<PAGE>
As filed with the Securities and Exchange Commission on November 14, 1997
Registration No. 333-37155
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
I.C. ISAACS & COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2253 52-1377061
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
3840 BANK STREET
BALTIMORE, MARYLAND 21224-2522
(410) 342-8200
</TABLE>
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
<TABLE>
<S> <C>
ROBERT J. ARNOT GERALD W. LEAR
CHAIRMAN OF THE BOARD AND CO-CHIEF EXECUTIVE OFFICER PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER
I.C. ISAACS & COMPANY, INC. I.C. ISAACS & COMPANY, INC.
350 FIFTH AVENUE, SUITE 1029 3840 BANK STREET
NEW YORK, NEW YORK 10118 BALTIMORE, MARYLAND 21224-2522
(212) 563-2720 (410) 342-8200
</TABLE>
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------
Copies of all communications,
including all communications sent to the agent for service, should be sent to:
<TABLE>
<S> <C>
EARL S. WELLSCHLAGER, ESQUIRE JOEL J. HUGHEY, ESQUIRE
PIPER & MARBURY L.L.P. ALSTON & BIRD LLP
36 SOUTH CHARLES STREET 1201 W. PEACHTREE STREET
BALTIMORE, MARYLAND 21201 ATLANTA, GEORGIA 30309
(410) 539-2530 (404) 881-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX: / /
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING: / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING: / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(D)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING: / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) AMOUNT OF REGISTRATION FEE (2)
<S> <C> <C>
COMMON STOCK, $.0001 PAR VALUE.............................. $61,180,000.00 $18,540.00
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(1) INCLUDES 570,000 SHARES OF COMMON STOCK SUBJECT TO AN OPTION GRANTED TO THE
UNDERWRITERS BY THE COMPANY (AS HEREINAFTER DEFINED) TO COVER
OVER-ALLOTMENTS, IF ANY. SEE "UNDERWRITING."
(2) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE IN
ACCORDANCE WITH RULE 457 UNDER THE SECURITIES ACT. THE REGISTRATION FEE WAS
PAID ON OCTOBER 3, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 14, 1997
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
3,800,000 SHARES
[LOGO]
I.C. ISAACS & COMPANY, INC.
COMMON STOCK
All of the 3,800,000 shares of Common Stock offered hereby are being sold by
I.C. Isaacs & Company, Inc. (the "Company"). Prior to the Offering, there has
been no public market for the Common Stock of the Company. It is currently
anticipated that the initial public offering price will be between $12.00 and
$14.00 per share. See "Underwriting" for information relating to the
determination of the initial public offering price. Application has been made to
list the Common Stock on the Nasdaq National Market under the symbol "ISAC."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(4)................................................. $ $ $
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated to be
$ .
(3) It is estimated that between $19.0 million and $20.0 million of the net
proceeds will be used to pay the S Corporation Distribution. See "Company
Organization--Prior S Corporation Status."
(4) The Company has granted the Underwriters a 30-day option to purchase up to
570,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if received and accepted by them,
subject to their right to reject orders, in whole or in part, and to certain
other conditions. It is expected that delivery of the certificates representing
such shares will be made against payment therefor in immediately available funds
at the office of The Robinson-Humphrey Company, LLC on or about , 1997.
The Robinson-Humphrey Company Legg Mason Wood Walker
Incorporated
The date of this Prospectus is , 1997
<PAGE>
"BOSS-REGISTERED TRADEMARK-," "LORD ISAACS-REGISTERED TRADEMARK-," "I. C.
ISAACS-REGISTERED TRADEMARK-," "PIZZAZZ-REGISTERED TRADEMARK-" AND "I.G.
DESIGN-REGISTERED TRADEMARK-" ARE TRADEMARKS OF THE COMPANY. ALL OTHER
TRADEMARKS OR SERVICE MARKS, INCLUDING "GIRBAUD-REGISTERED TRADEMARK-" AND
"MARITHE AND FRANCOIS GIRBAUD-REGISTERED TRADEMARK-" (COLLECTIVELY, "GIRBAUD")
AND "BEVERLY HILLS POLO CLUB-REGISTERED TRADEMARK-" APPEARING IN THIS PROSPECTUS
ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS AND ARE NOT THE PROPERTY OF THE
COMPANY.
------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL ___________, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 4
Risk Factors..................................... 9
Forward-Looking Statements....................... 16
Company Organization............................. 16
Use of Proceeds.................................. 18
Dividend Policy.................................. 18
Capitalization................................... 19
Dilution......................................... 20
Selected Financial Data.......................... 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 22
<CAPTION>
PAGE
-----
<S> <C>
Business......................................... 31
Management....................................... 49
Certain Transactions............................. 54
Principal Stockholders........................... 55
Shares Eligible for Future Sale.................. 56
Description of Capital Stock..................... 57
Underwriting..................................... 59
Legal Matters.................................... 60
Experts.......................................... 60
Additional Information........................... 61
Index to Financial Statements.................... F-1
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE "COMPANY" REFERS TO
I.C. ISAACS & COMPANY, INC. (FORMERLY I.G. DESIGN, INC.) AND ITS PREDECESSORS,
SUBSIDIARIES AND AFFILIATED COMPANIES, INCLUDING I.C. ISAACS & COMPANY L.P. SEE
"COMPANY ORGANIZATION." UNLESS OTHERWISE NOTED, ALL COMMON STOCK SHARE AMOUNTS,
PER SHARE DATA AND OTHER INFORMATION SET FORTH IN THIS PROSPECTUS (I) HAVE BEEN
ADJUSTED TO REFLECT A 246.9898-FOR-1 STOCK SPLIT, WHICH WILL BE EFFECTED PRIOR
TO CONSUMMATION OF THE OFFERING AND OTHERWISE GIVE EFFECT TO THE REORGANIZATION
(AS DEFINED IN "COMPANY ORGANIZATION") AND (II) ASSUME THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION HAS NOT BEEN EXERCISED.
THE COMPANY
I.C. Isaacs & Company, Inc. is a rapidly growing designer, manufacturer and
marketer of branded sportswear. Founded in 1913, the Company has assembled a
portfolio of brands that addresses distinct fashion segments resulting in a
diverse customer base. The Company offers full lines of sportswear for young
men, women and boys under the BOSS brand in the United States and Puerto Rico
and sportswear for men and women under the Beverly Hills Polo Club brand in the
United States, Puerto Rico and Europe. Beginning in 1998, the Company will also
offer a collection of men's sportswear under the Girbaud brand in the United
States and Puerto Rico. Through a focused strategy of providing fashionable,
branded merchandise at value prices, the Company has emerged as a significant
fashion source for youthful and contemporary consumers who purchase sportswear
and outerwear through specialty and department stores. The Company also offers
women's sportswear under various other Company-owned brand names as well as
under third-party private labels. Net sales of the Company grew from $85.3
million in 1994 to $118.7 million in 1996, and operating income grew from $4.7
million in 1994 to $9.3 million in 1996. In the first nine months of 1997, net
sales and operating income totaled $127.2 million and $15.0 million,
respectively, as compared to $86.7 million and $8.0 million, respectively, in
the first nine months of 1996.
The Company manufactures and markets certain sportswear under the BOSS brand
for sale at specified price points in the United States and Puerto Rico subject
to a concurrent use agreement. The Company has positioned the BOSS line to
appeal to consumers who desire a fresh, urban, fashion-forward look. Through
creative and innovative marketing, the Company has created powerful brand appeal
for the BOSS line and has become an active influence in young men's fashion. The
BOSS collection has been expanded from an initial line of denim products to a
full array of sportswear consisting of jeans, tee shirts, sweatshirts, shorts,
knit and woven shirts and outerwear, many of which are characterized by
innovative design, creative graphics and bold uses of color. The Company also
markets a juniors' sportswear line under the BOSS brand for young women, which
includes a full selection of denim products and active sportswear. The Company's
net sales of BOSS sportswear increased at an annual growth rate of 37.1% in
1994, 10.8% in 1995 and 39.3% in 1996. In 1996, net sales of BOSS sportswear
accounted for 72.6% of the Company's net sales.
The Company manufactures and markets certain sportswear under the Beverly
Hills Polo Club brand in the United States, Puerto Rico and Europe under an
exclusive license. The Company targets men and women who desire updated
traditional sportswear at competitive prices. To reach a broader demographic
customer base, the Beverly Hills Polo Club collection combines contemporary
design details and innovative fabrics with classic American sportswear styling.
The Beverly Hills Polo Club collection consists primarily of cotton clothing,
including jeans, pants, shorts, knit and woven shirts and outerwear targeting
the active, image-conscious consumer. The Company's Beverly Hills Polo Club line
was introduced in the spring of 1994. The Company's net sales of Beverly Hills
Polo Club sportswear increased at an annual growth rate of 83.5% in 1995 and
102.3% in 1996. In 1996, net sales of Beverly Hills Polo Club sportswear
accounted for 12.0% of the Company's net sales.
4
<PAGE>
In November 1997, the Company acquired an exclusive license to manufacture
and market certain men's sportswear under the Girbaud brand in the United States
and Puerto Rico. The Girbaud brand is an internationally recognized designer
sportswear label with a distinct European influence. By targeting men who desire
contemporary, international fashion, the Girbaud brand will enable the Company
to address another consumer segment within its branded product portfolio. The
Company intends to reposition the Girbaud line with a broader assortment of
products, styles and fabrications reflecting a contemporary European look. The
Company plans to introduce the fall men's collection in early 1998.
In the late 1980's, management made a decision to change the Company's
marketing focus from a manufacturing-driven to a brand-driven strategy. As a
result, the Company believes it has developed distinct competitive strengths
that position it for continued success. See "Business--Competitive Strengths."
The Company's key competitive strengths include:
- EMPHASIS ON BRAND IDENTITY. The Company believes that brand identity, as
well as the image and lifestyle that a brand conveys, are important
factors that influence retail purchasing decisions. The BOSS, Beverly
Hills Polo Club and Girbaud lines have strong brand identities and enable
the Company to offer a broad continuum of designs and products well
recognized by fashion-conscious consumers.
- COMBINATION OF FASHION AND VALUE. Through its manufacturing, sourcing and
merchandising expertise, the Company achieves a distinct combination of
fashion and value. The Company provides its customers with fashionable,
brand name sportswear which typically sells at retail prices below those
of many well known designer brands.
- CREATIVE AND INNOVATIVE MARKETING. Through a coordinated merchandising,
advertising and marketing strategy, the Company has built strong name
recognition and brand image for its BOSS and Beverly Hills Polo Club
products. The Company targets youthful and contemporary consumers who are
influenced by fashion, music and sports by utilizing a variety of
advertising media, including television, print, outdoor signage and
professional sports sponsorships.
- FLEXIBLE MANUFACTURING AND SOURCING. The Company believes that its ability
to source products from its United States facilities and third party
foreign and domestic manufacturers enhances the Company's production
flexibility and capacity while enabling it to control more efficiently the
delivery, quality and pricing of its products. Currently, the Company
utilizes approximately 50 factories in more than 10 countries including
China, Hong Kong, Korea, Mexico, the Philippines, Taiwan, Thailand and the
United States. The Company does not have long-term contracts with any
manufacturers and most of the Company's manufacturers supply the Company
on a non-exclusive basis pursuant to purchase orders.
The Company's growth strategy includes continued capitalization on its
competitive strengths and the implementation of specific strategies for
continued expansion. See "Business--Growth Strategy." The Company's principal
growth strategies are as follows:
- BROADEN PRODUCT OFFERINGS. The Company believes it can effectively broaden
its product offerings through the expansion of products offered under
existing brands as well as the possible addition of new brands. Expansion
within the BOSS product line is expected to be driven by tops and
outerwear as well as the development of the boys', youth and juniors'
lines. In addition, the Company recently added polo shirts and swimwear
under the BOSS brand. Similarly, the Beverly Hills Polo Club brand
includes a number of product lines that are in the early stages of market
penetration, such as outerwear, and a number of potential product line
expansions, such as men's dress shirts. To further develop the Beverly
Hills Polo Club brand, product offerings within the women's line are being
expanded, and the Company is reorganizing and increasing its women's sales
force. The recent addition of the Girbaud brand adds a European-influenced
designer sportswear brand to the Company's sportswear lines.
5
<PAGE>
- ENHANCE MARKETING PROGRAMS. While the Company believes that its current
marketing strategy is one of its primary competitive strengths, the
Company intends to continue its efforts to increase net sales by enhancing
consumer recognition of its brand names and images through expanded
marketing efforts. These efforts will include increased television, print,
outdoor and point-of-sale advertising, as well as an expanded
"Shop-in-Shop" program at the retail level.
- EXPAND CHANNELS OF DISTRIBUTION. As demand for its sportswear increases,
the Company believes that it can continue to expand and penetrate various
channels of distribution. In recent years, the Company has expanded its
distribution channels beyond specialty stores and specialty store chains
with its BOSS label to begin significant distribution to department store
customers. The Beverly Hills Polo Club brand has not penetrated the
department store channel to the same extent as the BOSS brand, and the
expanded distribution of Beverly Hills Polo Club products is a primary
growth focus of the Company. The Company intends to market the Girbaud
brand to specialty stores, specialty store chains and department stores.
- INCREASE EUROPEAN PRESENCE FOR BEVERLY HILLS POLO CLUB. The Company
believes that it is well positioned to capitalize on the acceptance of the
Beverly Hills Polo Club brand name by continuing to expand its European
sportswear distribution. The classic American sportswear look conveyed by
the Beverly Hills Polo Club line is popular with European youth, and the
Company is expanding its wholesale and retail channels of distribution in
Europe to meet this increasing demand. The Company currently has
distributors in nine countries in Europe and has three franchise stores in
Spain.
S CORPORATION DISTRIBUTION AND RECENT DEVELOPMENTS
Since January 1, 1993, the Company has elected to be treated for federal and
state income tax purposes as an S corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended, and under comparable state laws. One day prior
to the consummation of the transactions related to the Offering, the Company's S
corporation status will be terminated. On such date, the Company will declare a
dividend distribution to the stockholders of record of the Company, including
certain officers and directors of the Company, in an aggregate amount of
approximately $20.0 million, representing all earned but undistributed S
corporation earnings of the Company. On and after such date, the Company will no
longer be treated as an S corporation and, accordingly, will be fully subject to
federal and state income taxes. Purchasers of shares of Common Stock in the
Offering will not receive any portion of the S Corporation Distribution (as
hereinafter defined). See "Company Organization--Prior S Corporation Status."
The Company's right to use the BOSS brand name and image in the manufacture
and sale of apparel is dependent on third party concurrent use and license
agreements. Pursuant to a recent settlement of litigation (the "Settlement")
among the Company, Hugo Boss AG ("Hugo Boss"), Brookhurst, Inc. ("Brookhurst"),
Ambra Inc., a wholly-owned subsidiary of Hugo Boss ("Ambra"), and others, the
Company acquired certain domestic and foreign trademark common law and
registration rights to the BOSS brand name and image previously owned by
Brookhurst, the Company's former licensor. The Company conveyed the foreign
rights to the BOSS brand name and image to Ambra and received a license to
continue to manufacture apparel in certain foreign countries using the BOSS
brand name and image for sale in the United States and Puerto Rico. The Company
retained ownership of domestic rights to the BOSS brand name and image subject
to certain restrictions contained in a concurrent use agreement with Hugo Boss.
As a result of the Settlement, the Company's rights to manufacture and market
BOSS sportswear were expanded to allow broader product offerings and significant
Company control over styling, advertising and distribution. See
"Business--Licenses and Other Rights Agreements."
The Company's principal executive offices are located at 3840 Bank Street,
Baltimore, Maryland 21224-2522 (telephone number (410) 342-8200) and 350 Fifth
Avenue, Suite 1029, New York, New York 10118 (telephone number (212) 563-2720).
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company hereby......... 3,800,000 shares
Common Stock to be outstanding after the Offering 7,800,000 shares
(1)..............................................
Use of Proceeds.................................... The estimated net proceeds of the
Offering of approximately $45.4 million
will be used (i) to repay approximately
$20.0 million of the Company's
outstanding debt under the Company's
credit facilities, (ii) to pay the
Initial S Corporation Distribution (as
hereinafter defined) of approximately
$18.5 million and the Subsequent S
Corporation Distribution (as
hereinafter defined) estimated to be
$0.9 million and (iii) for general
corporate and working capital purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol...................... Application has been made for quotation
of the Common Stock on the Nasdaq
National Market under the symbol
"ISAC."
</TABLE>
- ------------------------
(1) Excludes 500,000 shares of Common Stock reserved for issuance under the
Company's 1997 Omnibus Stock Plan. See "Management--1997 Omnibus Stock
Plan."
RISK FACTORS
See "Risk Factors" beginning on page 9 for a discussion of certain
information that should be considered by prospective purchasers of the Common
Stock offered hereby.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical and pro forma consolidated financial data set forth
below should be read in conjunction with the more detailed consolidated
financial statements, including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales..................................... $ 62,232 $ 72,414 $ 85,298 $ 93,271 $ 118,655 $ 86,680 $ 127,247
Cost of sales................................. 48,051 54,880 62,216 68,530 84,421 60,188 85,677
--------- --------- --------- --------- ---------- --------- ----------
Gross profit.................................. 14,181 17,534 23,082 24,741 34,234 26,492 41,570
Selling, license, distribution, general and
administrative fees and expenses............ 12,282 15,214 18,333 20,267 25,627 18,468 26,674
Recovery of legal fees........................ -- -- -- -- (718) -- (117)
--------- --------- --------- --------- ---------- --------- ----------
Operating income.............................. 1,899 2,320 4,749 4,474 9,325 8,024 15,013
Interest expense.............................. 997 1,260 1,191 1,247 1,365 995 1,619
Other income (expense) (1).................... 55 1,215 1,235 (3) 85 (21) 28
Minority interest............................. -- -- (53) (33) (82) (71) (134)
--------- --------- --------- --------- ---------- --------- ----------
Income before extraordinary items (1)(2)...... 957 2,275 4,740 3,191 7,963 6,937 13,288
PRO FORMA STATEMENT OF INCOME DATA:
Income before income taxes.................... 3,184 2,275 5,129 3,191 7,963 6,937 13,288
Income tax provision (3)...................... 1,236 933 2,103 1,308 3,265 2,844 5,448
--------- --------- --------- --------- ---------- --------- ----------
Net income.................................... $ 1,948 $ 1,342 $ 3,026 $ 1,883 $ 4,698 $ 4,093 $ 7,840
--------- --------- --------- --------- ---------- --------- ----------
--------- --------- --------- --------- ---------- --------- ----------
Net income per share (4)...................... $ 0.87 $ 1.45
---------- ----------
---------- ----------
Weighted average common shares outstanding
(4)......................................... 5,423 5,423
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------
<S> <C> <C> <C>
AS FURTHER
AS ADJUSTED ADJUSTED
ACTUAL (5) (5)
--------- -------------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 22,359 $ 3,524 $ 48,374
Total assets........................................................................... 63,521 64,486 68,347
Distribution payable................................................................... -- 18,500 --
Notes payable and long-term debt....................................................... 23,437 23,437 398
Stockholders' equity................................................................... 26,182 8,982 54,382
</TABLE>
- ------------------------
(1) Includes income from settlement of license disputes of $0.3 million, $1.5
million and $1.2 million in 1992, 1993 and 1994, respectively.
(2) Before extraordinary gains of $2.2 million in 1992 and $0.4 million in 1994
related to extinguishment of debt.
(3) Reflects historical provision for income taxes in 1992 and pro forma
provision for income taxes as if the Company had been taxed as a C
corporation for the years ended December 31, 1993, 1994, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997, respectively.
(4) Pro forma income per share is based on the weighted average number of shares
of Common Stock outstanding plus the estimated number of shares being sold
by the Company which would be necessary to fund the distribution of earned
and undistributed S corporation earnings totaling approximately $18.5
million as of September 30, 1997. See "Use of Proceeds."
(5) Adjusted to reflect (i) the liability for the Initial S Corporation
Distribution consisting of all earned but undistributed S corporation
earnings as of September 30, 1997 and (ii) the recording of an estimated
$1.3 million of deferred tax assets determined as if the Company's S
corporation status had been terminated on September 30, 1997. Further
adjusted to reflect the sale of 3.8 million shares of Common Stock by the
Company assuming an initial public offering price of $13.00 per share and
the application of approximately $41.5 million of the net proceeds to pay
the Initial S Corporation Distribution and outstanding borrowings under its
credit facilities as of September 30, 1997. The Company anticipates that the
Subsequent S Corporation Distribution (as hereinafter defined) consisting of
all earned but undistributed S corporation earnings for the period beginning
on October 1, 1997 and ending on the S Termination Date (as hereinafter
defined) will be approximately $0.9 million. See "Use of Proceeds" and
"Company Organization."
8
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE COMMON STOCK.
COMPETITION AND CHANGES IN CONSUMER DEMANDS
The apparel industry is highly competitive, fragmented and subject to
rapidly changing consumer demands and preferences. The Company believes that its
success depends in large part upon its ability to anticipate, gauge and respond
to changing consumer demands and fashion trends in a timely manner and upon the
continued appeal to consumers of the BOSS, Beverly Hills Polo Club and Girbaud
brand names. Failure by the Company to identify and respond appropriately to
changing consumer demands and fashion trends could adversely affect consumer
acceptance of its products and could have a material adverse effect on the
Company's financial condition and results of operations. The Company competes
with numerous apparel manufacturers and distributors, many of which have greater
financial resources than the Company. The Company's products also compete with a
substantial number of designer and non-designer lines. Although the level and
nature of competition differ among its product categories, the Company believes
that it competes primarily on the basis of brand image, quality of design and
value pricing. Increased competition by existing and future competitors could
result in reductions in sales or prices of the Company's products, which could
have a material adverse effect on the Company's financial condition and results
of operations. In addition, there is no assurance that the Company will be able
to introduce a competitive line of Girbaud products or that such products will
achieve market acceptance. The apparel industry historically has been subject to
substantial cyclical variations, and a recession in the general economy or
uncertainties regarding future economic prospects that affect consumer spending
habits could have a material adverse effect on the Company's financial condition
or results of operations. See "Business--Licenses and Other Rights Agreements;
and --Competition."
DEPENDENCE UPON LICENSES AND OTHER RIGHTS AGREEMENTS
The Company's business is heavily dependent upon its use of the BOSS,
Beverly Hills Polo Club and Girbaud brand names and images, which are in turn
dependent upon the existence and continuation of certain licenses and other
rights agreements. The Company's use of the BOSS brand name and image is limited
to certain specified products at specified price points in the United States and
Puerto Rico. The initial term of the BOSS agreements is four years; however, the
agreements may be extended at the Company's option through December 31, 2007.
The Company's right to use the BOSS brand name and image in the manufacture and
sale of apparel is substantially dependent on third party concurrent use and
license agreements. The Company's rights are subject to material restrictions on
the Company's right to manufacture and sell apparel using the BOSS brand name
and image, including, but not limited to, (i) prohibitions on using the BOSS
brand name or image on certain types of clothing and on non-apparel items, (ii)
parameters governing advertising, wholesale price points and the size, location,
appearance, style and coloring of the BOSS logotype on different product
categories and (iii) the requirement that the Company use the phrase "BOSS by
I.G. Design" in the BOSS logotype on its BOSS products. The Company is also
dependent upon the rights of the licensor of the Beverly Hills Polo Club brand
name and image in the use of such name and image on the Company's products. The
Company's licenses for use of the Beverly Hills Polo Club brand name and image
are limited to certain specified products in the United States, Puerto Rico and
Europe and may be extended at the Company's option through December 31, 2004.
The Company's license for use of the Girbaud brand name and image is limited to
certain specified products in the United States, Puerto Rico and the U.S. Virgin
Islands and may be extended at the Company's option through December 31, 2002.
There can be no assurance that the Company will be able to retain its right to
use the BOSS, Beverly Hills Polo Club and Girbaud brand names and images or
enter into comparable arrangements upon the expiration of the current
agreements. In addition, each of the
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<PAGE>
agreements contains provisions that, under certain circumstances (not all of
which are under the Company's control), could permit the licensor and third
parties to terminate the agreements. Such provisions include, among other things
(i) a default in the payment of certain amounts payable under the applicable
agreement that continues beyond the specified grace period and (ii) the failure
to comply with the covenants contained in the applicable agreement. Any
termination of these agreements or any exercise of the Option (as hereinafter
defined) would result in the Company losing its rights to use the BOSS, Beverly
Hills Polo Club or Girbaud brand names and images and could have a material
adverse effect on the Company's financial condition or results of operations. In
addition, under the agreements, the licensor and third parties retain the right
to produce, distribute, advertise and sell, and to authorize others to produce,
distribute, advertise and sell, certain garments that are similar to some of the
Company's products. Any such production, distribution, advertisement or sale of
such garments by such parties or other authorized parties could have a material
adverse effect on the Company's financial condition or results of operations.
No assurance can be given that others will not assert rights in, or
ownership of, these trademarks or other proprietary rights. If successful on the
merits, such claims could have a material adverse effect on the Company's
financial condition or results of operations. In the event of any litigation
arising from such claim, any claiming party could have significantly greater
resources than the Company to pursue litigation of such claims, and the Company
could be forced to incur substantial costs to defend legal actions taken against
it relating to the Company's use of trademarks or other proprietary rights. In
addition, if any such third party is successful in challenging the Company's use
of trademarks, the Company could be forced to pay significant damages or enter
into expensive royalty or licensing arrangements with such third party. See
"Business--Licenses and Other Rights Agreements."
RECENT SETTLEMENT OF BOSS LITIGATION
Pursuant to a recent Settlement of litigation relating to use of the BOSS
trademark among the Company, Hugo Boss, Brookhurst, Ambra and others, the
Company acquired certain domestic and foreign trademark common law and
registration rights to the BOSS brand name and image previously owned by
Brookhurst, the Company's former licensor. The Company conveyed the foreign
rights to the BOSS brand name and image to Ambra and received a license to
continue to manufacture apparel in certain foreign countries using the BOSS
brand name and image for sale in the United States and Puerto Rico. The Company
retained ownership of domestic rights to the BOSS brand name and image, which is
subject to a concurrent use agreement with Hugo Boss. In addition, Ambra holds
an option to purchase the Company's domestic BOSS trademark rights (the
"Option") at any time between November 5, 2006 and December 31, 2007 or earlier
upon certain termination or default events. There is no assurance that the
Settlement will preclude any future claims or litigation regarding the use of
the BOSS brand name or image. Such claims or litigation could have a material
adverse effect on the Company's financial condition or results of operations.
See "Business--Licenses and Other Rights Agreements--BOSS Trademark Rights; and
- --Litigation."
UNCERTAINTIES REGARDING MAINTAINING AND MANAGING GROWTH IN NET SALES
The Company's net sales have grown substantially over the last three years.
No assurance can be given that the level of net sales will not decline or that
the Company will be successful in increasing net sales in the future. To manage
growth effectively, the Company must anticipate trends, changes in styles and
customer demand, continue to implement changes in certain aspects of its
business, continue to expand its operations (including the development of a new
distribution facility), attract and retain qualified personnel (including
management), and develop, train and manage an increasing number of
management-level and other employees. Any unexpected difficulties encountered
during expansion, including, but not limited to, possible delays in successfully
manufacturing and marketing a Girbaud line of products or delays in the
construction and opening of the Company's new distribution facility, could have
a material adverse effect on the Company's financial condition or results of
operations. Additionally, each of the Company's
10
<PAGE>
agreements to use the BOSS, Beverly Hills Polo Club and Girbaud brand names and
images provides that minimum annual royalties must be paid by the Company
regardless of the level of the Company's sales of those products. If the Company
does not achieve a sufficient level of sales, paying such minimum annual
royalties could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Licenses and Other Rights
Agreements."
CREDIT RISKS
The Company extends credit to its customers based on an evaluation of each
customer's financial condition and credit history and, due to growth, continues
to experience increases in the amount of its outstanding accounts receivable. In
1994, 1995 and 1996, the Company's credit losses were $0.4 million, $0.4 million
and $0.9 million, respectively. In each of these years, the Company's credit
losses as a percentage of net sales has been less than three-quarters of one
percent. There can be no assurance that the Company's credit losses will
continue to be immaterial. The failure to accurately assess the credit risk from
its customers, changes in overall economic conditions and other factors could
cause the Company's credit losses to increase, which could have a material
adverse effect on the Company's financial condition or results of operations.
See "Business--Credit Control."
DEPENDENCE UPON UNAFFILIATED MANUFACTURERS
Approximately 72% of the Company's manufacturing needs are currently met
through contracting with third party manufacturers such that the Company is
largely dependent upon independent contractors for the manufacture of its
products. The Company believes that its dependence on independent contractors
will continue to increase. The Company currently contracts with approximately 50
manufacturers in more than 10 countries. The Company does not have long-term
contracts with any manufacturers and most of those manufacturers supply the
Company on a non-exclusive basis pursuant to purchase orders. During 1996,
approximately 9% of the Company's purchases of raw materials, labor and finished
goods for its apparel were made in Mexico; approximately 28% were made in Asia;
approximately 23% were made at third party facilities elsewhere in the United
States; and the balance was made in Company-operated facilities in the United
States. The Company anticipates that a significant portion of the manufacturing
of its Girbaud line of products will be performed by third party manufacturers
outside the United States. The inability of a manufacturer to ship the Company's
products in a timely manner or to meet the Company's quality standards could
adversely affect the Company's ability to deliver products to its customers in a
timely manner. The Company's reliance on third party manufacturers has not
resulted in the past in material delays or disruptions in service that have had
a material adverse effect on the Company's financial condition or results of
operations. However, delays in delivery caused by manufacturing delays,
disruption in services of delivery carriers or other factors could result in
cancellations of orders, refusals to accept deliveries or a reduction in
purchase prices, any of which could have a material adverse effect on the
Company's financial condition or results of operations.
The Company manufactures a substantial portion of its BOSS brand apparel
through unaffiliated foreign manufacturers, and the Company's activities through
these manufacturers are subject to a foreign manufacturing rights agreement with
Ambra. This agreement contains certain restrictions governing use of the BOSS
brand and the operations of third party manufacturers over which the Company may
have limited control. See "--Dependence Upon Licenses and Other Rights
Agreements" and "Business-- Manufacturing and Product Sourcing."
RISKS RELATED TO FOREIGN OPERATIONS AND SOURCING
The Company's operations may be affected adversely by political instability
resulting in the disruption of trade with the countries in which the Company's
contractors are located, the imposition of additional regulations relating to
imports, the imposition of additional duties, tariff and other charges on
imports, significant fluctuations in the value of the dollar against foreign
currencies or restrictions on the transfer of
11
<PAGE>
funds. Such factors have not previously had a material adverse effect on the
Company's financial condition or results of operations but there can be no
assurance of such in the future. All of the Company's products manufactured
abroad are paid for in United States dollars. Accordingly, the Company does not
engage in any currency hedging transactions.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements, which have been negotiated either under the
framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Agreement, or other applicable statutes,
impose quotas on the amounts and types of merchandise that may be imported into
the United States from these countries. These agreements also allow the United
States to impose restraints at any time and on very short notice on the
importation of categories of merchandise that, under the terms of the
agreements, are not currently subject to specified limits. These agreements and
statutes have not previously had a material adverse effect on the Company's
financial condition or results of operations but there can be no assurance of
such in the future. Imported products are also subject to United States customs
duties, which comprise a material portion of the cost of the merchandise. A
substantial increase in customs duties could have a material adverse effect on
the Company's financial condition or results of operations. The United States or
the countries in which the Company's products are produced or sold may, from
time to time, impose new quotas, duties, tariffs or other restrictions, or
adversely adjust prevailing quota, duty or tariff levels, any of which could
have a material adverse effect on the Company's financial condition or results
of operations.
The Company's policy is to notify its independent manufacturers through its
agents of the expectation that such manufacturers operate in compliance with
applicable laws and regulations. While the Company's policies promote ethical
business practices and the Company's staff periodically visits and monitors the
operations of its independent manufacturers, the Company does not control such
manufacturers or their labor practices. The violation of labor or other laws by
an independent manufacturer of the Company or the divergence of an independent
manufacturer's labor practices from those generally accepted as ethical in the
United States could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Manufacturing and Product
Sourcing."
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is largely dependent upon the personal efforts
and abilities of its senior management, particularly Messrs. Robert J. Arnot,
Chairman of the Board and Co-Chief Executive Officer, Gerald W. Lear, President
and Co-Chief Executive Officer, Gary B. Brashers, Vice President-- Manufacturing
and Chief Operating Officer, Eugene C. Wielepski, Vice President--Finance and
Chief Financial Officer, and Thomas P. Ormandy, Vice President--Sales. Effective
upon consummation of the Offering, these individuals, in the aggregate, will
beneficially own approximately 19.6% of the Company's outstanding Common Stock.
The Company has entered into employment agreements with each of these
individuals. See "Management--Employment Agreements." The loss of the services
of one or more of such individuals for an extended period of time could have a
material adverse effect on the Company's financial condition or results of
operations. The Company maintains and is the beneficiary of life insurance
policies in the amount of $1.0 million on the lives of each of Messrs. Arnot,
Lear and Brashers and in the amount of $0.5 million on the life of Mr.
Wielepski. See "Business--Employees" and "Management."
DEPENDENCE UPON CERTAIN CUSTOMERS
The Company's three largest customers accounted for an aggregate of
approximately 20% of net sales in 1996. The Company's largest single customer in
1996 was J.C. Penney Company, Inc., which accounted for approximately 13% of net
sales. The Company does not have long-term agreements with any of its customers.
Instead, its customers purchase the Company's products pursuant to purchase
orders and are otherwise under no obligation to continue to purchase the
Company's products. The loss of one or more of the Company's largest customers
could have a material adverse effect on the Company's financial
12
<PAGE>
condition or results of operations. The retail apparel industry has periodically
experienced consolidation and other ownership changes. In the future, the
Company's customers may consolidate, undergo restructurings, reorganizations or
bankruptcies, or realign these affiliations, any of which could decrease the
number of stores that carry the Company's products or increase the ownership
concentration within the retail apparel industry. Such factors have not
previously had a material adverse effect on the Company's financial condition or
results of operations but there can be no assurance of such in the future. See
"Business--Customers and Sales."
POTENTIAL SHORTAGES OF FABRICS
The Company is dependent upon the ability of its suppliers to furnish
fabrics in sufficient volumes at satisfactory prices and to meet performance,
quality and delivery criteria for its domestic and Mexican pant producers. The
Company does not have any contracts with its suppliers that obligate them to
continue selling fabrics to the Company. The Company has not previously
experienced material shortages of fabrics. However, if shortages of fabrics
occur, or if the prices of these fabrics rise and if the Company is unable to
increase its prices to recover such costs increases, a material adverse effect
on the Company's financial condition or results of operations could result. See
"Business--Manufacturing and Product Sourcing; and --Quality Control."
ENVIRONMENTAL CONTROLS AND OTHER REGULATORY REQUIREMENTS
The Company is subject to various federal, state and local environmental
laws and regulations governing, among other things, the discharge, storage,
handling and disposal of a variety of hazardous and nonhazardous substances and
wastes used in or resulting from its present and past operations. The Company's
operations also are governed by laws and regulations relating to employee safety
and health, principally the Occupational Safety and Health Act and the
regulations thereunder, that, among other things, establish exposure limitations
for cotton dust, formaldehyde, asbestos and noise and regulate chemical and
ergonomic hazards in the workplace. There can be no assurance that regulatory
requirements will not become more stringent in the future or that the Company
will not incur significant costs relating to these matters in the future. The
Company cannot predict the possible impact of additional or more stringent
regulatory requirements on its financial condition or results of operations. See
"Business-- Environmental Matters."
LACK OF SIGNIFICANT OPERATING HISTORY IN EUROPE
The Company acquired a license to distribute, manufacture and market Beverly
Hills Polo Club brand sportswear in Europe in the third quarter of 1996 and has
had no significant operating history against which to assess the reasonableness
of its strategy to expand sales internationally. The Company's European business
strategy relies heavily upon its ability to align itself with effective
distributors that are able to market the Beverly Hills Polo Club products to
retailers. The Company is also dependent upon the services of contract warehouse
facilities for the timely and accurate shipment of its products to its
distributors and retail stores. A general failure by the Company to maintain and
control its existing international distribution arrangements or to procure
additional international distribution relationships could have a material
adverse effect on the Company's financial condition or results of operations.
Thus, no assurance can be given that the Company's international strategy will
be successfully and properly implemented. In addition, due to the Company's
utilization of franchise store arrangements in Europe, the Company's European
expansion strategy is also dependent upon selecting franchisees that can
successfully execute a retail strategy. See "Business--Growth Strategy."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is subject to significant seasonal and quarterly
fluctuations that are characteristic of the apparel and retail industries. The
Company's backlog of orders and overall results of
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<PAGE>
operations may fluctuate from quarter to quarter as a result of, among other
things, variations in the timing of product orders by customers, weather
conditions that may affect purchases at the wholesale and retail levels, the
amount and timing of shipments, advertising and marketing expenditures and
increases in the number of employees and overhead to support growth. In the
Company's segment of the apparel industry, sales are generally higher in the
first and third quarters. Historically, the Company has taken greater markdowns
in the second and fourth quarters. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Selected Quarterly Results" and
"Business--Backlog and Seasonality."
CONTROL BY EXISTING STOCKHOLDERS
Following the consummation of the Offering, the Company's existing
stockholders, all of whom are parties to the Amended and Restated Shareholders'
Agreement (the "Restated Shareholders' Agreement"), will beneficially own an
aggregate of approximately 51.3% of the outstanding Common Stock. Accordingly,
such stockholders will have the ability to control the election of directors and
the results of other matters submitted to a vote of stockholders. Such
concentration of ownership, together with the Restated Shareholders' Agreement
and the anti-takeover effects of certain provisions in the Delaware General
Corporation Law and in the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") and Amended and Restated By-laws (the
"Restated By-laws"), may have the effect of delaying or preventing a change in
control of the Company. See "--Anti-Takeover Provisions," "Principal
Stockholders," "Description of Capital Stock" and "Certain
Transactions--Restated Shareholders' Agreement."
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate and Restated By-laws include provisions
that may have the effect of discouraging a non-negotiated takeover of the
Company and preventing certain changes of control. These provisions, among other
things (i) classify the Company's Board of Directors into three classes serving
staggered, three-year terms, (ii) permit the Company's Board of Directors,
without further stockholder approval, to issue up to 5.0 million shares of
preferred stock with rights and preferences determined by the Board of Directors
at the time of issuance, (iii) require a 66.7% vote of the Company's
stockholders to approve any amendment, addition or termination of the Restated
By-laws of the Company and (iv) restrict the ability of stockholders to call
special meetings of the stockholders, nominate individuals for election to the
Board of Directors or submit stockholder proposals. The Restated Shareholders'
Agreement designates Messrs. Robert J. Arnot, Gerald W. Lear, Ira J. Hechler and
Jon Hechler as principal shareholders (the "Principal Shareholders") and
provides that the other stockholders subject to the Restated Shareholders'
Agreement (the "Non-Principal Shareholders") shall vote, in elections of
directors to fill Class I or Class II of the Board of Directors, for nominees of
the Principal Shareholders. In addition, certain of the Company's agreements for
use of the BOSS brand name provide that certain specified changes in the control
of ownership of the Company may result in termination of such agreement. The
Restated Shareholders' Agreement also provides for certain rights of first
refusal and "drag along" rights. The provisions of the Restated Certificate, the
Restated By-laws and the Restated Shareholders' Agreement might, therefore, have
the effect of inhibiting stockholders' ability to realize the maximum value for
their shares of Common Stock that might otherwise be realized because of a
merger or other event affecting the control of the Company. See "Description of
Capital Stock" and "Certain Transactions--Restated Shareholders' Agreement."
DILUTION
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
the Offering will therefore incur immediate and substantial dilution of $6.43
per share. See "Dilution."
14
<PAGE>
DIVIDEND POLICY
The Company anticipates that, after payment of the S Corporation
Distribution to stockholders of record as of the S Termination Date (as
hereinafter defined), all earnings of the Company will be retained for the
foreseeable future for use in the operations of the Company's business.
Purchasers of shares of Common Stock in the Offering will not receive any
portion of the S Corporation Distribution. Any future determination as to the
payment of dividends will be at the discretion of the Company's Board of
Directors and will depend upon the Company's results of operations, financial
condition, restrictions in the Company's credit facility and other factors
deemed relevant by the Board of Directors. See "Dividend Policy."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price of the Common Stock offered hereby
will be determined through negotiations among the Company and the Underwriters
and may bear no relationship to the market price for the Common Stock after the
Offering. Subsequent to the Offering, prices for the Common Stock will be
determined by the market and may be influenced by a number of factors, including
depth and liquidity of the market for the Common Stock, investor perceptions of
the Company, changes in conditions or trends in the Company's industry or in the
industry of the Company's significant customers, publicly traded comparable
companies and general economic and other conditions. See "Underwriting."
FUTURE SALES BY EXISTING STOCKHOLDERS; SHARES ELIGIBLE FOR FUTURE SALE
The Common Stock offered hereby will be freely tradable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act of
1933, as amended ( the "Securities Act")) without restriction or registration
under the Securities Act. Immediately after the Offering, the Company's existing
stockholders will beneficially own an aggregate of approximately 51.3% of the
outstanding Common Stock. Subject to the restrictions set forth below, such
stockholders will be free to sell such shares from time to time to take
advantage of favorable market conditions or for any other reason. Future sales
of shares of Common Stock by the Company or its stockholders could adversely
affect the prevailing market price of the Common Stock. The Company and each of
its executive officers, directors and stockholders beneficially owning in the
aggregate 4.0 million shares of Common Stock have entered into lock-up
agreements with The Robinson-Humphrey Company, LLC and Legg Mason Wood Walker,
Incorporated, as representatives of the Underwriters, pursuant to which they
have agreed not to, directly or indirectly, sell, offer to sell, contract to
sell, solicit an offer to buy, grant any option for the purchase or sale of,
assign, pledge, distribute or otherwise transfer, dispose of or encumber any of
their shares of Common Stock (other than those being sold pursuant to this
Offering) or any securities convertible into or exercisable or exchangeable for
shares of Common Stock without the prior written consent of the representatives
of the Underwriters, for a period of 180 days after the date of this Prospectus
(the "Lockup Period"). In addition, certain restrictions on transfers of shares
of Common Stock by the existing stockholders of the Company are contained in the
Restated Shareholders' Agreement. After the Lockup Period, approximately 3.97
million shares of Common Stock will be eligible for sale pursuant to Rule 144
promulgated under the Securities Act. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales may occur, could
have a material adverse effect on the market price of the Common Stock. See
"Shares Eligible for Future Sale," "Underwriting" and "Certain
Transactions--Restated Shareholders' Agreement."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997, (ii) as adjusted as of that date to give effect to the
Initial S Corporation Distribution, termination of the Company's S corporation
status and the recording of an estimated $1.3 million of net deferred tax assets
determined as if the Company's S corporation status had been terminated on
September 30, 1997 and (iii) as further adjusted to reflect the sale of 3.8
million shares of Common Stock by the Company in the Offering at an assumed
initial public offering price of $13.00 per share (the mid-point of the range
set forth on the cover page of this Prospectus), after deducting the estimated
underwriting discount and offering expenses payable by the Company, and the
application of the estimated net proceeds therefrom to pay the Initial S
Corporation Distribution, outstanding borrowings under the credit facilities and
the application of the remainder of the net proceeds as further described under
"Use of Proceeds." The information below should be read in conjunction with the
Company's consolidated financial statements and the related notes thereto, which
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------
AS AS FURTHER
ACTUAL ADJUSTED(1) ADJUSTED(1)
--------- ------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Short-term debt:
Current maturities of term loan and revolving line of credit............ $ 22,489 $ 22,489 $ --
Current maturities of capital lease obligations......................... 142 142 142
--------- ------------- -----------
Total short-term debt................................................. $ 22,631 $ 22,631 $ 142
--------- ------------- -----------
--------- ------------- -----------
Distribution payable...................................................... $ -- $ 18,500 $ --
--------- ------------- -----------
--------- ------------- -----------
Long-term debt:
Term loan, net of current maturities.................................... $ 550 $ 550 $ --
Capital lease obligations............................................... 256 256 256
--------- ------------- -----------
Total long-term debt.................................................. 806 806 256
Stockholders' equity:
Preferred Stock, par value $.0001 per share, 5,000,000 shares -- -- --
authorized, none issued and outstanding...............................
Common Stock, par value $.0001 per share, 50,000,000 shares authorized, 1 1 1
4,024,699 shares issued; 4,000,000 shares outstanding, 7,824,699
shares issued and outstanding as further adjusted(2)..................
Additional paid-in capital.............................................. 266 266 45,666
Retained earnings....................................................... 25,930 8,730 8,730
Treasury stock, at cost (24,699 shares)................................. (15) (15) (15)
--------- ------------- -----------
Total stockholders' equity............................................ 26,182 8,982 54,382
--------- ------------- -----------
Total capitalization.................................................. $ 26,988 $ 9,788 $ 54,638
--------- ------------- -----------
--------- ------------- -----------
</TABLE>
- ------------------------------
(1) Adjusted to reflect (i) the liability for the Initial S Corporation
Distribution consisting of all earned but undistributed S corporation
earnings as of September 30, 1997 and (ii) the recording of an estimated
$1.3 million of net deferred tax assets determined as if the Company's S
corporation status had been terminated on September 30, 1997. Further
adjusted to reflect the sale of 3.8 million shares of Common Stock by the
Company assuming an initial public offering price of $13.00 per share and
the application of approximately $41.5 million of the net proceeds to pay
the Initial S Corporation Distribution and outstanding borrowings under its
credit facilities as of September 30, 1997.
(2) Excludes 500,000 shares of Common Stock reserved for issuance pursuant to
awards under the 1997 Omnibus Stock Plan (the "Plan"). See
"Management--Employment Agreements; and --1997 Omnibus Stock Plan."
19
<PAGE>
DILUTION
The net tangible book value of the Company at September 30, 1997 was
approximately $24 million, or $6.09 per share of Common Stock. After giving
effect to the Reorganization and the Initial S Corporation Distribution, as if
the distribution had been recorded as of September 30, 1997 and the Company's S
corporation status had terminated at such date, the as adjusted net tangible
book value of the Company at September 30, 1997 would have been approximately
$5.9 million or $1.47 per share of Common Stock. After giving effect to the sale
by the Company of shares of Common Stock in the Offering at an assumed initial
public offering price of $13.00 per share (the mid-point of the range set forth
on the cover page of this Prospectus) and after deducting the estimated
underwriting discount and offering expenses payable by the Company and the
application of the estimated net proceeds therefrom to pay the Initial S
Corporation Distribution, the as further adjusted net tangible book value of the
Company at September 30, 1997 would have been approximately $51.3 million, or
$6.57 per share. See "Company Organization" and "Use of Proceeds." This
represents an immediate increase in net tangible book value of $5.10 per share
to the Company's existing stockholders and an immediate net tangible book value
dilution of $6.43 per share to investors purchasing shares in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share (1)................. $ 13.00
Net tangible book value per share at September 30, 1997... $ 6.09
Decrease attributable to pro forma adjustments............ (4.62)
---------
As adjusted net tangible book value per share at
September 30, 1997...................................... 1.47
Increase attributable to new investors in the Offering.... 5.10
---------
Net tangible book value, as further adjusted, per share
after the Offering (2).................................... 6.57
---------
Dilution per share to new investors......................... $ 6.43
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration paid per share by the existing
stockholders and by the new investors, assuming an initial public offering price
of $13.00 per share but before deducting the underwriting discount and estimated
offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 4,000,000 51.3% $ 252,113 0.5% $ 0.04
New investors....................................... 3,800,000 48.7 49,400,000 99.5 $ 13.00
---------- ----- ------------- -----
Total............................................. 7,800,000 100.0% $ 49,652,113 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Before deducting estimated underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company.
(2) Excludes 500,000 shares of Common Stock reserved for issuance pursuant to
awards under the Plan. See "Management--1997 Omnibus Stock Plan."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
"SELECTED FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
AND THE RELATED NOTES THERETO, WHICH ARE INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
During its first 77 years, the Company became one of the leading
manufacturers of pants, trousers and jeans in the United States. The Company was
able to utilize its fabric sourcing and manufacturing expertise to build a well
known franchise in the men's and women's bottoms segment of the apparel
industry. In this period, the Company's marketing efforts were typically driven
by its manufacturing capabilities, and branding was limited to Company-owned
brands and third-party private labels.
In the late 1980's, management made a decision to change the Company's
marketing focus from a manufacturing-driven to a brand-driven strategy. This
fundamental shift within the Company reflected senior management's belief that
the American sportswear market would be dominated by recognized brands with
clearly established images. Management also concluded that increasing market
share would go to those companies that were market-driven and able to service
their customers with diversified manufacturing and sourcing capabilities.
Recognizing its strength in bottoms manufacturing, in 1990 the Company entered
into a license agreement for the exclusive use of the BOSS brand name on men's
denim apparel and on all types of juniors' sportswear for the young women's
market. In 1994, the Company expanded its license agreement to include use of
the BOSS brand name on men's, women's, boys' and youth sportswear in the United
States and Puerto Rico. In 1997, the Company's rights to manufacture and market
BOSS sportswear were further expanded to allow broader product offerings and
significant Company control over styling, advertising and distribution. In the
fall of 1993, the Company entered into license agreements for the use of the
Beverly Hills Polo Club brand name on men's and women's sportswear in the United
States and Puerto Rico. License rights were expanded to include Europe in 1996
and to include men's dress shirts in 1997. See "Business--Licenses and Other
Rights Agreements."
In November 1997, the Company acquired an exclusive license to manufacture
and market certain men's sportswear under the Girbaud brand in the United States
and Puerto Rico. Over the last ten years, the Girbaud brand was manufactured and
marketed in the United States under license by VF Corp. The Girbaud brand is an
internationally recognized designer sportswear label with a distinct European
influence. By targeting men who desire contemporary international fashion, the
Girbaud brand will enable the Company to address another consumer segment within
its branded product portfolio. The Company intends to reposition the Girbaud
line with a broader assortment of products, styles and fabrications reflecting a
contemporary European look. The Company plans to introduce the fall men's
collection in early 1998. The Company anticipates that it will incur costs
related to the implementation of the Girbaud brand, including, but not limited
to, minimum royalty payments, expenditures for additional office and showroom
space and costs related to adding merchandising and sales personnel. See
"Business--Licenses and Other Rights Agreements--Girbaud License."
The Company also manufactures and markets women's sportswear under its own
"I.C. Isaacs," "Lord Isaacs" and "Pizzazz" brand names and under third-party
private labels. The Company intends to continue to manufacture and market this
sportswear for the foreseeable future. See "Business--Licenses and Other Rights
Agreements."
Over the past three years, the Company has completed its strategic
repositioning from a manufacturing-driven company to a marketing and
brand-driven company. Through a focused strategy of providing fashionable,
branded merchandise at value prices, the Company has emerged as a significant
fashion influence for youthful and contemporary consumers who purchase
sportswear through specialty and department stores. The Company's brand-driven
market strategy is evidenced by the increase of licensed,
22
<PAGE>
branded apparel as a percentage of the Company's net sales. In 1996, the BOSS
and Beverly Hills Polo Club brands comprised 72.6% and 12.0% of net sales,
respectively. Concurrent with this strategy, the Company has also shifted its
product mix from predominately bottoms to a full array of sportswear, including
tops and outerwear. As a result, net sales of the BOSS tops and outerwear lines
have more than doubled since 1994 to approximately $29 million in 1996. The
Company has also expanded its branded lines to include sportswear for boys,
youth and juniors. Historically, the Company has recognized markdowns for
specific unsold inventory in the second and fourth quarters. These specific
markdowns are reflected in cost of sales and the related gross margins at the
conclusion of the appropriate selling season. The following table sets forth,
for the periods indicated, the Company's net sales categorized by brand and
product category:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MEN'S(1)
BOSS Bottoms................................................... $ 37,724 $ 37,234 $ 44,667 $ 32,360 $ 44,238
BOSS Tops...................................................... 6,709 15,882 29,284 21,014 35,543
BOSS Boys'..................................................... 1,834 3,264 6,736 4,201 10,833
Men's BHPC..................................................... 2,795 5,219 12,226 8,103 19,584
Men's Private Label............................................ 3,227 4,299 500 485 83
--------- --------- --------- --------- ---------
Men's net sales............................................ 52,289 65,898 93,413 66,163 110,281
--------- --------- --------- --------- ---------
WOMEN'S(1)
BOSS Juniors'(2)............................................... 9,528 5,424 5,413 5,263 3,204
Women's BHPC................................................... 1,048 1,833 2,043 1,775 1,128
Women's Other(3)............................................... 22,433 20,116 17,786 13,479 12,634
--------- --------- --------- --------- ---------
Women's net sales.......................................... 33,009 27,373 25,242 20,517 16,966
--------- --------- --------- --------- ---------
Total net sales............................................ $ 85,298 $ 93,271 $ 118,655 $ 86,680 $ 127,247
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) The net sales totals incorporate product returns allocated in proportion to
gross sales.
(2) Results for the year ended December 31, 1994 include approximately $2.5
million of net sales of tee shirts and sweatshirts with unisex styling that
were discontinued after the Company obtained a license to manufacture and
sell men's BOSS tops in the fourth quarter of 1994. As a result, these
products were recategorized in men's BOSS tops in 1995 and thereafter.
(3) Includes Company-owned brands and third-party private labels.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of income for the periods shown below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996(1) 1996 1997(1)
--------- --------- ----------- --------- ---------
Net sales................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................ 72.9 73.5 71.1 69.4 67.3
--------- --------- ----- --------- ---------
Gross profit............................................. 27.1 26.5 28.9 30.6 32.7
Selling expenses......................................... 8.8 9.5 10.0 10.3 9.6
License fees............................................. 3.5 3.4 4.1 4.0 4.7
Distribution and shipping expenses....................... 2.4 2.6 2.2 2.2 2.5
General and administrative expenses...................... 6.8 6.2 4.7 4.8 4.1
--------- --------- ----- --------- ---------
Operating income......................................... 5.6% 4.8% 7.9% 9.3% 11.8%
--------- --------- ----- --------- ---------
--------- --------- ----- --------- ---------
</TABLE>
- ------------------------
(1) General and administrative expenses have been reduced to reflect the receipt
in 1996 and 1997 of approximately $0.7 million and $0.1 million,
respectively, related to an agreement with the Company's insurance carrier
to reimburse it for legal fees associated with litigation billed in prior
years.
23
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
NET SALES. Net sales increased 46.7% to $127.2 million in the nine months
ended September 30, 1997 from $86.7 million in the nine months ended September
30, 1996. Substantially all of this increase was due to higher volume shipments
of BOSS and Beverly Hills Polo Club sportswear. Net sales of BOSS sportswear
increased $31.0 million or 49.4% to $93.8 million primarily driven by strong
growth in the men's tops, boys' and youth segments and continued strength of the
jeans segment. Net sales of the BOSS tops segment were $35.5 million in the nine
months ended September 30, 1997 versus $21.0 million in the nine months ended
September 30, 1996. Net sales of Beverly Hills Polo Club sportswear increased
$10.8 million or 109.1% to $20.7 million over the same period, primarily driven
by strong growth in the men's business. International sales were insignificant
in the nine months ended September 30, 1997.
GROSS PROFIT. Gross profit increased 57.0% to $41.6 million in the nine
months ended September 30, 1997 from $26.5 million in the nine months ended
September 30, 1996. Gross profit as a percentage of net sales increased to 32.7%
from 30.6% over the same period. The increase in gross profit was due in part to
the expansion of the BOSS tops product line, which typically carries a higher
gross margin than the bottoms product line. In addition, the tops line had
improved gross margins due to reduced costs on imported tops resulting from
volume purchase discounts. Also, the continued shift of production of denim
bottoms from the United States to Mexico and the accompanying decrease in labor
and overhead costs contributed to the improved gross margin. The Company's
improved gross margin was also a result of increased sales of products at full
margin, particularly in the first quarter, offset somewhat by markdowns taken in
the second quarter related to unsold spring and summer goods.
SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
distribution, general and administrative ("SG&A") expenses increased 44.3% to
$26.7 million in the nine months ended September 30, 1997 from $18.5 million in
the nine months ended September 30, 1996. As a percentage of net sales, SG&A
expenses decreased to 20.9% from 21.3% over the same period. This improvement
reflects overall declines in SG&A expenses resulting from cost containment
efforts in certain expense areas and expense leverage associated with the
Company's growth. Selling expenses increased $3.3 million to $12.2 million over
the same period as a result of higher commissions to the Company's salespersons
and higher advertising expenditures which increased $0.5 million to $2.4 million
as the Company continued to focus on enhancing the identity and image of its
brands through increased media exposure. Distribution and shipping expenses
increased $1.3 million to $3.2 million due to higher unit shipments and
increased overtime costs. The Company opted to incur additional overtime wages
rather than adding personnel to process the increase in unit shipments. General
and administrative expenses increased $1.1 million to $5.3 million due to salary
increases for existing employees and salaries and costs associated with the
hiring of new management and administrative personnel.
LICENSE FEES. License fees increased $2.4 million to $5.9 million in the
nine months ended September 30, 1997 from $3.5 million in the nine months ended
September 30, 1996. As a percentage of net sales, license fees increased to 4.7%
from 4.0%. This increase was due to greater sales growth of non-denim branded
products, which have higher royalty rates than other branded products. The
Company believes that its license fees will increase as the percentage of net
sales of branded products increases.
OPERATING INCOME. Operating income increased 87.5% to $15.0 million or
11.8% of net sales in the nine months ended September 30, 1997, from $8.0
million or 9.3% of net sales in the nine months ended September 30, 1996. This
increase resulted primarily from the increase in net sales and gross profit
margins.
INTEREST EXPENSE. Interest expense increased $0.6 million to $1.6 million
in the nine months ended September 30, 1997 due to an increase in working
capital borrowing requirements. In the nine months ended September 30, 1997, the
average debt balance was $17.9 million, with an average effective interest rate
of 9.5%. In the nine months ended September 30, 1996, the average debt balance
was $9.1 million with an average effective interest rate of 9.25%.
24
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 27.2% to $118.7 million in 1996 from $93.3
million in 1995. Substantially all of the increase in net sales was due to
greater unit volume shipments of both the BOSS and Beverly Hills Polo Club
sportswear lines. Net sales of BOSS sportswear increased 39.3% to $86.1 million
in 1996 from $61.8 million in 1995. The volume increase in BOSS sportswear was
primarily driven by strong growth in the tops segment, continued strength of the
jeans segment and, to a lesser extent, growth in the boys' and youth segments.
Net sales of BOSS tops and outerwear nearly doubled from $15.9 million in 1995
to $29.3 million in 1996, as a result of the Company's continued product
expansion and increased consumer acceptance and demand. The BOSS bottoms segment
also showed strong growth, as net sales increased 20.2% in 1996 to $44.7
million. Net sales of Beverly Hills Polo Club sportswear increased 101.4% to
$14.3 million during the same period primarily driven by strong growth in the
men's segment. This success was due in part to increased acceptance of the
product after its first full year of sales and the ongoing reconfiguration of
the Company's Beverly Hills Polo Club sales force to more effectively market to
specialty store customers. These increases in net sales were partially offset by
a decline in sales of the Company's men's private label collection and women's
Company-owned and private label collections as the Company continued to place
more emphasis on branded labels. The Company discontinued the men's private
label collection in 1996 due to unsatisfactory gross margins relative to BOSS
and Beverly Hills Polo Club sportswear. The Company did not incur any material
costs in connection with the discontinuation. International sales were
insignificant in 1996.
GROSS PROFIT. Gross profit increased 38.5% to $34.2 million in 1996 from
$24.7 million in 1995. Gross profit as a percentage of net sales increased to
28.9% in 1996 from 26.5% in 1995. The increase in gross margin was primarily due
to the expansion of the BOSS tops product line as a percentage of total net
sales. The tops line had a higher gross margin due to reduced costs on imported
tops resulting from volume purchase discounts. Also, the continued shift of
production of denim bottoms from the United States to Mexico and accompanying
decrease in labor and overhead costs contributed to the improved gross margin.
SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses
increased 22.7% to $24.9 million in 1996 from $20.3 million in 1995. As a
percentage of net sales, SG&A expenses decreased to 21.1% in 1996 from 21.8% in
1995. This improvement reflects overall declines in SG&A expenses resulting from
cost containment efforts in certain expense areas and expense leverage
associated with the Company's growth. Selling expense increased $3.0 million to
$11.9 million over the same period, as a result of higher commissions to the
Company's salespersons and higher advertising expenditures which increased $1.0
million to $2.5 million as the Company initiated an advertising campaign to
promote the BOSS brand. Distribution and shipping expenses increased $0.3
million to $2.7 million due to higher unit shipments and overtime wages for
employees at the Company's distribution center. The Company opted to incur
additional overtime wages rather than adding personnel to process the increase
in unit shipments. General and administrative expenses increased $0.4 million to
$6.2 million during the same period primarily due to higher data processing
expenses.
LICENSE FEES. License fees increased $1.6 million to $4.8 million in 1996
from $3.2 million in 1995. As a percentage of net sales, license fees increased
to 4.1% from 3.4%. License fees increased at a rate in excess of the growth in
net sales due to the increase in sales of non-denim branded products.
OPERATING INCOME. Operating income increased 106.7% to $9.3 million or 7.9%
of net sales in 1996, from $4.5 million or 4.8% of net sales in 1995. This
increase primarily resulted from the increase in net sales and gross profit
margins as well as the receipt of approximately $0.7 million related to an
agreement with the Company's insurance carrier to reimburse it for legal fees
associated with litigation billed in prior years.
INTEREST EXPENSE. Interest expense increased to $1.4 million from $1.2
million in 1996 due to an increase in working capital borrowing requirements
which was partially offset by a reduction in borrowing costs. For 1996, the
average outstanding short-term debt balance was $9.8 million, with an average
effective interest rate of 9.25%. For 1995, the average balance was $8.5
million, with an average effective interest rate of 9.88%.
25
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased 9.4% to $93.3 million in 1995 from $85.3
million in 1994. Substantially all of this increase was due to greater unit
shipments of BOSS sportswear which was due to greater penetration of the
specialty store channel and initial shipments to a major department store chain.
Net sales of BOSS sportswear increased $6.0 million or 10.8% to $61.8 million in
1995 primarily due to the expansion of the tops product line. The overall
increase in net sales was partially offset by weaker sales of colored denim
shorts. Net sales of Beverly Hills Polo Club sportswear increased $3.3 million
or 86.8% to $7.1 million over the same period as it continued to grow from its
initial introduction by the Company in the first quarter of 1994. There were no
international sales in 1995 or 1994.
GROSS PROFIT. Gross profit increased 6.9% to $24.7 million in 1995 from
$23.1 million in 1994. However, gross profit as a percentage of net sales
decreased to 26.5% from 27.1% over the same period. The decrease in gross profit
as a percentage of net sales resulted from weaker sales of higher gross margin
colored denim shorts combined with stronger sales of the Company's lower gross
margin private label products.
SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses
increased 10.9% to $20.3 million in 1995 from $18.3 million in 1994. As a
percentage of net sales, SG&A expenses increased to 21.8% from 21.5% in 1994 as
the Company increased investment in organizational structure and personnel to
support growth and expanded advertising. Selling expenses increased $1.4 million
to $8.9 million during the same period primarily due to a $1.1 million increase
in advertising expenditures. Total advertising expenditures more than tripled to
$1.5 million as the Company significantly expanded its campaign to increase
awareness of the BOSS brand. Also, commission expenses to the Company's
salespersons rose as sales of BOSS and Beverly Hills Polo Club sportswear
continued to increase as a percentage of total net sales. Distribution and
shipping expenses increased $0.4 million to $2.4 million over the same period as
a result of increased unit shipments and overtime wages for employees at the
Company's distribution center. General and administrative expenses were
essentially unchanged from the $5.8 million experienced in 1994 as the Company
contained personnel costs.
LICENSE FEES. License fees increased $0.2 million to $3.2 million in 1995
from $3.0 million in 1994. This increase was attributable to increases in sales
of BOSS sportswear.
OPERATING INCOME. Operating income decreased 4.3% to $4.5 million or 4.8%
of net sales in 1995, from $4.7 million or 5.6% of net sales in 1994. This
decrease primarily resulted from lower gross margins coupled with higher SG&A
expenses.
INTEREST EXPENSE. Interest expense increased minimally to $1.3 million in
1995 primarily due to an increase in average outstanding borrowings. For 1995,
the average outstanding short-term debt balance was $8.5 million, with an
average effective interest rate of 9.88%. For 1994, the average balance was $6.6
million, with an average effective interest rate of 9.72%.
OTHER INCOME (EXPENSE). There was no significant other income in 1995 as
compared to other income of $1.2 million in 1994. In 1994, the Company received
approximately $1.2 million as the final payment related to the settlement of a
license dispute with a third party.
EXTRAORDINARY ITEM. The Company recognized an extraordinary gain of $0.4
million in 1994 related to early extinguishment of senior subordinated debt due
a former partner. There was no comparable item in 1995.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily on internally generated funds, trade credit
and asset-based borrowings to finance its operations and expansion. The
Company's capital requirements primarily result from working capital needed for
inventory and accounts receivable.
OPERATING CASH FLOW
Cash used by operations totaled $9.5 million for the nine months ended
September 30, 1997 due to a significant increase in accounts receivable and
inventory which resulted from higher sales of BOSS and Beverly Hills Polo Club
sportswear. This was partially offset by higher levels of accounts payable and
improved operating results. Cash used for investing activities totaled $0.8
million for the nine months ended September 30, 1997 and was used primarily for
the purchase of machinery for the Company's factories. Cash provided by
financing activities totaled $10.8 million for the nine months ended September
30, 1997. The Company borrowed $9.5 million under its credit facilities
primarily to finance the growth in accounts receivable and inventory and
borrowed $6.5 million to fund distributions to its stockholders for the payment
of federal and state income taxes.
Accounts receivable and inventories increased $16.3 million and $8.4
million, respectively, from December 31, 1996 to September 30, 1997 due to
higher sales of BOSS and Beverly Hills Polo Club sportswear and higher levels of
finished goods. The increase in accounts receivable was greater than the
increase in sales due to lower than expected cash collections beginning in May
and continuing through September 30, 1997. Also, the increase in the finished
goods inventories was greater than the increase in sales due to growth in
imported merchandise for which the Company pays via letters of credit prior to
delivery in the United States. The Company manages its inventory levels by
scheduling production and purchases of imported inventory to meet firm purchase
orders. There was a $2.1 million increase in the overdraft directly related to
the higher inventory levels necessary to support anticipated sales growth in
early 1997 and a $16.0 million increase in outstanding borrowings under the
Company's revolving line of credit from December 31, 1996 to September 30, 1997.
Capital expenditures were $0.8 million for the nine months ended September
30, 1997 and $0.7 million in both 1996 and 1995. The Company's capital
expenditures were comprised primarily of purchases of computer equipment and
sewing machinery for its domestic factories. The Company anticipates that
capital expenditures will be approximately $6.0 to $7.0 million in 1998,
primarily related to the construction of a new 150,000 square foot distribution
center in Milford, Delaware to be financed through a mortgage loan. A
significant portion of the Company's fixed assets are located at its
manufacturing facilities in Mississippi. The Company has no plans to upgrade
these manufacturing facilities as they become obsolete, but rather intends to
transfer the production capacity to domestic and foreign independent
contractors.
As of September 30, 1997, the Company had outstanding borrowings under its
revolving line of credit and term loan facility of $23.0 million compared to
$7.2 million as of December 31, 1996. The higher borrowing level was necessary
to support the growth in accounts receivable and inventory experienced in the
first nine months of 1997.
Because of the Company's treatment as an S corporation for federal and state
income tax purposes, the Company has provided funds to its stockholders for the
payment of income taxes on the earnings of the Company. Accordingly, the Company
made cash distributions to its stockholders in the amounts of $2.9 million, $3.2
million and $6.5 million in 1995, 1996 and thus far in 1997, respectively. Prior
to the Closing Date, the Company will declare the S Corporation Distribution.
The amount of the Initial S Corporation Distribution will be approximately $18.5
million, which represents all earned but undistributed S corporation earnings of
the Company as of September 30, 1997. The amount of the Subsequent S Corporation
Distribution is estimated to be approximately $0.9 million, which will represent
all earned but undistributed S corporation earnings of the Company for the
period beginning on October 1, 1997 and ending on the S Termination Date. On and
after the S Termination Date, the Company will no longer be treated as an
27
<PAGE>
S corporation. After completion of the Offering, the Company's immediate cash
flow needs will not reflect any dividend distributions to the Company's
stockholders for payment of income taxes on the earnings of the Company.
However, the Company will assume responsibility for payment of federal and state
income taxes, which will partially offset the Company's former cash commitment
to provide its stockholders with funds for the payment of income taxes.
CREDIT FACILITIES
The Company has an asset-based revolving line of credit with Congress
Financial Corporation that allows it to borrow up to $30.0 million based on a
percentage of eligible accounts receivable and inventory. Outstanding borrowings
at December 31, 1995, December 31, 1996 and September 30, 1997 were $7.2
million, $6.3 million and $22.3 million, respectively. Borrowings under the
revolving line of credit bear interest at the lender's prime rate plus 1.0%.
Also, the Company has a term loan facility with the lender, which allows it to
continually borrow up to $1.0 million. Outstanding borrowings under the term
loan were $0.3 million, $0.9 million and $0.7 million at December 31, 1995,
December 31, 1996 and September 30, 1997, respectively. The Company will use a
portion of the net proceeds of the Offering to repay the amounts outstanding
under these credit facilities. See "Use of Proceeds." The Company intends to
enter into a new credit facility after consummation of the Offering, which will
replace the existing revolving line of credit and term loan facilities. The
Company does not expect to incur material costs in connection with entering into
a new credit facility.
In November 1997, the Company borrowed $11.25 million to finance the
acquisition of certain BOSS trademark rights. This obligation is evidenced by a
secured limited recourse promissory note which matures on December 31, 2007 (the
"Note"). The Note bears interest at 10.0% per annum, payable quarterly;
principal is payable in full upon maturity of the Note, which is collateralized
by the Domestic BOSS Trademark Rights. See "Business--Licenses and Other Rights
Agreements."
The Company extends credit to its customers. Accordingly, the Company may
have significant risk in collecting accounts receivable from its customers. The
Company has credit policies and procedures which it uses to minimize its
exposure to credit losses. The Company's collection personnel regularly contact
customers with receivable balances outstanding beyond 30 days to expedite
collection. If these collection efforts are unsuccessful, the Company may
discontinue merchandise shipments until the outstanding balance is paid.
Ultimately, the Company may engage an outside collection organization to collect
past due accounts. The timely contact with customers by collection personnel has
been effective in reducing credit losses to an immaterial amount. In 1994, 1995
and 1996, the Company's credit losses were $0.4 million, $0.4 million and $0.9
million, respectively. In each of these years, the Company's actual credit
losses as a percentage of net sales has been less than three-quarters of one
percent. See "Business--Credit Control."
The Company believes that the net proceeds of the Offering, together with
cash from operations and its existing credit facilities, will be sufficient to
meet its capital requirements for the next 12 months.
PRO FORMA ADJUSTMENTS FOR INCOME TAXES
Prior to the Reorganization, the Company's earnings were not subject to
federal, state and local income taxes. In connection with the Reorganization,
the Company's earnings will become subject to such taxes. In addition, as a
result of the Reorganization, the Company will record a net deferred tax asset
and a corresponding tax benefit in its statement of income in accordance with
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." If the Offering occurred on September 30, 1997,
the deferred tax asset and corresponding tax benefit would have been
approximately $1.3 million. The Company's pro forma effective tax rate, which
excludes the non-recurring tax benefit discussed above, for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended September 30,
1996 and September 30, 1997 was 41.0%. The effect of taxes is not discussed
herein because
28
<PAGE>
the historic taxation of the earnings of the Company is not meaningful with
respect to periods after the Reorganization.
SELECTED QUARTERLY RESULTS
The Company's business is impacted by the general seasonal trends that are
characteristic of the apparel and retail industries. In the Company's segment of
the apparel industry, sales are generally higher in the first and third
quarters. However, the Company's strong growth in 1996 minimized this seasonal
effect. Historically, the Company has taken greater markdowns in the second and
fourth quarters. As the timing of the shipment of products may vary from year to
year, the results for any particular quarter may not be indicative of results
for the full year. The Company has not had significant overhead and other costs
generally associated with large seasonal variations. See "Risk
Factors--Seasonality and Quarterly Fluctuations."
The following table sets forth certain unaudited quarterly financial
information for the periods shown:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ------------- ------------- ----------- ----------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 25,902 $ 25,997 $ 34,781 $ 31,975 $ 39,312 $ 38,398 $ 49,537
Gross profit.......... 7,839 7,837 10,817 7,741 13,313 12,376 15,881
GROSS PROFIT MARGIN... 30.3% 30.1% 31.1% 24.2% 33.9% 32.2% 32.1%
Operating income...... $ 2,089 $ 1,567 $ 4,367 $ 1,302 $ 4,854 $ 3,968 $ 6,191
OPERATING MARGIN...... 8.1% 6.0% 12.6% 4.1% 12.3% 10.3% 12.5%
</TABLE>
INFLATION
The Company does not believe that the relatively moderate rates of inflation
experienced in the United States over the last three years have had a
significant effect on its net sales or profitability. Although higher rates of
inflation have been experienced in a number of foreign countries in which the
Company's products are manufactured, the Company does not believe that they have
had a material effect on the Company's net sales or profitability.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 will begin to affect the Company in 1997
with the establishment of the 1997 Omnibus Stock Plan. See "Management-- 1997
Omnibus Stock Plan." The Company will adopt only the disclosure provisions of
SFAS 123 and account for stock-based compensation using the intrinsic value
method set forth in APB Opinion 25.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than is
currently used in APB Opinion 15. SFAS 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to existing fully diluted earnings
per share. As required by the policies of the Securities and Exchange Commission
(the "Commission"), the Company has treated the shares being sold to fund the S
Corporation Distribution as outstanding prior to the Offering. SFAS 128 does not
have a provision requiring such treatment. The Commission is currently
evaluating its policies concerning this issue. Assuming shares issued to fund
the S Corporation Distribution continue to be treated as outstanding prior to
the Offering, the Company believes adopting SFAS 128 will not have a
29
<PAGE>
material effect on its calculation of earnings per share. The Company will adopt
the provisions for computing earnings per share set forth in SFAS 128 in
December 1997.
Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure ("SFAS 129"), effective for periods ending
after December 15, 1997, establishes standards for disclosing information about
an entity's capital structure. SFAS 129 requires disclosure of the pertinent
rights and privileges of various securities outstanding (stock, options,
warrants, preferred stock, debt and participation rights) including dividend and
liquidation preferences, participant rights, call prices and dates, conversion
or exercise prices and redemption requirements. Adoption of SFAS 129 will have
no effect on the Company because it currently discloses the information
specified.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. The Company's results of operations and financial position
will be unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"), establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of a Business Enterprise ("SFAS 131"), establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available and that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
Both SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
30
<PAGE>
BUSINESS
INTRODUCTION
I.C. Isaacs & Company, Inc. is a rapidly growing designer, manufacturer and
marketer of branded sportswear. Founded in 1913, the Company has assembled a
portfolio of brands that addresses distinct fashion segments resulting in a
diverse customer base. The Company offers full lines of sportswear for young
men, women and boys under the BOSS brand in the United States and Puerto Rico
and sportswear for men and women under the Beverly Hills Polo Club brand in the
United States, Puerto Rico and Europe. Beginning in 1998, the Company will also
offer a collection of men's sportswear under the Girbaud brand in the United
States and Puerto Rico. Through a focused strategy of providing fashionable,
branded merchandise at value prices, the Company has emerged as a significant
fashion source for youthful and contemporary consumers who purchase sportswear
and outerwear through specialty and department stores. The Company also offers
women's sportswear under various other Company-owned brand names as well as
under third-party private labels. Net sales of the Company grew from $85.3
million in 1994 to $118.7 million in 1996, and operating income grew from $4.7
million in 1994 to $9.3 million in 1996. In the first nine months of 1997, net
sales and operating income totaled $127.2 million and $15.0 million,
respectively, as compared to $86.7 million and $8.0 million, respectively, in
the first nine months of 1996.
The Company manufactures and markets certain sportswear under the BOSS brand
for sale at specified price points in the United States and Puerto Rico subject
to a concurrent use agreement. The Company has positioned the BOSS line to
appeal to consumers who desire a fresh, urban, fashion-forward look. Through
creative and innovative marketing, the Company has created powerful brand appeal
for the BOSS line and has become an active influence in young men's fashion. The
BOSS collection has been expanded from an initial line of denim products to a
full array of sportswear consisting of jeans, tee shirts, sweatshirts, shorts,
knit and woven shirts and outerwear, many of which are characterized by
innovative design, creative graphics and bold uses of color. The Company also
markets a juniors' sportswear line under the BOSS brand for young women, which
includes a full selection of denim products and active sportswear. The Company's
net sales of BOSS sportswear increased at an annual growth rate of 37.1% in
1994, 10.8% in 1995 and 39.3% in 1996. In 1996, net sales of BOSS sportswear
accounted for 72.6% of the Company's net sales.
The Company manufactures and markets certain sportswear under the Beverly
Hills Polo Club brand in the United States, Puerto Rico and Europe under an
exclusive license. The Company targets men and women who desire updated
traditional sportswear at competitive prices. To reach a broader demographic
customer base, the Beverly Hills Polo Club collection combines contemporary
design details and innovative fabrics with classic American sportswear styling.
The Beverly Hills Polo Club collection consists primarily of cotton clothing,
including jeans, pants, shorts, knit and woven shirts and outerwear targeting
the active, image-conscious consumer. The Company's Beverly Hills Polo Club line
was introduced in the spring of 1994. The Company's net sales of Beverly Hills
Polo Club sportswear increased at an annual growth rate of 83.5% in 1995 and
102.3% in 1996. In 1996, net sales of Beverly Hills Polo Club sportswear
accounted for 12.0% of the Company's net sales.
In November 1997, the Company acquired an exclusive license to manufacture
and market certain men's sportswear under the Girbaud brand in the United States
and Puerto Rico. The Girbaud brand is an internationally recognized designer
sportswear label with a distinct European influence. By targeting men who desire
contemporary, international fashion, the Girbaud brand will enable the Company
to address another consumer segment within its branded product portfolio. The
Company intends to reposition the Girbaud line with a broader assortment of
products, styles and fabrications reflecting a contemporary European look. The
Company plans to introduce the fall men's collection in early 1998.
The Company also manufactures and markets women's sportswear under its own
"I.C. Isaacs," "Lord Isaacs" and "Pizzazz" brand names and under third-party
private labels. The Company intends to continue to manufacture and market this
sportswear for the foreseeable future.
31
<PAGE>
COMPETITIVE STRENGTHS
In the late 1980's, management made a decision to change the Company's
marketing focus from a manufacturing-driven to a brand-driven strategy. As a
result, the Company believes it has developed distinct competitive strengths
which position it for continued success. The Company's key competitive strengths
include:
EMPHASIS ON BRAND IDENTITY. The Company believes that brand identity, as
well as the image and lifestyle that a brand conveys, are important factors that
influence retail purchasing decisions. The Company believes that the BOSS and
Beverly Hills Polo Club brands have developed strong name recognition and
consumer appeal. The Company has consistently positioned the BOSS line to be a
fashion-forward brand with an urban attitude. The word "boss" conveys images of
power and authority and is commonly used by today's youth as an expression of
excellence. Similarly, the Company believes that the Beverly Hills Polo Club
brand name, together with the accompanying distinctive horse and rider logo,
connotes a "classic American" upscale image with which retail consumers easily
identify. In addition, Girbaud is an internationally recognized designer brand
and will be positioned to appeal to contemporary consumers who desire high
quality, European-influenced fashion. The combination of these brands enables
the Company to offer a broad continuum of designs and products that are
well-recognized by fashion-conscious consumers.
COMBINATION OF FASHION AND VALUE. The Company is able to provide consumers
with fashionable brand name sportswear at affordable prices. The BOSS and
Beverly Hills Polo Club product lines both consistently provide exciting,
fashion-forward products using fresh colors, striking graphic designs, unique
fabrics, unusual trimmings and elaborate embroidery. The Company offers a wide
array of traditional products such as jeans, tee shirts, polo shirts and
sweatshirts that are updated with creative design details and innovative
fabrics. The Company's manufacturing, sourcing and merchandising expertise
enables it to provide its customers with fashion, image-oriented products at
value prices. As a result, BOSS and Beverly Hills Polo Club products typically
sell at retail prices below those of many well known designer brands. The
Company anticipates that its Girbaud line of products will sell at retail prices
below those of many other internationally recognized designer brands.
CREATIVE AND INNOVATIVE MARKETING. The Company has built strong name
recognition and brand image for its BOSS and Beverly Hills Polo Club products
through a coordinated merchandising, advertising and promotion strategy. Since
the Company has not had the resources to commit to a major mass media campaign,
it has relied on innovation and creativity to reach its target customers who are
image conscious and influenced by fashion, music and sports. In advertising its
products, the Company uses magazines such as VIBE, SOURCE, SLAM, GQ and POV,
television shows and networks including Turner Network Television (TNT), Black
Entertainment Television (BET), MTV: Music Television, Univision, Telemundo and
various amateur and professional sporting events. The Company is also a sponsor
of the Chicago Bulls, New York Knicks, New Jersey Nets, Atlanta Hawks, Detroit
Pistons and Los Angeles Clippers professional basketball teams and promotes the
image of its BOSS and Beverly Hills Polo Club products by providing celebrities
with its branded clothing and featuring its products in television programs and
movies. The Company influences the presentation of those brands and products at
the retail level by providing in-store signage, video advertisements and the
"Shop-in-Shop" concept. The "Shop-in-Shop" concept involves the retailer
grouping of the Company's products by a retailer in one designated area and
complementing the presentation of the Company's products with signage and
fixturing to enhance the visibility of the brand. The Company intends to market
its Girbaud line of products following a similar strategy.
FLEXIBLE MANUFACTURING AND SOURCING. The Company believes that its ability
to source products from its United States facilities and third party foreign and
domestic manufacturers provides it with significant manufacturing flexibility.
The Company owns and operates three manufacturing facilities in the United
States for the production of bottoms. In addition, the Company contracts for the
manufacture of its products through third party foreign and domestic
manufacturers. Currently, the Company utilizes approximately 50 factories in
more than 10 countries including China, Hong Kong, Korea, Mexico, the
Philippines, Taiwan, Thailand and the United States. See "--Manufacturing and
Product Sourcing." The
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<PAGE>
Company achieves rapid delivery capability by producing jeans in its own
manufacturing facilities and tee shirts at domestic contractors. In addition,
the Company gains a significant cost advantage by utilizing factories in Mexico
and Asia for the manufacture of innovative and labor intensive products that
typically cannot be produced competitively in the United States. The Company
does not have long-term contracts with any manufacturers, and most of the
Company's manufacturers supply the Company on a non-exclusive basis pursuant to
purchase orders. This combination of manufacturing and sourcing capabilities
enhances the Company's production flexibility and capacity while effectively
enabling it to control the timing, quality and pricing of its products.
GROWTH STRATEGY
The Company's growth strategy includes continued capitalization on its
competitive strengths and the implementation of specific strategies for
continued expansion. The Company's principal growth strategies are as follows:
BROADEN PRODUCT OFFERINGS. The Company believes it can effectively broaden
its product offerings through the expansion of products offered under existing
brands as well as the possible addition of new brands. As the BOSS brand has
developed, the Company has shifted its product mix from predominantly bottoms to
a broader collection of sportswear, driven by tops and outerwear. This evolution
is consistent with many sportswear companies, which generally sell several tops
for each pair of bottoms. Currently, the Company sells approximately the same
number of units of tops as bottoms, but the Company believes this ratio will
increase to three to four tops for each pair of bottoms sold. The continued
evolution of the product mix provides significant growth opportunities for the
Company's tops segment. The Company is growing its BOSS line by adding new
product categories, such as polo shirts and swimwear, broadening its outerwear
collection and expanding its boys', juniors' and youth lines. Similarly, the
Beverly Hills Polo Club brand includes a number of product lines that are in the
early stages of market penetration, such as outerwear, and a number of potential
product line expansions, such as men's dress shirts. To further develop the
Beverly Hills Polo Club brand, product offerings within the Beverly Hills Polo
Club women's line are also being expanded, and the Company is reorganizing and
increasing its women's sales force. The recent addition of the Girbaud brand
adds a European-influenced designer sportswear brand to the Company's sportswear
lines. The Company intends to offer a full array of men's bottoms, knit and
woven tops and outerwear under the Girbaud brand.
ENHANCE MARKETING PROGRAMS. While the Company believes that its current
marketing strategy is one of its primary competitive strengths, it intends to
continue its efforts to increase net sales by enhancing consumer recognition of
its brand names and images through expanded marketing efforts. The BOSS brand is
currently advertised through a variety of media, including television and print,
while the Beverly Hills Polo Club brand is primarily advertised through print
media. As the Company continues to grow, it plans to use its increased financial
resources to further support and expand the brand exposure for BOSS, Beverly
Hills Polo Club and Girbaud through increased television and print advertising,
and various forms of outdoor advertising such as billboards and signage on buses
and at bus stops. To further differentiate its products at the retail level, the
Company also plans to expand its point-of-sale advertising. Specifically, the
Company intends to build upon its existing programs to provide signage and
posters and to expand its presence in the stores by providing additional
permanently identified free-standing fixtures and presentation services. The
Company also plans to enhance the visibility of its products at the retail level
through the "Shop-in-Shop" concept. The Company believes an expanded
"Shop-in-Shop" program will further stimulate retailers to make longer term
commitments to the Company's products and will encourage each store to carry a
broader array of the Company's products each season.
EXPAND CHANNELS OF DISTRIBUTION. As demand for its sportswear increases,
the Company believes that it can continue to expand and penetrate various
channels of distribution, primarily the department store channel. In recent
years, the Company has expanded its distribution channels beyond the specialty
stores and specialty store chains with its BOSS label to begin significant
distribution to department store customers. As a result, J.C. Penney Company,
Inc. was the Company's largest customer in 1996. Under the
33
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BOSS brand, the Company is also selling to other major department stores
including The May Department Stores Company, Federated Department Stores, Inc.
and Dayton Hudson Corporation. Further penetration of these accounts with the
BOSS product line is a primary focus of the Company, and the recently introduced
"Shop-in-Shop" concept should help facilitate this department store expansion.
The Beverly Hills Polo Club brand has not penetrated the department store
channel to the same extent as the BOSS brand, and the expanded distribution of
Beverly Hills Polo Club products in department stores is a primary growth focus
of the Company. The Company intends to market the Girbaud line to specialty
stores, specialty store chains and department stores. In addition, the Company
will continue to increase the number of products distributed to specialty stores
and specialty store chains. The Company already sells to over 4,000 specialty
stores and specialty store chains and believes that this broad cross-section of
active accounts distinguishes it from many of its competitors. Utilizing its 44
sales representatives and in-house credit department, the Company plans to
expand the product categories that it sells to the specialty store channel of
distribution.
INCREASE EUROPEAN PRESENCE FOR BEVERLY HILLS POLO CLUB. The Company
believes that it is well positioned to capitalize on the acceptance of the
Beverly Hills Polo Club brand name by continuing to expand its European
sportswear distribution. The classic American sportswear look conveyed by the
Beverly Hills Polo Club line is popular with European youth, due in part to the
proliferation of American entertainment, including music, movies, television
programs and professional sports. The Company is expanding its wholesale and
retail channels of distribution in Europe to meet this increasing demand. While
the Company has only recently entered the European market in the fourth quarter
of 1996, it currently has distributors in Belgium, France, Greece, Italy,
Luxembourg, the Netherlands, Norway, Portugal and the United Kingdom. To meet
the consumer demand for its Beverly Hills Polo Club sportswear, the Company has
been moving to expand its network of wholesale distributors in Europe and is
currently negotiating agreements to add distribution capabilities in Austria,
Germany and Switzerland. Each of the Company's distributors has an agreement
with the Company pursuant to which the distributor is the exclusive distributor
of specified products of the Company within a specified territory. In addition,
the Company has established three franchise stores in Spain, including a
showcase store in Madrid. Discussions are currently underway for several
additional franchise stores in Spain and elsewhere in Europe.
PRODUCTS
The Company's sportswear collections under the BOSS and Beverly Hills Polo
Club brands provide a broad range of product offerings for young men, women and
boys, including a variety of tops, bottoms and outerwear. Beginning in early
1998, the Company plans to provide a collection of men's sportswear under the
Girbaud brand including a broad array of bottoms, tops and outerwear. While
these brands reflect a distinct image and style, each is targeted to consumers
who are seeking high quality, fashionable products at competitive prices. The
Company also manufactures and markets women's sportswear under its own "I.C.
Isaacs," "Lord Isaacs" and "Pizzazz" brand names as well as under third-party
private labels. Consistent with its focus on branded products, the Company
discontinued its manufacture of men's private
34
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label apparel in the fourth quarter of 1996. The following table sets forth, for
the periods indicated, the Company's net sales categorized by brand and product
category:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MEN'S(1)
BOSS Bottoms................................................... $ 37,724 $ 37,234 $ 44,667 $ 32,360 $ 44,238
BOSS Tops...................................................... 6,709 15,882 29,284 21,014 35,543
BOSS Boys'..................................................... 1,834 3,264 6,736 4,201 10,833
Men's BHPC..................................................... 2,795 5,219 12,226 8,103 19,584
Men's Private Label............................................ 3,227 4,299 500 485 83
--------- --------- --------- --------- ---------
Men's net sales............................................ 52,289 65,898 93,413 66,163 110,281
--------- --------- --------- --------- ---------
WOMEN'S(1)
BOSS Juniors'(2)............................................... 9,528 5,424 5,413 5,263 3,204
Women's BHPC................................................... 1,048 1,833 2,043 1,775 1,128
Women's Other(3)............................................... 22,433 20,116 17,786 13,479 12,634
--------- --------- --------- --------- ---------
Women's net sales.......................................... 33,009 27,373 25,242 20,517 16,966
--------- --------- --------- --------- ---------
Total net sales............................................ $ 85,298 $ 93,271 $ 118,655 $ 86,680 $ 127,247
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) The net sales totals incorporate product returns allocated in proportion to
gross sales.
(2) Results for the year ended December 31, 1994 include approximately $2.5
million of net sales of tee shirts and sweatshirts with unisex styling that
were discontinued after the Company obtained a license to manufacture and
sell men's BOSS tops in the fourth quarter of 1994. As a result, these
products were recategorized in men's BOSS tops in 1995 and thereafter.
(3) Includes Company-owned brands and third-party private labels.
BOSS PRODUCTS
The BOSS brand is a full sportswear line characterized by innovative
fabrication, creative graphics and bold uses of color. BOSS products appeal to
young men, young women and boys, who want a fresh, fashion-forward look with an
urban attitude at a competitive price. As the line has expanded and matured, the
demographics of BOSS customers have expanded beyond their urban base to include
fashion-conscious young consumers across the United States. Over the past three
years, the Company has placed increased emphasis on expansion of the top's
segment, and it anticipates that this segment will continue to be the fastest
growing category of products in the BOSS collection.
Bottoms
The Company's BOSS products began as a line of high-quality jeans and other
denim casual wear. The bottoms line currently consists of a wide variety of
denim jeans in a broad array of colors, designs and styles together with
corduroy and twill pants. Many of the BOSS jeans feature elements such as unique
pocket treatments, innovative trim and embroidered logos. The Company maintains
its own washing facilities, which allow it to create a variety of washes for its
denim products. The Company identified an underserved niche in the young men's
market for fashion jeans at moderate price points as compared with many designer
jeans, which retail for $60 and up per pair. The estimated retail price for the
Company's jeans is between $35 and $50 per pair. In the spring of 1997, the
Company expanded its product offerings by introducing a swimwear collection.
Estimated retail prices for swimwear range from $30 to $40.
Tops and Outerwear
The BOSS young men's line includes a variety of tops, tee shirts and
outerwear. The BOSS tops collection consists of a range of products including
cotton tee shirts, polo shirts, cotton pique shirts, novelty knit tops and
fleece sweatshirts. These products utilize unique combinations of textured
polyester fabrications, as well as a broad array of appliqued logos and
innovative graphics. The styling of many of the BOSS tops is influenced by
sports clothing and uniforms and conveys an energetic, youthful attitude. The
35
<PAGE>
Company has expanded its outerwear line, which includes a variety of products
including nylon jackets and downfilled parkas. The estimated retail prices range
from $19 to $22 for tee shirts, $30 to $55 for tops and $50 to $100 for
outerwear products.
Boys', Youth and Juniors' (Young Women)
The Company complements its BOSS young men's line with BOSS boys' and youth
lines, which are targeted to appeal to boys ages 4 to 7 and youth ages 8 to 16.
The BOSS boys' and youth product lines are substantially similar to the young
men's line and include jeans, tee shirts, tops, sweatshirts and outerwear.
Because the boys' market is more price conscious, some of the styles use less
expensive fabrication and design detail. The boys' and youth lines typically
sell at retail prices approximately 10% to 20% below the young men's line.
The BOSS juniors' line is the female counterpart to the BOSS young men's
line and is targeted to appeal to fashion-conscious girls and women ages 16 to
25. The BOSS juniors' collection maintains its own identity as contemporary
sportswear with an urban attitude. The product line includes denim jeans, tee
shirts, skirts, tops and jackets. Many of these styles are characterized by
close-fitting designs utilizing textured fabrics and bold colors. The estimated
retail prices for the juniors' line range from $15 to $20 for tee shirts, $25 to
$50 for tops, $30 to $45 for jeans and $30 to $75 for outerwear.
BEVERLY HILLS POLO CLUB PRODUCTS
The Beverly Hills Polo Club sportswear products are positioned to be an
updated traditional sportswear brand. The products combine contemporary design
details and innovative fabric with classic American styling. With a broader
demographic appeal than the BOSS brand, Beverly Hills Polo Club products are
targeted to appeal to consumers 16 years and older. Today, the Beverly Hills
Polo Club name and accompanying horse and rider logo symbolize quality,
traditional sportswear at competitive prices.
Tops and Outerwear
The Company has merchandised the Beverly Hills Polo Club men's line to place
more emphasis on tops, including a full line of tee shirts, polo shirts, rugby
shirts, denim shirts and sweatshirts made primarily in cotton fabrics such as
pique, jersey and jersey fleece. While classic in styling, the tops line is
distinguished by innovative use of design, embroidery and fabric detail. The
collections also include more contemporary styles and a broader array of novelty
fabrics as well as product offerings such as woven shirts and outerwear,
including jackets and downfilled parkas. In 1998, the Company intends to
introduce a new line of men's dress shirts. Estimated retail prices range from
$19 to $22 for tee shirts, $30 to $60 for tops and $60 to $120 for outerwear.
Bottoms
While the primary focus of the Beverly Hills Polo Club men's line has been
on tops, the collection also includes a full line of bottoms consisting of denim
jeans, twill pants and corduroy casual pants. While somewhat more conservative
in styling compared to the BOSS line, the Beverly Hills Polo Club bottoms line
combines classic styling with unique trim, embroidery and pocket treatments.
Estimated retail prices for jeans and casual pants range from $40 to $55 per
pair.
Women's
The Company's Beverly Hills Polo Club women's sportswear line has a focus
similar to that of the men's sportswear line. It targets active, image-conscious
women 16 years and older and combines classic American styling with distinctive
design detail and fabrication. The product offerings include tee shirts, polo
shirts, denim shirts, jeans and casual pants. The collection also includes many
activewear items which utilize a variety of fabrics and graphic elements.
Estimated retail prices range from $18 to $20 for tee shirts, $30 to $60 for
tops and $40 to $55 for bottoms.
36
<PAGE>
GIRBAUD PRODUCTS
The Girbaud brand is an internationally recognized designer sportswear
label. The Company's collection of Girbaud products will include a full line of
bottoms consisting of jeans and casual pants in a variety of fabrications
including denim, stretch denim, cotton twill and nylon. The Girbaud tops
collection will include cotton tee shirts, polo shirts, knit and woven tops,
sweaters and outerwear. Influenced by European design, each of these collections
will be characterized by innovative styling and fabrication and will be targeted
to men ages 16 to 40. The Company plans to introduce the fall men's collection
in early 1998.
COMPANY-OWNED AND THIRD-PARTY PRIVATE LABEL PRODUCTS
The Company also produces sportswear for women under its own brands,
including "I.C. Isaacs," "Lord Isaacs" and "Pizzazz," as well as under
customers' private labels. These brands focus on pull-on elastic waist pants and
belted trousers in cotton, bleached and stonewashed denim, blended polyester and
rayon. These pants are designed to appeal to more mature women looking for basic
styling at value prices. The Company offers pants in a variety of fits including
missy, petite and large sizes. Color-coordinated tops and sweaters in cotton,
acrylic, blended polyester rayon and ramie cottons complete the mix. Estimated
retail prices range from $13 to $50 for bottoms and $20 to $60 for tops.
CUSTOMERS AND SALES
The Company's products are sold in over 4,000 specialty stores, specialty
store chains and department stores. The Company uses both sales representatives
and distributors for the sale of its products. Sales representatives include
employees of the Company as well as independent contractors. Each of the
Company's distributors and non-employee sales representatives has an agreement
with the Company pursuant to which they serve as the exclusive distributor or
sales representative of specified products of the Company within a specified
territory. The Company does not have long-term contracts with any of its
customers. Instead, its customers purchase the Company's products pursuant to
purchase orders and are under no obligation to continue to purchase the
Company's products. The Company's BOSS products are sold throughout the United
States and Puerto Rico in over 1,500 specialty stores and specialty store
chains, such as Fine's and Miller's Outpost. The Company's newest level of
distribution is to department stores, and its single largest customer in 1996
was J.C. Penney Company, Inc., which accounted for approximately 13% of net
sales. Other department store customers include Federated Department Stores,
Inc., The May Department Stores Company and Dayton Hudson Corporation. The
Company's BOSS products are sold and marketed under the direction of its
national sales office headquartered in New York. In addition to executive
selling based in New York and Dallas, the Company has 18 commissioned sales
representatives who work out of regional showrooms throughout the United States
and Puerto Rico. The Company considers its professional sales force to be one of
its major assets and one of the principal reasons why it has been successful in
establishing relationships with department stores and thousands of specialty
stores and specialty retail chains. See "Risk Factors--Dependence Upon Certain
Customers."
The Company's Beverly Hills Polo Club sportswear is sold in the United
States, Puerto Rico and Europe. Although the Company is only in its third year
of distributing Beverly Hills Polo Club sportswear, the products are sold to
over 1,000 specialty stores, specialty store chains and department stores, such
as J.C. Penney, Inc. and Maurice's. The Company has begun to sell Beverly Hills
Polo Club products to department stores and believes that there is significant
potential for expanded department store sales. The Company's Beverly Hills Polo
Club products are sold and marketed under the direction of its men's and women's
national sales offices in New York. In addition to executive selling based in
New York and Dallas, the Company has a sales force consisting of 14 sales
representatives for its line of men's sportswear and 11 sales representatives
for its line of women's sportswear. To more effectively market the Beverly Hills
Polo Club women's collection, the Company is currently in the process of
reconfiguring and increasing its women's sales force. See "Risk
Factors--Dependence Upon Certain Customers."
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The Company's Beverly Hills Polo Club sportswear has recently begun to be
sold throughout Europe through wholesale distributors, all of whom buy products
directly from the Company. Since January 1, 1997, the Company has entered into
wholesale distribution arrangements with distributors in Belgium, France,
Greece, Italy, Luxembourg, the Netherlands, Norway, Portugal and the United
Kingdom and is negotiating agreements with distributors in Austria, Germany and
Switzerland. Under these arrangements, the distributors purchase goods from the
Company's Spanish subsidiary in United States dollars under irrevocable letters
of credit or by prepayment, thereby minimizing the Company's credit risk. In
addition, the Company has established three franchise stores in Spain, including
a showcase store in Madrid. Discussions are currently underway for several
additional franchise stores in Spain and elsewhere in Europe. See "Risk
Factors--Lack of Significant Operating History in Europe."
The Company intends to begin sales of its Girbaud products in the United
States and Puerto Rico in early 1998 when it introduces the fall men's
collection. The Company anticipates that these products will be sold and
marketed under the direction of a newly created sales force to be headquartered
in New York.
The Company-owned branded products and third-party private label products
are sold under the direction of the women's sales headquarters in New York and
by 15 commissioned sales representatives throughout the United States. The
products are distributed to department stores such as Dayton Hudson Corporation,
Mercantile Stores Company, Inc. and Sears Roebuck and Co.; mass merchandisers
and discounters such as Hills Department Store Company and Ames Department
Stores, Inc.; catalogs such as National Wholesale Co., Inc. and Arizona
Mail-Order Company, Inc. and approximately 1,500 specialty stores nationwide.
DESIGN AND MERCHANDISING
The Company's designers and merchandisers travel around the world in order
to monitor emerging fashion trends and search for styling inspiration and
fabrics. These sources, together with new styling and graphics developed by the
Company's designers, serve as the primary creative influences for the Company's
product lines. In addition, designers and merchandisers regularly meet with
sales management to gain additional market insight and further refine the
products to be consistent with the needs of each of the Company's markets. The
Company's in-house design and product development is carried out by
merchandising departments in New York. Many of the Company's products are
developed using computer-aided design equipment, which allows designers to view
and easily modify images of a new design.
ADVERTISING AND MARKETING
The Company prides itself on its ability to efficiently utilize its
advertising budget. Although the Company has increased its expenditures on
advertising to approximately $2.5 million or 2.1% of net sales in 1996, this is
still a relatively modest amount as compared with some of its competitors. In
1994, 1995 and 1996, the Company's expenditures for advertising and marketing
activities totaled $0.4 million, $1.5 million and $2.5 million, respectively. As
the Company continues to grow, it plans to use its increased financial resources
to further support and expand the brand exposure for each of its brands.
The Company aggressively communicates and reinforces the brand and image of
its BOSS and Beverly Hills Polo Club products through creative and innovative
advertising and marketing efforts. The Company's advertising and marketing
strategies are directed by its national sales offices and developed in
collaboration with its advertising agency. The Company's advertising strategy is
geared towards its youthful consumers whose lifestyles are influenced by music,
sports and fashion. The Company has been advertising the BOSS brand since 1992
and the Beverly Hills Polo Club brand since 1994, and its advertising campaigns
have evolved from trade magazines to a wide variety of media, including
billboards, television, fashion magazines and professional sports endorsements.
Print advertisements for the BOSS brand appear regularly in VIBE, SOURCE and
SLAM magazines, while television advertisements appear on various networks
including Turner Network Television (TNT), Black Entertainment Television (BET),
MTV: Music Television, Univision and Telemundo. Advertisements for
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the BOSS brand also appear on a variety of outdoor advertising media, including
billboards and bus stops. Print advertisements for the Beverly Hills Polo Club
brand are targeted to appeal to a broader demographic base and appear in
magazines such as GQ and POV. Television advertisements for the Beverly Hills
Polo Club brand are currently being developed. The Company's products can also
be seen on some of today's most visible sports and music celebrities, whose
attitude and image are captured by the BOSS and Beverly Hills Polo Club brands.
In addition, the Company is a sponsor of selected professional basketball teams,
including the Chicago Bulls, New York Knicks, New Jersey Nets, Atlanta Hawks,
Detroit Pistons and Los Angeles Clippers.
Recognizing that point of sale advertising is highly effective, the Company
provides an array of in-store signage, fixtures and product videos for both BOSS
and Beverly Hills Polo Club products. In addition, through the "Shop-in-Shop"
concept, the Company seeks to enhance brand recognition and to differentiate its
products from other branded apparel by creating an environment that is
consistent with the image of its products. For example, J.C. Penney Company,
Inc. currently has approximately 250 stores using the "Shop-in-Shop" concept to
showcase BOSS young men's products and approximately 75 stores using the
"Shop-in-Shop" concept to showcase Beverly Hills Polo Club men's merchandise.
The Company plans to expand the "Shop-in-Shop" program to build longer term
commitments with retailers and enable retailers to carry a broader array of the
product lines each season.
The Company intends to advertise and market its Girbaud line of products
following a similar strategy including the use of a variety of print and
television advertisements as well as the use of the "Shop-in Shop" concept.
MANUFACTURING AND PRODUCT SOURCING
GENERAL
The Company believes that its flexible manufacturing and sourcing
capabilities enable it effectively to control the timing, quality and pricing of
products while providing customers with increased value. The Company uses its
own facilities as well as both domestic and foreign contractors for the
production of its products. During 1996, approximately 9% of the Company's
purchases of raw materials, labor and finished goods for its apparel were made
in Mexico; approximately 28% were made in Asia; approximately 23% were made at
third-party facilities in the United States; and the balance was made at the
Company's facilities in the United States. For the first nine months of 1997,
approximately 72% of the Company's manufacturing and sourcing was done by third
parties, all through arrangements with independent contractors. Each of the
Company's independent contractors and independent buying agents has an agreement
with the Company pursuant to which they perform manufacturing or purchasing
services for the Company on a non-exclusive basis. The Company evaluates its
contractors frequently and believes that there are a number of manufacturers
capable of producing products that meet the Company's quality standards. The
Company represents all or a significant portion of many of its contractors'
production and has the ability to terminate its arrangements with any of its
contractors at any time. The Company intends to apply a similar manufacturing
and product sourcing strategy with respect to its Girbaud line of products. See
"Risk Factors--Dependence Upon Unaffiliated Manufacturers; --Risks Relating to
Foreign Operations and Sourcing; and --Potential Shortages of Fabrics."
UNITED STATES AND MEXICO
The Company operates three manufacturing facilities in the United States and
currently utilizes seven contractors in the United States and three in Mexico.
The majority of the production in these facilities is of bottoms and tee shirts.
The Company produces approximately 50% of its bottoms (slacks, jeans, shorts and
skirts) in three Company-operated manufacturing facilities in Mississippi, which
combine to employ approximately 720 people. All three facilities utilize a level
of automation that enables the Company to competitively price its products and
maintain the flexibility necessary to meet its customers' changing demands.
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The Company safeguards its manufacturing capacity by utilizing contractors
in both the United States and Mexico to produce the same product lines. The
Company has established ongoing relationships with all of these contractors but
is not bound by written agreements to continue to do business with any of them.
The Company also uses a variety of contractors in both the United States and
Mexico as needed for value added functions such as embroidery, screen printing
and laundering. Seasonal fluctuations in production requirements are
accommodated by adjusting contracted quantities, while maintaining more
consistent levels of production in Company-operated facilities. All contractors
in the United States and Mexico are selected and managed by the Company's
manufacturing staff in Mississippi and Mexico.
The Company uses a variety of raw materials, principally consisting of woven
fabrics including denim, cotton, polyrayons and various trim items. While the
Company must make commitments for a significant portion of its fabric purchases
in advance of sales, the Company's risk is reduced because a substantial portion
of the Company's products are sewn in basic denim.
ASIA
In addition to the Company's domestic and Mexican pant and tee shirt
production facilities, the balance of the Company's sportswear products is
produced by approximately 50 different manufacturers in more than 10 countries.
Virtually all of the Company's products other than pants and tee shirts are
produced in Asia, but none of the Asian contractors engaged by the Company
accounted for more than 10.0% of the Company's total production in 1996. The
Company has well established relationships with many of its contractors although
it does not have written agreements with them. The Company retains independent
buying agents in various countries in Asia to assist in selecting and overseeing
independent manufacturers, sourcing fabric, trim and other materials and
monitoring quotas. The independent buying agents also perform quality control
functions on behalf of the Company including inspecting materials and
manufactured products prior to accepting delivery. The sourcing and
merchandising staffs in the Company's New York offices oversee all aspects of
Asian fabric and product development, apparel manufacturing, price negotiation
and quality control, as well as the research and development of new Asian
sources of supply.
The Company seeks to achieve the most efficient means for the timely
delivery of its high quality products. With rare exceptions, the Company does
not purchase fabrics but instead negotiates a finished garment price from its
contractors. The contractor must then purchase the approved fabric as part of
the package. Orders are generally placed after the Company has received customer
orders, and delivery of finished goods to customers generally occurs 90 to 150
days after placement of the order. All of the Company's products manufactured
abroad are paid for in United States dollars. Accordingly, the Company does not
engage in any currency hedging transactions. During the last several years, the
volume of the Company's products produced in Asia has increased dramatically,
and this trend is likely to continue in the future.
WAREHOUSING AND DISTRIBUTION
The Company has serviced its United States customers for the last 38 years
utilizing a Company-owned and operated distribution center in Milford, Delaware.
This primary facility has been expanded during that time, resulting in its
present size of approximately 70,000 square feet. Over the last few years, the
Company has leased additional space in the Milford area to accommodate increased
capacity requirements fueled by growth in sales. The Company is in the process
of establishing a computerized "Warehouse Management System" with real-time
internal tracking information and the ability to provide its customers with
electronically transmitted "Advance Shipping Notices." The accuracy of shipments
is increased by the ability to scan coded garments at the packing operation.
This process also provides for computerized routing and customer invoicing. The
vast majority of shipments are handled by UPS, common carriers or parcel post.
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The Company believes that its increased distribution requirements as a
result of rapid growth can be better met by consolidating its warehousing and
distribution functions into a new 150,000 square foot facility to be located in
Milford, Delaware. Consolidating all the receiving, stocking, packing and
shipping functions into one facility should result in improved management
control and less redundancy in supervision and operational functions. The
Company believes that its engineering plan for the new facility will provide the
capacity to accommodate substantial growth in the Company's domestic volume and
will reduce labor costs and improve response times. The Company believes the
construction of this facility should be completed in 1998 at an estimated cost
of between $6.0 million and $7.0 million to be financed through a mortgage loan.
In order to ensure against the possibility of interrupted flow of goods to its
customers, the Company plans to occupy the new facility in phases.
The Company currently services its European customers through a contractual
arrangement with a distribution center in Barcelona, Spain, where the Company
maintains its European headquarters.
QUALITY CONTROL
The Company's quality control program is designed to ensure that all of the
Company's products meet its high quality standards. The quality of piece goods
is monitored prior to garments being produced, and prototypes of each product
are inspected and approved before production runs are commenced.
The goods produced by Company-operated facilities, as well as by United
States and Mexican contractors, undergo continual audits by quality personnel
during production. The quality control efforts of Company-operated facilities
are directed and coordinated by the Company's Quality Control Manager located in
Mississippi. Frequent visits are made by the Quality Control Manager and other
support staff to all outside contractors to ensure compliance with the Company's
rigorous quality standards. Audits are also performed by quality personnel at
the Milford, Delaware distribution center on all categories of incoming
merchandise. The Company employs a full-time staff of 43 persons dedicated to
the quality control efforts of its United States and Mexican production. See
"Risk Factors--Potential Shortages of Fabrics; and --Dependence Upon
Unaffiliated Manufacturers."
All garments produced for the Company in Asia must be produced in accordance
with the Company's specifications. The Company's import quality control program
is designed to ensure that all of the Company's products meet its high quality
standards. The Company monitors the quality of fabrics prior to the production
of garments and inspects prototypes of products before production runs are
commenced. In many cases, the Company requires its agents or manufacturers to
submit fabric to an independent outside laboratory for testing prior to
production. The Company requires each agent to perform both in-line and final
quality control checks during and after production before the garments leave the
contractor. Personnel from the Company's New York office also visit Asia to
conduct inspections. See "Risk Factors-- Potential Shortages of Fabrics; and
- --Dependence upon Unaffiliated Manufacturers."
BACKLOG AND SEASONALITY
The Company's business is impacted by the general seasonal trends that are
characteristic of the apparel and retail industries. In the Company's segment of
the apparel industry, sales are generally higher in the first and third
quarters. The Company generally receives orders for its products three to five
months prior to the time the products are delivered to stores. As of September
30, 1997, the Company had unfilled orders of approximately $45 million, compared
to approximately $51 million of such orders as of September 30, 1996. The
Company expects to fill substantially all of these orders in 1997. The backlog
of orders at any given time is affected by a number of factors, including
seasonality, weather conditions, scheduling of manufacturing and shipment of
products. These factors, combined with variations in the timing of product
orders by specialty store customers, contributed to the decrease in backlog from
September 30, 1996 to September 30, 1997. All such orders are subject to
cancellation for causes such as late delivery. Accordingly, a comparison of
backlogs of orders from period to period is not necessarily meaningful and may
not be indicative of eventual actual shipments. See "Risk Factors--Seasonality
and Quarterly Fluctuations."
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LICENSES AND OTHER RIGHTS AGREEMENTS
The Company's business is heavily dependent upon its use of the BOSS,
Beverly Hills Polo Club and Girbaud brand names and images, which are in turn
dependent upon the existence and continuation of certain licenses and other
rights agreements as described below. See "Risk Factors--Dependence Upon
Licenses and Other Rights Agreements."
BOSS TRADEMARK RIGHTS
In 1990, the Company obtained a license from Brookhurst to use the
registered trademark BOSS in the United States and Puerto Rico in connection
with certain items of sportswear for men and women. Brookhurst and its
predecessors had utilized the BOSS trademark since the late nineteenth century.
As part of the Settlement, Brookhurst (i) sold its BOSS trademark rights
worldwide (excluding Mexico), goodwill and registrations to the Company, (ii)
assigned its rights with respect to the BOSS trademark under certain agreements
with third parties (the rights under (i) and (ii) above referred to collectively
as the "BOSS Trademark Rights") to the Company and (iii) agreed to cease using
the BOSS brand name and image (except for a limited sell-off of certain uniforms
and samples bearing the BOSS mark). As part of the Settlement, the Company sold
its foreign BOSS trademark rights and its rights under related agreements
acquired from Brookhurst (the "BOSS Foreign Trademark Rights") to Ambra. The
Company also entered into a foreign manufacturing rights agreement with Ambra
(the "Foreign Rights Agreement") under which the Company obtained a license to
manufacture apparel in certain foreign countries for sale in the United States
using the BOSS brand name and image. The Company retained its ownership of
domestic BOSS Trademark Rights ("Domestic BOSS Trademark Rights") subject to a
concurrent use agreement with Hugo Boss (the "Concurrent Use Agreement").
Subject to the terms of the Concurrent Use Agreement, Hugo Boss retained the
right to manufacture and market sportswear and other products using the BOSS
name. In the event Hugo Boss manufactures and markets sportswear products which
the Company is permitted to manufacture and market under the Concurrent Use
Agreement, Hugo Boss must sell such products at or above specified wholesale
price points in the United States and Puerto Rico, which are generally higher
than the price points of the Company. Although there is some degree of overlap
in the wholesale price points of the Company and Hugo Boss under the Concurrent
Use Agreement, the Company does not currently sell or intend to sell BOSS brand
sportswear within those overlapping price points and does not anticipate any
material adverse effect on the Company's financial condition or results of
operations if Hugo Boss were to manufacture and market sportswear within those
overlapping price points. See "Risk Factors--Recent Settlement of BOSS
Litigation."
Under the agreements entered into in connection with the Settlement, the
Company's BOSS rights were expanded to allow broader product offerings and
additional Company control over styling, advertising and distribution. In
addition to the categories of apparel which the Company was permitted to
manufacture, distribute, market and sell under its previous license agreement
with Brookhurst, under the Settlement, the Company acquired the right to
manufacture, distribute, market and sell, within specified wholesale price
points, the following categories of apparel under the BOSS brand in a specified
microgramma style (the "BOSS Logotype"): swimwear, jogging suits, polo shirts
and belts (as parts of garments). The Company may use the BOSS trademark in
forms other than the BOSS Logotype with the prior approval of the other parties
to the agreements. The Company is prohibited from using the BOSS brand name or
image on footwear, formal and tailored clothing, leather clothing, body wear,
underwear, intimate apparel, loungewear, sleepwear and robes, clothing designed
for the primary purpose of engaging in skiing, tennis, motor sports, windsurfing
and any non-apparel items. The Concurrent Use Agreement sets forth specific
parameters governing the use by the Company of the BOSS Logotype with respect to
advertising, wholesale pricing points and the size, location, appearance, style
and coloring of the trademark on different product categories and advertising,
and requires that the Company use the phrase "BOSS by I.G. Design" in the BOSS
Logotype on its BOSS products. No material adverse effect on the Company's
financial condition or results of operations is expected as a result of the
Concurrent Use Agreement.
Under the Foreign Rights Agreement, the Company continues to have the right
to manufacture BOSS apparel in foreign countries, including those in which the
Company is currently manufacturing BOSS apparel and several additional
countries. No significant changes are anticipated with respect to the Company's
foreign manufacturing activities and therefore no material adverse effect on the
Company's
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financial condition or results of operations is expected. The Foreign Rights
Agreement will terminate on December 31, 2001, but may be extended, at the
Company's option, through December 31, 2007.
Under the Foreign Rights Agreement, the Company will pay annual royalties of
12.5%: (i) on the first $32.0 million of net sales attributable to apparel
manufactured in those foreign countries in which the Company currently
manufactures or will manufacture BOSS products and several additional countries
("Territory Net Sales") for each of the first four years of the agreement; (ii)
on the first $20.0 million in Territory Net Sales for year five of the
agreement; and (iii) on the first $16.0 million of Territory Net Sales in years
six through ten of the agreement. Such base royalties will increase upon any
prepayment of the Note. For the first four years of the agreement, an aggregate
additional royalty of 5.0% is payable annually on Territory Net Sales from $84.0
million to approximately $105.3 million and an aggregate additional royalty of
4.0% is payable annually on Territory Net Sales of $158.0 million and up.
Additional royalties in years five through ten of the agreement increase for
certain corresponding sales levels. The Company is required, subject to certain
royalty payment caps set forth in the agreement, to generate minimum annual
Territory Net Sales of at least $32.0 million for each of the first four years
of the agreement; $20.0 million for the fifth year of the agreement and $16.0
million for each of years six through ten of the agreement. The Company's
Territory Net Sales for any given year under the agreement must equal at least
95.0% of total net sales attributable to BOSS apparel manufactured worldwide. To
the extent that the Company does not achieve the required Territory Net Sales,
the Company will have the right, in order to avoid termination of the agreement,
to pay royalties as if such Territory Net Sales had been achieved.
The Foreign Rights Agreement may be terminated by the licensor upon the
occurrence of certain events, including, but not limited to (i) a material
breach by the Company after expiration of the applicable grace period, (ii)
certain events of bankruptcy, insolvency or assignment for the benefit of all
creditors relating to the Company or the appointment of a receiver or trustee
for the Company (a "Bankruptcy Event"), (iii) certain specified changes in the
control of the ownership of the Company and (iv) certain uncured breaches by the
Company's foreign manufacturers of the terms of the agreements. In addition to
terminating the agreement, the licensor may require the Company to pay on an
accelerated basis all royalties due under certain sales assumptions through the
then current term of the agreement upon the occurrence of certain events
including, but not limited to (i) the failure of the Company to pay royalties
when due or to meet certain minimum sales requirements, (ii) the failure of the
Company to manufacture products in certain foreign countries, (iii) the sale of
the licensed products outside the United States, (iv) certain attempts by the
Company to create or establish trademark rights in the word BOSS in its own name
anywhere outside of the United States, (v) the willful and material breach of
the agreement and (vi) the occurrence of a Bankruptcy Event. The Company's
rights to use the BOSS name will terminate upon exercise of the Option (as
hereinafter defined) or upon earlier termination of any of the other agreements.
Any termination of the Company's rights to use the BOSS name could have a
material adverse effect on the Company's financial condition or results of
operations.
Ambra holds an option to purchase the Domestic BOSS Trademark Rights from
the Company (the "Option") for an amount equal to the original principal amount
of the Note at any time between November 5, 2006 and December 31, 2007 or
earlier upon (i) certain breaches of the Concurrent Use Agreement, (ii) an event
of default under the Note or (iii) termination for any reason of the Foreign
Rights Agreement. See "Risk Factors--Dependence Upon Licenses and Other Rights
Agreements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
BEVERLY HILLS POLO CLUB LICENSES
Beverly Hills Polo Club Domestic Licenses
Since 1993, the Company has had exclusive wholesale licensing agreements
(collectively, the "BHPC Agreements") with BHPC Marketing, Inc. for the
manufacture and promotion of certain men's and women's sportswear bearing the
registered trademark Beverly Hills Polo Club with an accompanying horse and
rider design (the "BHPC Trademark") for sale to moderate or better department
stores and specialty stores in the United States and its possessions, including
Puerto Rico. Under the BHPC Agreements, the Company may sell up to 25.0% of its
total volume for each of the men's and women's categories to warehouse clubs.
The licenses generally allow the Company to use the BHPC Trademark on sportswear
designed by or for the Company, subject to a quality approval process for
marketing and advertising
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materials, manufacturing premises and products bearing the trademark. Under each
of these licenses, as amended through April 1997, the Company is required to
make payments to the licensor in an amount equal to 5.0% of the Company's net
invoiced sales of licensed merchandise and to spend an amount equal to 1.0% of
net invoiced sales of such merchandise in advertising for the licensed products.
Under each license, the Company pays a monthly royalty equal to the greater of
8.3% of the guaranteed minimum annual royalty or the actual royalty earned by
the licensor in the preceding month.
Under the Beverly Hills Polo Club men's agreement (the "Men's Agreement")
the Company has been granted an exclusive license to use the BHPC Trademark in
connection with menswear fashions made of materials other than silk in the
following categories: denim sportswear, outerwear, knit, woven and dress shirts,
knit and woven casual pants and shorts, sweaters, basic and fashion fleece tops
and bottoms, overalls and shortalls, knit tops (including tee shirts and polo
shirts), swimwear and warm-ups. The Men's Agreement has an initial term expiring
December 31, 1998 and is renewable at the option of the Company, provided the
Company is not in breach thereof at the time renewal notice is given, for two
consecutive three-year periods commencing January 1, 1999, through December 31,
2004.
The Company's payment of royalties under the Men's Agreement is subject to a
guaranteed minimum annual royalty of $350,000 for the contract year ending
December 31, 1997 and $400,000 for the contract year ending December 31, 1998. A
guaranteed minimum annual royalty payment of $300,000, which was required for
the contract year ending December 31, 1996, was exceeded by the Company.
Notwithstanding its term, the Men's Agreement may be terminated by the licensor
in the event the Company fails to make net shipments of products for the
contract year ending December 31, 1997 in the amount of $7.0 million and for the
contract year ending December 31, 1998 in the amount of $8.0 million. Guaranteed
minimum annual royalties and guaranteed annual net shipments for each of the
renewal terms will be the greater of (i) 80.0% of the immediately preceding
contract year's actual royalties and net shipments or (ii) the previous year's
guaranteed minimum royalty and guaranteed net shipments.
The Beverly Hills Polo Club women's agreement (the "Women's Agreement")
grants the Company the right to use the BHPC Trademark in connection with
women's, missy, junior, petite and large size coordinated sportswear, sweaters,
sweater dresses, sweater suits, basic fleece tops and bottoms, basic tee shirts,
basic polo shirts, warm ups in knit and woven fabrics and women's tennis and
golf related shorts sets, skort sets and pant sets in knit and woven fabrics.
The Women's Agreement has an initial term expiring December 31, 1998 and is
renewable at the option of the Company, provided the Company is not in breach
thereof at the time renewal notice is given, for two consecutive three-year
periods commencing January 1, 1999, through December 31, 2004.
The Company's payment of royalties under the Women's Agreement is subject to
a guaranteed minimum annual royalty of $100,000 for the contract year ending
December 31, 1997 and $150,000 for the contract year ending December 31, 1998.
No guaranteed minimum annual royalty payment was required for the contract year
ending December 31, 1996. Notwithstanding the term of the Women's Agreement, the
women's license may be terminated by the licensor in the event the Company fails
to make net shipments of products for the contract year ending December 31, 1997
in the amount of $2.0 million and for the contract year ending December 31, 1998
in the amount of $3.0 million. Such termination provision has been waived for
the contract year ending December 31, 1997. Guaranteed minimum annual royalties
and guaranteed annual net shipments for each of the renewal terms will be the
greater of (i) 80.0% of the immediately preceding contract year's actual
royalties and net shipments or (ii) the previous year's guaranteed minimum
royalty and guaranteed net shipments.
Each of the Men's and the Women's Agreements may be terminated by the
licensor upon the occurrence of certain events, including but not limited to the
following: (i) a breach by the Company of any obligation under the Agreement
that remains uncured within 30 days following the receipt of written notice of
such breach, (ii) the Company becomes insolvent, is the subject of a petition in
bankruptcy or otherwise enters into any composition with its creditors,
including reorganization, or (iii) the Company has committed three breaches of
the Agreement, in which case no right to cure the breach is afforded to the
Company.
During the term of the Beverly Hills Polo Club domestic Men's and Women's
Agreements, the Company is prohibited from manufacturing or otherwise
distributing any merchandise under a brand name which closely resembles the BHPC
Trademark and from using on non-Beverly Hills Polo Club products any
44
<PAGE>
graphic, style or design which closely resembles any items supplied to the
Company by the licensor. In addition, the rights of the Company under the Men's
and Women's Agreements are subject to the terms of a Settlement Agreement and
Consent Judgment between the licensor and Polo Fashions Inc., which imposes
certain restrictions on the licensor's manner of use and advertising of the BHPC
Trademark, including a prohibition on the use of the words "Polo" and "Polo
Club" alone on any item of apparel. The Company believes that the BHPC
Trademark, as licensed to the Company, complies with those restrictions.
Beverly Hills Polo Club International Licenses
On August 15, 1996, I.C. Isaacs Europe, S.L., a Spanish limited corporation
and wholly-owned subsidiary of the Company, entered into retail and wholesale
license agreements (collectively, the "International Agreements") for use of the
BHPC Trademark in Europe. The International Agreements, as amended through April
28, 1997, provide certain exclusive rights to use the BHPC Trademark in all
countries of Europe for an initial term of three years ending December 31, 1999,
renewable at the Company's option through two consecutive three-year extensions
ending December 31, 2004. The International Agreements are subject to
substantially the same terms and conditions as the BHPC Agreements described
above. The Company commenced its operations under the International Agreements
by January 1, 1997, as required by the terms thereof.
The international retail agreement (the "Retail Agreement") grants the
Company the right to use the BHPC Trademark in connection with the manufacture
and sale through authorized Beverly Hills Polo Club retail stores and franchised
stores in Europe of the following categories of products: (i) men's pants, woven
shirts, knit shirts, jeans, shorts, sweaters and outerwear (excluding dress
shirts and suits); (ii) women's slacks, skirts, dresses, sweaters, outerwear,
blouses and jeans; and (iii) all other products licensed by the Beverly Hills
Polo Club licensor to other third parties (which must be purchased by the
Company from the authorized third-party licensees). The Retail Agreement
excludes dress shirts and suits. Under the Retail Agreement, the Company is
required to pay the licensor royalties equal to (i) 4.0% of the wholesale
purchases by the Company of Beverly Hills Polo Club products sold to Beverly
Hills Polo Club retail stores and (ii) 2.0% of retail sales of licensed products
by Beverly Hills Polo Club retail stores. The Company is subject to guaranteed
minimum annual royalty payments of $60,000 in 1998 and $100,000 in 1999 and
guaranteed net shipment volumes of $1.0 million in 1998 and $2.0 million in
1999. There are no guaranteed minimum annual royalty payments or guaranteed net
shipment volumes for the contract year ended December 31, 1997. The Retail
Agreement is subject to applicable franchising laws in Europe and, as a result,
the licensor may terminate the agreement if the Company is unable to obtain any
necessary governmental approval or to make any necessary governmental filings
within four months from the date of the first franchise agreement.
The international wholesale agreement (the "Wholesale Agreement") grants the
Company the right to use the BHPC Trademark in connection with the manufacture
and sale at wholesale, for distribution to department stores and specialty
stores in Europe, of the following categories of products: (i) men's apparel
(excluding suits, ties, underwear, shoes and full length rainwear); and (ii)
women's apparel (excluding hosiery, intimate apparel, business suits, underwear,
accessories, shoes and full length rainwear). Under the Wholesale Agreement, the
Company is required to pay the licensor a royalty equal to 6.0% of net shipments
by the Company of licensed products directly to authorized Beverly Hills Polo
Club distributors or to retail stores. The Wholesale Agreement imposes
guaranteed minimum annual royalty payments of $120,000 in 1998 and $240,000 in
1999 and guaranteed net shipment volumes of $2.0 million in 1998 and $4.0
million in 1999. There are no guaranteed minimum annual royalty payments or
guaranteed net shipment volumes for the contract year ended December 31, 1997.
GIRBAUD LICENSE
In November 1997, the Company entered into an exclusive license agreement
(the "Girbaud Agreement") with Girbaud Design, Inc. and its affiliate Wurzburg
Holding S.A. to manufacture and market men's jeanswear, casualwear and outerwear
under the Girbaud brand and certain related trademarks (the "Girbaud Marks") in
all channels of distribution in the United States, including Puerto Rico and the
U.S. Virgin Islands. The Girbaud Agreement includes the right to manufacture the
licensed products in a
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<PAGE>
number of foreign countries. This Girbaud Agreement has an initial term of two
years through December 31, 1999, and may be extended at the option of the
Company for an additional three-year term. The Company holds certain rights of
first refusal to extend the Girbaud product lines to include men's activewear,
and women's, boys' and girls' jeanswear, activewear and casualwear. The Girbaud
Agreement generally allows the Company to use the Girbaud Marks on apparel
designed by or for the Company or based on designs and styles previously
associated with the Girbaud brand, subject to quality control by the licensor
over the final designs of the products, marketing and advertising materials and
manufacturing premises.
Under the Girbaud Agreement the Company is required to make payments to the
licensor in an amount equal to 6.25% of the Company's net sales of regular
licensed merchandise, and 3.0% in the case of certain irregular and closeout
licensed merchandise. The Company is subject to guaranteed minimum annual
royalty payments of $1.2 million in 1998, $1.5 million in 1999, $2.0 million in
2000, $2.5 million in 2001 and $3.0 million in 2002. On a quarterly basis during
the term, commencing with the first quarter of 1998, the Company is obligated to
pay the greater of (i) actual royalties earned by the licensor under the license
or (ii) 8.3% of the minimum guaranteed royalties for that year. The Company is
required to spend at least $350,000 in advertising for the Girbaud brand in 1998
and $500,000 each year thereafter while the Girbaud Agreement is in effect. The
Girbaud Agreement may be terminated by the licensor upon the occurrence of
certain events, including, but not limited to, a breach by the Company of any
obligation under the Girbaud Agreement that remains uncured following certain
specified grace periods.
CREDIT CONTROL
The Company manages its own credit and collection functions and has never
used a factoring service or outside credit insurance. The Company sells to
approximately 4,100 accounts throughout the United States and Puerto Rico. All
of the functions necessary to service this large volume of accounts are handled
by the Company's in-house credit department in Baltimore, Maryland. The Company
currently employs eight people in its credit department and believes that
managing its own credit gives it unique flexibility as to which customers the
Company can sell and how much business it can do with each. The Company obtains
and periodically updates information regarding the financial condition and
credit histories of customers. Credit personnel evaluate this information and,
if appropriate, establish a line of credit. Credit personnel track payment
activity for each customer using customized computer software and directly
contact customers with receivable balances outstanding beyond 30 days. Under
certain circumstances, the Company may discontinue merchandise shipments until
the outstanding balance is paid. Ultimately, the Company may determine to engage
an outside collection organization to collect past due accounts. The Company
believes this provides a selling advantage over those competitors who factor
their receivables. In 1994, 1995 and 1996, the Company's credit losses were $0.4
million, $0.4 million and $0.9 million, respectively. In each of these years,
the Company's actual credit losses as a percentage of net sales has been less
than three-quarters of one percent. See "Risk Factors--Credit Risks."
COMPETITION
The apparel industry is highly competitive and fragmented and is subject to
rapidly changing consumer demands and preferences. The Company believes that its
success depends in large part upon its ability to anticipate, gauge and respond
to changing consumer demands and fashion trends in a timely manner and upon the
continued appeal to consumers of the BOSS, Beverly Hills Polo Club and Girbaud
brands. The Company competes with numerous apparel brands and distributors
(including Calvin Klein, DKNY, Fila, FUBU, Guess?, Tommy Hilfiger, JNCO and
Nautica). Many of the Company's competitors have greater financial resources
than the Company. Although the level and nature of competition differ among its
product categories, the Company believes that it competes on the basis of its
brand image, quality of design and value pricing. In addition, under the
Concurrent Use Agreement, the BHPC Agreements and the Girbaud Agreement, certain
third parties have retained the right to produce, distribute, advertise and
sell, and to authorize others to produce, distribute, advertise and sell certain
garments that are similar to some of the Company's products, including, in the
case of the BOSS brand, similar garments using the BOSS name at generally higher
wholesale price points. Any such production, distribution, advertisement or sale
of such garments by such licensor or another authorized party could
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<PAGE>
have a material adverse effect on the Company's financial condition or results
of operations. See "Risk Factors--Competition and Changes in Consumer Demands."
MANAGEMENT INFORMATION SYSTEMS
The Company believes that advanced information processing is essential to
maintaining its competitive position. The Company is currently upgrading systems
that allow areas of the business to be more pro-active to customer requirements,
to improve internal communication flow, to increase process efficiency and to
support management decisions. The Company's systems provide, among other things,
comprehensive order processing, production, accounting and management
information for the marketing, selling, manufacturing, retailing and
distribution functions of the Company's business. The Company's software program
allows it to track, among other things, orders, manufacturing schedules,
inventory and sales of its products. The program includes centralized management
information systems, which provide the various operating departments with
financial, sales, inventory and distribution related information. Via electronic
data interchange, the Company is able to ship orders to certain customers within
24 to 72 hours from the time of order receipt.
EMPLOYEES
The Company believes that its employees are one of its most valuable
resources. As of September 30, 1997, the Company had 930 full-time employees.
The Company is not a party to any labor agreements, and none of its employees is
represented by a labor union. The Company considers its relationship with its
employees to be good and has not experienced any material interruption of its
operations due to labor disputes. See "Risk Factors--Dependence Upon Key
Personnel."
PROPERTIES
Certain information concerning the Company's principal facilities is set
forth below:
<TABLE>
<CAPTION>
LEASED OR APPROXIMATE AREA
LOCATION OWNED USE IN SQUARE FEET
- ----------------------------------------- ----------- ----------------------------------------- ----------------
<S> <C> <C> <C>
Baltimore, MD............................ Owned Administrative Headquarters and Office 40,000
Facilities
New York, NY............................. Leased Sales, Merchandising, Marketing and 7,449
Sourcing Headquarters
New York, NY............................. Leased Sales, Marketing and Sourcing 4,300
Headquarters
Barcelona, Spain......................... Leased European Headquarters 2,000
Milford, DE.............................. Owned Distribution Center 70,000
Newton, MS............................... Leased Manufacturing Plant 101,000
Carthage, MS............................. Leased Manufacturing Plant 110,000
Raleigh, MS.............................. Leased Manufacturing Plant 90,000
</TABLE>
The Company also has regional sales offices, all of which are leased, in the
following cities: Atlanta, Georgia; Dallas, Texas; Miami, Florida; Seattle,
Washington; Los Angeles, California; Philadelphia, Pennsylvania; Boston,
Massachusetts; Minneapolis, Minnesota; Charlotte, North Carolina; and Santurce,
Puerto Rico. The Company believes that its existing facilities are well
maintained and in good operating condition. The Company also believes that its
increased distribution requirements can be better met by consolidating its
warehousing and distribution functions into a new 150,000 square foot facility
to be located in Milford, Delaware. See Note 5 of Notes to Consolidated
Financial Statements for further information regarding current lease
obligations.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects (such as emissions to air, discharges to water, and the
generation, handling, storage and disposal of solid and hazardous wastes) or
(ii) impose liability for the costs of clean up or other remediation of
contaminated property, including damages from spills, disposals or other
releases of hazardous substances or wastes, in certain circumstances without
regard to fault. Certain of the Company's operations routinely involve the
handling of chemicals and
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<PAGE>
wastes, some of which are or may become regulated as hazardous substances. The
Company has not incurred any significant expenditures or liabilities for
environmental matters. Although the Company believes that its environmental
obligations will not have a material adverse effect on its financial condition
or results of operations, environmental compliance matters are subject to
inherent risks and uncertainties. See "Risk Factors--Environmental Controls and
Other Regulatory Requirements."
LITIGATION
The Company recently entered into a Settlement of litigation involving use
of the BOSS trademark. The original complaint was filed in the United States
District Court for the Southern District of New York on February 11, 1993 by
Hugo Boss Fashions, Inc., International Fashions Apparel Corporation and Hugo
Boss and sought injunctive relief and compensatory damages. The original
complaint named, among others, Brookhurst, Boss Sportswear (USA), Inc. and the
Company as defendants and was subsequently amended to add Boss Golf Company,
Inc. The defendants filed a counterclaim against the plaintiffs alleging
trademark infringement and related matters arising out of the plaintiffs' use of
the BOSS trademark. In November 1997, the parties entered into the Settlement
pursuant to which the Company will continue to be able to use the BOSS brand
name and image in connection with the manufacture of BOSS brand apparel in the
United States and certain foreign countries, subject to the terms of the
Concurrent Use Agreement, for distribution in the United States and Puerto Rico.
See "--Licenses and Other Rights Agreements--BOSS Trademark Rights."
From time to time the Company is a party to various claims, complaints and
other legal actions that have arisen in the ordinary course of business. The
Company is not presently aware of any such legal proceedings, which, in the
aggregate, it believes would have a material adverse effect on the Company's
financial condition or results of operations.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert J. Arnot...................................... 49 Chairman of the Board, Co-Chief Executive Officer and
Director
Gerald W. Lear....................................... 55 President, Co-Chief Executive Officer and Director
Gary B. Brashers..................................... 50 Vice President--Manufacturing, Chief Operating
Officer and Director
Eugene C. Wielepski.................................. 51 Vice President--Finance, Chief Financial Officer and
Director
Ira J. Hechler....................................... 79 Director
Jon Hechler.......................................... 44 Director
Ronald S. Schmidt.................................... 53 Director
Thomas P. Ormandy.................................... 47 Vice President--Sales
</TABLE>
The Company has two Chief Executive Officers, Robert J. Arnot and Gerald W.
Lear. Messrs. Arnot and Lear share decision-making responsibility with respect
to business strategy, product pricing, budgeting, financial management,
institutional relationships, licensing decisions, European operations and legal
issues.
ROBERT J. ARNOT has been a Director of the Company since 1984, Vice
President of Planning and Corporate Development from 1989 to 1991, Chairman of
the Board of Directors since 1991 and Co-Chief Executive Officer since 1996. He
has been employed by the Company since 1989. In addition to sharing overall
decision-making responsibility as described above, Mr. Arnot has lead
responsibility for the following operating areas, which report directly to him
in New York: BOSS, Beverly Hills Polo Club and Girbaud design and merchandising,
Asian sourcing and manufacturing, BOSS, Beverly Hills Polo Club and Girbaud
sales management and advertising.
GERALD W. LEAR has been a Director of the Company since 1980 and President
and Chief Executive Officer since 1987. He was Vice President from 1975 to 1984
and Executive Vice President from 1984 to 1986. He has been employed by the
Company since 1962. In addition to sharing overall decision-making
responsibility as described above, Mr. Lear has lead responsibility for the
following operating areas, which report directly to him in Baltimore: United
States and Mexican production of bottoms, United States tee shirt production,
I.C. Isaacs bottoms merchandising, bottoms design department, cost accounting,
shipping and warehousing and corporate administration (which includes management
information systems, credit, accounting, customer service and personnel).
GARY B. BRASHERS has been a Director and Chief Operating Officer since 1988
and Vice President-- Manufacturing since 1985. Prior to that he held positions
with the Company in quality control and manufacturing. He has been employed by
the Company since 1978. Prior to joining the Company, he held various
manufacturing management positions in the apparel industry since 1969.
49
<PAGE>
EUGENE C. WIELEPSKI has been a Director, Vice President--Finance and Chief
Financial Officer of the Company since 1991. He has held the positions of
Secretary and Treasurer since 1976. From 1976 to 1990 he was Controller. He is a
Certified Public Accountant and has been employed by the Company since 1973.
IRA J. HECHLER has been a Director of the Company since 1984. He is a
private investor who is also a member of the Board of Directors of American
Banknote Corporation and Concord Camera Corporation. He is Vice Chairman of the
Board of Directors of A.R.T./New York and a member of the Board of Trustees and
Treasurer of the Nassau County Museum of Art.
JON HECHLER has been a Director of the Company since 1984. He has been
employed by Ira J. Hechler and Associates, an investment company, since 1980. He
also serves as President of T. Eliot, Inc., a manufacturer of bathroom
equipment. He is the son of Ira J. Hechler.
RONALD S. SCHMIDT has been a Director of the Company since 1990. He is
President and Chief Executive Officer of I.B. Diffusion, a manufacturer of
ladies' apparel.
THOMAS P. ORMANDY has been Vice President--Sales of the Company since 1986.
Previously, he was a salesman with Thompson and Company, an apparel
manufacturer, since 1975. He is responsible for the sales and marketing of the
BOSS men's, boys' and juniors' lines as well as the Beverly Hills Polo Club
men's line.
BOARD OF DIRECTORS
The Company's Board of Directors is currently comprised of seven members.
There are currently two vacancies, and following the consummation of the
Offering, the Company intends to appoint two additional directors who will be
neither officers nor employees of the Company or its affiliates.
The Company's Board of Directors is divided into three classes of three
members each. Directors of each class will be elected at the annual meeting of
stockholders held in the year in which the term for such class expires and will
serve for three years thereafter. The first class, whose term will expire at the
first annual meeting after the Offering, currently consists of Messrs. Arnot,
Lear and Wielepski; the second class, whose term will expire at the second
annual meeting after the Offering, currently consists of Messrs. Ira J. Hechler,
Jon Hechler and Gary B. Brashers; the third class, whose term will expire at the
third annual meeting after the Offering, currently consists of Mr. Ronald S.
Schmidt. The vacancies in Class III will be filled when the Company appoints two
additional directors after the Offering. For further information on the effect
of the classified Board of Directors, see "Description of Capital Stock--Certain
Certificate of Incorporation, By-law and Statutory Provisions Affecting
Stockholders."
Pursuant to the Restated Shareholders' Agreement, all of the existing
stockholders of the Company have agreed to vote their shares of Common Stock in
elections to fill Class I and Class II of the Board of Directors in favor of the
nominees of the Principal Stockholders (as defined). See "Certain Transactions--
Restated Shareholders' Agreement."
The Company has established a Compensation Committee consisting of Messrs.
Ira J. Hechler, Jon Hechler and Ronald S. Schmidt. The Compensation Committee is
responsible for reviewing and approving all compensation arrangements with
officers of the Company and will also be responsible for administering the 1997
Omnibus Stock Plan. See "--1997 Omnibus Stock Plan."
Within 90 days following the consummation of the Offering, the Board of
Directors will establish an Audit Committee. The Audit Committee will be
responsible for recommending to the Board of Directors the engagement of the
independent auditors of the Company and reviewing with the independent auditors
the scope and results of the audits, the internal accounting controls of the
Company, audit practices and the professional services furnished by the
independent auditors.
The General Corporation Law of the State of Delaware (the "Delaware
Corporation Law") provides that a company may indemnify its directors and
officers as to certain liabilities. The Company's Restated
50
<PAGE>
Certificate and Restated By-laws provide for the indemnification of the
Company's directors and officers to the fullest extent permitted by law, and the
Company intends to enter into separate indemnification agreements with each of
its directors and officers to effectuate these provisions and to purchase
directors' and officers' liability insurance. The effect of such provisions is
to indemnify, to the fullest extent permitted by law, the directors and officers
of the Company against all costs, expenses and liabilities incurred by them in
connection with any action, suit or proceeding which they are involved by reason
of their affiliation with the Company. See "Description of Capital
Stock--Certain Certificate of Incorporation, By-law and Statutory Provisions
Affecting Stockholders; and --Director and Officer Indemnification."
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Directors who are not employees of the
Company will receive an annual retainer fee of $10,000 for their services and
attendance fees of $750 per Board or committee meeting attended. All directors
are reimbursed for expenses incurred in connection with attendance at Board or
committee meetings. In addition, members of the Board of Directors will be
eligible to participate in the Company's 1997 Omnibus Stock Plan. See "--1997
Omnibus Stock Plan."
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or awarded to, or
earned by, the Co-Chief Executive Officers and the four most highly compensated
officers other than the Co-Chief Executive Officers (the "Named Executive
Officers") for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)(2)
-------------------------------
<S> <C> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- --------------------------------------------------------------------------------------- --------- --------- ---------
Robert J. Arnot........................................................................ 1996 $ 275,676 $ 50,000
Chairman of the Board and
Co-Chief Executive Officer
Gerald W. Lear......................................................................... 1996 300,220 50,000
President and
Co-Chief Executive Officer
Gary B. Brashers....................................................................... 1996 200,220 25,000
Vice President--Manufacturing and
Chief Operating Officer
Eugene C. Wielepski.................................................................... 1996 160,220 20,000
Vice President--Finance and
Chief Financial Officer
Thomas P. Ormandy...................................................................... 1996 240,000 110,000
Vice President--Sales
Marc Baff.............................................................................. 1996 107,620 --
Vice President--Sales
</TABLE>
- ------------------------------
(1) In their capacity as stockholders of the Company, the officers listed above
were reimbursed during 1996 for payment of taxes on income of the Company
that was passed through to the stockholders. See "Dividend Policy."
(2) Perquisites did not exceed the lesser of $50,000 or 10.0% of the total
salary and bonus for any of the Named Executive Officers.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into individual employment agreements (the
"Executive Employment Agreements") with each of Messrs. Arnot, Lear, Brashers,
Wielepski and Ormandy (collectively, the "Executives"). The initial term of the
Executive Employment Agreements began on May 15, 1997 (the "Effective Date") and
will terminate on the third anniversary of the Effective Date in the case of
Messrs. Arnot and Lear and on the second anniversary of the Effective Date in
the case of Messrs. Brashers, Wielepski and Ormandy. The Executive Employment
Agreements will automatically extend after the initial term for successive
one-year terms, unless notice not to extend is given by either party at least 60
days prior to the end of the then current term. The Executive Employment
Agreements provide for an annual base salary of $400,000, $400,000, $240,000,
$200,000 and $300,000 plus up to 20.0% thereof as bonus, respectively, which may
be increased based on periodic reviews by the Compensation Committee. In
addition, the Executive Employment Agreements provide that the Executives are
entitled to participate in any bonus and stock option plans, programs,
arrangements and practices sponsored by the Company as may be established from
time to time by the Board of Directors of the Company for the benefit of such
executive employees, in accordance with the terms of such plans. Each Executive
is also entitled to certain fringe benefits, including Company-paid health and
life insurance. If any of the Executives is terminated without cause (as such
term is defined in the Executive Employment Agreements), then such Executive
will receive as severance his then current base salary for the remainder of his
term of employment. The Executive will also continue to participate in
Company-sponsored health, life insurance and other fringe benefit plans and
programs during the severance period. The Executive Employment Agreements also
include certain noncompetition, nonsolicitation and confidentiality provisions.
1997 OMNIBUS STOCK PLAN
On May 15, 1997, the Board of Directors of the Company and the Company's
stockholders adopted the 1997 Omnibus Stock Plan (the "Plan"). The purpose of
the Plan is to promote the long-term growth and profitability of the Company by
providing key people with incentives to improve stockholder value and contribute
to the growth and financial success of the Company, and by enabling the Company
to attract, retain and reward the best-available persons for positions of
substantial responsibility. The maximum number of shares of Common Stock that
may be issued with respect to awards granted under the Plan is 500,000. The Plan
is administered by the Compensation Committee of the Board of Directors.
Participation in the Plan will be open to all employees, officers, directors and
consultants of the Company or any of its affiliates, as may be selected by the
Compensation Committee from time to time. The Plan allows for stock options,
stock appreciation rights, stock awards, phantom stock awards and performance
awards to be granted. The Compensation Committee will determine the prices,
vesting schedules, expiration dates and other material conditions upon which
such awards may be exercised.
DEFINED BENEFIT PENSION PLAN
The Company maintains a defined benefit pension plan (the "Pension Plan")
for its employees. The normal retirement benefit, payable at age 65, is 20.0% of
base compensation up to $10,000 plus 39.5% of base compensation over $10,000,
prorated for service less than 30 years. A reduced benefit is also payable on
early retirement, after age 55 and after 15 years of service. The Pension Plan
also provides disability retirement and death benefits. The Company pays the
full cost of the benefits under the Pension Plan through its contributions to a
trust. The Company's cash contributions to the Pension Plan during the year
ended December 31, 1996 aggregated $0.6 million.
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<PAGE>
The Pension Plan Table below provides the estimated annual benefits payable
under the I.C. Isaacs Pension Plan upon retirement in specified compensation and
years of service classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
RENUMERATION
- -------------
<C> <S> <C> <C> <C> <C> <C>
15 20 25 30 35
--------- --------- --------- --------- ---------
$ 100,000 ............................................. $ 10,875 $ 14,500 $ 18,126 $ 21,751 $ 21,751
125,000 ............................................. 10,875 14,500 18,126 21,751 21,751
150,000 ............................................. 10,875 14,500 18,126 21,751 21,751
175,000 ............................................. 10,875 14,500 18,126 21,751 21,751
200,000 ............................................. 10,875 14,500 18,126 21,751 21,751
225,000 ............................................. 10,875 14,500 18,126 21,751 21,751
250,000 ............................................. 10,875 14,500 18,126 21,751 21,751
300,000 ............................................. 10,875 14,500 18,126 21,751 21,751
400,000 ............................................. 10,875 14,500 18,126 21,751 21,751
450,000 ............................................. 10,875 14,500 18,126 21,751 21,751
500,000 ............................................. 10,875 14,500 18,126 21,751 21,751
</TABLE>
The compensation considered in determining benefits under the plan (as
provided in the column titled "Remuneration") is the annual average compensation
for the five consecutive calendar years producing the highest average. The
compensation considered is limited to $75,000. All amounts of salary, bonus and
other compensation as reported in the Summary Compensation Table, up to $75,000,
are included in compensation considered under the plan. The amounts of benefit
provided in the Pension Plan Table are the amounts of benefit payable per year
in equal monthly installments for the life expectancy of the participants (i.e.,
straight life annuity amounts). The plan is integrated with Social Security, and
its benefit formula is as follows: (i) 0.6667% of compensation, multiplied by
years of service up to 30 years; plus (ii) 0.65% of compensation in excess of
$10,000 multiplied by years of service up to 30 years.
The estimated credited years of service for each of the Named Executive
Officers are as follows, estimated as of January 1, 1997:
<TABLE>
<CAPTION>
ESTIMATED CREDITED
NAME YEARS OF SERVICE
- -------------------------------------------------------------------------- -----------------------
<S> <C>
Robert J. Arnot........................................................... 5
Gerald W. Lear............................................................ 34
Gary B. Brashers.......................................................... 18
Eugene C. Wielepski....................................................... 23
Thomas P. Ormandy......................................................... 10
Marc Baff................................................................. 19
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during 1996, but each of
Messrs. Arnot and Lear (each of whom also served as an executive officer of the
Company during 1996) participated in deliberations concerning executive
compensation. The Executive Employment Agreements were approved by the Company's
current Compensation Committee.
KEY MAN INSURANCE
The following individuals are key employees of the Company, and their
contribution to the Company has been and will be a significant factor in the
Company's future success: Robert J. Arnot, Gerald W. Lear, Gary B. Brashers and
Eugene C. Wielepski. The loss of the services of one or more of these executive
53
<PAGE>
officers for an extended period of time could have a material adverse effect on
the Company's financial condition or results of operations. The Company
maintains and is the beneficiary of life insurance policies in the amount of
$1.0 million on the lives of each of Messrs. Arnot, Lear and Brashers and in the
amount of $0.5 million on the life of Mr. Wielepski.
CERTAIN TRANSACTIONS
RESTATED SHAREHOLDERS' AGREEMENT
The Company's Shareholders' Agreement dated December 20, 1984, as amended,
has been amended and restated, effective as of the time of consummation of the
Offering. Pursuant to the Restated Shareholders' Agreement, Messrs. Robert J.
Arnot, Gerald W. Lear, Ira J. Hechler and Jon Hechler are designated as
Principal Shareholders and the other stockholders of the Company immediately
prior to consummation of the Offering are designated as Non-Principal
Shareholders. The Principal Shareholders and the Non-Principal Shareholders have
agreed to vote their shares of Common Stock, in elections to fill Class I and
Class II of the Board of Directors, to elect nominees of the Principal
Shareholders. The Restated Shareholders' Agreement provides that each of the
Principal Shareholders has granted to each of the other Principal Shareholders
and to the Company rights of first refusal (the "Refusal Right") with respect to
the sale of any shares of the Company's outstanding Common Stock. The Restated
Shareholders' Agreement provides that each of the Non-Principal Shareholders
holding, at the time of the contemplated transfer, in excess of 0.5% of the
outstanding Common Stock of the Corporation has granted to (i) each of the
Principal Shareholders, (ii) each Non-Principal Shareholder and (iii) the
Company, rights of first refusal with respect to the sale of any shares of the
Company's outstanding Common Stock. The Restated Shareholders' Agreement also
provides that in the event that any two of (i) Robert J. Arnot, (ii) Gerald W.
Lear and (iii) Ira J. Hechler and Jon Hechler (a "Majority") agree to enter into
a transaction with a third party for the tender of shares (including, without
limitation, in a change of control transaction), the rights of first refusal set
forth above shall not apply and the Majority or the Company may require the
other Principal Shareholders and Non-Principal Shareholders to participate in
such transaction on the same terms and conditions applicable to the Majority.
The Refusal Right terminates upon the earlier of May 15, 2001 or upon the
Principal Shareholders beneficially owning 20% or less of the shares of Common
Stock outstanding. The remainder of the Restated Shareholders' Agreement
terminates upon the earlier of May 15, 2003 or upon the Principal Shareholders
beneficially owning 20% or less of the shares of Common Stock outstanding.
ACQUISITION OF LIMITED PARTNERSHIP INTEREST
Prior to the Closing Date, the Company's wholly-owned subsidiary, Isaacs
Design, Inc., will acquire the Limited Partnership Interest from Ira J. Hechler,
a director and stockholder of the Company, in exchange for approximately
$335,000 in cash, which the Company believes represents terms no less favorable
than as could have been received from a disinterested third party. After the
acquisition, the Company will have sole control of the Partnership. See "Company
Organization."
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 31, 1997, and
as adjusted to reflect the sale of the Common Stock being offered hereby
(assuming no exercise of the Underwriters' over-allotment option) by (i) each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5.0% of the outstanding Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers and (iv) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP
COMMON STOCK PRIOR TO OF COMMON STOCK
THE OFFERING AFTER THE OFFERING
----------------------- -----------------------
NAME OF BENEFICIAL OWNERS (1) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Robert J. Arnot...................................................... 447,792 11.19% 447,792 5.74%
Gerald W. Lear....................................................... 447,792 11.19 447,792 5.74
Gary B. Brashers..................................................... 288,237 7.21 288,237 3.70
Eugene C. Wielepski.................................................. 185,242 4.63 185,242 2.37
Thomas P. Ormandy.................................................... 158,320 3.96 158,320 2.03
Ira J. Hechler....................................................... 811,361 20.28 811,361 10.40
Jon Hechler.......................................................... 365,791 9.14 365,791 4.69
The Stanley Keller Irrevocable Trust (2)............................. 263,538 6.59 263,538 3.38
Ronald S. Schmidt.................................................... 0 * 0 *
Marc Baff............................................................ 0 * 0 *
All directors and executive officers as a group (10 persons)......... 2,968,073 74.20% 2,968,073 38.05%
</TABLE>
- ------------------------------
* Less than one percent.
(1) The business address of each person listed above beneficially owning more
than 5.0% of the outstanding Common Stock is c/o I.C. Isaacs & Company,
Inc., 3840 Bank Street, Baltimore, Maryland 21224-2522. Except as described
below and subject to the Restated Shareholders' Agreement and applicable
community property laws and similar laws, each person listed above has sole
voting and investment power with respect to such shares. See "Certain
Transactions--Restated Shareholders' Agreement."
(2) The trustees of the Stanley Keller Irrevocable Trust are Barbara Keller and
Howard Schultz.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock.
No predictions can be made as to the effect, if any, that future sales of Common
Stock, and options to acquire shares of Common Stock, or the availability of
shares for future sale, will have on the market price prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could have a material adverse effect on
the market price of the Common Stock. See "Risk Factors--Future Sales by
Existing Stockholders; Shares Eligible for Future Sale" and "Management--1997
Omnibus Stock Plan."
Upon the consummation of the Offering, the Company will have 7.8 million
shares of Common Stock outstanding. Of these shares, the 3.8 million shares of
Common Stock sold by the Company in the Offering will be freely tradable without
restriction or further registration under the Securities Act, unless held by an
"affiliate" of the Company (as that term is defined under the Securities Act).
Any such affiliate will be subject to the resale limitations of Rule 144 adopted
under the Securities Act. The remaining 4.0 million shares of Common Stock
outstanding are "restricted securities" for purposes of Rule 144 and are held by
"affiliates" of the Company within the meaning of Rule 144 under the Securities
Act. Restricted securities may not be resold in a public distribution except in
compliance with the registration requirements of the Securities Act or pursuant
to an exemption therefrom, including the exemption provided by Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including a person who may be deemed to be an "affiliate" of the
Company, is entitled to sell within any three-month period a number of shares
beneficially owned for at least one year that does not exceed the greater of (i)
1.0% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the outstanding shares of Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. However, a person (or persons
whose shares are aggregated) who is not an "affiliate" of the Company during the
90 days preceding a proposed sale by such person and who has beneficially owned
"restricted securities" for at least two years is entitled to sell such shares
under Rule 144 without regard to the volume, manner of sale or notice
requirements.
The Company, together with each of its executive officers, directors and
stockholders beneficially owning in the aggregate 51.3% of the shares of Common
Stock outstanding after the Offering have entered into lock-up agreements with
The Robinson-Humphrey Company, LLC and Legg Mason Wood Walker, Incorporated, as
representatives of the Underwriters, pursuant to which they have agreed not to,
directly or indirectly, sell, offer to sell, contract to sell, solicit an offer
to buy, grant any option for the purchase or sale of, assign, pledge, distribute
or otherwise transfer, dispose of or encumber (or make any announcement with
respect to any of the foregoing), any of their shares of Common Stock (other
than those being sold pursuant to this Offering) or any options, rights,
warrants or other securities convertible into or exercisable or exchangeable for
Common Stock or evidencing any right to purchase or subscribe for shares of
Common Stock for a period of 180 days following the date of this Prospectus
without the prior written consent of the representatives of the Underwriters. In
addition, certain restrictions on transfers of shares of Common Stock by the
existing stockholders of the Company are contained in the Restated Stockholders'
Agreement. Sales of substantial amounts of Common Stock in the public market, or
the perception that such sales may occur, could have a material adverse effect
on the market price of the Common Stock. See "Certain Transactions--Restated
Shareholders' Agreement."
The Company has adopted the 1997 Omnibus Stock Plan, pursuant to which an
aggregate of 500,000 shares are available for option grants and other equity
awards. See "Management--1997 Omnibus Stock Plan." The Company intends to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of Common Stock reserved for issuance under the Plan. Such
registration statement is expected to be filed as soon as practicable after the
date of the Offering and will automatically become effective upon filing. Shares
issued under the 1997 Omnibus Stock Plan after the registration statement is
filed may thereafter be sold in the public market, subject, in the case of the
various holders, to the Rule 144 volume limitations applicable to affiliates,
the lock-up agreement described above and any transfer or vesting restrictions
imposed on the date of the grant.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the form of Restated Certificate and
the form of Restated By-laws, each to become effective upon consummation of the
Offering and each filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
The authorized capital stock of the Company consists of 50.0 million shares
of Common Stock, par value $.0001 per share, and 5.0 million shares of Preferred
Stock, par value $.0001 per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. The Restated Certificate does not provide for cumulative voting in
the election of directors. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any Preferred Stock outstanding at the time, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock have no preemptive rights and no rights to
convert their Common Stock into any other securities and there are no redemption
provisions with respect to such shares. All of the outstanding shares of Common
Stock are fully paid and non-assessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock that the Board
of Directors may designate and that the Company may issue in the future.
At present there is no established trading market for the Common Stock.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ISAC."
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
PREFERRED STOCK
The Restated Certificate provides that the Board of Directors, without
further action by the stockholders, may issue shares of the Preferred Stock in
one or more series and may fix or alter the relative, participating, optional or
other rights, preferences, privileges and restrictions, including the voting
rights, redemption provisions (including sinking fund provisions), dividend
rights, dividend rates, liquidation preferences and conversion rights, and the
description of and number of shares constituting any wholly unissued series of
Preferred Stock. The Board of Directors, without further stockholder approval,
can issue Preferred Stock with voting and conversion rights, which could
adversely affect the voting power of the holders of Common Stock. No shares of
Preferred Stock presently are outstanding, and the Company currently has no
plans to issue shares of Preferred Stock. The issuance of Preferred Stock in
certain circumstances may have the effect of delaying or preventing a change of
control of the Company without further action by the stockholders, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price and the
voting and other rights of the holders of Common Stock.
CERTAIN CERTIFICATE OF INCORPORATION, BY-LAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is divided
into three classes of directors, designated Class I, Class II and Class III.
Each class shall consist, as nearly as possible, of one-third of the total
number of directors. The term of the initial Class I directors will terminate on
the date of the annual meeting of stockholders (an "Annual Meeting") in 1998,
the term of the initial Class II directors
57
<PAGE>
will expire on the date of the 1999 Annual Meeting, and the term of the initial
Class III directors will expire on the date of the 2000 Annual Meeting. At each
Annual Meeting, beginning in 1998, successors to the class of directors whose
term expires at that Annual Meeting will be elected for a three-year term. See
"Management--Board of Directors." At least two annual meetings of stockholders,
instead of one, generally will be required to change the majority of the
Company's Board of Directors.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION BY WRITTEN
CONSENT. The Restated Certificate provides that any action required or
permitted to be taken by the Company's stockholders may be effected without a
meeting, without prior notice and without a vote if a consent in writing is
signed by the holders of a number of shares that would be sufficient to take
such action at a meeting of the stockholders. Additionally, the Restated By-laws
provide that special meetings of the stockholders of the Company may be called
only by the Chairman of the Board of Directors, the Chief Executive Officer or
the President of the Company.
ADVANCE NOTICE REQUIREMENTS OF STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Restated By-laws provide that stockholders seeking to bring
business before or to nominate directors at any meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive offices
of the Company not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that (i) in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date or (ii) in
the case of the annual meeting of stockholders held during the 1998 fiscal year
of the Company, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth day following the day
on which notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was made, whichever first occurs.
The Restated By-laws also specify certain requirements for a stockholder's
notice to be in proper written form. These provisions may preclude some
stockholders from bringing matters before the stockholders or from making
nominations for directors.
DIRECTOR AND OFFICER INDEMNIFICATION. The Delaware Corporation Law provides
that a Delaware corporation may include provisions in its certificate of
incorporation relieving each of its directors of monetary liability arising out
of his or her conduct as a director for breach of his or her fiduciary duty
except liability for (i) any breach of such director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions that are not in good
faith or involve intentional misconduct or a knowing violation of law, (iii)
conduct violating Section 174 of the Delaware Corporation Law (which section
relates to unlawful distributions) or (iv) any transaction from which a director
derived an improper personal benefit. The Company's Restated Certificate
includes such provisions.
To the fullest extent permitted by the Delaware Corporation Law, as amended
from time to time, the Company's Restated Certificate and Restated By-laws
provide that the Company shall indemnify and advance expenses to each of its
currently acting and former directors and officers, and may so indemnify and
advance expenses to each of its current and former employees and agents. The
Company believes the foregoing provisions are necessary to attract and to retain
qualified persons as directors and officers. Following consummation of the
Offering, the Company intends to enter into separate indemnification agreements
with each of its directors and executive officers in order to effectuate such
provisions.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, LLC and Legg
Mason Wood Walker, Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Company has agreed to sell to the Underwriters, the number of shares of Common
Stock set forth opposite their respective names.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
The Robinson-Humphrey Company, LLC...............................................
Legg Mason Wood Walker, Incorporated.............................................
----------
Total........................................................................ 3,800,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share in sales to certain other dealers.
After the Offering, the public offering price and other selling terms may be
changed.
The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 570,000 shares of Common Stock at the Offering price less the
underwriting discount set forth on the cover page of this Prospectus to cover
over-allotments, if any.
Prior to the offering made hereby, there has been no public market for the
Common Stock. The initial public offering price for the Common Stock will be
determined through negotiations among the Company and the Representatives and
will not be based upon any independent appraisal or valuation of the Company.
Among the factors to be considered in making such determination are prevailing
market and general economic conditions, the market capitalization of
publicly-traded companies that the Company and the Representatives believe to be
comparable to the Company, the revenues and earnings of the Company in recent
periods, the experience of the Company's management, the economic characteristic
of the business in which the Company competes, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant.
The Underwriters do not intend to confirm sales of shares of Common Stock to
any account over which they exercise discretionary authority. The
Representatives intend to make a market in the Common Stock after completion of
this Offering.
The Company, together with each of its executive officers and directors and
stockholders beneficially owning in the aggregate approximately 4.0 million
shares of Common Stock, have entered into lock-up agreements with the
Representatives pursuant to which they have agreed not to, directly or
indirectly, sell, offer to sell, contract to sell, solicit an offer to buy,
grant any option for the purchase or sale of, assign, pledge, distribute or
otherwise transfer, dispose of or encumber (or make any announcement with
respect to any of the foregoing) any shares of Common Stock (other than those
being sold pursuant to this
59
<PAGE>
Offering) or any options, rights, warrants or other securities convertible into
or exercisable or exchangeable for Common Stock or evidencing any right to
purchase or subscribe for shares of Common Stock for a period of 180 days from
the date of this Prospectus without the prior written consent of the
Representatives.
In connection with the Offering, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock, and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company in
the Offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the shares sold in the Offering may be reclaimed by the syndicate if such shares
of Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected in the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Piper & Marbury L.L.P. Certain legal matters relating to the Offering
will be passed upon for the Underwriters by Alston & Bird LLP.
EXPERTS
The consolidated financial statements and schedule included in this
Prospectus and in the Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their reports appearing elsewhere herein and in the Registration
Statement and have been included herein in reliance upon such reports given upon
the authority of said firm as experts in accounting and auditing.
60
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company or the Common Stock, reference is made
to the Registration Statement and the exhibits and schedules filed as a part
thereof. Statements contained in this Prospectus regarding the contents of any
contract or any other document are not necessarily complete and, in each
instance, reference is hereby made to the copy of such contract or other
document filed as an exhibit to such Registration Statement. The Registration
Statement, including exhibits thereto, may be inspected, without charge, and
copies of all or any part thereof may be obtained upon payment of prescribed
fees at the public reference facilities of the Commission, maintained by the
Commission at its principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, the New York Regional Office located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and the Chicago Regional
Office located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http:\\www.sec.gov.
Statements contained in this Prospectus concerning the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets at December 31, 1995, 1996 and September 30, 1997......... F-3
Consolidated Statements of Income for the years ended December 31, 1994, 1995, 1996
and the nine months ended September 30, 1996 and September 30, 1997................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994,
1995, 1996 and the nine months ended September 30, 1996 and September 30, 1997...... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995,
1996 and the nine months ended September 30, 1996 and September 30, 1997............ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
I.C. Isaacs & Company, Inc.
Baltimore, Maryland
We have audited the accompanying consolidated balance sheets of I.C. Isaacs
& Company, Inc. and subsidiaries as of December 31, 1995 and 1996 and September
30, 1997 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31, 1996
and the nine month periods ended September 30, 1996 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of I.C. Isaacs
& Company, Inc. and subsidiaries at December 31, 1995 and 1996 and September 30,
1997 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 and the nine month periods
ended September 30, 1996 and 1997 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Washington, D.C.
October 31, 1997, except for
Note 5, the date of which is
November 13, 1997
F-2
<PAGE>
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current
Cash, including temporary investments of $779,436, $368,175
and $127,514................................................ $ 1,411,954 $ 938,799 $ 1,492,535 $ 1,158,036
Accounts receivable, less allowance for doubtful accounts of
$350,000, $660,000 and $1,120,000 (Note 3).................. 10,365,050 16,582,990 32,937,439 32,937,439
Inventories (Notes 1 and 3)................................... 14,323,730 14,090,974 22,526,000 22,526,000
Prepaid expenses and other (Note 6)........................... 703,267 1,266,655 1,601,737 1,601,737
------------- ------------- ------------- -------------
Total current assets............................................ 26,804,001 32,879,418 58,557,711 58,223,212
Property, Plant and Equipment, at cost, less accumulated
depreciation and amortization (Notes 2 and 3)................. 2,818,637 2,399,822 2,514,518 2,514,518
Goodwill, less accumulated amortization of $731,025, $797,265
and $846,945.................................................. 1,921,075 1,854,835 1,805,155 1,805,155
Other Assets (Note 5)........................................... 219,941 122,565 643,190 1,943,190
------------- ------------- ------------- -------------
$ 31,763,654 $ 37,256,640 $ 63,520,574 $ 64,486,075
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Checks issued against future deposits......................... $ 1,217,832 $ 1,150,679 $ 3,333,423 $ 3,333,423
Current maturities of term loan and revolving line of credit
(Note 3).................................................... 7,417,500 6,520,418 22,489,284 22,489,284
Current maturities of capital lease obligations (Note 3)...... 223,999 216,764 142,040 142,040
Accounts payable.............................................. 5,110,126 6,378,310 6,295,096 6,295,096
Accrued expenses and other current liabilities (Note 4)....... 1,816,957 2,144,277 3,611,297 3,611,297
Accrued compensation.......................................... 210,810 194,710 327,509 327,509
Distribution payable.......................................... -- -- -- 18,500,000
------------- ------------- ------------- -------------
Total current liabilities....................................... 15,997,224 16,605,158 36,198,649 54,698,649
------------- ------------- ------------- -------------
Long-term Debt (Note 3)
Term loan..................................................... 116,649 699,994 549,991 549,991
Capital lease obligations..................................... 575,403 358,638 255,335 255,335
Junior subordinated notes..................................... 311,130 -- -- --
------------- ------------- ------------- -------------
Total long-term debt............................................ 1,003,182 1,058,632 805,326 805,326
------------- ------------- ------------- -------------
Minority interest............................................... 118,431 200,273 334,499 --
------------- ------------- ------------- -------------
Commitments and Contingencies (Notes 3,
5 and 6)
STOCKHOLDERS' EQUITY (Note 9):
Preferred stock; $.0001 par value; 5,000,000 shares
authorized, none outstanding................................ -- -- -- --
Common stock; $.0001 par value; 50,000,000 shares authorized;
4,024,699 shares issued; 4,000,000 shares outstanding....... 402 402 402 402
Additional paid-in capital.................................... 266,579 266,579 266,579 266,579
Retained earnings............................................. 14,392,704 19,140,464 25,929,987 8,729,987
Treasury stock, at cost (24,699 shares)....................... (14,868) (14,868) (14,868) (14,868)
------------- ------------- ------------- -------------
Total stockholders' equity...................................... 14,644,817 19,392,577 26,182,100 8,982,100
------------- ------------- ------------- -------------
$ 31,763,654 $ 37,256,640 $ 63,520,574 $ 64,486,075
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 85,298,186 $ 93,271,157 $ 118,655,253 $ 86,679,910 $ 127,246,549
Cost of sales............................. 62,216,041 68,529,969 84,421,651 60,188,034 85,676,570
------------- ------------- -------------- ------------- --------------
Gross profit.............................. 23,082,145 24,741,188 34,233,602 26,491,876 41,569,979
------------- ------------- -------------- ------------- --------------
Operating Expenses
Selling (Note 5)........................ 7,461,438 8,926,800 11,897,834 8,932,030 12,153,727
License fees (Note 5)................... 3,012,193 3,174,656 4,817,037 3,478,514 5,926,964
Distribution and shipping............... 2,045,911 2,378,728 2,669,093 1,905,655 3,223,690
General and administrative.............. 5,813,853 5,786,524 6,243,327 4,151,834 5,369,729
Recovery of legal fees (Note 5)......... -- -- (718,558) -- (117,435)
------------- ------------- -------------- ------------- --------------
Total operating expenses.................. 18,333,395 20,266,708 24,908,733 18,468,033 26,556,675
------------- ------------- -------------- ------------- --------------
Operating income.......................... 4,748,750 4,474,480 9,324,869 8,023,843 15,013,304
------------- ------------- -------------- ------------- --------------
Other Income (Expense)
Interest................................ (1,191,047) (1,247,353) (1,365,163) (994,545) (1,619,198)
Other, net (Note 8)..................... 1,235,030 (3,178) 84,795 (21,492) 28,272
------------- ------------- -------------- ------------- --------------
Total other income (expense).............. 43,983 (1,250,531) (1,280,368) (1,016,037) (1,590,926)
------------- ------------- -------------- ------------- --------------
Income before minority interest and
extraordinary item...................... 4,792,733 3,223,949 8,044,501 7,007,806 13,422,378
Minority interest......................... (52,520) (32,593) (81,842) (70,768) (134,226)
------------- ------------- -------------- ------------- --------------
Income before extraordinary item.......... 4,740,213 3,191,356 7,962,659 6,937,038 13,288,152
Extraordinary Item--Gain on extinguishment
of debt (Note 3)........................ 388,770 -- -- -- --
------------- ------------- -------------- ------------- --------------
Net income................................ $ 5,128,983 $ 3,191,356 $ 7,962,659 $ 6,937,038 $ 13,288,152
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Pro forma financial information:
Income before income taxes, as
presented............................... $ 5,128,983 $ 3,191,356 $ 7,962,659 $ 6,937, 038 $ 13,288,152
Pro forma provision for income taxes...... 2,103,000 1,308,000 3,265,000 2,844,000 5,448,000
------------- ------------- -------------- ------------- --------------
Pro forma net income...................... $ 3,025,983 $ 1,883,356 $ 4,697,659 $ 4,093,038 $ 7,840,152
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Pro forma earnings per share.............. $ 0.87 $ 1.45
Weighted average shares outstanding....... 5,423,077 5,423,077
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
I.C. ISAACS AND COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ---------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
----------- ----------- --------- ----------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993... -- -- 4,024,699 $ 402 $ 247,791 $10,611,742 $ (63,143) $10,796,792
Net income..................... -- -- -- -- -- 5,128,983 -- 5,128,983
Stockholder distributions...... -- -- -- -- -- (1,603,511) -- (1,603,511)
Purchase of treasury stock
(24,699 shares).............. -- -- -- -- -- -- (13,579) (13,579)
----------- ----------- --------- ----------- ----------- ---------- --------- ----------
Balance at December 31, 1994... -- -- 4,024,699 402 247,791 14,137,214 (76,722) 14,308,685
Net income..................... -- -- -- -- 3,191,356 -- 3,191,356
Stockholder distributions...... -- -- -- -- -- (2,935,866) (2,935,866)
Sale of treasury stock (24,699
shares)...................... -- -- -- -- 18,788 -- 61,854 80,642
----------- ----------- --------- ----------- ----------- ---------- --------- ----------
Balance at December 31, 1995... -- -- 4,024,699 402 266,879 14,392,704 (14,868) 14,644,817
Net income..................... -- -- -- -- -- 7,962,659 7,962,659
Stockholder distributions...... -- -- -- -- -- (3,214,899) -- (3,214,899)
----------- ----------- --------- ----------- ----------- ---------- --------- ----------
Balance at December 31, 1996... -- -- 4,024,699 402 266,579 19,140,464 (14,868) 19,392,577
Net income..................... -- -- -- -- -- 13,288,152 -- 13,288,152
Stockholder distributions...... -- -- -- -- -- (6,498,629) -- (6,498,629)
----------- ----------- --------- ----------- ----------- ---------- --------- ----------
Balance at September 30,
1997......................... -- -- 4,024,699 $ 402 $ 266,579 $25,929,987 $ (14,868) $26,182,100
----------- ----------- --------- ----------- ----------- ---------- --------- ----------
----------- ----------- --------- ----------- ----------- ---------- --------- ----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income..................................... $5,128,983 $3,191,356 $7,962,659 $6,937,038 $13,288,152
Adjustments to reconcile net income to net cash
provided by operating activities
Write-off of other assets.................... 61,981 -- -- -- --
Extraordinary gain........................... (388,770) -- -- -- --
Provision for doubtful accounts.............. 278,338 398,451 1,193,693 543,775 1,251,425
Write-off of accounts receivable............. (428,338) (398,451) (883,693) (443,775) (791,425)
Provision for sales returns and discounts.... 5,545,414 5,104,266 5,955,658 3,596,697 8,122,576
Sales returns and discounts.................. (5,483,107) (5,062,285) (5,633,525) (3,445,857) (8,529,067)
Provision of overcharges..................... -- -- -- -- 174,150
Depreciation and amortization................ 1,512,934 1,477,450 1,359,252 1,076,778 759,513
(Gain) loss on sale of assets................ -- 99,116 (71,800) -- --
Minority interest............................ 52,520 32,593 81,842 70,768 134,226
(Increase) decrease in assets
Accounts receivable........................ (2,915,062) 886,051 (6,850,073) (9,848,535) (16,582,108)
Inventories................................ 470,913 (2,936,042) 232,756 (727,936) (8,435,026)
Prepaid expenses and other................. 459,543 (161,621) (563,388) (137,593) (335,082)
Other assets............................... (325,000) -- -- -- (43,624)
Increase (decrease) in liabilities
Accounts payable........................... (1,099,403) 971,255 1,268,184 230,923 (83,214)
Accrued expenses and other current
liabilities.............................. 665,696 43,334 327,320 874,931 1,467,020
Accrued compensation....................... 52,470 (44,030) (16,100) 61,494 132,799
---------- ---------- ---------- ---------- -----------
Cash provided by (used in) operating
activities....................................... 3,589,112 3,601,443 4,362,785 (1,211,292) (9,469,685)
---------- ---------- ---------- ---------- -----------
Investing Activities
(Purchase) sale of treasury stock.............. (13,579) 80,642 -- -- --
Proceeds from sale of assets................... -- 13,750 71,800 -- --
Capital expenditures........................... (676,648) (669,464) (701,821) (382,238) (780,495)
---------- ---------- ---------- ---------- -----------
Cash used in investing activities................ (690,227) (575,072) (630,021) (382,238) (780,495)
---------- ---------- ---------- ---------- -----------
Financing Activities
Checks issued against future deposits.......... 440,374 345,929 (67,153) (139,071) 2,182,744
Stockholder distributions...................... (1,603,511) (2,935,866) (3,214,899) (2,060,997) (6,498,629)
Principal payments on debt..................... (1,783,263) (760,618) (1,632,216) (325,734) (328,030)
Principal proceeds from debt................... 833,230 291,552 783,349 4,036,211 15,968,866
Deferred financing costs....................... -- -- (75,000) (75,000) (521,035)
---------- ---------- ---------- ---------- -----------
Cash provided by (used in) financing
activities....................................... (2,113,170) (3,059,003) (4,205,919) 1,435,409 10,803,916
---------- ---------- ---------- ---------- -----------
Increase (decrease) in cash and cash
equivalents...................................... 785,715 (32,632) (473,155) (158,121) 553,736
Cash and Cash Equivalents, at beginning of
period........................................... 658,871 1,444,586 1,411,954 1,411,954 938,799
---------- ---------- ---------- ---------- -----------
Cash and Cash Equivalents, at end of period...... $1,444,586 $1,411,954 $ 938,799 $1,253,833 $ 1,492,535
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of I.C. Isaacs &
Company, Inc. ("ICI"), I.C. Isaacs Europe, S.L. ("Isaacs Europe") and I.C.
Isaacs & Company L.P. (the "Partnership"). Collectively, ICI, Isaacs Europe and
the Partnership are referred to herein as the "Company." ICI, operates as the
general partner of the Partnership and has a 99.0% ownership interest. The
limited partner, with a 1.0% ownership interest, is an individual. The Company
has accounted for the limited partner's ownership interest as a minority
interest in the accompanying consolidated financial statements. The Company
established Isaacs Europe in July 1996 as the exclusive licensee of Beverly
Hills Polo Club sportswear in Europe. Isaacs Europe did not have any significant
revenue or expenses in 1996 or through September 30, 1997. All intercompany
balances and transactions have been eliminated.
BUSINESS DESCRIPTION
The Company, which operates in one business segment, designs, manufactures
and markets branded sportswear for men, women and boys under the BOSS brand in
the United States and Puerto Rico and under the Beverly Hills Polo Club brand in
the United States, Puerto Rico and Europe. The Company also manufactures women's
sportswear under various Company-owned brand names as well as under third-party
private labels.
INTERIM FINANCIAL INFORMATION
In the opinion of management, the interim financial information as of
September 30, 1997 and for the nine months ended September 30, 1996 and 1997
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such periods. Results for
interim periods are not necessarily indicative of results to be expected for an
entire year.
REORGANIZATION AND PRO FORMA INFORMATION (UNAUDITED)
ICI has or will initiate certain events (the "Reorganization") in connection
with its initial public offering of common stock. ICI has established a
wholly-owned subsidiary ("Isaacs Design, Inc.") to purchase, at book value, the
1.0% limited partnership interest in the Partnership held by the limited
partner. Consequently, upon completion of the initial public offering, the
consolidated group will include ICI, Isaacs Design, Inc., Isaacs Europe and the
Partnership. In connection with the Reorganization, ICI will declare a dividend
to the stockholders representing earned but undistributed earnings through the
closing date of the Reorganization.
Concurrently with the Reorganization, ICI will terminate its Subchapter S
corporation status and will become subject to federal and state income taxes.
The accompanying consolidated statements of income reflect a pro forma provision
for income taxes for the years ended December 31, 1994, 1995 and 1996 and for
the nine month periods ended September 30, 1996 and 1997, based upon pretax
income as if the consolidated group discussed above had been subject to federal
and state income taxes, based on an estimated effective tax rate of 41.0%. In
connection with termination of its Subchapter S corporation status, ICI will
record a net deferred tax asset and accompanying tax benefit to reflect the
differences in the financial statement and income tax bases of the assets and
liabilities which principally relate to uniform inventory capitalization ($0.1
million), allowance for doubtful accounts ($0.4 million), depreciation ($0.7
million) and other accruals ($0.1 million). If the Subchapter S corporation
status had terminated on September 30, 1997, the net deferred tax asset that
would have been recognized would have been approximately $1.3 million.
F-7
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Pro forma earnings per share are based on pro forma net income and the
weighted average number of shares of common stock outstanding adjusted to
include the estimated number of shares (1,423,077) being sold by ICI which would
be necessary to fund the distribution of all previously earned but undistributed
Subchapter S corporation earnings. This amount, estimated at $18.5 million as of
September 30, 1997, will be paid as the initial Subchapter S corporation
distribution upon the closing of the initial public offering.
Supplementary pro forma net income per share for the year ended December 31,
1996 and the nine months ended September 30, 1997 of $0.79 and $1.09,
respectively, is based upon the weighted number of shares of common stock used
in the calculation of pro forma net income per share increased by the sale of
555,416 and 1,772,252 shares, respectively, assuming an initial offering price
of $13.00 per share, the proceeds of which would be necessary to repay
approximately $7,220,408 and $23,039,275, respectively, of the Company's term
loan and revolving line of credit.
The pro forma balance sheet as of September 30, 1997 reflects the
termination of the Subchapter S corporation status, establishment of the net
deferred tax asset, declaration of the dividend of the earned but undistributed
Subchapter S corporation earnings and the purchase of the minority interest as
if they had occurred on September 30, 1997.
RISKS AND UNCERTAINTIES
The apparel industry is highly competitive. The Company competes primarily
with larger, well capitalized companies, which may seek to increase market share
through price reductions. The risk to the Company is that such a strategy may
ultimately lead to reduced profit margins. In the past several years, many of
the Company's competitors have switched much of their apparel manufacturing from
the United States to foreign locations such as Mexico, the Dominican Republic
and throughout Asia. As competitors lower production costs it gives them greater
flexibility to alter prices. Over the last several years, the Company has
switched a significant portion of its production to contractors outside the
United States to reduce costs. Management believes that it will continue this
strategy for the foreseeable future.
The Company faces the uncertainty of the continued availability of increases
in its borrowing capacity. Adequate working capital is essential to an apparel
manufacturer due to the significant cash investment in inventory and accounts
receivable and the long lead time between payment for such inventory and
collection of customer receivables. The Company believes that it has an
excellent relationship with its asset-based lender and that it will be able to
obtain sufficient working capital to finance its requirements.
The Company faces other risks inherent in the apparel industry. These risks
include changes in fashion trends and related consumer acceptance and the
continuing consolidation in the retail segment of the apparel industry. The
Company's ability, or inability, to manage these risk factors could influence
future financial and operating results.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain estimates and
assumptions, particularly regarding valuation of accounts receivable and
inventory, recognition of liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. The Company's
customer base is not concentrated in any specific
F-8
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
geographic region but is concentrated in the retail industry. For the years
ended December 31, 1994, 1995 and 1996 sales to one customer were 20.0%, 19.0%
and 13.0% of total sales, respectively. The significant customer was the same in
1994 and 1995, but was different in 1996. For the nine months ended September
30, 1996 and 1997 sales to one customer were 12.3% and 14.6% of total sales,
respectively. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information. The Company's actual credit losses as a percentage
of net sales has been less than three-quarters of one percent.
The Company is also subject to concentrations of credit risk with respect to
its cash and cash equivalents, which it minimizes by placing these funds with
high-quality institutions.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to the letter of credit agreements, but it does not expect
any financial institutions to fail to meet their obligation given their high
credit rating.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by both straight-line and accelerated
methods. Leasehold improvements are amortized using the straight-line method
over the life of the lease.
GOODWILL
The Company has recorded goodwill based on the excess of purchase price over
net assets acquired, and it is being amortized on a straight-line basis over 40
years. The Company analyzes the operating income of the women's Company-owned
and private label line in relation to the goodwill amortization for evidence of
impairment. The Company analyzes only the profitability of this product line
because it is the remaining activity of the business acquired in 1984 which gave
rise to the goodwill.
LICENSES
Included in other assets is the cost of certain licenses which allow the
Company to manufacture and market certain branded apparel. The Company
capitalized the cost of obtaining the licenses, and the cost of the licenses is
being amortized on a straight-line basis over the initial term of three years.
The Company accrues royalty expense related to the licenses at the greater of
the specified percentage of sales or the minimum guaranteed royalty set forth in
the license agreements.
REVENUE RECOGNITION
Sales are recognized upon shipment of products. Allowances for estimated
returns are provided when sales are recorded.
F-9
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs, included in selling expenses, are expensed as incurred
and were $368,765, $1,498,001, $2,529,109, $1,945,039 and $2,441,603 for the
years ended December 31, 1994, 1995, 1996 and nine months ended September 30,
1996 and 1997, respectively.
CASH EQUIVALENTS
For purposes of the statements of cash flows, all temporary investments
purchased with a maturity of three months or less are considered to be cash
equivalents.
INCOME TAXES
The entities in the consolidated group include principally a Subchapter S
corporation and a partnership which are not subject to federal or certain state
income taxes. Therefore, the Company has made no provision for income taxes in
the accompanying financial statements as taxes are the liability of the
respective stockholders and partners.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). Under SFAS 109, deferred taxes are determined using the liability method
which requires the recognition of deferred tax assets and liabilities based on
differences between financial statement and income tax bases using presently
enacted tax rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments of the Company include long-term debt. Based upon
current borrowing rates available to the Company, estimated fair values of these
financial instruments approximate their recorded amounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 will begin to affect the Company in fiscal
1997 with the establishment of the 1997 Omnibus Stock Plan. See
"Management--1997 Omnibus Stock Plan." The Company will adopt only the
disclosure provisions of SFAS 123 and account for stock-based compensation using
the intrinsic value method set forth in APB Opinion 25.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than is
currently used in APB Opinion 15. SFAS 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to existing fully diluted earnings
per share. As required by the policies of the Securities and Exchange Commission
(the "Commission"), the Company has treated the shares being sold to fund the S
Corporation Distribution as outstanding prior to the Offering. SFAS 128 does not
have a provision requiring such treatment. The Commission is currently
evaluating its policies concerning this issue. Assuming shares issued to fund
the S Corporation Distribution continue to be treated as outstanding prior to
the Offering, the Company believes adopting SFAS 128 will not have a material
effect on its calculation of earnings per share. The Company will adopt the
provisions for computing earnings per share set forth in SFAS 128 in December
1997.
F-10
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure ("SFAS 129") effective for periods ending
after December 15, 1997, establishes standards for disclosing information about
an entity's capital structure. SFAS 129 requires disclosure of the pertinent
rights and privileges of various securities outstanding (stock, options,
warrants, preferred stock, debt and participation rights) including dividend and
liquidation preferences, participant rights, call prices and dates, conversion
or exercise prices and redemption requirements. Adoption of SFAS 129 will have
no effect on the Company as it currently discloses the information specified.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. The Company's results of operations and financial position
will be unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"), establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of a Business Enterprise ("SFAS 131"), establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
F-11
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Raw materials................................... $ 3,330,394 $ 3,146,405 $ 3,653,870
Work-in-process................................. 1,738,602 3,345,545 2,653,752
Finished goods.................................. 9,254,734 7,599,024 16,218,378
------------- ------------- -------------
$ 14,323,730 $ 14,090,974 $ 22,526,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-------------------------- SEPTEMBER 30, USEFUL
1995 1996 1997 LIVES
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Land................................ $ 185,660 $ 185,660 $ 185,660
Buildings and improvements.......... 5,301,761 5,301,761 5,339,371 18 years
Machinery, equipment and fixtures... 7,878,836 8,570,577 9,225,110 5-7 years
Other............................... 1,025,362 1,035,442 1,123,795 various
------------ ------------ -------------
14,391,619 15,093,440 15,873,936
Less accumulated depreciation and
amortization...................... 11,572,982 12,693,618 13,359,418
------------ ------------ -------------
$2,818,637 $ 2,399,822 $ 2,514,518
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Term loan (a)..................................... $ 316,653 $ 899,998 $ 749,995
Revolving line of credit (a)...................... 7,207,496 6,320,414 22,289,280
Installment purchase obligations (b).............. 10,000 -- --
------------ ------------ -------------
7,534,149 7,220,412 23,039,275
Capital lease obligations (c)..................... 799,402 575,402 397,375
Junior subordinated notes (d)..................... 311,130 -- --
------------ ------------ -------------
Total............................................. $ 8,644,681 $ 7,795,814 $ 23,436,650
Less current maturities of long-term debt and
revolving line of credit........................ 7,417,500 6,520,418 22,489,284
Less current maturities of capital lease
obligations..................................... 223,999 216,764 142,040
------------ ------------ -------------
$ 1,003,182 $ 1,058,632 $ 805,326
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-12
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
(a) The Company has a renewable term loan agreement with a borrowing limit
of $1,000,000. The term loan facility is payable in 60 monthly installments of
$16,667 and is collateralized by property and equipment. The term loan facility
may be renewed for periods of 60 months at the option of the lender. The term
loan facility bears interest at the prime rate of interest plus 2.5%
(effectively 11.0% at September 30, 1997) and is payable monthly.
The revolving line of credit agreement and letter of credit arrangement
provide that the Company may borrow up to 80% of the net amount of eligible
accounts receivable and a portion of imported inventory, as defined in the
financing agreement. The revolving line of credit expires on June 30, 1998.
Borrowings under the revolving line of credit and outstanding letters of credit
(limited to $10.0 million) may not exceed $30.0 million and bear interest at the
prime rate of interest plus 1.0% (effectively 9.5% at September 30, 1997).
Additional borrowings available under the revolving line of credit and letter of
credit agreements are approximately $2.5 million at September 30, 1997.
Borrowings under these agreements are collateralized by the Company's accounts
receivable, imported inventories and other assets. Outstanding letters of credit
approximated $5.2 million at September 30, 1997. Among the provisions of the
financing agreement are requirements to maintain specified levels of working
capital and net worth. Retained earnings of approximately $8.0 million are
restricted as to the payment of dividends.
Average short-term borrowings and the related interest rates are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Borrowings under revolving line of credit....... $ 7,207,496 $ 6,320,414 $ 22,289,280
Weighted average interest rate.................. 9.88% 9.25% 9.50%
Maximum month-end balance during the period..... $ 10,649,725 $ 11,024,807 $ 22,950,740
Average balance during the period............... $ 8,518,496 $ 9,814,896 $ 17,893,654
</TABLE>
(b) The Company's plants were financed by the issuance of industrial revenue
and general obligation bonds by municipalities in Mississippi. These obligations
bore interest at rates varying between 5% and 14%. The Company repaid the
remaining obligation in 1996.
(c) The Company leases equipment under various capital leases which are
included in property, plant and equipment in the amount of $1,048,037 at
December 31, 1995 and 1996 and September 30, 1997. Amortization expense related
to assets under capital leases amounted to $156,813, $211,512, $191,490,
$143,617 and $126,830 for the years ended December 31, 1994, 1995, 1996 and the
nine months ended September 30, 1996 and 1997, respectively.
F-13
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
As of December 31, 1996, future net minimum lease payments under capital
leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 267,208
1998.............................................................. 202,827
1999.............................................................. 189,551
2000.............................................................. 6,296
---------
Total minimum lease payments...................................... 665,882
Less: amount representing interest................................ (90,480)
---------
Present value of net minimum lease payments....................... 575,402
Less: current portion............................................. (216,764)
---------
Long-term capital lease obligations............................... $ 358,638
---------
---------
</TABLE>
(d) Junior subordinated notes totaling $311,130 were due to stockholders of
ICI and had a maturity date of June 1998. Interest was calculated at the prime
rate of interest plus 1.5% but could not exceed 16.0%. The Company repaid these
subordinated notes in October 1996.
As of December 31, 1993, the Company had two junior subordinated notes
outstanding to a former partner in the Partnership which totalled $1,500,000
plus approximately $150,000 in contingent fees. The notes were due in full by
February 1995. On September 30, 1994, the Company repaid the two notes, at a
discount of 15.0%, as well as accrued interest through September 30, 1994. The
Company recognized an extraordinary gain of $388,770 for the difference between
the carrying value of the subordinated debt, including accrued interest and
contingent payments of $1,810,104 and the repayment amount of $1,421,334.
Scheduled maturities of the Company's term loan and revolving line of credit
as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................... $6,520,418
1998............................................................... 200,004
1999............................................................... 200,004
2000............................................................... 200,004
2001............................................................... 99,982
---------
$7,220,412
---------
---------
</TABLE>
F-14
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Royalties.......................................... $ 878,918 $ 1,194,637 $ 2,080,544
Accrued professional fees.......................... 100,000 150,000 100,000
Payable to salesmen................................ 233,818 152,701 517,209
Severance agreements............................... 145,913 103,745 --
Payroll tax withholdings........................... 231,142 145,736 98,817
Customer credit balances........................... 177,402 254,244 132,409
Accrued bonuses.................................... -- -- 250,000
Other.............................................. 49,764 143,214 432,318
------------ ------------ -------------
$ 1,816,957 $ 2,144,277 $ 3,611,297
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company rents real and personal property under leases expiring at
various dates through 1999. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses. Minimum annual rental commitments
under noncancellable operating leases in effect at December 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
COMPUTER
TRUCKS SHOWROOMS HARDWARE MACHINERY TOTAL
---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1997.................................................... $ 137,942 $ 365,677 $ 138,585 $ 189,969 $ 832,173
1998.................................................... 98,898 171,020 144,731 77,269 491,918
1999.................................................... 56,784 133,350 52,851 3,653 246,638
2000.................................................... 56,784 135,572 22,224 -- 214,580
2001.................................................... 56,784 138,684 5,556 -- 201,024
Thereafter.............................................. 42,588 219,583 -- -- 262,171
---------- ------------ ---------- ---------- ------------
$ 449,780 $ 1,163,886 $ 363,947 $ 270,891 $ 2,248,504
---------- ------------ ---------- ---------- ------------
---------- ------------ ---------- ---------- ------------
</TABLE>
Total rent expense is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ --------------------------
1994 1995 1996 1996 1997
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Minimum rentals................................ $ 536,862 $ 344,047 $ 773,987 $ 552,773 $ 667,622
Other lease costs.............................. 397,705 566,533 459,823 430,705 389,388
---------- ---------- ------------ ------------ ------------
$ 934,567 $ 910,580 $ 1,233,810 $ 983,478 $ 1,057,010
---------- ---------- ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------
</TABLE>
During 1990, the Company executed a license agreement for the manufacture
and sale of "sports-wear" under the BOSS trademark. This agreement had an
expiration date in December 1999 with additional options to extend it through
2004. The agreement provided for certain minimum license fees and additional
license fees of 5.0% of denim sales and 6.0% of non-denim sales, as defined.
Total license fees amounted to $2,908,532, $2,753,422, $4,209,750, $3,008,634
and $5,021,331 for the years ended December 31, 1994, 1995, 1996 and the nine
months ended September 30, 1996 and 1997, respectively. The
F-15
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company executed certain agreements on September 30, 1997 pursuant to which it
acquired the BOSS trademark, subject to certain restrictions, and conveyed the
foreign rights to the BOSS brand to Ambra Inc., a wholly-owned subsidiary of
Hugo Boss AG ("Ambra").
The percentage of BOSS sportswear sales to total sales was 65.1%, 66.3%,
72.2%, 73.4% and 77.3% for the years ended December 31, 1994, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997, respectively.
In September 1993, the Company purchased a license to manufacture and sell
certain apparel under the Beverly Hills Polo Club trademark. The agreement was
amended in 1996 and expires in December 1998, with options to extend through
2004. The licensor may terminate the agreement if the Company does not meet
minimum sales requirements as set forth in the agreement. The agreement provides
for minimum annual license fees or license fees of 5.0% of sales whichever is
greater. Also, the Company is required to spend 1.0% of annual sales on product
advertising. The license fees were $103,661, $421,234, $607,287, $469,880 and
$905,633 for the years ended December 31, 1994, 1995, 1996 and the nine months
ended September 30, 1996 and 1997, respectively.
In 1996, Isaacs Europe executed an exclusive license for the manufacture and
sale, in Europe, of sportswear under the Beverly Hills Polo Club trademark. The
license agreement has an initial term of three years with three one-year renewal
options. The agreement provides for minimum annual license fees, beginning in
the second year, or 6.0% of sales whichever is greater.
The minimum license fees under the Beverly Hills Polo Club agreement are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1997.............................................................................. $ 112,500
1998.............................................................................. 330,000
1999.............................................................................. 360,000
----------
$ 802,500
----------
----------
</TABLE>
In February 1993, the owner of the BOSS trademark filed suit against the
licensor of the BOSS trademark in the United States and several licensees,
including the Company. The complaint alleged trademark infringement related to
use of the BOSS trademark. However, the complaint did not challenge the
exclusive right of the Company to use the BOSS trademark in connection with the
manufacture and sale of certain clothing as set forth in its exclusive license
agreement.
The Company executed certain agreements in November 1997 which resulted in
the settlement of the BOSS trademark litigation described above. In November
1997, as part of the BOSS litigation settlement the Company borrowed $11.25
million to finance the acquisition of certain BOSS trademark rights. This
obligation is evidenced by a secured limited recourse promissory note which
matures on December 31, 2007. The note bears interest at 10.0% per annum,
payable quarterly; principal is payable in full upon maturity of the Note, which
is collateralized by the domestic BOSS trademark rights. The settlement allowed
the Company to acquire the domestic rights to the BOSS trademark for use in the
manufacture and sale of apparel, subject to certain restrictions as set forth in
the agreements, and the Company's transfer of the foreign rights to the BOSS
trademark to Ambra. The Company also entered into a foreign
F-16
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
rights manufacturing agreement with Ambra under which the Company obtained the
license to manufacture apparel in foreign countries in which the Company is
currently manufacturing BOSS products for sale in the United States and Puerto
Rico. Under the foreign rights agreement, the Company will pay annual royalties
of 12.5% on the first $32.0 million of net sales attributable to apparel
manufactured in specified foreign countries for each of the first four years of
the agreement; on the first $20.0 million of such net sales in year five of the
agreement and on the first $16.0 million of such net sales in years six through
ten of the agreement. For the first four years of the agreement, an additional
royalty of 5.0% is payable annually on net sales from $84.0 million to
approximately $105.3 million and an additional royalty of 4.0% is payable
annually on net sales in excess of $158.0 million. Additional royalties in years
five through ten of the agreement increase for certain corresponding sales
levels. To the extent that the Company does not achieve the net sales
requirements, it will have the right, in order to avoid termination of the
foreign rights agreement, to pay royalties as if it had achieved such net sales
requirement. The foreign rights agreement has an initial term of four years but
may be extended at the Company's option through December 31, 2007. The domestic
BOSS trademark is subject to an option to purchase from the Company under
conditions set forth in the agreements.
Subsequent to September 30, 1997, the Company and one of its insurance
carriers reached an agreement whereby the insurance company will provide
reimbursement for the legal costs associated with the litigation described
above. The Company records the reimbursement when received from the insurance
carrier. As part of this agreement, the Company received $718,558 in 1996 and
$117,435 thus far in 1997.
In November 1997, the Company entered into an exclusive license agreement
with Girbaud Design, Inc. and its affiliate to manufacture and sell men's jeans
and casual apparel under the Girbaud brand and certain related trademarks in the
United States, Puerto Rico and the U.S. Virgin Islands. The agreement has an
initial term of two years and may be extended at the option of the Company for
an additional three-year term. Under the agreement the Company is required to
make payments to the licensor in an amount equal to 6.25% of net sales of
regular licensed merchandise and 3.0% of certain irregular and closeout licensed
merchandise. Payments are subject to guaranteed minimum annual royalties as
follows:
<TABLE>
<S> <C>
1998............................................................ $1,200,000
1999............................................................ $1,500,000
2000............................................................ $2,000,000
2001............................................................ $2,500,000
2002............................................................ $3,000,000
</TABLE>
Beginning with the first quarter of 1998, the Company is obligated to pay the
greater of actual royalties earned or 8.3% of the minimum guaranteed royalties
for that year. The Company is required to spend at least $350,000 in advertising
for the Girbaud brand in 1998 and $500,000 each year thereafter while the
agreement is in effect.
The Company is party to employment agreements with five executive officers
which provide for specified levels of compensation and certain other benefits.
The agreements also provide for severance payments from the termination date
through the expiration date under certain circumstances.
F-17
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RETIREMENT PLAN
The Company sponsors a defined benefit pension plan that covers
substantially all employees with more than one year of service. The Company's
policy is to fund pension costs accrued. Contributions to the plan reflect
benefits attributed to employees' service to date, as well as service expected
to be earned in the future. The benefits are based on the number of years of
service and the employee's compensation during the three consecutive complete
years of service prior to or including the year of termination of employment.
Plan assets consist primarily of common stocks, fixed income securities and
cash. The latest available actuarial valuation is as of December 31, 1996.
Pension expense for the years ended December 31, 1994, 1995 and 1996 and the
nine months ended September 30, 1996 and September 30, 1997 was $305,000,
$310,000, $284,000, $282,000 and $270,000, respectively. The components of
pension expense for the last three years are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1994 1995 1996
---------- ---------- ----------
Service cost of current period........................... $ 244,000 $ 223,000 $ 208,000
Interest on the projected benefit obligation............. 470,000 485,000 555,000
Return on plan assets.................................... (456,000) (445,000) (526,000)
Net other costs.......................................... 47,000 47,000 47,000
---------- ---------- ----------
Pension cost............................................. $ 305,000 $ 310,000 $ 284,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table sets forth the Plan's funded status and amounts
recognized at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Vested benefits................................................... $ 5,987,000 $ 6,730,000
Nonvested benefits................................................ 37,000 56,000
------------ ------------
Accumulated benefit obligation.................................... 6,024,000 6,786,000
Effect of anticipated future compensation levels and other
events.......................................................... 457,000 862,000
------------ ------------
Projected benefit obligation...................................... 6,481,000 7,648,000
Fair value of assets held in the plan............................. 6,139,000 7,357,000
------------ ------------
Excess of projected benefit obligation over plan assets........... (342,000) (291,000)
Unrecognized net loss from past experience different from that
assumed......................................................... 344,000 661,000
Unrecognized prior service cost................................... 159,000 143,000
Unamortized liability at transition............................... 155,000 124,000
------------ ------------
Net prepaid periodic pension cost................................. $ 316,000 $ 637,000
------------ ------------
------------ ------------
</TABLE>
With respect to the above table, the weighted average discount rate used to
measure the projected benefit obligation was 8.0%; the rate of increase in
future compensation levels was 3.0%; and the expected long-term rate of return
on assets was 8.0%. The net prepaid periodic pension cost is included in prepaid
expenses and other current assets in the accompanying consolidated balance
sheets.
F-18
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest amounted to $1,192,040, $1,272,794, $1,389,023,
$991,844 and $1,616,692 for the years ended December 31, 1994, 1995, 1996 and
the nine months ended September 30, 1996 and 1997, respectively.
During 1994 and 1995 the Company purchased property and equipment totalling
$731,792 and $316,245, respectively, by issuing notes payable.
8. NON-RECURRING INCOME
During 1991, the Company received $6.0 million under the provisions of a
settlement agreement related to termination of a license. Additionally, the
agreement provided that, if certain conditions are met, the Company could
receive up to $3.0 million through 1998. The Company had received the maximum
amount allowable under this agreement as of December 31, 1994. Included in other
income for 1994 are payments of approximately $1.18 million.
9. COMMON AND PREFERRED STOCK
In May 1997, the Board of Directors of ICI authorized the filing of a
registration statement for an initial public offering of the Company's common
stock.
In May 1997, the stockholders approved an amended and restated Certificate
of Incorporation which increased the authorized common shares from 20,000 to
50.0 million and established a class of preferred shares with 5.0 million shares
authorized. On November 13, 1997, the Board of Directors of ICI approved a
246.9898-for-1 stock split of the common stock, which will be paid in the form
of a stock dividend to the stockholders effective November 13, 1997. The change
in the Company's common stock for the stock dividend has been given retroactive
effect for all periods presented.
In May 1997, the Company adopted the 1997 Omnibus Stock Plan (the "Plan").
Under the Plan, the Company may grant qualified and nonqualified stock options,
stock appreciation rights, restricted stock or performance awards, payable in
cash or shares of common stock, to selected employees. The Plan will be
administered by the Board of Directors. The Company has reserved 500,000 shares
of common stock for issuance under the Plan.
F-19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of the Offering. All
of such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission, NASD and Nasdaq.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee...................................... $ 18,591
NASD Filing Fee.................................................................... 6,618
Nasdaq Listing Fee................................................................. 43,425
Printing and Engraving Fees and Expenses........................................... *
Legal Fees and Expenses............................................................ *
Accounting Fees and Expenses....................................................... *
Blue Sky Fees and Expenses......................................................... *
Transfer Agent Fees................................................................ *
Miscellaneous...................................................................... *
TOTAL...................................................................... *
</TABLE>
- ------------------------
* To be completed in an amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the General Corporation Law of Delaware (the
"Delaware Corporation Law"), Article IX of the Restated By-laws of the
Registrant, a copy of which is filed as Exhibit 3.02 to this Registration
Statement, provides that the Registrant shall indemnify any person in connection
with any threatened, pending or completed legal proceeding (other than a legal
proceeding by or in the right of the Registrant) by reason of the fact that he
is or was a director, officer, employee or agent of the Registrant or is or was
serving at the request of the Registrant as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such legal proceeding if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and with respect to any criminal action or proceeding, if he has no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding is by or in the right of the Registrant, the director or officer may
be indemnified by the Registrant against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
actually and reasonably incurred in connection with the defense or settlement of
such legal proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Registrant and
believed to be in or not opposed to the best interest of the Registrant and
except that he may not be indemnified in respect of any claim, issue or matter
as to which he shall have been adjudged to be liable to the Registrant unless a
court determines otherwise.
Article IX of the Registrant's Restated By-laws also allows the Registrant
to maintain liability insurance on behalf of any person who is or was a
director, officer, employee or agent of the Registrant or such person who serves
or served as director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Registrant.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article VII
of the Restated Certificate of the Registrant, a copy of which is filed with
Exhibit 3.01 to this Registration Statement, provides that no director of the
Registrant shall be personally liable to the Registrant or its stockholders for
monetary damages for any breach of his fiduciary duty as a director; provided,
however, that such clause shall not apply to any liability of a director (1) for
any breach of his loyalty to the Registrant or its stockholders, (2) for acts or
omissions that are not in good faith or involve intentional misconduct or a
II-1
<PAGE>
knowing violation of the law, (3) under Section 174 of the Delaware Corporation
Law, or (4) for any transaction from which the director derived an improper
personal benefit.
The form of Underwriting Agreement, filed as Exhibit 1.01 hereto, contains
provisions by which the Underwriters will agree to indemnify the Registrant and
each officer, director and controlling person of the Registrant against certain
liabilities.
The Form of Indemnification Agreement, filed as Exhibit 10.09 hereto,
contains provisions by which the Registrant will agree to indemnify each of its
officers and directors against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In January 1997, the Company issued 24,699 shares of Common Stock to Thomas
P. Ormandy, an executive officer of the Company, for $39,485 cash.
In June 1997, the Company issued 5,746 shares of Common Stock to existing
stockholders of the Company in consideration of the cancellation of stock
certificates that had been issued at a time when the Company did not have a
sufficient number of authorized shares of Common Stock.
Immediately prior to the consummation of the Offering the Company will
effect a 246.9898-for-1 stock split pursuant to which it will issue an aggregate
of approximately 4.0 million shares of Common Stock to the Company's existing
stockholders. See "Company Organization."
Each of the foregoing transactions was exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
in reliance on Section 3(a)(9) and/or Section 4(2) of the Securities Act on the
basis that such transaction was solely with existing security holders and/or did
not involve a public offering. No underwriters were involved in connection with
any of the foregoing transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement
*3.01 Amended and Restated Certificate of Incorporation
*3.02 Amended and Restated By-laws
*4.01 Specimen Common Stock Certificate
*5.01 Opinion of Piper & Marbury L.L.P.
*10.01(a) Form of Amended and Restated Shareholders' Agreement
10.01(b) Form of Amendment No. 1 to Amended and Restated Shareholders' Agreement
*10.02 Employment Agreement dated as of May 15, 1997, between the Registrant and Robert J. Arnot
*10.03 Employment Agreement dated as of May 15, 1997, between the Registrant and Gerald W. Lear
*10.04 Employment Agreement dated as of May 15, 1997, between the Registrant and Gary B. Brashers
*10.05 Employment Agreement dated as of May 15, 1997, between the Registrant and Eugene C. Wielepski
*10.06 Employment Agreement dated as of May 15, 1997, between the Registrant and Thomas Ormandy
*10.07 1997 Omnibus Stock Plan
*10.08(a) Accounts Financing Agreement dated June 16, 1992
*10.08(b) Covenant Supplement to Accounts Financing Agreement dated June 16, 1992
*10.08(c) Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement dated June
16, 1992
*10.08(d) Trade Financing Agreement Supplement to Accounts Financing Agreement (Security Agreement) dated
June 16, 1992
*10.08(e) Amendment to Financing Agreements dated October 30, 1992
*10.08(f) Second Amendment to Financing Agreements dated January 4, 1993
*10.08(g) Third Amendment to Financing Agreements dated March 10, 1993
*10.08(h) Fourth Amendment to Financing Agreements dated May 1, 1993
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
*10.08(i) Fifth Amendment to Financing Agreements dated January 1, 1994
<C> <S>
*10.08(j) Sixth Amendment to Financing Agreements dated September 1, 1993
*10.08(k) Seventh Amendment to Financing Agreements dated August, 1994
*10.08(l) Eighth Amendment to Financing Agreements dated December 31, 1994
*10.08(m) Ninth Amendment to Financing Agreements dated April, 1995
*10.08(n) Tenth Amendment to Financing Agreements dated June 23, 1995
*10.08(o) Eleventh Amendment to Financing Agreements dated January 1, 1996
*10.08(p) Twelfth Amendment to Financing Agreements dated June 25, 1996
*10.08(q) Thirteenth Amendment to Financing Agreements dated August, 1996
*10.08(r) Term Promissory Note dated June, 1996
*10.08(s) Trademark Collateral Assignment and Security Agreement dated June 16, 1992
*10.09 Form of Indemnification Agreement
*+10.10 BOSS Worldwide Rights Acquisition Agreement dated September 30, 1997
*+10.11 Foreign BOSS Rights Acquisition Agreement dated September 30, 1997
**10.12 Concurrent Use Agreement dated November 5, 1997
**10.13 Option Agreement dated November 5, 1997
**10.14 Secured Limited Recourse Promissory Note dated November 5, 1997
*+10.15 Beverly Hills Polo Club Exclusive Domestic License Agreement dated December 14, 1995
*+10.16 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Men's) dated June 3, 1997
*+10.17 Beverly Hills Polo Club Exclusive Domestic License Agreement dated June 1, 1993
*+10.18 Beverly Hills Polo Club Assignment of Licenses (Women's) dated August 31, 1993
*+10.19 Beverly Hills Polo Club Amendment (Women's) dated September 1, 1993
*+10.20 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Women's) dated June 3, 1997
*10.21 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Men's) dated July 29, 1997
*+10.22 Beverly Hills Polo Club International Exclusive License Agreement (Wholesale) dated August 15,
1996
*10.23 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Wholesale) dated June 3, 1997
*+10.24 Beverly Hills Polo Club International Exclusive License Agreement (Retail) dated August 15, 1996
*10.25 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Retail) dated June 3, 1997
*10.26 Beverly Hills Polo Club Amendment to Exclusive License Agreement dated July 29, 1997
**10.27 Girbaud Trademark License and Technical Assistance Agreement dated November 1, 1997
**10.28 Defined Benefit Pension Plan
*21.01 List of Subsidiaries
23.01 Consent of BDO Seidman, LLP
*23.02 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.01)
*24.01 Power of Attorney (included on signature pages hereto)
</TABLE>
- ------------------------
* Filed with the Registration Statement on October 3, 1997.
** To be filed by Amendment.
+ Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Securities
and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION PAGE NO.
- --------- ----------------------------------------------------------------------------- -------------
<S> <C> <C>
II Valuation and Qualifying Accounts S-2
</TABLE>
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in this Registration Statement or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling persons of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement (filed herewith as
Exhibit 1.01) certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in Baltimore, Maryland on
this 14th day of November 1997.
I.C. ISAACS & COMPANY, INC.
By: /s/ ROBERT J. ARNOT
-----------------------------------------
Robert J. Arnot
Chairman of the Board
and Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROBERT J. ARNOT Chairman of the Board and November 14, 1997
- ------------------------------ Co-Chief Executive Officer
Robert J. Arnot and Director (Principal
Executive Officer)
/s/ GERALD W. LEAR President and Co-Chief November 14, 1997
- ------------------------------ Executive Officer and
Gerald W. Lear Director (Principal
Executive Officer)
/s/ EUGENE C. WIELEPSKI Vice President and Chief November 14, 1997
- ------------------------------ Financial Officer and
Eugene C. Wielepski Director (Principal
Financial and Accounting
Officer)
/s/ GARY B. BRASHERS* Director November 14, 1997
- ------------------------------
Gary B. Brashers
/s/ IRA J. HECHLER* Director November 14, 1997
- ------------------------------
Ira J. Hechler
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JON HECHLER* Director November 14, 1997
- ------------------------------
Jon Hechler
/s/ RONALD S. SCHMIDT* Director November 14, 1997
- ------------------------------
Ronald S. Schmidt
<TABLE>
<S> <C>
*By: /s/ EUGENE C. WIELEPSKI
--------------------------------------
Eugene C. Wielepski
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
I.C. Isaacs & Company, Inc.
The audits referred to in our report to I.C. Isaacs & Company, Inc., dated
October 31, 1997, except for Note 5, the date of which is November 13, 1997,
which is contained in the Prospectus constituting part of this Registration
Statement, included the audit of the financial statement schedule listed in the
accompanying index for each of the three years in the period ended December 31,
1996 and the nine months ended September 30, 1996 and 1997. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
/s/ BDO Seidman, LLP
Washington, D.C.
October 31, 1997
S-1
<PAGE>
SCHEDULE II
I.C. ISAACS & COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND END
DESCRIPTION OF YEAR EXPENSES DEDUCTION OF YEAR
- -------------------------------------------------------------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for doubtful accounts................................... $ 500 $ 278 $ (428) $ 350
Reserve for sales returns and discounts........................... $ 382 $ 5,546 $ (5,483) $ 445
Year ended December 31, 1995
Allowance for doubtful accounts................................... $ 350 $ 398 $ (398) $ 350
Reserve for sales returns and discounts........................... $ 445 $ 5,104 $ (5,062) $ 487
Year ended December 31, 1996
Allowance for doubtful accounts................................... $ 350 $ 1,194 $ (884) $ 660
Reserve for sales returns and discounts........................... $ 487 $ 5,956 $ (5,634) $ 809
Nine months ended September 30, 1996
Allowance for doubtful accounts................................... $ 350 $ 544 $ (444) $ 450
Reserve for sales returns and discounts........................... $ 487 $ 3,597 $ (3,446) $ 638
Nine months ended September 30, 1997
Allowance for doubtful accounts................................... $ 660 $ 1,251 $ (791) $ 1,120
Reserve for sales returns and discounts........................... $ 809 $ 8,123 $ (8,529) $ 403
</TABLE>
S-2
<PAGE>
EXHIBIT 1.01
I.C. ISAACS & COMPANY, INC.
COMMON STOCK
-----------------------------
UNDERWRITING AGREEMENT
, 1997
-----------
THE ROBINSON-HUMPHREY COMPANY, LLC
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the several Underwriters named in Schedule I hereto
c/o The Robinson-Humphrey Company, LLC
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Ladies and Gentlemen:
I.C. Isaacs & Company, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the Underwriters named in Schedule I (the "Underwriters") an
aggregate of 3,800,000 shares of common stock, par value $.0001 per share
("Common Stock"), of the Company (the "Firm Shares"), and at the election of
the Underwriters, subject to the terms and conditions stated herein, to issue
and sell to the Underwriters up to 570,000 additional shares of Common Stock
(the "Optional Shares") (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are collectively
called the "Shares" ).
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-37155)
(the "Initial Registration Statement") with respect to the Shares,
including a prospectus subject to completion, has been filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and one or more amendments
to such Initial Registration Statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission
either (A) if such Initial Registration Statement, as it may have been
amended, has become effective under the Act and information has been
<PAGE>
omitted therefrom in accordance with Rule 430A under the Act, a
prospectus in the form most recently included in an amendment to such
Initial Registration Statement with such changes or insertions as are
required by Rule 430A or permitted by Rule 424(b) under the Act and as
have been provided to and approved by the Representatives, or (B) if such
Initial Registration Statement, as it may have been amended, has not
become effective under the Act, an amendment to such Initial Registration
Statement, including a form of prospectus, a copy of which amendment has
been provided to and approved by the Representatives prior to the
execution of this Agreement or (C) if such Initial Registration
Statement, as it may have been amended, has become effective under the
Act and the number of shares to be offered has subsequently been
increased, a registration statement (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Act and as has been
provided to and approved by the Representatives. As used in this
Agreement, the term "Registration Statement" means such Initial
Registration Statement, as amended at the time when it was or is declared
effective, including all financial statement schedules and exhibits
thereto together with any Rule 462(b) Registration Statement and
including any information omitted therefrom pursuant to Rule 430A under
the Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion
included in such Initial Registration Statement or any amendment or
post-effective amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement at the time it
was or is declared effective); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act or, if no prospectus is required to be so filed, such term means
the prospectus included in the Registration Statement. For purposes of
the following representations and warranties, to the extent reference is
made to the Prospectus and at the relevant time the Prospectus is not yet
in existence, such reference shall be deemed to be to the most recent
Preliminary Prospectus.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and no proceeding for that purpose has been
instituted or threatened by the Commission or the securities authority of
any state or other jurisdiction. If the Registration Statement has become
effective under the Act, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and, to the
knowledge of the Company, no proceeding for that purpose has been
instituted or threatened or is contemplated by the Commission or the
securities authority of any state or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of
2
<PAGE>
the Commission thereunder and (B) did not include any untrue statement
of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, and at each Time of Delivery (as hereinafter defined),
it (A) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in
all material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder and (B) did not
or will not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein
not misleading. When the Prospectus or any amendment or supplement
thereto is filed with the Commission pursuant to Rule 424(b) (or,
if the Prospectus or such amendment or supplement is not required
to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at each Time of Delivery, the
Prospectus, as amended or supplemented at any such time, (A)
contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules
and regulations of the Commission thereunder and (B) did not or
will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph
(iii) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished
to the Company by any Underwriter through you specifically for use
therein. The Company and the Underwriters hereby acknowledge that
the following constitutes the only information furnished in writing
to the Company by the Underwriters specifically for use in any
Preliminary Prospectus, the Registration Statement or the
Prospectus, or any such amendment or supplement: (i) the statements
in the last paragraph on the cover page of the Prospectus; (ii) the
statements with respect to stabilization in the paragraph at the
bottom of the inside front cover page of the Prospectus; and (iii)
the statements under the caption "Underwriting" in the Prospectus.
(iv) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or contracts and
other documents are accurate and fairly present the information required to
be shown; and there are no statutes or legal or governmental proceedings
required to be described in the Registration Statement or the Prospectus
that are not described as required and no contracts or documents of a
character that are required to be described in the Registration Statement or
3
<PAGE>
the Prospectus or to be filed as exhibits to the Registration Statement
that are not described and filed as required.
(v) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has full power and
authority (corporate and other) to own or lease its properties and conduct
its business as described in the Prospectus. The Company has full power
and authority (corporate and other) to enter into this Agreement and to
perform its obligations hereunder. Each of the Company and its
subsidiaries is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, except where the failure to
so qualify would not have a material adverse effect on the financial
position, results of operations or business of the Company.
(vi) The Company's authorized, issued and outstanding capital
stock is as disclosed in the Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued,
are fully paid and nonassessable and conform to the description of the
Common Stock contained in the Prospectus. None of the issued shares of
capital stock of the Company or its predecessors or any of its subsidiaries
has been issued or is owned or held in violation of any preemptive rights
of stockholders, and no person or entity (including any holder of
outstanding shares of capital stock of the Company or its subsidiaries) has
any preemptive or other rights to subscribe for any of the Shares.
(vii) All of the issued shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned beneficially by the Company
free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, stockholders' agreements, voting trusts, equities or
claims of any nature whatsoever. Other than the subsidiaries listed on
Exhibit 21.01 to the Registration Statement, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
corporation or any ownership interest in any partnership, joint venture or
other association.
(viii) There are no outstanding (A) securities or obligations
of the Company convertible into or exchangeable for any capital stock of
the Company, (B) warrants, rights or options to subscribe for or purchase
from the Company any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of the Company
to issue any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
4
<PAGE>
(ix) Since the date of the most recent audited financial
statements included in the Prospectus, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as disclosed in or contemplated by
the Prospectus.
(x) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and other than as
disclosed in or contemplated by the Registration Statement and the
Prospectus, (A) the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, not in
the ordinary course of business, that are material to the Company and its
subsidiaries, (B) the Company has not purchased any of its outstanding
capital stock or declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock, (C) there has not been any
material change in the capital stock, long-term debt or short-term debt of
the Company or any of its subsidiaries, and (D) there has not been any
material adverse change, or any development that the Company or any of its
subsidiaries reasonably expects to result in a material adverse change, in
or affecting the financial position, results of operations or business of
the Company or any of its subsidiaries.
(xi) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; and the certificates evidencing the Shares comply with all
applicable requirements of Delaware law.
(xii) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement (or any such
right has been effectively waived) or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act.
(xiii) All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times duly registered under
the Act or exempt from the registration requirements of the Act by reason
of Sections 3(b), 4(2) or 4(6) thereof and were duly registered or the
subject of an available exemption from the registration requirements of the
applicable state securities or blue sky laws.
5
<PAGE>
(xiv) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both would not be, in
violation of its Certificate of Incorporation or Bylaws or in default under
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or to which any of its properties or assets are subject.
(xv) The issue and sale of the Shares to be issued and sold by
the Company and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company or any of its
subsidiaries is a party or to which any of their respective properties or
assets is subject, nor will such action conflict with or violate any
provision of the Certificate of Incorporation or Bylaws of the Company or
any statute, rule or regulation or any order, judgment or decree of any
court or governmental agency or body having jurisdiction over the Company
or any of its properties or assets.
(xvi) The Company and its subsidiaries have good and
indefeasible title in fee simple to all real property, if any, and good
title to all personal property owned by them, in each case free and clear
of all liens, security interests, pledges, charges, encumbrances, mortgages
and defects, except such as are disclosed in the Prospectus or such as do
not materially and adversely affect the value of such property and do not
interfere with the use made or proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company or any of its subsidiaries are held under leases
which are valid and enforceable as to the Company and its subsidiaries and,
to the Company's knowledge, as to others, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere with
the use made or proposed to be made of such property and buildings by the
Company.
(xvii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with, any
court or governmental agency or body is required for the sale of the Shares
or the consummation of the transactions contemplated by this Agreement,
except the registration of the Shares under the Act (which, if the
Registration Statement is not effective as of the time of execution hereof,
shall be obtained as provided in this Agreement) and such as may be
required from the National Association of Securities Dealers, Inc. (the
"NASD") and under state securities or blue sky laws in connection with the
offer, sale and distribution of the Shares by the Underwriters.
6
<PAGE>
(xviii) There is no litigation, arbitration, claim, proceeding
(formal or informal) or investigation pending or, to the Company's
knowledge, threatened (or any basis therefor) in which the Company or any
of its subsidiaries is a party or of which any of its properties or assets
are the subject which, if determined adversely to the Company or any such
subsidiary, would individually or in the aggregate reasonably be expected
to have a material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries. Neither the
Company nor any of its subsidiaries is in violation of, or in default with
respect to, any statute, rule, regulation, order, judgment or decree, or
such as do not and will not individually or in the aggregate have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries.
(xix) To the Company's knowledge, BDO Seidman, LLP, who have
certified certain financial statements of the Company and its consolidated
subsidiaries, are and were during the periods covered by their reports
included in the Registration Statement and the Prospectus, independent
public accountants as required by the Act and the rules and regulations of
the Commission thereunder.
(xx) The financial statements and schedules (including the
related notes) of the Company and its consolidated subsidiaries included in
the Registration Statement, the Prospectus or any Preliminary Prospectus
were prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved and fairly present the
financial position and results of operations of the Company and its
subsidiaries, on a consolidated basis, at the dates and for the periods
presented. The selected financial data set forth under the captions
"Prospectus Summary--Summary Historical and ProForma Consolidated Financial
Data" and "Selected Financial Data" in the Prospectus fairly present, on
the basis stated in the Prospectus, the information included therein.
(xxi) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(xxii) Neither the Company nor any of its officers, directors
or other affiliates has (A) taken, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of
7
<PAGE>
the Shares or (B) since the filing of the Registration Statement (1)
sold, bid for, purchased or paid anyone any compensation for
soliciting purchases of, the Shares or (2) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company.
(xxiii) The Company has obtained for the benefit of the Company
and the Underwriters from each of its directors, executive officers and
current stockholders (the "Stockholders") a written agreement that for a
period of 180 days from the date of the Prospectus such director, executive
officer or Stockholder will not, without your prior written consent,
directly or indirectly sell, offer to sell, contract to sell, solicit an
offer to buy, grant any option for the purchase or sale of, assign, pledge,
distribute or otherwise transfer, dispose of or encumber (or make any
announcement with respect to any of the foregoing), any shares of Common
Stock, or any options, rights, warrants or other securities convertible
into or exercisable or exchangeable for Common Stock or evidencing any
right to purchase or subscribe for shares of Common Stock, whether or not
beneficially owned by the undersigned, except as provided in Section 2.
(xxiv) Neither the Company or any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company has, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(xxv) The operations of the Company and its subsidiaries with
respect to any real property currently leased or owned or by any means
controlled by the Company (the "Real Property") are in compliance with all
federal, state and local laws, ordinances, rules and regulations relating
to occupational health and safety and the environment (collectively,
"Laws"), and the Company and its subsidiaries have all licenses, permits and
authorizations necessary to operate under all Laws and are in compliance
with all terms and conditions of such licenses, permits and authorizations;
the Company and its subsidiaries have not authorized or conducted
and have no knowledge of the generation, transportation, storage, use,
treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any
environmental law on, in or under any Real Property; and there is
no pending or threatened claim, litigation or any administrative
agency proceeding, nor has the Company or any subsidiary received
8
<PAGE>
any written or oral notice from any governmental entity or third party,
that: (A) alleges a violation of any Laws by the Company or any
subsidiary; (B) alleges the Company or any subsidiary is a liable
party under the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. Section 9601 et seq. or any state
superfund law; (C) alleges possible contamination of the
environment by the Company or any subsidiary; or (D) alleges
possible contamination of the Real Property.
(xxvi) The Worldwide Rights Agreement dated September 30, 1997
among the Company, Brookhurst, Inc. and William Ott (the "Worldwide
Agreement"), and the Foreign Boss Rights Acquisition Agreement dated
September 30, 1997 between the Company, Hugo Boss, A.G. and Ambra, Inc.
(the "Foreign Agreement" and, together with the Worldwide Agreement, the
"Boss Agreements"), have been duly authorized, executed and delivered by
the Company and are enforceable by the Company against the respective
parties to the Boss Agreements in accordance with their terms, except to
the extent that enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in
a proceeding at law or in equity). The Company and each of its
subsidiaries have fulfilled and performed all of their material obligations
with respect to the Boss Agreements, and related agreements, and the Boss
Agreements, and related agreements, remain in full force and effect; and no
event has occurred with respect to the Boss Agreements, and related
agreements, which would have a material adverse effect on the business of
the Company or its subsidiaries.
(xxvii) The Exclusive Domestic License Agreement dated June 1,
1993 by and between BHPC Marketing, Inc. ("BHPCM") and Heather-Paige II
Industries, Inc. ("HPII"), the Assignment of Licenses dated August 31, 1993
by and between HPII and the Company, the Amendment dated September 1, 1993
by and between BHPCM and the Company, the Exclusive Domestic License
Agreement dated December 14, 1995 by and between BHPCM and the Company, the
Amendment to Exclusive License Agreement dated June 3, 1997 by and between
BHPCM and the Company, the Amendment to Exclusive License Agreement dated
June 1, 1997 by and between BHPCM and the Company, the Amendment to
Exclusive License Agreement dated July 29, 1997 by and between BHPCM and
the Company, the International Exclusive License Agreement (Wholesale)
dated August 15, 1996 by and between BHPCM and Zacari 2000 S.L., the
Amendment to International Exclusive License Agreement (Wholesale) dated
9
<PAGE>
June 3, 1997 by and between BHPCM and I.C. Isaacs Europe, S.L. ("ICI
Europe"), the International Exclusive License Agreement (Retail)
dated August 15, 1996 by and between BHPCM and Zacari 2000, S.L.,
the Amendment to International Exclusive License Agreement (Retail)
dated June 3, 1997 by and between BHPCM and ICI Europe and the
Amendment to Exclusive License Agreement dated July 29, 1996 by and
between BHPCM and ICI Europe (all of the above are together herein
known as the "BHPC Agreements"), have been duly authorized,
executed and delivered by the Company and are enforceable by the
Company against the respective parties to the BHPC Agreements in
accordance with their terms, except to the extent that enforcement
thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The Company and
each of its subsidiaries have fulfilled and performed all of their
material obligations with respect to the BHPC Agreements and the
BHPC Agreements remain in full force and effect; and no event has
occurred with respect to the BHPC Agreements which would have a
material adverse effect on the business of the Company or its
subsidiaries.
(xxviii) The Company and its subsidiaries own or possess, or are
licensed or otherwise have the full legal right to utilize, the patents,
patent rights, licenses, inventions, copyrights, know-how, trademarks
(including, without limitation, the exclusive right to use the marks "BOSS"
and "BEVERLY HILLS POLO CLUB" and related marks and logos upon the terms
and conditions set forth in the BOSS Agreements and the BHPC Agreements,
respectively, and as described in the Prospectus and the marks "I.C.
ISAACS", "I.G. DESIGN", "LORD ISAACS" and "PIZZAZZ"), service marks, trade
names and other intangible property (collectively, the "Intellectual
Property Rights") presently employed by them in connection with the
business now operated by them except where the failure to so own or possess
such legal rights could not reasonably be expected to have a material
adverse effect on the business of the Company or its subsidiaries, and
neither the Company nor any of its subsidiaries has received any notice or
is otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any intellectual property rights or other
proprietary rights which, singularly or in the aggregate, if the subject of
an unfavorable final determination, could reasonably be expected to have a
material adverse effect on the business of the Company or its subsidiaries.
(xxix) The Company has delivered or made available to you
prior to the date the Registration Statement was declared effective copies
of all pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or other
incentive plans, all other written employee programs, arrangements or
agreements, all medical, vision, dental or other health plans, all life
insurance plans and all other employee benefit plans or fringe benefit
plans, including, without limitation, "employee benefit plans" as that term
is defined in Section 3(3) of the Employee Retirement Income Security Act
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of 1974, as amended ("ERISA"), adopted, maintained, sponsored in whole
or in part or contributed to by the Company or any of its
subsidiaries or their respective predecessors for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors or
other beneficiaries are eligible to participate (collectively, the
"Company Benefit Plans").
The Company or any of its subsidiaries (and each of their respective
predecessors that adopted or contributed to a Company Benefit Plan) has
maintained all Company Benefit Plans (including filing all reports and
returns required to be filed with respect thereto) in accordance with their
terms and in compliance with the applicable terms of ERISA, the Internal
Revenue Code and any other applicable federal and state laws, except for
any breach or violation which would not have, individually or in the
aggregate, a material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries, taken as a
whole. Each Company Benefit Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has either received a favorable
determination letter from the Internal Revenue Service or will timely
request such a letter prior to the expiration of any remedial amendment
period applicable without penalty to the Company Benefit Plan under the
Internal Revenue Code and has at all times been maintained in accordance
with Section 401 of the Internal Revenue Code, except where any failure to
so maintain such Company Benefit Plan would not have, individually or in
the aggregate, a material adverse effect on the financial position, results
of operations or business of the Company and its subsidiaries, taken as a
whole. Neither the Company nor any subsidiary has engaged in a transaction
with respect to any Company Benefit Plan that, assuming the taxable period
of such transaction expired as of the date hereof, would subject the
Company or any subsidiary to a tax or penalty imposed by either Section
4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts
which are reasonably likely to have, individually or in the aggregate, a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries, taken as a whole.
Neither the Company nor any subsidiary is obligated to provide
post-retirement medical benefits or any other unfunded post-retirement
welfare benefits, which such liabilities to the Company or any subsidiary
would have, individually or in the aggregate, a material adverse effect on
the financial position, results of operations or business of the Company
and its subsidiaries, taken as a whole. Neither the Company, its
subsidiaries, nor any member of a group of trades or businesses under
common control (as defined in ERISA Sections 4001(a)(14) and 4001(b)(1))
with the Company or its subsidiaries have at any time within the last six
years sponsored, contributed to or been obligated under Title I or IV of
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ERISA to contribute to a "defined benefit plan" (as defined in ERISA Section
3(35)). Within the last six years, neither the Company, its subsidiaries
nor any member of a group of trades or businesses under common control
(as defined in ERISA Sections 4001(a)(14) and 4001(b)(1)) with Company or
its subsidiaries have had an "obligation to contribute" (as defined in
ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA
Sections 4001(a)(3) and 3(37)(A)).
(xxx) No labor dispute exists or is imminent with the
Company's or its subsidiaries' employees or is imminent which could
materially adversely affect the financial position, results of operations
or business of the Company and its subsidiaries. The Company is not
aware of any existing or imminent labor disturbance by its or its
subsidiaries' employees which could be expected to adversely affect the
financial position, results of operations or business of the Company and
its subsidiaries.
(xxxi) The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are customary in the businesses in which
they are engaged; and neither the Company nor any such subsidiary has
knowledge of any facts or circumstances that would prevent the renewal of
its existing insurance coverage as and when such coverage expires or that
would prevent such entity from obtaining similar coverage from similar
insurers as may be necessary to continue its business at a comparable
cost, except as disclosed in the Prospectus.
(xxxii) Each of the Company and its subsidiaries makes and
keeps accurate books and records reflecting its assets and maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization,
(B) transactions are recorded as necessary to permit preparation of the
Company's consolidated financial statements in accordance with generally
accepted accounting principles and to maintain accountability for the
assets of the Company and its subsidiaries, (C) access to the assets of
the Company and each of its subsidiaries is permitted only in accordance
with management's authorization, and (D) the recorded accountability for
assets of the Company and each of its subsidiaries is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxxiii) The Company's software systems include design,
performance and functionality so that the Company does not reasonably
expect to experience invalid or incorrect results or abnormal software
operation related to calendar year 2000. The Company's software systems
include calendar year 2000 date conversion and compatibility
capabilities, including, but not limited to, date data century
recognition, same century and multiple century formula and date value
calculations, and user interface date data values that reflect the
century.
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(xxxiv) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distributions on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary or from
transferring any of such subsidiary's property or assets to the Company
or any other subsidiary of the Company.
(xxxv) The Company and its subsidiaries have filed all
foreign, federal, state and local tax returns that are required to be
filed by them and have paid all taxes shown as due on such returns as
well as all other taxes, assessments and governmental charges that are
due and payable, and no deficiency with respect to any such return has
been assessed or proposed. All applicable income and employment taxes
have been withheld and paid for any individuals who would be considered
common law employees of the Company and its subsidiaries for federal
income and employment tax withholding purposes.
(xxxvi) The Company is not, will not become as a result of
the transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
2. Purchase and Sale of Shares. Subject to the terms and conditions
herein set forth, (a) the Company agrees to sell to each of the Underwriters,
and each of the Underwriters agrees, severally and not jointly, to purchase
from the Company at a purchase price of $______ per share, the number of Firm
Shares (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying the aggregate number of Firm Shares to be sold by
the Company by a fraction, the numerator of which is the aggregate number of
Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto, and the denominator of which
is the aggregate number of Firm Shares to be purchased by the Underwriters
from the Company hereunder and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to issue and sell to each of the
Underwriters, severally and not jointly, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase
price per share set forth in clause (a) of this Section 2, that portion of
the number of Optional Shares to be sold by the Company as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares
by a fraction, the numerator of which is the maximum number of Optional
Shares that such Underwriter is entitled to purchase as set forth opposite
the name of such Underwriter in Schedule I hereto and the denominator of
which is the maximum number of the Optional Shares that all of the Underwriters
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are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase, at
their election in whole or in part from time to time, up to 570,000 Optional
Shares, at the purchase price per share set forth in clause (a) in the
paragraph above, for the sole purpose of covering over-allotments in the sale
of Firm Shares. Any such election to purchase Optional Shares may be
exercised by written notice from you to the Company, given from time to time
within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you
but in no event earlier than the First Time of Delivery (as hereinafter
defined) or, unless you and the Company otherwise agree in writing, earlier
than two or later than ten business days after the date of such notice. In
the event you elect to purchase all or a portion of the Optional Shares, the
Company agrees to furnish or cause to be furnished to you the certificates,
letters and opinions, and to satisfy all conditions, set forth in Section 7
hereof at each Subsequent Time of Delivery (as hereinafter defined).
3. Offering by the Underwriters. Upon the authorization by you of the
release of the Shares, the several Underwriters propose to offer the Shares
for sale upon the terms and conditions disclosed in the Prospectus.
4. Delivery of Shares; Closing. Certificates in definitive form for
the Shares to be purchased by each Underwriter hereunder, and in such
denominations and registered in such names as The Robinson-Humphrey Company,
LLC may request upon at least 48 hours' prior notice to the Company, shall be
delivered by or on behalf of the Company to you for the account of such
Underwriter against payment by such Underwriter on its behalf of the purchase
price therefor by wire transfer or certified or official bank check or checks
drawn on an Atlanta, Georgia bank, payable to the order of the Company and
the Custodian, as their interests may appear, in same-day available funds.
The closing of the sale and purchase of the Shares shall be held at the
offices of Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree
Street, Atlanta, Georgia 30309-3424, or at such other location as you, the
Company and the Attorneys-in-Fact may agree upon, except that physical
delivery of such certificates shall be made at the office of The Depository
Trust Company, 55 Water Street, New York, New York 10041. The time and date
of such delivery and payment shall be, with respect to the Firm Shares, at
9:00 a.m., Atlanta time, on the third (or if the Firm Shares are priced, as
contemplated by Rule 15c6-1(c) promulgated pursuant to the Securities Act of
1934, as amended (the "Exchange Act"), after 4:30 p.m., Washington, D.C.
time, the fourth) full business day after this Agreement is executed or at
such other time and date not less than the seventh full business day
thereafter as you and the Company may agree upon in writing, and, with
respect to the Optional Shares, at 9:00 a.m., Atlanta time, on the date and
at the location specified by you in the written notice given by you of the
Underwriters' election to purchase all or part of such Optional Shares,
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or at such other time and date as you and the Company may agree upon. Such
time and date for delivery of the Firm Shares is herein called the "First
Time of Delivery," such time and date for delivery of any Optional Shares, if
not the First Time of Delivery, is herein called a "Subsequent Time of
Delivery," and each such time and date for delivery is herein called a "Time
of Delivery." The Company will make such certificates available for checking
and packaging at least 24 hours prior to each Time of Delivery at the office
of The Depository Trust Company, 55 Water Street, New York, New York 10041 or
at such other location in New York, New York specified by you in writing at
least 48 hours prior to such Time of Delivery.
5. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters:
(i) If the Registration Statement has been declared effective
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by you,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifth business day after the date on which the
Registration Statement is declared effective. The Company will advise
you promptly of any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission the
prospectus or the amendment referred to in the second sentence of Section
l(a)(i) hereof, any amendment or supplement to the Prospectus or any
amendment to the Registration Statement unless you have received a
reasonable period of time to review any such proposed amendment or
supplement and consented to the filing thereof and will use its best
efforts to cause any such amendment to the Registration Statement to be
declared effective as promptly as possible. Upon the request of the
Representatives or counsel for the Underwriters, the Company will
promptly prepare and file with the Commission, in accordance with the
rules and regulations of the Commission, any amendments to the
Registration Statement or amendments or supplements to the Prospectus
that may be necessary or advisable in connection with the distribution of
the Shares by the several Underwriters and will use its best efforts to
cause any such amendment to the Registration Statement to be declared
effective as promptly as possible. If required, the Company will file
any amendment or supplement to the Prospectus with the Commission in the
manner and within the time period required by Rule 424(b) under the Act.
The Company will advise the Representatives, promptly after receiving
notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the Prospectus
or any amendment or supplement thereto has been filed and will provide
evidence to the Representatives of each such filing or effectiveness.
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(iii) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 p.m. Washington, D.C.
time, on the date of this Agreement, and the Company shall at the time of
filing either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
(iv) The Company will advise you promptly after receiving
notice or obtaining knowledge of (A) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or any part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto or of the initiation or threatening of any proceeding for any
such purpose, (B) the suspension of the qualification of the Shares for
offer or sale in any jurisdiction or of the initiation or threatening of
any proceeding for any such purpose, or (C) any request made by the
Commission or any securities authority of any other jurisdiction for
amending the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best
efforts to prevent the issuance of any such stop order and, if any such
stop order is issued, to obtain the withdrawal thereof as promptly as
possible.
(v) If the delivery of a prospectus relating to the Shares is
required under the Act at any time prior to the expiration of nine months
after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if for any reason it is necessary during such same period
to amend or supplement the Prospectus to comply with the Act or the rules
and regulations thereunder, the Company will promptly notify you, and at
the Company's expense, prepare and file with the Commission an amendment
or supplement to the Prospectus that corrects such statement or omission
or effects such compliance and will furnish without charge to each
Underwriter and to any dealer in securities as many copies of such
amended or supplemented Prospectus as you may from time to time
reasonably request. If the delivery of a prospectus relating to the
Shares is required under the Act at any time nine months or more after
the date of the Prospectus, upon your request but at the expense of such
Underwriter, the Company will prepare and deliver to such Underwriter as
many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act. Neither your consent to, nor
the Underwriters' delivery of, any such amendment or supplement shall
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constitute a waiver of any of the conditions set forth in Section 7.
(vi) The Company promptly from time to time will take such
action as you may reasonably request to qualify the Shares for offering
and sale under the securities or blue sky laws of such jurisdictions as
you may request and will continue such qualifications in effect for as
long as may be necessary to complete the distribution of the Shares,
provided that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction.
(vii) The Company will promptly provide you, without
charge, (A) two manually executed copies of the Registration Statement as
originally filed with the Commission and of each amendment thereto, (B)
for each other Underwriter a conformed copy of the Registration Statement
as originally filed and of each amendment thereto, without exhibits, and
(C) so long as a prospectus relating to the Shares is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto as you may
reasonably request.
(viii) As soon as practicable, but in any event not later
than 45 days after the end of the Company's fiscal quarter in which the
first anniversary of the effective date of the Registration Statement
occurs, the Company will make generally available to its security holders
an earnings statement of the Company and its subsidiaries, if any,
covering a period of at least 12 months beginning after the effective
date of the Registration Statement (which need not be audited) complying
with Section 11(a) of the Act and the rules and regulations thereunder.
(ix) During the period beginning on the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, the Company will not, without your prior written consent,
offer, pledge, issue, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of (or announce any of the foregoing,
directly or indirectly, any shares of Common Stock or securities
convertible into, exercisable or exchangeable for, shares of Common
Stock, except as provided in Section 2 and except that the Company may
(A) grant options pursuant to the Company's stock option plans described
in the Registration Statement with the prior approval of The
Robinson-Humphrey Company, LLC; and (B) issue shares of Common Stock upon
the exercise of any of the Company's outstanding stock options as
described in the Registration Statement or stock options granted under
clause (A) above.
(x) During a period of five years from the effective date of
the Registration Statement, the Company will furnish to you and, upon
request, to each of the other Underwriters, without charge, (A) copies of
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all reports or other communications (financial or other) furnished to
Stockholders, (B) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission, the NASD or any national securities exchange, and (C)
such additional information concerning the business and financial
condition of the Company and its subsidiaries, if any, as you may
reasonably request.
(xi) Neither the Company nor any of its officers, directors or
other affiliates will (A) take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this Agreement,
any action designed to cause or to result in, or that might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of any of
the Shares, (B) sell, bid for, purchase or pay anyone any compensation
for soliciting purchases of, the Shares or (C) pay or agree to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
(xii) The Company will apply the net proceeds from the
offering in the manner set forth under "Use of Proceeds" in the
Prospectus.
(xiii) The Company will cause the Shares to be listed on the
Nasdaq National Market at each Time of Delivery and for at least one year
from the date hereof.
(xiv) If at any time during the period beginning on the
date the Registration Statement becomes effective and ending on the later
of (A) the date 30 days after such effective date and (B) the date that
is the earlier of (1) the date on which the Company first files with the
Commission a Quarterly Report on Form 10-Q or an Annual Report on Form
10-K after such effective date and (2) the date on which the Company
first issues a quarterly or annual financial report to Stockholders after
such effective date, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or
event necessitates an amendment of or supplement to the Prospectus), the
Company will, after written notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning
the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
6. Expenses. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including, without limitation,
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all costs and expenses incident to (i) the reasonable fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement
(including all amendments thereto), any Preliminary Prospectus, the
Prospectus and, if applicable, any amendments and supplements thereto, this
Agreement and any blue sky memoranda; (ii) the delivery of copies of the
foregoing documents to the Underwriters; (iii) the filing fees of the
Commission and the NASD relating to the Shares and the related reasonable
fees and disbursements of counsel for the Underwriters in connection with
filings with the NASD; (iv) the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees; (v) the qualification of the Shares for
offering and sale under state securities and blue sky laws, including filing
fees and reasonable fees and disbursements of counsel for the Underwriters
relating thereto; (vi) any listing of the Shares on the Nasdaq National
Market and (vii) any reasonable expenses for travel, lodging and meals
incurred by the Company and any of its officers, directors and employees in
connection with any meetings with prospective investors in the Shares. It is
understood, however, that, except as provided in this Section, Section 8 and
Section 10 hereof, the Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, stock transfer taxes on resale
of any of the Shares by them, and any advertising expenses relating to the
offer and sale of the Shares.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy
of the representations and warranties of the Company contained herein as of
the date hereof and as of such Time of Delivery, to the accuracy of the
statements of Company officers made pursuant to the provisions hereof, to the
performance by the Company of their covenants and agreements hereunder, and
to the following additional conditions precedent:
(a) If the registration statement as amended to date has not become
effective prior to the execution of this Agreement, such registration
statement shall have been declared effective not later than 4:00 p.m.,
Atlanta time, on the day following the date of this Agreement or such later
date and/or time as shall have been consented to by you in writing. The
Prospectus and any amendment or supplement thereto shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing and in accordance with Section 5(a) of this
Agreement; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 p.m.
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceedings for that purpose shall have
been instituted, threatened or, to the knowledge of the Company and the
Representatives, contemplated by the Commission; and all requests for additional
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information on the part of the Commission shall have been complied with to
your reasonable satisfaction.
(b) Alston & Bird LLP, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to the incorporation of the Company, the validity of the Shares being
delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and the
Company shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(c) You shall have received an opinion, dated such Time of
Delivery, of Piper & Marbury L.L.P., counsel for the Company, in form and
substance reasonably satisfactory to you and your counsel, to the effect that:
(i) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware and has the corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectus and to enter into this Agreement and perform
its obligations hereunder. The Company is duly qualified to transact
business as a foreign corporation and is in good standing under the laws
of each other jurisdiction in which it owns or leases property, or
conducts any business, except where the failure to so qualify would not
have a material adverse effect on the financial position, results of
operations or business of the Company.
(ii) Each of the subsidiaries of the Company has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus. Each such
subsidiary is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases property, or conducts any
business, except where the failure to so qualify would not have a
material adverse effect on the financial position, results of operations
or business of the Company and its subsidiaries taken as a whole.
(iii) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Common Stock contained in the Prospectus. None of the
issued shares of capital stock of the Company, or its predecessors, or
any of its subsidiaries, has been issued or is owned or held in violation
of any statutory preemptive rights of stockholders, and no person or
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entity (including any holder of outstanding shares of capital stock of
the Company or its subsidiaries) has any statutory preemptive or, to such
counsel's knowledge, other rights to subscribe for any of the Shares.
(iv) Except as disclosed in the Prospectus, all of the issued
shares of capital stock of each of the Company's subsidiaries have been
duly authorized and validly issued, are fully paid and nonassessable, and
are owned beneficially by the Company free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders'
agreements, voting trusts, defects, equities or claims of any nature
whatsoever. Other than the subsidiaries listed on Exhibit 22.01 to the
Registration Statement, the Company does not own, directly or indirectly,
any capital stock or other equity securities of any other corporation or
any ownership interest in any partnership, joint venture or other
association.
(v) There are no outstanding (A) securities or obligations of
the Company convertible into or exchangeable for any capital stock of the
Company, (B) warrants, rights or options to subscribe for or purchase
from the Company any such capital stock or any such convertible or
exchangeable securities or obligations or (C) obligations of the Company
to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or
options.
(vi) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment therefor
as provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Stock
contained in the Prospectus; the form of certificate evidencing the
Shares complies with all applicable requirements of Delaware law; and the
Shares have been approved to be listed on the Nasdaq National Market.
(vii) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement (or any such
right has been effectively waived) or in any securities being registered
pursuant to any other registration statement filed by the Company under
the Act.
(viii) All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times duly registered under
the Act or exempt from the registration requirements of the Act by reason
of Sections 3(b), 4(2) or 4(6) thereof, or if not registered or exempt in
compliance with the Act, any private rights of action for rescission or
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damages arising from such failure to register any such securities are
time barred by applicable statutes of limitations or equitable
principles, including laches.
(ix) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both, would be, in
violation of its respective Certificate of Incorporation or Bylaws or in
default under any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company or any such
subsidiary is a party or to which any of their respective properties or
assets is subject and which is required to be included as an exhibit to
the Registration Statement.
(x) The issue and sale of the Shares being issued at such Time
of Delivery and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company or any
subsidiary is a party or to which any of their respective properties or
assets is subject nor will such action conflict with or violate any
provision of the Certificate of Incorporation or Bylaws of the Company or
any of its subsidiaries or any statute, rule or regulation (assuming
compliance with all applicable state securities or blue sky laws, as to
which such counsel need express no opinion) or any order, judgment or
decree of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties or assets.
(xi) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act and such
as may be required from the NASD or under state securities or blue sky
laws in connection with the offer, sale and distribution of the Shares by
the Underwriters.
(xii) The Company and its subsidiaries have good and
indefeasible title in fee simple to all real property owned by them, in
each case free and clear of all liens, security interests, pledges,
charges, encumbrances, mortgages and defects except such as are disclosed
in the Prospectus or such as do not materially and adversely affect the
value of such property and do not materially interfere with the use made
of such property by the Company and its subsidiaries; and any real
property and buildings held by the Company or any of its subsidiaries
under leases are held under leases which are valid and enforceable as to the
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Company and its subsidiaries and, to such counsel's knowledge, as to
others, with such exceptions as are disclosed in the Prospectus or are
not material and do not interfere with the use made of such property and
buildings by the Company and its subsidiaries.
(xiii) To such counsel's knowledge, there is no litigation,
arbitration, claim, proceeding (formal or informal) or investigation
pending or threatened in which the Company or any of its subsidiaries is
a party or of which any of their respective properties or assets is the
subject which, if determined adversely to the Company or any of its
subsidiaries, individually or in the aggregate, reasonably would be
expected to have a material adverse effect on the financial position,
results of operations or business of the Company and its subsidiaries;
and, to such counsel's knowledge, neither the Company nor any of its
subsidiaries is in violation of, or in default with respect to, any
statute, rule, regulation, order, judgment or decree, except as do not
and will not individually or in the aggregate have a material adverse
effect on the financial position, results of operations or business of
the Company.
(xiv) The Company and its subsidiaries own or have the
right to use all patents, trademarks, trade names, service marks,
copyrights, and applications therefor; franchises; trade secrets;
proprietary or other confidential information and intangible
properties and assets (collectively, "Intangibles"), including, but
not limited to, the exclusive right to use the marks "BOSS" and
"BEVERLY HILLS POLO CLUB" and related marks and logos upon the terms
and conditions set forth in the BOSS Agreements and BHPC Agreements,
respectively, and as described in the Prospectus and the marks "I.C.
ISAACS", "I.G. DESIGN," "LORD ISAACS" and "PIZZAZZ," presently
employed by it in connection with its business as presently
conducted or as the Prospectus indicates the Company proposes to
conduct; to the knowledge of such counsel, neither the Company nor
its subsidiaries have infringed and are not infringing, nor will the
conduct of Company's business as proposed in the Prospectus
infringe, and neither the Company nor its subsidiaries have received
notice of infringement with respect to asserted Intangibles of
others; and, to the knowledge of such counsel, there is no
infringement by others of Intangibles of the Company or its
subsidiaries.
(xv) The employment agreements in effect between the Company
and its employees are valid and enforceable; provided, however, that
such counsel need not render any opinion with regard to the validity and
enforceability of any non-compete provision contained therein; and
provided further, that the invalidity or unenforceability of any such
non-compete agreement shall not render the remainder of such agreement,
or any of the other provisions thereof, invalid or unenforceable.
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(xvi) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming that this Agreement is a valid and
binding agreement of the other parties hereto, constitutes the valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights generally, to
general equitable principles and to applicable securities laws or
principles of public policy underlying such laws with regard to rights to
indemnity and contribution.
(xvii) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of statutes, legal and governmental
proceedings or contracts and other documents are accurate in all material
respects and fairly present the information required to be shown; and such
counsel do not know of any contracts or documents of a character required
to be described in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement which are not described and filed
as required.
(xviii) The Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and no
stop order suspending the effectiveness of the Registration Statement or
any part thereof has been issued and no proceedings for that purpose have
been instituted or threatened or, to such counsel's knowledge, are
contemplated by the Commission.
(xix) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
Such counsel shall also state that they have no reason to believe (i)
that the Registration Statement, or any further amendment thereto made prior
to such Time of Delivery, on its effective date and as of such Time of
Delivery, contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) that the
Prospectus, or any amendment or supplement thereto made prior to such Time of
Delivery, as of its issue date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in light of
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the circumstances under which they were made, not misleading (provided that
such counsel need express no belief regarding the financial statements, notes
and related schedules and other financial or statistical data contained in
the Registration Statement, any amendment thereto, or the Prospectus, or any
amendment or supplement thereto).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials.
(d) You shall have received from BDO Seidman, LLP letters dated,
respectively, the date hereof and each Time of Delivery, in form and
substance satisfactory to you, stating that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable published rules and regulations thereunder, and to the effect that:
(i) In their opinion, the financial statements and schedules audited
by them and included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder with respect to
registration statements on Form S-1. With respect to the six-month periods
ended June 30, 1997 and June 30, 1996, we have performed the procedures
specified by the American Institute of Certified Public Accountants for a
review of interim financial information as described in SAS No. 71, Interim
Financial Information, on the unaudited condensed balance sheet as of June
30, 1997 and June 30, 1996 and the unaudited condensed statements of
operations and retained earnings and statements of cash flows for the
six-month periods ended June 30, 1997 and June 30, 1996 included in the
Registration Statement;
(ii) The unaudited summary and selected financial information included
in the Preliminary Prospectus and the Prospectus under the captions
"Prospectus Summary" and "Selected Financial Data" agrees with the
corresponding amounts in the audited financial statements included in the
Prospectus or previously reported on by them;
(iii) On the basis of a reading of the latest available unaudited
interim financial statements of the Company and its subsidiaries, a reading
of the minute books of the Company and its subsidiaries, inquiries of
officials of the Company and its subsidiaries responsible for financial and
accounting matters and other specified procedures, all of which have been
agreed to by the Representatives, nothing came to their attention that
caused them to believe that:
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(A) the unaudited financial statements described in paragraph (i)
above and included in the Registration Statement do not comply as to form
in all material respects with the accounting requirements of the Act and
the related published rules and regulations thereunder and any material
modifications should be made to such unaudited financial statements for
them to be in conformity with generally accepted accounting principles;
(B) at a specified date not more than five days prior to the date of
delivery of such respective letter, there was any change in the capital
stock, decline in stockholders' equity or increase in long-term debt of the
Company or its subsidiaries, or other items specified by the Underwriters,
in each case as compared with amounts shown in the latest balance sheets
included in the Prospectus, except in each case for changes, decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letters; and
(C) for the period from the closing date of the latest statements of
revenues and expenses included in the Prospectus to a specified date not
more than five days prior to the date of delivery of such respective
letter, there were any decreases in revenues or net income of the Company,
or other items specified by the Underwriters, or any increases in any items
specified by the Underwriters, in each case as compared with the
corresponding period of the preceding year, except in each case for
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter.
(iv) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information specified by you which are derived from the general
accounting records of the Company and its subsidiaries, which appear in the
Prospectus and have compared and agreed such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries or to analyses and schedules prepared by the Company from its
detailed accounting records.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of the Company
responsible for financial and accounting matters and with BDO Seidman, LLP,
that such changes, decreases or increases as are set forth in such letters
do not reflect a material adverse change in the stockholder's equity or
long-term debt of the Company and its subsidiaries as compared with the
amounts shown in the latest consolidated balance sheets of the Company
included in the Prospectus, or a material adverse change in revenues or
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net income of the Company, in each case as compared with the corresponding
period of the prior year.
(e) Since the date of the latest audited financial statements
included in the Prospectus, neither the Company nor any of its subsidiaries
shall have sustained (i) any loss or interference with their respective
business from fire, explosion, flood, hurricane or other calamity, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as disclosed in or contemplated by
the Prospectus, or (ii) any change, or any development involving a
prospective change (including without limitation a change in management or
control of the Company), in or affecting the position (financial or
otherwise), results of operations, net worth or business prospects of the
Company and its subsidiaries, otherwise than as disclosed in or contemplated
by the Prospectus, the effect of which, in either such case, is in your
reasonable judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the Shares
being delivered at such Time of Delivery as contemplated by the Registration
Statement, as amended as of the date hereof.
(f) The Shares shall be listed on the Nasdaq National Market,
subject to notice of issuance.
(g) Subsequent to the date hereof there shall not have occurred any
of the following: (i) any suspension or limitation in trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices
for trading on such exchange, or in the Common Stock by the Commission or the
NASD or the Nasdaq National Market; (ii) a moratorium on commercial banking
activities in New York declared by either federal or state authorities; or
(iii) any outbreak or escalation of hostilities involving the United States,
declaration by the United States of a national emergency or war or any other
national or international calamity or emergency if the effect of any such
event specified in this clause (iii) in your reasonable judgment makes it
impracticable or inadvisable to proceed with the purchase, sale and delivery
of the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(h) The Company shall have furnished to you at such Time of
Delivery certificates of officers of the Company satisfactory to you as to
the accuracy of the representations and warranties of the Company herein at
and as of such Time of Delivery, as to the performance by the Company of all
of its respective obligations hereunder to be performed at or prior to such
Time of Delivery and as to such other matters as you may reasonably request,
and the Company shall have furnished or caused to be furnished certificates
as to the matters set forth in subsections (a) and (f) of this Section 7, and
as to such other matters as you may reasonably request.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may
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become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement made by the
Company in Section l(a) of this Agreement; (ii) any untrue statement or
alleged untrue statement of any material fact contained in (A) the
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the
Shares under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"); (iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iv) any failure of the Company to
perform its obligations hereunder or under law, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating, defending against or appearing
as a third-party witness in connection with any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability
or action arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through you expressly for use therein. The
Company will not, without the prior written consent of each Underwriter,
settle or compromise or consent to the entry of any judgment in any pending
or threatened claim, action, suit or proceeding (or related cause of action
or portion thereof) in respect of which indemnification may be sought
hereunder (whether or not such Underwriter is a party to such claim, action,
suit or proceeding), unless such settlement, compromise or consent includes
an unconditional release of such Underwriter from all liability arising out
of such claim, action, suit or proceeding (or related cause of action or
portion thereof).
(b) Each Stockholder who receives any portion of the S Corporation
Distribution, as such term is defined in the Registration Statement, jointly
and severally agrees to indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or any amendment
thereto, or any amendment or supplement thereto, or any Application, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
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incurred by such Underwriter in connection with investigating, defending
against or appearing as a third-party witness in connection with any such
loss, claim, damage, liability or action; provided, however, that each
Stockholder shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein; and provided further, however, that in no event shall the liability
of each Stockholder under this Section 8(b) exceed the amount of the net
proceeds of the offering of the Shares that is used by the Company to pay, or
to repay indebtedness of the Company that is incurred to pay, the S
Corporation Distribution attributable to such Stockholder. Each Stockholder
will not, without the prior written consent of each Underwriter, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of action or
portion thereof) in respect of which indemnification may be sought hereunder
(whether or not such Underwriter is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out of
such claim, action, suit or proceeding (or related cause of action or portion
thereof).
(c) Each Underwriter, severally but not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages
or liabilities to which the Company may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or any Application or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through you
expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify the
indemnifying party, unless and to the extent such omission results in the
forfeiture by the indemnifying party of substantial rights and defenses,
shall not relieve it from any liability which it may have to any indemnified
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party otherwise than under such subsection. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party); provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or
more legal defenses available to it or other indemnified parties which are
different from or additional to those available to the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnified party shall
have the right to select separate counsel to defend such action on behalf of
such indemnified party. After such notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence or (ii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. Nothing in this Section 8(d) shall preclude an
indemnified party from participating at its own expense in the defense of any
such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and each Stockholder on
the one hand and the Underwriters on the other from the offering of the
Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (d) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and each
Stockholder on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company and each Stockholder on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and each
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Stockholder (in the case of each Stockholder, such amount consisting of the
net proceeds of the offering that are used by the Company to pay, or to repay
indebtedness of the Company that is incurred to pay, the S Corporation
Distribution to each Stockholder) bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Stockholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to
this subsection (e) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Stockholders under this
Section 8 shall be in addition to any liability which the Company or such
Stockholders may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this
Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each
Stockholder and to each person, if any, who controls the Company within the
meaning of the Act.
9. Default of Underwriters. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your
discretion arrange for you or another party or other parties to purchase such
Shares on the terms contained herein. If within thirty-six (36) hours after
such default by any Underwriter you do not arrange for the purchase of such
Shares, the Company shall be entitled to a further period of thirty-six (36)
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hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so
arranged for the purchase of such Shares, or the Company notifies you that
they have so arranged for the purchase of such Shares, you or the Company
shall have the right to postpone a Time of Delivery for a period of not more
than seven days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your
opinion may thereby be made necessary. The cost of preparing, printing and
filing any such amendments shall be paid for by the Underwriters. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares
which remains unpurchased does not exceed one-eleventh of the aggregate
number of Shares to be purchased at such Time of Delivery, then the Company
shall have the right to require each non-defaulting Underwriter to purchase
the number of Shares which such Underwriter agreed to purchase hereunder at
such Time of Delivery and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of Shares
which such Underwriter agreed to purchase hereunder) of the Shares of such
defaulting Underwriter or Underwriters for which such arrangements have not
been made, but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. Termination. (a) This Agreement may be terminated with respect to
the Firm Shares or any Optional Shares in the sole discretion of the
Representatives by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that
(i) any condition to the obligations of the Underwriters set forth in Section
7 hereof has not been satisfied in all material respects, or (ii) the Company
shall have failed, refused or been unable to deliver the Shares or to perform
all obligations and satisfy all conditions to be performed or satisfied
hereunder at or prior to such Time of Delivery, in either case other than by
reason of a default by any of the Underwriters. If this Agreement is
terminated pursuant to this Section 10(a), the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable counsel fees and disbursements) that shall have been incurred by
them in connection with the proposed purchase and sale of the Shares. The
Company shall not in any event be liable to any of the Underwriters for the
loss of anticipated profits from the transactions covered by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in Section 9(a), the aggregate number of such Shares which remains
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unpurchased exceeds one-eleventh of the aggregate number of Shares to be
purchased at such Time of Delivery, or if the Company shall not exercise the
right described in Section 9(b) to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to a Subsequent Time of Delivery, the obligations
of the Underwriters to purchase and of the Company to sell the Optional
Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
11. Survival. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the
Stockholders and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter
or any controlling person referred to in Section 8(e) or the Company, any
Stockholder or any officer or director or controlling person of the Company
or any Stockholder referred to in Section 8(e), and shall survive delivery of
and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
12. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or sent by
facsimile transmission and confirmed in writing to you in care of The
Robinson-Humphrey Company, LLC, 3333 Peachtree Road, N.E., Atlanta, Georgia
30326, Attention: Corporate Finance Department (with a copy to Alston & Bird
LLP, One Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia
30309-3424, Attention: Joel J. Hughey); if sent to the Company, shall be
mailed, delivered or sent by facsimile transmission and confirmed in writing
to the Company at I.C. Isaacs & Company, Inc., 3840 Bank Street, Baltimore,
Maryland 21224-2522, Attention: President (with a copy to Piper & Marbury
L.L.P., 36 South Charles Street, Baltimore, Maryland 21201, Attention: Earl
S. Wellschlager); and if sent to any Stockholder, shall be mailed, delivered
or sent by facsimile transmission and confirmed in writing in care of either
Robert J. Arnot or Gerald W. Lear, at I.C. Isaacs & Company, Inc., 3840 Bank
Street, Baltimore, Maryland 21224-2522 (with a copy to Piper & Marbury
L.L.P., 36 South Charles Street, Baltimore, Maryland 21201, Attention: Earl
S. Wellschlager).
13. Representatives. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any
action under this Agreement taken by you jointly or by The Robinson-Humphrey
33
<PAGE>
Company, LLC will be binding upon all the Underwriters.
14. Binding Effect. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters and the Company and to the extent
provided in Sections 8 and 10 hereof, the Stockholders, officers and
directors and controlling persons referred to therein and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign by reason merely of such purchase.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
provisions regarding conflicts of laws.
16. Counterparts. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and
upon the acceptance hereof by The Robinson-Humphrey Company, LLC, on behalf
of each of the Underwriters, this letter will constitute a binding agreement
among the Underwriters and the Company. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant
to the authority set forth in the Master Agreement among Underwriters, a copy
of which shall be submitted to the Company for examination upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
I.C. ISAACS & COMPANY, INC.
By:_________________________________
Name: Gerald W. Lear
Title: President and Co-Chief Executive
Officer
By:_________________________________
Name: Robert J. Arnot
Title: Chariman of the Board and
Co-Chief Executive Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
34
<PAGE>
STOCKHOLDERS
____________________________________
Ira Hechler
____________________________________
Robert J. Arnot
____________________________________
Gerald W. Lear
____________________________________
Jon Hechler
____________________________________
Stanley Keller
____________________________________
Gary B. Brashers
____________________________________
Eugene C. Wielepski
____________________________________
Julian Adler
____________________________________
Thomas P. Ormandy
[SIGNATURES CONTINUED ON NEXT PAGE]
35
<PAGE>
____________________________________
David Hechler
____________________________________
William Myatt
____________________________________
Andrew Adkisson
____________________________________
Joe Chamblee
____________________________________
Charles Godfrey
____________________________________
Robin Hechler
____________________________________
Steven Hechler
____________________________________
Richard Hechler
____________________________________
Joyce Kingsley
____________________________________
Madlyn Goldman
[SIGNATURES CONTINUED ON NEXT PAGE]
36
<PAGE>
____________________________________
Charles Chamblee
____________________________________
Robert Flynn
____________________________________
Marion Felton
____________________________________
Charles Boutwell
____________________________________
Hillary Spieker
____________________________________
Susan Mark
The foregoing Agreement is hereby
confirmed and accepted as of the date first
written above at Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, LLC
LEGG MASON WOOD WALKER, INCORPORATED
By: The Robinson-Humphrey Company, LLC
By:_________________________________
(Authorized Representative)
On behalf of each of the Underwriters
37
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Optional Shares
Total Number of to be Purchased
Firm Shares to be if Maximum
Underwriter Purchased Option Exercised
- ----------------------------- ----------------- ------------------
<S> <C> <C>
The Robinson-Humphrey Company, LLC
Legg Mason Wood Walker, Incorporated
Total
</TABLE>
38
<PAGE>
I.G. DESIGN, INC.
AMENDMENT NO. 1 TO
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This AMENDMENT NO. 1 TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (the
"Amendment") is entered into as of November , 1997, by and among the
--
Principal Shareholders (as such term is
defined in the Amended and Restated Shareholders' Agreement) and I.G. Design,
Inc., a Delaware corporation having its principal office and place of business
at 3840 Bank Street, Baltimore, Maryland 21224-2522 (the "Corporation").
WHEREAS, on May 15, 1997, the Corporation and all of the shareholders of
the Corporation entered into the Amended and Restated Shareholders' Agreement
(the "Restated Agreement"); and
WHEREAS, the parties hereto now wish to amend the Restated Agreement as set
forth below.
NOW, THEREFORE, in consideration of the foregoing and various other
considerations, the receipt and sufficiency of which the parties hereby
acknowledge, the parties hereto hereby agree that the Restated Agreement shall
be amended as follows:
1. Section 16 of the Restated Agreement is hereby deleted and amended in
its entirety to read as follows:
16. TERM OF AGREEMENT
(i) With respect to Section 4C., from the date of consummation of the
Offering until the earlier to occur of (A) the fourth anniversary of
the execution of this Restated Agreement or (B) the Principal
Shareholders' ceasing to be the Beneficial Owners of more than 20% of
the issued and outstanding Stock; provided that a Principal
Shareholder shall be deemed to be the Beneficial Owner of Stock held
by a family trust established by such Principal Shareholder.
(ii) With respect to all other Sections of this Restated Agreement,
from the date of consummation of the Offering until the earlier to
occur of (A) the sixth anniversary of the execution of this Restated
Agreement or (B) the Principal Shareholders' ceasing to be the
Beneficial Owners of more than 20% of the issued and outstanding Stock;
provided that a Principal Shareholder shall be deemed to be the
Beneficial Owner of Stock held by a family trust established by such
Principal Shareholder.
This Amendment shall take effect immediately upon the effectiveness of
the Restated Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed as of the date first written above.
I.G. DESIGN, INC.
-------------------------
Gerald W. Lear, President
-------------------------
Robert J. Arnot
-------------------------
Ira J. Hechler
-------------------------
Jon Hechler
-------------------------
Gerald W. Lear
2
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Board of Directors
I.C. Isaacs & Company, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our reports dated October 31, 1997
relating to the consolidated financial statements and schedule of I.C. Isaacs &
Company, Inc.
We also consent to the reference to our firm under the caption "Experts" in
the Prospectus.
/s/ BDO Seidman, LLP
Washington, D.C.
November 14, 1997
