, all new options will become -11- fully vested and exercisable on August 18, 2003. As of July 15, 2002, options to purchase an aggregate of 5,129,630 of our shares were issued and outstanding. Options to purchase approximately 439,600 of our shares, constituting approximately 8.6% of the shares currently subject to issued and outstanding options, are eligible to be exchanged in this option exchange program. -12- THE OFFER SECTION 1. ELIGIBILITY. Eligible employees may participate in this offer. An "eligible employee" refers to an employee of Nautica or any of our subsidiaries who is employed as of the date the offer commences and through the Cancellation Date. Members of our Board of Directors and the executive officers listed on Schedule A to this Offer to Exchange are not eligible to participate in the exchange offer. In order to receive a new option, you must continue to be an eligible employee as of the date the new options are granted, which will be at least six months and one day after the Cancellation Date. If Nautica does not extend the offer period, the new options will be granted on or about February 18, 2003. Every outstanding, unexercised option granted to an eligible employee at an exercise price greater than $24.00 per share pursuant to the Nautica Enterprises, Inc. 1996 Stock Incentive Plan, as amended and as may be further amended from time to time (the "1996 Plan") may be tendered for exchange. Each option grant that is tendered for exchange must be tendered for the entirety of the portion that remains outstanding and unexercised. Participation in the offer is completely voluntary. Options that you choose not to tender for exchange or that we do not accept for exchange retain their current exercise price and current vesting schedule and remain outstanding until they expire by their terms. SECTION 2. NUMBER OF OPTIONS; EXPIRATION DATE. Subject to the terms and conditions of the offer, we will accept for exchange all outstanding, unexercised options held by eligible employees with an exercise price greater than $24.00 per share granted pursuant to the 1996 Plan that are properly tendered and not validly withdrawn in accordance with Section 5 before the "expiration date," as defined below, in return for new options. As of July 15, 2002, options to purchase an aggregate of 439,600 shares of Nautica's common stock are eligible to be exchanged. We will not accept partial tenders of option grants for portions of the shares subject to an individual option grant. Therefore, you may tender options for all or none of the shares subject to each of your eligible option grants. If your eligible options are properly tendered and accepted for exchange, these options will be cancelled and, subject to the terms of this offer, you will be entitled to receive on a future date one or more new options to purchase 0.70 shares of common stock in exchange for each share subject to the options tendered by you and accepted for exchange, rounded up to the nearest whole share, and subject to adjustments for any stock splits, stock dividends and similar events, provided that you remain an eligible employee on that future date. All new options will be subject to the terms of our 1996 Plan, and to a new option agreement between you and us. The terms and conditions of any new option grant you receive may differ from the terms and conditions of the options you tender. If, for any reason, you do not remain an eligible employee of Nautica or our subsidiaries through the date we grant the new options, you will not receive any new options or other consideration in exchange for your tendered options that have been accepted for exchange. This means that if you quit, -13- with or without a good reason, or die or we terminate your employment, with or without cause, prior to the date we grant the new options, you will not receive anything for the options that you tendered and we cancelled. Nothing in this offer or the acceptance thereof shall confer upon you any right to continued employment with Nautica or its subsidiaries or limit the right of Nautica or its subsidiaries to terminate your employment at any time. The term "expiration date" means 6:00 p.m., Eastern Daylight Time, on August 14, 2002, unless and until we, in our discretion, have extended the period of time during which the offer will remain open, in which event the term "expiration date" refers to the latest time and date at which the offer, as so extended, expires. See Section 15 of this Offer to Exchange for a description of our rights to extend, delay, terminate and amend the offer. As long as we comply with any applicable laws, we may amend the offer at any time in any way, including extending the amount of time it will remain open, increasing or decreasing the consideration offered in the offer to optionholders or increasing or decreasing the number of options eligible to be tendered in the offer. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of such action: - - we increase or decrease the amount of consideration offered for the options; or - - we decrease the number of options eligible to be tendered in the offer. If the offer is scheduled to expire at any time earlier than the tenth (10th) business day from, and including, the date that notice of the increase or decrease is first published, sent or given in the manner specified in Section 15 of this Offer to Exchange, we will extend the offer so that the offer is open at least ten (10) business days following the publication, sending or giving of notice. We will also notify you of any other material change in the information contained in this Offer to Exchange. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Daylight Time. SECTION 3. PURPOSE OF THE OFFER. We issued the options outstanding to: - - provide our eligible employees with additional incentives and to promote the success of our business, and - - encourage our eligible employees to continue their employment with us. One of the keys to our continued growth and success is the retention of our most valuable asset, our employees. The offer provides an opportunity for us to offer our eligible employees a valuable incentive to stay with Nautica. Some of our outstanding options, whether or not they are currently -14- exercisable, have exercise prices that are significantly higher than the current market price of our shares. We believe these options are unlikely to be exercised in the foreseeable future. By making this offer to exchange outstanding options for new options that will have an exercise price at least equal to the market value of the shares on the grant date, we intend to provide our eligible employees with the benefit of owning options that over time may have a greater potential to increase in value, create better performance incentives and thereby maximize stockholder value. It should be noted, however, that because we will not grant new options until at least six months and one day after the date we cancel the options accepted for exchange, the new options may have a higher exercise price than some or all of our current outstanding options. From time to time we engage in strategic transactions with business partners, licensees, customers and other third parties. We may engage in transactions in the future with these or other companies which could significantly change our structure, ownership, organization or management or the make-up of our Board of Directors, and which could significantly affect the price of our shares. If we engage in such a transaction or transactions before the date we grant the new options, our shares could increase (or decrease) in value, and the exercise price of the new options could be higher (or lower) than the exercise price of options you elect to have cancelled as part of this offer. You will be at risk of any such increase in our share price before the grant date of the new options for these or any other reasons. As is outlined in Section 9, the exercise price per share of the new options will be 100% of the fair market value of Nautica common stock, as determined by the closing price reported by the Nasdaq National Market on the date of grant of the new options. It is possible that, prior to the grant of new options, we might effect or enter into an agreement for a merger or other similar transaction. These types of transactions could have substantial effects on our share price, including potentially substantial appreciation in the price of our shares. Depending on the structure of this type of transaction, tendering optionholders might be deprived of any further price appreciation in the shares associated with the new options. For example, if our shares were acquired in a cash merger, the fair market value of our shares, and hence the price at which we grant the new options, would likely be a price at or near the cash price being paid for the shares in the transaction, yielding limited or no financial benefit to a recipient of the new options for that transaction. In addition, in the event of an acquisition of our company for stock, tendering optionholders might receive options to purchase shares of a different issuer. We are also reserving the right, in the event of a merger or similar transaction, to take any actions we deem necessary or appropriate to complete a transaction that our Board of Directors believes is in the best interest of our company and our stockholders. This could include termination of your right to receive replacement options under this offer to exchange. If we were to terminate your right to receive replacement options under this offer in connection with such a transaction, employees and consultants who have tendered options for cancellation pursuant to this offer would not receive options to purchase securities of the acquirer or any other consideration for their tendered options. PLEASE NOTE: IF WE ARE ACQUIRED BY ANOTHER COMPANY, WE MAY, IN OUR DISCRETION, TERMINATE YOUR RIGHT TO RECEIVE REPLACEMENT OPTIONS UNDER THIS OPTION EXCHANGE PROGRAM. IN ADDITION, THE ACQUIRING COMPANY MAY, AS PART OF THE TRANSACTION OR OTHERWISE, DECIDE TO TERMINATE SOME OR ALL OF OUR EMPLOYEES PRIOR TO THE GRANT OR VESTING OF NEW OPTIONS UNDER THIS OPTION EXCHANGE PROGRAM. TERMINATION FOR THIS OR ANY OTHER REASON BEFORE THE REPLACEMENT OPTION IS GRANTED MEANS THAT YOU -15- WILL NOT RECEIVE THE REPLACEMENT OPTION, NOR WILL YOU RECEIVE ANY OTHER CONSIDERATION FOR THE OPTIONS THAT WERE CANCELLED. In November 2001 we adopted a Stockholder Rights Plan designed to protect stockholders against stock accumulations and other unfair tactics to acquire control of Nautica. The Rights Plan was not adopted in response to any major purchase of stock, but as a safeguard of stockholders' interests. Under the Plan, each stockholder at the close of business on November 12, 2001 received a dividend distribution of one right for each share of common stock held. The rights expire on November 12, 2011. Each right entitles stockholders to purchase from Nautica 1/100 of a share of junior participating preferred stock at an exercise price of $60. The rights will become exercisable only if a person or group (other than the current Chairman of the Board) acquires 15% or more of Nautica's common stock (an "Acquiring Person"), or commences a tender or exchange offer which, if consummated, would result in the person or group becoming an Acquiring Person. If a person or group becomes an Acquiring Person, each right will entitle the holder (other than the Acquiring Person) to purchase, by payment of the exercise price, Nautica common stock with a value of twice the exercise price. In addition, at any time after a person or group becomes an Acquiring Person and before such Acquiring Person acquired 50% or more of the outstanding common stock, the Board of Directors may, at its option, require each outstanding right (other than those held by the Acquiring Person ) to be exchanged for one share of Nautica common stock. If a person or group becomes an Acquiring Person and Nautica is subsequently acquired in a merger or other business combination or sells more than 50% of its assets or earning power to any person, each right will entitle all other holders to purchase, by payment of the $60 exercise price, common stock of the acquiring company with a value of twice the exercise price. Neither we nor our Board of Directors makes any recommendation as to whether you should tender or not tender your options, nor have we authorized any person to make any such recommendation. You are urged to evaluate carefully all of the information in this Offer to Exchange, the Sanders Letter, the Election Form, and the Notice to Withdraw from the Offer and to consult your own investment and tax advisors. You must make your own decision whether or not to tender your options for exchange. SECTION 4. PROCEDURES FOR TENDERING OPTIONS. Proper Tender of Options. To validly tender your options through the offer, you must, in accordance with the terms of the Election Form, properly complete, execute and deliver the Election Form, along with any other required document, to us via facsimile, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019 (fax no. (212) 841-7228). Mr. Haneschlager must receive all of the required documents before the expiration date. The expiration date is 6:00 p.m. Eastern Daylight Time on August 14, 2002, unless we extend the offer period. THE DELIVERY OF ALL DOCUMENTS, INCLUDING ELECTION FORMS AND ANY NOTICE TO WITHDRAW FROM THE OFFER AND ANY OTHER REQUIRED SCHEDULES, IS AT YOUR RISK. -16- Determination of Validity; Rejection of Options; Waiver of Defects; No Obligation to Give Notice of Defects. We will determine, in our discretion, all questions as to the form of documents and the validity, form, eligibility, including time of receipt, and acceptance of any tender of options. Our determination of these matters will be final and binding on all parties. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Otherwise, we will accept properly and timely tendered options that are not validly withdrawn. We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any tender of any particular options or for any particular optionholder. No tender of options will be deemed to have been properly made until all defects or irregularities have been cured by the tendering optionholder or waived by us. Neither we nor any other person are obligated to give notice of any defects or irregularities in tenders, nor will anyone incur any liability for failure to give any notice. This is a one-time offer, and we will strictly enforce the offer period, subject only to an extension which we may grant in our sole discretion. Our Acceptance Constitutes an Agreement. Your tender of options pursuant to the procedures described above constitutes your acceptance of the terms and conditions of the offer. OUR ACCEPTANCE FOR EXCHANGE OF THE OPTIONS TENDERED BY YOU THROUGH THE OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER. Subject to our right to extend, terminate and amend the offer, we presently expect that we will accept all properly tendered options that have not been validly withdrawn promptly after the expiration of the offer. SECTION 5. WITHDRAWAL RIGHTS AND CHANGE OF ELECTION. You may only withdraw your tendered options or change your election in accordance with the provisions of this Section. You may withdraw your tendered options at any time before 6:00 p.m., Eastern Daylight Time, on August 14, 2002. If we extend the offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. We expect to accept and cancel all properly tendered options promptly after the expiration of the offer. However, if we have not accepted and cancelled your tendered options for exchange by September 10, 2002, you may withdraw your tendered options at any time after such date. To validly withdraw tendered options, you must deliver via facsimile, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019 (fax no. (212) 841-7228), in accordance with the procedures listed in Section 4 above, a signed and dated Notice to Withdraw from the Offer, with the required information, while you still have the right to withdraw the tendered options. To validly change your election regarding the tender of particular options, you must deliver a new Election Form via facsimile, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019 (fax no. (212) 841-7228), in accordance with the procedures listed in Section 4 above. If you deliver a new Election Form that is properly signed and dated, it will replace any previously submitted Election Form, which will be disregarded. The new Election Form must be signed and dated -17- and must specify: - - the name of the optionholder who tendered the options, - - the grant date of each option to be tendered, - - the exercise price of each option to be tendered, and - - the total number of unexercised option shares subject to each option to be tendered. Except as described in the following sentence, the Notice to Withdraw from the Offer and any new or amended Election Form must be executed by the optionholder who tendered the options to be withdrawn exactly as the optionholder's name appears on the option agreement or agreements evidencing such options. If the optionholder's name has legally been changed since the signing of the option agreement, the optionholder must submit proof of the legal change. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title and proper evidence of the authority of such person to act in that capacity must be indicated on the notice of withdrawal. You may not rescind any withdrawal, and any options you withdraw will thereafter be deemed not properly tendered for purposes of the offer, unless you properly re-tender those options before the expiration date by following the procedures described in Section 4. Neither we nor any other person are obligated to give notice of any defects or irregularities in any Notice to Withdraw from the Offer or any new or amended Election Form, nor will anyone incur any liability for failure to give any notice. We will resolve, in our discretion, all questions as to the form and validity, including time of receipt, of any Notices to Withdraw from the Offer and any new or amended Election Forms. Our determination of these matters will be final and binding. SECTION 6. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND ISSUANCE OF NEW OPTIONS. Upon the terms and conditions of the offer and as promptly as practicable following the expiration date, we will accept for exchange and will cancel those options that are properly tendered and not validly withdrawn before the expiration date. Once the options are cancelled, you will no longer have any rights with respect to those options. Subject to the terms and conditions of this offer, if your options are properly tendered and accepted for exchange, these options will be cancelled as of the date of our acceptance, which we anticipate to be August 15, 2002, and you will be granted new options on or about the first business day that is at least six months and one day after the date we cancel the options accepted for exchange. All replacement options granted pursuant to this option exchange program will be non- qualified stock options. Subject to the terms and conditions of this offer, if your options are properly tendered by August 14, 2002 (the scheduled expiration date of the offer) and are accepted for exchange and cancelled on August 15, 2002 you will be granted new non-qualified stock options on or about February 18, 2003, unless this offer is extended. If we accept and cancel options properly tendered for exchange after August 15, 2002, the period in which the new options will be granted will be similarly delayed. As promptly as practicable after -18- we accept and cancel options tendered for exchange, we will issue to you a Promise to Grant Stock Option(s), by which we will commit to grant stock options to you on a date no earlier than February 18, 2003 covering the appropriate number of shares, calculated according to the number of shares issuable upon exercise of the options cancelled pursuant to this offer, provided that you remain an eligible employee on the date on which the grant is to be made. If we accept options you tender in the offer, we will defer any grant to you of other options for which you may be eligible before the new option grant date, so that you are granted no new options for any reason until at least six months and one day after any of your tendered options have been cancelled. We will defer the grant to you of these other options in order to avoid incurring compensation expense against our earnings as a result of accounting rules that could apply to such interim option grants as a result of the offer. It is possible that, prior to the grant of new options, we might effect or enter into an agreement for a merger or other similar transaction. These types of transactions could have substantial effects on our share price, including potentially substantial appreciation in the price of our shares. Depending on the structure of this type of transaction, tendering optionholders might be deprived of any further price appreciation in the shares associated with the new options. For example, if our shares were acquired in a cash merger, the fair market value of our shares, and hence the price at which we grant the new options, would likely be a price at or near the cash price being paid for the shares in the transaction, yielding limited or no financial benefit to a recipient of the new options for that transaction. In addition, in the event of an acquisition of our company for stock, tendering optionholders might receive options to purchase shares of a different issuer. We are also reserving the right, in the event of a merger or similar transaction, to take any actions we deem necessary or appropriate to complete a transaction that our Board of Directors believes is in the best interest of our company and our stockholders. This could include termination of your right to receive replacement options under this offer to exchange. If we were to terminate your right to receive replacement options under this offer in connection with such a transaction, employees and consultants who have tendered options for cancellation pursuant to this offer would not receive options to purchase securities of the acquirer or any other consideration for their tendered options. PLEASE NOTE: IF WE ARE ACQUIRED BY ANOTHER COMPANY, WE MAY, IN OUR DISCRETION, TERMINATE YOUR RIGHT TO RECEIVE REPLACEMENT OPTIONS UNDER THIS OPTION EXCHANGE PROGRAM. IN ADDITION, THE ACQUIRING COMPANY MAY, AS PART OF THE TRANSACTION OR OTHERWISE, DECIDE TO TERMINATE SOME OR ALL OF OUR EMPLOYEES PRIOR TO THE GRANT OR VESTING OF NEW OPTIONS UNDER THIS OPTION EXCHANGE PROGRAM. TERMINATION FOR THIS OR ANY OTHER REASON BEFORE THE REPLACEMENT OPTION IS GRANTED MEANS THAT YOU WILL NOT RECEIVE THE REPLACEMENT OPTION, NOR WILL YOU RECEIVE ANY OTHER CONSIDERATION FOR THE OPTIONS THAT WERE CANCELLED. Your new options will entitle you to purchase 0.70 shares for each share subject to the options you tender, rounded up to the nearest whole share, and as adjusted for any stock splits, stock dividends and similar events. For example, if your old option was for 1,000 shares, your new option will be for 700 shares. If, for any reason, you are not an employee of Nautica or its subsidiaries through the date we grant the new options, you will not receive any new options or other consideration in exchange for your tendered options which have been cancelled pursuant to this offer. -19- We will not accept partial tenders of your eligible option grants. You may tender one or more of your option grants, but you must tender all or none of the unexercised options in each grant. Within two (2) business days of the receipt of your Election Form or your Notice to Withdraw from the Offer, Nautica intends to e-mail to you a Confirmation of Receipt. However, this is not by itself an acceptance of your options for exchange. For purposes of the offer, we will be deemed to have accepted your options for exchange that are validly tendered and not properly withdrawn as of when we give oral or written notice to James F. Haneschlager, Senior Vice President, Administration & Human Resources, or to the optionholders generally of our acceptance for exchange of such options, which notice may be made by press release. Subject to our rights to extend, terminate and amend the offer, we presently expect that we will accept all properly tendered options that are not validly withdrawn promptly after the expiration of the offer. Options accepted for exchange will be cancelled on the Cancellation Date, which we presently expect to be August 15, 2002. SECTION 7. CONDITIONS TO THE OFFER. Notwithstanding any other provision of the offer, we will not be required to accept any options tendered for exchange, and we may terminate or amend the offer, or postpone our acceptance and cancellation of any options tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the Securities Exchange Act of 1934, as amended, if at any time on or after July 16, 2002, and prior to the expiration date, any of the following events has occurred, or has been determined by us to have occurred, and, in our reasonable judgment in any case and regardless of the circumstances giving rise to the event, including any action or omission to act by us, the occurrence of such event or events makes it inadvisable for us to proceed with the offer or with such acceptance and cancellation of options tendered for exchange: - - there shall have been threatened or instituted or be pending any action or proceeding by any governmental, regulatory or administrative agency or authority that directly or indirectly challenges the making of the offer, the acquisition of some or all of the tendered options pursuant to the offer, or the issuance of new options, or otherwise relates in any manner to the offer, or that, in our reasonable judgment, could materially and adversely affect our business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to Nautica; - - there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be eligible to the offer or Nautica, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly: (1) make the acceptance for exchange of, or issuance of new options for, some or all of the tendered options illegal or otherwise restrict or prohibit consummation of the offer or that otherwise relates in any manner to the offer; (2) delay or restrict our ability, or render us unable, to accept for exchange, or issue new options for, some or all of the tendered options; (3) materially impair the contemplated benefits of the offer to Nautica; or -20- (4) materially and adversely affect Nautica's business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to Nautica; - - there shall have occurred any change, development, clarification or position taken in generally accepted accounting standards that could or would require us to record compensation expense against our earnings in connection with the offer for financial reporting purposes; - - a tender or exchange offer for some or all of our shares, or a merger of or acquisition proposal for Nautica, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed; or - - any change or changes shall have occurred in Nautica's business, condition, assets, income, operations, prospects or stock ownership that, in our reasonable judgment, is or may be material to Nautica or may materially impair the contemplated benefits of the offer to Nautica. The conditions to the offer are for Nautica's benefit. We may assert them in our discretion regardless of the circumstances giving rise to them before the expiration date. We may waive them, in whole or in part, at any time and from time to time prior to the expiration date, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this Section 7 will be final and binding upon all persons. SECTION 8. PRICE RANGE OF SHARES UNDERLYING THE OPTIONS. The shares underlying your options are currently traded on the Nasdaq National Market under the symbol "NAUT". The following table shows, for the periods indicated, the high and low sales prices per share of our common stock as reported by the Nasdaq National Market, as adjusted for stock dividends and stock splits.
HIGH LOW FISCAL YEAR 2001 First Quarter Ended June 3, 2000 $ 12.56 $ 9.81 Second Quarter Ended September 2, 2000 13.00 8.63 Third Quarter Ended December 2, 2000 14.75 11.25 Fourth Quarter Ended March 3, 2001 19.56 12.63 FISCAL YEAR 2002 First Quarter Ended June 2, 2001 21.20 14.47 Second Quarter Ended September 1, 2001 21.65 12.83 Third Quarter Ended December 1, 2001 14.76 10.46 Fourth Quarter Ended March 2, 2002 14.49 12.57 FISCAL YEAR 2003 First Quarter Ended June 1, 2002 16.22 12.94 Second Quarter Through July 15, 2002 13.75 11.53
-21- As of July 15, 2002, the closing price of our common stock as reported by the Nasdaq National Market was $13.02 per share. WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS. SECTION 9. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS. Consideration. We will issue new options to purchase shares of common stock under our 1996 Plan at a future date in exchange for the outstanding options properly tendered and accepted for exchange by us which will be cancelled. The number of shares subject to the new options to be granted to each optionholder in the future will depend on the number of shares subject to the options tendered. For each option tendered by the optionholder and accepted for exchange and cancelled by us, the number of shares subject to the new option will be equal to 0.70 shares for each share subject to the cancelled option, rounded up to the nearest whole share, and as adjusted for any stock splits, reverse stock splits, stock dividends and similar events. If we receive and accept tenders of all outstanding options from eligible employees, subject to the terms and conditions of this offer we will grant new options to purchase a maximum of approximately 307,720 shares of common stock. The shares issuable upon exercise of these new options would equal less than 1% the total shares of our common stock outstanding as of July 15, 2002. Terms of New Options. The new options will be granted under our 1996 Plan. New option agreements will be entered into on a future date between Nautica and each optionholder who has tendered options in the offer. The terms and conditions of the new options may vary from the terms and conditions of the options tendered for exchange, but generally will not substantially or adversely affect the rights of optionholders. Please read "U.S. Federal Income Tax Consequences" later in this section, as well as Section 14 for a discussion of the potential tax consequences for United States employees. In addition, you should note that because we will not grant new options until at least six months and one day after the date we cancel the options accepted for exchange, the new options may have a higher exercise price than some or all of the cancelled options. The following description summarizes the material terms of the 1996 Plan and the options granted under the 1996 Plan. The maximum number of shares of Nautica's common stock which may be issued over the term of the 1996 Plan may not exceed 4,000,000 shares. Our 1996 Plan permits the granting of options intended to qualify as incentive stock options under the Internal Revenue Code and options that do not qualify as incentive stock options, referred to as non-qualified or nonstatutory stock options. Administration. The 1996 Plan is administered by a committee of the of the Board of Directors, which consists of at least two "Outside Directors" who are not employees or officers of Nautica (the "Committee"). The Committee has authority to interpret the 1996 Plan, adopt administrative regulations and determine and amend the terms of awards to employees. -22- Term. The term of the options are determined by the Committee and evidenced in each individual option agreement. Options generally have a maximum term of ten (10) years. Each new option granted under this option exchange program will have the same termination date as the cancelled option it replaces. Termination of Options. The effect of your termination of employee status on your new options will be determined in accordance with your new option agreement. Generally, the new options will terminate following the termination of your employment, unless the options are exercised, to the extent that they were exercisable immediately before such termination, within three (3) months following your termination. In the event that the termination of your employment is by reason of disability, you generally may exercise any option held by you at the date of your employment termination, to the extent that it was exercisable immediately before such termination, within twelve (12) months following such termination. In the event that the termination of your employment is by reason of death, the executors, administrators, legatees or distributees of your estate generally may exercise any option held by you at any time until its expiration date, in accordance with its terms. Exercise Price. The Committee determines the exercise price at the time the option is granted. The exercise price per share of the new options will be 100% of the fair market value on the date of grant, as determined by the closing price of Nautica's common stock reported by the Nasdaq National Market on the date of grant. Vesting and Exercise. Each stock option agreement specifies the term of the option and the date when the option becomes exercisable. The terms of vesting are determined by the Committee. Options granted by us pursuant to the 1996 Plan generally vest over a period of five (5) years, beginning one year following the date of grant, at a rate of 20% per year, provided the employee remains continuously employed by Nautica. Unless otherwise provided in the 1996 Plan, each new option granted under this option exchange program will vest in accordance with the vesting schedule of the cancelled options, except that no new option will vest or be exercisable earlier than six months after the date of its grant. All of the options eligible to be exchanged would be fully vested earlier than six months after the date that we anticipate granting the new options. Consequently, assuming that new options are granted on February 18, 2003, all new options will become fully vested and exercisable on August 18, 2003. Payment of Exercise Price. You may exercise your options, in whole or in part, by delivery of a written notice to us which is accompanied by payment in full of the eligible exercise price. The permissible methods of payment of the option exercise price are determined by the Committee and generally include cash or cash equivalents, shares of common stock which you have owned for at least six months, or any combination thereof. -23- Adjustments Upon Certain Events. In the event of specified changes in Nautica's capital structure, Board composition or management, the vesting of each outstanding option under the 1996 Plan, including options held by our executive officers, will automatically accelerate and vest in full. Termination of Employment. If, for any reason, you are not an eligible employee from the date you tender options through the date we grant the new options, you will not receive any new options or any other consideration in exchange for your tendered options that have been accepted for exchange and cancelled. This means that if you quit, with or without good reason, or die, or we terminate your employment, with or without cause, before the date we grant the new options, you will not receive anything for the options that you tendered and which we cancelled. In addition, if, for any reason, you are not an employee of Nautica or its subsidiaries on the date your new options vest, which date will not be earlier than six months after the date of grant, you will not be able to exercise such options. Transferability of Options. New options generally may not be transferred, other than by will or the laws of descent and distribution. In the event of your death, options may be exercised by a person who acquires the right to exercise the option by bequest or inheritance. Registration of Option Shares. 4,000,000 shares of common stock issuable upon exercise of options under our 1996 Plan have been registered under the Securities Act on a registration statement on Form S-8 filed with the SEC. All the shares issuable upon exercise of all new options will be registered under the Securities Act. Unless you are one of our affiliates, you will be able to sell your shares received upon exercise free of any transfer restrictions under applicable U.S. securities laws. U.S. Federal Income Tax Consequences. You should refer to Section 14 of this Offer to Exchange for a discussion of the U.S. federal income tax consequences of the new options and the options tendered for exchange, as well as the consequences of accepting or rejecting the new options under this offer to exchange. We strongly recommend that you consult with your own tax advisor to determine the tax and social insurance consequences of this transaction under the laws of the country in which you live and work. Our statements in this Offer to Exchange concerning our 1996 Plan and the new options are merely summaries and do not purport to be complete. The statements are subject to, and are qualified in their entirety by reference to, all provisions of 1996 Plan and the forms of option agreement under the 1996 Plan. Please contact James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019 (telephone: (212) 841-7266), to receive a copy of the 1996 Plan and the forms of option agreements thereunder. We will promptly furnish you copies of these documents at our expense. -24- SECTION 10. INFORMATION CONCERNING NAUTICA. Our principal executive offices are located at 40 West 57th Street, New York, NY 10019, and our telephone number is (212) 541-5757. Through our subsidiaries, we design, source, market and distribute apparel under the following brands: Nautica; Nautica Competition; Nautica Jeans Company; Earl Jean; John Varvatos; E. Magrath; and Byron Nelson. These products feature innovative designs, classic and contemporary styling, quality fabrics and functionality. Through our wholesale business, we sell Nautica branded apparel primarily to leading department and specialty stores in over 2,300 retail locations throughout the United States. Earl Jean and John Varvatos products are sold primarily to high-end department stores, up-scale specialty retailers and fashion forward boutiques in over 1,100 and 60 retail locations, respectively, primarily throughout the United States and certain European markets. Our in-store shop programs for the Nautica, Nautica Competition and Nautica Jeans Company collections are an integral part of our marketing strategy for our wholesale business. Through this program, together with a department store customer, we create a specific area within the store dedicated to the exclusive merchandising and sale of the Nautica, Nautica Competition or Nautica Jeans Company collections, as the case may be. Each of these shops are outfitted with signature fixtures consistent with the image of each of the brands and present the collections in an integrated, visually attractive environment. At the end of the fiscal year 2002, the number of Nautica in-store shops was approximately 1,500. Since its introduction in 1999, the number of Nautica Jeans shops has grown to approximately 1,100. In addition to our wholesale business, we operate 96 Nautica and 12 Nautica Jeans outlet stores. The stores provide a sales channel for Nautica products for value oriented consumers and allows for the organized distribution of excess and out-of-season merchandise. We strategically extend the Nautica brands and broadens the international distribution of the Nautica apparel collection through license arrangements. The Nautica name and trademarks are currently licensed for a range of products consistent with Nautica's design concepts and image. They are also licensed globally to agents or companies for distribution of the Nautica collection. The financial information included in our annual report on Form 10-K for the fiscal year ended March 2, 2002 and in our quarterly report on Form 10-Q for the quarterly period ended June 1, 2002, is incorporated herein by reference. See "Additional Information" in Section 17 for instructions on how you can obtain copies of our SEC filings, including filings that contain our financial statements. SECTION 11. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OPTIONS. A list of our directors and executive officers is attached to this Offer to Exchange as Schedule A. As of July 15, 2002 our non-employee directors and executive officers identified on Schedule A, each as a group, beneficially owned options outstanding under the 1996 Plan to purchase 66,000 and 1,453,500 of our shares, respectively, which numbers represented 2.1% and 45.2%, respectively, of the shares subject to all options outstanding under the 1996 Plan as of that date. The options to purchase our -25- shares owned by such directors and executive officers are not eligible to be tendered in the offer. As of July 15, 2002 our non-employee directors and executive officers listed on Schedule A, each as a group, beneficially owned options outstanding under the 1989 Employee Incentive Stock Plan to purchase a total of 16,000 and 1,326,700, respectively, of our shares. The material terms of the 1989 Employee Incentive Stock Plan are substantially similar to the terms of the 1996 Plan. None of the options issued under the 1989 Employee Incentive Stock Plan are eligible to be tendered in the offer. As of July 15, 2002 our non-employee directors beneficially owned options outstanding under the Executive Incentive Stock Option Plan to purchase a total of 12,000 of our shares. The material terms of the Executive Incentive Stock Option Plan are substantially similar to the terms of the 1996 Plan. None of the options issued under the Executive Incentive Stock Option Plan are eligible to be tendered in the offer. On July 1, 1987 we granted to our Vice Chairman options to purchase up to an aggregate of 2,262,064 shares of our common stock at a purchase price of $0.87 per share. The options expire 60 days after the earlier of (i) July 1, 2007, or (ii) 10 months following the date that the Vice Chairman ceases to be employed by the Company. At July 15, 2002, 281,940 options exercisable at $0.87 remain outstanding. None of these options granted to the Vice Chairman are eligible to be tendered in the offer. There have been no transactions in options to purchase our shares or in our shares which were effected during the 60 days prior to July 16, 2002 by Nautica or, to our knowledge, by any executive officer, director or affiliate of Nautica. SECTION 12. STATUS OF OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES OF THE OFFER. Options we acquire through the offer which were originally granted under the 1996 Plan will be cancelled and the shares subject to those options will be returned to the pool of shares available for grants of new options under the 1996 Plan. To the extent these shares are not fully reserved for issuance upon exercise of the new options to be granted in connection with the offer, the shares will be available for future awards to employees and other eligible plan participants without further stockholder action, except as required by applicable law or the rules of the Nasdaq National Market or any other securities quotation system or any stock exchange on which our shares are then quoted or listed. We believe that we will not incur any compensation expense solely as a result of the transactions contemplated by the offer because: - - we will not grant the new options to participants in the exchange offer until a business day that is at least six months and one day after the date that we accept and cancel options tendered for exchange; - - the exercise price of all new options will at least equal the market value of the shares of common stock on the date we grant the new options; and - - no other options will be granted to participants in the exchange offer until at least six months and one day after the date the tendered options are granted. -26- SECTION 13. LEGAL MATTERS; REGULATORY APPROVALS. We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our exchange of options and issuance of new options as contemplated by the offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of our options as contemplated herein. Should any such approval or other action be required, we presently contemplate that we will seek such approval or take such other action. We cannot assure you that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to our business. Our obligation under the offer to accept tendered options for exchange and to issue new options for tendered options is subject to the conditions described in Section 7. If we are prohibited by applicable laws or regulations from granting new options during the period beginning immediately after the day that is 6 months and 1 day from the date that we cancel the options accepted for exchange, in which period we presently expect to grant the new options, we will not grant any new options. We are unaware of any such prohibition at this time, and we will use reasonable efforts to effect the grant, but if the grant is prohibited throughout the period we will not grant any new options and you will not get any other consideration for the options you tendered. SECTION 14. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES. The following is a general summary of the material U.S. federal income tax consequences of the exchange of options pursuant to the offer. This discussion is based on the Internal Revenue Code, its legislative history, Treasury Regulations thereunder and administrative and judicial interpretations thereof as of the date of the offer, all of which are subject to change, possibly on a retroactive basis. This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of optionholders. Optionholders who exchange outstanding options for new options should not be required to recognize income for federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange. However, optionholders should be aware that all new options granted under this option exchange program will be non-qualified options, which are subject to different tax consequences than incentive stock options. WE STRONGLY ADVISE ALL OPTIONHOLDERS CONSIDERING EXCHANGING THEIR OPTIONS TO MEET WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. Incentive Stock Options Under current law, an optionholder will not realize taxable income upon the grant of an incentive stock option under our 1996 Stock Plan. In addition, an optionholder generally will not realize taxable income upon the exercise of an incentive stock option. However, an optionholder's alternative minimum taxable income will be increased by the amount that the aggregate fair market value of the shares underlying the option, which is generally determined as of the date of exercise, exceeds the aggregate exercise price of the option. Except in the case of an optionholder's death or disability, if an option is exercised more than three months after the optionholder's termination of employment, the option -27- ceases to be treated as an incentive stock option and is subject to taxation under the rules that apply to non-qualified stock options. If an optionholder sells the option shares acquired upon exercise of an incentive stock option, the tax consequences of the disposition depend upon whether the disposition is qualifying or disqualifying. The disposition of the option shares is qualifying if it is made: - - at least two years after the date the incentive stock option was granted, and - - at least one year after the date the incentive stock option was exercised. If the disposition of the option shares is qualifying, any excess of the sale price of the option shares, over the exercise price of the option will be treated as long-term capital gain taxable to the optionholder at the time of the sale. Any such capital gain will be taxed at the long-term capital gain rate in effect at the time of sale. If the disposition is not qualifying, which we refer to as a "disqualifying disposition," the excess of the fair market value of the option shares on the date the option was exercised, over the exercise price will be taxable income to the optionholder at the time of the disposition. Of that income, the amount up to the excess of the fair market value of the shares at the time the option was exercised over the exercise price will be ordinary income for income tax purposes and the balance, if any, will be long-term or short-term capital gain, depending upon whether or not the shares were sold more than one year after the option was exercised. Unless an optionholder engages in a disqualifying disposition, we will not be entitled to an income tax deduction with respect to an incentive stock option. If an optionholder engages in a disqualifying disposition, we will be entitled to an income tax deduction equal to the amount of compensation income taxable to the optionholder if we comply with existing tax reporting requirements. Regardless of whether you tender incentive stock options or non-qualified stock options, if those options are accepted for exchange, the new options will be granted as non-qualified stock options. Non-Qualified Stock Options. Under current law, an optionholder will not realize taxable income upon the grant of an option which is not qualified as an incentive stock option, also referred to as a non-qualified or nonstatutory stock option. Non-qualified stock options are not subject to the one-year and two-year holding periods described above. When an optionholder exercises a non-qualified stock option, the difference between the exercise price of the option and the fair market value of the shares subject to the option on the date of exercise will be compensation income taxable to the optionholder and subject to applicable withholding requirements. To the extent permitted by the Plan and the option agreement, upon exercise optionholders may elect to have the minimum withholding tax obligation satisfied by having Nautica withhold shares of stock otherwise deliverable to the optionholder as a result of the exercise or by delivering to Nautica shares of unrestricted stock held by the optionholder for at least six months. We will be entitled to an income tax deduction equal to the amount of compensation income taxable to the optionholder if we comply with existing tax reporting requirements. When an optionholder sells shares acquired upon the exercise of a non-qualifying stock option, any appreciation in the market value of the stock between the date of exercise and the date of -28- disposition is subject to the applicable capital gains tax. All new options granted under this exchange program will be non-qualified stock options, regardless of whether the options tendered for exchange were incentive stock options or non-qualified stock options. WE STRONGLY RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. SECTION 15. EXTENSION OF OFFER; TERMINATION; AMENDMENT. We expressly reserve the right, in our discretion, at any time and from time to time, and regardless of whether or not any event listed in Section 7 has occurred or is deemed by us to have occurred, to extend the period of time during which the offer is open and thereby delay the acceptance for exchange and cancellation of any options by giving oral or written notice of such extension to the optionholders or making a public announcement thereof. We also expressly reserve the right, in our reasonable judgment, prior to the expiration date to terminate or amend the offer and to postpone our acceptance and cancellation of any options tendered for exchange upon the occurrence of any of the events listed in Section 7, by giving oral or written notice of such termination or postponement to you or by making a public announcement thereof. Our reservation of the right to delay our acceptance and cancellation of options tendered for exchange is limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act of 1934, as amended, which requires that we must pay the consideration offered or return the options tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event listed in Section 7 has occurred or is deemed by us to have occurred, to amend the offer in any respect, including, without limitation, by decreasing or increasing the consideration offered in the offer to optionholders or by decreasing or increasing the number of options being sought in the offer. Amendments to the offer may be made at any time and from time to time by public announcement of the amendment. In the case of an extension, the announcement must be issued no later than 9:00 a.m., Eastern Daylight Time, on the next business day after the last previously scheduled or announced expiration date. Any public announcement made regarding the offer will be disseminated promptly to optionholders in a manner reasonably designated to inform optionholders of the change. If we materially change the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the Securities Exchange Act of 1934, as amended. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of these actions: -29- - - we increase or decrease the amount of consideration offered for the options; or - - we decrease the number of options eligible to be tendered in the offer. If the offer is scheduled to expire at any time earlier than the tenth (10th) business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified in this Section 15, we will extend the offer so that the offer is open at least ten (10) business days following the publication, sending or giving of notice. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Daylight Time. SECTION 16. FEES AND EXPENSES. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of options pursuant to this Offer to Exchange. SECTION 17. ADDITIONAL INFORMATION. This Offer to Exchange is part of a Tender Offer Statement on Schedule TO that we have filed with the SEC. This Offer to Exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials which we have filed with the SEC before making a decision on whether to tender your options: 1. Nautica's Annual Report on Form 10-K for the fiscal year ended March 2, 2002, filed with the SEC on May 30, 2002; 2. Nautica's Quarterly Report on Form 10-Q for the fiscal quarter ended June 1, 2002, filed with the SEC on July 16, 2002; and 3. Nautica's Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, filed with the SEC on June 7, 2002. The SEC file number for these filings is 0-06708. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the following SEC public reference rooms: 450 Fifth Street, N.W. 500 West Madison Street Room 1024 Suite 1400 Washington, D.C. 20549 Chicago, Illinois 60661 You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public on the SEC's Internet site at http://www.sec.gov. -30- Our common stock is quoted on the Nasdaq National Market under the symbol "NAUT" and our SEC filings can be read at the following Nasdaq address: Nasdaq Operations 1735 K Street N.W. Washington, D.C. 20006 Each person to whom a copy of this Offer to Exchange is delivered may obtain a copy of any or all of the documents to which we have referred you, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents) at no cost, from our website located at www.nautica.com or by writing to us at Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019, or contacting us at (212) 541-5757. As you read the foregoing documents, you may find some inconsistencies in information from one document to another. If you find inconsistencies between the documents, or between a document and this Offer to Exchange, you should rely on the statements made in the most recent document. The information about Nautica contained in this Offer to Exchange should be read together with the information contained in the documents to which we have referred you. SECTION 18. MISCELLANEOUS. This Offer to Exchange and our SEC reports referred to above contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations of future events and are subject to a number of risks and uncertainties that may cause our actual results to differ materially from those described in the forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. These factors and uncertainties include, among others: the risk that our new businesses will not be integrated successfully; the risk that we will experience difficulties with respect to the transitioning and ramp-up of its new distribution facility; the overall level of consumer spending on apparel; dependence on sales to a limited number of large department store customers; risks related to extending credit to customers; actions of existing or new competitors and changes in economic or political conditions in the markets where we sell or source our products; risks associated with consolidations, restructuring and other ownership changes in the retail industry; changes in trends in the market segments in which we compete; risks associated with uncertainty relating to our ability to launch, support and implement new product lines in the United States and Europe; effects of competition; changes in the costs of raw materials, labor and advertising; and, the ability to secure and protect trademarks and other intellectual property rights. These and other risks and uncertainties are disclosed from time to time in our filings with the SEC, including our periodic reports on Forms 10-K and 10-Q, our press releases and in oral statements made by or with the approval of authorized personnel. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments. We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. If, after such good faith effort, we cannot comply with such law, the offer will not be made to, nor will tenders be accepted from or on behalf of, the optionholders residing in such jurisdiction. -31- WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR DOCUMENTS TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT, THE COVER LETTER FROM HARVEY SANDERS DATED JULY 16, 2002, THE ELECTION FORM AND THE NOTICE TO WITHDRAW FROM THE OFFER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. Nautica Enterprises, Inc. July 16, 2002 -32- SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF NAUTICA ENTERPRISES, INC. Set forth in the following table are the names, positions and offices of the directors and the named executive officers of Nautica Enterprises, Inc. as identified in Nautica's Proxy Statement dated June 7, 2002 for the Annual Meeting of Stockholders held on July 10, 2002:
NAME POSITION AND OFFICES HELD Harvey Sanders Chairman of the Board of Directors, Chief Executive Officer and President David Chu Vice Chairman and Director John Varvatos President, John Varvatos Company, a wholly-owned subsidiary of Nautica, and Director Paulette McCready President, Nautica Jeans Company and Nautica Childrens Company, wholly-owned subsidiaries of Nautica Robert B. Bank Director Israel Rosenzweig Director Charles H. Scherer Director Steven H. Tishman Director Ronald G. Weiner Director
The address of each director and executive officer is: c/o Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019. A-1 EX-99.A.2 4 y62255exv99waw2.txt FORM OF COVER LETTER FROM HARVEY SANDERS Exhibit (a)2 [Nautica Enterprises, Inc. Letterhead] July 16, 2002 Dear Employee: I am pleased to provide to you details of a stock option exchange program, including a schedule showing which of your option grants are eligible for the program. As you know, the Company considers stock options to be an important component of employee compensation. However, the slowdown in the economy and other factors have adversely impacted our business and the market price of our common stock. As a result, a number of options currently held by employees are "underwater," and no longer provide the value to employees that they were intended to give. At the Annual Meeting of Stockholders held on July 10, 2002, the Company's stockholders approved an amendment to the 1996 Stock Incentive Plan to allow the Company to implement this option exchange program, which, subject to the terms described in the attached documents, will allow certain employees holding options with an exercise price over $24.00 per share to tender such options to the Company in exchange for a promise by the Company to grant new options at least six months and one day after the tendered options are cancelled, provided the employee remains an employee of Nautica or its subsidiaries until such time. The new options will cover 0.70 shares of common stock for each share of common stock subject to the tendered option, and will have an exercise price equal to the closing price of Nautica's common stock on the date of the grant. PLEASE TAKE THE TIME TO CAREFULLY READ THE DOCUMENTS AND INSTRUCTIONS ENCLOSED WITH THIS LETTER. YOU MUST RETURN THE ELECTION FORM TO US NO LATER THAN 6 P.M., EASTERN DAYLIGHT TIME, AUGUST 14, 2002. IF YOU HAVE ANY QUESTIONS ABOUT THE OFFER, PLEASE CONTACT JAMES F. HANESCHLAGER, SENIOR VICE PRESIDENT, ADMINISTRATION & HUMAN RESOURCES, AT (212) 841-7266. Sincerely, /s/ Harvey Sanders Chairman and Chief Executive Officer Enclosures NAUTICA ENTERPRISES, INC. 1996 Stock Incentive Plan OPTION EXCHANGE PROGRAM As of: July 16, 2002 NAME: YOUR CURRENT ELIGIBLE STOCK OPTIONS
INITIAL GRANT INITIAL GRANT # OF OPTIONS DATE PRICE GRANTED VESTED ---- ----- ------- ------ 09/03/96 $26.00 100% 03/05/97 $24.50 100% 04/28/98 $25.31 80%
Return Options by: AUGUST 14, 2002 New Options to be Granted on: FEBRUARY 18, 2003 YOUR NEW STOCK OPTIONS *
NEW # OF NEW GRANT NEW GRANT OPTIONS EXPIRATION DATE PRICE GRANTED VESTED DATE ---- ----- ------- ------ ---- 2/18/2003 Market Price on 100% on 8/18/03 09/03/06 2/18/2003 Day of 100% on 8/18/03 03/05/07 2/18/2003 Reissuance 100% on 8/18/03 04/28/08
New Options vest and become exercisable 6 months AFTER "New Grant Date" NOTES: - ------ - - 70% Exchange Ratio - - All New Stock Options granted will be classified as Non-Qualified Stock Options - - Market Price CANNOT be predicted - - Expiration Date Remains the same * ASSUMING YOU CONTINUE TO BE AN ELIGIBLE EMPLOYEE AS OF THE NEW GRANT DATE. THE INFORMATION SET FORTH IN THIS SCHEDULE IS SUBJECT TO THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER, WHICH ARE SET FORTH IN THE ATTACHED OFFER TO EXCHANGE, DATED JULY 16, 2002, AND RELATED DOCUMENTS. YOU SHOULD REVIEW THE OFFER TO EXCHANGE CAREFULLY BEFORE DECIDING WHETHER OR NOT TO PARTICIPATE IN THE EXCHANGE. ALL DATES ARE APPROXIMATE AND SUBJECT TO CHANGE AS SET FORTH IN THE OFFER TO EXCHANGE. EX-99.A.3 5 y62255exv99waw3.txt FORM OF ELECTION FORM Exhibit (a) 3 FORM OF NAUTICA ENTERPRISES, INC. OFFER TO EXCHANGE OPTIONS ELECTION FORM I have received, read and understand (i) the Offer to Exchange; (ii) the cover letter from Harvey Sanders dated July 16, 2002; (iii) the Election Form and; (iv) the Notice to Withdraw from the Offer (together, as they may be amended from time to time, constituting the "Offer"), offering to eligible employees who hold eligible stock options granted at an exercise price greater than $24.00 per share the opportunity to exchange these outstanding stock options ("Old Options") for a promise to grant new options exercisable at the closing price on the Nasdaq National Market on or about February 18, 2003, or, if the Offer is extended, a later date which is at least six months and one day following the cancellation of the Old Options, to be issued under the 1996 Stock Incentive Plan (the "New Options"). Unless extended, this offer expires at 6:00 p.m. Eastern Daylight Time on August 14, 2002. I understand that if I elect to cancel my Old Options in exchange for the Company's promise to issue a New Option, I will receive 0.70 shares subject to the New Option for each share subject to the Old Options, rounded up to the nearest whole share. I understand that the New Options granted will be non-qualified stock options. I understand that for each option I elect to cancel, I lose my right to all outstanding, unexercised shares under that option. I have read the Offer and understand the possible loss of my cancelled stock options if my employment is terminated for whatever reason before February 18, 2003 or such later date which is at least six months and one day following the cancellation of the Old Options. I UNDERSTAND THAT THERE IS A POSSIBILITY THAT THE EXERCISE PRICE OF MY NEW OPTIONS COULD BE HIGHER THAN THE EXERCISE PRICE OF MY OLD OPTIONS RESULTING IN A LOSS OF SOME STOCK OPTION BENEFIT. I ALSO UNDERSTAND THAT NO NEW OPTIONS WILL VEST AND BECOME EXERCISABLE UNTIL AT LEAST SIX MONTHS AFTER THE DATE OF THEIR ISSUE. Subject to the above understandings, I would like to participate in the Offer as indicated below. I HAVE READ AND FOLLOWED THE INSTRUCTIONS ATTACHED TO THIS FORM. Please check the box and note the grant date, exercise price and number of unexercised shares subject to the option for each stock option grant with respect to which you agree to have such grant cancelled and replaced pursuant to the terms of this Election Form. You may change the terms of your election to tender options for exchange by submitting a new Election Form or a Notice to Withdraw from the Offer prior to the cutoff date of 6:00 p.m. Eastern Daylight Time, August 14, 2002. [ ] Yes, I wish to tender for exchange each of the options specified below (and on any additional sheets which I have attached to this form):
Total Number of Unexercised Shares Subject to the Option Grant Date Exercise Price (Shares to be Cancelled) - ---------- -------------- ------------------------
I UNDERSTAND THAT ALL OF THESE OPTIONS WILL BE IRREVOCABLY CANCELLED ON OR ABOUT AUGUST 15, 2002. - ----------------------- --------------------------------- Date and Time Employee Signature - ----------------------- --------------------------------- Social Security Number Employee Name (please print) - --------------------------------- Employee e-mail address RETURN NO LATER THAN 6:00 P.M. ON AUGUST 14, 2002 VIA FACSIMILE, OVERNIGHT COURIER OR HAND DELIVERY TO JAMES F. HANESCHLAGER, SENIOR VICE PRESIDENT, ADMINISTRATION & HUMAN RESOURCES, NAUTICA ENTERPRISES, INC., 40 WEST 57TH STREET, NEW YORK, NEW YORK 10019 (FACSIMILE NO. (212) 841-7228). NAUTICA WILL SEND YOU AN E-MAIL\ CONFIRMATION WITHIN 2 BUSINESS DAYS OF RECEIPT. INSTRUCTIONS TO THE ELECTION FORM FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Election Form. A properly completed and executed original of this Election Form (or a facsimile of it), and any other documents required by this Election Form, must be received via facsimile, hand delivery or overnight courier by James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, New York 10019 (facsimile no. (212) 841-7228) on or before 6:00 p.m. Eastern Daylight Time on August 14, 2002 (the "Expiration Date"). THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE COMPANY. YOU MAY HAND DELIVER YOUR ELECTION FORM TO JAMES F. HANESCHLAGER AT NAUTICA ENTERPRISES, INC. (THE "COMPANY"), OR YOU MAY SEND IT BY OVERNIGHT COURIER OR FAX IT TO SUCH PERSON AT THE ADDRESS OR FAX NUMBER LISTED ABOVE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. 2. Withdrawal. Tenders of options made through the Offer may be withdrawn at any time before the Expiration Date. If the Company extends the Offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the Offer. In addition, although the Company currently intends to accept your validly tendered options promptly after the expiration of the Offer, unless the Company accepts and cancels your tendered options by September 10, 2002, you may withdraw your tendered options at any time after such date. To withdraw tendered options you must deliver a signed and dated Notice to Withdraw from the Offer, with the required information, by facsimile, overnight courier or hand delivery, to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, New York 10019 (facsimile no. (212) 841-7228), while you still have the right to withdraw the tendered options. Withdrawals may not be rescinded and any eligible options withdrawn will thereafter be deemed not properly tendered for purposes of the Offer unless the withdrawn options are properly re-tendered before the Expiration Date by delivery of a new Election Form following the procedures described in these Instructions. Upon the receipt of such a new, properly filled out, signed and dated Election Form, any previously submitted Election Form or Notice to Withdraw from the Offer will be disregarded and will be considered replaced in full by the new Election Form. 3. Change of Election. As noted in the Offer to Exchange, you may select individual option grants to be tendered for exchange. You do not have to tender all your option grants, but for each individual grant you do choose to tender, you must tender the entire outstanding, unexercised portion of the option grant. You may change your mind about which individual option grants you would like to tender for exchange at any time before the Expiration Date. If the Company extends the Offer beyond that time, you may change your election regarding particular option grants you tendered at any time until the extended expiration of the Offer. To change your election regarding any particular individual option grants you previously tendered while continuing to elect to participate in the Offer, you must deliver a signed and dated new Election Form, with the required information, following the procedures described in these Instructions. Upon the receipt of such a new, properly filled out, signed and dated Election Form, any previously submitted Election Form will be disregarded and will be considered replaced in full by the new Election Form. The Company will not accept any alternative, conditional or contingent tenders. Although it is our intent to send you a confirmation of receipt of this Election Form, by signing this Election Form (or a facsimile of it), you waive any right to receive any notice of the receipt of the tender of your options, except as provided for in the Offer to Exchange. Any confirmation of receipt sent to you will merely be a notification that we have received your Election Form and does not mean that your options have been cancelled. Your options that are accepted for exchange will not be cancelled until on or about August 15, 2002, which is the first business day following the expiration of the Offer, or a later date if we extend the Offer. 4. Tenders. If you intend to tender options through the Offer, you must complete the table on this Election Form by providing the following information for each eligible option that you intend to tender: 1. grant date, 2. exercise price, and 3. the total number of unexercised shares subject to the option. The Company will not accept partial tenders of eligible options. Accordingly, you may tender all or none of the unexercised shares subject to each option you decide to tender. 5. Signatures on This Election Form. If this Election Form is signed by the holder of the eligible options, the signature must correspond with the name as written on the face of the option agreement or agreements to which the options are subject without alteration, enlargement or any change whatsoever. If your name has been legally changed since your option agreement was signed, please submit proof of the legal name change. If this Election Form is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of that person to so act must be submitted with this Election Form. 6. Other Information on This Election Form. In addition to signing this Election Form, you must print your name and indicate the date and time at which you signed. You must also include a current e-mail address and your social security number or other tax identification number, as appropriate. 7. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Election Form should be directed to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, New York 10019 (facsimile no. (212) 841-7228). Copies will be furnished promptly at the Company's expense. 8. Irregularities. All questions as to the number of option shares subject to options to be accepted for exchange and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of options will be determined by the Company in its discretion. The Company's determinations shall be final and binding on all parties. The Company reserves the right to reject any or all tenders of options the Company determines not to be in proper form or the acceptance of which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular options, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No tender of options will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in tenders, and no person will incur any liability for failure to give any such notice. 2 IMPORTANT: THE ELECTION FORM (OR A FACSIMILE COPY OF IT) TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE COMPANY ON OR BEFORE 6:00 P.M. EASTERN DAYLIGHT TIME ON THE EXPIRATION DATE. 9. Additional Documents to Read. You should be sure to read the Offer to Exchange, all documents referenced therein, and the cover letter from Harvey Sanders dated July 16, 2002 before deciding to participate in the Offer. 10. Important Tax Information. You should refer to Section 14 of the Offer to Exchange, which contains important U.S. federal income tax information. 11. Miscellaneous. A. Data Privacy. By accepting the Offer, you hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, Nautica Enterprises, Inc. and/or any affiliate for the exclusive purpose of implementing, administering and managing your participation in the Offer. You understand that Nautica Enterprises, Inc. and/or any affiliate may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the stock option plan and this Offer ("Data"). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Offer, that these recipients may be located in your country, or elsewhere, and that the recipient's country may have different data privacy laws and protections than in your country. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the your participation in the stock option plans and this Offer. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the stock option plans and this Offer. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or withdraw the consents herein by contacting in writing your local human resources representative. You understand that withdrawal of consent may affect your ability to participate in this Offer and exercise or realize benefits from the stock option plans. B. Acknowledgment and Waiver. By accepting this Offer, you acknowledge that: (i) your acceptance of the Offer is voluntary; (ii) your acceptance of the Offer shall not create a right to further employment with your employer and shall not interfere with the ability of your employer to terminate your employment relationship at any time with or without cause; and (iii) the Offer, the Old Options and the New Options are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. 3 EX-99.A.4 6 y62255exv99waw4.txt FORM OF NOTICE TO WITHDRAW FROM THE OFFER Exhibit (a)4 FORM OF NAUTICA ENTERPRISES, INC. OFFER TO EXCHANGE OPTIONS NOTICE TO WITHDRAW FROM THE OFFER I previously received (i) a copy of the Offer to Exchange; (ii) the cover letter from Harvey Sanders dated July 16, 2002; and (iii) an Election Form. I signed and returned the Election Form, in which I elected to accept Nautica Enterprises, Inc.'s ("Nautica") offer to exchange (the "Offer") some of or all of my eligible options. I now wish to change that election and REJECT Nautica's Offer to exchange my options. I understand that by signing this Notice and delivering it to James F. Haneschlager, Senior Vice President, Administration & Human Resources, by 6:00 p.m. Eastern Daylight Time on August 14, 2002, I will be able to withdraw my acceptance of the Offer and instead reject the Offer to exchange options. I have read and understand all the terms and conditions of the Offer to exchange options. I have read and understand the instructions attached to this Notice. I understand that in order to withdraw my acceptance of the Offer, I must sign, date and deliver this Notice via facsimile, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, New York 10019 (facsimile no. (212) 841-7228) by 6:00 p.m. Eastern Daylight Time on August 14, 2002. I understand that by withdrawing my acceptance of the Offer to exchange options, I will not receive any New Options pursuant to the Offer and I will keep the Old Options that I have. These options will continue to be governed by the 1996 Stock Incentive Plan under which they were granted and by the existing option agreement(s) between Nautica and me. I understand that I may change this election, and once again accept the Offer to exchange options, by submitting a new Election Form via facsimile, overnight courier or hand delivery to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, New York 10019 (facsimile no. (212) 841-7228) by 6:00 p.m. Eastern Daylight Time on August 14, 2002. I have signed this Notice and printed my name exactly as it appears on the Election Form. I do not accept the Offer to exchange any options. - ----------------------- --------------------------------- Date and Time Employee Signature - ----------------------- ---------------------------------- Social Security Number Employee Name (please print) - --------------------------------- Employee e-mail address RETURN NO LATER THAN 6:00 P.M. EDT AUGUST 14, 2002 VIA FACSIMILE, OVERNIGHT COURIER OR HAND DELIVERY TO JAMES F. HANESCHLAGER, SENIOR VICE PRESIDENT, ADMINISTRATION & HUMAN RESOURCES, NAUTICA ENTERPRISES, INC., 40 WEST 57TH STREET, NEW YORK, NEW YORK 10019 (FACSIMILE NO. (212) 841-7228) NAUTICA WILL SEND AN E-MAIL CONFIRMATION WITHIN 2 BUSINESS DAYS OF RECEIPT INSTRUCTIONS TO THE NOTICE TO WITHDRAW FROM THE OFFER FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Notice to Withdraw from the Offer. A properly completed and executed original of this Notice to Withdraw from the Offer (or a facsimile of it), and any other documents required by this Notice to Withdraw from the Offer, must be received by James F. Haneschlager, Senior Vice President, Administration & Human Resources, either via facsimile, overnight courier or hand delivery at 40 West 57th Street, New York, New York 10019 (facsimile no. (212) 841-7228) on or before 6:00 p.m. Eastern Daylight Time on August 14, 2002 (the "Expiration Date"). If Nautica has not accepted and cancelled validly tendered options by September 10, 2002, you may withdraw your tendered options from the Offer by properly completing and submitting this Notice to Withdraw at any time after such date. THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE COMPANY. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. Although by submitting a Notice to Withdraw from the Offer you have withdrawn your tendered options from the Offer, you may change your mind and re-accept the Offer until the expiration of the Offer. Tenders of options made through the Offer may be made at any time before the Expiration Date. If the Company extends the Offer beyond that time, you may tender your options at any time until the extended expiration of the Offer. To change your mind and elect to participate in the Offer, you must deliver a new signed and dated Election Form, or a facsimile of the Election Form, with the required information to the Company, while you still have the right to participate in the Offer. Your options will not be properly tendered for purposes of the Offer unless the withdrawn options are properly re-tendered before the Expiration Date by delivery of the new Election Form following the procedures described in the Instructions to the Election Form. IF YOU DO NOT WISH TO WITHDRAW ALL YOUR TENDERED OPTIONS FROM THE OFFER, YOU SHOULD NOT FILL OUT THIS NOTICE TO WITHDRAW FROM THE OFFER. IF YOU WISH TO CHANGE YOUR ELECTION WITH RESPECT ONLY TO PARTICULAR OPTIONS, YOU SHOULD SUBMIT A NEW ELECTION FORM INSTEAD. As noted in the Offer to Exchange, you may select individual option grants to be tendered for exchange. You do not have to tender all your option grants, but for each individual grant you do choose to tender, you must tender the entire outstanding, unexercised portion. You may change your mind about which individual option grants you would like to tender for exchange. To change your election regarding particular individual option grants you previously tendered while continuing to elect to participate in the Offer, you must deliver a signed and dated new Election Form, with the required information, following the procedures described in the Instructions to the Election Form before the Expiration Date or, if the Offer is extended, before the extended expiration of the Offer. Upon receipt of such a new, properly filled out, signed and dated Election Form, any previously submitted Election Form, or Notice to Withdraw from the Offer will be disregarded and will be considered replaced in full by the new Election Form. Although it is our intent to send you a confirmation of receipt of this Notice, by signing this Notice to Withdraw from the Offer (or a facsimile of it), you waive any right to receive any notice of the withdrawal of the tender of your options. 2. Signatures on This Notice to Withdraw from the Offer. If this Notice to Withdraw from the Offer is signed by the holder of the eligible options, the signature must correspond with the name as written on the face of the option agreement or agreements to which the options are subject without alteration, enlargement or any change whatsoever. If your name has been legally changed since your option agreement was signed, please submit proof of the legal name change. If this Notice to Withdraw from the Offer is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of that person so to act must be submitted with this Notice to Withdraw from the Offer. 3. Other Information on This Notice to Withdraw from the Offer. In addition to signing this Notice to Withdraw from the Offer, you must print your name and indicate the date and time at which you signed. You must also include a current e-mail address and your social security number or other tax identification number, as appropriate. 4. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Notice to Withdraw from the Offer should be directed to James F. Haneschlager, Senior Vice President, Administration & Human Resources, Nautica Enterprises, Inc., 40 West 57th Street, New York, New York 10019 (facsimile no. (212) 841-7228). Copies will be furnished promptly at the Company's expense. 5. Irregularities. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of this withdrawal from the Offer will be determined by the Company in its discretion. The Company's determinations shall be final and binding on all parties. The Company reserves the right to reject any or all Notices to Withdraw from the Offer that the Company determines not to be in proper form or the acceptance of which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the Notice to Withdraw from the Offer, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No Notice to Withdraw from the Offer will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with Notices to Withdraw from the Offer must be cured within the time as the Company shall determine. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in Notices to Withdraw from the Offer, and no person will incur any liability for failure to give any such notice. IMPORTANT: THE NOTICE TO WITHDRAW FROM THE OFFER (OR A FACSIMILE COPY OF IT) TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE COMPANY, ON OR BEFORE THE EXPIRATION DATE. 2 6. Additional Documents to Read. You should be sure to read the Offer to Exchange, all documents referenced therein, and the cover letter from Harvey Sanders dated July 16, 2002 before making any decisions regarding participation in, or withdrawal from, the Offer. 7. Important Tax Information. You should refer to Section 14 of the Offer to Exchange, which contains important U.S. federal income tax information. 3 EX-99.A.5 7 y62255exv99waw5.txt FORM OF PROMISE TO GRANT STOCK OPTION(S) Exhibit (a)5 FORM OF PROMISE TO GRANT STOCK OPTION(S) TO: ___________ In exchange for your agreement to cancel certain stock options ("Old Option(s)") you received from Nautica Enterprises, Inc. ("Nautica"), Nautica hereby promises to grant you a stock option or options, as applicable, covering ______ shares of Nautica's common stock on or about February 18, 2003, or such other date which is at least six months and one day following the cancellation date of the Old Options (the "New Option(s)"), subject to your continued employment with Nautica, as described below. The exercise price of each New Option will be the closing price of Nautica's common stock as listed on the Nasdaq National Market on the date of grant. Except as otherwise set forth in the Exchange Offer Documents (as such term is defined below), each New Option will vest according to the same vesting schedule as the Old Option it replaces, provided that no New Option will vest earlier than the six month anniversary of the grant date, subject to your continued employment with Nautica, as described below. All New Options will be granted as non-qualified stock options. Each New Option will otherwise be subject to the standard terms and conditions under the Nautica Enterprises, Inc. 1996 Stock Incentive Plan, as amended and as may be further amended from time to time, and applicable form of stock option agreement. Prior to the grant of New Options on or about February 18, 2003, or, if Nautica extends the exchange offer, a date which is at least six months and one day following the cancellation date of the Old Options, it is possible that Nautica might effect or enter into a merger or other similar transaction whereby Nautica would be acquired by another company. These types of transactions could have substantial effects on our share price, including potentially substantial appreciation in the price of our shares. Depending on the structure of this type of transaction, tendering optionholders might be deprived of any further price appreciation in the shares associated with the new options. For example, if our shares were acquired in a cash merger, the fair market value of our shares, and hence the price at which we grant the new options, would likely be a price at or near the cash price being paid for the shares in the transaction, yielding limited or no financial benefit to a recipient of the new options for that transaction. In addition, in the event of an acquisition of our company for stock, tendering optionholders might receive options to purchase shares of a different issuer. We are also reserving the right, in the event of a merger or similar transaction, to take any actions we deem necessary or appropriate to complete a transaction that our Board of Directors believes is in the best interest of our company and our stockholders. This could include termination of your right to receive replacement options under this offer to exchange. If we were to terminate your right to receive replacement options under this offer in connection with such a transaction, employees and consultants who have tendered options for cancellation pursuant to this offer would not receive options to purchase securities of the acquirer or any other consideration for their tendered options. In order to receive the New Option(s), you must continue to be employed by Nautica (or one of its subsidiaries) as of February 18, 2003, or such date which is at least six months and one day following the cancellation date of the Old Options. This Promise does not constitute a guarantee of employment with Nautica for any period. Unless otherwise expressly provided in your employment agreement or the applicable laws of a non-U.S. jurisdiction, your employment with Nautica will remain "at-will" and can be terminated by you or Nautica at any time, with or without cause or notice. If your employment with Nautica terminates before February 18, 2003, or such other date which is at least six months and one day following the cancellation date of the Old Options, for any reason, including but not limited to your voluntary resignation, or as the result of a merger or acquisition of Nautica by another company, you will lose all rights pursuant to this Promise to receive New Options. This Promise is subject to the terms and conditions of the offer to exchange options as set forth in: (i) the Offer to Exchange; (ii) the cover letter from Harvey Sanders dated July 16, 2002; (iii) the Election Form previously completed and submitted by you to Nautica; and (iv) the Notice to Withdraw from the Offer (collectively, the "Exchange Offer Documents"), all of which are incorporated herein by reference. The documents described herein reflect the entire agreement between you and Nautica with respect to this transaction. This Promise may only be amended by means of a writing signed by you and a duly authorized officer of Nautica. NAUTICA ENTERPRISES, INC. By:_______________________ Name: Title: Dated:______________________________ EX-99.D.1 8 y62255exv99wdw1.txt 1996 STOCK INCENTIVE PLAN/FORM OF OPTION AGREEMENT Exhibit (d)1 NAUTICA ENTERPRISES, INC. 1996 STOCK INCENTIVE PLAN (Amended and Restated) SECTION 1. PURPOSES The purpose of the Nautica Enterprises, Inc. 1996 Stock Incentive Plan (the "Plan") are (i) to enable Nautica Enterprises, Inc. (the "Company") and its Related Companies (as defined below) to attract, retain and reward employees and strengthen the existing mutuality of interests between such employees and the Company's stockholders by offering such employees an equity interest in the Company, (ii) to enable the Company to offer incentives to employees of entities which are acquired or established by the Company from time to time as incentives and inducements for employment, and (iii) to enable the Company to pay part of the compensation of its Outside Directors (as defined in Section 5.2) in options to purchase the Company's common stock, thereby increasing such directors' proprietary interests in the Company. For purposes of the Plan, a "Related Company" means any corporation, partnership, joint venture or other entity in which the Company owns, directly or indirectly, at least a 20% beneficial ownership interest. SECTION 2. TYPES OF AWARDS 2.1 Awards under the Plan to employees may be in the form of (i) Stock Options; (ii) Stock Appreciation Rights; (iii) Limited Stock Appreciation Rights; (iv) Restricted Stock; (v) Deferred Stock; (vi) Bonus Stock; (vii) Cash Bonuses; (viii) Loans; and/or (ix) Tax Offset Payments. 2.2 An eligible employee may be granted one or more types of awards, which may be independent or granted in tandem. If two awards are granted in tandem, the employee may exercise (or otherwise receive the benefit of) one award only to the extent he or she relinquishes the tandem award. 2.3 Outside Directors may receive only Stock Options and Limited Stock Appreciation Rights. SECTION 3. ADMINISTRATION 3.1 The Plan shall be administered (i) by the Committee (as defined below) in the case of awards to employees, and (ii) by the Company's Board of Directors (the "Board") in the case of awards to Outside Directors. The Committee shall be the Compensation Committee of the Board or such other committee of directors as the Board shall designate, , which shall consist of not less than two directors each of whom is (a) a nonemployee director, as such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934 or any successor rule, and (b) an outside director satisfying the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended, or any successor thereto (the "Code"). The members of the Committee shall serve at the pleasure of the Board. 3.2 The Committee shall have the following authority with respect to awards under the Plan other than awards to Outside Directors: to grant awards to eligible employees under the Plan; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall deem advisable; to interpret the terms and provisions of the Plan and any award granted under the Plan; and to otherwise supervise the administration of the Plan. In particular, and without limiting its authority and powers, the Committee shall have the authority: (a) to determine whether and to what extent any award or combination of awards will be granted hereunder, including whether any awards will be granted in tandem with each other; (b) to select the employees to whom awards will be granted; (c) to determine the number of shares of the common stock of the Company (the "Stock") to be covered by each award granted hereunder subject to the limitations contained herein; (d) to determine the terms and conditions of any award granted hereunder, including, but not limited to, any vesting or other restrictions based on such performance objectives (the "Performance Objectives") and such other factors as the Committee may establish, and to determine whether the Performance Objectives and other terms and conditions of the award are satisfied; (e) to determine the treatment of awards upon an employee's retirement, disability, death, termination for cause or other termination of employment; (f) to determine pursuant to a formula or otherwise the fair market value of the Stock on a given date; provided, however, that if the Committee fails to make such a determination, fair market value of the Stock on a given date shall be the mean between the highest and lowest quoted selling price, regular way, of the Stock on the NASDAQ National Market (or the principal exchange upon which the Stock is listed) on such date, or if no such sale of Stock occurs on such date, the weighted average of the high and low prices on the nearest trading dates before and after such date; (g) to determine that amounts equal to the amount of any dividends declared with respect to the number of shares covered by an award (i) will be paid to the employee currently or (ii) will be deferred and deemed to be reinvested or (iii) will otherwise be credited to the employee, or that the employee has no rights with respect to such dividends; (h) to determine whether, to what extent, and under what circumstances Stock and other amounts payable with respect to an award will be deferred either automatically or at the election of an employee, including providing for and determining the amount (if any) of deemed earnings on any deferred amount during any deferral period; (i) to provide that the shares of Stock received as a result of an award shall be subject to a right of first refusal, pursuant to which the employee shall be required to offer to the Company any shares that the employee wishes to sell, subject to such terms and conditions as the Committee may specify; (j) to amend the terms of any award, prospectively or retroactively; provided, however, that no amendment shall impair the rights of the award holder without his or her written consent; and (k) to substitute new awards with more favorable terms and conditions for previously granted awards under the Plan, or for stock options or awards granted under other plans or agreements; provided, however, in no case shall the Committee reprice "underwater" Stock Options. Notwithstanding the foregoing limitation, the Committee is authorized, in its sole discretion, to offer employees (other than the executive officers named in the Summary Compensation Table of the Company's proxy statement for its 2002 Annual Meeting of Stockholders) holding stock options having an exercise price in excess of $24.00 per share a one-time opportunity to surrender such options for cancellation in return for a future grant of replacement options. Each replacement option shall entitle the holder to purchase 0.70 shares of the Company's common stock for each share that was issuable under the cancelled option. The replacement options shall be granted no less than six months and one day following the cancellation of the cancelled options, with an exercise price equal to the fair market value of the Company's Common Stock on such date of grant. Each replacement option shall have a term equal to the remaining term of the cancelled option and the same vesting schedule as for the cancelled option which it replaces, except that no replacement option shall vest or be exercisable any earlier than six months after the date of its grant. The foregoing exchange opportunity shall be structured so that the Company avoids incurring variable accounting compensation charges, and may contain such other terms and conditions as may be determined by the Committee not inconsistent with the foregoing. 3.3 The Committee shall have the right to designate awards as "Performance Awards." Awards so designated shall be granted and administered in a manner designed to preserve the deductibility of the compensation resulting from such awards in accordance with Section 162(m) of the Code. The grant or vesting of a Performance Award shall be subject to the achievement of Performance Objectives established by the Committee based on one or more of 2 the following criteria, in each case applied to the Company on a consolidated basis and/or to a business unit, and which the Committee may use either as an absolute measure or as a measure of comparative performance relative to a peer group of companies: sales, operating profits, operating profits before interest expense and taxes, net earnings, earnings per share, return on equity, return on assets, return on invested capital, cash flow, debt to equity ratio, market share, stock price, economic value added, and market value added. The Performance Objectives for a particular Performance Award relative to a particular fiscal year of the Company shall be established by the Committee in writing no later than 90 days after the beginning of such year. The Committee's determination as to the achievement of Performance Objectives relating to a Performance Award shall be made in writing. The Committee shall have discretion to modify the Performance Objectives or vesting conditions of a Performance Award only to the extent that the exercise of such discretion would not cause the Performance Award to fail to quality as "performance-based compensation" within the meaning of Section 162(m) of the Code. 3.4 With respect to awards to Outside Directors, the Board shall have authority to grant and amend awards subject to the limitations of Sections 2.3, 6, and 7.2; to interpret the Plan and grants to Outside Directors pursuant to the Plan; to adopt, amend, and rescind administrative regulations to further the purposes of the Plan; and to take any other action necessary to the proper operation of the Plan. Subject to any express limitations set forth in the Plan, the Board shall have the same powers with respect to awards to Outside Directors as are set forth for the Committee with respect to awards to employees. However, the Board shall have no discretion to vary the terms of awards granted pursuant to Section 15, except as provided in Section 4.4. 3.5 All determinations made by the Committee or the Board pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants. 3.6 The Committee may from time to time delegate to one or more officers of the Company any or all of its authorities granted hereunder except with respect to awards granted to persons subject to Section 16 of the Securities Exchange Act of 1934 or Performance Awards. The Committee shall specify the maximum number of shares that the officer or officers to whom such authority is delegated may award. SECTION 4. STOCK SUBJECT TO PLAN 4.1 The total number of shares of Stock reserved and available for distribution under the Plan shall be 4,000,000 (subject to adjustment as provided below). Such shares may consist of authorized but unissued shares or treasury shares. The exercise of a Stock Appreciation Right for cash or the payment of any other award in cash shall not count against this share limit. 4.2 To the extent a Stock Option terminates without having been exercised, or an award terminates without the employee having received payment of the award, or shares awarded are forfeited, the shares subject to such award shall again be available for distribution in connection with future awards under the Plan. If the exercise price of an option is paid in Stock or if shares of Stock are withheld from payment of an award to satisfy tax obligations with respect to such award, such shares will also not count against the Plan limits and shall again be available for distribution in connection with future awards under the Plan. 4.3 No employee shall be granted Stock Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock and/or Bonus Stock, or any combination of the foregoing with respect to more than 600,000 shares of Stock in any fiscal year of the Company (subject to adjustment as provided in Section 4.4). No employee shall be granted Tax Offset Payments with respect to more than the number of shares of Stock covered by awards held by such employee. No employee shall be paid a Cash Bonus in any fiscal year in excess of (i) 5% of the Company's operating profit for the Company's fiscal year, if the Cash Bonus relates to a single fiscal year, or (ii) 2% of the Company's cumulative operating profit for each fiscal year to which the Cash Bonus relates, if the Cash Bonus relates to more than one fiscal year. An employee's Cash Bonus permitted under the preceding sentence shall be in addition to the employee's Stock awards and Tax Offset Payments permitted under this Section 4.3. 3 4.4 In the event of any merger, reorganization, consolidation, sale of substantially all assets, recapitalization, Stock dividend, Stock split, spin-off, split-up, split-off, distribution of assets or other change in corporate structure affecting the Stock, a substitution or adjustment, as may be determined to be appropriate by the Committee or the Board in its sole discretion, shall be made in the aggregate number of shares reserved for issuance under the Plan, the number of shares as to which awards may be granted to any individual in any fiscal year, the number of shares subject to outstanding awards and the amounts to be paid by award holders or the Company, as the case may be, with respect to outstanding awards; provided, however, that no such adjustment shall increase the aggregate value of any outstanding award. In the event any change described in this Section 4.4 occurs and an adjustment is made in the outstanding Stock Options granted to participants other than Outside Directors, a similar adjustment shall be made in the number and terms of Stock Options (and related Limited Stock Appreciation Rights) previously granted to Outside Directors and to be granted under Section 15, provided that any such adjustment shall be equitable and shall not increase the aggregate benefits of such Stock Options to Outside Directors. SECTION 5. ELIGIBILITY 5.1 Employees of the Company or a Related Company, including employees who are officers and/or directors of the Company, are eligible to be granted awards under the Plan, other than under Section 15. The employee participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible. 5.2 Initial grants to Outside Directors shall be made automatically pursuant to Section 15. Subsequent grants to Outside Directors shall be made by the Board, in its discretion, in accordance with the provisions of Sections 2.3, 6 and 7.2. For purposes of the Plan, the term "Outside Director" shall mean any director of the Company other than one who is an employee of the Company or a Related Company. SECTION 6. STOCK OPTIONS 6.1 The Stock Options awarded to employees under the Plan may be of two types: (i) Incentive Stock Options within the meaning of Section 422 of the Code or any successor provision thereto; and (ii) Non-Qualified Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option. All Stock Options awarded to Outside Directors shall be Non-Qualified Stock Options. 6.2 Subject to the following provisions, Stock Options awarded to employees by the Committee and Stock Options awarded to Outside Directors by the Board shall be in such form and shall have such terms and conditions as the Committee or Board, as the case may be, may determine. All references to the Committee in the following paragraphs of this Section 6.2 shall be deemed to refer to the Board with respect to awards to Outside Directors. (a) Option Price. The option price per share of Stock purchasable under a Stock Option shall be determined by the Committee, and may be less than the fair market value of the Stock on the date of the award of the Stock Option. (b) Option Term. The term of each Stock Option shall be fixed by the Committee. (c) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. The Committee may waive such exercise provisions or accelerate the exercisability of the Stock Option at any time in whole or in part. (d) Method of Exercise. Stock Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price shall be made in such manner as the Committee may provide in the award, which may include cash (including cash equivalents), delivery of shares of Stock already owned by the optionee or subject to awards hereunder, "cashless exercise", any other manner permitted 4 by law determined by the Committee, or any combination of the foregoing. If the Committee determines that a Stock Option may be exercised using shares of Restricted Stock, then unless the Committee provides otherwise, the shares received upon the exercise of a Stock Option which are paid for using Restricted Stock shall be restricted in accordance with the original terms of the Restricted Stock award. (e) No Stockholder Rights. An optionee shall have neither rights to dividends or other rights of a stockholder with respect to shares subject to a Stock Option until the optionee has given written notice of exercise and has paid for such shares. (f) Surrender Rights. The Committee may provide that options may be surrendered for cash upon any terms and conditions set by the Committee. (g) Transferability. Stock Options shall not be transferable by the optionee other than by will or by the laws of descent and distribution, and during the optionee's lifetime, all Stock Options shall be exercisable only by the optionee or by his or her guardian or legal representative; provided, however, the Committee may, in its discretion, authorize all or a portion of the Stock Options to be granted to an optionee to be on terms which permit transfer by such optionee to (i) the spouse, children, stepchildren or grandchildren (including relationships arising from legal adoption) of the optionee ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (x) there shall be no consideration for any such transfer (other than interests in the transferee partnership), (y) the instrument pursuant to which such options are transferred must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section as well as any additional conditions on transfer and restrictions on the rights of the transferee, as may be required by the Committee, and (z) subsequent transfers of transferred options shall be prohibited except those by will or the laws of descent and distribution. Following any such transfer, the Stock Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. (h) Termination of Employment. Following the termination of an optionee's employment (or Board service) with the Company or a Related Company, the Stock Option shall be exercisable to the extent determined by the Committee. The Committee may provide different post-termination exercise provisions with respect to termination of employment or service for different reasons. The Committee may provide that, notwithstanding the option term fixed pursuant to Section 6.2(b), a Stock Option which is outstanding on the date of an optionee's death shall remain outstanding for an additional period after the date of such death. 6.3 Notwithstanding the provisions of Section 6.2, no Incentive Stock Option shall (i) have an option price which is less than 100% of the fair market value of the Stock on the date of the award of the Incentive Stock Option, (ii) be exercisable more than ten years after the date such Incentive Stock Option is awarded, or (iii) be awarded after March 31, 2006. No Incentive Stock Option granted to an employee who owns more than 10% of the total combined voting power of all classes of stock of the Company or any of its parent or subsidiary corporations, as defined in Section 424 of the Code, shall (A) have an option price which is less than 110% of the fair market value of the Stock on the date of award of the Incentive Stock Option or (B) be exercisable more than five years after the date such Incentive Stock Option is awarded. SECTION 7. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS 7.1 A Stock Appreciation Right awarded to an employee shall entitle the holder thereof to receive payment of an amount, in cash, shares of Stock or a combination thereof, as determined by the Committee, equal in value to the excess of the fair market value of the number of shares of Stock as to which the award is granted on the date of exercise over an amount specified by the Committee. Any such award shall be in such form and shall have such terms and conditions as the Committee may determine. The grant shall specify the number of shares of Stock as to which the Stock Appreciation Right is granted. 7.2 The Committee (or the Board with respect to Outside Directors), may grant a Stock 5 Appreciation Right which may be exercised only within the 60-day period following occurrence of a Change of Control (as defined in Section 17.2) (such Stock Appreciation Right being referred to herein as a Limited Stock Appreciation Right). Unless the Committee (or the Board with respect to Outside Directors) provides otherwise, in the event of a Change of Control the amount to be paid upon exercise of a Stock Appreciation Right or Limited Stock Appreciation Right shall be based on the Change of Control Price (as defined in Section 17.3). SECTION 8. RESTRICTED STOCK Subject to the following provisions, all awards of Restricted Stock to employees shall be in such form and shall have such terms and conditions as the Committee may determine: (a) The Restricted Stock award shall specify the number of shares of Restricted Stock to be awarded, the price, if any, to be paid by the recipient of the Restricted Stock and the date or dates on which, or the conditions upon the satisfaction of which, the restricted Stock will vest. The grant and/or the vesting of Restricted Stock may be conditioned upon the completion of a specified period of service with the Company or a Related Company, upon the attainment of specified Performance Objectives or upon such other criteria as the Committee may determine. (b) Stock certificates representing the Restricted Stock awarded to an employee shall be registered in the employee's name, but the Committee may direct that such certificates be held by the Company on behalf of the employee. Except as may be permitted by the Committee, no share of Restricted Stock may be sold, transferred, assigned, pledged or otherwise encumbered by the employee until such share has vested in accordance with the terms of the Restricted Stock award. At the time Restricted Stock vests, a certificate for such vested shares shall be delivered to the employee (or his or her designated beneficiary in the event of death), free of all restrictions. (c) The Committee may provide that the employee shall have the right to vote or receive dividends on Restricted Stock. Unless the Committee provides otherwise, Stock received as a dividend on, or in connection with a stock split of, Restricted Stock shall be subject to the same restrictions as the Restricted Stock. (d) Except as may be provided by the Committee, in the event of an employee's termination of employment before all of his or her Restricted Stock has vested, or in the event any conditions to the vesting of Restricted Stock have not been satisfied prior to any deadline for the satisfaction of such conditions set forth in the award, the shares of Restricted Stock which have not vested shall be forfeited, and the Committee may provide that (i) any purchase price paid by the employee shall be returned to the employee or (ii) a cash payment equal to the Restricted Stock's fair market value on the date of forfeiture, if lower, shall be paid to the employee. (e) The Committee may waive, in whole or in part, any or all of the conditions to receipt of, or restrictions with respect to, any or all of the employee's Restricted Stock, other than Performance Awards whose vesting was made subject to satisfaction of one or more Performance Objectives (except that the Committee may waive conditions or restrictions with respect to Performance Awards if such waiver would not cause the Performance Award to fail to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code). SECTION 9. DEFERRED STOCK AWARDS Subject to the following provisions, all awards of Deferred Stock to employees shall be in such form and shall have such terms and conditions as the Committee may determine: (a) The Deferred Stock award shall specify the number of shares of Deferred Stock to be awarded to any employee and the duration of the period (the "Deferral Period") during which, and the conditions under which, receipt of the Stock will be deferred. The Committee may condition the grant or vesting of Deferred Stock, or receipt of Stock or cash at the end of the Deferral Period, upon the attainment of specified Performance Objectives or such other criteria as the Committee may determine. (b) Except as may be provided by the Committee, Deferred Stock awards may not be 6 sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. (c) At the expiration of the Deferral Period, the employee (or his or her designated beneficiary in the event of death) shall receive (i) certificates for the number of shares of Stock equal to the number of shares covered by the Deferred Stock award, (ii) cash equal to the fair market value of such Stock, or (iii) a combination of shares and cash, as the Committee may determine. (d) Except as may be provided by the Committee, in the event of an employee's termination of employment before the Deferred Stock has vested, his or her Deferred Stock award shall be forfeited. (e) The Committee may waive, in whole or in part, any or all of the conditions to receipt of, or restrictions with respect to, Stock or cash under a Deferred Stock award, other than with respect to Performance Awards (except that the Committee may waive conditions or restrictions with respect to Performance Awards if such waiver would not cause the Performance Award to fail to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code). SECTION 10. BONUS STOCK AND CASH BONUSES The Committee may award Bonus Stock and/or a Cash Bonus to any eligible employee subject to such terms and conditions as the Committee shall determine. The grant of Bonus Stock and/or a Cash Bonus may be conditioned upon the attainment of specified Performance Objectives or upon such other criteria as the Committee may determine. The Committee may waive such conditions in whole or in part other than with respect to Performance Awards (except that the Committee may waive conditions or restrictions with respect to Performance Awards if such waiver would not cause the Performance Award to fail to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code). The Committee shall also have the right to eliminate or reduce the amount of Cash Bonus otherwise payable under an award. Unless otherwise specified by the Committee, no money shall be paid by the recipient for the Bonus Stock. Alternatively, the Committee may offer eligible employees the opportunity to purchase Bonus Stock at a discount from its fair market value. The Bonus Stock award shall be satisfied by the delivery of the designated number of shares of Stock which are not subject to restriction. Cash Bonus awards shall be paid in cash. SECTION 11. LOANS The Committee may provide that the Company shall make, or arrange for, a loan or loans to an employee with respect to the exercise of any Stock Option awarded under the Plan, with respect to the payment of the purchase price, if any, of any Restricted Stock awarded hereunder or with respect to any taxes arising from an award hereunder; provided, however, that the Company shall not loan to an employee more than the sum of (i) the excess of the purchase or exercise price of an award over the par value of any shares of Stock awarded plus (ii) the amount of any taxes arising from such award. The Committee shall have full authority to decide whether a loan will be made hereunder and to determine the amount, term and provisions of any such loan, including the interest rate to be charged, whether the loan will be with or without recourse against the borrower, any security for the loan, the terms on which the loan is to be repaid and the conditions, if any, under which the loan may be forgiven. SECTION 12. TAX OFFSET PAYMENTS The Committee may provide for a Tax Offset Payment by the Company to an employee with respect to one or more awards granted under the Plan. The Tax Offset Payment shall be in an amount specified by the Committee, which shall not exceed the amount necessary to pay the federal, state, local and other taxes payable with respect to the applicable award and the receipt of the Tax Offset Payment, assuming that the employee is taxed at the maximum tax rate applicable to such income. The Tax Offset Payment shall be paid solely in cash. SECTION 13. ELECTION TO DEFER AWARDS The Committee may permit an employee to elect to defer receipt of an award for a specified period 7 or until a specified event, upon such terms as are determined by the Committee. SECTION 14. TAX WITHHOLDING 14.1 Each employee shall, no later than the date as of which the value of an award first becomes includible in such person's gross income for applicable tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any federal, state, local or other taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company (and, where applicable, any Related Company), shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the employee. 14.2 To the extent permitted by the Committee, and subject to such terms and conditions as the Committee may provide, an employee may elect to have the withholding tax obligation, or any additional tax obligation with respect to any awards hereunder, satisfied by (i) having the Company withhold shares of Stock otherwise deliverable to such person with respect to the award or (ii) delivering to the Company shares of unrestricted Stock. Alternatively, the Committee may require that a portion of the shares of Stock otherwise deliverable be applied to satisfy the withholding tax obligations with respect to the award. SECTION 15. STOCK OPTIONS AND LIMITED STOCK APPRECIATION RIGHTS TO OUTSIDE DIRECTORS 15.1 Each person who first becomes an Outside Director on or after April 1, 1996, shall be granted, on the first trading day coincident with or immediately following the date of his or her initial election as an Outside Director, a Stock Option to purchase 2,000 shares of Stock. For purposes of this Section, the term trading day shall mean a day on which the Stock is traded on a National Securities Exchange, on the NASDAQ National Market, or in the over-the-counter market. 15.2 Stock Options granted to Outside Directors pursuant to Section 15 shall be Non-Qualified Stock Options, and shall have the following terms and conditions: (a) Option Price. The option price per share of Stock purchasable under the Stock Option shall be equal to the mean between the highest and lowest quoted selling price, regular way, of the Stock on the NASDAQ National Market (or the principal exchange upon which the Stock is listed) on the date of grant, or if no such sale of Stock occurs on such date, the weighted average of the high and low prices on the nearest trading dates before and after such date. (b) Option Term. Except as provided in Section 15.2(e), the term of the Stock Option shall be ten years. To the extent it has become exercisable pursuant to Section 15.2(c), the Stock Options shall remain exercisable for the remainder of its term following the termination of the optionee's status as an Outside Director. (c) Exercisability. Each Stock Option shall become exercisable with respect to 50% of the underlying shares on the first anniversary of the date of grant, and the remaining 50% on the second anniversary of the date of grant, provided that the optionee is a director of the Company on the respective date. Notwithstanding the preceding sentence, in the event of a Change of Control (as defined in Section 17), each Stock Option shall become fully exercisable and vested. (d) Method of Exercise. The Stock Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price shall be made in cash (including cash equivalents) or by delivery of shares of Stock already owned by the optionee for at least six months, by "cashless exercise" or by any combination of the foregoing. Shares delivered as payment of the exercise price shall be valued at the mean between the highest and lowest quoted selling price, regular way, of the Stock on the NASDAQ National Market (or the principal exchange upon which the Stock is listed) on the day before the date of exercise, or if no such sale of Stock occurs on such date, the weighted average of the high and low prices on the nearest trading date 8 before such date. (e) Death of Director. If the optionee's service as a director of the Company is terminated by reason of death, such optionee's Stock Options shall become immediately exercisable, and may be exercised for the remaining term of the Stock Option, or for one year after the optionee's death, if longer. (f) Non-transferability. No Stock Option award shall be transferable by the optionee other than by will or by the laws of descent and distribution. During the optionee's lifetime, all Stock Options shall be exercisable only by the optionee or by his or her guardian or legal representative. (g) No Stockholder Rights. An optionee shall have neither rights to dividends nor other rights of a stockholder with respect to shares subject to a Stock Option until the optionee has given written notice of exercise and has paid for such shares. 15.3 Limited Stock Appreciation Rights in Tandem with Options. Each Stock Option granted to an Outside Director under this Section 15 shall be granted in tandem with a Limited Stock Appreciation Right which may be exercised only within the 60-day period following a Change of Control (as defined in Section 17.2). Upon exercise of the Limited Stock Appreciation Right, the holder shall receive, for each share with respect to which the Limited Stock Appreciation Right is exercised, an amount in cash equal to the excess of the Change of Control Price (as defined in Section 17.3) over the exercise price of the related Stock Option. The Limited Stock Appreciation Right shall be paid within 30 days of the exercise of the Limited Stock Appreciation Right. SECTION 16. AMENDMENTS AND TERMINATION The Board may discontinue the Plan at any time and may amend it from time to time. No amendment or discontinuation of the Plan shall adversely affect any award previously granted without the award holder's written consent. Amendments may be made without stockholder approval except as required to satisfy Rule 16b-3, Section 162(m) of the Code, or other regulatory requirements. SECTION 17. CHANGE OF CONTROL 17.1 In the event of a Change of Control, unless otherwise provided in the grant or by amendment (with the holder's consent) of such grant: (a) all outstanding Stock Options and all outstanding Stock Appreciation Rights (including Limited Stock Appreciation Rights) awarded under the Plan shall become fully exercisable and vested; (b) the restrictions and deferral limitations applicable to any outstanding Restricted Stock and Deferred Stock awards under the Plan shall lapse and such shares and awards shall be deemed fully vested; and (c) to the extent the cash payment of any award is based on the fair market value of Stock, such fair market value shall be the Change of Control Price. 17.2 A "Change of Control" means the happening of any of the following: (a) When any "person," as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act, but excluding the Company and any Subsidiary and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), or any person, entity or group specifically excluded by the Board, directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time) of Securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities; 9 (b) When, during any period of 24 consecutive months during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof, provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of, or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors, either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 17.2(b); (c) the date of approval by the stockholders of the Company of an agreement providing for the merger or consolidation of the Company with another corporation where (i) the stockholders of the Company, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors, or (ii) where the members of the Board, immediately prior to the merger or consolidation, would not, immediately after the merger or consolidation, constitute a majority of the board of directors of the corporation issuing cash or securities in the merger; or (d) the date of approval by the stockholders of the Company of the liquidation of the Company or the sale or other disposition of all or substantially all of the assets of the Company. 17.3 "Change of Control Price" means the highest price per share paid in any transaction reported in the NASDAQ National Market or on any national securities exchange where the Stock is traded, or paid or offered in any transaction related to a Change of Control at any time during the 90-day period ending with the Change of Control. Notwithstanding the foregoing sentence, in the case of Stock Appreciation Rights granted in tandem with Incentive Stock Options, the Change of Control Price shall be the highest price paid on the date on which the Stock Appreciation Right is exercised. SECTION 18. GENERAL PROVISIONS 18.1 Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body or (iii) an agreement by the recipient of an award with respect to the disposition of Stock is necessary or desirable (in connection with any requirement or interpretation of any federal or state securities law, rule or regulation) as a condition of, or in connection with, the granting of such award or the issuance, purchase or delivery of Stock thereunder, such award shall not be granted or exercised, in whole or in part, unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 18.2 Nothing set forth in this Plan shall prevent the Board from adopting other or additional compensation arrangements. Neither the adoption of the Plan nor any award hereunder shall confer upon any employee of the Company, or of a Related Company, any right to continued employment, and no award under the Plan shall confer upon any Outside Director any right to continued service as a director. 18.3 Determinations by the Committee or the Board under the Plan relating to the form, amount, and terms and conditions of awards need not be uniform, and may be made selectively among persons who receive or are eligible to receive awards under the Plan, whether or not such persons are similarly situated. 18.4 No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made with respect to the Plan, and all members of the Board or the Committee and all officers or employees of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. 10 SECTION 19. EFFECTIVE DATE OF PLAN The Plan shall be effective on April 1, 1996, subject to approval by the Company's stockholders at the 1996 Annual Meeting of Stockholders. Any grants made under the Plan before shareholder approval of the Plan shall be made subject to such shareholder approval. The Plan was adjusted effective May 28, 1996 to reflect the Company's two-for-one stock split effective as of such date, and was amended and restated on January 9, 1997 and amended on July 10, 2002. 11 FORM OF NAUTICA ENTERPRISES, INC. STOCK OPTION AGREEMENT FOR EXCHANGE OFFER OPTION AGREEMENT, made as of the XXX day of XXX, 2002, between Nautica Enterprises, Inc., a Delaware Corporation (hereinafter referred to as the "Company") and XXX, an employee of the Company or one or more of its Related Companies (hereinafter called the "Employee"). The Company has adopted the 1996 Stock Incentive Plan (hereinafter referred to as the "Plan") to encourage key employees and officers of the Company and its Related Companies to become stockholders of the Company or to increase their stockholdings in the Company. All capitalized terms used herein without definition are used as defined in the Plan. NOW, THEREFORE, for other good and valuable consideration, the parties hereto have agreed and do hereby agree as follows: 1. GRANT OF OPTIONS. The Company hereby grants to the Employee pursuant to the Plan the right and option (hereinafter referred to as the "Option") to purchase from the Company all or any part of an aggregate of XXX shares of the common stock of the Company, $.10 par value (hereinafter referred to as "Common Stock"), on the terms and conditions set forth in this Agreement and the Plan, such number of shares of Common Stock to be subject to adjustment as provided in paragraph 8 hereof. 2. PURCHASE PRICE. The purchase price (hereinafter referred to as the "Option Price") of the shares of Common Stock covered by the Option shall be $XXX per share. 3. DURATION OF OPTION. The Option granted hereunder shall be for a period of __ years from the date hereof, subject to earlier termination as provided in paragraph 6 hereof. The Option may be exercised at any time or from time to time prior to such expiration or termination, as to any part of or all of the shares of Common Stock covered thereby; provided, however, that the Option shall not be exercisable prior to the expiration of six months from the date hereof. In the event of a Change of Control of the Company (as defined in the Plan) the right to exercise the Option shall be accelerated so that the Option may be exercised on the date of the Change of Control. Except as provided in paragraphs 6 and 7 hereof, the Option may not be exercised unless the Employee at the time of such exercise is an employee of the Company or of a Related Company and shall have been continuously so employed since the date hereof. Absence on permitted leave from the Company or any Related Company, or a change of employment from any Related Company to any other Related Company or to the Company, or such change from employment by the Company to any of its Related Companies, shall not be considered an interruption of employment for the purposes of this Agreement. 4. NONTRANSFERABILITY. The Option shall not be assignable or transferable other than by will or the laws of descent and distribution. The Option shall be exercisable during the lifetime of the Employee only by the Employee. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof shall be null and void and without effect. 5. EMPLOYMENT. Nothing in this Agreement or the Plan shall confer upon the Employee any right to be continued in the employ of the Company or any Related Company. Nothing in this Agreement or in the Plan shall limit the right of the Company or any Related Company to terminate the employment of the Employee or to reduce or change his or her compensation at any time and from time to time. 6. TERMINATION OF EMPLOYMENT. In the event the employment of the Employee with the Company and/or the Related Company by which he or she is employed ceases (other than as a result of a leave of absence approved by the Company or a Related Company or by reason of the Employee's death or physical disability), all rights to purchase shares pursuant to the Option shall forthwith cease and terminate, except that, for a period of three months after the termination of his or her employment, the Employee shall have the right to exercise the Option with respect to those shares which he or she had a right to purchase as of the date of termination. If such termination results from physical disability, then the Option or unexercised portion thereof shall be exercisable in accordance with the terms of the option for a period of twelve (12) months after the date of the date of termination of employment or until the expiration date of the Option, if sooner. 7. DEATH OF EMPLOYEE. In the event of the death of the Employee while he or she is in the employ of the Company or any Related Company (or within three months subsequent to the termination of his or her employment), the Option or unexercised portion thereof shall be exercisable in full at any time prior to the expiration date of the Option, in accordance with the terms of the Option, but only by the person or persons to whom such Employee's rights under the Option shall pass by the Employee's will or by laws of descent and distribution of the state of his or her domicile at the time of his or her death. 8. ADJUSTMENTS. In the event of any merger, reorganization, consolidation, sale of substantially all assets, recapitalization, reclassification, Common Stock dividend, Common Stock split, spin-off, split-up, split-off, distribution of assets or other change in corporate structure affecting the Common Stock after the date hereof, an appropriate substitution or adjustment shall be made in the number of shares subject to the Option and to the Option Price; provided, however, that such adjustment shall not increase the aggregate value of the Option, no fractional shares shall be issued, and the aggregate Option Price shall be appropriately reduced on account of any fractional shares. Any such adjustment shall be made by the Compensation Committee of the Board of Directors of the Company or other committee administering the Plan (the "Committee"), and any such adjustment pursuant to this paragraph 8 shall be conclusive. 9. EXERCISE OF OPTION. Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company at its principal office which is now located at 40 West 57 Street, New York, New York, Attention: Controller. Such notice shall state the election to exercise the Option and the number of shares in respect of which it shall be exercised, and shall be signed by the person or persons so exercising the Option. In the event that the Option shall be exercised pursuant to paragraph 7 hereof by any person or persons other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option, as may be reasonably required by the Company and its counsel. The notice of exercise shall be accompanied by payment of the full purchase price of the shares being purchased in cash or cash equivalents, in shares of Common Stock 2 which have been owned by the Employee for at least six months, or in any combination thereof. The Employee shall have the right to instruct the Company to withhold a portion of his Option shares to meet the minimum obligations for tax withholding upon exercise of the Option. In the alternative, the Employee may tender to the Company shares of the Company owned by the Executive for at least six months to satisfy such tax withholding obligation. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option and shall be delivered, as provided above, to or upon the written order of the person or persons exercising the Option as soon as practicable (except as otherwise provided below in this paragraph 9) after the due and proper exercise of the Option. The holder of the Option shall not have any rights of a stockholder with respect to the shares covered by the Option unless and until the certificate or certificates for such shares shall have been issued and delivered to him or her. It is expressly understood that, notwithstanding anything contained in this Agreement to the contrary, (1) the time for the delivery of the certificate or certificates of Common Stock may be postponed by the Company for such period as may be required by the Company to comply with any listing requirements of any national securities exchange or to comply with any applicable State or Federal law, and (2) the Company shall not be obligated to sell, issue or deliver any shares as to which the option or any part thereof shall have been exercised unless such shares are at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable. 10. AUTHORITY. The Committee has the authority to interpret the Plan and this Agreement, and to decide all questions of fact arising under them. All determinations by the Committee shall be final and binding on the Employee. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereof thereunto duly authorized, and the Employee has hereunto set his or her hand, all as of the day and year first above written. NAUTICA ENTERPRISES, INC. By: ----------------------------- ----------------------------- Employee 3 -----END PRIVACY-ENHANCED MESSAGE-----