<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-23379
------------------------
I.C. ISAACS & COMPANY, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 52-1377061
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3840 BANK STREET 21224-2522
BALTIMORE, MARYLAND (Zip Code)
(Address of principal executive offices)
</TABLE>
(410) 342-8200
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former
fiscal year--if changed since last report)
------------------------
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 / /
As of August 13, 1999, 7,182,200 shares of common stock ("Common Stock") of
the Registrant were outstanding.
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- --------------------------------------------------------------------------------
<PAGE>
PART I--FINANCIAL INFORMATION
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
Current
Cash, including temporary investments of $887,845 and $358,000................... $ 1,345,595 $ 1,290,316
Accounts receivable, less allowance for doubtful accounts of $1,353,000 and
$625,000....................................................................... 14,904,501 16,597,139
Inventories (Note 1)............................................................. 23,121,971 19,138,468
Refundable income taxes (Note 4)................................................. 1,799,450 458,843
Prepaid expenses and other....................................................... 882,355 451,568
------------- -------------
Total current assets......................................................... 42,053,872 37,936,334
Property, plant and equipment, at cost, less accumulated depreciation and
amortization..................................................................... 3,247,646 3,133,585
Trademark and licenses, less accumulated amortization of $1,412,500 and $2,035,000
(Note 7)......................................................................... 10,437,500 9,815,000
Goodwill, less accumulated amortization of $1,412,790 and $1,536,720............... 1,239,310 1,115,380
Other assets....................................................................... 2,067,815 2,389,489
------------- -------------
$ 59,046,143 $ 54,389,788
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Checks issued against future deposits............................................ $ 1,298,929 $ 687,715
Current maturities of long term debt and revolving line of credit (Note 2)....... 2,412,235 4,274,620
Current maturities of capital lease obligations.................................. 179,864 92,605
Accounts payable................................................................. 4,301,707 2,962,723
Accrued expenses and other current liabilities (Note 3).......................... 2,074,305 2,669,590
Accrued compensation............................................................. 209,773 283,959
------------- -------------
Total current liabilities.................................................... 10,476,813 10,971,212
------------- -------------
Long-term debt
Note payable..................................................................... 11,250,000 11,250,000
Capital lease obligations........................................................ 6,258 --
------------- -------------
Total long-term debt......................................................... 11,256,258 11,250,000
------------- -------------
Commitments and Contingencies (Note 7)
Stockholders' Equity (Notes 5 and 6)
Preferred stock; $.0001 par value; 5,000,000 shares authorized, none outstanding... -- --
Common stock; $.0001 par value; 50,000,000 shares authorized, 8,344,699 shares
issued; 6,782,200 and 6,682,200 shares outstanding............................... 834 834
Additional paid-in capital......................................................... 38,924,998 38,924,998
Retained earnings (deficit)........................................................ 1,597,270 (3,447,226)
Treasury stock, at cost (1,562,499 and 1,646,710 shares)........................... (3,210,030) (3,310,030)
------------- -------------
Total stockholders' equity................................................... 37,313,072 32,168,576
------------- -------------
$ 59,046,143 $ 54,389,788
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales........................................... $ 26,834,405 $ 20,756,858 $ 61,105,285 $ 43,284,696
Cost of sales....................................... 20,766,194 14,648,477 44,329,785 30,507,886
------------- ------------- ------------- -------------
Gross profit........................................ 6,068,211 6,108,381 16,775,500 12,776,810
------------- ------------- ------------- -------------
Operating expenses
Selling........................................... 4,338,970 2,792,414 8,665,054 6,978,568
License fees (Note 7)............................. 1,455,446 1,729,286 3,237,488 3,670,808
Distribution and shipping......................... 952,622 684,827 2,022,467 1,535,159
General and administrative........................ 2,801,473 2,124,609 4,943,689 4,263,010
Provision for severance (Note 7).................. -- 750,000 -- 750,000
Provision for plant closing....................... -- -- 226,326 --
------------- ------------- ------------- -------------
Total operating expenses...................... 9,548,511 8,081,136 19,095,024 17,197,545
------------- ------------- ------------- -------------
Operating loss...................................... (3,480,300) (1,972,755) (2,319,524) (4,420,735)
------------- ------------- ------------- -------------
Other income (expense)
Interest, net of interest income of $98,838,
$10,809, $232,174 and $14,564................... (304,390) (419,323) (543,804) (849,646)
Other, net........................................ 17,709 199,922 330,147 225,885
------------- ------------- ------------- -------------
Total other expense................................. (286,681) (219,401) (213,657) (623,761)
------------- ------------- ------------- -------------
Loss before income taxes............................ (3,766,981) (2,192,156) (2,533,181) (5,044,496)
Income tax benefit.................................. 660,000 -- 154,000 --
------------- ------------- ------------- -------------
Net loss............................................ $ (3,106,981) $ (2,192,156) $ (2,379,181) $ (5,044,496)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic and diluted loss per share.................... $ (0.37) $ (0.32) $ (0.29) $ (0.74)
Weighted average shares outstanding................. 8,314,522 6,781,101 8,256,914 6,781,648
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
<S> <C> <C>
1998 1999
------------- -------------
Operating Activities
Net loss.......................................................................... $ (2,379,181) $ (5,044,496)
Adjustments to reconcile net loss to net cash used in operating activities
Provision for doubtful accounts................................................. 707,571 487,495
Write off of accounts receivable................................................ (867,571) (1,215,495)
Provision for sales returns and discounts....................................... 3,339,011 2,021,258
Sales returns and discounts..................................................... (3,446,011) (2,009,293)
Depreciation and amortization................................................... 1,114,917 1,103,660
Gain on sale of assets.......................................................... -- (211,448)
Compensation expense on stock options........................................... -- 2,363
Other........................................................................... 23,269 --
(Increase) decrease in assets
Accounts receivable........................................................... 1,953,259 (976,603)
Inventories................................................................... (3,991,348) 3,983,503
Refundable income taxes....................................................... (1,803,634) 1,340,607
Prepaid expenses and other.................................................... (12,122) 430,787
Other assets.................................................................. (315,708) (339,530)
Increase (decrease) in liabilities
Accounts payable.............................................................. (1,284,223) (1,338,984)
Accrued expenses and other current liabilities................................ 331,446 592,922
Accrued compensation.......................................................... (6,867) 74,186
Income taxes payable.......................................................... (156,000) --
------------- -------------
Cash used in operating activities................................................... (6,793,192) (1,099,068)
------------- -------------
Investing Activities
Capital expenditures.............................................................. (1,275,541) (225,313)
Proceeds from the sale of assets.................................................. -- 211,448
Acquisition of Girbaud license.................................................... (600,000) --
------------- -------------
Cash used in investing activities................................................... (1,875,541) (13,865)
------------- -------------
Financing Activities
Checks issued against future deposits............................................. -- (611,214)
Issuance of common stock.......................................................... 4,774,860 --
Principal proceeds from debt...................................................... 817,544 1,862,385
Principal payments on debt........................................................ (86,258) (93,517)
Purchase of treasury stock........................................................ (161,213) (100,000)
------------- -------------
Cash provided by financing activities............................................... 5,344,933 1,057,654
------------- -------------
Decrease in cash and cash equivalents............................................... (3,323,800) (55,279)
Cash and Cash Equivalents, at beginning of period................................... 7,422,067 1,345,595
------------- -------------
Cash and Cash Equivalents, at end of period......................................... $ 4,098,267 $ 1,290,316
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<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. Design operates
as the limited partner of the Partnership and has a 1.0% ownership interest. The
Company established Isaacs Europe in July 1996 as the exclusive licensee of
Beverly Hills Polo Club-Registered Trademark- sportswear in Europe. Isaacs
Europe did not have any significant revenue or expenses in 1998 or thus far in
1999. All intercompany balances and transactions have been eliminated.
BUSINESS DESCRIPTION
The Company, which operates in one business segment, is a designer,
manufacturer and marketer of branded sportswear based in New York City and
Baltimore. The Company offers full lines of sportswear for men and women under
the Marithe and Francois Girbaud-Registered Trademark- brand in the United
States and Puerto Rico, for young men, women and boys under the
BOSS-Registered Trademark- brand in the United States and Puerto Rico, and for
men and boys under the Beverly Hills Polo Club-Registered Trademark- brand in
the United States, Puerto Rico and Europe. The Company also markets women's
pants and jeans under various other Company-owned brand names and under
third-party private labels.
INTERIM FINANCIAL INFORMATION
In the opinion of management, the interim financial information as of June
30, 1999 and for the six months ended June 30, 1998 and 1999 contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such periods. Results for interim periods
are not necessarily indicative of results to be expected for an entire year.
RISKS AND UNCERTAINTIES
The apparel industry is highly competitive. The Company competes primarily
with larger, well capitalized companies which have sought to increase market
share through massive consumer advertising and price reductions. Recently, the
Company has experienced increased competition from a number of competitors,
including the Tommy Jeans division of Tommy Hilfiger and the Polo Jeans division
of Polo Ralph Lauren, as well as competitors in the urban jeanswear segment such
as FUBU, Mecca and Phat Farm, at both the department store and specialty store
channels of distribution. The Company continues to redesign each of its
jeanswear and sportswear lines to meet changing consumer tastes. Also, the
Company has developed and implemented new marketing initiatives to promote each
of its brands, including "shop-in-shops" for its Girbaud brand. The risk to the
Company is that such a strategy may lead to continued pressure on profit
margins. In the past several years, many of the Company's competitors have
switched much of their apparel manufacturing from the United States to foreign
locations such as Mexico, the Dominican Republic and throughout Asia. As
competitors lower production costs, it gives them greater flexibility to alter
prices. Over the last several years, the Company has switched a majority 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
4
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 six months ended June 30, 1998,
sales to the Company's largest customer were $12,978,219. This amount
constituted 21.2% of total sales. For the six months ended June 30, 1999 sales
to the Company's two largest customers were $9,214,832 and $5,687,959,
respectively. These amounts constituted 21.3% and 13.1% of total sales,
respectively. The largest customer was the same during both periods. 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 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.
GOODWILL
The Company has recorded goodwill based on the excess of the purchase price
over the value of net assets acquired. The Company analyzes the operating income
of the women's Company-owned and third party private label lines in relation to
the amortization of goodwill associated with those assets on a quarterly basis
for evidence of impairment of the goodwill. During the year ended December 31,
1998, management determined that a reduction in sales had significantly impacted
the operating income of the women's Company-owned and third party private label
lines and that an impairment of the goodwill associated with the lines had
occurred. In response, management recorded a one-time write down of $435,000 and
reduced the estimated life of the goodwill from 40 years to 20 years. Effective
October 1, 1998, the remaining goodwill is being amortized over 63 months.
Management will continue to analyze the profitability of the women's third party
private label lines on a quarterly basis for any additional impairment.
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
5
<PAGE>
I.C. ISAACS & COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
asset. Fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved.
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.
EARNINGS PER SHARE
Basic earnings per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an entity.
There is no difference in basic and diluted earnings per share in the first or
second quarter of 1998 or 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
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.
6
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- -------------
<S> <C> <C>
Raw Materials.................................................. $ 4,790,634 $ 2,953,512
Work-in-process................................................ 1,531,424 1,151,888
Finished Goods................................................. 16,799,913 15,033,068
------------- -------------
$ 23,121,971 $ 19,138,468
------------- -------------
------------- -------------
</TABLE>
2. LONG-TERM DEBT
In March 1999, the Company amended its revolving line of credit agreement to
extend the term of the agreement through December 31, 2000. The line of credit
agreement was originally set to expire on June 30, 1999. 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 was 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. The Company is now required to maintain minimum levels of working
capital and tangible net worth. The Company was in compliance with these
restrictive covenants as of June 30, 1999.
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
<S> <C> <C>
Royalties........................................................ $ 912,657 $ 1,056,344
Accrued professional fees........................................ 150,000 50,000
Payable to salesmen.............................................. 2,519 29,204
Payroll tax withholdings......................................... 111,725 244,496
Customer credit balances......................................... 226,479 173,684
Accrued interest................................................. 189,816 191,306
Franchise taxes payable.......................................... 96,000 --
Reserve for severance............................................ 300,000 700,000
Deferred fees.................................................... -- 62,500
Other............................................................ 85,109 162,056
------------ ------------
$2,074,305 $ 2,669,590
------------ ------------
------------ ------------
</TABLE>
4. INCOME TAXES
The Company has estimated its annual effective tax rate at 0% due to the
uncertainty over the level of earnings in 1999. Also, the Company has net
operating loss carryforwards of approximately $17.0 million
7
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
for income tax reporting purposes for which no income benefit has been recorded
due to the uncertainty over the generation of taxable income in 1999.
5. STOCKHOLDERS' EQUITY
In June 1998, the Company's Board of Directors authorized a stock repurchase
program. Under this program the Company may repurchase up to $4.0 million of its
common stock. From inception through June 30, 1999, the Company had purchased
1,622,011 shares at a cost of $3,295,162.
6. STOCK OPTIONS
In May 1997, ICI adopted the 1997 Omnibus Stock Plan. Under the 1997 Omnibus
Stock 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 1997 Omnibus Stock Plan is
administered by the Board of Directors. The Company has reserved 500,000 shares
of common stock for issuance under the 1997 Omnibus Stock Plan. In August 1998
the Company granted options to purchase 351,000 shares of the Company's common
stock at an exercise price of $2.125 per share. In January 1999 the Company
granted options to purchase 244,000 shares of the Company's common stock at an
exercise price of $1.56 per share. The shares will become fully vested on the
second anniversary of the grant date.
In 1999, the Board of Directors and the Company's stockholders approved an
increase in the number of shares of common stock that may be issued with respect
to awards granted under the Plan to an aggregate of 1.1 million shares.
The following table relates to option activity in the first six months of
1999, under the Plan:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- ----------------
<S> <C> <C>
Outstanding at December 31, 1998................................ 346,000 $2.13
Granted......................................................... 663,250 $ 1.19 to $1.56
Cancelled....................................................... (110,000) $2.13
Outstanding at June 30, 1999.................................... 899,250 $ 1.19 to $2.13
</TABLE>
ICI has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
124"), 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 6.08%, expected
volatility of 90%, expected option life of 4.5 years and no dividend payment
expected. Using these assumptions, the fair value of the stock options granted
is $0.84. 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 June 30, 1999 is
nine years.
8
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
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>
SIX MONTHS ENDED
JUNE 30, 1999
-----------------
<S> <C>
Net loss:
As reported.............................................................. $ (5,044,496)
Pro forma................................................................ (5,114,137)
Basic and diluted loss per share:
As reported.............................................................. $ (0.74)
Pro forma................................................................ (0.75)
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
In addition to items set forth in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, the following items are noted:
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, casual wear, outerwear and active
influenced sportswear under the Girbaud-Registered Trademark- 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 of $1,500,000 in 1999.
Beginning with the first quarter of 1998, the Company became obligated to
pay the greater of actual royalties earned or the minimum guaranteed royalties
for that year. The Company was required to spend at least $350,000 in
advertising for the men's Girbaud-Registered Trademark- 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
Latitude Licensing Corp. to manufacture and market women's jeanswear, casual
wear and active influenced sportswear under the Girbaud-Registered Trademark-
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, if 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 the minimum guaranteed royalties for
that year. The Company is required to spend at least $550,000 in advertising for
the women's Girbaud-Registered Trademark- brand in 1998 and is required to spend
at least $400,000 each year thereafter while the agreement is in effect. In
addition, while the agreement is in effect
9
<PAGE>
I.C. ISAACS & COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Company is required to pay $190,000 per year to the licensor for advertising
and promotional expenditures related to the Girbaud-Registered Trademark- brand.
In December 1998, the Girbaud-Registered Trademark- women's license agreement
was amended to provide that the Company would spend an additional $1.8 million
on sales and marketing in 1999 in conjunction with a one year deferral of the
requirement that the Company open a Girbaud retail store in New York City. In
August 1999, the Company issued 500,000 shares of restricted common stock to
Latitude Licensing Corp. in connection with an amendment of the Girbaud women's
license agreement to further defer the obligation to open a Girbaud retail
store. Under the new agreement, if the Company has not signed a lease agreement
for a Girbaud retail store by July 31, 2002 it will become obligated to pay
Latitude Licensing Corp. an additional $500,000 in 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:
<TABLE>
<S> <C>
1999.............................................................. $ 636,000
2000.............................................................. $ 661,000
2001.............................................................. $ 736,000
</TABLE>
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
Beverly Hills Polo Club-Registered Trademark- Trademark in Europe. The
International Agreements, as amended, provide certain exclusive rights to use
the Beverly Hills Polo Club-Registered Trademark- 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 Beverly Hills Polo Club-Registered Trademark-
Agreements described above. Effective March 1, 1999, BHPC Marketing, Inc.
amended the international agreements to eliminate all royalties through December
31, 1999 and to revise the formula related to royalty payments in 2000.
In June 1999, the Company's President and Chief Operating Officer resigned.
As part of this resignation, the Company will pay a total of $700,000 over the
next two years. The Company also transferred a life insurance policy with a cash
surrender value of $50,000 to the former President and Chief Operating Officer.
Also in connection with this resignation, the Company purchased 84,211 shares of
the common stock of the Company held by this individual at the market price of
$1.19 per share, for a total of $100,000. This individual's options vested
immediately upon his resignation and are exercisable up to the tenth anniversary
of the grant date.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 indications regarding the intent, belief or current expectations of the
Company and its management, including the Company's plans with respect to the
manufacturing, marketing and distribution of its products, its expectations with
respect to risks of its investments and the performance of the counterparties to
its letter of credit agreement, its plans not to invest in derivative
instruments and its expectations regarding future capital expenditures. Such
statements 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 of its
agreements for use of the BOSS-Registered Trademark-, Beverly Hills Polo
Club-Registered Trademark- and Girbaud-Registered Trademark- 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
Quarterly Report on Form 10-Q, whether as a result of new information, future
events or circumstances or otherwise.
"BOSS-Registered Trademark-" and "I.C. Isaacs-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 Form 10-Q are the property of
their respective owners and are not the property of the Company.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain items in the Company's consolidated financial statements for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30
--------------------
<S> <C> <C>
1998 1999
--------- ---------
Net sales.................................................................... 100.0% 100.0%
Cost of sales................................................................ 72.5 70.5
--------- ---------
Gross profit................................................................. 27.5 29.5
Selling expenses............................................................. 14.2 16.1
License fees................................................................. 5.3 8.5
--------- ---------
Distribution and shipping expenses........................................... 3.3 3.5
General and administrative expenses.......................................... 8.5 11.0
--------- ---------
Operating loss............................................................... (3.8)% (10.2)%
--------- ---------
--------- ---------
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
NET SALES.
Net sales decreased 22.4% to $20.8 million in the three months ended June
30, 1999 from $26.8 million in the three months ended June 30, 1998. The
decrease was primarily due to lower volume shipments of
BOSS-Registered Trademark- and Beverly Hills Polo Club-Registered Trademark-
men's sportswear and women's private label lines.
11
<PAGE>
These decreases were partially offset by increases in sales of both the men's
and women's Girbaud-Registered Trademark- brand. Net sales of
BOSS-Registered Trademark- sportswear decreased $7.9 million or 38.3% to $12.7
million due to intense competition in the jeanswear market, particularly with
respect to the BOSS-Registered Trademark- brand. Net sales of Beverly Hills Polo
Club-Registered Trademark- remained essentially unchanged at $3.3 million.
However, during the three months ended June 30, 1999, the Company had sales of
$0.4 million of boys' sportswear under the Beverly Hills Polo
Club-Registered Trademark- brand, which the Company began to market in the first
quarter of 1999. Net sales of Girbaud-Registered Trademark- sportswear were $4.2
million in the three months ended June 30, 1999. The Company began to recognize
revenue from shipments of Girbaud-Registered Trademark- men's sportswear in the
second quarter of 1998. Those sales totaled $0.8 million in the three months
ended June 30, 1998. The Company began to recognize revenue from shipments of
Girbaud-Registered Trademark- women's sportswear in the fourth quarter of 1998.
In November 1998, the Company entered into exclusive international license
agreements to manufacture and market men's and women's sportswear under the
Girbaud-Registered Trademark- brand in selected countries in Central and South
America and in the Caribbean. International sales were insignificant for the
three months ended June 30, 1998 and 1999. The Company's women's private label
sales decreased $1.4 million or 70.0% to $0.6 million for the three months ended
June 30, 1999.
GROSS PROFIT.
Gross profit remained essentially unchanged at $6.1 million in the three
months ended June 30, 1999 and 1998. Gross profit as a percentage of net sales
increased from 22.6% to 29.4% over the same period. The increase in gross profit
as a percentage of sales was primarily due to higher sales of
Girbaud-Registered Trademark- sportswear at higher margins and additional cost
savings from the continued shift of production of denim bottoms from the United
States to Mexico to take advantage of lower labor and overhead costs.
SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, distribution, general and administrative expenses ("SG&A")
decreased 21.0% to $6.4 million in the three months ended June 30, 1999 from
$8.1 million in the three months ended June 30, 1998. As a percentage of net
sales, SG&A expenses increased to 30.8% from 30.2% over the same period due to
lower net sales and a provision for severance offset somewhat by decreases in
advertising expenditures, lower selling expenses and lower commissions to the
Company's sales persons. Advertising expenditures decreased $0.9 million to $0.8
million as the Company focused more on local targeted advertising campaigns for
BOSS-Registered Trademark- and Beverly Hills Polo Club-Registered Trademark-
with less use of national print and television. Also, the Company is required to
spend $0.9 million in advertising for the women's and men's
Girbaud-Registered Trademark- brands as well as $1.8 million on sales and
marketing in 1999. Distribution and shipping expenses decreased $0.3 million to
$0.7 million for the three months ended June 30, 1999. The Company experienced a
reduction in personnel and wages due to decreased merchandise shipments. General
and administrative expenses decreased $0.7 million to $2.1 million for the three
months ended June 30, 1999. The Company reduced personnel during the second half
of 1998 and also experienced a reduction in bad debt expense from a year ago. In
the second quarter of 1999 the Company's President and Chief Operating Officer
resigned. In connection with this resignation the Company recorded a provision
for severance of $0.8 million.
LICENSE FEES.
License fees increased $0.3 million to $1.7 million in the three months
ended June 30, 1999 from $1.4 million in the three months ended June 30, 1998.
As a percentage of net sales, license fees increased from 5.2% to 8.2%. The
license fees increased in a period of declined sales due to minimum royalty
payments with respect to BOSS products under the Foreign Manufacturing Rights
Agreement executed in November 1997 and minimum royalties of $125,000 and
$58,000 per month paid under the Girbaud-Registered Trademark- men's and women's
license agreements.
12
<PAGE>
OPERATING LOSS.
Operating loss decreased 42.9% to ($2.0) million in the three months ended
June 30, 1999 from $3.5 million in the three months ended June 30, 1998. The
improvement was due to reduced operating expenses, particularly in selling
expenses, offset somewhat by a provision for severance in the second quarter of
1999.
INTEREST EXPENSE.
Interest expense increased $0.1 million to $0.4 million in the three months
ended June 30, 1999. The Company has incurred interest expense related to its
line of credit and the $11.25 million note payable associated with its purchase
of the BOSS-Registered Trademark- trademark. During the three months ended June
30, 1998 the Company earned $0.1 million in interest income on available cash.
During the six months ended June 30, 1999, the Company's borrowings under its
line of credit were generally higher than the comparable period one year
earlier. Interest income in the three months ended June 30, 1999 was
insignificant.
INCOME TAXES.
The Company recorded an income tax benefit in the three months ended June
30, 1998 to recognize a tax benefit for the carryback of net operating losses to
recover income taxes paid during 1997, and estimated tax payments made in the
first three months of 1999. There was no such comparable item in the three
months ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET SALES.
Net sales decreased 29.1% to $43.3 million in the six months ended June 30,
1999 from $61.1 million in the six months ended June 30, 1998. The decrease was
primarily due to lower volume shipments of BOSS-Registered Trademark- and
Beverly Hills Polo Club-Registered Trademark- men's sportswear and women's
private label lines. These decreases were partially offset by increases in sales
of both the men's and women's products under the Girbaud-Registered Trademark-
brand. Net sales of BOSS-Registered Trademark- sportswear decreased $21.5
million or 46.4% to $24.8 million due to intense competition in the jeanswear
market, particularly with respect to the BOSS-Registered Trademark- brand. Net
sales of Beverly Hills Polo Club-Registered Trademark- decreased $1.1 million.
During the six months ended June 30, 1999, the Company had sales of $0.5 million
of boys' sportswear under the Beverly Hills Polo Club-Registered Trademark-
brand, which the Company began to market in the first quarter of 1999. Net sales
of Girbaud-Registered Trademark- sportswear were $7.6 million in the six months
ended June 30, 1999. The Company began to recognize revenue from shipments of
Girbaud-Registered Trademark- men's sportswear in the second quarter of 1998.
Those sales totaled $0.8 million in the six months ended June 30, 1998. The
Company began to recognize revenue from shipments of
Girbaud-Registered Trademark- women's sportswear in the fourth quarter of 1998.
In November 1998, the Company entered into exclusive international license
agreements to manufacture and market men's and women's sportswear under the
Girbaud-Registered Trademark- brand in selected countries in Central and South
America and in the Caribbean. International sales were insignificant for the six
months ended June 30, 1998 and 1999. The Company's women's private label sales
decreased $3.1 million or 39.7% to $4.7 million for the six months ended June
30, 1999.
GROSS PROFIT.
Gross profit decreased 24.4% to $12.7 million in the six months ended June
30, 1999. Gross profit as a percentage of net sales increased from 27.5% to
29.5% over the same period. The increase in gross profit as a percentage of
sales was primarily due to higher sales of Girbaud-Registered Trademark-
jeanswear and sportswear at higher margins and additional cost savings from the
continued shift of production of denim bottoms from the United States to Mexico
to take advantage of lower labor and overhead costs.
13
<PAGE>
SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES.
SG&A decreased 15.1% to $13.5 million in the six months ended June 30, 1999
from $15.9 million in the six months ended June 30, 1998. As a percentage of net
sales, SG&A expenses increased to 31.2% from 26.0% over the same period due to
lower net sales and a provision for severance offset somewhat by decreases in
advertising expenditures, lower selling expenses and lower commissions to the
Company's sales persons. Advertising expenditures decreased $0.7 million to $1.9
million as the Company focused more on local targeted advertising campaigns for
BOSS-Registered Trademark- and Beverly Hills Polo Club-Registered Trademark-
with less use of national print and television. Also, the Company is required to
spend $0.9 million in advertising as well as $1.8 million on sales and marketing
for the women's and men's Girbaud-Registered Trademark- brands in 1999.
Distribution and shipping expenses decreased $0.5 million to $1.5 million for
the six months ended June 30, 1999. The Company experienced a reduction in
personnel and wages due to decreased merchandise shipments. General and
administrative expenses decreased $0.6 million to $4.3 million for the six
months ended June 30, 1999. The Company reduced personnel during the second half
of 1998 and also experienced a reduction in bad debt expense from a year ago. In
the second quarter of 1999 the Company's President and Chief Operating Officer
resigned. In connection with this resignation the Company recorded a provision
for severance of $0.8 million.
LICENSE FEES.
License fees increased $0.5 million to $3.7 million in the six months ended
June 30, 1999 from $3.2 million in the six months ended June 30, 1998. As a
percentage of net sales, license fees increased from 5.3% to 8.5%. The license
fees increased in a period of declining sales due to minimum royalty payments
with respect to BOSS-Registered Trademark- products under the Foreign
Manufacturing Rights Agreement executed in November 1997 and minimum royalties
of $125,000 and $58,000 per month paid under the Girbaud-Registered Trademark-
men's and women's license agreements.
OPERATING LOSS.
Operating loss increased 91.3% to $4.4 million in the six months ended June
30, 1999 from $2.3 million in the six months ended June 30, 1998. The decline
was due to lower sales and gross profit.
INTEREST EXPENSE.
Interest expense increased $0.1 million to $0.9 million in the six months
ended June 30, 1999. The Company repaid its asset-based 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 incurred interest expense related to the
$11.25 million note payable associated with its purchase of the
BOSS-Registered Trademark- trademark in November 1997. This expense of $.6
million was partially offset by interest income of $0.2 million earned on
available cash. The Company invests its excess cash in short-term investments.
During the six months ended June 30, 1999, the Company's borrowings under its
line of credit were generally higher than the comparable period one year
earlier. The Company did not have significant excess cash during the six months
ended June 30, 1999.
OTHER INCOME.
The Company recognized $0.3 million of income in the six months ended June
30, 1998 related to a refund of excess premiums paid on its employee health
insurance plan. There was no comparable refund in 1999.
INCOME TAXES.
The Company recorded an income tax benefit in the first six months of 1998
to recognize a tax benefit for the carryback of net operating losses to recover
income taxes paid during 1997, and estimated tax
14
<PAGE>
payments made in the first three months of 1998. There was no such comparable
item in the six months ended June 30, 1999.
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 declined significantly during the first six months of 1999 compared to
the first six months of 1998, primarily due to cumulative net losses of $19.5
million for the twelve months ended June 30, 1999. As of June 30, 1999, the
Company had cash, including temporary investments of $1.3 million and working
capital of $27.0 million compared to $4.1 and $47.7 million, respectively as of
June 30, 1998.
OPERATING CASH FLOW.
Cash used by operations totaled $1.1 million for the first six months of
1999 due to increases in accounts receivable. These increases were partially
offset by decreases in inventories, refundable income taxes and accounts
payable. Cash used for investing activities for the first six months of 1999
were insignificant. Cash provided by financing activities totaled $1.1 million
for the first six months of 1999, resulting primarily from borrowings on its
revolving line of credit.
Inventory decreased $4.0 million from December 31, 1998 to June 30, 1999,
compared to an increase of $4.0 million from December 31, 1997 to June 30, 1998.
The increase in 1998 was due to the buildup of finished goods because of the
decline in net sales of BOSS-Registered Trademark- men's and Beverly Hills Polo
Club-Registered Trademark- sportswear coupled with the $1.0 million in
Girbaud-Registered Trademark- inventory recently manufactured but not yet sold.
The decrease in 1999 was due to the reduction of excess inventory at significant
markdowns. Accounts receivable increased due to a slow down in cash collections.
The decrease in refundable income taxes results from the return, in 1999, of
estimated income taxes paid in the first quarter of 1998 and a refund of income
taxes paid in 1997. The refunds result from the planned carryback of net
operating losses to 1997.
Capital expenditures were $0.2 million for the first six months of 1999
compared to $1.3 million for the first six months of 1998. The Company does not
expect to incur significant capital expenditures during the rest of 1999.
CREDIT FACILITIES.
The Company has an asset-based revolving line of credit with Congress
Financial Corporation that allowed it to borrow up to $30.0 million based on a
percentage of eligible accounts receivable and inventory. Borrowings under the
revolving line of credit bore interest at the lender's prime rate less 0.25%. In
March 1999, the Company amended the Agreement to extend the date of termination
of the Agreement from June 30, 1999 to 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 was 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.
In November 1997, the Company borrowed $11.25 million from Ambra, Inc. to
finance the acquisition of certain BOSS-Registered Trademark- 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.
15
<PAGE>
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 by collection personnel has been
effective in reducing credit losses to an immaterial amount. For the six months
ended June 30, 1998 and 1999, the Company's credit losses were $0.9 and $1.2,
respectively. The Company's actual credit losses as a percentage of net sales
were 1.5% and 2.8% respectively.
The Company believes that current levels of cash and cash equivalents ($1.3
million at June 30, 1999) together with cash from operations and existing credit
facilities, 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 properly 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 track 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 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
16
<PAGE>
to which the Company is financially or operationally linked to address their own
system problems could have a material adverse effect on the Company.
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 June 30, 1999, the Company had unfilled orders of approximately $25 million,
compared to approximately $41 million of such orders as of June 30, 1998. 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. As the timing of the shipment of products may vary from
year to year, the results for any particular quarter may not be indicative of
the results for the full year.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal market risk results from changes in floating
interest rates on short-term debt. The Company does not use interest rate swap
agreements to mitigate the risk of adverse changes in the prime interest rate.
However, the impact of a 100 basis point change in interest rates affecting the
Company's short-term debt would not be material to the net loss, cash flow or
working capital. The Company does not hold long-term interest sensitive assets
and therefore is not exposed to interest rate fluctuations for its assets. The
Company does not hold or purchase any derivative financial instruments for
trading purposes.
17
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. RESULTS OF VOTING AT ANNUAL MEETING OF SHAREHOLDERS.
(a) The Company held its annual meeting of shareholders on June 3, 1999.
(b) No response required.
(c) 1. The following individuals were nominees for the Board of Directors, and
the number of votes for or withheld for each nominee were as follows: Jon
Hechler--For 5,546,077, Withheld 49,129; Daniel Gladstone--For 5,546,077,
Withheld 49,129; Thomas P. Ormandy--For 5,546,077; Withheld 49,129.
2. Approval of the adoption of the Amended and Restated Omnibus Stock Plan.
The number of votes for, against and abstaining is as follows: For
3,373,063; Against 389,680; Abstaining 1,750.
3. Approval of BDO Seidman LLP as the independent auditors of the Company for
the fiscal year ending December 31, 1999. The number of votes for, against
and abstaining is as follows: For 5,555,627; Against 17,629; Abstaining
21,950.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 10.58 Severance and Redemption Agreement dated June 30, 1999 by and
between the Company and Gerald W. Lear.
Exhibit 10.59 Second Amended and Restated Shareholders' Agreement dated
June 30, 1999.
Exhibit 10.60 Amendment No. 4 to the Trademark License and Technical
Assistance Agreement Covering Women's Products dated August
2, 1999.
Exhibit 10.61 Shareholders' Agreement dated August 9, 1999.
(b) Reports on Form 8-K.
On July 8, 1999, the Company filed a Report on Form 8-K reporting the
announcement of the resignation of Gerald W. Lear as President and Chief
Operating Officer and as a director of the Company.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
I.C. ISAACS & COMPANY, INC.
By: /s/ ROBERT J. ARNOT
-----------------------------------------
Robert J. Arnot
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Dated: August 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME CAPACITY DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board,
/s/ ROBERT J. ARNOT Chief Executive Officer
- ------------------------------ and Director (Principal August 13, 1999
Robert J. Arnot Executive Officer)
Vice President and Chief
/s/ EUGENE C. WIELEPSKI Financial Officer and
- ------------------------------ Director (Principal August 13, 1999
Eugene C. Wielepski Financial and Accounting
Officer)
19
<PAGE>
EXHIBIT 10.58
SEVERANCE AND REDEMPTION AGREEMENT
This Severance and Redemption Agreement (the "Agreement") dated June
__, 1999 by and between Gerald W. Lear ("Mr. Lear") and I.C. Isaacs & Company,
Inc., a Delaware corporation (the "Company") is effective as of June __, 1999
(the "Effective Date").
WHEREAS, Mr. Lear and the Company are parties to an Executive
Employment Agreement dated May 15, 1997, as amended by an Amendment No. 1 to
Employment Agreement dated August 27, 1998 and as further amended by an
Amendment No. 2 to Employment Agreement dated February 11, 1999 (collectively,
the "Employment Agreement"), pursuant to which Mr. Lear is employed as President
and Chief Operating Officer of the Company; and
WHEREAS, Mr. Lear is the beneficial owner of 447,792 shares of the
common stock of the Company; and
WHEREAS, the Company, Mr. Lear and certain other shareholders of the
Company are parties to an Amended and Restated Shareholders' Agreement dated May
15, 1997, as amended by Amendment No. 1 to the Shareholders' Agreement dated
December 20, 1997, and as being further amended and restated effective as of the
Closing Date (as hereinafter defined) (collectively, the "Stockholders'
Agreement"); and
WHEREAS, the Company and Mr. Lear are parties to a Nonstatutory Stock
Option Grant Agreement dated February 11, 1999 and a Nonstatutory Stock Option
Grant Agreement dated June 3, 1999, as being amended effective as of the Closing
Date (collectively, the "Stock Option Agreements"), pursuant to which Mr. Lear
has been granted options to acquire an aggregate of 55,000 shares of the common
stock of the Company.
NOW, THEREFORE, in consideration of the representations and warranties
contained herein and for other good and valuable consideration, the Company and
Mr. Lear agree as follows:
SECTION 1. RESIGNATION AND SEVERANCE.
1.01. RESIGNATION OF EMPLOYMENT. Mr. Lear's employment with the Company
and any of its affiliates shall be terminated, effective as of the Closing Date.
His termination shall be in the form of a voluntary resignation.
1.02. SEVERANCE. During the period beginning on the Closing Date and
ending on May 15, 2001 (the "Severance Period"), the Company shall pay Mr. Lear
severance payments of $350,000 per annum, less appropriate statutory
withholdings and deductions and Mr. Lear's contributions for medical insurance
coverage in excess of the portion of medical insurance coverage that is normally
paid by the Company (the "Severance Payments"). Such Severance Payments shall be
paid weekly in accordance with the Company's normal payroll practices.
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1.03. MEDICAL AND LIFE INSURANCE COVERAGE. During the Severance Period,
the Company will offer to provide Mr. Lear with the same medical and life
insurance coverage that the Company provides to its other senior executives and
Mr. Lear will continue to pay any portion of the premiums for such coverages
that is in excess of the amount normally paid by the Company. Thereafter, Mr.
Lear will be provided with the appropriate COBRA notice. Once a year during the
Severance Period, Mr. Lear may elect to have a physical examination, and the
Company shall reimburse Mr. Lear for the reasonable cost of such physical
examination. Any such physical examination shall be comparable to physical
examinations Mr. Lear has had at the Company's expense in prior years.
1.04. PENSION. On or before the Closing Date, the Company shall have
taken all actions required to be taken by the Company in order to cause a lump
sum distribution to Mr. Lear of his pension benefit, as accrued as of July 1,
1999 (the "Lump Sum Distribution"), such Lump Sum Distribution to be made as
soon as practicable. The Company shall use its best efforts to cause the Lump
Sum Distribution to be made on or prior to July 1, 1999.
1.05. KEY MAN LIFE INSURANCE. Effective as of the Closing Date, the
Company shall cause the assignment to Mr. Lear of the Key Man Life Insurance
Policy issued by New York Life to the Company on the life of Mr. Lear (the "Key
Man Life Insurance Policy"). The parties acknowledge and agree that the Company
has taken (and, to the extent that any premiums become due between the date
hereof and the Closing Date, will continue to take) loans against the Key Man
Life Insurance Policy to pay the premiums thereon. Upon Closing (as hereinafter
defined), the Company shall have no further obligations with respect to the Key
Man Life Insurance Policy. All premiums for the period beginning on the Closing
Date and for all periods thereafter shall be the sole responsibility of Mr.
Lear.
1.06. STOCK OPTIONS. All unvested stock options granted to Mr. Lear
pursuant to the Stock Option Agreements shall vest immediately upon Closing,
shall not terminate upon termination of Mr. Lear's employment, and shall be
exercisable at any time and from time to time until the tenth anniversary of the
date that such options were granted. The parties hereby agree that, effective as
of the Closing Date, Section 4.2 of each of the Stock Option Agreements shall
not apply. All other provisions of the Stock Option Agreements shall remain
unchanged and in full force and effect.
1.07. LEGAL FEES. Within a reasonable period after Closing, the Company
shall pay reasonable legal fees, not to exceed $600, incurred by Mr. Lear in
connection with the review of this Agreement.
1.08 EFFECT OF RESIGNATION. Upon Closing, the Company shall have no
further obligations to Mr. Lear except as specifically set forth in this
Agreement, the Stock Option Agreements and the Shareholders' Agreement. Upon
termination of the Severance Period, the Company shall have no further
obligations to the Executive under the terms of this Agreement. Upon Closing,
Mr. Lear shall have no further obligations to the Company except as set forth
herein, in the Shareholders' Agreement and in the Stock Option Agreements.
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SECTION 2. REDEMPTION OF SHARES.
2.01 REDEMPTION OF SHARES. At Closing, Mr. Lear shall sell, assign,
transfer and deliver to the Company, and the Company hereby agrees to purchase
and accept from Mr. Lear at the Closing, 84,211 shares of common stock of the
Company owned by Mr. Lear (the "Redemption Shares") free and clear of all liens,
encumbrances, security interests, options and adverse claims of any kind or
character whatsoever.
2.02. PURCHASE PRICE. The purchase price for the Redemption Shares
shall be $1.1875 per share, for an aggregate purchase price of $100,000 to be
paid to Mr. Lear by check issued by the Company at Closing.
SECTION 3. CLOSING.
Unless otherwise mutually agreed to in writing by the Company and Mr.
Lear, the closing of the transactions contemplated herein (the "Closing") shall
occur on June __, 1999 at 10:00 a.m. The time and date of the Closing are herein
referred to as the "Closing Date." The parties shall use their best efforts to
have the Closing occur promptly. The Closing shall take place by telephone,
telefax and hand or overnight delivery.
SECTION 4. CLOSING DELIVERIES.
4.01 DELIVERIES OF MR. LEAR. On or prior to the Closing, Mr. Lear shall
deliver, or cause to be delivered, to the Company the following:
(i) a written resignation of any and all directorships,
offices and positions of any kind held by Mr. Lear with the Company and any of
its affiliates (other than his position as a shareholder and option holder of
the Company), effective as of the Closing Date and reasonably acceptable to the
Company, and any other documents necessary to effect the resignation by Mr. Lear
of such offices and positions.
(ii) stock certificates representing the Redemption Shares
duly endorsed in blank or accompanied by stock powers duly executed in blank and
such other documents and instruments as may be reasonably required to consummate
the transactions contemplated hereby.
(iii) a duly executed copy of the Second Amended and Restated
Shareholders' Agreement substantially in the form attached hereto as EXHIBIT A
(the "Second Amended and Restated Shareholders' Agreement").
(iv) duly executed copies of the Stock Purchase Agreements
substantially in the form attached hereto as EXHIBIT B.
(v) Any Company property Mr. Lear may have in his possession,
whether located in or outside the office; provided, however, that Mr. Lear may
retain possession of the desk chair and personal computer located in his office
at the Company's Bank Street
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location.
4.02. DELIVERIES OF THE COMPANY. On or prior to the Closing, the
Company shall deliver or cause to be delivered to Mr. Lear the Redemption Price.
4.03. MR. LEAR'S CONDITIONS TO CLOSING. The obligation of Mr. Lear to
proceed with the Closing is subject to the satisfaction at or prior to Closing
of each of the following conditions:
(i) The representations of the Company made in Section 5.02
hereof shall have been true and correct when made, and shall be true and correct
on the Closing Date as though such representations and warranties were made on
and as of the Closing Date and the Company shall have complied with all
covenants and agreements required by this Agreement to be performed or complied
with by the Company at or prior to the Closing.
(ii) The Company shall have delivered to Mr. Lear at Closing
the Redemption Price.
(iii) Each of Robert J. Arnot and Ronald S. Schmidt shall have
delivered to Mr. Lear a duly executed Stock Purchase Agreement substantially in
the form attached hereto as EXHIBIT B.
4.04 THE COMPANY'S CONDITIONS TO CLOSING. The obligation of the Company
to proceed with the Closing is subject to the satisfaction at or prior to
Closing of each of the following conditions:
(i) The representations of Mr. Lear made in Section 5.01
hereof shall have been true and correct when made, and shall be true and correct
on the Closing Date as though such representations and warranties were made on
and as of the Closing Date and Mr. Lear shall have complied with all covenants
and agreements required by this Agreement to be performed or complied with by
Mr. Lear prior to the Closing.
(ii) Mr. Lear shall have delivered to the Company on or at
Closing the documents described in Section 4.01 hereof.
(iii) Each of Robert J. Arnot and Ronald S. Schmidt shall have
delivered to Mr. Lear a duly executed Stock Purchase Agreement substantially in
the form attached hereto as EXHIBIT B.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
5.01. REPRESENTATIONS AND WARRANTIES OF MR. LEAR. Mr. Lear hereby
represents and warrants to the Company that the following representations and
warranties are, as of the date hereof, and will be, as of the Closing Date, true
and correct:
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(i) POWER; AUTHORITY. Mr. Lear has full power, capacity and
authority to enter into and perform his obligations under this Agreement and
under any other agreements, instruments or documents to be entered into by Mr.
Lear pursuant to or in connection with this Agreement.
(ii) TITLE; AGREEMENTS. The Redemption Shares were fully paid,
and Mr. Lear shall, from and after the Closing have no claims against the
Company with respect to or relating to the Redemption Shares. Mr. Lear is the
sole legal and beneficial owner of, and has good title to, such Redemption
Shares, and has not sold, transferred or encumbered any or all of such
Redemption Shares, and has the full and sufficient right at law and in equity to
assign and transfer such Redemption Shares to the Company in accordance with the
provisions of this Agreement, free and clear of any and all right, title,
interest or claim therein of any other person whatsoever. There are outstanding
no options or rights to acquire any or all of such Redemption Shares. Any
consent, waiver or approval by any third party required in connection with the
execution by Mr. Lear of this Agreement or the performance by Mr. Lear of the
obligations to be performed by Mr. Lear under this Agreement has been obtained.
(iii) BINDING AGREEMENT. This Agreement is a valid and legally
binding obligation of Mr. Lear enforceable in accordance with its terms.
5.02 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
warrants to Mr. Lear that the following representations and warranties are, as
of the date hereof, and will be, as the Closing Date, true and correct:
(i) ORGANIZATION; AUTHORITY. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has all requisite power and authority to enter into and perform the
terms of this Agreement and the transactions contemplated by it thereby. The
execution, delivery and performance of this Agreement and of the agreements and
instruments called for hereunder, and the consummation of the transactions
contemplated by this Agreement and such agreements and instruments hereunder
have been duly and validly authorized by all necessary corporate action of the
Company.
(ii) BINDING AGREEMENT. This Agreement is a valid and legally
binding obligation of the Company enforceable in accordance with its terms.
(iii) CONSENTS. Any consent, waiver or approval by any third
party required in connection with the execution by the Company of this Agreement
or the performance by the Company of the obligations to be performed by the
Company under this Agreement has been obtained.
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SECTION 6. TERMINATION.
This Agreement may be terminated by the Company if the Closing
deliveries of Mr. Lear as set forth in Section 4.01 hereto have not been made on
or at Closing or the conditions set forth in Sections 4.04 hereof are not
satisfied, and may be terminated by Mr. Lear if the Closing Deliveries of the
Company as set forth in Section 4.02 have not been made on or at Closing or the
conditions set forth in Sections 4.03 hereof are not satisfied.
SECTION 7. RELEASE AND WAIVER.
(i) Effective as of the Closing Date, Mr. Lear forever waives
and releases any and all claims that he has or may have against the Company, its
predecessors, successors or assigns, its affiliated entities, and current and
former officers, directors, employees and agents of the Company, its affiliates
and its predecessors, successors and assigns except (a) claims arising from
breaches of this Agreement and (b) claims arising after the Closing Date under
the Shareholders' Agreement and the Stock Option Agreements that are not related
to the termination of Mr. Lear's employment or any other transactions
contemplated under this Agreement. The claims released hereby include, but are
not limited to the following, (a) claims under the Age Discrimination in
Employment Act; (b) claims under the Employment Agreement; (c) claims under the
Shareholders' Agreement or the Stock Option Agreements that (i) arise on or
before the Closing Date or (ii) arise out of or relate to The termination of Mr.
Lear's employment or any other transaction contemplated under this Agreement;
(d) claims arising under any other form of contract; (e) claims in tort or
sounding in tort; (f) claims for attorney's fees and expenses; and (g) claims
under any federal, state, or local statute or ordinance, including those
relating to compensation, employment and separation from employment.
(ii) Effective as of the Closing Date, the Company (which term
shall include, for purposes of this Section 7(ii), the Company, its
predecessors, successors and assigns, and its affiliated entities) forever
waives and releases any and all claims that it has or may have against Mr. Lear
except (a) claims arising from breaches of this Agreement and (b) claims arising
after the Closing Date under the Shareholders' Agreement and the Stock Option
Agreements that are not related to the termination of Mr. Lear's employment or
any other transactions contemplated under this Agreement. The claims released
hereby include, but are not limited to the following, (a) claims under the
Shareholders' Agreement or the Stock Option Agreements that (i) arise on or
before the Closing Date or (ii) arise out of or relate to the termination of Mr.
Lear's employment or any other transaction contemplated under this Agreement;
(b) claims arising under any other form of contract; (c) claims in tort or
sounding in tort; (d) claims for attorney's fees and expenses; and (e) claims
under any federal, state, or local statute or ordinance, including those
relating to compensation, employment and separation from employment.
SECTION 8. CERTAIN COVENANTS.
8.01. UNEMPLOYMENT CLAIMS. The Company will not contest Mr. Lear's
claim for unemployment compensation.
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8.02. NON-COMPETE. Mr. Lear and the Company recognize that due to the
nature of Mr. Lear's employment, and his relationship with the Company, Mr. Lear
has had access to, and has acquired, and has assisted in developing,
confidential and proprietary information relating to the business and operations
of the Company and its predecessors and affiliates, including, without
limitation, information with respect to their present and prospective services,
systems, products, clients, customers, agents, and sales and marketing methods.
Mr. Lear 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. Mr. Lear and the
Company also recognize that an important part of the Mr. Lear's duties was 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 Mr. Lear when his relationship with the Company
is terminated.
(i) Mr. Lear agrees that for a period of three (3) months
after the Closing Date:
A. Mr. Lear 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 and women's contemporary sportswear industry.
B. Mr. Lear will not directly or indirectly (for his own
account, or for the account of others) interfere with, solicit, or accept for
himself, his benefit, or for anyone other than the Company, any of the clients
or customers of the Company or any potential clients or customers solicited or
being solicited by the Company at the time of the Closing Date or perform any
services of any competitive nature in connection with said clients or customers
for anyone other than the Company.
C. Mr. Lear further agrees that he shall not directly or
indirectly, urge any client (or customer) or potential client (or potential
customer) of the Company to discontinue business, in whole or in part, or not to
do business, with the Company.
D. Mr. Lear further agrees that he shall not directly or
indirectly, solicit, hire or arrange to hire any person who at 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.
(ii) Mr. Lear expressly acknowledges and agrees (x) that the
restrictions set forth herein are reasonable, in terms of scope, duration,
geographic area, and otherwise, (y) that the protections afforded to the Company
hereunder are necessary to protect its legitimate business interests, and (z)
that the agreement to observe such restrictions forms a material part of the
consideration for this Agreement and Mr. Lear's employment by the
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Company.
8.03. CONFIDENTIALITY. The parties hereby agree to use their best
efforts to keep this Agreement and its terms in confidence until such time as it
us publicly announced by the Company.
8.04. COOPERATION. During the Severance Period, Mr. Lear shall comply
with reasonable requests by the Company that Mr. Lear cooperate with the Company
and provide the Company or, at the request of the Company, third parties with
information he shall have acquired as a result of his employment with the
Company.
SECTION 9. MISCELLANEOUS PROVISIONS.
9.01. CONSIDERATION PERIOD. Consistent with the provisions of the Older
Workers Benefit Protection Act, Mr. Lear acknowledges that he has had at least
twenty-one (21) days within which to consider executing this document, although
he is free to execute this Agreement earlier. If this Agreement is not signed
within twenty-five (25) days, this Agreement is considered null and void. Mr.
Lear has been advised that he should consult legal counsel concerning the terms
of this Agreement.
9.02. NO ADMISSION. Neither this Agreement nor the fact that the
Company has entered into this Agreement shall be construed in any way as an
admission by the Company, its predecessors, its affiliates or current and former
officers, directors, employees or agents of the Company, its predecessors or
affiliates of any improper or wrongful conduct in their dealings with Mr. Lear.
9.03. REVOCATION. Mr. Lear shall have seven (7) days following his
signing of this Agreement to revoke it, and the Agreement shall not become
effective until the seven (7) day revocation period has expired. Such revocation
must be in writing, and received prior to the Effective Date at the following
address: I.C. Isaacs & Company, Inc., 350 Fifth Avenue, New York, New York
10118, Attention: Mr. Robert J. Arnot.
9.04. SURVIVAL. The representations, warranties, covenants and
agreements made by the parties in this Agreement shall survive the Closing and
shall continue in full force and effect without limitation after the Closing.
9.05. AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended, supplemented or modified, only with the written consent of each of the
parties hereto, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the party against whom the
waiver is sought to be enforced. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
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9.06. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement and all rights and
obligations hereunder may not be assigned or transferred without the prior
written consent of the other parties hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any person or entity other than the
parties hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
9.07. CHOICE OF LAW. This Agreement shall be governed by and construed
under and the rights of the parties determined in accordance with the laws of
the State of Maryland (without reference to the choice of law provisions of the
State of Maryland) except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
9.08. SEVERABILITY. If one or more provisions of this Agreement shall
be held invalid, illegal or unenforceable, such provision shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement. In either
case, the balance of this Agreement shall be interpreted as if such provision
were so modified or excluded, as the case may be, and shall be enforceable in
accordance with its terms.
9.09. ENTIRE AGREEMENT. This Agreement, together with the exhibits
hereto, constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior understandings and agreements,
whether written or oral, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein. The Employment Agreement is terminated in its
entirety, the parties shall have no further obligations thereunder, and the
terms of this Agreement supercede anything contained in therein.
9.10 HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and do not form a part or affect the meaning,
construction or scope thereof.
9.11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: I.C. ISAACS & COMPANY, INC.
- ---------------------------- By: /s/ ROBERT J. ARNOT
------------------------------------------
Robert J. Arnot, Chairman and
Chief Executive Officer
WITNESS:
- ---------------------------- /s/ GERALD W. LEAR
------------------------------------------
Gerald W. Lear
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EXHIBIT A
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EXHIBIT B
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EXHIBIT 10.59
I.C. ISAACS & COMPANY, INC.
SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (the
"Agreement") dated June __, 1999 is by and among I.C. Isaacs & Company, Inc., a
Delaware corporation having its principal office and place of business at 3840
Bank Street, Baltimore, Maryland 21224-2522 (the "Corporation"), and the
shareholders listed on SCHEDULE A hereto (each a "Shareholder" and,
collectively, the "Shareholders").
WHEREAS, the Corporation and the Shareholders are parties to an Amended
and Restated Shareholders' Agreement dated May 15, 1997, as amended by an
Amendment No. 1 to Amended and Restated Shareholders' Agreement dated December
20, 1997 (collectively, the "Restated Agreement"); and
WHEREAS, the Corporation and the Shareholders wish to amend and restate
the Restated Amendment in its entirety as set forth below.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the parties hereto hereby agree that the Restated Agreement shall
be amended and restated in its entirety as follows:
1. DEFINITIONS
The following terms shall have the meanings set forth in this Section 1:
A. BENEFICIAL OWNER; BENEFICIALLY OWNED. The terms "Beneficial Owner"
and "Beneficially Owned" shall have the meaning set forth in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended.
B. CHANGE OF CONTROL. 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
fifty percent (50%) of the outstanding Common Stock in a non-public sale, (iii)
the dissolution or liquidation of the Company, or (iv) any merger or
consolidation of the Company, if immediately after any such transaction either
(A) persons who were directors of the Company immediately prior to such
transaction do not constitute at least a majority of the directors of the
surviving entity or (B) persons who hold a majority of the voting stock of the
surviving entity are not persons who held a majority of the Common Stock of the
Company immediately prior to such transaction.
C. COMMON STOCK. Common Stock shall mean the issued and outstanding
common stock of the Corporation.
D. CORPORATION FIRST REFUSAL PERIOD. Corporation First Refusal Period
shall mean the period within which the Corporation may exercise its Right of
First Refusal.
<PAGE>
The Corporation First Refusal Period shall be the ten (10) days following the
last day of the Shareholder First Refusal Period.
E. INVOLUNTARY TRANSFER. Involuntary Transfer shall mean any transfer,
proceeding or action by or in which a Shareholder shall be deprived or divested
of any right, title or interest in or to any of the Stock, including, without
limitation, any seizure under levy of attachment or execution, any transfer in
connection with bankruptcy (whether pursuant to the filing of a voluntary or an
involuntary petition under the United States Bankruptcy Code, as amended, or any
modifications or revisions thereto) or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant to any statute
pertaining to escheat or abandoned property, any transfer pursuant to a divorce
or separation agreement or a final decree of a court in a divorce action, and
any transfer by operation of a will or the laws of intestacy.
F. MARKET VALUE. Market Value shall have the following meaning:
(i) In the event that, as of the date of the Transfer Notice,
the Corporation is a Reporting Company, the Market Value of the Common Stock for
any purpose shall mean the last reported sale price per share of Common Stock,
on the date of the Transfer Notice or, in case no such sale takes place on such
date, the average of the closing bid and asked prices 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 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, 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, as furnished by a
professional market maker making a market in the Common Stock as selected in
good faith by the Board or by such other source or sources as shall be selected
in good faith by the Board. 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.
(ii) If, as of the date of the Transfer Notice, the
Corporation is not a Reporting Company, the Market Value shall be the appraised
market value as of the date of the Transfer Notice, as determined by an
independent appraiser of recognized standing selected by the Corporation.
G. NON-ELECTED SHARES. Non-Elected Shares shall mean Stock which has
not been, or will not be, purchased pursuant to a Right of First Refusal.
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H. REPORTING COMPANY. Reporting Company shall mean a company the common
stock of which is registered under Section 12 of the Securities Exchange Act of
1934, as amended.
I. RIGHT OF FIRST REFUSAL; RIGHTS OF FIRST REFUSAL. Right of First
Refusal and Rights of First Refusal shall refer to the rights of first refusal
set forth in Section 4.C. hereof.
J. STOCK. Stock shall mean the Common Stock that was subject to the
Restated Agreement immediately prior to the effectiveness of this Agreement.
2. [Intentionally Omitted].
3. LEGENDS ON CERTIFICATES
The certificates evidencing the Stock held by the Shareholders shall bear any
legends required by federal or state securities law and the following legend
required by Section 202 (a) of the Delaware General Corporation Law (the
"DGCL"):
"The shares represented by this Certificate are subject to a
Shareholders' Agreement dated as of December 20, 1984, as
amended, a copy of which is on file at the office of the
Corporation and will be furnished to any prospective purchaser
on request. Such Shareholders' Agreement provides, among other
things, for certain restrictions on the sale, transfer,
pledge, hypothecation or disposition of the Shares represented
by this Certificate."
4. RESTRICTIONS ON DISPOSITION
A. LIMITATIONS ON TRANSFERS. Subject to Subsection F. of this Section
4, no Shareholder shall voluntarily transfer, sell, assign, pledge, encumber,
grant any option with respect to, or otherwise create any legal or equitable
interest in any Stock Beneficially Owned by such Shareholder except pursuant to
a sale of all or any part of such Stock made in accordance with Subsection C.
below.
B. [Intentionally Omitted].
C. RIGHTS OF FIRST REFUSAL. (i) Except as otherwise provided in
Subsection F. below or unless this Subsection C. is waived by Robert J. Arnot or
Shareholders Beneficially Owning two-thirds (2/3) of the total amount of Stock
Beneficially Owned by the Shareholders, before any Stock may be voluntarily sold
or transferred by a Shareholder Beneficially Owning, at the time of such
contemplated transfer, in excess of one half of one percent (.5%) of the
outstanding Common Stock of the Corporation (a "Transferring Shareholder"), such
Transferring Shareholder shall first provide written notice of the proposed sale
or transfer to each of the other Shareholders and the Corporation, which notice
shall include the number of shares of Stock proposed for
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transfer (the "Offered Shares"), the price per share of Stock to be transferred,
(the "Offer Price"), the name of the proposed transferee or, if the shares are
proposed to be transferred on the stock market, the name of the proposed broker
(the "Proposed Transferee"), a representation that the agreement to sell or
transfer constitutes a bona-fide offer to purchase and all other terms and
conditions of the transfer (the "Transfer Notice").
(ii) The other Shareholders shall then have the right to
purchase the Offered Shares at the lesser of the Offer Price or Market Value.
Such Rights of First Refusal shall be exercisable upon written notice to the
Transferring Shareholder within fifteen (15) days following the date of the
Transfer Notice (the "Shareholder First Refusal Period"), which notice shall
specify the number of Offered Shares to be purchased by the Shareholder. Each
Shareholder electing to exercise the Rights of First Refusal (an "Electing
Shareholder") may purchase a number of Offered Shares equal to the total number
of Offered Shares multiplied by a fraction, the numerator of which is equal to
the number of shares of Stock directly owned by such Shareholder and the
denominator of which is equal to the total number of shares of Stock
Beneficially Owned by all Shareholders (other than the Transferring
Shareholder). Any Shareholder who elects not to purchase the full number of
Offered Shares to which such Shareholder is entitled shall, within five (5) days
prior to the expiration of the Shareholder First Refusal Period, notify the
other Shareholders (other than the Transferring Shareholder), each of whom shall
then be entitled to purchase that number of Non-Elected Shares equal to the
number of Non-Elected Shares multiplied by a fraction, the numerator of which is
the number of shares of Stock directly owned by such Shareholder and the
denominator of which is the total number of shares of Stock Beneficially Owned
by all Electing Shareholders who wish to purchase Non-Elected Shares.
(iii) If, upon termination of the Shareholder First Refusal
Period, the Shareholders have not exercised their Rights of First Refusal with
respect to some or all of the Offered Shares, the Corporation shall have a Right
of First Refusal with respect to some or all of such Non-Elected Shares,
exercisable upon written notice to the Transferring Shareholder within the
Corporation First Refusal Period.
(iv) If, upon termination of the Corporation First Refusal
Period, the Shareholders and the Corporation have not exercised their Rights of
First Refusal with respect to some or all of the Offered Shares, the
Transferring Shareholder may sell such Non-Elected Shares to the Proposed
Transferee at any time within three months after the termination of the
Corporation First Refusal Period without again complying with this Section 4.
D. INVOLUNTARY TRANSFERS. Any Involuntary Transfer by a Shareholder (an
"Involuntary Transferor") shall be subject to the Rights of First Refusal set
forth in Section 4.C. as if the Involuntary Transfer had been a proposed
voluntary transfer except that:
(i) the provisions of Subsection 4.C.(i) shall not apply, but
the Involuntary Transferor or the Involuntary Transferor's estate shall notify
the Shareholders
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<PAGE>
and the Corporation as soon as practicable upon obtaining knowledge of the
Involuntary Transfer;
(ii) the Shareholder First Refusal Period shall run from the
date of receipt by the Corporation of the notice of Involuntary Transfer;
(iii) such Rights of First Refusal shall be exercised by
notice to the Involuntary Transferee rather than to the Shareholders who
suffered or will suffer the Involuntary Transfer; and
(iv) The purchase price per Offered Share shall be Market
Value.
E. SETTLEMENT. If the non-Transferring Shareholders or the Corporation
elect to exercise their Rights of First Refusal to acquire all or any portion of
the Offered Shares, settlement shall be made as follows:
(i) If, at the time of the Transfer Notice, the Corporation is
a Reporting Company, within the Shareholder First Refusal Period or Corporation
First Refusal Period, as applicable; or
(ii) If, at the time of the Transfer Notice, the Corporation
is not a Reporting Company, within 30 days of the Transfer Notice.
F. PERMITTED TRANSFERS. Nothing in this Section shall prohibit the
transfer (i) by a Shareholder during any three month period of Stock amounting,
in the aggregate, to less than two percent (2%) of the Stock Beneficially Owned
by such Shareholder or (ii) by any Shareholder of all or any portion of Stock
Beneficially Owned by a Shareholder (a) to the spouse or any one or more of the
lineal descendants of such Shareholder; (b) to any trust, partnership or limited
liability company established solely for estate and gift planning purposes and
solely for the benefit of such Shareholder, his or her spouse and/or lineal
descendants (transferees described under subparagraphs (a) and (b) shall be
deemed "Permitted Transferees"); (c) to the Corporation; or (d) in connection
with a registered offering of Stock as provided under Section 6 below. Any
successor or transferee who receives Stock pursuant to an event described in
clauses (a) or (b) above shall, as a condition of such transfer, enter into an
agreement to be bound by the provisions of this Agreement in its entirety and
shall be deemed to be a "Shareholder" hereunder.
5. "DRAG-ALONG" RIGHTS
If a majority of the Shareholders (the "Selling Shareholders") enter into a
transaction with a third party for the sale or tender of Stock Beneficially
Owned by the Shareholders (including, without limitation, a Change of Control
transaction), the Rights of First Refusal set forth in Section 4 above shall not
apply and the Corporation and/or the Selling Shareholders may require the other
Shareholders to participate in such transaction on the same terms and conditions
as the Selling Shareholders by giving the other Shareholders written notice
thereof at least 30 days in advance of the date of closing of the transaction.
Upon receipt of such notice, each of the other Shareholders shall tender the
same
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proportion of Stock Beneficially Owned by him or her as the Selling Shareholders
propose to sell on the same terms and conditions applicable to the Stock of the
Selling Shareholders in the transaction.
6. REGISTRATION RIGHTS
To the extent that the Corporation grants registration rights to one or more of
the Shareholders (the "Participating Shareholders") under a registration
statement filed with the Securities and Exchange Commission (a "Registration
Statement"), each of the other Shareholders shall have the right to sell a
number of shares of Stock to be registered under the Registration Statement
equal to the number of shares directly owned by such Shareholder multiplied by a
fraction, the numerator of which is equal to the number of shares of Stock
Beneficially Owned by Participating Shareholders that are to be registered
pursuant to the Registration Statement and the denominator of which is equal to
the total number of shares of Stock Beneficially Owned by the Participating
Shareholders.
7. ARBITRATION OF DISPUTES
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 Baltimore, Maryland or in such other location as may be agreed upon
by the Corporation and the Shareholder, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
award of the arbitrator in any court having competent jurisdiction.
8. BENEFIT
Except upon the occurrence of a termination event as provided in Section 16,
this Agreement shall be binding upon and shall operate for the benefit of the
parties hereto, their respective successors and assigns.
9. INVALIDITY OF ANY PROVISION
The invalidity or unenforceability of any provision of this Agreement shall not
affect the other provisions hereof, and the Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted, provided
that the parties shall negotiate in good faith to replace the invalid provision
with a valid provision reflecting the same balance of economic interests.
10. MODIFICATION OF AGREEMENT
No modification, amendment or waiver of any of the provisions of this Agreement
shall be valid unless made in writing and signed by the Corporation and
Shareholders owning, in the aggregate, a majority of the Stock subject to this
Agreement.
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<PAGE>
11. FURTHER ACTION
A. The Corporation shall not register, and shall instruct any transfer
agent for the Common Stock not to register, on the books of the Corporation any
transfer, pledge or encumbrance of any Stock subject to this Agreement, unless
such transfer, pledge or encumbrance complies with terms of this Agreement and
the Shareholders agree to provide the Corporation (or any such transfer agent)
with such documents, including an opinion of counsel as to compliance with the
terms of this Agreement, as the Corporation (or any such transfer agent) may
reasonably request.
B. A copy of this Agreement shall be made a part of the minutes of the
Corporation.
12. ATTORNEY'S FEES AND COSTS
If any action at law or in equity (including any arbitration proceeding under
Section 7 above) is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs, and necessary disbursements, in addition to any other relief to which he
may be entitled.
13. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the State of
Delaware.
14. ENTIRE AGREEMENT
This Agreement supersedes all agreements as to the subject matter hereof among
the Shareholders and the Corporation including in each case amendments thereto,
previously executed by the Shareholders and the Corporation. This Agreement sets
forth all of the provisions, covenants, agreements, conditions and undertakings
between the parties hereto with respect to the subject matter hereof, and
superseded all prior and contemporaneous agreements and understandings express
or implied, oral or written as to the subject matter hereof.
15. NOTICES
Unless otherwise specified herein, all notices, requests, demands and other
communications to be given under this Agreement shall be in writing and shall be
deemed given if (i) delivered in person, or by United States mail, certified or
registered, with return receipt requested, (ii) if sent by telex or facsimile
transmission, with a copy mailed on the same day in the manner provided in (i)
above, when transmitted and receipt is confirmed by telephone, or (iii) if
otherwise actually delivered:
TO THE CORPORATION: 3840 Bank Street, Baltimore, MD 21224-2522;
TO ANY SHAREHOLDER: As the name and address of such Shareholder
appears on the records of the Corporation;
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<PAGE>
or at such other address as may have been furnished by such person in writing to
the other parties. Any such notice, demand or other communication shall be
deemed to have been given on the date actually delivered or as of the date
mailed, as the case may be.
16. TERM OF AGREEMENT
This Agreement shall be effective
(i) With respect to Section 4.C., from the date of hereof
until the earlier to occur of (A) May 15, 2001 and (B) the
Shareholders' ceasing to be the Beneficial Owners of more than 30% of
the Common Stock; provided that a Shareholder shall be deemed to be the
Beneficial Owner of Stock held by a family trust established by such
Shareholder.
(ii) With respect to all other Sections of this Agreement,
from the date hereof until the earlier to occur of (A) May 15, 2003 or
(B) the Shareholders' ceasing to be the Beneficial Owners of more than
30% of the Common Stock; provided that a Shareholder shall be deemed to
be the Beneficial Owner of Stock held by a family trust established by
such Shareholder.
I.C. ISAACS & COMPANY, INC.
By: /s/ ROBERT J. ARNOT
------------------------------------------
Robert J. Arnot, Chief Executive Officer
SHAREHOLDERS:
/s/ GERALD W. LEAR
----------------------------------------------
Gerald W. Lear
/s/ THOMAS P. ORMANDY
----------------------------------------------
Thomas P. Ormandy
/s/ EUGENE C. WIELEPSKI
----------------------------------------------
Eugene C. Wielepski
/s/ JON HECHLER
----------------------------------------------
Jon Hechler
ESTATE OF IRA J. HECHLER
By: /s/ JON HECHLER
----------------------------------------------
Jon Hechler, Executor
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SCHEDULE A
Andrew Joe Adkinson
Estate of Julian Adler
Robert J. Arnot
Charles Boutwell
Charles M. Chamblee
Marion Felton
Hillary Figinski-Spieker
Robert Flynn, Jr.
Madlyn Goldman
David Hechler
Estate of Ira J. Hechler
Jon Hechler
Richard Hechler
Robin Hechler
Steven Hechler
Stanley Keller Irrevocable Trust
Joyce Kingsley
Gerald W. Lear
Susan Mark
William Myatt
Thomas Ormandy
Eugene C. Wielepski
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<PAGE>
Exhibit 10.60
AMENDMENT No. 4 to the
TRADEMARK LICENSE AND TECHNICAL ASSISTANCE AGREEMENT
COVERING WOMEN'S PRODUCTS
This Amendment No. 4 is dated August 2, 1999 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 "Agreement"). Three previous
amendments in June 18, 1998, November 12, 1998 and December 23, 1998, have
been entered into. 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. Paragraph 8.9(a) of the Agreement is amended to postpone the requirement
to sign a lease agreement for a flagship store in New York to July 31, 2002
and shall read as follows:
"a) LICENSEE AGREES TO OPEN A FLAGSHIP STORE FOR SALE OF LICENSOR'S
MEN'S AND WOMEN'S LINES AND OTHER GIRBAUD LICENSED MERCHANDISE (THE
"BOUTIQUE") IN A MUTUALLY AGREED LOCATION IN MANHATTAN, NEW YORK CITY,
WITH A TARGET SELLING SPACE OF NO LESS THAN 800 SQUARE METERS. THE
PARTIES WILL COOPERATE IN GOOD FAITH TO MAKE EFFORTS TO IDENTIFY AND
SELECT THE SPACE. LICENSEE SHALL SIGN A LEASE AGREEMENT FOR THE BOUTIQUE
BY JULY 31, 2002. IF LICENSEE HAS NOT SIGNED A LEASE AGREEMENT FOR THE
BOUTIQUE IN NEW YORK BY JULY 31, 2002, THEN LICENSEE SHALL PAY TO LICENSOR
FIVE HUNDRED THOUSAND DOLLARS IN CASH AND SHALL THEN BE FULLY RELEASED OF
ITS OBLIGATION TO OPEN THE BOUTIQUE. SUCH FIVE HUNDRED THOUSAND DOLLARS
SHALL BE IN THE NATURE OF ROYALTIES AND BE PAID AS FOLLOWS: $250,000 ON
OR BEFORE AUGUST 30, 2002; AND $250,000 ON OR BEFORE OCTOBER 30, 2002.
2. This Amendment is effective starting on the date stated below once it has
been signed by both parties.
3. Except for the terms amended by this Amendment, the Agreement as existing
until the execution of this Amendment No. 4 shall continue in full force and
effect.
Dated: 8/2/99
----------
LATITUDE LICENSING CORP. I.C. ISAACS & COMPANY L.P.
By: I.C. Isaacs & Company, Inc.
its General Partner
By: /s/ Pierre Martin By: /s/ Robert J. Arnot
---------------------------- ----------------------------
Name: Pierre Martin Name: Robert J. Arnot
Title: Vice President Title: Chairman & CEO
<PAGE>
Exhibit 10.61
I.C. ISAACS & COMPANY, INC.
SHAREHOLDERS' AGREEMENT
This SHAREHOLDERS' AGREEMENT (the "Agreement") dated August 9th,
1999 is by and among I.C. Isaacs & Company, Inc., a Delaware corporation
having its principal office and place of business at 3840 Bank Street,
Baltimore, Maryland 21224-2522 (the "Corporation"), and the shareholders
whose names are set forth in SCHEDULE A hereto (the "Shareholders" and each a
shareholder).
WHEREAS, Latitude Licensing Corp. (the "Initial Shareholder") is the
beneficial owner of 500,000 shares of the Common Stock of the Corporation (the
"Shares");
WHEREAS, the Initial Shareholder and the Corporation wish to provide
for the disposition of the Shares upon the occurrence of certain events, and to
that end, have agreed to execute this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter provided, the parties to this Agreement, on
behalf of themselves and their successors and assigns, agree as follows:
1. DEFINITIONS
The following terms shall have the meanings set forth in this Section
1:
AFFILIATE. Affiliate shall mean any person or entity, whether now or
hereafter existing, which controls, is controlled by, or is under common control
with, the Corporation (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.
CHANGE OF CONTROL TRANSACTION. Change of Control Transaction shall mean
a transaction that involves (i) the sale of all or substantially all of the
assets of the Company, (ii) the sale of more than fifty percent (50%) of the
outstanding Common Stock in a non-public sale, (iii) the dissolution or
liquidation of the Company, or (iv) any merger or consolidation of the Company,
if immediately after any such transaction either (A) persons who were directors
of the Company immediately prior to such transaction do not constitute at least
a majority of the directors of the surviving entity or (B) persons who hold a
majority of the voting stock of the surviving entity are not persons who held a
majority of the Common Stock of the Company immediately prior to such
transaction.
COMMON STOCK. Common Stock shall mean the issued and outstanding common
stock, par value $.0001, of the Corporation.
EXCHANGE ACT. Exchange Act shall mean the Securities Exchange Act of
1934, as amended.
<PAGE>
GROUP. Group shall have the meaning set forth in Section 13(d)(3) of
the Exchange Act.
INVOLUNTARY TRANSFER. Involuntary Transfer shall mean any transfer,
proceeding or action by or in which a Shareholder shall be deprived or divested
of any right, title or interest in or to any of the Stock, including, without
limitation, any seizure under levy of attachment or execution, any transfer in
connection with bankruptcy (whether pursuant to the filing of a voluntary or an
involuntary petition under the United States Bankruptcy Code, as amended, or any
modifications or revisions thereto) or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or agency or any
transfer to a state or to a public officer or agency pursuant to any statute
pertaining to escheat or abandoned property.
MARKET VALUE. Market Value of the Offered Shares shall have the
following meaning:
(i) If, as of the date of a Transfer Notice, the Corporation
is a Reporting Company, the Market Value of the Common Stock for any purpose
shall mean the last reported sale price per share of Common Stock, on the date
of the Transfer Notice or, in case no such sale takes place on such date, the
average of the closing bid and asked prices 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 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, 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, as furnished by a professional
market maker making a market in the Common Stock as selected in good faith by
the Board or by such other source or sources as shall be selected in good faith
by the Board. 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.
(ii) If, as of the date of a Transfer Notice, the Corporation
is not a Reporting Company, the Market Value shall be the appraised fair market
value of the Offered Shares as of the date of the Transfer Notice, as determined
by an independent appraiser of recognized standing selected by the Corporation.
OFFERED SHARES. Offered Shares shall have the meaning set forth in
Section 2.A. hereof.
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REPORTING COMPANY. Reporting Company shall mean a company the common
stock of which is registered under Section 12 of the Securities Exchange Act of
1934, as amended.
STOCK. Stock shall mean the Shares and any capital stock of the
Corporation or any of its successors or assigns issued in respect thereof
pursuant to a stock split, stock dividend, recapitalization or otherwise.
TRANSFER NOTICE. Transfer Notice shall have the meaning set forth in
Section 2.A. hereof.
2. RESTRICTIONS ON DISPOSITION
A. RIGHTS OF FIRST REFUSAL OF COMMON STOCK. (i) Except as otherwise
provided in Subsection D. below, before any Stock may be voluntarily sold or
transferred by a Shareholder (a "Transferring Shareholder"), such Transferring
Shareholder shall first provide written notice of the proposed sale or transfer
to the Corporation, which notice shall include the number of shares of Stock
proposed for transfer (the "Offered Shares"), the price per share of Stock to be
transferred, (the "Offer Price"), the name of the proposed transferee or, if the
shares are proposed to be transferred on the stock market, the name of the
proposed broker (the "Proposed Transferee"), a representation that the agreement
to sell or transfer constitutes a bona-fide offer to purchase and all other
terms and conditions of the transfer (the "Transfer Notice").
(ii) The Corporation shall then have the right to purchase
some or all of the Offered Shares at the lesser of the Offer Price or Market
Value. Such right of first refusal shall be exercisable upon written notice to
the Transferring Shareholder within fifteen (15) days following the date of the
Transfer Notice (the "First Refusal Period"), which notice shall specify the
number of Offered Shares to be purchased by the Corporation.
(iii) If, upon termination of the First Refusal Period, the
Corporation has not exercised its right of first refusal with respect to some or
all of the Offered Shares, the Transferring Shareholder may sell such
non-elected Shares to the Proposed Transferee at any time within three months
after the termination of the First Refusal Period without again complying with
this Section 2.
B. INVOLUNTARY TRANSFERS. Any Involuntary Transfer of Stock by a
Shareholder (an "Involuntary Transferor") shall be subject to the rights of
first refusal set forth in Section 2.A. as if the Involuntary Transfer had been
a proposed voluntary transfer of Stock except that:
(i) the provisions of Subsection 2.A.(i) shall not apply, but
the Involuntary Transferor shall notify the Corporation immediately upon
obtaining knowledge of the Involuntary Transfer;
(ii) the First Refusal Period shall run from the date of
receipt by the Corporation of the notice of Involuntary Transfer;
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(iii) such right of first refusal shall be exercised by notice
to the Involuntary Transferee rather than to the Shareholders; and
(iv) The purchase price for the Offered Shares shall be Market
Value.
C. SETTLEMENT. If the Corporation elects to exercise its right of first
refusal to acquire all or any portion of the Offered Shares, settlement shall be
made within 30 days of the Transfer Notice.
D. PERMITTED TRANSFERS. Nothing in this Section 2 shall prohibit the
transfer by a Shareholder of Stock (a) to an Affiliate of the Shareholder or (b)
to the Corporation. Any successor or transferee who receives Stock pursuant to
an event described in clause (a) above shall, as a condition of such transfer,
enter into an agreement to be bound by the provisions of this Agreement in its
entirety and shall be deemed to be a "Shareholder" hereunder, and SCHEDULE A
hereto shall be amended to include the name of such successor or transferee.
3. "DRAG-ALONG" RIGHTS
If shareholders of the Corporation holding a majority of the Common
Stock subject to that certain Second Amended and Restated Shareholders'
Agreement dated June 30, 1999 (the "Original Shareholders' Agreement") indicate
in writing that they will vote in favor of a Change of Control Transaction
involving the Corporation, the Corporation may require the Shareholders to
participate in such transaction on the same terms and conditions as the
shareholders whose shares are subject to the Original Shareholders' Agreement
(the "Participating Shareholders") by giving the Shareholders written notice
thereof at least 30 days in advance of the date of closing of the Change in
Control Transaction. Upon receipt of such notice, each of the Shareholders shall
tender the same proportion of Stock owned by it as the Participating
Shareholders will sell on the same terms and conditions applicable to the Stock
of the Participating Shareholders in the transaction.
4. REGISTRATION RIGHTS
To the extent that the Corporation grants registration rights to one or
more of the Participating Shareholders under a registration statement filed with
the Securities and Exchange Commission (a "Registration Statement"), each of the
Shareholders shall have the right to sell a number of shares of Stock to be
registered under the Registration Statement equal to the number of shares of
Stock directly owned by such Shareholder multiplied by a fraction, the numerator
of which is equal to the number of shares of Common Stock owned by Participating
Shareholders that are to be registered pursuant to the Registration Statement
and the denominator of which is equal to the total number of shares of Common
Stock owned by the Participating Shareholders.
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5. LEGENDS ON CERTIFICATES
The certificates evidencing the Stock held by the Shareholders shall
bear any legends required by federal or state securities law and the following
legend required by Section 202 (a) of the Delaware General Corporation Law:
"The shares represented by this Certificate are subject to a
Shareholders' Agreement dated as of August ___, 1999, a copy
of which is on file at the office of the Corporation and will
be furnished to any prospective purchaser on request. Such
Shareholders' Agreement provides, among other things, for
certain restrictions on the sale, transfer, pledge,
hypothecation or disposition of the Shares represented by this
Certificate."
6. ARBITRATION OF DISPUTES
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 Baltimore, Maryland or in such other location as may be agreed upon
by the Corporation and the Shareholders, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
award of the arbitrator in any court having competent jurisdiction.
7. BENEFIT
Except upon the occurrence of a termination event as provided in
Section 16, this Agreement shall be binding upon and shall operate for the
benefit of the parties hereto, their respective successors and assigns.
8. INVALIDITY OF ANY PROVISION
The invalidity or unenforceability of any provision of this Agreement
shall not affect the other provisions hereof, and the Agreement shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted, provided that the parties shall negotiate in good faith to replace the
invalid provision with a valid provision reflecting the same balance of economic
interests.
9. MODIFICATION OF AGREEMENT
No modification, amendment or waiver of any of the provisions of this
Agreement shall be valid unless made in writing and signed by the Corporation
and Shareholders owning, in the aggregate, a majority of the Stock subject to
this Agreement.
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10. FURTHER ACTION
A. The Corporation shall not register, and shall instruct any transfer
agent for the Common Stock not to register, on the books of the Corporation any
transfer, pledge or encumbrance of any Stock subject to this Agreement, unless
such transfer, pledge or encumbrance complies with terms of this Agreement and
the Shareholders agree to provide the Corporation (or any such transfer agent)
with such documents, including an opinion of counsel as to compliance with the
terms of this Agreement, as the Corporation (or any such transfer agent) may
reasonably request.
B. A copy of this Agreement shall be made a part of the minutes of the
Corporation.
11. ATTORNEY'S FEES AND COSTS
If any action at law or in equity (including any arbitration proceeding
under Section 6 above) is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs, and necessary disbursements, in addition to any other relief to which he
may be entitled.
12. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the
State of Delaware.
13. ENTIRE AGREEMENT
This Agreement supersedes all agreements as to the subject matter
hereof among the Shareholders and the Corporation including in each case
amendments thereto, previously executed by the Shareholders and the Corporation.
This Agreement sets forth all of the provisions, covenants, agreements,
conditions and undertakings between the parties hereto with respect to the
subject matter hereof, and superseded all prior and contemporaneous agreements
and understandings express or implied, oral or written as to the subject matter
hereof.
14. NOTICES
Unless otherwise specified herein, all notices, requests, demands and
other communications to be given under this Agreement shall be in writing and
shall be deemed given if (i) delivered in person, or by United States mail,
certified or registered, with return receipt requested, (ii) if sent by telex or
facsimile transmission, with a copy mailed on the same day in the manner
provided in (i) above, when transmitted and receipt is confirmed by telephone,
or (iii) if otherwise actually delivered:
TO THE CORPORATION: 3840 Bank Street, Baltimore, MD 21224-2522;
TO ANY SHAREHOLDER:
As the name and address of such Shareholder
appears on the records of the Corporation;
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or at such other address as may have been furnished by such person in writing to
the other parties. Any such notice, demand or other communication shall be
deemed to have been given on the date actually delivered or as of the date
mailed, as the case may be.
15. TERM OF AGREEMENT
This Agreement shall be effective for a period of ten years from the
date hereof.
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IN WITNESS WHEREOF, the parties hereto have executed and sealed this
Agreement as of the day and year first above written.
I.C. ISAACS & COMPANY, INC.
By: /s/ Robert J. Arnot
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Robert J. Arnot, Chief Executive Officer
LATITUDE LICENSING CORP.
By: /s/ Pierre Martin
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Name: Pierre Martin
Title: Vice President
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SCHEDULE A
Latitude Licensing Corp.
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EXHIBIT 5.2
Immediately upon issuance of the shares to Latitude Licensing Corp.
("Latitude"), Latitude shall transfer the Shares to Wurzburg S.A. in
accordance with the terms of the Agreement dated August 4, 1999 by and
between Latitude and Mode et Textile, Developpement S.A.
