<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NO. 0-23379
DECEMBER 31, 1998
I.C. ISAACS & COMPANY, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
DELAWARE 52-1377061
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
3840 BANK STREET, BALTIMORE, MARYLAND 21224-2522
(Address of principal executive office) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (410) 342-8200
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class:
COMMON STOCK, $.001 PAR VALUE PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [X].
As of March 26, 1999, the aggregate market value of the outstanding shares
of the Registrant's Common Stock held by non-affiliates was approximately
$8,477,750 based on the average closing price of the Common Stock as reported by
the Nasdaq National Market on March 26, 1999. Determination of affiliate status
for this purpose is not a determination of affiliate status for any other
purpose.
As of March 26, 1999, 6,782,200 shares of Common Stock were outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Specified portions of the definitive Proxy Statement for the 1999 Annual Meeting
of Stockholders of I.C. Isaacs & Company, Inc. to be held on June 3, 1999 are
incorporated by reference into Part III hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
I.C. ISAACS & COMPANY, INC.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I
ITEM 1. BUSINESS................................................................................ 1
ITEM 2. PROPERTIES.............................................................................. 17
ITEM 3. LEGAL PROCEEDINGS....................................................................... 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 17
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................. 18
ITEM 6. SELECTED FINANCIAL DATA................................................................. 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................. 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.... 28
PART III
*ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY......................................... 29
*ITEM 11. EXECUTIVE COMPENSATION.................................................................. 29
*ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................... 29
*ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........................ 29
SIGNATURES........................................................................................... 34
</TABLE>
- ------------------------
* Incorporated by reference from the Registrant's definitive Proxy Statement
for the 1999 Annual Meeting of Stockholders to be held June 3, 1999. The
Proxy Statement will be filed not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
<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 Annual
Report on Form 10-K are the property of their respective owners and are not the
property of the Company.
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THOSE STATEMENTS INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY
AND ITS MANAGEMENT, INCLUDING INDICATIONS REGARDING THE STRENGTH OF UPCOMING
COLLECTIONS AND THE COMPANY'S EXPECTATIONS FOR 1999, STATEMENTS REGARDING
ANTICIPATED COST SAVINGS, ANTICIPATED WORKING CAPITAL NEEDS, AND DISCLOSURES
REGARDING THE COMPANY'S YEAR 2000 READINESS, EXPENDITURES AND PLANS. WORDS SUCH
AS "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS BUT ARE NOT THE
EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. SUCH STATEMENTS ARE
FORWARD-LOOKING STATEMENTS WHICH ARE SUBJECT TO A VARIETY OF RISKS AND
UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL, WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING IN PARTICULAR THE RISKS AND UNCERTAINTIES
DESCRIBED UNDER "RISK FACTORS" IN THE COMPANY'S PROSPECTUS, WHICH INCLUDE, AMONG
OTHER THINGS (I) CHANGES IN THE MARKETPLACE FOR THE COMPANY'S PRODUCTS,
INCLUDING CUSTOMER TASTES, (II) THE INTRODUCTION OF NEW PRODUCTS OR PRICING
CHANGES BY THE COMPANY'S COMPETITORS, (III) CHANGES IN THE ECONOMY, AND (IV)
TERMINATION OF ONE OR MORE OR ITS AGREEMENTS FOR USE OF THE BOSS, BEVERLY HILLS
POLO CLUB AND GIRBAUD BRAND NAMES AND IMAGES IN THE MANUFACTURE AND SALE OF THE
COMPANY'S PRODUCTS. EXISTING AND PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE THE
INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, WHETHER AS A RESULT OF
NEW INFORMATION, FUTURE EVENTS OR CIRCUMSTANCES OR OTHERWISE.
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
I.C. Isaacs & Company, Inc. (together with its predecessors, subsidiaries
and affiliated companies, including I.C. Isaacs & Company L.P., the "Company")
is a 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 and boys under the BOSS brand in the United States and
Puerto Rico and sportswear for men and boys under the Beverly Hills Polo Club
brand in the United States, Puerto Rico and Europe. The Company offers broad
collections of men's and women's sportswear under the Girbaud designer 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
jeanswear and sportswear through specialty and department stores. The Company
also offers women's pants and jeans under various other Company-owned brand
names as well as under third-party private labels for sale to major chain stores
and catalogs.
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. 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
denim products, tee shirts and active sportswear. Net sales of BOSS sportswear
accounted for 73.4% and 74.6% of the Company's net sales in 1998 and 1997,
respectively.
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 boys 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. Net sales of Beverly Hills Polo Club
sportswear accounted for 14.6%, and 15.8% of the Company's net sales in 1998 and
1997, respectively.
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. In March 1998, the Company acquired an exclusive license to
manufacture and market certain women's sportswear under the Girbaud brand in the
United States and Puerto Rico. In November 1998, both licenses were expanded to
include selected countries in Central and South America and the Caribbean. The
Girbaud brand is an internationally recognized designer sportswear label with a
distinct European influence. By targeting customers who desire contemporary,
international fashion, the Girbaud brand has enabled the Company to address
another consumer segment with its branded product portfolio. The Company has
positioned the Girbaud line with a broad assortment of products, styles and
fabrications reflecting a contemporary European look. In February 1998, the
Company began marketing a full collection of men's jeanswear and sportswear
under the Girbaud brand including a broad array of bottoms, tops and outerwear.
In August 1998, the Company introduced a women's sportswear collection under the
Girbaud brand including bottoms, tops and outerwear. Net sales of Girbaud
sportswear accounted for 4.1% of the Company's sales in 1998.
1
<PAGE>
The Company also manufactures and markets a limited number of pants and
jeans styles for women under its own "I.C. Isaacs," "Lord Isaacs" and "Pizzazz"
brand names and under third-party private labels for sale to major chain stores
and catalogs. Net sales of these labels accounted for 7.8% and 9.5% of the
Company's net sales in 1998 and 1997, respectively.
RECENT EVENTS
The Company experienced increased competition in 1998 from a number of
competitors, including the Tommy Jeans division of Tommy Hilfiger and the Polo
Jeans division of Polo Ralph Lauren, at both the department store and specialty
store channels of distribution. The Company believes that both Tommy Jeans and
Polo Jeans have undertaken strategies that include massive consumer advertising
and the addition of sales efforts directed at specialty stores as a way to
expand distribution. In addition, other brands such as DKNY and Nautica have
recently improved the jeanswear segments of their product lines, and a number of
new companies, such as FUBU, have emerged with competing products targeted at
the urban young men's market. In November 1998, the Company announced a
restructuring plan designed to address this increasingly competitive environment
for young men's jeanswear. Under the restructuring plan the Company has
positioned and merchandized its Girbaud line of sportswear to offer jeanswear
and sportswear products that are truly innovative and distinctive from a styling
perspective. Second, the Company has restructured and expanded its BOSS young
men's merchandising staff in an effort to develop product lines that are more
consistent with market trends and to present the product lines to the market in
a timely manner. In addition, the Company has focused its resources on those
product lines with the greatest profit potential, and has made significant
expense reductions. In connection with these activities, the Company recorded a
$1.1 million charge in the third quarter of 1998 related to the write down of
inventory and goodwill and an additional charge of $0.3 million in the fourth
quarter related to the closure of the Company's Carthage, Mississippi
manufacturing facility. Key elements of the restructuring plan include the
following:
- The Company has drastically reduced or eliminated several product lines or
categories that were not profitable or did not have near-term profit
potential. As a result of these initiatives, the Company's focus will be
streamlined towards the BOSS young men's, juniors' and boys', Beverly
Hills Polo Club men's and boys' and Girbaud men's and women's sportswear
lines.
- With the exception of continuing its basic jeans and pants models for sale
to major chain stores and catalogs, the Company has discontinued
production of women's sportswear manufactured under its own brand names
and under third party private labels. This initiative is consistent with
the Company's overall shift towards brand-driven products.
- The Company has discontinued its line of women's sportswear manufactured
under the Beverly Hills Polo Club label and focused its energy on
designing and marketing its Beverly Hills Polo Club men's and boy's
collections.
- In addition to eliminating its Beverly Hills Polo Club women's line, the
Company has significantly reduced and modified its European men's line
under the Beverly Hills Polo Club label. In January 1999, the Company
presented a collection designed to be more reflective of current trends in
the European marketplace.
- The Company has amended certain of its licensing agreements with the
licensor of the Beverly Hills Polo Club brand name to provide for the
elimination of international royalties for the remainder of 1999 and a
substantial reduction in international royalties in 2000.
- The BOSS juniors' line has been substantially reduced and is more focused
on core price point products with greater volume potential, such as jeans
and tee-shirts.
- The Company has significantly cut the number of styles and SKUs offered in
its continuing branded sportswear lines to reduce product development
costs, selling expenses and inventory exposure.
2
<PAGE>
- The Company's Carthage, Mississippi manufacturing plant--which was largely
responsible for the production of women's pants and jeans--was closed in
February 1999. A portion of the production in this facility has been
transferred to the remaining Company-owned plant in Raleigh, Mississippi,
as well as to independent contractors in Mexico.
- The Company's advertising budget has been reduced to reflect the decrease
in lines; more dollars will be allocated towards special events and
point-of-sale advertising and promotions. The Company believes that this
type of exposure provides the greatest benefit for its expenditures. There
will be no reduction in the advertising to support growth of the Girbaud
brand, which includes a full print media campaign as well as billboards,
buses and special events.
PRODUCTS
The Company's sportswear collections under the BOSS, Beverly Hills Polo Club
and Girbaud brands provide a broad range of product offerings for young men,
women and boys including a variety of tops, bottoms 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 a limited number of styles of women's pants and
jeans under its own "I.C. Isaacs," "Lord Isaacs" and "Pizzazz" brand names as
well as under third-party private labels.
BOSS PRODUCTS
The BOSS brand is a full sportswear line characterized by innovative
fabrication and creative graphics. 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
several 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 has 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.
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
Company's outerwear line 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.
3
<PAGE>
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 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 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. 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 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.
GIRBAUD PRODUCTS
The Girbaud brand is an internationally recognized designer sportswear
label. The Company has launched innovative European-inspired men's and women's
sportswear collections under the Girbaud label. The Girbaud collections include
full lines of bottoms consisting of jeans and casual pants in a variety of
fabrications, including denim, stretch denim, cotton twill and nylon, cotton tee
shirts, polo shirts, knit and woven tops, sweaters and outerwear. Reflecting
contemporary European design, each of these collections is characterized by
innovative styling and fabrication and is targeted to consumers ages 16 to 50.
Estimated retail prices range from $20 to $25 for tee shirts, $50 to $75 for
tops and bottoms, $60 to $90 for sweaters and $80 to $200 for outerwear
products.
COMPANY-OWNED AND THIRD-PARTY PRIVATE LABEL PRODUCTS
The Company also produces a limited number of pants and jean styles for
women under its own brands, including "I.C. Isaacs," "Lord Isaacs" and
"Pizzazz," as well as under customers' private labels for
4
<PAGE>
sale to major chain stores and catalogs. These brands focus on pull-on elastic
waist pants and jeans. 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. Estimated retail prices range
from $15 to $24.
CUSTOMERS AND SALES
The Company's products are sold in over 3,500 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 the distributor or sales representative
serves 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 2,500 specialty stores and specialty store chains. Substantially
all of the Company's net revenues are attributable to domestic sales. The
Company's newest level of distribution is to department stores, and its single
largest customer in 1998 was J.C. Penney Company, Inc., which accounted for
26.2% of net sales. No other customer of the Company accounted for 10.0% or more
of net sales in 1998. 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 19
commissioned BOSS 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 store chains.
The Company's Beverly Hills Polo Club sportswear is sold in the United
States, Puerto Rico and Europe to over 2,000 specialty stores, specialty store
chains and department stores, such as J.C. Penney Company Inc. and Peebles. The
Company's Beverly Hills Polo Club products are sold and marketed under the
direction of its 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 15 Beverly Hills Polo Club sales representatives.
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. The Company currently has wholesale distribution
arrangements with distributors in Belgium, Finland, France, Greece, Italy,
Luxembourg, the Netherlands, Norway, Portugal, Switzerland, Austria and Germany.
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. The Company has
established three franchise stores in Spain.
The Company began marketing men's sportswear under the Girbaud brand in
February 1998 and introduced a women's sportswear collection under the Girbaud
brand in the second quarter of 1998. The Company's Girbaud products are being
sold to more than 800 stores in the United States and Puerto Rico, including
major department stores such as Nordstroms, Bloomingdales, Macy's East, Macy's
West and Dayton Hudson, and many prominent speciality stores such as Fred Segal
Santa Monica and The Atrium in New York. The Company's Girbaud brand products
are sold and marketed domestically under the direction of a 9-person sales force
headquartered in New York and in Central and South America and the Caribbean by
agreement with a third-party distributor.
The Company-owned branded products and the Company's third-party private
label products are sold under the direction of the sales headquarters in New
York. The products are distributed to department
5
<PAGE>
stores such as Sears Roebuck and Co.; mass merchandisers and discounters such as
Hills Department Store Company and Ames Department Stores, Inc.; and catalogs
such as National Wholesale Co., Inc. and Arizona Mail Order Company, Inc.
DESIGN AND MERCHANDISING
The Company's designers and merchandisers travel around the world 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. From 1994 to 1998, the Company's design staff
grew from 6 to 20 people. The Company currently has 16 people on the design
staff in New York City. Design expenditures incurred were approximately $3.0
million in 1998. The Company estimates that design expenditures in 1999 will be
approximately the same.
ADVERTISING AND MARKETING
The Company prides itself on its ability to efficiently utilize its
advertising budget. Although the Company increased its expenditures on
advertising to approximately $5.7 million or 5.0% of net sales in 1998, this is
still a relatively modest amount as compared with some of its competitors. In
1997 and 1998, the Company's expenditures for advertising and marketing
activities totaled $3.9 million and $5.7 million, respectively.
The Company aggressively communicates and reinforces the brand and image of
its BOSS, Beverly Hills Polo Club and Girbaud 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 agencies and, in the case of Girbaud, with
the Girbaud Paris office. 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, the Beverly
Hills Polo Club brand since 1994 and the Girbaud brand since 1998. 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 in SOURCE, SLAM, SPORTSWEAR
INTERNATIONAL, XXL and URBAN LATINO magazines, while television advertisements
appear on MTV: Music Television, and the Madison Square Garden (MSG) Network.
Advertisements for 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 have appeared on the Fox
Sports Network and MSG. The Company is a sponsor of selected professional
basketball teams, including the New York Knicks and New Jersey Nets, and Beverly
Hills Polo Club was a sponsor of the NCAA Basketball Tournaments and the PGA
Tour. The Company's products can 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. Recognizing that point of sale advertising is
highly effective, the Company also provides an array of in-store signage and
product videos for both BOSS and Beverly Hills Polo Club products.
To increase consumer awareness of the Girbaud brand in the United States,
the Company has begun a multifaceted marketing campaign which includes print
advertisement in magazines such as ELLE, VIBE, DETOUR, DETAILS and INTERVIEW
magazines. The campaign also includes outdoor advertising, including billboard
and signage on New York City buses, point of sale materials and promotions, and
celebrity wardrobing. As a first tier designer brand, Girbaud also presents
international runway shows as well as appearing in major trade shows.
6
<PAGE>
MANUFACTURING AND PRODUCT SOURCING
GENERAL
The Company believes that its flexible manufacturing and sourcing
capabilities enable it to effectively 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 1998, approximately 16.5% of the Company's
purchases of raw materials, labor and finished goods for its apparel were made
in Mexico; approximately 32.9% were made in Asia; approximately 29.3% were made
at third-party facilities in the United States; and the balance was made at the
Company's facilities in the United States. Approximately 78.7% of the Company's
manufacturing and sourcing in 1998 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.
UNITED STATES AND MEXICO
Until the second quarter of 1998, the Company operated three manufacturing
facilities in Mississippi. In 1998, the Company produced approximately 40% of
its bottoms (slacks, jeans, shorts and skirts) in these facilities. In the
second quarter of 1998, the Company closed its Newton, Mississippi manufacturing
facility. This closure resulted in a charge of $0.2 million against earnings for
the quarter ended March 31, 1998. The production in this facility, the majority
of which was jeans, was transferred to a third party independent contractors'
facilities in Mexico. The actual expenses incurred in connection with the
closure were not significantly different than the reserve provided by the
Company in the first quarter. In the first quarter of 1999, the Company closed
its Carthage, Mississippi manufacturing facility. This closure resulted in a
charge of $0.3 million against earnings in the quarter ended December 31, 1998.
The production in this facility, the majority of which was ladies' pants and
jeans under the Company's private labels, was transferred to the remaining
Company-owned plant in Raleigh, Mississippi, as well as to independent
contractors in Mexico. The Company's remaining facility in Raleigh, Mississippi
employs approximately 230 people.
The Company utilizes five contractors in the United States and three
contractors in Mexico. The majority of the Company's U.S. and Mexico production
is of bottoms and tee shirts. 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 the Company-operated
facility. 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 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 which is widely available.
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 30 different manufacturers in
7
<PAGE>
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 1998.
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. 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
percentage 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 services its United States customers and intends to service its
Central and South American and Caribbean customers utilizing a 70,000 square
foot Company-owned and operated distribution center in Milford, Delaware. The
Company has established 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. The Company previously determined, based on prior years' sales
levels, that its distribution requirements could be better met by consolidating
its warehousing and distribution functions into a new 150,000 square foot
facility in Milford, Delaware. As a result of an overall decline in sales and
demand, the Company has decided to delay the construction of the new
distribution center for the foreseeable future. The Company does not intend to
dispose of its current distribution center. The Company also has a warehouse in
Carthage, Mississippi.
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 the Company-operated facility, as well as by United
States and Mexican contractors, undergo continual audits by quality personnel
during production. The quality control efforts of the Company-operated facility
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 6 persons dedicated to the
quality control efforts of its United States and Mexican production.
8
<PAGE>
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.
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 the stores. As of
December 31, 1998, the Company had unfilled orders of approximately $27.0
million, compared to approximately $46.0 million of such orders as of December
31, 1997. The Company expects to fill substantially all of these orders in 1999.
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. During 1998, increased competition and continued
sluggishness in the retail apparel market contributed to the decrease in
backlog. 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.
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.
BOSS TRADEMARK RIGHTS
In 1990, the Company obtained a license from Brookhurst, Inc. ("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.
In February 1993, the owner of the "HUGO 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" and "HUGO BOSS" trademarks. 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 (the "Settlement") of the BOSS trademark
litigation. As part of the 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").
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, Inc., a
wholly-owned subsidiary of Hugo Boss AG ("Ambra"). Neither Hugo Boss nor Ambra
is affiliated with
9
<PAGE>
Brookhurst or the Company. 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.
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 generally requires that the Company use the phrase "BOSS by I.G. Design" 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 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 ("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. The
base royalties on such amounts of Territory Net Sales would increase to as much
as 19.5% 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 (i) 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
10
<PAGE>
the agreement and $16.0 million for each of years six through ten of the
agreement and (ii) to pay annual royalties on such sales based on the
percentages described above. 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. In the event that the Company's
cumulative payment of royalties under the Foreign Rights Agreement and interest
paid under the Note exceed: (i) $16.0 million paid at any time during the first
four years of the agreement, (ii) $6.5 million paid at any time during years
five through seven of the agreement, (iii) $6.0 million paid at any time during
years eight through ten of the agreement, or (iv) $26.0 million paid at any time
during the entire term of the agreement, the requirement to generate minimum
annual Territory Net Sales, as described above, terminates and the Company shall
continue to pay royalties based on the percentages described above.
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 would have a
material adverse effect on the Company's financial condition and results of
operations.
Ambra holds an option dated November 5, 1997 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.
BEVERLY HILLS POLO CLUB LICENSES
Beverly Hills Polo Club Domestic Licenses
Since 1993, the Company has had an exclusive wholesale licensing agreement
(the "BHPC Agreement") with BHPC Marketing, Inc. for the manufacture and
promotion of certain men'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 Agreement, the Company may sell up to 25.0% of its total volume 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 materials, manufacturing premises
and products bearing the trademark. Under the license, 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
11
<PAGE>
products. Under the 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 BHPC 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
and woven 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 BHPC Agreement has a
three year term expiring December 31, 2001 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 a three-year period commencing January 1, 2000 through
December 31, 2004.
In 1998, the Company was subject to a guaranteed payment of $400,000.
Guaranteed minimum annual royalties and guaranteed annual net shipments for the
current term and the renewal term are equal to 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 BHPC Agreement 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 BHPC Agreement, 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 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 BHPC's Agreement 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.
In April 1998, the Company entered into an exclusive license (the "BHPC
Boys' Agreement") to manufacture and market boys' sportwear, including knit and
woven shirts, cotton and cotton mixed pants (excluding tailored pants), jeans,
shorts, swim shorts and sports outerwear, under the Beverly Hills Polo Club
brand in the United States and Puerto Rico. Under the terms of the BHPC Boys'
Agreement, the Company must pay the licensor of the BHPC Trademark royalties
equal to 5% of net shipments by the Company of licensed products. The Company is
subject to guaranteed minimum annual royalties of $50,000 in 1999. The BHPC
Boys' Agreement has an initial term of three years, and is renewable at the
option of the Company, provided the Company is not in breach thereof at the time
the renewal notice is given, until December 31, 2004.
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, provide
certain exclusive rights to use the BHPC Trademark in all countries in Europe
for an initial term of three years ending December 31, 1999, renewable at the
Company's option, provided the Company is not in breach thereof at the time the
renewal notice is given, through three consecutive extensions ending December
31, 2004. The International Agreements are subject to substantially the same
terms and conditions as the BHPC Agreements described above.
12
<PAGE>
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 franchise
stores in Europe of the following categories of products: (i) men's apparel,
including denim sportswear, outerwear, woven 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 (excluding suits, ties, dress shirts, underwear, shoes, overcoats and
full length rainwear); (ii) women's apparel, including 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). Under the
Retail Agreement, the Company was required to pay the licensor royalties (the
"Initial Retail 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 ("Wholesale Purchases") and (ii) 2.0% of retail sales of licensed
products by Beverly Hills Polo Club retail stores and was subject to guaranteed
minimum annual royalty payments of $30,000 in 1999 and guaranteed net shipment
volumes of $0.8 million in 1999. By amendment dated as of March 1, 1999 the
Retail Agreement was amended (the "Retail Amendment") to provide as follows: (i)
for the period beginning March 1, 1999 and ending December 31, 1999, no
royalties, guaranteed minimum annual royalties or guaranteed net shipment
volumes shall apply; (ii) for the period beginning January 1, 2000 and ending
December 31, 2000, the Company shall pay the licensor royalties equal to 3.0% of
Wholesale Purchases, and no guaranteed minimum annual royalties or guaranteed
net shipment volumes shall apply; and (iii) for any periods thereafter, the
Initial Retail Royalties shall apply and the Company shall be subject to the
guaranteed minimum annual royalties and guaranteed net shipment volumes, in
effect immediately prior to the date of the Retail Amendment.
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,
including denim sportswear, outerwear, woven 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 (excluding suits, ties, dress shirts, underwear, shoes, overcoats, and
full length rainwear); and (ii) women's apparel, including slacks, skirts,
dresses, sweaters, outerwear, blouses and jeans. Under the Wholesale Agreement,
the Company was required to pay the licensor royalties, (the "Initial Wholesale
Royalties") 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
("Net Shipments") and was subject to guaranteed minimum annual royalty payments
of $120,000 in 1999 and guaranteed net shipment volume of $4.0 million in 1999.
By amendment dated as of March 1, 1999, the Wholesale Agreement was amended (the
"Wholesale Amendment") to provide as follows: (i) for the period beginning March
1, 1999 and ending December 31, 1999, no royalties, guaranteed minimum annual
royalties or guaranteed net shipment volumes shall apply; (ii) for the period
beginning January 1, 2000 and ending December 31, 2000, the Company shall pay
royalties equal to 3.0% of Net Shipments and shall be subject to a guaranteed
minimum annual royalty payment of $60,000; and (iii) for any periods thereafter,
the Initial Wholesale Royalties shall apply and the Company shall be subject to
the guaranteed minimum annual royalties and guaranteed net shipment volumes in
effect immediately prior to the date of the Wholesale Amendment.
13
<PAGE>
GIRBAUD LICENSES
GIRBAUD DOMESTIC LICENSES
In November 1997, the Company entered into an exclusive license agreement
(the "Girbaud Men's 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. In March 1998, the Girbaud Men's Agreement was
amended and restated to include active influenced sportswear as a licensed
product category and to name Latitude Licensing Corp. as the licensor (the
"Licensor"). Also in March 1998, the Company entered into an exclusive license
agreement (the "Girbaud Women's Agreement" and, together with the Girbaud Men's
Agreement, the "Girbaud Agreements") with the Licensor to manufacture and market
women's jeanswear, casualwear and outerwear, including active influenced
sportswear, under the Girbaud Marks in all channels of distribution in the
United States, including Puerto Rico and the U.S. Virgin Islands. The Girbaud
Agreements include the right to manufacture the licensed products in a number of
foreign countries, and both have initial terms of two years and may be extended
at the option of the Company for up to a total of ten years. The Girbaud
Agreements generally allow 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 material and
manufacturing premises. The Girbaud Agreements provide that they 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 agreement
that remains uncured following certain specified grace periods.
Under the Girbaud Men's 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 $1.5 million in 1999, $2.0 million in 2000, $2.5
million in 2001 and $3.0 million each year from 2002 through 2007. In 1998, the
Company was subject to minimum annual royalty payments of $1.2 million. 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 was required to spend at least $350,000 in advertising
men's Girbaud brand products in 1998 and is required to spend at least $500,000
in each subsequent year while the Girbaud Men's Agreement is in effect.
Under the Girbaud Women's Agreement the Company paid a one-time license
acquisition fee in the amount of $600,000 and 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 $700,000 in 1999, $800,000 in 2000, $1.0 million in 2001 and
$1.5 million each year from 2002 through 2007. On a quarterly basis during the
term, commencing with the first quarter of 1999, 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 was
required to spend at least $550,000 in advertising women's Girbaud brand
products in 1998 and is required to spend at least $400,000 in each subsequent
year while the Girbaud Women's Agreement is in effect. In addition, over the
term of the Girbaud Women's Agreement the Company is required to contribute
$190,000 per year to the Licensor's advertising and promotional expenditures for
the Girbaud brand.
The Girbaud Women's Agreement initially required the Company to open a
Girbaud flagship store for the sale of the Company's Girbaud men's and women's
lines and other Girbaud licensed merchandise in New York City by the end of
1998. In December 1998, the Girbaud Women's Agreement was amended to defer this
requirement for one year and to provide that the Company would spend an
additional $1.8 million on enhanced sales and marketing in 1999.
14
<PAGE>
In November 1998, the Company entered into amendments (the "Girbaud
Amendments") to the Girbaud Agreements allowing distribution through an approved
distributor in selected countries in Central and South America and the
Caribbean. The Girbaud Amendments are effective until November 12, 2001 or until
expiration of the Girbaud Agreements, whichever is earlier. In the event that
the Company does not achieve more than 75% of target sales levels in any Central
or South American or Caribbean country, its license to distribute Girbaud
products in that country will become non-exclusive effective starting the
following year.
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 3,500 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
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 exposure to credit
losses. The Company currently employs six people in its credit department and
believes that managing its own credit gives it unique flexibility as to which
customers the Company should sell and how much business it should do with each.
The Company obtains and periodically updates information regarding the financial
condition and credit histories of customers. The Company's collection 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. 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. Timely contact with customers has been effective in
reducing credit losses to an immaterial amount. In 1997, and 1998, the Company's
credit losses were $1.2 million and $1.4 million, respectively. The Company's
actual credit losses as a percentage of net sales was 0.7% and 1.2%,
respectively.
COMPETITION
The apparel industry is highly competitive and fragmented and is subject to
rapidly changing consumer demands and preferences. The Company believes that its
continued 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, Guess?, Mecca, Phat Farm, Polo
Jeans, Tommy Jeans, 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.
The Company experienced increased competition in 1998 from a number of
competitors, including the Tommy Jeans division of Tommy Hilfiger and the Polo
Jeans division of Polo Ralph Lauren, at both the department store and specialty
store channels of distribution. The Company believes that both Tommy Jeans and
Polo Jeans have undertaken strategies that include massive consumer advertising,
and the addition of sales efforts directed at specialty stores as a way to
expand distribution. Other brands such as DKNY and Nautica have recently
improved the jeanswear segments of their product lines. In addition, a number of
new companies such as FUBU have emerged with competing products targeted at the
urban young men's market. For a discussion of the steps the Company has taken to
address this increasingly competitive environment, see "--Recent Events." Under
the Concurrent Use Agreement, the BHPC Agreements and the Girbaud Agreements,
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
15
<PAGE>
wholesale price points. Any such production, distribution, advertisement or sale
of such garments by such licensor or another authorized party could have a
material adverse effect on the Company's financial condition or results of
operations.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that advanced information processing is essential to
maintaining its competitive position. The Company is currently upgrading systems
to be year 2000 compliant and to 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. For a
discussion of the Company's year 2000 compliance and expenditures, see "ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance and Expenditures." 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 March 31, 1999, the Company had approximately 450 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.
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 waste, 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.
16
<PAGE>
ITEM 2. PROPERTIES
Certain information concerning the Company's principal facilities is set
forth below:
<TABLE>
<CAPTION>
APPROXIMATE AREA
LEASED OR IN
LOCATION OWNED USE SQUARE FEET
- ----------------------------------------- ----------- ----------------------------------------- ----------------
<S> <C> <C> <C>
Baltimore, MD............................ Owned Administrative Headquarters and Office 40,000
Facilities
New York, NY............................. Leased Sales, Merchandising, Marketing and 10,100
Sourcing Headquarters
Barcelona, Spain......................... Leased European Headquarters 2,000
Milford, DE.............................. Owned Distribution Center 70,000
Carthage, MS............................. Leased Warehouse 110,000
Newton, MS............................... Leased Subleased to third party 101,000
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 previously determined,
based on prior years' sales levels, that its distribution requirements could be
better met by consolidating its warehousing and distribution functions into a
new 150,000 square foot facility in Milford, Delaware. As a result of an overall
decline in sales and demand, the Company has decided to delay the construction
of the new distribution center for the foreseeable future. The Company does not
intend to dispose of its current distribution center. See "ITEM 1. Business--
Warehousing and Distribution" and Note 7 of Notes to Consolidated Financial
Statements for further information.
In the second quarter of 1998, the Company closed its Newton, Mississippi
manufacturing facility. This closure resulted in a charge of $0.2 million
against earnings. The production in this facility, the majority of which is
jeans, was transferred to a third party independent contractors' facilities in
Mexico. The Company has subleased the facility to a third party and is currently
in negotiations to assign the lease to a third party.
In the first quarter of 1999, the Company closed its Carthage, Mississippi
manufacturing facility. This closure, resulted in a charge of $0.3 million
against earnings for the quarter ended December 31, 1998. The production in this
facility, the majority of which is ladies' pants and jeans under the Company's
private labels, was transferred to the remaining Company-owned plant in Raleigh,
Mississippi, as well as to independent contractors in Mexico. The Company now
uses the Carthage facility as a warehouse.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, there were no matters submitted to a vote
of the Company's stockholders.
17
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The market for the Company's Common Stock is not an exchange but is
established by the National Association of Securities Dealers' Automated
Quotation System. As of March 26, 1999, the Company had approximately 40 holders
of record of the Company's Common Stock.
The Company's Common Stock trades on the Nasdaq National Market under the
Symbol "ISAC." The reported last sale price of the Common Stock on the Nasdaq
National Market on March 26, 1999 was $1.25. The following table sets forth for
the periods indicated the high and low closing sale prices for the Common Stock
reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
1998 1997
-------------------- ---------------------
<S> <C> <C> <C> <C>
QUARTER ENDED HIGH LOW HIGH LOW
- ---------------------------------------------------------------------- --------- --------- ---------- ---------
March 31.............................................................. $ 11.375 $ 6.875 -- --
June 30............................................................... $ 7.00 $ 2.50 -- --
September 30.......................................................... $ 3.375 $ 1.875 -- --
December 31........................................................... $ 2.50 $ 1.0625 $ 10.1875 $ 10.00
</TABLE>
Since November 1998, the Company's Common Stock has been closing at prices
between $1.0312 and $2.4375. In order to maintain its listing on the Nasdaq
National Market, a stock must have a minimum bid price of $1.00. There can be no
assurances that the Company's Common Stock will maintain a minimum bid price of
$1.00 or more in the future or that it will not be delisted from the Nasdaq
National Market.
The Company anticipates that all earnings of the Company will be retained
for the foreseeable future for use in the operation of the Company's business.
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 facilities and other factors deemed relevant by the Board of
Directors.
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
Board of Directors has approved an increase in the shares of Common Stock that
may be issued with respect to awards granted under the Plan to an aggregate of
1.1 million shares. This increase is subject to approval by the Company's
stockholders at the 1999 annual meeting of stockholders (the "Annual Meeting").
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. Through December 31, 1998, the Company had
granted stock options under the Plan exercisable upon vesting for an aggregate
of 346,000 stock options. The weighted average exercise price of such options is
$2.125 per share. Through December 31, 1998, none of those stock options had
been exercised. The issuance of such stock options was exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereunder. The Company previously filed a Registration Statement
on Form S-8 (the "Form S-8") to register shares of Common Stock issuable
pursuant to awards granted under the Plan. The Company intends to file a post
effective amendment to the Form S-8 after following the Annual Meeting if
stockholders vote to approve the increase in the shares of Common Stock that may
be issued
18
<PAGE>
with respect to awards granted under the Plan as described above. The purpose of
the post effective amendment will be to register the additional shares of Common
Stock issuable pursuant to awards granted under the Plan.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
consolidated financial statements of the Company and the related notes thereto.
The statement of income data for the years ended December 31, 1996, 1997 and
1998 and the balance sheet data as of December 31, 1997 and 1998 are derived
from the consolidated financial statements of the Company which have been
audited by BDO Seidman, LLP, independent certified public accountants, included
elsewhere herein. The statement of income data for the years ended December 31,
1994 and 1995 and the balance sheet data as of December 31, 1994, 1995 and 1996
are derived from the consolidated financial statements of the Company, which
have been audited but are not contained herein. The following selected financial
data should be read in conjunction with the Company's consolidated financial
statements and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................................ $ 85,298 $ 93,271 $ 118,655 $ 161,446 $ 113,721
Cost of sales.................................................... 62,216 68,530 84,421 109,694 90,661
--------- --------- ---------- ---------- ----------
Gross profit................................................... 23,082 24,741 34,234 51,752 23,060
Selling expenses................................................. 7,462 8,927 11,898 16,236 16,983
License fees..................................................... 3,012 3,174 4,817 7,577 6,020
Distribution and shipping expenses............................... 2,046 2,379 2,669 4,307 3,900
General and administrative expenses.............................. 5,813 5,787 6,243 7,546 9,999
Provision for plant closings..................................... -- -- -- -- 526
Recovery of legal fees........................................... -- -- (718) (117) --
--------- --------- ---------- ---------- ----------
Operating income (loss)........................................ 4,749 4,474 9,325 16,203 (14,368)
Interest, net.................................................... 1,191 1,247 1,365 2,372 1,455
Other income (expense) (1)....................................... 1,235 (3) 85 3 381
Minority interest................................................ (53) (33) (82) (135) --
--------- --------- ---------- ---------- ----------
Income (loss) before extraordinary item and income taxes......... 4,740 3,191 7,963 13,699 (15,442)
Extraordinary item (2)........................................... 389 -- -- -- --
--------- --------- ---------- ---------- ----------
Income (loss) before income taxes................................ 5,129 3,191 7,963 13,699 (15,442)
Income tax (expense)/benefit..................................... -- -- -- 1,349 (1,351)
--------- --------- ---------- ---------- ----------
Net income (loss).............................................. $ 5,129 $ 3,191 $ 7,963 $ 15,048 $ (16,793)
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Basic and diluted net income (loss) per share (3)................ $ 1.29 $ 0.80 $ 1.99 $ 3.68 $ (2.15)
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Weighted average common shares outstanding....................... 3,988 3,988 4,000 4,094 7,810
PRO FORMA STATEMENT OF INCOME DATA:
Income before income taxes....................................... 5,129 3,191 7,963 13,699
Income tax provision (4)......................................... 2,103 1,308 3,265 5,617
--------- --------- ---------- ----------
Net income..................................................... $ 3,026 $ 1,883 $ 4,698 $ 8,082
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Basic and diluted net income per share........................... $ 0.95 $ 1.62
---------- ----------
---------- ----------
Weighted average common shares outstanding....................... 4,930 5,001
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 10,035 $ 10,807 $ 16,274 $ 45,940 $ 31,577
Total assets............................................... 30,103 31,764 37,257 73,443 59,046
Total debt................................................. 8,798 8,645 7,796 11,609 13,848
Stockholders' equity....................................... 14,428 14,645 19,393 52,496 37,313
</TABLE>
- ------------------------
(1) Includes income from settlement of license disputes of $1.2 million in 1994.
(2) In connection with the early extinguishment of certain debt, the Company
recorded an extraordinary gain of $0.4 million in 1994.
(3) Historical earnings per share does not reflect a provision for income taxes
as the Company had been taxed as an S corporation for the years ended
December 31, 1994, 1995, 1996 and the majority of 1997.
(4) Reflects pro forma provision for income taxes as if the Company had been
taxed as a C corporation for the years ended December 31, 1994, 1995, 1996
and 1997.
ITEM 7. 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 herein.
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 sportswear in the United States and
Puerto Rico. License rights were expanded to include Europe in 1996.
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 enables the Company to address another consumer segment within its
branded product portfolio. The Company has positioned the Girbaud men's line
with a broader assortment of products, styles and fabrications reflecting a
contemporary European look. The Company began marketing a fall men's collection
under the Girbaud brand in February 1998. In March 1998, the Company entered
into an exclusive license agreement to manufacture and market certain women's
sportswear under the Girbaud brand in the United States and
20
<PAGE>
Puerto Rico. The Company began marketing women's sportswear under the Girbaud
brand in the second quarter of 1998. The Company has positioned the Girbaud
women's line with a broad assortment of contemporary sportswear products, styles
and fabrications. The Company paid an initial license fee of $600,000. Under the
Girbaud men's license agreement, the Company is required to spend at least
$350,000 in advertising for the men's Girbaud brand in 1998 and at least
$500,000 each year thereafter while the agreement is in effect. Under the
Girbaud women's license agreement, the Company is required to spend at least
$550,000 in advertising for the women's Girbaud brand in 1998 and at least
$400,000 each year thereafter while the agreement is in effect. In addition, the
Company is required to contribute $190,000 per year to the licensor's
advertising and promotional expenditures for the Girbaud brand. In December 1998
the Girbaud women's license agreement was amended to provide that the Company
would spend an additional $1.8 million in sales and marketing of the brand in
1999. Minimum royalty payments began in the first quarter of 1998. In November
1998, the Company entered into an exclusive license agreement to manufacture and
market certain men's and women's sportwear under the Girbaud brand in selected
countries in Central and South America and in the Carribean. See "ITEM
1. Business--Licenses and Other Rights Agreements."
The Company also manufactures and markets a limited number of pants and
jeans styles for women under its own "I.C. Isaacs," "Lord Isaacs" and "Pizzazz"
brand names and under third-party private labels for sale to major chain stores
and catalogs. The Company intends to continue to manufacture and market these
pants and jeans for the foreseeable future. See "ITEM 1. Business--Licenses and
Other Rights Agreements."
Over the past several 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, branded apparel as a
percentage of the Company's net sales. In 1998, the BOSS, Beverly Hills Polo
Club and Girbaud brands comprised 73.4%, 14.6% and 4.1% of net sales,
respectively. Concurrently with this strategy, the Company has also shifted its
product mix from predominately bottoms to a full array of sportswear, including
tops and outerwear. 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.
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>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996(1) 1997(1) 1998
----------- ----------- ---------
Net sales.................................................................... 100.0% 100.0% 100.0%
Cost of sales................................................................ 71.1 67.9 79.7
----- ----- ---------
Gross profit................................................................. 28.9 32.1 20.3
Selling expenses............................................................. 10.0 10.1 14.9
License fees................................................................. 4.1 4.7 5.3
Distribution and shipping expenses........................................... 2.2 2.7 3.4
General and administrative expenses.......................................... 4.7 4.6 9.3
----- ----- ---------
Operating income (loss)...................................................... 7.9% 10.0% (12.6)%
----- ----- ---------
----- ----- ---------
</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.
21
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES.
Net sales decreased 29.6% to $113.7 million in 1998 from $161.4 million in
1997. The decrease was primarily due to increased competition coupled with a
softer retail market and compounded by the delay in the introduction of the fall
1998 Boss and Beverly Hills Polo Club men's lines. Net sales of BOSS sportswear
decreased $37.0 million or 30.7% to $83.4 million. Net sales of the BOSS tops
segment were $32.7 million in 1998 versus $48.1 million in 1997. Net sales of
Beverly Hills Polo Club sportswear decreased $8.9 million or 34.9% to $16.6
million. The spring 1999 BOSS and Beverly Hills Polo Club collections were
presented on time. Net sales of Girbaud sportswear were $4.7 million in 1998.
The Company began to recognize revenue from shipments of Girbaud men's
sportswear in the second quarter of 1998 and from shipments of Girbaud
sportswear for women in the fourth quarter of 1998. The Company's sales of
Company-owned brands and private label brands decreased 41.8% to $9.0 million in
1998. In April 1998, the Company entered into an exclusive license agreement to
manufacture and market boys' sportswear under the Beverly Hills Polo Club brand
in the United States and Puerto Rico. In November 1998, the Company entered into
exclusive international license agreements to manufacture and market men's and
women's sportswear under the Girbaud brand in selected countries in Central and
South America and in the Caribbean.
GROSS PROFIT.
Gross profit decreased 55.4% to $23.1 million in 1998 from $51.8 million in
1997. Gross profit as a percentage of net sales decreased from 32.1% to 20.3%
over the same period. The decrease in gross profit was primarily due to the
reduction in net sales coupled with excess capacity at its manufacturing
facilities due to the reduction in customer orders. In addition, to reduce
inventory levels, a significant amount of sales were made in 1998 to a mass
retailer at gross profit margins significantly below the margins on goods that
are sold to specialty stores. This adversely affected the overall gross margin.
In addition, the Company recorded an inventory valuation allowance of $5.5
million in 1998 to properly reflect unsold inventory at net realizable value.
The Company monitors inventory levels, by product category, weekly to help
identify inventory shortages as well as excess inventory. Personnel look at
recent sales data and order backlog to help identify slow moving inventory
items. Further, the sales managers continually discuss product turnover and
sales forecasts with sales personnel to aid in identifying product shortages and
overages. Based on the information available, the Company believes the inventory
valuation provision was appropriate at December 31, 1998. The decline in gross
profit was offset somewhat by the continued shift of production of denim bottoms
from the United States to Mexico to take advantage of the lower labor and
overhead.
SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, distribution, general and administrative ("SG&A") expenses
increased 10.4% to $31.4 million in 1998 from $28.0 million in 1997. As a
percentage of net sales, SG&A expenses increased to 27.6% from 17.4% over the
same period due to lower net sales coupled with higher advertising expenditures
and costs of merchandise samples offset somewhat by lower commissions to the
Company's salespersons. Advertising expenditures increased $1.8 million to $5.7
million as the Company continued to focus on enhancing the identity and image of
its brands through increased media exposure. The increase in advertising was
primarily due to advertising for the Girbaud brand in 1998. Distribution and
shipping expenses decreased $0.4 million because of a reduction in overtime
wages, due to decreased additional temporary labor at its warehouse facility.
General and administrative expenses increased $2.5 million to $10.0 million due
to amortization of the BOSS trademark, a one-time write-off of goodwill,
professional fees, directors and officers insurance and year 2000 consulting
expenses of $1.1 million, $0.4 million, $0.4 million, $0.3 million and $0.2
million, respectively, and $0.2 million and $0.3 million loss provisions for
estimated costs
22
<PAGE>
associated with closing the Newton, Mississippi and Carthage, Mississippi
manufacturing facilities. The loss provisions relate primarily to severance pay
for employees.
LICENSE FEES.
License fees decreased $1.6 million to $6.0 million in 1998 from $7.6
million in 1997. As a percentage of net sales, license fees increased from 4.7%
to 5.3%. The decrease in license fees was not in proportion to the decrease in
net sales due to the minimum royalties under the Girbaud men's license
agreement.
OPERATING INCOME (LOSS).
Operating income (loss) decreased 188.9% to ($14.4) million in 1998 from
$16.2 million in 1997. The decline was due to lower net sales and reduced gross
profit margin percentage and, to a lesser extent, an increase in operating
expenses, as explained above.
INTEREST EXPENSE.
Interest expense decreased $0.9 million to $1.5 million in 1998. The Company
repaid the outstanding balance of its asset-based revolving line of credit with
a portion of the proceeds of its initial public offering completed in December
1997. Borrowings under the line of credit were insignificant in the first six
months of 1998, however the Company began to borrow under the line of credit in
the third and fourth quarters and incurred $0.2 million in interest expense in
1998. In addition, the Company incurred interest expense of $1.1 million related
to the $11.25 million note payable associated with its purchase of the BOSS
trademark in November 1997. This expense of $1.1 million was offset somewhat by
interest income of $0.3 million earned on available cash. The Company invests
its excess cash in short-term investments.
INCOME TAXES.
The Company recorded an income tax benefit of $0.2 million in 1998 to
recognize a tax benefit for the carryback of net operating losses to recover
income taxes paid during 1997. The Company wrote off a deferred tax asset of
$1.5 million during the fourth quarter of 1998 due to the uncertainty
surrounding the amount of taxable income to be generated in 1999. Prior to its
initial public offering, the Company's earnings were not subject to federal,
state and local taxes because it elected to be treated as a Subchapter S
Corporation. The Company terminated its Subchapter S Corporation status in
December 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased 36.0% to $161.4 million in 1997 from $118.7
million in 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 $34.3 million or 39.8% to $120.4 million primarily driven
by strong growth in the men's tops, boys' and youth segments. Net sales of the
BOSS tops segment were $48.1 million in 1997 versus $29.3 million in 1996. Net
sales of Beverly Hills Polo Club sportswear increased $11.3 million or 79.0% to
$25.6 million over the same period, primarily driven by strong growth in the
men's business. The increases in net sales were partially offset by weaker than
expected performance in the fourth quarter of 1997 principally attributable to
sluggishness in the retail apparel market, primarily at the specialty store
level. International sales were insignificant in 1997.
GROSS PROFIT. Gross Profit increased 51.5% to $51.8 million in 1997 from
$34.2 million in 1996. Gross profit as a percentage of net sales increased to
32.1% in 1997 from 28.9% in 1996. 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
23
<PAGE>
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. SG&A expenses
increased 39.3% to $28.0 million in 1997 from $20.1 million in 1996. As a
percentage of net sales, SG&A expenses increased to 17.4% from 16.9% in 1996 as
the Company continued to increase investment in its organizational structure and
personnel to support growth and expanded advertising. Selling expenses increased
$4.3 million to $16.2 million in 1997 as a result of higher commissions to the
Company's salespersons and higher advertising expenditures which increased $1.4
million to $3.9 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 $1.6 million to $4.3 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 $1.3 million to $7.5
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 $2.8 million to $7.6 million in 1997
from $4.8 million in 1996. As a percentage of net sales, license fees increased
to 4.7% from 4.1%. 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 74.2% to $16.2 million or
10.0% of net sales in 1997, from $9.3 million or 7.9% of net sales in 1996. This
increase resulted primarily from the increase in net sales and gross profit
margins.
INTEREST EXPENSE. Interest expense increased $1.0 million to $2.4 million
in 1997 due to an increase in working capital borrowing requirements. In 1997
the average debt balance was $17.1 million, with an average effective interest
rate of 9.5%. In 1996, the average debt balance was $9.8 million with an average
effective interest rate of 9.25%.
INCOME TAXES. The Company recorded a net income tax benefit of $1.3 million
in the fourth quarter of 1997. Prior to its initial public offering, the
Company's earnings were not subject to federal, state and local income taxes. In
connection with its initial public offering, the Company became subject to such
taxes, and as a result, recorded a deferred tax asset and a corresponding tax
benefit of approximately $1.5 million in conjunction with termination of its
Subchapter S Corporation status in December 1997. This income tax benefit was
offset somewhat by a current provision for income taxes of $0.2 million which
was recorded for the period December 23, 1997 to December 31, 1997.
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 to
support increases in inventory and accounts receivable. The Company's working
capital decreased significantly during 1998 compared to 1997, primarily due to
the 1998 net loss and purchases of treasury stock partially offset by the
issuance of Company stock upon the exercise of the over-allotment option in
January 1998. As of December 31, 1998, the Company had cash, including temporary
investments of $1.3 million and working capital of $31.6 million compared to
$7.4 million and $45.9 million, respectively as of December 31, 1997.
OPERATING CASH FLOW.
Cash used in operations totaled $9.3 million in 1998, an increase of $7.7
million from December 31, 1997 to December 31, 1998, due to the net loss offset
by decreases in accounts receivable, inventories, and
24
<PAGE>
accounts payable offset somewhat by increases in refundable income taxes and
other assets. Cash used for investing activities in 1998 totaled $1.9 million
and was used primarily to purchase the land and initiate the architectural work
related to construction of the new distribution center in Milford, Delaware, as
well as the purchase of machinery for the Company's factories and upgrading
computer equipment to help ensure year 2000 compliance. In addition, the Company
paid an initial fee of $0.6 million for the women's Girbaud license. Cash
provided by financing activities totaled $5.1 million in 1998, resulting
primarily from the issuance of stock upon the exercise of the over-allotment
option in January 1998 and borrowings under its revolving line of credit
partially offset by the purchase of treasury stock.
Inventory decreased $0.8 million from December 31, 1997 to December 31,
1998, compared to an increase of $9.8 million from December 31, 1996 to December
31, 1997. The change in 1998 was due to an increase in the quantity of finished
goods offset, (in part due to continued production for sales that never
materialized), by a $5.5 million inventory valuation allowance related to slow
moving inventory. The increase in inventories was due to a decline in sales of
BOSS men's and Beverly Hills Polo Club sportswear as well as inventory for the
new Girbaud collections.
The increase in refundable income taxes results from the expected return of
estimated income taxes paid in the first quarter of 1998 and a refund of income
taxes paid in 1997. The refunds will result from the proposed carryback of net
operating losses to 1997 and the elimination of estimated tax payments due to
net operating losses in 1998.
Capital expenditures were $1.5 million in 1998 compared to $1.1 million in
1997. The Company's capital expenditures were primarily for the purchase of land
and architectural fees related to construction of the new distribution center in
Milford, Delaware as well as the purchase of machinery for the Company's
factories and upgrading computer equipment to help ensure year 2000 compliance.
In the second quarter, the Company decided to delay the construction of the
distribution center in Milford, Delaware. The Company does not intend to dispose
of its current distribution center. The Company expects to spend up to $0.5
million to upgrade its computer software programs to ensure year 2000
compliance. Conversion of its primary software programs was completed in
November 1998 and testing occurred in the first quarter of 1999. The Company
purchased new versions of the two secondary software programs which have been
updated for year 2000 compliance. The Company has expensed all consulting fees
related to the year 2000 conversion. The Company does not currently have
commitments for any other capital expenditures in 1999. In March 1998 the
Company paid an initial license fee of $0.6 million for the women's Girbaud
license.
In the second quarter of 1998, the Company closed its Newton, Mississippi
manufacturing facility. This closure resulted in a charge of $0.2 million
against earnings. The production in this facility, the majority of which was
jeans, was transferred to a third party independent contractors facilities in
Mexico. The actual expenses incurred were not significantly different than the
reserve provided by the Company in the first quarter.
In the first quarter of 1999, the Company closed its Carthage, Mississippi
manufacturing facility. This closure resulted in a charge of $0.3 million
against earnings for the quarter ended December 31, 1998. The production in this
facility, the majority of which was ladies' pants and jeans under the Company's
private labels, was transferred to the remaining Company-owned plant in Raleigh,
Mississippi, as well as to independent contractors in Mexico.
CREDIT FACILITIES.
The Company has an asset-based revolving line of credit (the "Facility")
with Congress Financial Corporation ("Congress"). As of December 31, 1998 the
Company had $2.4 million in outstanding borrowings under the Facility compared
to no borrowings as of December 31, 1997. In May 1998, the Company amended the
Facility with Congress. The amended Facility provided that the Company could
borrow up to 85.0% of the net eligible accounts receivable and a portion of
imported inventory, as defined
25
<PAGE>
in the agreement. Borrowings under the Facility were limited to $30.0 million
including outstanding letters of credit which were limited to $12.0 million and
bore interest at the lender's prime rate of interest less 0.25%. The amended
Facility was due to expire on June 30, 1999.
In March 1999, the Company further amended the Facility to extend the term
of the Facility through December 31, 2000. The amended Facility provides that
the Company may borrow up to 80.0% of net eligible accounts receivable and a
portion of imported inventory, as defined in the agreement. Borrowings under the
Facility may not exceed $25.0 million (including outstanding letters of credit
which are limited to $8.0 million) and bear interest at the lender's prime rate
of interest plus 1.0%. In connection with amending the Facility, the Company
will pay Congress a financing fee of $125,000 one half of which was paid at the
time of signing and the other half which will be paid on June 30, 2000. The
financing fee will be amortized over 21 months.
In November 1997, the Company borrowed $11.25 million from Ambra, Inc. 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. The
Note is collateralized by the Domestic BOSS Trademark Rights. See "ITEM 1.
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 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. Timely contact with customers has been effective in reducing credit
losses to an immaterial amount. In 1997, and 1998, the Company's credit losses
were $1.2 million and $1.4 million, respectively. The Company's actual credit
losses as a percentage of net sales was 0.6% and 1.2%, respectively.
The Company believes that current levels of cash and cash equivalents ($1.3
million at December 31, 1998) together with cash from operations and funds
available under its Facility, will be sufficient to meet its capital
requirements for the next 12 months.
YEAR 2000 COMPLIANCE AND EXPENDITURES
The Company has determined that it will be required to modify or replace
portions of its information technology systems, both hardware and software, so
that they will property recognize and utilize dates beyond December 31, 1999
(the "Year 2000 issue"). As a result, the Company has developed a plan to review
and, as appropriate, modify or replace the software (and replace some hardware)
in its computer systems. The Company presently believes that with modifications
to existing software, conversions to new software and replacement of some
hardware, the Year 2000 issue will be satisfactorily resolved in its own
systems. The Company has established an internal auditing process to tract and
verify the results of its plan and tests. The Company has substantially
completed the renovation, validation and implementation phases of its plan with
respect to its mission-critical systems. The Company is also working with key
external parties with whom it has important financial and operational
relationships, including banks, utilities and other vendors and third party
payors, to assess the remediation efforts made by these parties with respect to
their own systems and to determine the extent to which such systems are
vulnerable to the Year 2000 issue. The Company has not yet received sufficient
information from these parties about their remediation plans to predict the
outcome of their efforts. The Company is also developing a contingency plan that
is expected to address financial and operational problems that might arise on
and around January 1, 2000. This contingency plan would include identifying
back-up processes that do not rely on computers whenever possible. The Company
has incurred and expects to continue to incur expenses allocable to internal
staff, as well as costs for outside consultants, and computer systems'
remediation and replacement in order to
26
<PAGE>
achieve Year 2000 compliance. The Company completed the conversion of its
primary software programs in November 1998 and testing occurred in the first
quarter of 1999. The Company currently estimates that these costs will total
approximately $0.5 million, $0.2 million of which was incurred in 1998. The
costs of the year 2000 program and the date on which the Company plans to
complete Year 2000 modifications are based on current estimates, which reflect
numerous assumptions about future events, including the continued availability
of certain resources, the timing and effectiveness of third-party remediation
plans and other factors. The Company can give no assurance that these estimates
will be achieved, and actual results could differ materially from the Company's
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct relevant computer source codes and embedded
technology, the results of internal and external testing and the timelessness
and the effectiveness of remediation efforts of third parties.
If the modifications and conversions referred to above are not made or are
not completed on a timely basis, the Year 2000 issue could have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, even if these changes are successful, failure of third
parties to which the Company is financially or operationally linked to address
their own system problems could have a material adverse effect on the Company.
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. Historically, the Company has taken greater markdowns in the second
and fourth 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 December 31, 1998, the Company had unfilled orders of approximately $27.0
million, compared to approximately $46.0 million of such orders as of December
31, 1997. The backlog or orders at any given time is affected by a number of
factors, including seasonality, weather conditions, scheduling or manufacturing
and shipment of products. These factors, increased competition, and continued
sluggishness in the retail apparel contributed to the decrease in backlog from
December 31, 1997 to December 31, 1998. As the time of the shipment of products
may vary from year to year, the results for any particular quarter may not be
indicative of the results for the full year.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), establishes standards for reporting and
display of comprehensive income, its components 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. The Company adopted SFAS 130 during the first
quarter of 1998 and has no items of comprehensive income to report.
27
<PAGE>
Statement of Financial Accounting Standards (SFAS) 131, "Disclosure about
Segments of a Business Enterprise", establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected financial information
about operating segments in interim financial statements issued to the public
for periods ending after December 15, 1997. 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. Presently, the Company operates in one
business segment.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revised employers'
disclosures about pension and other postretirement benefit plans but does not
change measurement or recognition of those plans. Also, SFAS 132 requires
additional information on changes in the benefit obligations and fair values of
plan assets. Presently, the Company does not offer postretirement benefits.
Consequently, disclosures about the Company's pension plan did not change upon
adoption of SFAS 132.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities and measure
those instruments at fair market value. Under certain circumstances, a portion
of the derivative's gain or loss is initially reported as a component of other
comprehensive income and subsequently reclassified into income when the
transaction affects earnings. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
Presently, the Company does not use derivative instruments either in hedging
activities or as investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no impact on its financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the report of
independent certified public accountants thereon are set forth on pages F-1
through F-21 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information appearing in the Company's Definitive Proxy Statement
prepared in connection with the 1999 Annual Meeting of Stockholders (the "Proxy
Statement") under the captions "Proposal 1: Election of Class I Directors" and
"Principal Executive Officers of the Company Who Are Not Also Directors" are
incorporated herein by reference. The Proxy Statement will be filed not later
than 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K.
All executive officers are designated annually by the Board of Directors and
serve at the pleasure of the Board.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements. The following financial statements, related
notes and the Report of Independent Auditors, are included in response to Item 8
hereof:
29
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1998.................................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998....... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
(a)2. Financial Statements Schedules. The following is a list of all financial
statement schedules filed herewith:
Schedule II--Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted because they are
not required or are not applicable, or the required information has been
included in the Consolidated Financial Statements or the Notes thereto.
(a)3. Exhibits (numbered in accordance with Item 601 of Regulation S-K). See
accompanying Index to Exhibits. The following is a list of Exhibits filed
herewith:
<TABLE>
<C> <S>
10.37 Amended and Restated Omnibus Stock Plan
10.38 Amendment by and between BHPC Marketing, Inc. and I.C. Isaacs Europe, S.L. dated
November 12, 1998 relating to the International Exclusive License Agreement
(Wholesale) dated August 15, 1996
10.39 Amendment by and between BHPC Marketing, Inc. and I.C. Isaacs Europe, S.L. dated
November 12, 1998 relating to the International Exclusive License Agreement
(Retail) dated August 15, 1996
++10.40 Amendment No. 1 dated November 12, 1998 to Trademark License and Technical
Assistance Agreement for Men's Collections by and between I.C. Isaacs & Co., L.P.
and Latitude Licensing Corp.
++10.41 Amendment No. 2 dated November 12, 1998 to Trademark License and Technical
Assistance Agreement for Women's Collections by and between I.C. Isaacs & Co.,
L.P. and Latitude Licensing Corp.
10.42 Executive Employment Agreement by and between I.C. Isaacs & Company, Inc. and
Daniel Gladstone dated January 21, 1999
10.48 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company,
Inc. and Robert J. Arnot dated February 11, 1999
10.49 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company,
Inc. and Gerald W. Lear dated February 11, 1999
10.50 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company,
Inc. and Eugene C. Wielepski dated February 11, 1999
10.51 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company,
Inc. and Thomas Ormandy dated February 11, 1999
</TABLE>
30
<PAGE>
<TABLE>
<C> <S>
10.52 Amendment No. 1 to Consulting Agreement by and between I.C. Isaacs & Company and
Gary Brashers dated February 11, 1999
10.53 Sixteenth Amendment to Financing Agreements dated March 26, 1999
10.54 Amendment by and between BHPC Marketing, Inc. dated March 1, 1999 relating to the
International Exclusive License Agreement (Wholesale) dated August 15, 1996
10.55 Amendment by and between BHPC Marketing, Inc. dated March 1, 1999 relating to the
International Exclusive License Agreement (Retail) dated August 15, 1996
10.56 Amendment No. 1 dated March 4, 1998 to Trademark License and Technical Assistance
Agreement for Men's Collections by and between the Company and Latitude Licensing
Corp.
++10.57 Amendment No. 3 dated December 23, 1998 to Trademark License and Technical
Assistance Agreement for Women's Collections by and between the Company and
Latitude Licensing Corp.
23.01 Consent of BDO Seidman, LLP
27.01 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
On August 27, 1998, the Company filed a Current Report on Form 8-K to
announce that its Board of Directors had approved a restructuring of the senior
management team resulting in a streamlined and clarified chain of command. Mr.
Robert J. Arnot remained Chairman of the Board and became the Company's sole
Chief Executive Officer. Mr. Gerald W. Lear relinquished his position as Co-CEO,
but continues to serve as President and has assumed the title and
responsibilities of Chief Operating Officer. Mr. Gary Brashers resigned as Chief
Operating Officer and as a member of the Board of Directors. His resignation
reflected the Company's reduction in domestic manufacturing in favor of global
sourcing to move forward as a marketing and brand-driven company focused on
design and image. Mr. Brashers continues to serve the Company as a consultant in
connection with its existing manufacturing operations in Mississippi and the
expansion of the Company's manufacturing operations in Mexico. Mr. Thomas
Ormandy was named by the Board of Directors to fill the vacancy on the Board of
Directors created by Mr. Brashers' resignation and will serve Mr. Brashers'
remaining term which expires in 1999 or until his successor has been elected and
has qualified. Mr. Ormandy has been Vice President-Sales of the Company since
1986.
- ------------------------
++ Certain portions of this exhibit have been omitted pursuant to a request for
an order granting confidential treatment and have been filed separately with
the Securities and Exchange Commission.
31
<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
February 26, 1999 which is contained in Item 8 of this Form 10-K, include the
audit of the financial statement schedule listed in the accompanying index for
each of the three years in the period ended December 31, 1998. 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.
February 26, 1999, except for
Note 3, which is as
of March 19, 1999
32
<PAGE>
SCHEDULE II
I. C. ISAACS & COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES DEDUCTION END OF YEAR
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
DESCRIPTION
Year ended December 31, 1996
Allowance for doubtful accounts........................ $ 350,000 $ 1,194,000 $ (884,000) $ 660,000
Reserve for sales returns and discounts................ 487,000 5,956,000 (5,634,000) 809,000
Year ended December 31, 1997
Allowance for doubtful accounts........................ 660,000 1,740,000 (1,215,000) 1,185,000
Reserve for sales returns and discounts................ 809,000 10,646,000 (11,278,000) 177,000
Year ended December 31, 1998
Allowance for doubtful accounts........................ 1,185,000 1,595,000 (1,427,000) 1,353,000
Reserve for sales returns and discounts................ 177,000 6,733,000 (6,814,000) 96,000
</TABLE>
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
I.C. ISAACS & COMPANY , INC.
(REGISTRANT)
By: /s/ ROBERT J. ARNOT
-----------------------------------------
Robert J. Arnot
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ROBERT J. ARNOT Chairman of the Board and
- ------------------------------ Chief Executive Officer March 26, 1999
Robert J. Arnot and Director (Principal
Executive Officer)
/s/ GERALD LEAR President and Chief
- ------------------------------ Operating Officer and March 26, 1999
Gerald Lear Director
Vice President and Chief
/s/ EUGENE C. WIELEPSKI Financial Officer and
- ------------------------------ Director (Principal March 26, 1999
Eugene C. Wielepski Financial and Accounting
Officer)
/s/ IRA J. HECHLER
- ------------------------------ Director March 26, 1999
Ira J. Hechler
/s/ JON HECHLER
- ------------------------------ Director March 26, 1999
Jon Hechler
/s/ RONALD S. SCHMIDT
- ------------------------------ Director March 26, 1999
Ronald S. Schmidt
/s/ THOMAS P. ORMANDY
- ------------------------------ Director March 26, 1999
Thomas P. Ormandy
/s/ NEAL J. FOX
- ------------------------------ Director March 26, 1999
Neal J. Fox
/s/ ANTHONY J. MARTERIE
- ------------------------------ Director March 26, 1999
Anthony J. Marterie
34
<PAGE>
I.C. ISAACS & COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1998.................................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998....... F-5
Consolidated Statements of Cash Flows for the years ended December 31 1996, 1997 and 1998.................. 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, 1997 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1997 and 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/S/ BDO SEIDMAN, LLP
Washington, D.C.
February 26, 1999, except
for Note 3, which is
as of March 19, 1999
F-2
<PAGE>
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Current
Cash, including temporary investments of $6,512,455 and $887,845................. $ 7,422,067 $ 1,345,595
Accounts receivable, less allowance for doubtful accounts of $1,185,000 and
$1,353,000 (Note 3)............................................................ 23,020,077 14,904,501
Inventories (Notes 1 and 3)...................................................... 23,936,226 23,121,971
Prepaid expenses and other....................................................... 1,072,436 882,355
Refundable income taxes.......................................................... -- 1,799,450
------------- -------------
Total current assets............................................................... 55,450,806 42,053,872
Property, plant and equipment, at cost, less accumulated depreciation and
amortization (Notes 2 and 3)..................................................... 2,678,688 3,247,646
Trademark and licenses, less accumulated amortization of $187,500 and $1,412,500
(Note 7)......................................................................... 11,062,500 10,437,500
Goodwill, less accumulated amortization of $863,505 and $1,412,790................. 1,788,595 1,239,310
Deferred income taxes (Note 5)..................................................... 1,505,000 --
Other assets (Note 8).............................................................. 957,132 2,067,815
------------- -------------
$ 73,442,721 59,046,143
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Checks issued against future deposits............................................ $ -- $ 1,298,929
Current maturities of long-term debt and revolving line of credit
(Note 3)....................................................................... -- 2,412,235
Current maturities of capital lease obligations (Note 3)......................... 172,515 179,864
Accounts payable................................................................. 6,967,488 4,301,707
Accrued expenses and other current liabilities (Note 4).......................... 1,979,364 2,074,305
Accrued compensation............................................................. 235,309 209,773
Income taxes payable............................................................. 156,000 --
------------- -------------
Total current liabilities.......................................................... 9,510,676 10,476,813
------------- -------------
Long-term debt (Note 3)
Note payable..................................................................... 11,250,000 11,250,000
Capital lease obligations........................................................ 186,122 6,258
------------- -------------
Total long-term debt............................................................... 11,436,122 11,256,258
------------- -------------
Commitments and Contingencies (Notes 3, 7 and 8)
STOCKHOLDERS' EQUITY (NOTE 6):
Preferred stock; $.0001 par value; 5,000,000 shares authorized, none
outstanding.................................................................... -- --
Common stock; $.0001 par value; 50,000,000 shares authorized; 7,824,699 and
8,344,699 shares issued; 7,800,000 and 6,782,200 shares outstanding............ 782 834
Additional paid-in capital....................................................... 34,120,190 38,924,998
Retained earnings................................................................ 18,389,819 1,597,270
Treasury stock, at cost (24,699 and 1,562,499 shares)............................ (14,868) (3,210,030)
------------- -------------
Total stockholders' equity....................................................... 52,495,923 37,313,072
------------- -------------
$ 73,442,721 59,046,143
------------- -------------
------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales....................................................... $ 118,655,253 $ 161,445,362 $ 113,720,799
Cost of sales................................................... 84,421,651 109,693,828 90,660,582
-------------- -------------- --------------
Gross profit.................................................... 34,233,602 51,751,534 23,060,217
-------------- -------------- --------------
Operating expenses
Selling....................................................... 11,897,834 16,235,974 16,982,794
License fees (Note 7)......................................... 4,817,037 7,577,482 6,020,196
Distribution and shipping..................................... 2,669,093 4,306,566 3,899,917
General and administrative.................................... 6,243,327 7,546,105 9,998,503
Provision for severance (Note 7).............................. -- -- 526,326
Recovery of legal fees (Note 7)............................... (718,558) (117,435) --
-------------- -------------- --------------
Total operating expenses........................................ 24,908,733 35,548,692 37,427,736
-------------- -------------- --------------
Operating income (loss)......................................... 9,324,869 16,202,842 (14,367,519)
-------------- -------------- --------------
Other income (expense)
Interest, net of interest income of $18,249, $16,045
and $252,392................................................ (1,365,163) (2,372,132) (1,454,748)
Other, net.................................................... 84,795 3,001 380,718
-------------- -------------- --------------
Total other income (expense).................................... (1,280,368) (2,369,131) (1,074,030)
-------------- -------------- --------------
Income (loss) before minority interest and income taxes......... 8,044,501 13,833,711 (15,441,549)
Minority interest............................................... (81,842) (134,727) --
-------------- -------------- --------------
Income (loss) before income taxes............................... 7,962,659 13,698,984 (15,441,549)
Income tax benefit (provision) (Note 5)......................... -- 1,349,000 (1,351,000)
-------------- -------------- --------------
Net income (loss)............................................... $ 7,962,659 $ 15,047,984 $ (16,792,549)
-------------- -------------- --------------
-------------- -------------- --------------
Basic and diluted net income (loss) per share................... $ 1.99 $ 3.68 $ (2.15)
Weighted average common shares outstanding...................... 4,000,000 4,093,699 7,809,540
Pro forma financial information:
Income before income taxes, as presented...................... $ 7,962,659 $ 13,698,984
Pro forma provision for income taxes (unaudited).............. 3,265,000 5,617,000
-------------- --------------
Pro forma net income (unaudited).............................. $ 4,697,659 $ 8,081,984
-------------- --------------
-------------- --------------
Pro forma basic and diluted earnings per share (unaudited).... $ 0.95 $ 1.62
Weighted average shares outstanding........................... 4,930,000 5,000,767
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
I.C. ISAACS & 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
----------- ----------- --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.......... -- -- 4,024,699 $ 402 $ 266,579 $14,392,704 $ (14,868)
Net income............................ -- -- -- -- -- 7,962,659 --
Stockholder distributions............. -- -- -- -- -- (3,214,899) --
----------- ----------- --------- ----- ---------- ----------- ----------
Balance at December 31, 1996.......... -- -- 4,024,699 402 266,579 19,140,464 (14,868)
Issuance of common stock.............. -- -- 3,800,000 380 33,853,611 -- --
Net income............................ -- -- -- -- -- 15,047,984 --
Stockholder distributions............. -- -- -- -- -- (15,798,629) --
----------- ----------- --------- ----- ---------- ----------- ----------
Balance, at December 31, 1997......... -- -- 7,824,699 782 34,120,190 18,389,819 (14,868)
Net loss.............................. -- -- -- -- -- (16,792,549) --
Issuance of stock options to non-
employee directors.................. -- -- -- -- 30,000 -- --
Purchase of treasury stock............ -- -- -- -- -- -- (3,195,162)
Issuance of common stock.............. -- -- 520,000 52 4,774,808 -- --
----------- ----------- --------- ----- ---------- ----------- ----------
Balance, at December 31, 1998......... -- -- 8,344,699 $ 834 $38,924,998 $ 1,597,270 $(3,210,030)
----------- ----------- --------- ----- ---------- ----------- ----------
----------- ----------- --------- ----- ---------- ----------- ----------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at December 31, 1995.......... $14,644,817
Net income............................ 7,962,659
Stockholder distributions............. (3,214,899)
-----------
Balance at December 31, 1996.......... 19,392,577
Issuance of common stock.............. 33,853,991
Net income............................ 15,047,984
Stockholder distributions............. (15,798,629)
-----------
Balance, at December 31, 1997......... 52,495,923
Net loss.............................. (16,792,549)
Issuance of stock options to non-
employee directors.................. 30,000
Purchase of treasury stock............ (3,195,162)
Issuance of common stock.............. 4,774,860
-----------
Balance, at December 31, 1998......... $37,313,072
-----------
-----------
</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>
YEARS ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------- ------------- --------------
Operating Activities
Net income (loss)................................................. $ 7,962,659 $ 15,047,984 $ (16,792,549)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Deferred income taxes............................................. -- (1,505,000) 1,505,000
Provision for doubtful accounts................................... 1,193,693 1,739,865 1,594,925
Write off of accounts receivable.................................. (883,693) (1,214,865) (1,426,925)
Provision for sales returns and discounts......................... 5,955,658 10,646,418 6,733,208
Sales returns and discounts....................................... (5,633,525) (11,277,938) (6,814,537)
Provision for overcharges......................................... -- 166,150 --
Depreciation and amortization..................................... 1,359,252 1,123,460 2,640,279
(Gain) loss on sale of assets..................................... (71,800) (26,928) (68,895)
Minority interest................................................. 81,842 134,727 --
Compensation expense on stock options............................. -- -- 30,000
(Increase) decrease in assets
Accounts receivable............................................... (6,850,073) (6,496,717) 8,028,905
Inventories....................................................... 232,756 (9,845,252) 814,255
Prepaid expenses and other........................................ (563,388) 194,219 190,081
Refundable income taxes........................................... -- -- (1,799,450)
Other assets...................................................... -- (854,567) (1,140,683)
Increase (decrease) in liabilities
Accounts payable.................................................. 1,268,184 589,178 (2,665,781)
Accrued expenses and other current liabilities.................... 327,320 (164,913) 94,941
Accrued compensation.............................................. (16,100) 40,599 (25,536)
Income taxes payable.............................................. -- 156,000 (156,000)
------------- ------------- --------------
Cash provided by (used in) operating activities..................... 4,362,785 (1,547,580) (9,258,762)
------------- ------------- --------------
Investing Activities
Proceeds from sale of assets...................................... 71,800 38,174 188,067
Capital expenditures.............................................. (701,821) (1,104,832) (1,524,124)
Acquisition of license............................................ -- -- (600,000)
------------- ------------- --------------
Cash used in investing activities................................... (630,021) (1,066,658) (1,936,057)
------------- ------------- --------------
Financing Activities
Checks issued against future deposits............................. (67,153) (1,150,679) 1,298,929
Issuance of common stock.......................................... -- 33,853,991 4,774,860
Purchase of treasury stock........................................ -- -- (3,195,162)
Stockholder distributions......................................... (3,214,899) (15,798,629) --
Principal payments on debt........................................ (1,632,216) (7,437,177) (172,515)
Principal proceeds from debt...................................... 783,349 -- 2,412,235
Deferred financing costs.......................................... (75,000) (35,000) --
Purchase of minority interest..................................... -- (335,000) --
------------- ------------- --------------
Cash provided by (used in) financing activities..................... (4,205,919) 9,097,506 5,118,347
------------- ------------- --------------
Increase (decrease) in cash and cash equivalents.................... (473,155) 6,483,268 (6,076,472)
Cash and Cash Equivalents, at beginning of year..................... 1,411,954 938,799 7,422,067
------------- ------------- --------------
Cash and Cash Equivalents, at end of year........................... $ 938,799 $ 7,422,067 $ 1,345,595
------------- ------------- --------------
------------- ------------- --------------
</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"), I.C. Isaacs &
Company, L.P. (the "Partnership"), Isaacs Design, Inc. ("Design") and I. C.
Isaacs Far East (collectively 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 was an individual. The Company accounted
for the limited partner's ownership interest as a minority interest in the
accompanying consolidated financial statements. In connection with the initial
public offering of its common stock, ICI purchased the limited partnership
interest, at book value, from the limited partner. 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, 1997 and 1998. All intercompany balances and transactions have
been eliminated. Also, ICI terminated its Subchapter S corporation status on
December 22, 1997, and became subject to federal, state and local income taxes.
BUSINESS DESCRIPTION
The Company, which operates in one business segment, designs, manufactures
and markets full lines of sportswear for young men, women and boys under the
BOSS brand in the United States and Puerto Rico and for men under the Beverly
Hills Polo Club brand in the United States, Puerto Rico and Europe. The Company
began marketing boys sportswear under the Beverly Hills Polo Club brand in the
first quarter of 1999. In February 1998, the Company began offering collections
of men's sportswear under the Girbaud brand in the United States and Puerto
Rico. The Company began marketing women's sportswear under the Girbaud brand in
the second quarter of 1998 for delivery during the 1998 holiday season. The
Company also manufactures and markets women's sportswear under various other
Company-owned brand names as well as under third-party private labels.
INITIAL PUBLIC OFFERING
Effective December 17, 1997, ICI sold 3,800,000 shares of its common stock
in an initial public offering. Net proceeds of the offering, after deducting
underwriting discounts and commissions and professional fees, approximated $33.9
million. Proceeds of the offering were used to retire the revolving line of
credit totaling approximately $19.5 million and to pay the final distribution to
stockholders of the Subchapter S corporation of $9.3 million. The remaining $5.1
million was used for general corporate purposes. On January 23, 1998, upon the
partial exercise of an over-allotment option, the Company sold an additional
520,000 shares of its common stock and received net proceeds of approximately
$4.8 million. The additional proceeds were used for general corporate purposes.
The final distribution to the stockholders represented a portion of the
cumulative undistributed S corporation earnings as of December 22, 1997
(termination date of S corporation status).
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
F-7
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 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 geographic region, but is
concentrated in the retail industry. For the years ended December 31, 1996,
1997, and 1998 sales to a specific customer were $15,445,131, $22,610,114 and
$29,840,195. These amounts constitute 13.0%, 14.0% and 26.2% 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 have been less than 1.2%.
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. The Company analyzes the operating income of the women's
Company-owned and private label lines in relation to the goodwill amortization
on a quarterly basis for evidence of impairment. During the year ended December
31, 1998, management determined that the reduction in sales had significantly
impacted the operating income of the women's Company-owned and private label
lines and that an impairment of the goodwill has occurred. In response,
management has recorded a one-time write down of $435,000 and
F-8
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
has reduced the life of the goodwill from 40 years to 20 years. The remaining
goodwill will be amortized over 63 months. Management will continue to analyze
the profitability of women's private label lines on a quarterly basis for any
additional impairment.
TRADEMARK AND LICENSES
Included in trademark and licenses is the cost of certain trademark and
licenses which allow the Company to manufacture and market certain branded
apparel. The Company capitalized the cost of obtaining the trademarks and
licenses, and the cost is being amortized on a straight-line basis over the
initial term of the trademark or license. 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.
ASSET IMPAIRMENT
Effective January 1, 1996, ICI adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets" ("SFAS
121"). In accordance with SFAS 121, ICI periodically evaluates the carrying
value of long-lived assets when events and circumstances warrant such a review.
The carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable
and is less than the carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
REVENUE RECOGNITION
Sales are recognized upon shipment of products. Allowances for estimated
returns are provided when sales are recorded.
ADVERTISING COSTS
Advertising costs, included in selling expenses, are expensed as incurred
and were $2,529,109, $3,867,371 and $5,676,799 for the years ended December 31,
1996, 1997 and 1998, 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 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 basis 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.
F-9
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding. Basic earnings
per share includes no dilution and is computed by dividing income available to
common shareholders 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. Basic and diluted
earnings per share are the same during 1998 because the impact of dilutive
securities is anti-dilutive. During 1996 and 1997 there were no dilutive common
stock equivalents outstanding.
Pro forma earnings per share for the year ended December 31, 1996 are based
on pro forma net income and the weighted average number of shares of common
stock outstanding (4,000,000) adjusted to include the number of shares (930,000)
sold by the Company which would be necessary to fund the distribution of $9.3
million of previously earned but undistributed Subchapter S corporation
earnings. Pro forma earnings per share for the year ended December 31, 1997 are
based on the weighted average of the above shares outstanding prior to the
initial public offering and 7,800,000 shares for the period subsequent to the
initial public offering.
Supplementary pro forma earnings per share for the year ended December 31,
1996 and 1997 were $.83 and $1.17, respectively. Supplementary earnings per
share for the year ended December 31, 1996 are based upon the weighted average
number of shares of common stock used in the calculation of pro forma net income
per share increased by the sale of 722,041 shares at the initial public offering
price of $10.00 per share, the proceeds of which would be necessary to repay
approximately $7,220,408 of the Company's term loan and revolving credit
facility. Supplementary pro forma earnings per share for the year ended December
31, 1997 are based on the weighted average of the above shares increased by
1,950,000 shares related to the repayment of the term loan and credit facility
for the period prior to the initial public offering and 7,800,000 shares for the
period subsequent to the initial public offering.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), establishes standards for reporting and
display of comprehensive income, its components 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. The Company adopted SFAS 130 during the first
quarter of 1998 and has no items of comprehensive income to report.
Statement of Financial Accounting Standards (SFAS) 131, "Disclosure about
Segments of a Business Enterprise", 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 for
periods ending after December 15, 1997. 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. Presently, the Company operates in one
business segment.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers Disclosures about Pensions
and Other Postretirement Benefits"
F-10
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
("SFAS 132"). SFAS 132 revised employers' disclosures about pension and other
postretirement benefit plans but does not change measurement or recognition of
those plans. Also, SFAS 132 requires additional information on changes in the
benefit obligations and fair values of plan assets. Presently, the Company does
not offer postretirement benefits. Consequently, disclosures about the Company's
pension plan did not change upon adoption of SFAS 132.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities and measure
those instruments at fair market value. Under certain circumstances, a portion
of the derivative's gain or loss is initially reported as a component of other
comprehensive income and subsequently reclassified into income when the
transaction affects earnings. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
Presently, the Company does not use derivative instruments either in hedging
activities or as investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no impact on its financial position or results of operations.
F-11
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
Raw materials.................................................. $ 4,742,653 $ 4,790,634
Work-in process................................................ 1,864,569 1,531,424
Finished goods................................................. 17,329,004 16,799,913
------------- -------------
$ 23,936,226 $ 23,121,971
------------- -------------
------------- -------------
</TABLE>
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-------------------------- USEFUL
1997 1998 LIVES
------------ ------------ -----------
<S> <C> <C> <C>
Land................................................ $ 185,660 $ 731,004
Building and improvements........................... 5,339,371 5,439,734 18 years
Machinery, equipment and fixtures................... 9,485,268 9,086,270 5-7 years
Other............................................... 1,167,655 1,351,454 various
------------ ------------
16,177,954 16,608,462
Less accumulated depreciation and amortization...... 13,499,266 13,360,816
------------ ------------
$ 2,678,688 $ 3,247,646
------------ ------------
------------ ------------
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Revolving line of credit (a)................................... $ -- $ 2,412,235
Notes payable (b).............................................. 11,250,000 11,250,000
Capital lease obligations (c).................................. 358,637 186,122
------------- -------------
Total.......................................................... 11,608,637 13,848,357
Less current maturities of long-term debt and revolving line of
credit....................................................... -- 2,412,235
Less current maturities of capital lease obligations........... 172,515 179,864
------------- -------------
$ 11,436,122 $ 11,256,258
------------- -------------
------------- -------------
</TABLE>
(a) The Company has an asset-based revolving line of credit (the
"Agreement") with Congress Financial Corporation ("Congress"). As of December
31, 1998 the Company had $2,412,235 in outstanding borrowings under its
revolving line of credit. There were no borrowings as of December 31, 1997.
In May 1998, the Company amended the Agreement with Congress. The amended
Agreement provided that the Company could borrow up to 85.0% of the net eligible
accounts receivable and a portion of imported inventory, as defined in the
Agreement. Borrowings under the Agreement were limited to
F-12
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
$30.0 million including outstanding letters of credit which were limited to
$12.0 million, and bore interest at the lender's prime rate of interest less
0.25% (effectively 7.5% at December 31, 1998). The amended Agreement was due to
expire on June 30, 1999. Additional borrowings available under the revolving
line of credit and letter of credit agreements were approximately $8.0 million
at December 31, 1998. Borrowings under the Agreement are collateralized by the
Company's accounts receivable, imported inventories and other assets.
Outstanding letters of credit approximated $2.3 million at December 31, 1998.
Among the provisions of the 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.
In March 1999, the Company further amended the Agreement to extend the term
of the Agreement through December 31, 2000. The amended Agreement provides that
the Company may borrow up to 80.0% of net eligible accounts receivable and a
portion of imported inventory, as defined in the Agreement. Borrowings under the
Agreement may not exceed $25.0 million including outstanding letters of credit
which are limited to $8.0 million, and bear interest at the lender's prime rate
of interest plus 1.0%. In connection with amending the Agreement the Company
will pay Congress a financing fee of $125,000, one half of which will be paid at
the time of closing and the other half of which will be paid on June 30, 2000.
The financing fee will be amortized over 21 months.
Average short-term borrowings and the related interest rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998
------------- ------------
<S> <C> <C>
Borrowing under revolving line of credit......................... $ -- $ 2,412,235
Weighted average interest rate................................... 9.50% 8.5%
Maximum month-end balance during year............................ $ 23,192,303 $ 6,316,535
Average month-end balance during the year........................ $ 17,144,863 $ 2,035,144
</TABLE>
(b) In November 1997, the Company purchased certain BOSS trademark rights
from Brookhurst, Inc. and issued a $11,250,000 secured limited recourse
promissory note to finance this acquisition. The note bears interest at 10%,
payable quarterly; principal is payable in full on December 31, 2007. The note
is collateralized by the domestic BOSS trademark rights.
(c) The Company leases equipment under various capital leases which are
included in property, plant and equipment for $1,048,037 at December 31, 1997
and 1998. Amortization expense related to assets under capital leases amounted
to $191,490, $169,107 and $143,252 for the years ended December 31, 1996, 1997
and 1998, respectively.
As of December 31, 1998, 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>
1999.............................................................. $ 189,548
2000.............................................................. 6,296
---------
Total minimum lease payments...................................... 195,844
Less: amount representing interest................................ 9,722
---------
Present value of net minimum lease payments....................... 186,122
Less: current portion............................................. 179,864
---------
Long-term capital lease obligations............................... $ 6,258
---------
---------
</TABLE>
F-13
<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,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Royalties......................................................... $ 901,925 $ 912,657
Accrued professional fees......................................... 150,000 150,000
Payable to salesmen............................................... 127,634 2,519
Severance benefits................................................ -- 300,000
Payroll tax withholdings.......................................... 139,214 111,725
Customer credit balances.......................................... 240,530 226,479
Property taxes.................................................... 136,700 --
Accrued interest.................................................. 174,401 189,816
Franchise taxes payable........................................... -- 96,000
Other............................................................. 108,960 85,109
------------ ------------
$ 1,979,364 $ 2,074,305
------------ ------------
------------ ------------
</TABLE>
5. INCOME TAXES
Concurrently with completing its initial public offering, ICI terminated its
subchapter S corporation status. Therefore, for the years ended December 1995
and 1996 and for the period ended December 22, 1997 (the day prior to completing
the offering) no provision has been made in the accompanying financial
statements for federal and state income taxes since such taxes were the
liability of the stockholders. In connection with the offering, ICI became
subject to federal and state income taxes.
In conjunction with becoming subject to federal and state income taxes, ICI
recorded a deferred tax asset and a corresponding tax benefit of approximately
$1.5 million in accordance with SFAS 109.
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
<S> <C> <C>
1997 1998
------------- ------------
Current
Federal........................................................ $ 128,000 $ (128,000)
State and local................................................ 28,000 (26,000)
------------- ------------
156,000 (154,000)
Deferred......................................................... (1,505,000) --
Valuation allowance.............................................. -- 1,505,000
------------- ------------
$ (1,349,000) $ 1,351,000
------------- ------------
------------- ------------
</TABLE>
F-14
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial and income
tax reporting purposes. Significant items comprising ICI's deferred tax asset
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Net operating loss carryforwards....................... $ -- $ 5,632,000
Depreciation and amortization.......................... 602,000 554,000
Allowance for doubtful accounts........................ 486,000 560,000
Inventory valuation.................................... 372,000 217,000
Other.................................................. 45,000 13,000
----------------- -----------------
1,505,000 6,976,000
Valuation allowance.................................... -- (6,976,000)
----------------- -----------------
Net deferred tax asset................................. $ 1,505,000 --
----------------- -----------------
----------------- -----------------
</TABLE>
The pro forma provision for income taxes represents the income tax
provisions that would have been reported had ICI been subject to federal and
state income taxes for the entire period. The pro forma estimated effective tax
rate was 41.0%.
The pro forma income tax provision consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
Current
Federal......................................................... $ 2,900,000 $ 4,796,000
State........................................................... 465,000 1,021,000
------------ ------------
3,365,000 5,817,000
Deferred.......................................................... (100,000) (200,000)
------------ ------------
$ 3,265,000 $ 5,617,000
------------ ------------
------------ ------------
</TABLE>
A reconciliation between the statutory and effective tax rates is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ----------- ---------
Federal statutory rate............................................ 35.0% 35.0% (35.0)%
State and local taxes, net of federal benefit..................... 5.0 5.0 (5.0)
Nondeductible entertainment expense............................... .5 .5 --
Nondeductible goodwill amortization............................... .5 .5 3.5
Change in valuation allowance..................................... -- -- 10.0
Net operating losses not currently available...................... -- -- 35.3
--- --- ---------
41.0% 41.0% 8.8%
--- --- ---------
--- --- ---------
</TABLE>
6. STOCK OPTIONS
In May 1997, ICI adopted the 1997 Omnibus Stock Plan (the "Plan"). Under the
Plan, ICI 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 Company has reserved 500,000
F-15
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
shares of common stock for issuance under the Plan. In August 1998, the Board of
Directors granted options to purchase 351,000 shares of common stock at $2.125
per share. Options vest at the end of the second year and expire 10 years from
the date of grant and upon termination of employment.
The Board of Directors has approved an increase in the shares of Common
Stock that may be issued with respect to awards granted under the Plan to an
aggregate of 1.1 million shares. This increase is subject to approval by the
Company's stockholders at the 1999 annual meeting of stockholders.
The following table relates to options activity in 1998, under the Plan:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- -------------
<S> <C> <C>
Granted............................................................. 351,000 $ 2.125
Cancelled........................................................... (5,000) $ 2.125
-----------
Outstanding......................................................... 346,000 $ 2.125
-----------
</TABLE>
Included in the outstanding stock options are 30,000 granted to non-employee
directors. ICI recorded compensation expense of $30,000 in August 1998 related
to these stock options.
ICI has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"), but applies the intrinsic value method set forth in Accounting Principles
Board Opinion No. 25. For stock options granted to employees, ICI has estimated
the fair value of each option granted using the Black-Scholes option pricing
model with the following assumptions: risk-free interest rate of 5.01%, expected
volatility of 40%, expected option life of 5.5 years and no dividend payment
expected. Using these assumptions, the fair value of the stock options granted
is $1.00. There were no adjustments made in calculating the fair value to
account for vesting provisions or for non-transferability or risk of forfeiture.
The weighted average remaining life for options outstanding at December 31, 1998
is nine years.
If ICI had elected to recognize compensation expense based on the fair value
at the grant dates, consistent with the method prescribed by SFAS No. 123, net
loss per share would have been changed to the pro forma amount indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Net loss:
As reported.............................................................. $ (16,792,549)
Pro forma................................................................ (17,108,549)
Basic and diluted loss per share:
As reported.............................................................. $ (2.15)
Pro forma................................................................ (2.19)
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company rents real and personal property under leases expiring at
various dates through 2003. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses. Minimum
F-16
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
annual rental commitments under noncancelable operating leases in effect at
December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
COMPUTER
TRUCKS SHOWROOMS HARDWARE MACHINERY TOTAL
---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1999................................. $ 57,720 $ 310,106 $ 48,231 $ 3,654 $ 419,711
2000................................. 57,720 284,072 22,224 -- 364,016
2001................................. 57,720 295,914 5,556 -- 359,190
2002................................. 43,290 284,804 -- -- 328,094
2003................................. -- 218,820 -- -- 218,820
---------- ------------ ----------- ----------- ------------
$ 216,450 $ 1,393,716 $ 76,011 $ 3,654 $ 1,689,831
---------- ------------ ----------- ----------- ------------
---------- ------------ ----------- ----------- ------------
</TABLE>
Total rent expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------ ------------ ------------
Minimum rentals......................................... $ 773,987 $ 855,347 $ 796,367
Other lease costs....................................... 459,823 463,934 750,274
------------ ------------ ------------
$ 1,233,810 $ 1,319,281 $ 1,546,641
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
During 1990, the Company executed a license agreement for the manufacture
and sale of "sportswear" 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 $4,209,750, $6,448,204 and $3,746,215 for 1996,
1997 and 1998, respectively.
In February 1993, the owner of the "HUGO 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" and "HUGO BOSS" trademarks. 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 (the "Settlement") of the BOSS trademark litigation described
above. 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"). 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, Inc., a wholly-owned subsidiary
of Hugo Boss AG ("Ambra"). The Company also entered into a foreign 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 (the "Minimum 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
F-17
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
Minimum 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.
The percentage of BOSS sportswear sales to total sales was 72.2%, 74.6% and
74.1% for the years ended December 31, 1996, 1997 and 1998, respectively.
In November, 1996, the Company and one of its insurance carriers reached an
agreement whereby the insurance company agreed to 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 in 1997.
In September 1993, the Company purchased a license agreement for the
manufacture and sale of certain apparel under the Beverly Hills Polo Club (BHPC)
trademark. The agreement was amended in 1996, expires in December 2001, with an
option 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% of
sales whichever is greater. Also, the Company is required to spend 1% of annual
sales on product advertising. The license fees were $607,287, $1,129,278 and
$1,073,981 for 1996, 1997 and 1998, respectively.
In 1996, Isaacs Europe executed exclusive licenses for the manufacture and
sale, in Europe, of sportswear under the BHPC trademark. The license agreements
have an initial term of three years ending December 31, 1999, renewable at the
Company's option, provided the Company is not in breach thereof at the time the
renewal notice is given, through December 31, 2004. Under the international
retail agreement, the Company is required to pay royalties equal to (i) in 2000,
3% of wholesale purchases by the Company of Beverly Hills Polo Club products
sold to Beverly Hills Polo Club stores ("Wholesale Purchases") and (ii)
thereafter, the greater of (x) 4% of Wholesale Purchases plus 2% of retail sales
and (y) minimum annual licence fees. Under the international wholesale
agreement, the Company is required to pay royalties equal to (i) in 2000, the
greater of (x) 3% of net shipments by the Company of products directly to
authorized Beverly Hills Polo Club distributors or to retail stores ("Net
Shipments") and (y) guaranteed minimum annual royalties and (ii) thereafter, the
greater of (x) 6% of Net Shipments and (z) guaranteed minimum annual royalties.
In May 1998, the Company entered into a license agreement with BHPC
Marketing, Inc., to manufacture and market boys' knitted and woven shirts,
cotton pants, jeanswear, shorts, swimwear and outerwear under the Beverly Hills
Polo Club-Registered Trademark- brand in the United States and Puerto Rico. The
initial term of the agreement is three years, commencing January 1, 1999, with
renewal options for a total of six years. Under the agreement the Company is
required to make payments to the licensor in an amount equal to 5.0% of net
sales. Payments are subject to guaranteed minimum annual royalties as follows:
F-18
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The minimum license fees under the Beverly Hills Polo Club agreements are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 636,000
2000.............................................................................. 661,000
2001.............................................................................. 736,000
</TABLE>
In November 1997 and as further amended in March 1998, the Company entered
into an exclusive license agreement with Girbaud Design, Inc. and its affiliate
to manufacture and market men's jeanswear, casualwear, outerwear and active
influenced sportswear 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
up to a total of ten years. 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. The
minimum guarantee is $1,500,000.
Beginning with the first quarter of 1998, the Company was obligated to pay
the greater of actual royalties earned or 8.3% of the minimum guaranteed
royalties for that year. The Company was required to spend at least $350,000 in
advertising for the men's Girbaud brand in 1998 and is required to spend at
least $500,000 each year thereafter while the agreement is in effect.
In March 1998, the Company entered into an exclusive license agreement with
Girbaud Design, Inc. and its affiliate to manufacture and market women's
jeanswear, casualwear and active influenced sportswear 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 up to a total of ten years. The
Company paid an initial license fee of $600,000. 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>
1999.............................................................. $ 700,000
2000.............................................................. $ 800,000
</TABLE>
Beginning with the first quarter of 1999, 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 was required to spend at least $550,000 in
advertising for the women's Girbaud brand in 1998 and and is required to spend
at least $400,000 each year thereafter while the agreement is in effect. In
addition, the Company is required to contribute $190,000 per year to the
licensor's advertising and promotional expenditures for the Girbaud brand. In
December 1998 the Girbaud women's license agreement was amended to provide that
the Company would spend an additional $1.8 million on sales and marketing in
1999. Total license fees were $1,200,000 in 1998.
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.
In the second quarter of 1998, the Company closed its Newton, Mississippi
manufacturing facility. This closure resulted in a charge of $0.2 million
against earnings for the period ended September 30, 1998. The production in this
facility, the majority of which is jeans, was transferred to a third party
independent
F-19
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
contractors facilities in Mexico. The actual expenses incurred were not
significantly different than the reserve provided by the Company in the first
quarter.
In November 1998, the Company announced that it intends to close its
Carthage, Mississippi manufacturing facility. This closure, which occurred in
the first quarter of 1999, resulted in a charge of $0.3 million against earnings
in the fourth quarter of 1998. The production in this facility, the majority of
which is ladies pants and jeans under the Company's private labels, will be
transferred to the remaining Company-owned plant in Raleigh, Mississippi, as
well as to independent contractors in Mexico.
8. 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, 1998.
Pension expense for 1996, 1997 and 1998 was approximately $284,000, $373,000
and $616,000, respectively, and includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- -----------
Service cost of current period.............................................. $ 193,000 $ 211,000 $ 267,000
Interest on the above service costs......................................... 15,000 17,000 20,000
---------- ---------- -----------
208,000 228,000 287,000
Interest on the projected benefit obligation................................ 555,000 618,000 712,000
Expected return on plan assets.............................................. (526,000) (566,000) (630,000)
Amortization of prior service cost.......................................... 16,000 42,000 42,000
Amortization of transition amount........................................... 31,000 31,000 31,000
Amortization of loss........................................................ -- 20,000 174,000
---------- ---------- -----------
Pension cost................................................................ $ 284,000 $ 373,000 $ 616,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
F-20
<PAGE>
I. C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RETIREMENT PLAN (CONTINUED)
The following table sets forth the Plan's funded status and amounts
recognized at December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------ ------------ -------------
Vested benefits....................................................... $ 6,730,000 $ 7,500,000 $ 8,653,000
Nonvested benefits.................................................... 56,000 43,000 103,000
------------ ------------ -------------
Accumulated benefit obligation........................................ 6,786,000 7,543,000 8,756,000
Effect of anticipated future compensation levels and other events..... 862,000 983,000 1,655,000
------------ ------------ -------------
Projected benefit obligation.......................................... 7,648,000 8,526,000 10,411,000
------------ ------------ -------------
Fair value of assets held in the plan................................. 7,357,000 7,852,000 9,245,000
------------ ------------ -------------
Excess of projected benefit obligation over plan assets............... (291,000) (674,000) (1,166,000)
Unrecognized net loss from past experience different from that
assumed............................................................. 661,000 935,000 2,519,000
Unrecognized prior service cost....................................... 143,000 342,000 299,000
Unamortized liability at transition................................... 124,000 93,000 62,000
------------ ------------ -------------
Net prepaid periodic pension cost..................................... $ 637,000 $ 696,000 $ 1,714,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
With respect to the above table, the weighted average discount rate used to
measure the projected benefit obligation was 8% for 1996 and 1997 and 7.5% for
1998; the rate of increase in future compensation levels is 3%; and the expected
long-term rate of return on assets is 8%. The net prepaid periodic pension cost
is included in other assets in the accompanying consolidated balance sheets.
9. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter ended December 31, 1998, ICI increased the
inventory valuation reserve by $2,500,000 and the valuation allowance related to
the deferred tax asset by $1,505,000 which had the effect of increasing the net
loss by $4,005,000 or $0.58 per share. During the fourth quarter ended December
31, 1997 ICI increased the allowance for doubtful accounts by $400,000 which had
the effect of reducing net income by $400,000 or $0.08 per share.
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest amounted to $1,389,023, $2,213,776
and $1,689,005 for 1996, 1997 and 1998, respectively. Cash paid for income taxes
was $1,799,450 in 1998.
During 1997, the Company purchased a trademark totaling $11,250,000 by
issuing a note payable.
F-21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------ ----------------------------------------------------------------------------------------------
<C> <S>
*3.01 Amended and Restated Certificate of Incorporation
*3.02 Amended and Restated By-Laws
*4.01 Specimen Common Stock Certificate
*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 Registrant and Gerald W. Lear
*10.04 Employment Agreement dated as of May 15, 1997 between 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
*10.08(i) Fifth Amendment to Financing Agreements dated January 1, 1994
*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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------ ----------------------------------------------------------------------------------------------
<C> <S>
*10.08(s) Trademark Collateral Assignment and Security Agreement dated June 16, 1992
*10.09 Form of Indemnification Agreement
*10.10(a) BOSS Worldwide Rights Acquisition Agreement dated September 30, 1997
*10.10(b) Promissory Note dated November 5, 1997
*10.10(c) Guaranty of Promissory Note dated November 5, 1997
*10.10(d) Trademark Assignment dated November 5, 1997
*10.10(e) Trademark Assignment dated November 5, 1997
*10.10(f) Trademark Assignment dated November 5, 1997
*10.10(g) Trademark Assignment dated November 5, 1997
*10.10(h) Assignment and Assumption Agreement dated November 5, 1997
*10.10(i) Escrow Agreement dated November 5, 1997
*10.10(j) Collateral Assignment of Trademarks dated November 5, 1997
*10.10(k) Termination of License Agreement dated November 5, 1997
*10.10(l) Logo Typeface
*10.10(m) Certain Provisions in Settlement Agreement
*10.11(a) Foreign BOSS Rights Acquisition Agreement dated September 30, 1997
*10.11(b) Trademark Assignment dated November 5, 1997
*10.11(c) Assignment and Assumption Agreement dated November 5, 1997
+*10.11(d) Concurrent Use Agreement dated November 5, 1997
+*10.11(e) Foreign Manufacturing Rights Agreement dated November 5, 1997
*10.11(f) Option Agreement dated November 5, 1997
*10.11(g) Secured Limited Recourse Promissory Note dated November 5, 1997
*10.11(h) Note Assumption Agreement dated November 5, 1997
*10.11(i) Guaranty of Promissory Note dated November 5, 1997
*10.11(j) Agreement Regarding Consent to Release and Waiver of Brookhurst Note Claims dated November 5,
1997
*10.11(k) Certain Provisions in Settlement Agreement
*10.11(l) Indemnification Agreement dated November 5, 1997
*10.12 Uniforms License Agreement dated November 5, 1997
*10.13 Trademark License Agreement Relating to BOSS Golf and Other Marks dated
November 5, 1997
*10.14 Beverly Hills Polo Club Exclusive Domestic License Agreement dated December 14, 1995
*10.15 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Men's) dated June 3, 1997
*10.16 Beverly Hills Polo Club Exclusive Domestic License Agreement dated June 1, 1993
*10.17 Beverly Hills Polo Club Assignment of Licenses (Women's) dated August 31, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------ ----------------------------------------------------------------------------------------------
<C> <S>
*10.18 Beverly Hills Polo Club Amendment (Women's) dated September 1, 1993
*10.19 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Women's) dated June 3, 1997
*10.20 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Men's dated July 29, 1997
*10.21 Beverly Hills Polo Club International Exclusive License Agreement (Wholesale) dated August 15,
1996
*10.22 Beverly Hills Polo Club Amendment to Exclusive License Agreement (Wholesale) dated June 3,
1997
*10.23 Beverly Hills Polo Club International Exclusive License Agreement (Retail) dated August 15,
1996
*10.24 Beverly Hills Polo Club Amendment to International Exclusive License Agreement (Retail) dated
June 3, 1997
*10.25 Beverly Hills Polo Club Amendment to Exclusive License Agreement dated July 29, 1997
**10.26(a) Girbaud Trademark License and Technical Assistance Agreement dated January 15, 1998
**10.26(b) Girbaud Trademark License and Technical Assistance Agreement for Women's Collection dated
March 4, 1998
**10.26(c) Cancellation Agreement dated March 4, 1998
*10.27(a) Defined Benefit Pension Plan
*10.27(b) First Amendment to Defined Benefit Pension Plan
**10.28 Beverly Hills Polo Club Letter Agreement dated March 18, 1998
**10.29 Beverly Hills Polo Club Letter Agreement dated February 27, 1998
**10.30 Beverly Hills Polo Club Letter Agreement dated February 27, 1998
***10.31 Beverly Hills Polo Club Exclusive Domestic License Agreement (Boys) dated April 24, 1998
****10.32 Amendment No. 1 dated June 18, 1998 to Trademark License and Technical Assistance Agreement
for Women's Collections dated January 15, 1998 by and between I.C. Isaacs & Co., L.P. and
Latitude Licensing Corp.
****10.33 Fourteenth Amendment to Financing Agreements dated July 31, 1997
****10.34 Fifteenth Amendment to Financing Agreements dated May 1, 1998
*****10.35 Amendment by and between BHPC Marketing, Inc. and I.C. Isaacs & Company, L.P. dated October
21, 1998 relating to the Exclusive Domestic License Agreement dated December 14, 1995
*****10.36 Letter Agreement by and between BHPC Marketing, Inc. and I.C. Isaacs & Company, L.P. dated
October 21, 1998 relating to the Exclusive Domestic License Agreement for Women's BHPC
Sportswear dated June 1, 1993
10.37 Amended and Restated Omnibus Stock Plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------ ----------------------------------------------------------------------------------------------
<C> <S>
10.38 Amendment by and between BHPC Marketing, Inc. and I.C. Isaacs Europe, S.L. dated November 12,
1998 relating to the International Exclusive License Agreement (Wholesale) dated August 15,
1996
10.39 Amendment by and between BHPC Marketing, Inc. and I.C. Isaacs Europe, S.L. dated November 12,
1998 relating to the International Exclusive License Agreement (Retail) dated August 15,
1996
++10.40 Amendment No. 1 dated November 12, 1998 to Trademark License and Technical Assistance
Agreement for Men's Collections dated January 15, 1998 by and between I.C. Isaacs & Co.,
L.P. and Latitude Licensing Corp.
++10.41 Amendment No. 2 dated November 12, 1998 to Trademark License and Technical Assistance
Agreement for Women's Collections dated January 15, 1998 by and between I.C. Isaacs & Co.,
L.P. and Latitude Licensing Corp.
10.42 Executive Employment Agreement by and between I.C. Isaacs & Company, Inc. and Daniel Gladstone
dated January 21, 1999
*****10.43 Amendment No. 1 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Robert
J. Arnot dated August 27, 1998
*****10.44 Amendment No. 1 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Gerald
W. Lear dated August 27, 1998
*****10.45 Amendment No. 1 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Eugene
C. Wielepski dated August 27, 1998
*****10.46 Amendment No. 1 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Thomas
Ormandy dated August 27, 1998
*****10.47 Consulting Agreement by and between I.C. Isaacs & Company and Gary Brashers dated August 27,
1998
10.48 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Robert
J. Arnot dated February 11, 1999
10.49 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Gerald
W. Lear dated February 11, 1999
10.50 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Eugene
C. Wielepski dated February 11, 1999
10.51 Amendment No. 2 to Employment Agreement by and between I.C. Isaacs & Company, Inc. and Thomas
Ormandy dated February 11, 1999
10.52 Amendment No. 1 to Consulting Agreement by and between I.C. Isaacs & Company and Gary Brashers
dated February 11, 1999
10.53 Sixteenth Amendment to Financing Agreements dated March 26, 1999
10.54 Amendment by and between BHPC Marketing, Inc. dated March 1, 1999 relating to the
International Exclusive License Agreement (Wholesale) dated August 15, 1996
10.55 Amendment by and between BHPC Marketing, Inc. dated March 1, 1999 relating to the
International Exclusive License Agreement (Retail) dated August 15, 1996
10.56 Amendment No. 1 dated March 4, 1998 to Trademark License and Technical Assistance Agreement
for Men's Collections by and between the Company and Latitude Licensing Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------ ----------------------------------------------------------------------------------------------
<C> <S>
++10.57 Amendment No. 3 dated December 23, 1998 to Trademark License and Technical Assistance
Agreement for Women's Collections by and between the Company and Latitude Licensing Corp.
*21.01 List of Subsidiaries
23.01 Consent of BDO Seidman, LLP
27.01 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed with the Company's Registration Statement on Form S-1
(SEC File No. 333-37155).
** Previously filed with the Company's Annual Report on Form 10-K for the
Year Ended December 31, 1997 (SEC File No. 0-23379).
*** Previously filed with the Company's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998 (SEC File No. 0-23379).
**** Previously filed with the Company's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1998 (SEC File No. 0-23379).
***** Previously filed with the Company's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1998 (SEC File No. 0-23379).
****** Previously filed with the Company's Current Report on Form 8-K dated
August 27, 1998 (SEC File No. 0-23379).
+ Certain portions of this exhibit have been omitted pursuant to an order
granting confidential treatment and have been filed separately with the
Securities and Exchange Commission.
++ Certain portions of this exhibit have been omitted pursuant to a request for
an order granting confidential treatment and have been filed separately with
the Securities and Exchange Commission.
<PAGE>
Exhibit 10.37
I.C. ISAACS & COMPANY, INC.
AMENDED AND RESTATED
ONMIBUS STOCK PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
I.C. Isaacs & Company, Inc., a Delaware corporation (the "Company"),
established and maintains the I.C. Isaacs & Company, Inc. 1997 Omnibus Stock
Plan which is hereby amended and restated in its entirety to be known
hereafter as the I.C. Isaacs & Company, Inc. Amended and Restated Omnibus
Stock Plan (the "Plan"). The purpose of the Plan is to promote the long-term
growth and profitability of the Company by (i) providing key people with
incentives to improve stockholder value and to contribute to the growth and
financial success of the Company, and (ii) enabling the Company to attract,
retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive
stock options qualifying under Code section 422 and nonqualified stock
options), stock appreciation rights, restricted or unrestricted stock awards,
phantom stock, performance awards, or any combination of the foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "AFFILIATE" shall mean any entity, whether now or hereafter
existing, which controls, is controlled by, or is under common control with,
the Company (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean
ownership of 50% or more of the total combined voting power or value of all
classes of stock or interests of the entity.
(b) "AWARD" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, or performance award.
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(e) "COMMON STOCK" shall mean shares of common stock of the Company, par
value of $0.0001 per share.
(f) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "FAIR MARKET VALUE" of a share of the Company's Common Stock for any
purpose on a particular date shall be determined in a manner such as the
Administrator shall in good faith determine to be appropriate; provided that
in the event the Common Stock shall become registered under Section 12(b) of
the Exchange Act, then thereafter the Fair Market Value of the Company's
Common Stock for any purpose on a particular date shall mean the last
reported sale price per share of Common Stock, regular way, on such date or,
in case no such sale takes place on such date, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on a national securities exchange or included
<PAGE>
for quotation on the Nasdaq-National Market, or if the Common Stock is not so
listed or admitted to trading or included for quotation, the last quoted
price, or if the Common Stock is not so quoted, the average of the high bid
and low asked prices, regular way, in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Common Stock
is not quoted by any such organization, the average of the closing bid and
asked prices, regular way, as furnished by a professional market maker making
a market in the Common Stock as selected in good faith by the Administrator
or by such other source or sources as shall be selected in good faith by the
Administrator. If, as the case may be, the relevant date is not a trading
day, the determination shall be made as of the next preceding trading day. As
used herein, the term "trading day" shall mean a day on which public trading
of securities occurs and is reported in the principal consolidated reporting
system referred to above, or if the Common Stock is not listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, any business day.
(h) "GRANT AGREEMENT" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.
(i) "PARENT" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of "parent corporation"
provided in Code section 424(e), or any successor thereto.
(j) "SUBSIDIARY" AND "SUBSIDIARIES" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Code section 424(f), or
any successor thereto.
3. ADMINISTRATION
(a) ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board
from time to time (the Board committee or committees hereinafter referred to
as the "Administrator").
(b) POWERS OF THE ADMINISTRATOR. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include
authority, in its sole and absolute discretion, to grant Awards under the
Plan, prescribe Grant Agreements evidencing such Awards and establish such
programs for granting Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine
the types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and
substitute new Awards (provided however, that, except as provided in Section
7(d) of the Plan, any modification that would materially adversely affect any
outstanding Award shall not be made without the consent of the holder); (vi)
accelerate or otherwise change the time in which an Award may be exercised or
becomes payable and to waive or accelerate the lapse, in whole or in part, of
any restriction or condition with respect to such Award, including, but not
limited to, any restriction or condition with respect to the vesting or
exercisability of an Award following termination of any grantee's employment
or other relationship with the Company; and
-2-
<PAGE>
(vii) establish objectives and conditions, if any, for earning Awards and
determining whether Awards will be paid after the end of a performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) NON-UNIFORM DETERMINATIONS. The Administrator's determinations
under the Plan (including without limitation, determinations of the persons
to receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Grant Agreements evidencing such Awards)
need not be uniform and may be made by the Administrator selectively among
persons who receive, or are eligible to receive, Awards under the Plan,
whether or not such persons are similarly situated.
(d) LIMITED LIABILITY. To the maximum extent permitted by law, no
member of the Administrator shall be liable for any action taken or decision
made in good faith relating to the Plan or any Award thereunder.
(e) INDEMNIFICATION. To the maximum extent permitted by law and by the
Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
(f) EFFECT OF ADMINISTRATOR'S DECISION. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the
Plan pursuant to the powers vested in it hereunder shall be in the
Administrator's sole and absolute discretion and shall be conclusive and
binding on all parties concerned, including the Company, its stockholders,
any participants in the Plan and any other employee, consultant, or director
of the Company, and their respective successors in interest.
4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS
Subject to adjustments as provided in Section 7(d) of the Plan, the
shares of Common Stock that may be issued with respect to Awards granted
under the Plan shall not exceed an aggregate of 1,100,000 shares of Common
Stock. The Company shall reserve such number of shares for Awards under the
Plan, subject to adjustments as provided in Section 7(d) of the Plan. If any
Award, or portion of an Award, under the Plan expires or terminates
unexercised, becomes unexercisable or its forfeited or otherwise terminated,
surrendered or canceled as to any shares, or if any shares of Common Stock
are surrendered to the Company in connection with any Award (whether or not
such surrendered shares were acquired pursuant to any Award), the shares
subject to such Award and the surrendered shares shall thereafter be
available for further Awards under the Plan; provided, however, that any such
shares that are surrendered in the Company in connection with any Award or
that are otherwise forfeited after issuance shall not be available for
purchase pursuant to incentive stock options intended to qualify under Code
section 422.
Subject to adjustments as provided in Section 7(d) of the Plan, the
maximum number of shares of Common Stock subject to Awards of any combination
that may be granted during any one fiscal year of the Company to any one
individual under this Plan shall be limited to 500,000 shares. Such
per-individual limit shall not be adjusted to effect a restoration of shares
of Common Stock with respect to which the related Award is terminated,
surrendered or canceled.
-3-
<PAGE>
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers,
directors, and consultants of the Company, or of any Affiliate of the
Company, as may be selected by the Administrator from time to time.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in
tandem with other types of Awards. All Awards are subject to the terms and
conditions provided in the Grant Agreement.
(a) STOCK OPTIONS. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is
defined in Code section 422 or nonqualified stock options; provided, however,
that Awards of incentive stock options shall be limited to employees of the
Company or of any Parent or Subsidiary of the Company. Options intended to
qualify as incentive stock options under Code section 422 must have an
exercise price at least equal to Fair Market Value on the date of grant, but
nonqualified stock options may be granted with an exercise price less than
Fair Market Value. No stock option shall be an incentive stock option unless
so designated by the Administrator at the time of grant or in the Grant
Agreement evidencing such stock option.
(b) STOCK APPRECIATION RIGHTS. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR").
An SAR entitles the grantee to receive, subject to the provisions of the Plan
and the Grant Agreement, a payment having an aggregate value equal to the
product of (i) the excess of (A) the Fair Market Value on the exercise date
of one share of Common Stock over (B) the base price per share specified in
the Grant Agreement, times (ii) the number of shares specified by the SAR,
or portion thereof, which is exercised. Payment by the Company of the amount
receivable upon any exercise of an SAR may be made by the delivery of Common
Stock or cash, or any combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. If upon settlement of the exercise
of an SAR a grantee is to receive a portion of such payment in shares of
Common Stock, the number of shares shall be determined by dividing such
portion by the Fair Market Value of a share of Common Stock on the exercise
date. No fractional shares shall be used for such payment and the
Administrator shall determine whether cash shall be given in lieu of such
fractional shares or whether such fractional shares shall be eliminated.
(c) STOCK AWARDS. The Administrator may from time to time grant
restricted or unrestricted stock Awards to eligible participants in such
amounts, on such terms and conditions, and for such consideration, including
no consideration or such minimum consideration as may be required by law, as
it shall determine. A stock Award may be paid in Common Stock, in cash, or in
a combination of Common Stock and cash, as determined in the sole discretion
of the Administrator.
(d) PHANTOM STOCK. The Administrator may from time to time grant
Awards to eligible participants denominated in stock-equivalent units
("phantom stock") in such amounts and on such terms and conditions as it
shall determine. Phantom stock units granted to a participant shall be
credited to a bookkeeping reserve account solely for accounting purposes and
shall not require a segregation of any of the Company's assets. An Award of
phantom stock may be settled in Common Stock, in cash, or in a combination of
Common Stock and cash, as determined in the sole discretion of the
Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any shares of Common Stock represented by a
phantom stock unit solely as a result of the grant of a phantom stock unit to
the grantee.
-4-
<PAGE>
(e) PERFORMANCE AWARDS. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or
more performance goals established by the Administrator. Performance awards
may be paid by the delivery of Common Stock or cash, or any combination of
Common Stock and cash, as determined in the sole discretion of the
Administrator. Performance goals established by the Administrator may be
based on the Company's or an Affiliate's operating income or one or more
other business criteria selected by the Administrator that apply to an
individual or group of individuals, a business unit, or the Company or an
Affiliate as a whole, over such performance period as the Administrator may
designate.
7. MISCELLANEOUS
(a) WITHHOLDING OF TAXES. Grantees and holders of Awards shall pay to the
Company or its Affiliate, or make provision satisfactory to the Administrator
for payment of, any taxes required to be withheld in respect of Awards
under the Plan no later than the date of the event creating the tax liability.
The Company or its Affiliate may, to the extent permitted by law, deduct any
such tax obligations from any payment of any kind otherwise due to the
grantee or holder of an Award. In the event that payment to the Company or its
Affiliate of such tax obligations is made in shares of Common Stock, such
shares shall be valued at Fair Market Value on the applicable date for such
purposes.
(b) LOANS. The Company or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any
withholding tax obligations.
(c) TRANSFERABILITY. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no
Award granted under the Plan shall be transferable by a grantee otherwise
than by will or the laws of descent and distribution. Unless otherwise
determined by the Administrator in accord with the provisions of the
immediately preceding sentence, an Award may be exercised during the lifetime
of the grantee, only by the grantee or, during the period the grantee is
under a legal disability, by the grantee's guardian or legal representative.
(d) ADJUSTMENTS; BUSINESS COMBINATIONS. In the event of changes in the
Common Stock of the Company by reason of any stock dividend, spin-off,
split-up, recapitalization, merger, consolidation, business combination or
exchange of shares and the like, the Administrator shall, in its discretion,
make appropriate adjustments to the maximum number and kind of shares
reserved for issuance or with respect to which Awards may be granted under
the Plan as provided in Section 4 of the Plan and to the number, kind and
price of shares covered by outstanding Awards, and shall, in its discretion
and without the consent of holders of Awards, make any other adjustments in
outstanding Awards, including but not limited to reducing the number of
shares subject to Awards or providing or mandating alternative settlement
methods such as settlement of the Awards in cash or in shares of Common Stock
or other securities of the Company or of any other entity, or in any other
matters which relate to Awards as the Administrator shall, in its sole
discretion, determine to be necessary or appropriate.
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to
cancellation, forfeiture, surrender or other termination of the Awards in
whole or in part regardless of the vested status of the Award, in order to
facilitate any business combination that is authorized by the Board to comply
with requirements for treatment as a pooling of interests transaction for
accounting purposes under generally accepted accounting principles.
- 5 -
<PAGE>
The Administrator is authorized to make, in its discretion and without
the consent of holders of Awards, adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or
nonrecurring events affecting the Company, or the financial statements of the
Company or any Affiliate, or of changes in applicable laws, regulations, or
accounting principles, whenever the Administrator determines that such
adjustments are appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan.
(e) SUBSTITUTION OF AWARDS IN MERGERS AND ACQUISITIONS. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees, officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of the Company
or an Affiliate as the result of a merger or consolidation of the employing
entity with the Company or an Affiliate, or the acquisition by the Company or
an Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
(f) TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) NON-GUARANTEE OF EMPLOYMENT OR SERVICE. Nothing in the Plan or in
any Grant Agreement thereunder shall confer any right on an individual to
continue in the service of the Company or shall interfere in any way with the
right of the Company to terminate such service at any time with or without
cause or notice.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a grantee or any other person.
To the extent that any grantee or other person acquires a right to receive
payments from the Company pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company.
(i) GOVERNING LAW. The validity, construction and effect of the Plan,
of Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating
to the Plan or such Grant Agreements, and the rights of any and all persons
having or claiming to have any interest therein or thereunder, shall be
determined exclusively in accordance with applicable federal laws and the
laws of the State of Delaware, without regard to its conflict of laws
principles.
(j) EFFECTIVE DATE; TERMINATION DATE. The Plan initially became
effective May 15, 1997, and shall continue in effect as amended and restated
herein, subject to approval of the stockholders of the Company at the 1999
Annual Meeting of the Stockholders or a special meeting of the stockholders
at which the Plan, as amended and restated, is presented for approval,
provided that any such special meeting is held within twelve months of the
date this amended and restated Plan is adopted by the Board. No Award shall be
granted under the Plan after the close of business on May 14, 2007. Subject
to other applicable provisions of the Plan, all Awards made under the Plan
prior to such termination of the Plan shall remain in effect until such
Awards have been satisfied or terminated in accordance with the Plan and the
terms of such Awards.
- 6 -
<PAGE>
Exhibit 10.38
AMENDMENT TO INTERNATIONAL EXCLUSIVE LICENSE AGREEMENT
This Amendment is made and entered into by and between BHPC Marketing, Inc.
("LICENSOR") and I.C. Isaacs Europe, S.L. ("LICENSEE") and is dated as of
November 12, 1998. This Amendment amends and modifies that certain
International Exclusive License Agreement between LICENSOR and LICENSEE,
dated August 15, 1996 (the "Agreement").
(I)
The promises, covenants, agreements and declarations made and set forth
herein are intended to and shall have the same force and effect as if set
forth at length in the body of the Agreement. To the extent that the
provisions of this Amendment are inconsistent with the terms and conditions
of the Agreement, the terms set forth herein shall control.
(II)
1. Effective as of April 1, 1999, item 2 of the License Agreement Detail
Schedule is hereby deleted in its entirety, and the following is hereby
inserted in its place and stead:
"2. Definition of Licensed Product (by category):
---------------------------------------------
Men's apparel including denim sportswear, outerwear, woven shirts,
knit and woven casual pants and shorts, sweaters, basic and fashion
fleece tops and bottoms, overalls and shortalls, knit tops
(including t-shirts and polo shirts), swimwear, and warm-ups
(excluding suits, ties, dress shirts, underwear, shoes, overcoats,
and full-length rainwear).
Women's apparel including slacks, skirts, dresses, sweaters,
outerwear, blouses and jeans"
2. Effective as of January 1, 1999, Item 7.(D) of the License Agreement Detail
Schedule is hereby amended to change and insert the following:
"7. Guarantees: in U.S. Dollars
----------- ---------------
(D) Guaranteed Monthly
Royalty Payments
Third Contract Year $10,000.00"
<PAGE>
AMENDMENT TO INTERNATIONAL EXCLUSIVE LICENSE AGREEMENT
Product Category: Wholesale Sales
I.C. ISAACS EUROPE, S.L.
Page Two of Two
(III)
LICENSOR AND LICENSEE acknowledge and agree that the Agreement, as amended by
this Amendment, remains in full force and effect and represents the entire
agreement of the parties with respect to the matters contained herein.
IN WITNESS WHEREOF, the parties hereto agree that this Amendment shall take
effect as of the date and year first written above.
LICENSOR: LICENSEE:
BHPC MARKETING, INC. I.C. ISAACS EUROPE, S.L.
BY: /s/Don Garrison BY: /s/Robert Arnot
------------------------------- ---------------------------------
Don Garrison Robert Arnot
Vice President Chairman of the Board, Co-C.E.O.
DATE: 11/30/98 DATE: 12/2/98
------------------------------- ---------------------------------
BY: /s/Roger Tomlinson BY: /s/Gerald Lear
------------------------------- ---------------------------------
Roger Tomlinson Gerald Lear
Treasurer/Director President, Co-C.E.O.
DATE: 11/30/98 DATE: 12/4/98
------------------------------- ---------------------------------
<PAGE>
Exhibit 10.39
AMENDMENT TO INTERNATIONAL EXCLUSIVE LICENSE AGREEMENT
This Amendment is made and entered into by and between BHPC Marketing, Inc.
("LICENSOR") and I.C. Isaacs Europe, S.L. ("LICENSEE") and is dated as of
November 12, 1998. This Amendment amends and modifies that certain
International Exclusive License Agreement between LICENSOR and LICENSEE,
dated August 15, 1996 (the "Agreement").
(I)
The promises, covenants, agreements and declarations made and set forth
herein are intended to and shall have the same force and effect as if set
forth at length in the body of the Agreement. To the extent that the
provisions of this Amendment are inconsistent with the terms and conditions
of the Agreement, the terms set forth herein shall control.
(II)
1. Effective as of April 1, 1999, Item 2 of the License Agreement Detail
Schedule is hereby deleted in its entirety, and the following is hereby
inserted in its place and stead:
"2. Definition of Licensed Product (by category):
---------------------------------------------
Men's apparel including denim sportswear, outerwear, woven shirts,
knit and woven casual pants and shorts, sweaters, basic and fashion
fleece tops and bottoms, overalls and shortalls, knit tops
(including t-shirts and polo shirts), swimwear, and warm-ups
(excluding suits, ties, dress shirts, underwear, shoes, overcoats,
and full-length rainwear);
Women's apparel including slacks, skirts, dresses, sweaters,
outerwear, blouses and jeans;
All other BHPC Licensed Product produced by other Licensees."
2. Effective as of January 1, 1999, Item 7.(D) of the License Agreement Detail
Schedule is hereby amended to change and insert the following:
"7. Guarantees: in U.S. Dollars
----------- ---------------
(D) Guaranteed Monthly
Royalty Payments
Third Contract Year $2,500.00"
<PAGE>
AMENDMENT TO INTERNATIONAL EXCLUSIVE LICENSE AGREEMENT
Product Category: Retail Stores
I.C. ISAACS EUROPE, S.L.
Page Two of Two
(III)
LICENSOR AND LICENSEE acknowledge and agree that the Agreement, as amended by
this Amendment, remains in full force and effect and represents the entire
agreement of the parties with respect to the matters contained herein.
IN WITNESS WHEREOF, the parties hereto agree that this Amendment shall take
effect as of the date and year first written above.
LICENSOR: LICENSEE:
BHPC MARKETING, INC. I.C. ISAACS EUROPE, S.L.
BY: /s/Don Garrison BY: /s/Robert Arnot
------------------------------- ---------------------------------
Don Garrison Robert Arnot
Vice President Chairman of the Board, Co-C.E.O.
DATE: 11/30/98 DATE: 12/2/98
------------------------------- ---------------------------------
BY: /s/Roger Tomlinson BY: /s/Gerald Lear
------------------------------- ---------------------------------
Roger Tomlinson Gerald Lear
Treasurer/Director President, Co-C.E.O.
DATE: 11/30/98 DATE: 12/4/98
------------------------------- ---------------------------------
<PAGE>
EXHIBIT 10.40
11/12/98
AMENDMENT NO. 1 TO
TRADEMARK LICENSE AND TECHNICAL ASSISTANCE AGREEMENT
COVERING MEN'S PRODUCTS
This is Amendment No. 1 dated November 12, 1998 to the Trademark License
and Technical Assistance Agreement for Men's Collections dated January 15, 1998
by and between Latitude Licensing Corp. and I.C. Isaacs & Co., L.P. covering
Men's Products (the "Agreement"). Capitalized terms used herein have the meaning
ascribed to them in the Agreement unless otherwise indicated.
WHEREAS, the Parties have agreed to extend the Territory, as defined in
Sub-Section 2.2 of the Agreement, in order for the Licensor to grant to the
Licensee the right to enter into a distribution agreement with Abert Trading,
Inc. for additional countries (the "Distribution Agreement").
FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED, THE PARTIES AGREE TO AMEND THE AGREEMENT AS FOLLOWS:
1. The Distribution Agreement must be submitted to the Licensor for approval
and approved by the Licensor, in writing, before its signature by the Licensee
and Abert Trading, Inc.
2. Paragraph 2.2 is amended to read as follows:
2.2(a)The License herein granted shall extend to the United States of
America (Fifty states and the District of Columbia), Puerto-Rico, the US
Virgin Islands, and shall include sales made to all branches of the United
States military for distribution in United States military installations
anywhere (the "Territory").
2.2(b)The License shall also extend to Argentina, Brazil, The Carribean
other than Puerto-Rico and the US Virgin Islands, Chile, Costa Rica,
Curacao, the Dominican Republic, El Salvador, French Guyana, Guatemala,
Guyana, Honduras, Panama, Paraguay, Peru, Surinam, and Uruguay (the "New
Territory").
2.2(c)The License for the New Territory shall be exclusive. However,
should the annual sales for each country of the New Territory be
seventy-five percent (75%) or less than the amount as targeted in Annex A
for that country, the license for such country or countries shall become
non-exclusive starting the following year.
3. The royalties due by the Licensee to the Licensor for the new Territory
and pursuant to Article 4 of the Agreement shall be calculated based on Net
Sales, as defined in Sub-Section 4.3 of the Agreement, from which the Abert
discount shall be deducted.
1
<PAGE>
4. This Amendment is effective starting November 12, 1998, for a period of
three (3) years, or until the termination or expiration of the Agreement,
whichever is earlier. Should this Amendment expire before the Agreement expires
or terminates, the Agreement as existing until the execution of the Amendment
shall remain in full force and effect.
5. Except for the terms amended by this Amendment, the Agreement as existing
until the execution of the Amendment shall continue in full force and effect.
Dated: November 12, 1998
LATITUTE LICENSING CORP. I.C. ISAACS & CO., L.P.
By: /s/ [Illegible] By: /s/ Robert J. Arnot
----------------------------- ----------------------------------
Name: Name: Robert J. Arnot
Title: Title: Chairman & CEO
By:
-----------------------------
Name:
Title:
2
<PAGE>
ABERT TRADING INC. PROJECTED SALES FOR
"MARITHE FRANCOIS GIRBAUD"
IN LATIN AMERICA
THESE FIGURES ARE BASED ON OUR EXPERIENCES WITH OTHER POPULAR BRANDS AND ARE IN
CONSIDERATION OF THE SHOP CONCEPT DEVELOPMENT. THEY ARE CONSERVATIVE FIGURES AND
AFTER COMPLETING 1999 AND SEEING THE OVERALL RESPONSE TO THE BRAND THROUGHOUT
SOUTH AMERICA, WE WILL BE ABLE TO PROVIDE YOU WITH FIGURES THAT ARE MORE
ACCURATE.
UPDATED: NOVEMBER 5, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PROJECTIONS
*
</TABLE>
TOTAL GIRBAUD SALES CUMULATIVE TO DATE OF 12/31/98 = $32,096.50
***PLEASE NOTE THAT IT IS ABERT'S TENDENCY TO BE CONSERVATIVE WITH SALES
PROJECTIONS****
CARRIBEAN - EXCLUDES PUERTO RICO, U.S. VIRGIN ISLANDS OR ANY U.S. TERRITORY*
- ------------------
*Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
Annex A
3
<PAGE>
Exhibit 10.41
11/12/98
Amendment No. 2 To
Trademark License And Technical Assistance Agreement
Covering Women's Products
This is Amendment No. 2 dated November 12, 1998 to the Trademark License
and Technical Assistance Agreement for Women's Collections dated January 15,
1998 by and between Latitude Licensing Corp. and I.C. Isaacs & Co., L.P.
covering Women's Products (the "Agreement"). An Amendment No. 1 was agreed upon
and made effective on June 18, 1998. Capitalized terms used herein have the
meaning ascribed to them in the Agreement unless otherwise indicated.
WHEREAS, the Parties have agreed to extend the Territory, as defined in
Sub-Section 2.2 of the Agreement, in order for the Licensor to grant to the
Licensee the right to enter into a distribution agreement with Abert Trading,
Inc. for additional countries (The "Distribution Agreement").
FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED, THE PARTIES AGREE TO AMEND THE AGREEMENT AS FOLLOWS:
1. The Distribution Agreement must be submitted to the Licensor for approval
and approved by the Licensor, in writing, before its signature by the
Licensee and Abert Trading, Inc.
2. Paragraph 2.2 is amended to read as follows:
2.2(a) The License herein granted shall extend to the United States of
America (Fifty states and the District of Columbia), Puerto-Rico and the
US Virgin Islands, and shall include sales made to all branches of the
United States military for distribution in United States military
installations anywhere (the "New Territory").
2.2(b) The License shall also extend to Argentina, Brazil, The Carribean
other than Puerto-Rico and the US Virgin Islands, Chile, Costa Rica,
Curacao, the Dominican Republic, El Salvador, French Guyana, Guatemala,
Guyana, Honduras, Panama, Paraguay, Peru, Surinam, and Uruguay (the "New
Territory").
2.2(c) The License for the New Territory shall be exclusive. However,
should the annual sales for each country of the New Territory be
seventy-five percent (75%) or less than the amount as targeted in Annex A
for that country, the license for such country or countries shall become
non-exclusive starting the following year.
3. The royalties due by the Licensee to the Licensor for the new Territory
and pursuant to Article 5 of the Agreement shall be calculated based on
Net Sales, as defined in Sub-Section 5.3 of the Agreement, from which the
Abert discount shall be deducted.
1
<PAGE>
4. This Amendment is effective starting November 12, 1998, for a period of
three (3) years, or until the termination or expiration of the Agreement,
whichever is earlier. Should this Amendment expire before the Agreement
expires or terminates, the Agreement as existing until the execution of
the Amendment shall remain in full force and effect.
5. Except for the terms amended by this Amendment, the Agreement as existing
until the execution of the Amendment shall continue in full force and
effect.
Dated: November 12, 1998
LATITUDE LICENSING CORP I.C. ISAACS & CO., L.P.
By: /s/ [Illegible] By: /s/ Robert J. Arnot
----------------------------- ----------------------------------
Name: Name: Robert J. Arnot
Title: Title: Chairman & CEO
By:
-----------------------------
Name:
Title:
2
<PAGE>
ABERT TRADING INC. PROJECTED SALES FOR
"MARITHE FRANCOIS GIRBAUD"
IN LATIN AMERICA
THESE FIGURES ARE BASED ON OUR EXPERIENCES WITH OTHER POPULAR BRANDS AND ARE IN
CONSIDERATION OF THE SHOP CONCEPT DEVELOPMENT. THEY ARE CONSERVATIVE FIGURES AND
AFTER COMPLETING 1999 AND SEEING THE OVERALL RESPONSE TO THE BRAND THROUGHOUT
SOUTH AMERICA, WE WILL BE ABLE TO PROVIDE YOU WITH FIGURES THAT ARE MORE
ACCURATE.
UPDATED: NOVEMBER 5, 1998
<TABLE>
<CAPTION>
*
9/01/98 -
12/31/98 1999 1999 2000 2000 2001
ACTUAL ACTUAL ACTUAL
COUNTRY SALES PROJECTIONS SALES PROJECTIONS SALES PROJECTIONS
- ----------- ---------- ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
PROJECTIONS
</TABLE>
TOTAL GIRBAUD SALES CUMULATIVE TO DATE OF 12/31/98 = $32,096.50
***PLEASE NOTE THAT IT IS ABERT'S TENDENCY TO BE CONSERVATIVE WITH SALES
PROJECTIONS****
CARRIBEAN - EXCLUDES PUERTO RICO, U.S. VIRGIN ISLANDS OR ANY U.S. TERRITORY*
Annex A
- ---------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
3
<PAGE>
Exhibit 10.42
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made this 21st day of January
1999, by and between I. C. Isaacs & Company, Inc., a Delaware corporation (the
"Company"), and Daniel Gladstone (the "Executive").
EXPLANATORY STATEMENT
The Company desires to employ the Executive as its President - Girbaud
Division on the terms and conditions herein set forth, and the Executive has
agreed to accept employment with the Company on the terms and conditions herein
set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
promises made herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as its
President - Girbaud Division and agrees to continue the Executive in that
position during the term set forth in Section 2.
2. TERM. Subject to the terms and conditions set forth herein, the
Executive's term of employment shall begin January 21, 1999 and shall continue
until January 21, 2001 (the "Initial Employment Period") Thereafter, Executive's
term of employment shall renew automatically from Employment Year to Employment
Year (as defined below), subject to the right of either party (i) to prevent the
automatic renewal of the Executive's term of employment upon sixty (60) days'
prior written notice to the other party or (ii) to terminate the Executive's
employment as of the end of any Employment Year upon sixty (60) days' prior
written notice to the other party. An "Employment Year" begins each January 21,
and ends on the immediately following January 21.
3. BASE SALARY. The Executive's base salary for each Employment Year
under this Agreement shall be at the rate of Three Hundred Fifty Thousand
Dollars ($350,000) per annum. The Executive's base salary shall be paid
throughout the year, in accordance with the normal payroll practices of the
Company.
4. INCENTIVE COMPENSATION. In addition to his base salary, during the
term of this Agreement, the Executive shall be entitled to receive incentive
compensation within ninety (90) days following each fiscal year during which the
Company's Net Sales (as defined below) of Girbaud sportswear exceeds $20.0
million. The amount of such incentive compensation shall equal one-half of one
percent of the amount by which the Company's net sales of Girbaud sportswear
exceeds $20.0 million. Net Sales of Girbaud sportswear shall mean domestic gross
revenues from the sale of such sportswear recorded in accordance with the
Company's normal
-1-
<PAGE>
revenue recognition policies, less discounts, returns, allowances and off-price
sales to off-price customers.
5. OTHER BENEFITS. During the term of this Agreement, the Executive
shall also be entitled to participate in or receive benefits under all of the
Company's benefit plans, programs, arrangements and practices, including
pension, disability, and group life, sickness, accident or health insurance
programs, if any, as may be established from time to time by the Board of
Directors of the Company for the benefit of executive employees serving in
similar capacities with the Company (and/or its affiliates), in accordance with
the terms of such plans, as amended by the Company from time to time; it being
understood that there is no assurance with respect to the establishment of such
plans or, if established, the continuation of such plans during the term of this
Agreement.
6. DUTIES.
A. During the term of this Agreement, the Executive shall serve as
the President -Girbaud Division of the Company and have such powers and shall
perform such duties as shall be assigned to him by the Chief Executive Officer
and that are incident and customary to those of the president of a division. The
Chief Executive Officer shall have final authority regarding the sourcing,
styling, pricing, distribution and marketing of Girbaud sportswear.
B. The Executive shall devote his full time, attention, skill, and
energy to the performance of his duties under this Agreement, and shall comply
with all reasonable professional requests of the Company; provided, however,
that the Executive will be permitted to engage in and manage personal
investments and to participate in community and charitable affairs, so long as
such activities do not interfere with his duties under this Agreement.
7. VACATION AND SICK LEAVE.
A. Following six (6) months of employment with the Company, the
Executive shall be entitled to a total of four (4) weeks of vacation each
Employment Year, such vacation to be in accordance with the terms of the
Company's announced policy for executive employees, as in effect from time to
time. The Executive may take his vacation at such time or times as shall not
interfere with the performance of his duties under this Agreement.
B. The Executive shall be entitled to paid sick leave and holidays
in accordance with the Company's announced policy for executive employees, as in
effect from time to time.
8. EXPENSES. The Company shall reimburse the Executive for all
reasonable expenses incurred in connection with his duties on behalf of the
Company, provided that the Executive shall keep, and present to the Company,
records and receipts relating to reimbursable expenses incurred by him. Such
records and receipts shall be maintained and presented in a format, and with
such regularity, as the Company reasonably may require in order to substantiate
the Company's right to claim income tax deductions for such expenses. Without
limiting the
-2-
<PAGE>
generality of the foregoing, the Executive shall be entitled to reimbursement
for any business-related travel, business-related entertainment, whether at his
residence or otherwise, and other costs and expenses reasonably incident to the
performance of his duties on behalf of the Company.
9. TERMINATION OF EMPLOYMENT FOR CAUSE. Notwithstanding the provisions
of Section 2 of this Agreement, the Executive's employment (and all of his
rights and benefits under this Agreement) shall terminate immediately and
without further notice upon the happening of any one or more of the following
events:
A. The Executive has been or is guilty of (i) a criminal offense
involving moral turpitude, (ii) criminal or dishonest conduct pertaining to the
business or affairs of the Company (including, without limitation, fraud and
misappropriation), (iii) any act or omission the intended or likely consequence
of which is material injury to the Company's business, property or reputation,
which act or omission continues uncured for a period of ten (10) days after the
Executive has received written notice from the Company, and/or (iv) gross
negligence or willful misconduct which continues uncured for a period of ten
(10) days after the Executive has received written notice from the Company;
B. The Executive persists, for a period of fifteen (15) days after
written notice from the Company, in willful misconduct injurious to the
Company's interests, willful breach in the performance of his duties under this
Agreement, or habitual neglect by the Executive in the performance of his duties
under this Agreement (other than as a result of incapacity for physical or
mental illness);
C. The Executive's death; or
D. The continuous and uninterrupted inability to perform the
Executive's duties on behalf of the Company, by reason of accident, mental or
physical illness or impairment, or disease, for a period of one hundred and
eighty (180) days from the first day of such inability to perform his duties.
Subsections A, B, C, D and E of this Section 9 are hereinafter
referred to collectively and individually as "Cause." In the event of a
termination for Cause, the Company shall pay the Executive his base salary
through the effective date of the employment termination, and the Executive
shall immediately thereafter forfeit all rights and benefits (other than vested
benefits), including but not limited to any right to compensation pursuant to
Sections 4 and 5 of this Agreement, he would otherwise have been entitled to
receive under this Agreement. The Company and the Executive thereafter shall
have no further obligations under this Agreement except as otherwise provided in
Sections 13 and 14 of this Agreement.
10. CHANGE OF CONTROL; TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT
CAUSE. Notwithstanding the provisions of Section 2 of this Agreement, the Board
of Directors may terminate the Executive's employment, at any time, for reasons
other than for Cause by
-3-
<PAGE>
notifying the Executive in writing of such termination. If the Executive is
terminated pursuant to this Section 10 for reasons other than for Cause, the
Company shall pay the Executive, throughout the year in accordance with the
normal payroll practices of the Company, an amount equal to one (1) year's worth
of his base salary or, if the Executive is terminated before January 21, 2000,
the remaining base salary otherwise payable during the Initial Employment
Period, in either case at the rate in effect immediately prior to the date of
termination. The payments described in the immediately preceding sentence shall
be reduced by any income paid to the Executive during the severance period from
other employment or consulting services he performs for other persons or
entities. The Executive shall immediately thereafter forfeit all rights and
benefits (other than vested benefits, including vested stock options and earned
but unpaid incentive compensation (prorated for any partial year and paid within
ninety (90) days after the end of the current fiscal year) under Section 4 of
this Agreement), including but not limited to any right to compensation pursuant
to Sections 4 or 5 of this Agreement, he would otherwise have been entitled to
receive under this Agreement. The Company and the Executive thereafter shall
have no further obligations under this Agreement except as otherwise provided in
Sections 13 and 14 of this Agreement.
If a Change of Control (as defined below) occurs and (i) the Executive
voluntarily terminates his employment between ninety (90) and one hundred and
twenty (120) days following the Change of Control or (ii) is involuntarily
terminated within one hundred and twenty (120) days following the Change of
Control, the Company shall pay the Executive, in a lump sum within thirty (30)
days, an amount equal to one (1) year's worth of his base salary or, if the
Executive is terminated before January 21, 2000, the remaining base salary
otherwise payable during the Initial Employment Period, in either case at the
rate in effect immediately prior to the date of termination. The payments
described in the immediately preceding sentence shall be reduced by any income
paid to the Executive during the severance period from other employment or
consulting services he performs for other persons or entities. The Executive
shall immediately thereafter forfeit all rights and benefits (other than vested
benefits, including vested stock options and earned but unpaid incentive
compensation (prorated for any partial year and paid within ninety (90) days
after the end of the current fiscal year) under Section 4 of this Agreement),
including but not limited to any right to compensation pursuant to Sections 4 or
5 of this Agreement, he would otherwise have been entitled to receive under this
Agreement. The Company and the Executive thereafter shall have no further
obligations under this Agreement except as otherwise provided in Sections 13 and
14 of this Agreement.
For purposes of this Agreement, the term "Change of Control" shall mean
(i) the sale of all or substantially all of the assets of the Company, (ii) the
sale of more than 50% of the outstanding capital stock of the Company in a
non-public sale, (iii) the dissolution or liquidation of the Company, or (iv)
any merger, share exchange, consolidation or other reorganization or business
combination of the Company if immediately after such transaction either (A)
persons who were members of the Board of Directors of the Company immediately
prior to such transaction do not constitute at least a majority of the Board of
Directors of the surviving entity, or (B) persons who hold a majority of the
voting capital stock of the surviving entity are not persons who held voting
capital stock of the Company immediately prior to such transaction.
-4-
<PAGE>
11. TERMINATION OF EMPLOYMENT BY THE EXECUTIVE. Notwithstanding the
provisions of Section 2 of this Agreement, the Executive may terminate his
employment at any time by giving the Board of Directors written notice of his
intent to terminate, delivered at least sixty (60) days prior to the effective
date of such termination.
Upon expiration of the sixty (60) day notice period (or such earlier
date as may be approved by the Board of Directors), the termination by the
Executive shall become effective. The Executive shall immediately thereafter
forfeit all rights and benefits (other than vested benefits, including vested
stock options and earned but unpaid incentive compensation (prorated for any
partial year and paid within ninety (90) days after the end of the current
fiscal year) under Section 4 of this Agreement), including but not limited to
any right to compensation pursuant to Sections 4 or 5 of this Agreement, he
would otherwise have been entitled to receive under this Agreement. The Company
and the Executive thereafter shall have no further obligations under this
Agreement except as otherwise provided in Sections 13 and 14 of this Agreement.
In the event the Company persists, for a period of fifteen (15) days
after written notice from the Executive, in assigning the Executive duties that
are materially inconsistent with the duties that are incident and customary to
those of the president of a division, the Executive may terminate his employment
at any time by giving the Board of Directors written notice of his intent to
terminate, delivered at least thirty (30) days prior to the effective date of
such termination. If the Executive's employment is terminated pursuant to this
paragraph, the Company shall pay the Executive, throughout the year in
accordance with the normal payroll practices of the Company, an amount equal to
one (1) year's worth of his base salary or, if the Executive's employment is
terminated before January 21, 2000, the remaining base salary otherwise payable
during the Initial Employment Period, in either case at the rate in effect
immediately prior to the date of termination. The payments described in the
immediately preceding sentence shall be reduced by any income paid to the
Executive during the severance period from other employment or consulting
services he performs for other persons or entities. The Executive shall
immediately thereafter forfeit all rights and benefits (other than vested
benefits, including vested stock options and earned but unpaid incentive
compensation (prorated for any partial year and paid within ninety (90) days
after the end of the current fiscal year) under Section 4 of this Agreement),
including but not limited to any right to compensation pursuant to Sections 4 or
5 of this Agreement, he would otherwise have been entitled to receive under this
Agreement. The Company and the Executive thereafter shall have no further
obligations under this Agreement except as otherwise provided in Sections 13 and
14 of this Agreement.
This Section 11 shall not apply to a termination by the Executive
following a Change of Control, as described in Section 10.
12. NON-RENEWAL. If, upon termination of the Initial Employment Period
or any subsequent Employment Year, the Company shall decide not to renew this
Agreement for one (1) Employment Year, the Company shall pay the Executive,
throughout the year in accordance with the normal payroll practices of the
Company, an amount equal to one (1) year's worth of his base salary at the rate
in effect immediately prior to the date of termination. The payments described
in the immediately preceding sentence shall be reduced by any income paid to the
-5-
<PAGE>
Executive during the severance period from other employment or consulting
services he performs for other persons or entities. The Executive shall
immediately thereafter forfeit all rights and benefits (other than vested
benefits, including vested stock options and earned but unpaid incentive
compensation (prorated for any partial year and paid within ninety (90) days
after the end of the current fiscal year) under Section 4 of this Agreement),
including but not limited to any right to compensation pursuant to Sections 4 or
5 of this Agreement, he would otherwise have been entitled to receive under this
Agreement. The Company and the Executive thereafter shall have no further
obligations under this Agreement except as otherwise provided in Sections 13 and
14 of this Agreement.
13. NON-COMPETITION. The Executive and the Company recognize that due
to the nature of his employment, and his relationship with the Company, the
Executive has had and will have access to, and has acquired and will acquire,
and has assisted and will assist in developing, confidential and proprietary
information relating to the business and operations of the Company (for purposes
of this Section 13 and Section 14 below, the Company shall mean the Company,
I.C. Isaacs & Company, L.P., I. G. Design, Inc., or any of its/their affiliates
or successors) including, without limitation, information with respect to their
present and prospective services, systems, products, clients, customers, agents,
and sales and marketing methods. The Executive acknowledges that such
information has been and will be of central importance to the Company's business
and that disclosure of it to others or its use by others could cause substantial
loss to the Company. The Executive and the Company also recognize that an
important part of the Executive's duties will be to develop good will for the
Company through his personal contact with the Company's clients, and that there
is a danger that this good will, a proprietary asset of the Company, may follow
the Executive if and when his relationship with the Company is terminated.
A. The Executive agrees that, except in the event that (i) the
Executive voluntarily terminates his employment between ninety (90) and one
hundred and twenty (120) days following the Change of Control or (ii) is
involuntarily terminated within one hundred and twenty (120) days following the
Change of Control, during the term of his employment with the Company, and for a
period of ninety (90) days after the termination of his employment for any
reason whatsoever (including the non-renewal of this Agreement by either party),
the Executive will not directly or indirectly, within the United States, whether
as a partner, proprietor, employee, consultant, agent or otherwise, participate
or engage in any business that competes with, restricts, or interferes with the
business of the Company, including, without limitation, any business in the
young men's, women's contemporary sportswear and jeanswear industry.
B. The Executive further agrees that during the term of his
employment with the Company, and for a period of two (2) years after the
termination of his employment for any reason whatsoever (including the
non-renewal of this Agreement by either party):
(i) The Executive will not, directly or indirectly (for his own
account, or for the account of others), urge any current or potential
client, customer, supplier or contractor of the Company to discontinue
business, in whole
-6-
<PAGE>
or in part, or not to do business, with the Company or otherwise interfere
with the Company's relationship or potential relationship with any such
parties; and
(ii) The Executive will not directly or indirectly (for his own
account, or for the account of others), solicit, hire or arrange to hire
any person who at the time of such hire or within two (2) years prior to
the time of such hire was an employee of the Company and was not
involuntarily terminated by the Company, for himself or for any business
entity with which he may be, or may be planning to be, affiliated or
associated, or otherwise interfere with the retention of employees that the
Company desires to retain as such.
C. The Executive expressly acknowledges and agrees (i) that the
restrictions set forth herein are reasonable, in terms of scope, duration,
geographic area, and otherwise, (ii) that the protections afforded to the
Company hereunder are necessary to protect its legitimate business interests,
and (iii) that the agreement to observe such restrictions form a material part
of the consideration for this Agreement and the Executive's employment by the
Company.
14. CONFIDENTIAL INFORMATION. The Executive agrees that, during the
term of his employment with the Company, and for a period of two (2) years after
the termination of his employment for any reason whatsoever (including the
non-renewal of this Agreement by either party), he shall not disclose to any
person or use the same in any way, other than in the discharge of his duties
under this Agreement in connection with the business of the Company, any trade
secrets or confidential or proprietary information of the Company, including,
without limitation, any information or knowledge relating to (i) the business,
operations or internal structure of the Company, (ii) the clients (or customers)
or potential clients (or potential customers) of the Company, (iii) any method
and/or procedure (such as records, programs, systems, correspondence, or other
documents), relating or pertaining to projects developed by the Company or
contemplated to be developed by the Company, or (iv) the Company's business,
which information or knowledge the Executive shall have obtained during the term
of this Agreement, and which is otherwise of a secret or confidential nature.
Further, upon leaving the employ of the Company for any reason whatsoever, the
Executive shall not take with him, without prior written consent of the Board of
Directors of the Company, any documents, forms, or other reproductions of any
data or any information relating to or pertaining to the Company, any clients
(or customers) or potential clients (or potential customers) of the Company, or
any other confidential information or trade secrets and will promptly return any
such materials already in his possession to the Company.
15. AMENDMENTS, OTHER AGREEMENTS. This Agreement may not be amended,
waived, discharged or terminated orally, but only by an instrument in writing.
Any earlier employment agreements between the Executive and the Company are
hereby terminated and shall be of no further effect after the effective date
hereof.
-7-
<PAGE>
16. MISCELLANEOUS.
A. Any notices required by this Agreement shall (i) be made in
writing and mailed by certified mail, return receipt requested, with adequate
postage prepaid; (ii) be deemed given when so mailed; (iii) be deemed received
by the addressee within ten (10) days after given or when the certified mail
receipt for such mail is executed, whichever if earlier; and (iv) in the case of
the Company, be mailed to its principal office, or in the case of the Executive,
be mailed to the last address that the Executive has given to the Company.
B. This Agreement shall be binding upon and inure to the benefit of,
the parties, their successors, assigns, personal representatives, distributees,
heirs, and legatees.
C. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
D. Subject to the Company's rights described in paragraph G below,
any dispute regarding any aspect of this Agreement or any act which allegedly
has or would violate any provision of this Agreement will be submitted to
binding arbitration. Such arbitration shall be conducted before an arbitrator
sitting in a location agreed to by the Company and the Executive within fifty
(50) miles of the location of the Executive's principal place of employment, in
accordance with the rules of the American Arbitration Association then in
effect. Each party will be entitled to limited discovery, to consist of a
maximum of three (3) depositions (maximum two (2) hours each), and twenty-five
(25) written interrogatories per party, which will be completed within one
hundred twenty (120) days following the selection of the arbitrator. Judgment
may be entered on the award of the arbitrator in any court having competent
jurisdiction.
E. Any failure by the Company to insist upon strict compliance with
any term or provision of this Agreement, to exercise any option, to enforce any
right, or to seek any remedy upon any breach by the Executive shall not affect,
or constitute a waiver of, the Company's right to insist upon such strict
compliance, exercise such option, enforce such right, or seek such remedy with
respect to such breach or any prior, contemporaneous, or subsequent breach. No
custom or practice of the Company at variance with any provision of this
Agreement shall affect or constitute a waiver of, the Company's right to demand
strict compliance with all provisions of this Agreement.
F. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be deemed
severable from the remainder of this Agreement, and the remaining provisions
contained in this Agreement shall be construed to preserve to the maximum
permissible extent the intent and purposes of this Agreement. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
G. It is recognized that damages in the event of any breach or
threatened breach of any provision of Sections 12 and 13 above by the Executive
would be difficult, if not
-8-
<PAGE>
impossible, to ascertain and that any such breach would result in immediate and
irreparable injury to the Company for which there is no adequate remedy at law,
and it is therefore agreed that the Company, in addition to and without limiting
any other remedy or right it may have, will be entitled to a decree of specific
performance, injunctive relief, mandamus or other appropriate remedy to enforce
performance of such requirements.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first hereinabove written.
ATTEST: I. C. ISAACS & COMPANY, INC.
/s/ Danielle Lambert By: /s/ Robert J. Arnot
- ------------------------------ -------------------------------
Robert J. Arnot
Chairman of the Board and
Chief Executive Officer
WITNESS: EXECUTIVE
/s/ Danielle Lambert /s/ Daniel Gladstone
- ------------------------------ -------------------------------
Daniel Gladstone
-9-
<PAGE>
Exhibit 10.48
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
by and between
I.C. ISAACS & COMPANY, INC.
and
ROBERT J. ARNOT
THIS AMENDMENT NO. 2, dated as of February 11, 1999, is made a part of
that certain EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), dated as May 15,
1997, and as amended by Amendment No. 1 thereto dated as of August 27, 1998, by
and between I. C. Isaacs & Company, Inc. (the "Company"), and Robert J. Arnot
(the "Executive"). It is intended by the parties that the terms of this
Amendment No. 2, to the extent that they are more specific than the terms
contained in the Agreement, or to the extent that they should conflict with the
terms contained in the Agreement, shall supersede the terms of the Agreement.
Section numbers utilized in this Amendment No. 2 correspond, where applicable,
to section numbers used in the Agreement.
W I T N E S S E T H:
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
parties hereto agree as follows:
1. Paragraph 3 is hereby restated in its entirety as follows:
3. BASE SALARY. The Executive's base salary for each Employment Year
under this Agreement (May 15, 1997 through May 15, 2001) shall be at
the rate of Three Hundred Fifty Thousand Dollars ($350,000) per annum.
Such base salary shall be increased to Four Hundred Thousand Dollars
($400,000) per annum for the remaining term of this Agreement after the
Company achieves positive net earnings in two consequtive fiscal
quarters. Such base salary may also be increased based on periodic
reviews by the Compensation Committee of the Board of Directors. The
Executive's base salary shall be paid throughout the year, in
accordance with normal payroll practices of the Company.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 on the date first above written.
ATTEST: I.C. ISAACS & COMPANY, INC.
/s/ Eugene C. Wielepski By: /s/ Gerald W. Lear
- ---------------------------------- ---------------------------------
Secretary Gerald W. Lear, President
<PAGE>
WITNESS: EXECUTIVE
/s/ Thomas Ormandy /s/ Robert J. Arnot
- ---------------------------------- ---------------------------------
Robert J. Arnot
-2-
<PAGE>
Exhibit 10.49
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
by and between
I.C. ISAACS & COMPANY, INC.
and
GERALD W. LEAR
THIS AMENDMENT NO. 2, dated as of February 11, 1999, is made a part of
that certain EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), dated as May 15,
1997, and as amended by Amendment No. 1 thereto dated as of August 27, 1998, by
and between I. C. Isaacs & Company, Inc. (the "Company"), and Gerald W. Lear
(the "Executive"). It is intended by the parties that the terms of this
Amendment No. 2, to the extent that they are more specific than the terms
contained in the Agreement, or to the extent that they should conflict with the
terms contained in the Agreement, shall supersede the terms of the Agreement.
Section numbers utilized in this Amendment No. 2 correspond, where applicable,
to section numbers used in the Agreement.
W I T N E S S E T H:
Accordingly, in consideration of the mutual covenants and representations
contained herein and the mutual benefits derived herefrom, the parties hereto
agree as follows:
1. Paragraph 3 is hereby restated in its entirety as follows:
3. BASE SALARY. The Executive's base salary for each Employment Year
under this Agreement (May 15, 1997 through May 15, 2001) shall be at
the rate of Three Hundred Fifty Thousand Dollars ($350,000) per annum.
Such base salary shall be increased to Four Hundred Thousand Dollars
($400,000) per annum for the remaining term of this Agreement after the
Company achieves positive net earnings in two consequtive fiscal
quarters. Such base salary may also be increased based on periodic
reviews by the Compensation Committee of the Board of Directors. The
Executive's base salary shall be paid throughout the year, in
accordance with normal payroll practices of the Company.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 on the date first above written.
ATTEST: I.C. ISAACS & COMPANY, INC.
/s/ Eugene C. Wielepski By: /s/ Robert J. Arnot
- ------------------------------- --------------------------------
Secretary Robert J. Arnot, CEO
<PAGE>
WITNESS: EXECUTIVE
/s/ Eugene C. Wielepski By: /s/ Gerald W. Lear
- ------------------------------- --------------------------------
Gerald W. Lear
-2-
<PAGE>
Exhibit 10.50
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
BY AND BETWEEN
I.C. ISAACS & COMPANY, INC.
AND
EUGENE C. WIELEPSKI
THIS AMENDMENT NO. 2, dated as of February 11, 1999, is made a part of
that certain EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), dated as May
15, 1997, and as amended by Amendment No. 1 thereto dated as of August 27,
1998, by and between I.C. Isaacs & Company, Inc. (the "Company"), and Eugene
C. Wielepski (the "Executive"). It is intended by the parties that the terms
of this Amendment No. 2, to the extent that they are more specific than the
terms contained in the Agreement, shall supersede the terms of the Agreement.
Section numbers utilized in this Amendment No. 2 correspond, where applicable,
to section numbers used in the Agreement.
W I T N E S S E T H:
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom,
the parties hereto agree as follows:
1. Paragraph 3 is hereby restated in its entirety as follows:
3. BASE SALARY. The Executive's base salary for each Employment Year
under this Agreement (May 15, 1997 through May 15, 2000) shall be at
the rate of One Hundred and Seventy-Five Thousand Dollars ($175,000) per
annum. Such base salary shall be increased to Two Hundred Thousand
Dollars ($200,000) per annum for the remaining term of this Agreement
after the Company achieves positive net earnings in two consecutive
reviews by the Compensation Committee of the Board of Directors. The
Executive's base salary shall be paid throughout the year, in accordance
with normal payroll practices of the Company.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 on the date first above written.
ATTEST: I.C. ISAACS & COMPANY, INC.
/s/ Eugene C. Wielepski By: /s/ Gerald W. Lear
- ---------------------------- ---------------------------------
Secretary Gerald W. Lear, President
<PAGE>
WITNESS: EXECUTIVE
/s/ Jackie A. Adams /s/ Eugene C. Wielepski
- ---------------------------- ---------------------------------
Eugene C. Wielepski
-2-
<PAGE>
Exhibit 10.51
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
by and between
I.C. ISAACS & COMPANY, INC.
and
THOMAS ORMANDY
THIS AMENDMENT NO. 2, dated as of February 11, 1999, is made a part of
that certain EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), dated as May 15,
1997, and as amended by Amendment No. 1 thereto dated as of August 27, 1998, by
and between I. C. Isaacs & Company, Inc. (the "Company"), and Thomas Ormandy
(the "Executive"). It is intended by the parties that the terms of this
Amendment No. 2, to the extent that they are more specific than the terms
contained in the Agreement, or to the extent that they should conflict with the
terms contained in the Agreement, shall supersede the terms of the Agreement.
Section numbers utilized in this Amendment No. 2 correspond, where applicable,
to section numbers used in the Agreement.
W I T N E S S E T H:
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
parties hereto agree as follows:
1. Paragraph 3 is hereby restated in its entirety as follows:
3. BASE SALARY. The Executive's base salary for each Employment Year
under this Agreement (May 15, 1997 through May 15, 2000) shall be at
the rate of Two Hundred Sixty-Two Thousand Five Hundred Dollars
($262,500) per annum. Such base salary shall be increased to Three
Hundred Thousand Dollars ($300,000) per annum for the remaining term of
this Agreement after the Company achieves positive net earnings in two
consequtive fiscal quarters. Such base salary may also be increased
based on periodic reviews by the Compensation Committee of the Board of
Directors. The Executive's base salary shall be paid throughout the
year, in accordance with normal payroll practices of the Company.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 on the date first above written.
ATTEST: I.C. ISAACS & COMPANY, INC.
/s/ Eugene C. Wielepski By: /s/ Robert J. Arnot
- ------------------------------- --------------------------------
Secretary Robert J. Arnot, CEO
<PAGE>
WITNESS: EXECUTIVE
/s/ Robert J. Arnot By: /s/ Thomas Ormandy
- ------------------------------- --------------------------------
Thomas Ormandy
-2-
<PAGE>
Exhibit 10.52
AMENDMENT NO. 1 TO
CONSULTING AGREEMENT
by and between
I.C. ISAACS & COMPANY, INC.
and
GARY BRASHERS
THIS AMENDMENT NO. 1, dated as of February 11, 1999, is made a part of
that certain CONSULTING AGREEMENT (the "Agreement"), dated as August 27, 1998,
by and between I. C. Isaacs & Company, Inc. (the "Company"), and Gary Brashers
(the "Consultant"). It is intended by the parties that the terms of this
Amendment No. 1, to the extent that they are more specific than the terms
contained in the Agreement, or to the extent that they should conflict with the
terms contained in the Agreement, shall supersede the terms of the Agreement.
Section numbers utilized in this Amendment No. 1 correspond, where applicable,
to section numbers used in the Agreement.
W I T N E S S E T H:
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
parties hereto agree as follows:
1. Paragraph 2 is hereby restated in its entirety as follows:
2 TERM. This Agreement shall begin August 27, 1998 and shall continue
until August 27, 2000 (the "Term"), unless earlier terminated in
accordance with the terms hereof.
2. Paragraph 3 is hereby restated in its entirety as follows:
3. FEE. The Consultant's fee (the "Fee") for providing services to the
Company during the Term under the terms and conditions of this
Agreement shall be at the rate of Two Hundred Seventeen Thousand
Dollars ($217,000) per annum. Such Fee shall be increased to Two
Hundred Forty-Seven Thousand Dollars ($247,000) per annum for the
remainder of the Term after the Company achieves positive net earnings
in two consecutive fiscal quarters.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 1 on the date first above written.
ATTEST: I.C. ISAACS & COMPANY, INC.
/s/ Eugene C. Wielepski By: /s/ Gerald W. Lear
- ------------------------------- --------------------------------
Secretary Gerald W. Lear, President
WITNESS: CONSULTANT
/s/ Donna J. Derencz By: /s/ Gary Brashers
- ------------------------------- --------------------------------
Gary Brashers
-2-
<PAGE>
EXHIBIT 10.53
March 26, 1999
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: Sixteenth Amendment to Financing Agreements
Gentlemen:
Reference is made to the Accounts Financing Agreement [Security Agreement]
between Congress Financial Corporation ("Congress") and I.C. Isaacs & Company
L.P. ("Borrower"), dated June 16, 1992 (as amended, the "Accounts Agreement"),
the Covenant Supplement to Accounts Financing Agreement between Congress and
Borrower, dated June 16, 1992 (as amended, the "Covenant Supplement"), the
letter re Inventory Loans between Congress and Borrower, dated December 31,
1994 (as amended, the "Inventory Loan Letter"), the Trade Financing Agreement
Supplement to the Accounts Agreement between Congress and Borrower, dated
June 16, 1992 (as amended, the "Trade Financing Agreement Supplement"), and
all other agreements supplements, instruments and documents related thereto
and executed in connection therewith (collectively, all of the foregoing, as
the same now exist or may hereafter be further amended, modified,
supplemented, extended, renewed, restated or replaced, the "Financing
Agreements"). Capitalized terms used herein, unless otherwise defined herein,
shall have the meanings ascribed thereto in the Financing Agreements.
Borrower has requested certain modifications and amendments to the
Financing Agreements and Congress is willing to agree to such modifications,
subject to the terms and conditions set forth herein.
In consideration of the foregoing, the mutual agreements and covenants
contained herein and for other good and valuable consideration, Borrower and
Congress hereby agree as follows:
1. AMENDMENT TO DEFINITIONS. All references to the term "Maximum
Credit" in the Financing Agreements, including, but not limited to, Section
1.7 of the Accounts Agreement, effective as of July 1, 1999, shall be deemed
and each such reference is hereby amended to mean "$25,000,000", and the
reference to the amount "$30,000,000" in such Section 1.7 is hereby deleted
and replaced with the amount "$25,000,000".
2. AMENDMENTS TO FINANCING AGREEMENTS.
(a) ACCOUNTS ADVANCES. Effective as of July 1, 1999, Section 2.1 of
the Accounts Agreement shall be amended by deleting the reference to
"eighty-five (85%) percent" therein and inserting "eighty (80%) percent" in
its stead;
<PAGE>
(b) INTEREST. Effective as of July 1, 1999, the first sentence of
Section 3.1 of the Accounts Agreement shall be deleted and the following
shall be inserted in its stead:
"Interest shall be payable by us to you on the first day of
each month upon the closing daily balances in our loan account
for each day during the immediately preceding month at a rate
equal to one percent (1.00%) per annum in excess of the rate
from time to time publicly announced by First Union National
Bank, or its successors, as its prime rate, whether or not
such announced rate is the best rate available at such bank."
(c) RENEWAL DATE. The term "Renewal Date" as defined in Section 9.1
of the Accounts Agreement is hereby amended, effective as of the date hereof,
to mean, December 31, 2000;
(d) INVENTORY LOAN SUBLIMIT. Effective as of July 1, 1999, Section 3
of the Inventory Loan Letter shall be amended by deleting the figure of
"$6,000,000" therein and inserting the figure of "$5,000,000" in its stead.
(e) LETTER OF CREDIT SUBLIMIT. Effective as of July 1, 1999, Section
1.5 of the Trade Financing Agreement Supplement shall be amended, by deleting
the figure of "$12,000,000" therein and inserting the figure of "$8,000,000"
in its stead.
(f) NET WORK. Effective as of July 1, 1999, Section 4.13 of the
Covenant Supplement is hereby deleted in its entirety and the following
substituted therefor:
"4.13 NET WORTH. Borrower will, until all Obligations have
been indefeasibly paid in full, maintain a Net Worth of not
less than (a) $30,000,000 at all times prior to September 30,
2000 and (b) $35,000,000 on September 30, 2000 and at all
times thereafter."
(g) WORKING CAPITAL. Effective as of July 1, 1999, Section 4.14 of
the Covenant Supplement is hereby amended by deleting the reference to
"$5,000,000" therein and inserting $20,000,000" in its stead.
3. EXTENSION AND AMENDMENT FEE. In consideration of the amendments set
forth herein, Borrower shall pay to Congress a fee in the amount of $125,000,
which fee (a) shall be fully earned as of the date hereof, (b) may be charged
by lender to Borrower's loan account with Lender and (c) shall be payable as
follows: (i) $62,500 on the date hereof and (ii) $62,500 on June 30, 2000;
PROVIDED, THAT, the entire amount of such fee shall become immediately due
and payable, without notice or demand, at Congress' option upon the occurrence
of an Event of Default.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to lender pursuant to the Financing Agreements, Borrower
hereby represents, warrants and covenants with
<PAGE>
and to Lender as follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof and shall be
incorporated into and made a part of the Financing Agreements);
(a) No Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default exists or has
occurred as of the date of this Amendment (after giving effect to the
amendments to the Financing Agreements made by this Amendment).
(b) This Amendment has been duly executed and delivered by Borrower
and is in full force and effect as of the date hereof, and the agreements and
obligations of Borrower contained herein constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms.
5. CONDITIONS PRECEDENT. This Amendment shall be effective upon the
execution thereof by both Borrower and Congress.
6. EFFECT OF THIS AMENDMENT. Except as specifically modified pursuant
hereto, no other changes or modifications to the Financing Agreements are
intended or implied and, in all other respects, the Financing Agreements are
hereby ratified and confirmed by all parties hereto as of the date hereof.
This Amendment represents and incorporates the entire understanding and
agreements of the parties with respect to the matters set forth herein and the
parties hereto agree that there are no representations, warranties, covenants
or understandings of any kind, nature or description whatsoever made by
Congress to Borrower with respect to this Amendment, except as specifically
set forth herein. This Amendment represents the final agreement between the
parties as to the subject matter hereof and may not be contradicted by
evidence or prior, contemporaneous or subsequent oral agreements of the
parties.
7. WAIVER, MODIFICATION, ETC. No provision or term hereof may be
modified, altered, waived, discharged or terminated orally, but only by an
instrument in writing executed by the party against whom such modification,
alteration, waiver, discharge or termination is sought.
8. FURTHER ASSURANCES. The parties hereto shall execute and deliver such
additional documents and take such additional action as may be necessary to
effectuate the provisions and purposes of this Amendment.
<PAGE>
9. COUNTERPARTS. This Amendment may be executed in one or more
counterparts which, taken together, shall constitute the agreement of the
parties.
Very truly yours,
I.C. Isaacs & Company, L.P.
By: I.C. ISAACS & COMPANY,
INC.,
formerly known as
Isbuyco, Inc.,
General Partner
By: /s/ Eugene C. Wielepski
-----------------------
Eugene C. Wielepski
Title: Vice President
-----------------------
Agreed and Accepted
CONGRESS FINANCIAL CORPORATION
By: /s/ Keith Holler
------------------------
Keith Holler
Title: Assistant Vice President
------------------------
<PAGE>
Exhibit No. 10.54
AMENDMENT TO INTERNATIONAL EXCLUSIVE LICENSE AGREEMENT
This Amendment is made and entered into by an between BHPC Marketing, Inc.
("Licensor") and I.C. Isaacs Europe, S.L. by name change from Zacari 2000,
S.L. ("Licensee") and is dated and effective as of March 1, 1999. This
Amendment amends and modifies that certain International Exclusive License
Agreement (Wholesale) between Licensor and Licensee dated August 15, 1996, as
amended as of June 3, 1997 (the "Agreement").
(I)
The promises, covenants, agreements and declarations made and set forth
herein are intended to and shall have the same force and effect as if set
forth at length in the body of the Agreement. To the extent that the
provisions of this Amendment are inconsistent with the terms and conditions
of the Agreement, the terms set forth herein shall control. The parties agree
that there is sufficient and adequate consideration for the amendments set
forth herein.
(II)
1. The License Agreement Detail Schedule (Wholesale sales), as amended, is
hereby amended by deleting Section 4, "Renewal Term" and replacing it with
the following:
<TABLE>
<CAPTION>
4. Renewal Term FROM TO
------------ ---- --
<S> <C> <C>
First Renewal Period (if any) January 1, 2000 December 31, 2000
Second Renewal Period (if any) January 1, 2001 December 31, 2002
Third Renewal Period (if any) January 1, 2003 December 31, 2004
</TABLE>
The Initial Term shall end on December 31, 1999, unless otherwise renewed as
stated above in accordance with the Agreement. Conforming changes are hereby
made to Section 7b. to reflect the renewal terms stated above.
2. The royalty payment obligations of Licensee as stated in Sections 8(a)(i)
and 8(a)(ii) of the Agreement are hereby amended, for Contract Year 2000, if
the Agreement is renewed for that year, by stating that the royalty rates for
Net Shipments under each of Sections 8(a)(i) and 8(a)(ii) shall be "three
percent (3%)", and not six percent (6%). A conforming amendment is hereby
made to the License Agreement Detail Schedule.
3. The parties agree that the royalties as stated in Paragraph (2) above and
Section 10 of the Agreement for Contract Year 2000 shall be paid as follows:
A Guaranteed Annual Royalty Payment for Contract Year 2000 commencing
January 1, 2000 in the amount of Sixty Thousand Dollars ($60,000.00),
payable in Guaranteed Monthly Royalty Payments of Five Thousand Dollars
($5,000.00).
- 1 -
<PAGE>
A conforming amendment is hereby made to the License Agreement Detail
Schedule to reflect the amended Guaranteed Annual Royalty Payment and
Guaranteed Monthly Royalty Payment as stated in this Paragraph 3. All
Guaranteed Target Net Shipments and Guaranteed Net Shipments shall be "0".
4. The royalty payment obligations of Licensee as stated in Sections 8(a)(i)
and 8(a)(ii) of the Agreement are hereby amended by adding a new sentence to
Section 8(a) as follows:
"Notwithstanding any other provision of this Agreement, the parties agree
that actual royalty payments and any Guaranteed Annual Royalty Payments
and Guaranteed Monthly Royalty Payments are not due or payable by
Licensee to Licensor for the period commencing on March 1, 1999 and
through and including December 31, 1999. Royalty payments and
annual/monthly minimum payments as stated in the March 1, 1999 Amendment
to this Agreement shall become applicable for the Contract Year which
begins January 1, 2000, if the Agreement is renewed for that period."
5. The Agreement is hereby amended by stating that the One Percent (1%)
advertising and marketing expenditures required to be invested by Licensee
shall be a Four Percent (4%), for the Contract Year which begins on January 1,
2000.
6. For Contract Years after Contract Year 2000, if there is a further renewal
of the Agreement, the royalty rates and minimums in effect as of the date of
this Amendment shall apply unless the parties agree in writing to different
terms.
7 Section 7b. of the Agreement is amended by adding the following sentence at
the end of it:
"Notwithstanding any other provision of this Agreement, the parties agree
that renewal notice to extend the Agreement for the First Renewal Period
(Contract Year 2000) shall be given by Licensee by not later than August
1, 1999."
(III)
Licensor and Licensee acknowledge and agree that the Agreement, as amended by
this Amendment, remains in full force and effect and represents the entire
Agreement of the parties with respect to the matters contained herein.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto agree that this Amendment shall take
effect as of the date and year first written above.
<TABLE>
<S> <C>
LICENSOR: LICENSEE:
BHPC MARKETING, INC. I.C. ISAACS EUROPE, S.L.
By: /s/ Don Garrison By: /s/ Robert Arnot
---------------- --------------------
Don Garrison Robert Arnot
Title: Vice President Title: Chairman & CEO
-------------- --------------
</TABLE>
- 3 -
<PAGE>
Exhibit No. 10.55
AMENDMENT TO INTERNATIONAL EXCLUSIVE LICENSE AGREEMENT
This Amendment is made and entered into by an between BHPC Marketing, Inc.
("Licensor") and I.C. Isaacs Europe, S.L. by name change from Zacari 2000,
S.L. ("Licensee") and is dated and effective as of March 1, 1999. This
Amendment amends and modifies that certain International Exclusive License
Agreement (Retail) between Licensor and Licensee dated August 15, 1996, as
amended as of June 3, 1997 (the "Agreement").
(I)
The promises, covenants, agreements and declarations made and set forth
herein are intended to and shall have the same force and effect as if set
forth at length in the body of the Agreement. To the extent that the
provisions of this Amendment are inconsistent with the terms and conditions
of the Agreement, the terms set forth herein shall control. The parties agree
that there is sufficient and adequate consideration for the amendments set
forth herein.
(II)
1. The License Agreement Detail Schedule (Retail sales), as amended, is hereby
amended by deleting Section 4. "Renewal Term" and replacing it with the
following:
<TABLE>
<CAPTION>
"4. Renewal Term FROM TO
------------ ---- --
<S> <C> <C>
First Renewal Period (if any) January 1, 2000 December 31, 2000
Second Renewal Period (if any) January 1, 2001 December 31, 2002
Third Renewal Period (if any) January 1, 2003 December 31, 2004
</TABLE>
The Initial Term shall end on December 31, 1999, unless otherwise renewed as
stated above in accordance with the Agreement. Conforming changes are hereby
made to Section 7b. to reflect the renewal terms stated above.
2. The Royalty payment obligations of Licensee as stated in Sections 8(a)(i)
and 8(a)(ii) of the agreement are hereby amended by adding a new subsection
8(a)(iii) as follows:
"(iii) For Contract Year 2000, if the Agreement is renewed for that
period, and notwithstanding any other provision of this Agreement,
"Royalty", as used in this Agreement, shall consist of Licensee paying to
Licensor a Royalty in an amount equal to three percent (3%) of the
Wholesale Purchases by Licensee for Licensed Product under the Trademarks
to Beverly Hills Polo Club Retail Stores."
A conforming amendment is hereby made to the License Agreement Detail
Schedule.
3. The parties agree that, for Contract Year 2000, the royalties as stated in
Paragraph (1) above and Section 10 of the Agreement shall not be subject to
any Guaranteed Annual Royalty
- 1 -
<PAGE>
Payment, Guaranteed Monthly Royalty Payments, Guaranteed Target Net Shipments
or Guaranteed Net Shipment. The License Detail Schedule is hereby amended to
reflect that the amount payable by Licensee to Licensor for all such amounts
in Contract Year 2000 shall be "0".
4. The royalty payment obligations of Licensee as stated in Section 8(a)(i)
of the Agreement are hereby amended by adding a new sentence to Section 8(a)
as follows:
"Notwithstanding any other provision of this Agreement, the parties agree
that actual Royalty payments and any Guaranteed Annual Royalty Payments
and Guaranteed Monthly Royalty Payments are not due or payable by
Licensee to Licensor for the period commencing on March 1, 1999 and
through and including December 31, 1999. Actual Royalty payments shall
become applicable for the Contract Year which begins January 1, 2000, if
the Agreement is renewed for that period."
5. For Contract Years after Contract Year 2000, if there is a renewal of the
Agreement, the royalty rates and minimums in effect as of the date of this
Amendment shall apply unless the parties agree in writing to different terms.
6. Section 7b. of the Agreement is amended by adding the following sentence
at the end of it:
"Notwithstanding any other provision of this Agreement, the parties agree
that renewal notice to extend the Agreement for the First Renewal Period
(Contract Year 2000) shall be given by Licensee by not later than August
1, 1999."
(III)
Licensor and Licensee acknowledge and agree that the Agreement, as amended by
this Amendment, remains in full force and effect and represents the entire
Agreement of the parties with respect to the matters contained herein.
IN WITNESS WHEREOF, the parties hereto agree that this Amendment shall take
effect as of the date and year first written above.
<TABLE>
<S> <C>
LICENSOR: LICENSEE:
BHPC MARKETING, INC. I.C. ISAACS EUROPE, S.L.
By: /s/ Don Garrison By: /s/ Robert Arnot
---------------- ----------------
Don Garrison Robert Arnot
Title: Vice President Title: Chairman & CEO
-------------- --------------
</TABLE>
- 2 -
<PAGE>
EXHIBIT 10.56
Amendment No. 1 To
Trademark License And Technical Assistance Agreement
This is Amendment No. 1 to the Trademark License and Technical
Assistance Agreement dated November 1, 1997 by and between Latitude Licensing
Corp. ("Licensor") and I.C. Isaacs & Co. L.P. covering men's Products (the
"Agreement"). Capitalized terms used herein have the meaning ascribed to them in
the Agreement unless otherwise indicated.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree to amend the Agreement as follows:
1. The parties hereby acknowledge the Girbaud Design, Inc. has assigned the
Agreement to Latitude Licensing Corp.
2. Paragraph 1.1(a) is amended to include the following sentence at the end of
the paragraph and as a part thereof.
Products authorized by this Agreement shall include tops and
bottoms which incorporate active influences in terms of
silhouettes, fabrics, details and other technical influences as
adapted to Jean wear and Casual wear, including but not limited
to products such as tee-shirts, polo shirts, sweat shirts, sweat
pants, coats, and trousers.
3. Paragraph 2.1 of the Agreement is hereby amended by the addition of the
following sentence at the end of that paragraph:
In addition Licensee shall have the option to renew this
agreement for an additional term of five years commencing on
January 1, 2003 and ending on December 31, 2007.
4. Paragraph 5.2 of the Agreement is hereby amended by adding the following to
the Minimum Royalties table set forth therein:
<TABLE>
<S> <C>
2003 $3,000,000
2004 $3,000,000
2005 $3,000,000
2006 $3,000,000
2007 $3,000,000
</TABLE>
5. Except as expressly modified herein, the terms of the Agreement remain in
effect.
6. This Amendment is effective as of March 1, 1998.
1
<PAGE>
LATITUDE LICENSING CORP.
By: /S/ Ramon Girbaud
----------------------------
Title:
----------------------------
Date: 3/4/98
---------------------------
I.C. ISAACS & CO., L.P.
By: I.C. ISAACS & CO., INC.
----------------------------
General Partner
By: /S/ ROBERT J. ARNOT
---------------------
Title: Chairman & Co-CEO
Date: MARCH 4, 1998
---------------------------
2
<PAGE>
EXHIBIT 10.57
AMENDMENT NO. 3 TO THE
TRADEMARK LICENSE AND TECHNICAL ASSISTANCE AGREEMENT
COVERING WOMEN'S PRODUCTS
This Amendment No. 3 is dated December 23, 1998 and amends the Trademark
License and Technical Assistance Agreement for Women's Collections dated January
15, 1998 by and between Latitude Licensing Corp. and I.C. Isaacs & Co., L.P.
covering Women's Products (the "Agreements"). Two previous amendments in June
18, 1998 and November 12, 1998 have been entered into. Capitalized terms used
herein have the meaning ascribed to them in the Agreement unless otherwise
indicated.
WHEREAS, the Parties have agreed, in order to focus their resources on certain
necessary marketing expenses, to postpone the opening of the Flagship store for
one year.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree to amend the Agreement as follows:
1. In addition to the advertising promotional, marketing and trade show
expenses described in the Agreement, the Licensee shall hire Mr. Danny Gladstone
to be in charge of the sales and marketing, and spend the amounts as listed and
described in Appendix A attached hereto and made a part hereof (the "Additional
Marketing Expenses"). The amounts detailed for each category of expenses within
the Appendix A list shall be allowed to vary, so long as the total amount of the
expenses shall remain the minimum amount actually spent according to Appendix A
by the Licensee.
2. At an intermediate time in 1999, at the Licensor's request and, for
the final account, by February 15, 2000, the Licensee shall account to the
Licensor for the detailed spending of the Additional Marketing Expenses and
shall provide the Licensor with a certified statement of the expenses actually
incurred during the previous months or during the preceding calendar year, as
the case may be. Said statements shall be signed by a duly authorized officer of
the Licensee and be certified by said officer as true and accurate.
3. The Licensor, independently from its audit's right as provided in
Article 11.2 of the Agreement, shall have the opinion to examine and audit said
expenses, at an intermediate time in 1999 and, again, by February 28, 2000. In
the event that the final audit or examination of Licensee's books, records and
documents reveals an underspending of the Additional Marketing Expenses, the
Licensee shall immediately pay to Licensor the amount by which the actual
expenses fell short of the minimum required.
4. As a consideration for the Additional Marketing Expenses to be
incurred in 1999, Paragraph 8.9(a) is amended to postpone the requirement to
sign a lease agreement for the flagship store by one (1) year.
1
<PAGE>
5. This Amendment is effective starting December 23, 1998.
6. Except for the terms amended by this Amendment, the Agreement as
existing until the execution of the Amendment shall continue in full force and
effect.
Dated: December 23, 1998
LATITUDE LICENSING CORP. I.C. ISAACS & CO., L.P.
By: /S/ Antoine Feidt By: /S/ Robert J. Arnot
----------------------------- ----------------------------
Name: Antoine Feidt Name: Robert J. Arnot
Title: Representative Title: Chairman & CEO
2
<PAGE>
APPENDIX A
Budget for Additional Marketing and Sales Expenses
in 1999
<TABLE>
<S> <C>
*
TOTAL $1,770,000
- ------------------------------------------------- ------------------------------
</TABLE>
Plus margin support with major department stores for up to $300,000.
- ----------
*Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
3
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
I.C. Isaacs & Company, Inc.
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (333-63871) of our report dated February 26, 1999,
except for Note 3 which is as of March 19, 1999, relating to the consolidated
financial statements and schedule of I.C. Isaacs & Company, Inc. appearing in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
BDO Seidman, LLP
Washington, D.C.
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 1,345,595 7,422,067 0
<SECURITIES> 0 0 0
<RECEIVABLES> 16,257,501 24,205,077 0
<ALLOWANCES> (1,353,000) (1,185,000) 0
<INVENTORY> 23,121,971 23,936,226 0
<CURRENT-ASSETS> 42,053,872 55,450,806 0
<PP&E> 16,608,462 16,177,954 0
<DEPRECIATION> (13,360,816) 13,499,266 0
<TOTAL-ASSETS> 59,046,143 73,442,721 0
<CURRENT-LIABILITIES> 10,476,813 9,510,676 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 834 782 0
<OTHER-SE> 37,312,238 52,495,141 0
<TOTAL-LIABILITY-AND-EQUITY> 59,046,143 73,442,721 0
<SALES> 113,720,799 161,445,362 118,655,253
<TOTAL-REVENUES> 113,720,799 161,445,362 118,655,253
<CGS> 90,660,582 109,693,828 84,421,651
<TOTAL-COSTS> 128,088,318 145,242,520 109,330,384
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 1,594,925 1,739,865 1,193,693
<INTEREST-EXPENSE> 1,454,748 2,372,132 1,365,163
<INCOME-PRETAX> (15,441,549) 13,698,984 7,962,659
<INCOME-TAX> 1,351,000 (1,349,000) 0
<INCOME-CONTINUING> (16,792,549) 15,047,984 7,962,659
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (16,792,549) 15,047,984 7,962,659
<EPS-PRIMARY> (2.15) 3.68 1.99
<EPS-DILUTED> (2.15) 3.68 1.99
</TABLE>
