SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or Section
240.14a-12
Howard B. Wolf, Inc.
- ----------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which
transaction applies:
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(2) Aggregate number of securities to which
transaction applies:
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(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ X ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE>
HOWARD B. WOLF, INC.
3809 Parry Avenue
Dallas, Texas 75226-1753
(214) 823-9941
April 15, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the
Shareholders of Howard B. Wolf, Inc., a Texas corporation (the
"Company"), to be held at 10:00, a.m. on May 6, 1999 at the
Crescent Club, 200 Crescent Court, Dallas, Texas (including any
adjournment or postponement thereof, the "Special Meeting").
At the Special Meeting, you will be asked to consider the
advisability of dissolving the Company by adopting a plan to
liquidate the Company and distribute its assets to the
shareholders (the "Plan of Liquidation").
DETAILS OF THE PLAN OF LIQUIDATION APPEAR IN THE
ACCOMPANYING PROXY STATEMENT. PLEASE GIVE THIS MATERIAL YOUR
CAREFUL ATTENTION.
Approval of the Plan of Liquidation requires the affirmative
vote of the holders of at least two-thirds (66-2/3%) of the
Company's issued and outstanding shares of common stock, $0.33-
1/3 par value per share (the "Common Stock"). Each share of the
Common Stock is entitled to one vote on all matters to come
before the Special Meeting. The Common Stock constitutes the only
outstanding class of capital stock of the Company.
It is important that your shares of Common Stock be
represented at the Special Meeting. Whether or not you plan to
attend the Special Meeting, please COMPLETE, SIGN AND DATE the
enclosed proxy card and MAIL it promptly using the enclosed, pre-
addressed, postage-paid, return envelope. If you attend the
Special Meeting, you may revoke the proxy given and vote in
person if you wish, even if you have previously returned your
proxy card. Your prompt attention will be greatly appreciated.
Sincerely,
Howard B. Wolf
Chairman of the Board
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
HOWARD B. WOLF, INC.
3809 Parry Avenue
Dallas, Texas 75226-1753
(214) 823-9941
____________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 6, 1999
To the Shareholders of Howard B. Wolf, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special
Meeting") of Shareholders of Howard B. Wolf, Inc. (the
"Company"), will be held at the Crescent Club, 200 Crescent Court,
Dallas, Texas at 10:00 a.m. (Dallas, Texas time), on May 6, 1999
for the purpose of considering the advisability of dissolving the
Company by adopting a proposal to liquidate the Company and
distribute its assets to the shareholders. The full text of the
Plan of Complete Liquidation and Dissolution is attached as
Appendix A to the Proxy Statement.
THE SPECIAL MEETING IS BEING CALLED BY THE BOARD OF
DIRECTORS OF THE COMPANY IN ORDER FOR THE SHAREHOLDERS TO
CONSIDER THE ADVISABILITY OF DISSOLVING THE COMPANY BY ADOPTING A
PROPOSAL TO LIQUIDATE THE COMPANY AND DISTRIBUTE ITS ASSETS TO
THE SHAREHOLDERS.
The Board of Directors has fixed the close of business on
April 9, 1999 as the record date (the "Record Date") for the
determination of the shareholders entitled to notice of, and to
vote at, the Special Meeting or any adjournment thereof. Only
shareholders of record at the close of business on the Record
Date are entitled to notice of, and to vote at, the Special
Meeting. The stock transfer books will not be closed. A list of
shareholders entitled to vote at the Special Meeting will be
available for examination at the offices of the Company for ten
days prior to the Special Meeting. Approval of the Plan of
Liquidation requires the affirmative vote of the holders of at
least two-thirds (66-2/3%) of the Company's common stock.
EACH SHAREHOLDER IS CORDIALLY INVITED TO ATTEND THE SPECIAL
MEETING IN PERSON. TO ASSURE REPRESENTATION AT THE SPECIAL
MEETING, HOWEVER, SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE POSTAGE-
PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER
ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF HE OR
SHE HAD PREVIOUSLY RETURNED A PROXY CARD.
By Order of the Board of Directors,
Howard B. Wolf
Chairman of the Board
Dallas, Texas
April 15, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE PROPOSED
LIQUIDATION OF THE COMPANY.................................. 1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.............. 2
THE SPECIAL MEETING.......................................... 3
Time, Date and Place of Special Meeting..................... 3
Purpose of the Special Meeting; Recommendation of
the Board of Directors..................................... 3
Record Date and Outstanding Shares.......................... 4
Intentions to Vote.......................................... 4
Quorum and Voting of Proxies; Revocation.................... 4
Voting Rights............................................... 4
Vote Required............................................... 5
No Dissenters' or Appraisal Rights Under Texas Law.......... 5
Proxy Solicitation and Expenses............................. 5
THE PROPOSED LIQUIDATION..................................... 6
General..................................................... 6
Provision for Liabilities and Claims........................ 7
Estimated Amount Available for Distribution per Share....... 8
Distribution to Shareholders................................ 9
Directors Officers and Indemnification...................... 9
Background of the Proposed Liquidation...................... 9
The Company's Reasons for the Proposed Liquidation;
Recommendation of the Board of Directors................... 11
Interests of Certain Persons in the Proposed Liquidation.... 12
Regulatory Approvals........................................ 12
Material Federal Income Tax Consequences.................... 12
Expenses and Other Fees..................................... 14
Delisting and Deregistration of the Company's
Common Stock............................................... 14
OWNERSHIP OF COMMON STOCK BY MANAGEMENT...................... 15
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY.......... 16
PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA............... 17
STOCK PERFORMANCE DATA....................................... 18
Market Information.......................................... 18
Recent Market Price......................................... 18
Number of Holders........................................... 18
COMPARATIVE PER SHARE DATA................................... 19
PRO FORMA FINANCIAL DATA..................................... 20
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............. 23
DEADLINE FOR SHAREHOLDER PROPOSALS........................... 23
MISCELLANEOUS................................................ 24
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE PROPOSED LIQUIDATION
Q. Who is soliciting my proxy?
A. The Board of Directors of Howard B. Wolf, Inc.
Q. Where and when is the Special Meeting?
A. 10:00 a.m., May 6, 1999, at the Crescent Club, 200 Crescent
Court, Dallas, Texas.
Q. What am I voting on?
A. Management of the Company is seeking the authorization of
the shareholders to liquidate the Company and distribute its
assets to the shareholders through the adoption of the Plan of
Complete Liquidation and Dissolution.
Q. Why should the Company liquidate?
A. The Company has experienced the erosion of its primary
marketplace as more and more independent women's specialty stores
have closed and many remaining stores are placing smaller and
smaller orders. Contributing to this erosion are the
generational and societal buying habits of women. After
extensive research and study, management has determined that
these trends will continue to negatively impact the future
prospects of the Company.
Q. How will the money received from the liquidation be
distributed to the Company's shareholders?
A. After the payment of all of the Company's claims and
obligations, the Company shall distribute pro rata to the
shareholders all available cash. Management currently estimates
that approximately $4,400,000 (or $4.17 per share) will be
available for distribution in connection with the liquidation.
Q. Will shareholders have appraisal rights?
A. No. Shareholders of the Company will not have appraisal
rights as a result of this transaction.
Q. What should shareholders do now?
A. Shareholders should mail their signed and dated proxy card
in the enclosed envelope as soon as possible, so that their
shares will be represented at the shareholders' meeting.
Q. Can shareholders change their vote after they have mailed a
signed proxy card?
A. Yes. Shareholders can change their vote in one of three ways
at any time before their proxies are used. First, shareholders
can revoke their proxies by written notice. Second, shareholders
can complete new, later-dated proxy cards. Third, shareholders
can attend the special shareholders' meeting and vote in person.
Q. How are shares held in a broker's name voted?
A. Brokers will vote shares nominally held in their name (or in
what is commonly called "street name") only if the beneficial
shareholder provides the broker with written instructions on how
to vote. Absent such instructions, these shares will not be
voted. Shareholders are urged to instruct their brokers in
writing to vote shares held in street name for the proposed
transaction.
Q. Whom should shareholders call with questions?
A. The Company shareholders who have questions about the
transaction should call Eugene K. Friesen, the Company's Senior
Vice President and Treasurer, at (972) 823-9941.
Q. Has the Company sought a fairness opinion on the Proposed
Liquidation?
A. No. The Company has not sought a fairness opinion on the
Proposed Liquidation.
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<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements
including statements containing the words "believes,"
"anticipates," "expects," "intends" and words of similar import.
These statements involve known and unknown risks and
uncertainties that may cause the Company's actual results or
outcomes to be materially different from those anticipated and
discussed herein. Important factors that the Company believes
might cause such differences include the amount and nature of
liabilities of or that may be asserted against the Company, the
timing and amount of any distributions to shareholders pursuant
to the Plan of Liquidation, and those specific risks that are
discussed in the cautionary statements accompanying the forward-
looking statements in this Proxy Statement and in the Risk
Factors detailed in the Company's previous filings with the
Securities and Exchange Commission (the "Commission"). In
assessing forward-looking statements contained herein,
shareholders are urged to read carefully all cautionary
statements contained in this Proxy Statement and in those other
filings with the Commission.
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<PAGE>
HOWARD B. WOLF, INC.
3809 Parry Avenue
Dallas, Texas 75226-1753
(214) 823-9941
_________________________
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
THE SPECIAL MEETING
TIME, DATE AND PLACE OF SPECIAL MEETING
This Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of Howard
B. Wolf, Inc., a Texas corporation (the "Company") for use at the
Special Meeting of Shareholders to be held at 10:00 a.m. (Dallas,
Texas time) on May 6, 1999 at the Crescent Club, 200 Crescent
Court, Dallas, Texas and at any meeting held upon adjournment
or postponement thereof (the "Special Meeting").
Copies of this Proxy Statement, the attached Notice of
Special Meeting of Shareholders, and the enclosed form of proxy
are first being mailed to the Company's shareholders on or about
April 15, 1999.
PURPOSE OF THE SPECIAL MEETING; RECOMMENDATION OF THE BOARD OF
DIRECTORS
At the Special Meeting, holders of the Company's common
stock, $0.33 1/3 par value per share (the "Common Stock"), will
consider the advisability of dissolving the Company by voting
upon a proposal to approve and adopt the Plan of Complete
Liquidation and Dissolution (the "Plan of Liquidation"), pursuant
to which the Board of Directors of the Company proposes to
liquidate the Company (the "Proposed Liquidation") and distribute
the assets of the Company to the shareholders. A copy of the
Plan of Liquidation has been attached as Appendix A to this Proxy
Statement.
Pursuant to the applicable provisions of the Texas Business
Corporation Act (the "TBCA"), the Company is required to obtain
the affirmative vote of at least two-thirds (66-2/3%) of the
outstanding shares of Common Stock in order to voluntarily
dissolve the Company. Upon the adoption of a resolution of the
shareholders of the Company to adopt the Plan of Liquidation, and
after compliance with the provisions of the TBCA, the Company
shall effect the Proposed Liquidation.
THE BOARD OF DIRECTORS HAS APPROVED THE PLAN OF LIQUIDATION
(SUBJECT TO SHAREHOLDER APPROVAL) AND RECOMMENDS THAT THE COMPANY
BE DISSOLVED.
The Company has made no provision or plan as to what it
would do if the shareholders of at least two-thirds of its common
stock do not vote in favor of the Plan of Liquidation.
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<PAGE>
RECORD DATE AND OUTSTANDING SHARES
The Board of Directors of the Company has fixed the close of
business on April 9, 1999 as the record date (the "Record Date")
for the determination of shareholders entitled to notice of, and
to vote at, the Special Meeting or any adjournment thereof.
Accordingly, only holders of record of the Company's Common Stock
at the close of business on the Record Date will be entitled to
vote at the Special Meeting, either by proxy or in person. As of
the Record Date, there were 225 holders of record of the Common
Stock of the Company and 1,056,191 shares of Common Stock were
issued and outstanding.
INTENTIONS TO VOTE
The directors and executive officers of the Company, who
beneficially hold an aggregate of approximately 453,598 of the
outstanding shares of Common Stock of the Company, have indicated
their intentions to vote their shares in favor of the Plan of
Liquidation. As of the Record Date, the total number of shares
of Common Stock which these individuals have indicated a desire
to vote equal 453,598 shares of Common Stock. Accordingly,
approval of the Plan of Liquidation by the Company's shareholders
is likely. See "Ownership of Common Stock by Management."
QUORUM AND VOTING OF PROXIES; REVOCATION
The presence at the Special Meeting, in person or by proxy,
of the holders of one-half (50%) of the Company's aggregate
shares of issued and outstanding Common Stock on the Record Date
will constitute a quorum at the Special Meeting. Shares of Common
Stock which are represented by properly executed proxy cards
received by the Company at or prior to the Special Meeting, and
not duly and timely revoked, will be voted according to the
instructions indicated on the proxy card. Unless contrary
instructions are given, the persons named on the proxy card
intend to vote the shares of Common Stock so represented FOR the
Plan of Liquidation.
Any holder of Common Stock has the power to revoke his or
her proxy at any time before it is voted at the Special Meeting
by delivering a written notice of revocation to the Secretary of
the Company, by a duly executed proxy bearing a later date, or by
voting by ballot at the Special Meeting.
Shares represented by proxies that reflect abstentions or
include "broker non-votes" will be treated as shares that are
present and entitled to vote for purposes of determining the
presence of a quorum. In the event that a quorum is not present
at the Special Meeting, it is expected that the meeting will be
adjourned or postponed to solicit additional proxies. The persons
named as proxies with respect to the Special Meeting may propose
and vote for one or more adjournments of the Special Meeting to
permit further solicitation of proxies in favor of the proposals;
provided, however, that no proxy which is voted against the Plan
of Liquidation will be voted in favor of any such adjournment or
postponement.
VOTING RIGHTS
Each share of Common Stock is entitled to one vote on each
matter to be acted upon or which may properly come before the
Special Meeting. The Common Stock constitutes the only
outstanding capital stock of the Company.
-4-
<PAGE>
VOTE REQUIRED
The affirmative vote of the holders of at least two-thirds
(66-2/3%) of the issued and outstanding shares of Common Stock on
the Record Date is required to approve the Plan of Liquidation.
Abstentions and "broker non-votes" will have the effect of votes
against approval of the Plan of Liquidation. A broker non-vote
occurs when a nominee holding shares for a beneficial owner does
not vote on a proposal because the nominee does not have
discretionary voting power and has not received instructions from
the beneficial owner.
NO DISSENTERS' OR APPRAISAL RIGHTS UNDER TEXAS LAW
Shareholders of the Company who do not approve of the Plan
of Liquidation are not entitled to appraisal rights, dissenters'
rights or any other rights with respect to the Proposed
Liquidation under Texas law or the Company's Restated Articles of
Incorporation, as amended.
PROXY SOLICITATION AND EXPENSES
The accompanying proxy is being solicited on behalf of the
Board of Directors of the Company. All expenses of this
solicitation, including the cost of preparing, assembling, and
mailing this proxy soliciting material and Notice of Special
Meeting of Shareholders, will be paid by the Company. Additional
solicitation of holders of Common Stock by mail, telephone,
facsimile or by personal solicitation may be done by directors,
officers and regular employees of the Company, for which they
will receive no additional compensation. Brokerage houses and
other nominees, fiduciaries and custodians nominally holding
shares of Common Stock as of the Record Date will be requested to
forward proxy soliciting material to the beneficial owners of
such shares, and will be reimbursed by the Company for their
reasonable out-of-pocket expenses.
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<PAGE>
THE PROPOSED LIQUIDATION
GENERAL
The Company's Board of Directors unanimously recommends to
the shareholders that the shareholders approve adoption of the
Plan of Liquidation of the Company. By Resolution dated
February 3, 1999, the Directors approved the Plan of Liquidation
(a copy of which is attached to this Proxy Statement as Appendix
A). The Plan of Liquidation is subject to the approval of the
shareholders of the Company, which is the matter to be considered
at the Special Meeting. The summary description of the Plan of
Liquidation and its effects set forth hereafter is qualified in
its entirety by reference to the Plan of Liquidation itself. The
Plan of Liquidation basically provides that upon adoption by the
shareholders, the Company will be dissolved and its corporate
existence terminated in accordance with Texas law.
Assuming that the Plan of Liquidation is approved by the
shareholders at the Special Meeting, then the Board of Directors
will proceed in the following manner:
1. To the extent deemed necessary by the Board of Directors,
the Board will establish and set aside reasonable amounts to meet
claims against the Company, including all contingent, conditional
or unmatured claims known to the Company and all claims which are
known to the Company but for which the identity of the claimant
is unknown. Claims which are filed with the Company will be dealt
with and provision will be made for payment of all duly approved
claims and liabilities (to the extent of available funds realized
upon sale of the Company's assets). The Company will also pay
all expenses of the liquidation and termination of the Company's
existence from the Company's cash and from the sale of these
assets. (See "Provision of Liabilities and Claims" hereafter).
2. If deemed appropriate by the Board of Directors, the Company
may establish an escrow account ("Escrow Account") or Trust
("Trust") and transfer to one or more escrow agents or trustees,
for the benefit of the shareholders (the "Escrow Agent(s)" or
"Trustee(s)," respectively), under an Escrow Account or Trust,
any assets of the Company which are (a) not reasonably
susceptible to distribution to the shareholders, including
without limitation non-cash assets and assets held on behalf of
the shareholders (i) who cannot be located or who do not tender
their certificates evidencing the Common Stock to the Company or
its agent as may be required or (ii) to whom distributions may
not be made based upon restrictions under contract or law,
including, without limitation, restrictions of the federal
securities laws and regulations promulgated thereunder or (b)
held as a contingency reserve out of which maybe paid any
contingent liabilities, including but not limited to those rising
under workers' compensation, environmental laws, federal or state
securities law, or any other federal or state laws, which arise
after the dissolution of the Company.
3. The Company shall distribute pro rata to the shareholders
all available cash including the cash proceeds of any sale,
exchange or disposition, except such cash, property or assets as
are required for paying or making reasonable provision for the
claims and obligations of the Company. Such distribution may
occur all at once or in a series of distributions and shall be in
cash, in such amounts, and at such time or times, as the Board of
Directors, Escrow Agent(s) or the Trustee(s) (as applicable), in
their absolute discretion, may determine. If and to the extent
deemed necessary, appropriate or desirable by the Board of
Directors, Escrow Agent(s) or the Trustee(s), in their absolute
discretion, the Company may establish and set aside a reasonable
amount (the "Contingency Reserve") to satisfy claims against the
Company, including, without limitation, tax obligations, and all
expenses of the sale of the Company's property and assets, of the
collection and defense of the
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<PAGE>
Company's property and assets, and of the liquidation and
dissolution provided for in the Plan of Liquidation. This
Contingency Reserve may consist of cash and/or property.
4. After provision for creditors' claims is made and all
property has been distributed and if there are no pending legal,
administrative or arbitration proceedings or adequate provisions
have been made to satisfy any judgment arising therefrom,
Articles of Dissolution will be filed with the Texas Secretary of
State, pursuant to the Texas Business Corporation Act ("TBCA"),
and any and all other necessary or appropriate actions will be
taken to dissolve and to terminate the Company's existence.
PROVISION FOR LIABILITIES AND CLAIMS
The Board of Directors believes that no material contingent
claims are outstanding as of the date of this Proxy Statement.
-7-
<PAGE>
ESTIMATED AMOUNT AVAILABLE FOR DISTRIBUTION PER SHARE
The following estimate of the amount available for
distribution to shareholders is based upon the Board of
Directors' best estimates of the amounts available, the expenses
to be incurred and provisions for immaterial outstanding
contingent liabilities. Although the Directors have carefully
reviewed all of this material, it must be emphasized that THESE
AMOUNTS ARE ESTIMATES ONLY AND MUST BE CONSIDERED AS PRELIMINARY.
ACCORDINGLY, NO ASSURANCE CAN BE GIVEN THAT THE ESTIMATED
LIQUIDATION AMOUNT WILL BE ACTUALLY REALIZED OR THAT THE AMOUNTS
DISTRIBUTED TO SHAREHOLDERS WILL NOT VARY MATERIALLY FROM THE
PRELIMINARY AMOUNTS WHICH ARE SET FORTH BELOW. While it is not
possible to determine the exact amount that may ultimately be
realized upon disposition of the Company's assets if the Plan of
Liquidation is adopted by the shareholders, the Directors believe
that the amount available for distribution as a result of the
liquidation, will aggregate approximately $4.17 per share as set
forth below:
<TABLE>
<CAPTION>
Book Value on Estimated
Category February 3, 1999 Realizable Value
- ---------------------------------- -------------------- -------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 750,000 $ 750,000
Accounts receivable 1,900,000 1,500,000
Inventories 3,500,000 2,200,000
Prepaid expenses 50,000 0
Refundable federal income tax 200,000 400,000
Deferred federal income tax 239,000 165,000
-------------- --------------
Total current assets $6,639,000 5,015,000
Property, plant and equipment (net) 800,000 1,800,000
Property, plant and equipment not 0 235,000
used in operations (net)
Other assets 50,000 50,000
-------------- --------------
Total assets $7,489,000 $ 7,100,000
============== ==============
Current liabilities:
Accounts payable and $ 400,000 $ 2,260,000
accrued liabilities
0 440,000
Contingency liability reserve
Deferred federal income tax 70,000 0
Shareholders' equity 7,019,000 4,400,000
-------------- --------------
Total liabilities
and shareholders' equity $7,489,000 $ 7,100,000
============== ==============
Estimated amount available for N/A $ 4,400,000
distribution to shareholders
Amount per share N/A $4.17
</TABLE>
-8-
<PAGE>
DISTRIBUTION TO SHAREHOLDERS
The Plan of Liquidation provides that the remaining assets
of the Company will be distributed to the shareholders at such
time as may be determined by the Board of Directors (or the
Escrow Agent(s) or Trustee(s), as applicable). The character,
amount and timing of these distributions will depend upon claims
filed against the Company during the claim periods established by
law and under the Plan of Liquidation, as well as any amounts
deemed necessary or appropriate to provide for the satisfaction
of the Company's liabilities, either fixed or contingent, as well
as the expenses of liquidating the Company.
The expenses of winding up the Company's affairs, preparing
all reports required by federal and state law in connection with
the Company's continued existence, the negotiation and completion
of payment of any claims against the Company, as well as all
expenses and liabilities which continue to arise or be incurred
during the course of the liquidation process will reduce the
amount of assets available for distribution to the shareholders.
Upon the initial distribution under the Plan of Liquidation,
shareholders may be required to surrender their common stock
certificates to the Company or its agents for cancellation. If
the distributions are to be made out of a Trust, then the
shareholders will have to surrender their common stock
certificates as a condition to entitlement to receive
distributions from a Trust.
The Company anticipates that the initial distribution to
shareholders will occur within 180 days of the approval of the
Plan of Liquidation.
DIRECTORS, OFFICERS AND INDEMNIFICATION
It is anticipated that the Company will continue to pay
compensation to certain officers who continue to provide services
to the Company at present levels through May 31, 1999.
It is anticipated that all of the Company's directors (all
but two of whom are shareholders of the Company) will remain
directors of the Company until the Plan of Liquidation is
approved by the shareholders.
The Plan of Liquidation provides for indemnification to the
directors, officers, employees or agents of the Company against
all liabilities and expenses in connection with the liquidation
or any other affairs of the Company. In the event the Company's
assets, which may be held by a Trust for the benefit of
shareholders, are insufficient to satisfy these liabilities and
expenses, the Company will indemnify such persons moving funds
from the Contingency Reserve.
BACKGROUND OF THE PROPOSED LIQUIDATION
In 1952 Howard B. Wolf, Inc. began the designing,
manufacturing and marketing of the HOWARD WOLF label, which
consisted primarily of dresses for career and professional women
who demanded smart, fashionable clothes at a competitive price.
The Company developed a design staff and production facilities to
insure the look and quality of its products. Its primary market
was better women's specialty stores and department stores.
HOWARD WOLF fashions carved out a unique niche in the market
place and became a prestigious label among discriminating
consumers. As consumer demand changed in the market place, the
Company introduced HOWARD WOLF SPORTSWEAR label in 1972.
Maintaining most of their profile and marketplace, the HOWARD
WOLF labels enjoyed much success. Additional labels - PRET-A-
PORTE - dresses and sportswear and ERNESTO W. blouses - were
introduced in 1969 and 1976, respectively. In 1993, the HOWARD
WOLF W label, featuring
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<PAGE>
dresses and sportswear in fashionable larger sizes, was
introduced. Due to a lack of sales volume, the three latter
mentioned labels were primarily relegated to serve certain
stores that placed special request orders.
In 1994 management recognized that the Company's traditional
target distribution channels, i.e. independent retail specialty
stores, were experiencing a decline in volume and that many were
opting to close their doors. The Company engaged a consulting
firm to analyze all aspects of its operations and markets with a
view to reposition itself for growth over the next decade.
Management concluded that the best course of action was to
continue to broaden the Company's market base by gaining a
greater penetration in selected geographical territories and
increase its marketing in Canada and Mexico. In addition, steps
were taken to develop chain and catalogue distribution.
The desired volume was not achieved in these geographical
territories, and initial export distribution was soon reduced
dramatically by the peso devaluation in Mexico and the economic
downturn in Canada. However, the volume of such exports never
made any material contribution to the Company. The development
of chain and catalogue sales was moderately successful, but
profit margins were unacceptably low in this segment of business.
In the 1980's, the Company closed all of its non-
headquarters' factories in order to gain cost efficiencies and
quicker turn-around time in production. Independent sewing
contractors were utilized together with limited offshore
production. In order to gain the cost efficiencies considered
necessary to be competitive in the marketplace, the Company
sought to significantly increase its sales volume to take
advantage of offshore production.
In the mid-1990's, the Company continued to experience the
erosion of its primary marketplace as more and more independent
women's specialty stores closed and many of the remaining stores
were placing smaller and smaller orders. Generational and
societal buying habits of women were among the reasons for the
stores' lower sales. Upon continued research and study,
management determined that it would be necessary to try to find a
compatible company to acquire or to merge with in order to gain
both sales volume and the efficiencies necessary to generate
acceptable profit levels. In 1996, the number one consulting
firm in the apparel industry was engaged to explore the entire
marketplace, both domestic and international, for the best
candidate for acquisition or merger. After a two-year search a
compatible partner had not been found.
In 1997, the Company did extensive research on vertical
retailing and opened two pilot HOWARD WOLF outlet mall retail
stores in premium outlet malls in Napa, California and Las Vegas,
Nevada. After approximately a year and one-half of operations in
Napa and approximately 11 months of operations in Las Vegas,
profitable sales volumes were not achieved and both stores
closed.
Sales orders booked for the Fall 1998 season and the
Holiday/Cruise 1998 season continued to be below desired levels.
The Company's operations for the first quarter ended August 31,
1998 were at a break-even profit level. Sales orders booked for
the Spring 1999 season were approximately forty percent lower
than in 1998. This lower sales volume contributed to the
Company's loss of $441,000 for the quarter ended November 30,
1998.
Management again scrutinized all of the Company's business
and concluded that in the foreseeable future little change, if
any, would be forthcoming in its niche in the fashion industry.
Many department stores and discount volume stores have become
deeply entrenched in obtaining their own private label brands
through volume importers, thus making them direct competitors.
Management also noted that several apparel manufacturers
throughout the country were closing.
-10-
<PAGE>
With the amount of 1999 Spring and Summer orders booked, the
Company's loss from operations in the third quarter was projected
to be even greater than in the second quarter. Again, one more
effort was made to find a strategic partner. When this failed,
management recommended to the Board of Directors that in the best
interests of the shareholders, the Company should meet its
obligations to its loyal customers by completing the production
and shipment of the 1999 Spring and 1999 Summer seasons and then
present to the shareholders the Plan of Liquidation. After
intense study and research, the Board of Directors approved a
press release to inform the shareholders and financial community
of the decision and to take the necessary action to call a
special shareholders meeting.
In February of 1999, the Company sold its facility in
Greenville, Texas, for $237,000. This facility had been leased
to a non-related entity and was not used in the Company's
operations.
The Company had entered into a contract whereby it would
have sold its Parry Avenue property in Dallas, Texas. However,
this contract was terminated by the prospective buyer and the
parties have negotiated a new agreement, pursuant to which such
prospective buyer must purchase the Parry Avenue property for
$1,700,000 or forfeit a $25,000 deposit. Upon any such sale of
the Parry Avenue property, the Company will lease back the Parry
Avenue property until it terminates its operations at the
facility or moves into another facility.
On February 16, 1999, the Company entered into a purchase
agreement (the "Purchase Agreement") with Jean St. Germain, a
California corporation ("JSG") pursuant to which the Company
agreed to sell JSG all of the assets necessary to produce
salesman's samples of the Howard Wolf Fall 1999 collection. In
addition, subject to either (a) the approval of the Company's
shareholders of the Plan of Liquidation, or (b) a vote by the
Company's Board of Directors to proceed without such approval,
the Company shall sell to JSG its interest in the Intellectual
Property (as defined in the Purchase Agreement). During the
period between the date of the Purchase Agreement and the I.P.
Closing Date (as defined in the Purchase Agreement), the use of
the Intellectual Property by JSG shall be governed by that
certain license agreement by and between the Company and JSG
attached as an exhibit to the Purchase Agreement.
On October 8, 1998, the Company began to downsize its staff.
As of April 9, 1999, the Company had 19 employees.
THE COMPANY'S REASONS FOR THE PROPOSED LIQUIDATION;
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE PLAN
OF LIQUIDATION IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS HAS APPROVED
THE PLAN OF LIQUIDATION AND RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE PLAN OF LIQUIDATION.
---
As described above under "Background of the Proposed
Liquidation," the decision of the Company's Board to approve the
Plan of Liquidation followed months of exploring and analyzing
the advantages and disadvantages of liquidating the Company's
assets. In making its recommendation to the shareholders of the
Company, the Board considered a number of factors, including
those noted immediately below which were determined by the Board
to favor a decision to consummate the Proposed Liquidation:
(i) the current financial condition and future prospects
for the Company, especially in light of the Board's
conclusion that the potential for growth in the
Company was limited without significant additional
capital expenditures or finding a strategic partner;
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<PAGE>
(ii) liquidation will permit the Company's shareholders
to receive a portion of the value of the Company's
assets, which the Board believes have been
depreciated to less than current realizable value;
and
(iii) liquidation will prevent further erosion of the
shareholders' equity through continuing net
operating losses.
The foregoing discussion of the information and factors
considered by the Board is not intended to be exhaustive, but
includes all material factors considered by the Board. The Board
did not attempt to quantify or otherwise assign relative weights
to the specific factors it considered or determine that any
factor was of particular importance. A determination of various
weightings would, in the view of the Board of Directors, be
impractical. Rather, the Board viewed its position and
recommendations as being based on the totality of the information
presented to, and considered by, the Board. In addition,
individual members of the Board may have given different weight
to different factors.
INTEREST OF CERTAIN PERSONS IN THE PROPOSED LIQUIDATION
The directors of the Company currently anticipate that, upon
the dissolution of the Company, the Company will provide each of
its employees with severance payments equal to one week's salary
for each year of service by such employee, up to a maximum of ten
weeks. The total amount of such payments is estimated to be
$300,000. No assurance can be given that this estimated amount
for severance payments will not vary from the amount set forth
above.
REGULATORY APPROVALS
The Plan of Liquidation does not require any regulatory
approvals other than the federal filings required under
applicable U.S. securities laws in connection with this Proxy
Statement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the
material federal income tax consequences of the Proposed
Liquidation, including the Plan of Liquidation, to the Company
and its shareholders, but is not intended to be a complete
analysis of all the potential tax effects. The discussion
addresses neither the tax consequences that may be relevant to
particular categories or shareholders subject to special
treatment under certain federal income tax laws (such as, for
example, dealers in securities, banks, insurance companies, tax-
exempt organizations, and foreign individuals and entities) nor
any tax consequences arising under the laws of any state, local
or foreign jurisdiction.
The discussion is based upon the Internal Revenue Code of
1986, as amended, Treasury Regulations, administrative rulings
and judicial decisions now in effect, all of which are subject to
change at any time, either prospectively or retrospectively, by
legislative, administrative or judicial action. The following
discussion has no binding effect on the IRS or the courts and
assumes that the Company will liquidate in accordance with the
Plan of Liquidation. Distributions pursuant to the Plan of
Liquidation may occur at various times and in more than one tax
year. No assurances can be given that the tax treatment
described herein will remain unchanged through each distribution.
No ruling has been requested from the IRS with respect to
the anticipated tax treatment of the Plan of Liquidation, and the
Company will not seek an opinion of counsel with respect to the
anticipated tax treatment summarized herein. There can be no
assurance that a Trust (if implemented) will be treated as a
Trust for federal income tax purposes or that the distributions
made pursuant to the Plan of Liquidation will be treated as
liquidating distributions. There can be no assurance that the
Company's
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<PAGE>
determination of the fair market value of any property
distributed will not be challenged, or that, if challenged, will
be upheld. If any of the conclusions stated herein proves to be
incorrect, the result could be increased taxation at the Company
and/or the shareholder level, thus reducing the benefit to the
shareholders and the Company from the liquidation.
CONSEQUENCES TO THE COMPANY. After the approval of the
Proposed Liquidation and until the liquidation is complete, the
Company will continue to be subject to tax on its taxable income.
The Company will generally recognize taxable gain or loss on
sales of its property pursuant to the Plan of Liquidation. Upon
any liquidating distribution of property to the shareholders or
to a Trust (if applicable), the Company will generally recognize
gain or loss as if such property were sold to the shareholders
and/or a Trust. The amount of any such gain or loss will be the
difference between (i) the Company's adjusted tax basis for each
asset and (ii) the amount of consideration received for that
asset (reduced by the costs of the transaction allocable to that
asset) in the case of a sale, or the asset's fair market value in
the case of a liquidating distribution.
It is anticipated that the net taxable income recognized by
the Company as a result of the sale of its assets will not create
a significant current regular federal income tax liability for
the Company because of the Company's anticipated level of
operating losses and expenses for the fiscal year ending May 31,
1999.
CONSEQUENCES TO SHAREHOLDERS. The shareholders will not
recognize any gain or loss as a result of the sale by the Company
of its assets (or deemed sale of assets, in the event of any
liquidating distribution of property to the shareholders and/or
to a Trust). As a result of receiving a liquidating distribution
from the Company, a shareholder will recognize gain or loss equal
to the difference between (i) the sum of the amount of money
distributed to such shareholder directly or to a Trust on the
shareholder's behalf (if applicable), and (ii) such shareholder's
adjusted tax basis for his or her shares of Common Stock. A
shareholder adjusted tax basis will depend upon various factors,
including such shareholder's cost and the amount and nature of
any distributions received with respect thereto. Any gain or
loss should be capital gain or loss provided that the shares are
capital assets in the hands of the shareholder. Long-term
capital gain realized by a shareholder that is an individual,
estate or trust may be eligible for reduced tax rates.
The Company will provide shareholders and the IRS with a
statement of the amount of cash and the fair market value (as
determined by the Company) of any property distributed to the
shareholders during that year, at such time and in such manner as
required by the Treasury Regulations.
THE TRUST. If the Company transfers assets to a Trust,
shareholders will be treated for tax purposes at the time of
transfer as having received their pro rata share of money
transferred to the Trust, reduced by the amount of known
liabilities assumed by the Trust or to assets transferred are
subject. A Trust itself should not be subject to tax, assuming
that it is treated as a Trust for federal income tax purposes.
After formation of a Trust, shareholders must take into account
for federal income tax purposes their pro rata portion of any
income, expense, gain or loss recognized by the Trust.
As indicated above, the Company has not obtained any IRS
ruling as to the tax status of a Trust, and there can be no
assurance that the IRS will agree with the Company's conclusion
that a Trust should be treated as a Trust for federal income tax
purposes. If it were determined that a Trust should be
classified for federal income tax purposes as an association
taxable as a corporation (as a result of the change in the IRS
ruling guidelines or administrative positions, or otherwise),
income and losses of the Trust would be reflected on its own tax
return rather than being passed through to the shareholders and
the Trust would be required to pay federal income taxes at
corporate tax rates. Furthermore, a significant portion of the
above discussion would no longer be accurate. For instance, all
or a portion of any
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<PAGE>
distribution made to the shareholders from a Trust may be treated
as a dividend subject to tax at ordinary income tax rates.
STATE AND LOCAL TAX CONSEQUENCES. The Company may be
subject to liability for state and local taxes with respect to
the sale of assets. Shareholders may also be subject to
liability for state and local taxes with respect to their receipt
of liquidating distributions and their interests in a Trust.
State and local tax laws may differ in various respects from
federal tax law. Shareholders should consult their tax advisors
with respect to the state and local tax consequences of the Plan
of Liquidation.
THE FOREGOING SUMMARY OF CERTAIN TAX CONSEQUENCES IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE
LEGAL ADVICE TO ANY SHAREHOLDER. THE TAX CONSEQUENCES OF THE
PLAN OF LIQUIDATION MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF A SHAREHOLDER. THE COMPANY RECOMMENDS THAT EACH
SHAREHOLDER CONSULT HIS OR HER OWN ADVISOR REGARDING THE TAX
CONSEQUENCES OF THE PLAN OF LIQUIDATION.
EXPENSES AND OTHER FEES
The expenses of administering the Company, winding up the
Company's affairs, preparing all reports required by federal and
state law in connection with the Company's continued existence,
negotiating and completing payment of any claims against the
Company, and providing for the payment of all expenses and
liabilities which continue to arise or be incurred during the
course of the liquidation process will be paid by the Company.
DELISTING AND DEREGISTRATION OF THE COMPANY'S COMMON STOCK
If the Plan of Liquidation is approved, the Company's Common
Stock will be delisted from the American Stock Exchange and will
be deregistered under the Securities Exchange Act of 1934. The
stock ledger of the Company will closed upon such delisting and
deregistration.
-14-
<PAGE>
OWNERSHIP OF COMMON STOCK BY MANAGEMENT
The following table sets forth the beneficial ownership (as
defined by the rules of the Commission) of Common Stock of the
Company by (1) each director of the Company, (2) the Company's
Chief Executive Officer and each of the Company's other executive
officers (other than the Chief Executive Officer) whose total
salary and bonus exceed $100,000 and (3) all directors and
officers as a group, together with the percentage of the
outstanding shares which such ownership represents. Information
is stated as of April 15, 1999.
<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership (1) Percent of Class
- ------------------------------- ------------------------ ------------------
<S> <C> <C>
Creed L. Ford III 1,000 *
Eugene K. Friesen 36,580 3.5
Joel Held - -
Juan M. Villamizar - -
Howard B. Wolf (2) (3) 254,729 24.1
Robert D. Wolf (2) (4) 161,289 15.3
All officers and directors as a
group (6 persons) (2) (3) (4) 453,598 42.9
* less than one percent
(1) The nature of the beneficial ownership of the shares by the
respective persons is sole voting and investment power
unless otherwise indicated.
(2) Howard B. Wolf is the father of Robert D. Wolf. Each of
such persons wholly disclaims any beneficial ownership of
shares owned by the other.
(3) Lois C. Wolf (wife of Howard B. Wolf) owns 42,665 shares
over which she has sole voting and investment powers. In
addition to the 254,729 shares, 40,600 shares are owned by
an "affiliate" of Mr. Wolf as that term is defined in the
General Rules and Regulations under the Securities Exchange
Act of 1934, and are held of record by Mr. Wolf as trustee
for certain private charitable foundations created by him.
Mr. Wolf disclaims any beneficial interest in such shares.
(4) Includes 1,000 shares held as trustee for his daughter.
</TABLE>
-15-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(Amounts in Thousands, Except Share and Per Share Data)
The following selected consolidated financial data for the
five fiscal years ended May 31, 1998 is derived from the audited
consolidated financial statements of the Company. The selected
consolidated financial data presented below should be read in
conjunction with the consolidated financial statements of the
Company, together with the Notes to consolidated financial
statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in the
Company's Annual Report on Form 10-K for the year ended May 31,
1998, included as Appendix B attached hereto, and the Company's
Quarterly Report on Form 10-Q for the period ended November 30,
1998, included as Appendix C attached hereto.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 14,322 $ 14,242 $ 15,213 $ 14,436 $ 14,269
Income before
federal income tax 626 1,004 1,332 1,220 1,222
Provision for federal
income tax 224 370 460 431 441
Net income 402 634 872 789 781
Basic and diluted
earnings per share .38 .60 .83 .75 .74
Cash dividends per
common share .32 .32 .32 .30 .28
Total assets 9,778 9,552 8,834 8,796 8,266
</TABLE>
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<PAGE>
PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Share and Per Share Data)
(Unaudited)
The following unaudited pro forma consolidated selected
financial data for the fiscal year ending May 31, 1999, was
derived from the unaudited pro forma consolidated statements of
operations and the unaudited pro forma consolidated balance sheet
included elsewhere in this Proxy Statement. This pro forma
consolidated selected financial data should be read in
conjunction with the description of the Plan of Liquidation
contained in this Proxy Statement and the pro forma financial
data appearing elsewhere herein and the Company's consolidated
financial statements included in the Company's Annual Report on
Form 10-K for the year ended May 31, 1998, included as Appendix B
attached hereto, and the Company's Quarterly Report on Form 10-Q
for the period ended November 30, 1998, included as Appendix C
attached hereto.
Actual Fiscal Year Pro Forma Fiscal Year
Ended Ended
May 31, 1998 May 31, 1999
------------------- ----------------------
Net sales $ 14,322 $ 9,600
Income (loss) before
federal income tax 626 (1,305)
Provision for (refund of)
federal income tax 224 (425)
Net income (loss) 402 (880)
Basic and diluted earnings
(loss) per share 0.38 (0.83)
Cash dividends paid per
common share 0.32 0.16
Total assets 9,778 7,100
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<PAGE>
STOCK PERFORMANCE DATA
MARKET INFORMATION
The following table sets forth the high and low sales prices
per share of the Company's Common Stock on the American Stock
Exchange and the amount of and dividend paid for the quarterly
periods presented.
High Low Dividend
-------- -------- --------
Fiscal Year Ended May 31, 1997
First Quarter 7-5/8 6-1/2 .08
Second Quarter 7-3/8 6-1/8 .08
Third Quarter 6-3/4 5-7/8 .08
Fourth Quarter 7 5-1/2 .08
Fiscal Year Ended May 31, 1998
First Quarter 6-1/2 5-3/8 .08
Second Quarter 6-1/2 5-13/16 .08
Third Quarter 6-1/4 5-1/2 .08
Fourth Quarter 6-1/4 5-1/2 .08
Fiscal Year Ending May 31, 1999
First Quarter 5-9/16 5-1/4 .08
Second Quarter 5-7/16 4-3/8 .08
Third Quarter 4-5/8 3-1/8 0
RECENT MARKET PRICE
The following table sets forth the closing price and the
high and low sales prices per share of the Company's Common Stock
on the American Stock Exchange on February 3, 1999, the last
trading day preceding the public announcement of the Proposed
Liquidation and on April 8, 1999 the latest practicable date
trading before the printing of this Proxy Statement. Shareholders
are urged to obtain current market quotations.
Closing High Low
------- ------- --------
February 3, 1999 3-7/16 3-7/16 3-7/16
April 8, 1999 3-3/4 3-3/4 3-3/4
NUMBER OF HOLDERS
As of the Record Date, 1,056,191 shares of Common Stock were
issued and outstanding and were held of record by approximately
225 persons, including several holders who are nominees for an
undetermined number of beneficial owners.
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<PAGE>
COMPARATIVE PER SHARE DATA
(Unaudited)
The following table reflects the historical net income
(loss) per share from continuing operations in comparison with
the pro forma net income (loss) per share from continuing
operations after giving effect to the Proposed Liquidation. The
information presented in this table should be read in conjunction
with the description of the Proposed Liquidation contained in
this Proxy Statement and the pro forma financial data appearing
elsewhere herein and the Company's consolidated financial
statements included in the Company's Annual Report on Form 10-K
for the year ended May 31, 1998 included as Appendix B attached
hereto, and the Company's Quarterly Report on Form 10-Q for the
period ended November 30, 1998, included as Appendix C attached
hereto.
Pro Forma
Actual Fiscal Fiscal Year
year Ended Ended
May 31, 1998 May 31, 1999
---------------- -------------
Net income (loss) per share:
Basic and diluted earnings
(loss) per share $0.38 ($0.83)
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<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated balance sheet
as of May 31, 1999 reflects the historical accounts of the
Company as of that date adjusted to give pro forma effect to the
Proposed Liquidation as if such liquidation had occurred as of
May 31, 1998.
The pro forma financial data and accompanying notes should
be read in conjunction with the description of the Proposed
Liquidation contained in this Proxy Statement and the
Consolidated Financial Statements and related notes included: 1)
in the Company's 1998 Annual Report on Form 10-K previously filed
with the Commission, a copy of which accompanies this Proxy
Statement as Appendix B attached hereto and 2) in the Company's
Quarterly Report on Form 10-Q previously filed with Commission, a
copy of which accompanies this Proxy Statement as Appendix C
attached hereto. The Company believes that the assumptions used
in the following statements provide a reasonable basis on which
to present the pro forma financial data. The pro forma financial
data is provided for informational purposes only and should not
be construed to be indicative of the Company's financial
condition or results of operations had the Proposed Liquidation
occurred on the dates assumed and are not intended to project the
Company's financial condition on any future date or results of
operations for any future period.
-20-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
(in dollars, except for outstanding shares
May 31, 1998 May 31, 1999
(Audited) (Pro Forma)
------------- -------------
<S> <C> <C>
Net Sales $ 14,321,914 $ 9,600,000
Costs and expenses:
Cost of sales 9,487,555 8,300,000
Selling, general
and administrative
expenses 4,127,553 3,300,000
Provision for
bad debt expenses 137,969 350,000
------------ ------------
Total costs and expenses 13,753,077 11,950,000
------------ ------------
Income (loss) from operations 568,837 (2,350,000)
Gain on sale of property,
plant and equipment 1,085,000
Other income (expense) 43,881 (35,000)
Interest income 48,813 35,000
Interest expense (35,133) (40,000)
Income (loss) before
federal income tax 626,398 (1,305,000)
Federal income tax (provision) credit (224,477) 425,000
Net income (loss) 401,921 (880,000)
Retained earnings - beginning 5,369,844 5,434,000
Cash dividends (337,981) (169,000)
Retained earnings - ending 5,433,784 4,385,000
Average number
of shares outstanding 1,056,191 1,056,191
Basic and diluted
earnings (loss) per share 0.38 (0.83)
Dividends paid per share 0.32 0.16
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<PAGE>
May 31, 1998 May 31, 1999
(Audited) (Pro Forma)
------------- -------------
Current assets:
Cash and cash equivalents $ 1,128,991 $ 3,425,000
Accounts receivable 2,530,137 1,000,000
Inventories 4,620,568 0
Prepaid expenses 159,322 0
Refundable federal income tax 112,813 400,000
Deferred federal income tax 234,000 165,000
Total current assets 8,785,831 4,990,000
Property, plant and equipment (net) 939,214 0
Property, plant and equipment
not used in operations (net) 678 0
Other assets 51,957 0
Total assets 9,777,680 4,990,000
Current liabilities:
Accounts payable and
accrued liabilities 1,975,408 150,000
Contingency liability reserve 0 440,000
Deferred federal income tax 74,000 0
Shareholders' equity 7,728,272 4,400,000
Total liabilities
and shareholders' equity 7,728,272 4,400,000
</TABLE>
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to
"incorporate by reference" information into this document, which
means we can disclose important information to you by referring
you to another document filed separately with the Securities and
Exchange Commission. The information incorporated by reference
is deemed to be part of this document, except for any information
superseded by information in, or incorporated by reference in,
this document. This document incorporates by reference the
documents set forth below that we have previously filed with the
Securities and Exchange Commission. These documents contain
important information about the Company and its finances.
FILING PERIOD
- ------------------------------ -------------------------------
Annual Report on Form 10-K Fiscal year ended May 31, 1998
Quarterly Report on Form 10-Q Quarter ended November 30, 1998
Current Report on Form 8-K Dated February 3, 1999
Current Report on Form 8-K Dated February 16, 1999
You should rely only on the information contained or
incorporated by reference in this document to vote on the matter
or matters presented at the Special Meeting. We have not
authorized anyone to provide you with information that is
different from what is contained in this document. This document
is dated April 15, 1999. You should not assume that the
information contained in this document is accurate as of any date
other than such date, and the mailing of this document to
shareholders shall not create any implication to the contrary.
DEADLINE FOR SHAREHOLDER PROPOSALS
In the event that the Company is not liquidated and
dissolved, the Company presently anticipates that its next Annual
Meeting of Shareholders will be held in September 21, of 1999.
Any proposal by a Shareholder of the Company intended to be
presented at the 1999 Annual Meeting of Shareholders was required
to have been received by the Company at its principal executive
office not later than May 7, 1999 for inclusion in the Company's
Proxy Statement and form of proxy relating to that meeting.
-23-
<PAGE>
MISCELLANEOUS
Lane Gorman and Trubitt, L.L.P. acted as the Company's
independent auditors for the fiscal year ended May 31, 1998. A
representative of Lane Gorman and Trubitt, L.L.P. will attend
the Special Meeting to be held May 6, 1999, will have an
opportunity to make a statement, and will respond to appropriate
questions from shareholders.
By Order of the Board of Directors,
Howard B. Wolf
Chairman of the Board
April 15, 1999
Appendices
- ----------
Appendix A - Plan of Complete Liquidation and Dissolution
of the Company.
Appendix B - Annual Report of the Company on Form 10-K for
the fiscal year ended May 31, 1998
Appendix C - Quarterly Report of the Company on Form 10-Q
for the period ended November 30, 1998.
Appendix D - Current Report of the Company on Form 8-K
dated February 3, 1999
Appendix E - Current Report of the Company on Form 8-K
dated February 16, 1999
-24-
<PAGE>
APPENDIX A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF
HOWARD B. WOLF, INC.
This Plan of Complete Liquidation and Dissolution (the
"Plan") is intended to accomplish the complete liquidation and
dissolution of Howard B. Wolf, Inc., a Texas corporation (the
"Company"), in accordance with the Texas Business Corporation Act
and Section 331 of the Internal Revenue Code of 1986, as amended
(the "Code"), as follows:
1. The Board of Directors of the Company has adopted a
resolution recommending that the Company liquidate and dissolve.
This Plan has been approved and adopted by the Board of Directors
of the Company as being in the best interest of the Company and
its shareholders (the "Shareholders"). The Board of Directors
has directed that this Plan be submitted to the Company's
Shareholders for approval and adoption at a special meeting of
the Shareholders called for such purpose.
2. This Plan shall be adopted and become effective when
all of the following steps have been completed (the "Adoption
Date"):
(a) The Board of Directors shall have called a Special
Meeting of the Shareholders of the Company for the purpose
of allowing the Shareholders to vote on the question of the
liquidation of the Company and dissolution pursuant to
Article 6.03 of the Texas Business Corporation Act; and
(b) The Shareholders of the Company shall have
approved such liquidation and dissolution and shall have
adopted this Plan, in each case by an affirmative vote of
the holders of at least two-thirds of the outstanding shares
of the Company's common stock entitled to vote thereon (the
"Common Stock").
3. This Plan is intended to be a Plan of complete
liquidation and dissolution, and is intended to effect a
dissolution of the Company pursuant to the Texas Business
Corporation Act. Subject to any rights of third parties, the
Board of Directors may, notwithstanding Shareholder authorization
of the Plan and of the dissolution of the Company, amend the
Plan, but no such amendment shall postpone the effectiveness of
the Plan beyond the period contemplated herein.
4. After the Adoption Date, the Company shall not engage
in any business activities except to the extent necessary to
preserve the value of its assets, wind up its business and
affairs, and distribute its assets in accordance with this Plan.
No later than thirty (30) days following the Adoption Date, the
Company shall file Form 966 with the Internal Revenue Service.
5. From and after the Adoption Date, the Company shall
complete the following corporate actions:
(a) The Company shall determine whether and when to
(i) transfer the Company's property and Escrow Account or
assets (other than cash, cash equivalents and accounts
receivable) to a liquidating trust (established pursuant to
Section 8 hereof), or (ii) collect, sell, exchange or
otherwise dispose of all of its property and assets in one
or
<PAGE>
more transactions upon such terms and conditions as the
Board of Directors, in its absolute discretion, deems
expedient and in the best interests of the Company and the
Shareholders. In connection with such collection, sale,
exchange and other disposition, the Company shall collect or
make provision for the collection of all accounts
receivable, debts and claims owing to the Company.
(b) The Company shall pay or, as determined by the
Board of Directors, make reasonable provision to pay, all
claims and obligations of the Company, including all
contingent, conditional or unmatured claims known to the
Company and all claims which are known to the Company but
for which the identity of the claimant is unknown.
(c) The Company shall distribute pro rata to the
Shareholders, all available cash including the cash proceeds
of any sale, exchange or disposition, except such cash,
property or assets as are required for paying or making
reasonable provision for the claims and obligations of the
Company. Such distribution may occur all at once or in a
series of distributions and shall be in cash, in such
amounts, and at such time or times, as the Board of
Directors, Escrow Agent (s) or the Trustee(s) (as defined in
Section 8 hereof), in their absolute discretion, may
determine. If and to the extent deemed necessary,
appropriate or desirable by the Board of Directors, Escrow
Agent(s) or the Trustee(s), in their absolute discretion,
the Company may establish and set aside a reasonable amount
(the "Contingency Reserve") to satisfy claims against the
Company, including, without limitation, tax obligations, and
all expenses of the sale of the Company's property and
assets, of the collection and defense of the Company's
property and assets, and of the liquidation and dissolution
provided for in this Plan. The Contingency Reserve may
consist of cash and/or property.
6. The distributions to the Shareholders pursuant to
Sections 5, 7 and 8 hereof shall be in complete redemption and
cancellation of all of the outstanding Common Stock of the
Company. As a condition to receipt of any distribution to the
Shareholders, the Board of Directors, Escrow Agent(s) or the
Trustee(s), in their absolute discretion, may require the
Shareholders to (i) surrender their certificates evidencing the
Common Stock to the Company or its agent for recording of such
distributions thereon or (ii) furnish the Company with evidence
satisfactory to the Board of Directors, Escrow Agent(s) or the
Trustee(s) of the loss, theft or destruction of their
certificates evidencing the Common Stock, together with such
surety bond or other security or indemnity as may be required by
and satisfactory to the Board of Directors, Escrow Agent(s) or
the Trustee(s) ("Satisfactory Evidence and Indemnity"). As a
condition to receipt of any final distribution to the
Shareholders, the Board of Directors, Escrow Agent(s) or the
Trustee(s), in their absolute discretion, may require the
Shareholders to (i) surrender their certificates evidencing the
Common Stock to the Company or its agent for cancellation or (ii)
furnish the Company with Satisfactory Evidence and Indemnity.
The Company will finally close its stock transfer books and
discontinue recording transfers of Common Stock on the earliest
to occur of (i) the close of business on the record date fixed by
the Board of Directors for the final liquidating distribution,
(ii) the close of business on the date on which the remaining
assets of the Company are transferred to the Escrow Account or
the Trust or (iii) the date on which the Company ceases to exist
under the Texas Business Corporation Act (following any post-
dissolution continuation period thereunder), and thereafter
certificates representing Common
-2-
<PAGE>
Stock will not be assignable or transferable on the books of the
Company except by will, intestate succession, or operation of
law.
7. If any distribution to a Shareholder cannot be made,
whether because the Shareholder cannot be located, has not
surrendered its certificates evidencing the Common Stock as
required hereunder or for any other reason, the distribution to
which such Shareholder is entitled (unless transferred to the
Escrow Account or the Trust established pursuant to Section 8
hereof) shall be transferred, at such time as the final
liquidating distribution is made by the Company, to the official
of such state or other jurisdiction authorized by applicable law
to receive the proceeds of such distribution. The proceeds of
such distribution shall thereafter be held solely for the benefit
of and for ultimate distribution to such Shareholder as the sole
equitable owner thereof and shall be treated as abandoned
property and escheat to the applicable state or other
jurisdiction in accordance with applicable law. In no event
shall the proceeds of any such distribution revert to or become
the property of the Company.
8. Except as may be limited by law, if deemed necessary,
appropriate or desirable by the Board of Directors, in its
absolute discretion, in furtherance of the liquidation and
distribution of the Company's assets to the Shareholders, as a
final liquidating distribution or from time to time in order to
effect the completion of the Plan, the Company may establish an
Escrow Account ("Escrow Account") or liquidating trust ("Trust"),
and transfer to one or more escrow agents or liquidating
trustees, for the benefit of the Shareholders (the "Escrow
Agent(s)" or "Trustee(s)" respectively), under an Escrow Account
or a Trust, any assets of the Company which are (i) not
reasonably susceptible to distribution to the Shareholders,
including without limitation non-cash assets and assets held on
behalf of the Shareholders (a) who cannot be located or who do
not tender their certificates evidencing the Common Stock to the
Company or its agent as herein above required or (b) to whom
distributions may not be made based upon restrictions under
contract or law, including, without limitation, restrictions of
the federal securities laws and regulations promulgated
thereunder or (ii) held as the Contingency Reserve, out of which
may be paid any contingent liabilities, including but not
limited to those rising under workers' compensation,
environmental laws, federal or state securities law, or any other
federal or state laws, which arise after the dissolution of the
Company. Any Escrow Account or Trust shall be established and
maintained at a bank or other financial institution whose
deposits are insured by the FDIC and which shall be selected by
the Board of Directors, in its sole and absolute discretion. The
Board of Directors is hereby authorized to appoint one or more
individuals, corporations, partnerships or other persons, or any
combination thereof, including, without limitation, any one or
more officers, directors, employees, agents or representatives of
the Company, to act as the initial Escrow Agent, Trustee or
Trustees for the benefit of the Shareholders and to receive any
assets of the Company. Any Escrow Agent(s) or Trustee(s)
appointed as provided herein shall succeed to all right, title
and interest of the Company of any kind and character with
respect to such transferred assets and, to the extent of the
assets so transferred and solely in their capacity as Escrow
Agent(s) or Trustee(s), shall assume all of the liabilities and
obligations of the Company, including, without limitation, any
unsatisfied claims and unascertained or contingent liabilities.
Further, any conveyance of assets to the Escrow Agent(s) or
Trustee(s) shall be deemed to be a distribution of property and
assets by the Company to the Shareholders for the purposes of
Section 3 of this Plan. Any such conveyance to the Escrow
Agent(s) or Trustee(s) shall be in trust for the Shareholders of
the Company. The Company, subject to this Section 8 and as
authorized by the Board of Directors, in its absolute
-3-
<PAGE>
discretion, may enter into a liquidating trust agreement with the
Escrow Agent(s) or Trustee(s), on such terms and conditions as
the Board of Directors, in its absolute discretion, may deem
necessary, appropriate or desirable. Adoption of this Plan by a
vote of at least two-thirds of the Common Stock entitled to vote
shall constitute the approval of the Shareholders of any such
appointment and any such Escrow Agent(s) or liquidating Trust
agreement as their act and as a part hereof as if herein written.
9. Whether or not an Escrow Account or Trust shall have
been previously established pursuant to Section 8, in the event
it should not be feasible for the Company to make the final
distribution to the Shareholders of all assets and properties of
the Company prior to March 31, 2001, then, on or before such
date, the Company shall be required to establish a Trust and
transfer any remaining assets and properties (including, without
limitation, any uncollected claims, contingent assets and the
Contingency Reserve) to the Trustee(s) as set forth in Section 8.
10. After the Adoption Date, the officers of the Company
shall, at such time as the Board of Directors, in its absolute
discretion, deems necessary, appropriate or desirable, obtain any
certificates required from the Texas tax authorities and/or any
other applicable tax authority and, upon obtaining such
certificates, the Company shall file with the Secretary of State
of the State of Texas a certificate of dissolution (the
"Certificate of Dissolution") in accordance with the Texas
Business Corporation Act.
11. Adoption of this Plan by holders of at least two-thirds
of the Common Stock entitled to vote shall constitute the
approval of the Shareholders of the sale, exchange or other
disposition in liquidation of all of the property and assets of
the Company, whether such sale, exchange or other disposition
occurs in one transaction or a series of transactions, and shall
constitute ratification of all contracts for sale, exchange or
other disposition which are conditioned on adoption of this Plan.
12. In connection with and for the purpose of implementing
and assuring completion of this Plan, the Company may, in the
absolute discretion of the Board of Directors, pay any brokerage,
agency, professional and other fees and expenses of persons
rendering services to the Company in connection with the
collection, sale, exchange or other disposition of the Company's
property and assets and the implementation of this Plan.
13. In connection with and for the purpose of implementing
and assuring completion of this Plan, the Company may, in the
absolute discretion of the Board of Directors, pay to the
Company's officers, directors, employees, agents and
representatives, or any of them, compensation or additional
compensation above their regular compensation, in money or other
property, in recognition of the extraordinary efforts they, or
any of them, will be required to undertake, or actually
undertake, in connection with the implementation of this Plan.
Adoption of this Plan by at least two-thirds of the Common Stock
entitled to vote, shall constitute the approval of the Company's
Shareholders of the payment of any such compensation.
14. Notwithstanding authorization or consent to this Plan
and the transactions contemplated hereby by the Shareholders, the
Board of Directors may modify, amend or abandon this Plan and the
transactions contemplated hereby without further action by the
Shareholders to the extent permitted by the Texas Business
Corporations Act.
-4-
<PAGE>
15. The Board of Directors of the Company is hereby
authorized, without further action by the Shareholders, to do and
perform or cause the officers of the Company, subject to approval
of the Board of Directors, to do and perform, any and all acts,
and to make, execute, deliver or adopt any and all agreements,
resolutions, conveyances, certificates and other documents of
every kind which are deemed necessary, appropriate or desirable,
in the absolute discretion of the Board of Directors, to
implement this Plan and the transactions contemplated hereby,
including, without limiting the foregoing, (a) sell, dispose,
convey, transfer, and deliver the assets of the Company, (b) to
satisfy or provide for the satisfaction of the obligations of the
Company, (c) to distribute all of the assets of the Company to
which Shareholders or for their benefit to the extent provided
above, (d) to dissolve the Company in accordance with the laws of
the State of Texas and cause its withdrawal from all
jurisdictions in which it is authorized to do business, and (e)
prepare and consummate all filings or acts required by any state
or federal law or regulation to wind up its affairs.
16. The Company shall indemnify each of its directors,
officers, employees and agents, trustees, escrow agents and any
other advisor engaged by the Company (the words "he", "his,"
"him," and "person" being used hereafter in this paragraph to
refer to such indemnified person and entity), against all
liabilities and expenses, including amounts paid in satisfaction
or judgments in compromise or as fines and penalties, and counsel
fees, reasonably incurred by him in connection with the defense
or disposition of any action, suit or other proceeding by the
Company or any other person, whether civil or criminal, in which
he may be involved or with which he may be threatened, while in
office or while engaged by the Company or thereafter and whether
in connection with the liquidation of the Company or otherwise,
by reason of his being or having been such a director or trustee,
director, officer, employee or agent, except with respect to any
matter as to which (i) his action or failure to act was material
to the cause of action so adjudicated and was committed in bad
faith or was the result of active and deliberate dishonesty, (ii)
he actually received an improper benefit in money, property or
services, or (iii) in the case of any criminal action or
proceeding, he had reasonable cause to believe his action or
failure to act was unlawful; provided, however that as to any
proceeding by or in the right of the Company, indemnification may
not be made in respect to any proceeding in which such director
or trustee, director, officer, employee or agent, shall have been
adjudicated to be liable to the Company. The Board of Directors
may make advance payments in connection with the indemnification
under this paragraph, provided that the indemnified director,
trustee, officer, employee or agent shall have given a written
affirmation of his good faith belief that he meets the standard
of conduct necessary for indemnification. Indemnification under
this section shall be to the fullest extent allowed under the
Texas Business Corporation Act. The foregoing indemnification
provision shall survive the liquidation and termination of the
Company. The rights accruing to any director, trustee, officer,
employee or agent under this Section 16 shall not exclude any
other right to which he may be lawfully entitled.
17. This Plan and the terms hereof shall be interpreted and
construed under the laws of the State of Texas.
-5-
<PAGE>
APPENDIX B
----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THIS SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1998 Commission file number 1-6775
HOWARD B. WOLF, INC.
(Exact name of registrant as specified in its charter)
Texas 75-0847571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3809 Parry Avenue, Dallas, Texas 75226-1753
(Address of principal executive offices) (Zip Code)
(214) 823-9941
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.331/3 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein; and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
The aggregate market value of Registrant's common stock held by non-
affiliates (based upon the closing sale price on the American Stock
Exchange) on August 10, 1998 was approximately $3,238,937.
As of August 10, 1998, there were 1,056,191 shares of common stock
outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on September 15, 1998 are incorporated by reference into Part
III.
HOWARD B. WOLF, INC.
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED MAY 31, 1998
PART I
Item 1. Business
General
- -------
Howard B. Wolf, Inc. (the "Company"), incorporated under the laws of
the State of Texas in 1952, designs, manufactures and sells women's fashion
apparel consisting primarily of dresses, suits, shirts and coordinated
groups of sportswear.
The Company's products are designed and presented for each season
(fall,holiday, spring and summer). Sales generally do not fluctuate
materially from quarter to quarter as a result of seasonal sales patterns
of the Company's business. Accordingly, there are no significant seasonal
fluctuations in quarterly fiscal year shipments.
Working capital requirements do not fluctuate materially. The Company
produces merchandise to meet sales orders and does not carry large
inventories to meet estimated sales requirements. The Company does not sell
on consignment. The merchandise return policy provides for return of
defective merchandise within ten days after receipt. Primary sale terms are
8/10 EOM and Net/10 EOM. Requests are received for extended payment terms
for up to thirty days from due date primarily for shipments made early in a
season. These requests are generally granted subject to the credit standing
of the customer. Extended payment requests do not have a material effect on
cash flow.
Principal Products and Markets
- ------------------------------
The Company merchandises its products (fashion apparel for women)
under the following labels:
HOWARD WOLF DRESS label-comprised of dresses, ensembles and suits
and retails from approximately $100 to $250. It is intended for
career/professional and fashionable women who desire current styling and
good taste. The Howard Wolf Dress label, introduced in 1956, is well known
in the fashion field.
HOWARD WOLF SPORTSWEAR label-designed for career/professional and
fashionable women, is presented as separate shirts, pants, tops, jackets
and sweaters in coordinated groups. Introduced during the Fall 1972 season,
this label retails from approximately $50 to $250.
<PAGE>
ERNESTO W label-was introduced in 1976. This label is currently
used on special request only. It retails from approximately $40 to $150.
PRET-A-PORTE label-established in 1969, is currently used on
special request only. It retails from approximately $40 to $125.
HOWARD WOLF W label-started in 1993-is designed as separates in
fashionable larger sizes (0x-3x) that retails from approximately $60 to
$250.
The Howard Wolf collections are sold by independent sales
representatives, most of whom are compensated on a commission basis.
Representatives, during each fashion season, call upon retailers throughout
the country and show at the major domestic and regional fashion markets.
In addition, the Company has opened two factory retail stores in
upscale factory outlet mall centers.
Design and Production
- ---------------------
The Company maintains a design staff in Dallas to design the styles
Manufactured and sold by it. To an extent which the Company believes to be
unique for manufacturers in its price range, the Company continuously
monitors trends in style and fabric with particular emphasis on
developments in design for career/professional and fashionable women.
Design personnel of the Company make frequent trips to domestic and foreign
fashion markets. The Company operated one manufacturing facility during the
year on a forty-hour week, one shift basis, with employment and production
virtually constant throughout the year. The Company utilized primarily
domestic independent contractors for most of its sewing operations, which
are under the Company's supervision and made in accordance with its
specifications and production schedules. Certain manufacturing operations,
pattern making, grading and predominantly all cutting continue to be
performed by the Company's employees at its Dallas facility.
The Company maintains strict quality control during the manufacturing
process. Finished products are received in the Dallas facility and are
carefully inspected and shipped from this location.
Raw Materials
- -------------
Raw materials used in the Company's products are primarily fabrics and
trim items. They are of both domestic and foreign origin and are obtainable
from many resources.
Customers
- ---------
The Company sells to approximately 800 retailers who operate more than
1,200 stores throughout North America. No customer accounts for more than
10 percent of sales. Customers include many leading department and
specialty stores. Permanent showrooms are maintained in the Dallas Apparel
Mart and the Atlanta Merchandise Mart.
<PAGE>
In addition to sales to retailers, the Company operates two factory
outlet mall stores in upscale factory outlet malls in Napa, California and
in Las Vegas, Nevada and operates its two "Fashion Showroom" factory outlet
retail stores located in Dallas and San Benito, Texas for the sale of
merchandise resulting from excess production, specially produced merchandise
and seconds.
Backlog Orders
- --------------
The Company had approximately $4,300.000 of unshipped order on hand at
May 31, 1998 ($4,600.000 on May 31, 1997). These orders are believed to be
firm. All backlog orders are expected to be filled in the current fiscal
year.
Competition
- -----------
The fashion apparel manufacturing industry is highly competitive, and
the Company competes with many other manufacturers, some of which are
larger in sales and resources. The principal methods of competition are
price and style. Price is primarily based on fabrication, trim and style.
Manufacturing processes employed by the Company provide competitive product
pricing. Style is based on current trends and fashions. The Company's
design techniques and thorough exploration of fashion centers worldwide
provide competitive styling. The Company believes that its products compete
effectively in terms of buyer acceptance with those of its competition in
the Company's price range and areas of style concentration. The Company has
no information to determine what share of the market its products represent
in terms of sales.
Employees
- ---------
The Company employed 102 persons on a full-time basis at May 31, 1998.
Of these, 12 were executive, administrative and clerical employees; 13 were
sales representatives; 64 were design, cutting and manufacturing personnel
and 13 were engaged in other activities such as shipping, warehouse
management, security and transportation. The Company had no employees
represented by a union and believes that it enjoys good relations with its
employees.
Environmental Considerations
- ----------------------------
The cost and effect of complying with environmental regulations are
not material due to the nature of the Company's business.
<PAGE>
Item 2. Properties
The principal offices of the Company are in Dallas, Texas where the
Company owns a three-story brick building containing approximately 90,000
square feet. This facility, containing the executive, design,
administrative, and data processing facilities, is also devoted to some
manufacturing, and all merchandise is shipped from this location. These
facilities are suitable for the Company's operations with adequate space
and improvements. Approximately twenty percent of the 90,000 square feet is
not presently utilized by the Company and has been leased to an unrelated
entity.
The Company owns one other facility in Greenville, Texas, which is
leased to a nonrelated entity and is shown in the balance sheet as
property, plant and equipment not used in operations.
The following table sets forth pertinent information concerning each
of the above properties:
Interest in Square
Location property feet
- -------- ----------- ------
Principal office and manufacturing facility Fee 90,000
Greenville facility Fee 11,900
The Company leases (under short-term leases from three to five years)
permanent showrooms in the apparel marts in Atlanta and Dallas and
retail stores in factory outlet malls in Napa, California and Las Vegas,
Nevada.
Substantially all of the machinery, equipment, furniture and fixtures
required in the operation of the business is either owned or leased by the
Company under short term leases from thirty six months to forty eight months,
and is in good operating condition.
Item 3. Legal Proceedings
The Company is not involved in any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matter
The common stock of the Company is traded on the American Stock
Exchange. The following table gives the high and low sales prices and the
amount of dividends paid for the fiscal quarters indicated:
<PAGE>
1998 Date ended High Low Dividend
-------------- ----------------- ------ ------ --------
First quarter August 31, 1997 $6 1/2 $5 3/8 .08
Second quarter November 30, 1997 6 1/2 5 13/16 .08
Third quarter February 28, 1998 6 1/4 5 1/2 .08
Fourth quarter May 31, 1998 6 1/4 5 1/2 .08
1997 Date ended High Low Dividend
------------- --------------- ------ ------ --------
First quarter August 31, 1996 $7 5/8 $6 1/2 .08
Second quarter November 30, 1996 7 3/8 6 1/8 .08
Third quarter February 28, 1997 6 3/4 5 7/8 .08
Fourth quarter May 31, 1997 7 5 1/2 .08
The Company's common stock closed at $5.375 on August 10, 1998.
As of August 10, 1998, there were 247 holders of record of the
Company's common stock. The Company paid dividends during fiscal years 1998
and 1997. There are no restrictions on the Company's ability to pay
dividends other than those provided by statute. The payment of dividends is
reviewed each period by the Board of Directors taking into consideration
earnings, business requirements and economic conditions. A dividend of $.08
per share was declared by the Board of Directors payable August 31, 1998 to
shareholders of record August 7, 1998.
Item 6. Selected Consolidated Financial Data
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Net sales $14,322 $14,242 $15,213 $14,436 $14,269
Income before federal
income tax 626 1,004 1,332 1,220 1,222
Provision for federal
income tax 224 370 460 431 441
Net income 402 634 872 789 781
Basic and diluted
earnings per share .38 .60 .83 .75 .74
Cash dividends
per common share .32 .32 .32 .30 .28
Total assets 9,778 9,552 8,834 8,796 8,266
Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Working capital at May 31, 1998 was $6,810,423, an increase of
$96,739, or one percent from the previous year. The current ratio at May
31, 1998 is 4.4 to 1 (4.7 to 1 in 1997). Total liabilities to assets equals
twenty one percent (twenty percent in 1997).
<PAGE>
Cash was used to fund normal working capital requirements, including
acquisition of property, plant and equipment, payment of dividends and
payment of matured accounts payable and accrued liabilities and the opening
of two retail stores. The cash balance at May 31, 1998 decreased $792,424, or
approximately forty one percent from 1997. The decrease resulted from
$304,507 used in operating activities,$149,936 used in investing activities
and $337,981 used in financing activities.
The accounts receivable balance increased approximately five percent at
May 31, 1998 primarily related to the timing of shipments during the fourth
quarter. Inventories increased approximately twenty one percent. Six
percent of the inventories are in the two new factory outlet mall stores
and the balance of the increase resulted from the early acquisition and
production of fall merchandise. Accounts payable and accrued liabilities
increased approximately eleven percent primarily due to the acquisition
of fall inventories.
The Company factors its accounts receivable with a commercial factor
on a matured basis. (Funds are remitted by the factor upon maturity of the
invoices, plus a set number of collection days). The factor establishes a
credit line per customer on a non-recourse basis. Credit extended by the
Company in excess of the factor's approved credit line is factored on a
recourse basis.
The Company does not have a retirement plan nor offers post retirement
or employment benefits. Accordingly, there will be no impact on the Company
due to SFAS 106,"Employers'Accounting for Post Employment Benefits".
The provisions of the Taxpayer Relief Act of 1997 are not expected to
have a material impact on liquidity, financial conditions or operations.
The deferred tax asset at May 31, 1998 totals $234,000. Approximately
$688,000 of taxable income will need to be generated in order to fully
utilize the deferred tax. The average taxable income of the company over the
last three years is approximately one million dollars. In view of current
operations management believes that adequate taxable income will be
generated in order to fully utilize the deferred tax.
The deductible temporary differences related to the deferred tax
liability of $74,000 consist of depreciation. It is expected that these
differences should reverse out over the life of the assets, or approxi-
mately ten years. All other temporary differences related to the deferred
tax asset of $234,000 are expected to reverse in fiscal 1999.
Capital acquisition and improvement expenditures during fiscal 1998
totaled approximately $149,000, consisting of new equipment and improvements
to facilities ($40,000) and furniture, fixtures and leasehold improvements
in the two factory outlet mall stores ($109,000). These expenditures were
funded out of current working capital. There were no significant
dispositions of fixed assets used in operations during fiscal 1998 and none
are planned during fiscal 1999. Capital acquisition and improvement
expenditures for the 1999 fiscal year are planned to total approximately
$250,000, which will consist of new equipment to increase operating
efficiencies and improvements to existing facilities. Funding will come
from cash flows generated through operations. Present facilities are
adequate with room for expansion and no material requirements for additional
facilities or major capital expenditures are anticipated in the next few
years.
<PAGE>
Shipments in fiscal 1999 are expected to be relatively equal during
each quarter. Inventories are planned to remain at approximately the same
level during the coming year subject to temporary seasonal requirements.
The payment of dividends is reviewed each quarter taking into consideration
liquidity, net income, business requirements and economic conditions.
Based on current operations and internally generated cash flows,
management believes that adequate resources will be available to meet
current and future liquidity requirements.
Inflation
- ---------
Inflationary higher prices for materials, labor, overhead and other
expenses increased costs. The Company attempts to offset the effects of
these increased costs through greater productivity, operating efficiencies
and selective price adjustments.
Year 2000 Disclosure
- --------------------
The Company is working to resolve the potential impact of the year 2000
on the ability of the Companys computerized information systems to accurately
process information that may be date-sensitive. Any of the Companys programs
that recognize a date using 00 as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Companys financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which is effective for the Companys fiscal year ending
May 31, 1999. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains, and loses)
in a full set of general purpose financial statements. The adoption of SFAS
No. 130, which will be implemented in the Companys fiscal year 1999, may
result in a change in financial statement presentation but will not have an
impact on the Companys financial position or result of operations.
In June 1997, the FASB issued SFAS no. 131, Disclosure about Segments of
an Enterprise and Related Information, which is effective for financial
statements for periods in fiscal years beginning after December 15, 1997,
but does not need to be applied to interim financial statements in the
initial year of its application. SFAS No. 131 changes the way public
companies report information about segments does not presently apply to
the Companys operations. If segment reporting becomes applicable in a
future period, the Company will adopt SFAS No. 131 in that period.
RESULTS OF OPERATIONS
1998 Compared to 1997
- ---------------------
Net income for the fiscal year ended May 31, 1998 was $401,921, or
$.38 per share, compared to $633,588, or $.60 per share in the 1997 fiscal
year. Income before federal income tax was $626,398 in 1998 versus income
before federal income tax of $1,004,079 in 1997.
Net sales totaled $14,321,914 for the 1998 fiscal year, approximately
one-half of one percent over the previous year. Sales to retail customers
were $13,834,387. First year net sales in the factory outlet mall stores
were $487,527 and operations resulted in a loss of $233,340.
The HOWARD WOLF label continues to experience good customer acceptance.
However, the Company experienced an overall soft demand for women's apparel
which exerted great competitive pressure on sales and margins. Management's
continuing goal is to broaden the HOWARD WOLF market base by greater
penetration into domestic and foreign markets.
Cost of sales increased .3 percent to 66.2 percent as a percentage
relationship to net sales. The percentage increase resulted primarily from
product sales mix and increased sales allowances.
Selling, general and administrative expenses increased approximately
two percentage points as a percentage relationship to net sales. The
percentage increase resulted primarily from the operations of the factory
outlet mall stores. The provision for bad debt expense increased to $137,969
from $127,491 in 1997.
Other income decreased approximately nineteen percent, primarily due
to lower rental income from property not used in operations.
Interest income decreased approximately twenty eight percent, primarily
due to lower average cash balances.
<PAGE>
Interest expense increased approximately eighteen percent, primarily
due to interest costs on extended terms granted on customer accounts.
RESULTS OF OPERATIONS
1997 Compared to 1996
- ---------------------
Net income for the fiscal year ended May 31, 1997 was $633,588, or
$.60 per share, compared to $872,048, or $.83 per share in the 1996 fiscal
year. 1996 net income includes $95,154 (net of tax) or $.09 per share,
from the gain on the sale of property, plant and equipment not used in
operations.
Net sales for the 1997 fiscal year were $14,242,006. Net sales were
approximately six percent lower compared to 1996. 1997 sales reflected the
retail fashion apparel industry's continued tough economic climate.
Segments of our customer base were affected by a negative foreign exchange
rate and an overall weakened consumer demand. Management is working
aggressively to overcome negative industry and economic trends by offering
a broader product line, exploring alternative sales methods and increasing
penetration in our market base.
Cost of sales decreased seven tenths of one percent as a percentage
relationship to net sales. The percentage decrease resulted primarily
from slightly lower overhead costs and expenses.
Selling, general and administrative expenses increased approximately
one and four tenths percent as a percentage relationship to net sales.
The percentage increase resulted primarily due to higher general and
administrative expenses. The provision for bad debt expense increased
to $127,491 in 1997 from $60,204 in 1996.
Other income in fiscal 1997 increased approximately twenty percent,
primarily due to higher rental income from property, plant and equipment
not used in operations.
Interest income increased approximately two hundred four percent,
primarily resulting from higher average cash balances.
<PAGE>
Interest expense decreased approximately thirty nine percent, resulting
primarily from a reduction of extended terms on factored customer accounts.
Item 8. Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Management......................................... 9
Independent Auditor's Report................................. 9
Consolidated Statements of Operations and
Retained Earnings for the years ended
May 31, 1998, 1997 and 1996................................ 10
Consolidated Balance Sheets at May 31, 1998 and 1997......... 11
Consolidated Statements of Cash Flows for the years
ended May 31, 1998, 1997 and 1996......................... 12
Notes to Consolidated Financial Statements................... 13-17
Consolidated Schedules for the years ended
May 31, 1998, 1997 and 1996:
II-Allowance for Collection Losses and Discounts.......... 19
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule or because the information required is included in the
consolidated financial statements and notes thereto.
<PAGE>
Report of Management
- --------------------
Management is responsible for the consolidated financial statements
and all information in this annual report. The statements have been
prepared in conformity with generally accepted accounting principles.
Financial information elsewhere in this report is consistent with that in
the consolidated financial statements. The consolidated statements have
been audited by Lane Gorman Trubitt, L.L.P., independent auditors. Their
role is to express an opinion as to whether management's financial state-
ments, considered in their entirety, present fairly the Company's financial
position, operating results and cash flows.
Management maintains and relies on systems of internal accounting
controls designed and intended to provide reasonable assurance that
assets are safeguarded from loss or unauthorized use and that
transactions are executed in accordance with management's authorization
and are properly recorded. These systems are tested and evaluated by
management as well as by the independent auditors in connection with their
annual audit.
The Board of Directors selects an Audit Committee composed of two
directors. The committee meets periodically with the independent auditors
to review the scope and results of the audit, principles applied in
financial reporting, and financial and operational controls. The
independent auditors and corporate accountants have free access to the
audit committee, who are not employees of the company. On the recommen-
dation of the Audit Committee, the Board of Directors selects and
engages the independent auditors.
/s/Eugene K. Friesen
- ---------------------
Eugene K. Friesen
Senior Vice President and Treasurer
Chief Financial Officer
<PAGE>
Independent Auditor's Report
The Board of Directors and Shareholders
Howard B. Wolf, Inc.
We have audited the accompanying consolidated balance sheets of Howard
B. Wolf, Inc. and subsidiaries as of May 31, 1998 and 1997, and the
related consolidated statements of operations and retained earnings, and
cash flows for each of the years in the three-year period ended May 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects,the financial position of
Howard B. Wolf, Inc. and subsidiaries as of May 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in
the three-year period ended May 31, 1998 in conformity with generally
accepted accounting principles.
We have also audited Schedule II of Howard B. Wolf, Inc. and subsidiaries
for the years ended May 31, 1998, 1997 and 1996. In our opinion, this
schedule presents fairly, in all material respects, the information
required to be set forth therein.
/s/ Lane Gorman and Trubitt, L.L.P.
Lane Gorman Trubitt, L.L.P., Certified Public Accountants
Dallas, Texas
July 8, 1998
<PAGE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years ended May 31,
1998 1997 1996
----------- ----------- -----------
Net sales $14,321,914 $14,242,066 $15,213,047
Cost and expenses:
Cost of sales 9,487,555 9,392,340 10,132,998
Selling, general and
administrative expenses 4,127,553 3,820,471 3,859,302
Provision for bad
debt expense 137,969 127,491 60,204
13,753,077 13,340,302 14,052,504
Income from operations 568,837 901,764 1,160,543
Gain on sale of property,plant
and equipment not used in
operations - - 144,172
Other income 43,881 64,591 53,848
Interest income 48,813 67,399 22,159
Interest expense (35,133) (29,675) (48,510)
Income before federal income tax 626,398 1,004,079 1,332,212
Provision for federal income tax (224,477) (370,491) (460,164)
Net income 401,921 633,588 872,048
Retained earnings-
beginning of year 5,369,844 5,074,237 4,540,170
Cash dividends (337,981) (337,981) (337,981)
Retained earning-end of year $5,433,784 $5,369,844 $5,074,237
Average number of shares
outstanding 1,056,191 1,056,191 1,056,191
Basic and diluted
earnings per share $.38 $.60 $.83
See accompanying notes
<PAGE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEETS
May 31,
ASSETS
1998 1997
---------- ----------
Current assets:
Cash and cash equivalents $1,128,991 $1,921,415
Accounts receivable-net 2,530,137 2,415,244
Inventories 4,620,568 3,815,653
Prepaid expenses 159,322 160,994
Refundable federal income tax 112,813 -
Deferred federal income tax 234,000 214,000
8,785,831 8,527,306
Property, plant and equipment 2,494,332 2,360,038
Less accumulated depreciation
and amortization (1,555,118) (1,389,205)
939,214 970,833
Property, plant and equipment
not used in operations 678 2,718
Other assets 51,957 51,097
$9,777,680 $9,551,954
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $1,975,408 $1,772,987
Federal income tax payable - 40,635
Total current liabilities 1,975,408 1,813,622
Deferred federal income tax 74,000 74,000
Shareholders' equity:
Common stock,par $.33 1/3;3,000,000 shares
authorized; 1,081,191 shares issued 360,400 360,400
Additional paid-in capital 2,034,088 2,034,088
Retained earnings 5,433,088 5,369,844
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
7,728,272 7,664,332
$9,777,680 $9,551,954
See accompanying notes
<PAGE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31
1998 1997 1996
---------- ---------- ----------
Cash flows from
operating activities:
Net income $ 401,921 $ 633,588 $ 872,048
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities-
Depreciation and amortization 174,605 150,067 152,625
Provision for losses
on accounts receivable 137,969 127,491 60,204
Change in deferred
federal income tax (20,000) (41,000) 2,000
Cost on abandonment of lease 8,131 - -
Gain on sale of property,
plant and equipment not
used in operations - - (144,172)
Net changes in operating
assets and liabilities-
Accounts receivable (252,862) (565,937) (67,690)
Inventories (804,915) 331,633 (122,426)
Prepaid expenses 1,671 (626) (53,737)
Refundable federal income tax (112,813) - -
Accounts payable and
accrued liabilities 202,421 350,163 (420,924)
Federal income tax payable (40,635) 76,573 (61,594)
Net cash provided by (used in)
operating activities (304,507) 1,061,952 216,334
Cash flows from investing activities:
Other assets (860) (1,432) (830)
Additions to property,
plant and equipment (149,076) (63,111) (241,105)
Sale of property, plant
and equipment not used
in operations - - 250,000
Net cash (used in) provided
by investing activities (149,936) (64,543) 8,065
Cash flows from
financing activities:
Cash dividends paid (337,981) (337,981) (337,981)
Net cash used by
financing activities (337,981) (337,981) (337,981)
Net increase(decrease) in cash
and cash equivalents (792,424) 659,428 (113,582)
Cash and cash equivalents
at beginning of year 1,921,415 1,261,987 1,375,569
Cash and cash equivalents
at end of year $1,128,991 $1,921,415 $1,261,987
See accompanying notes
<PAGE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business
- --------
The Company designs, manufactures and sells women's fashion apparel.
It's principal market is retail clothing and department stores in the
United States.
Summary of significant accounting policies
- ------------------------------------------
The consolidated financial statements include the accounts of the
Company and all subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Raw materials are priced at the lower of cost (identified unit basis)
or market and work-in-process and finished goods are priced at the lower of
average cost or market.
Property, plant and equipment is stated at cost. Depreciation and
amortization of machinery and equipment, leasehold improvements and the
building included in property, plant and equipment are provided by the
straight-line method. Depreciation of the buildings included in property,
plant and equipment not used in operations is provided for by both the
accelerated and straight-line methods.
Income taxes are provided on pre-tax earnings as reported in the
consolidated financial statements. Deferred income taxes result from
temporary differences between pre-tax earnings reported in the consolidated
financial statements and taxable income.
The Company has adopted Statement of Financial Accounting Standards No.
128 (SFAS No, 128), Earnings per Share. SFAS No. 128 established new
requirements for computing and presenting earnings per share. Under the new
requirements, the method previously used to compute earnings per share is
changed and all prior periods presented have been restated to conform to the
new requirements. The new requirements eliminate primary and fully diluted
earnings per share. As a result, under the new requirements, basic and
dilutive net earnings per share are the same under the Companys capital
structure.
Basic and diluted earnings per share is computed on the weighted
average number of common shares outstanding during the period.
In June 1997, the FASB released Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), Earnings per Share. SFAS No. 128
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements and
is effective for the Companys fiscal year 1999. The Company believes that
adoption of SFAS 130 will not have a material impact on the Companys
consolidated financial statements.
<PAGE>
In preparing the Company's financial statements, management is
required to make estimates and assumptions that effect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ form these estimates.
Fair value of financial instruments are estimated to approximate the
related book values, unless otherwise indicated, based on market
information available to the Company.
Cash flow information
- ---------------------
The consolidated statement of cash flows provides information about
changes in cash and cash equivalents. Cash equivalents consist of highly
liquid debt instruments with a maturity, when purchased, of three months or
less.
Cash payments for interest were: 1998-$35,133; 1997-$29,675; 1996-
$48,108. Cash payments for federal income taxes were: 1998-$387,925; 1997-
$341,854; 1996-$519,758.
Cash and cash equivalents
- ------------------------
Cash and cash equivalents consist of:
1998 1997
---------- ----------
Cash $ 290,833 $ 945,759
Money market funds 207,461 400,162
Matured funds at factor 630,697 575,494
$1,128,991 $1,921,415
Credit risk
- -----------
The Company and its subsidiaries maintain cash balances at several
financial institutions located in Texas. Accounts in each institution are
insured by the Federal Deposit Insurance Corporation up to $100.000.
Uninsured balances aggregate to approximately $855,000 at May 31, 1998,
($1,454,000 at May 31, 1997).The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit
risk.
The balance of accounts receivable factored and matured funds with a
commercial factor of approximately $2,172,000 at May 31, 1998 are
uninsured ($2,538,000 at May 31, 1997).
Accounts receivable
- -------------------
Accounts receivable are net of allowances for collection losses and
discounts of $132,546 in 1998 and $131,931 in 1997.
<PAGE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At May 31, 1998 and 1997 approximately $1,542,000 and $1,962,000
respectively, of accounts receivable were factored with a commercial
factor. Approximately $707,000 and $1,133,000 were factored with recourse at
May 31, 1998 and 1997, respectively.
Inventories
- -----------
Inventories consist of: 1998 1997
-------------------------- ---------- ----------
Raw materials $ 991,748 $1,237,574
Work-in-process 1,067,345 1,043,457
Finished goods 2,561,475 1,534,622
$4,620,568 $3,815,653
Property, plant and equipment
- -----------------------------
Details of property, plant and equipment at cost and the estimated
useful lives used in computing depreciation and amortization are:
Estimated
useful lives 1998 1997
------------ ---------- ----------
Property, plant and
equipment:
Land - $ 109,846 $ 109,846
Buildings 25 years 661,727 661,727
Machinery and
equipment 3-10 years 1,027,109 921,182
Building and lease-
hold improvements 4-10 years 695,650 667,283
$2,494,332 $2,360,038
Plant and equipment
not used in operations:
Buildings 25 years 137,005 137,005
Less accumulated depreciation (136,327) (131,195)
$ 678 $ 5,810
<PAGE>
Accounts payable and accrued liabilities
- ----------------------------------------
Accounts payable and accrued
liabilities consist of:
1998 1997
---------- ----------
Accounts payable-trade $1,667,482 $1,241,286
Accrued compensation 191,390 410,148
Accrued taxes 100,207 76,795
Other accrued liabilities 16,329 44,758
---------- ----------
$1,975,408 $1,772,987
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Line of credit
- --------------
The Company has an oral agreement for a line of credit with a bank in
the amount of $100,000 bearing no interest. The line is collateralized by
the general assets of the company. As of May 31, 1998, amounts available
under this line were $100,000. No amounts were drawn under this line of
credit as of May 31, 1998.
Leases
- ------
Certain equipment, manufacturing facilities, showrooms and factory outlet
mall stores are leased for periods expiring at various dates through fiscal
2003, at aggregate annual rentals of approximately $159,000 in 1998,
$103,000 in 1997 and $99,000 in 1996, which consisted entirely of minimum
rentals. In most cases, management expects that in the normal course of
business leases will be renewed or replaced by other leases.
The future minimum lease payments required under operating leases that
have an initial or remaining lease term in excess of one year at May 31,
1998 were as follows:
Operating
leases
---------
1999 $171,030
2000 159,477
2001 148,023
2002 104,347
2003 63,544
---------
$646,421
Shareholders' Equity
- --------------------
On July 22, 1998 the Board of Directors declared a quarterly cash
dividend of $.08 per share payable August 31, 1998 to shareholders of record
on August 7, 1998.
<PAGE>
Federal Income Tax
- ------------------
The detail of the provision for federal income tax follows:
For the years ended May 31,
------------------------------------
1998 1997 1996
-------- -------- --------
Current tax expense $244,477 $411,491 $458,194
Deferred tax
(benefit) expense 20,000 (41,000) 2,000
Provision for income tax $224,477 $370,491 $460,194
There are two components of the income tax provision, current and
deferred. Current income tax provisions approximate taxes to be paid or
refunded for the applicable period. Balance sheet amounts of deferred
taxes are recognized on the temporary differences between the bases of
assets and liabilities as measured by tax laws and their bases as reported
in the financial statements. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. Deferred tax expense
or benefit is then recognized for the change in deferred tax liabilities
or assets between periods.
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Total deferred tax assets and liabilities in the consolidated balance
sheets are as follows at May 31,:
Assets 1998 1997 1996
------------------------- -------- -------- --------
Bad debt reserve $ 40,000 $ 40,000 $ 26,000
Discount reserve 5,000 5,000 3,000
Inventory capitalization
of selling, general and
administrative costs 189,000 169,000 148,000
$234,000 $214,000 $177,000
Liabilities
-------------------------
Depreciation $ 74,000 $ 74,000 $ 78,000
<PAGE>
The income tax provision reconciled to the tax computed at federal
statutory rates is as follows:
For the years ended May 31,
------------------------------------
1998 1997 1996
-------- -------- --------
Tax at statutory rates $212,975 $341,387 $452,951
Tax effect on non-
deductible items 14,620 13,472 11,906
Other-net 16,882 56,632 (6,663)
$244,477 $411,491 $458,194
Deferred tax
(benefit) expense (20,000) (41,000) 2,000
$224,477 $370,491 $460,194
The components of deferred income tax (benefit) expense are as follows:
For the years ended May 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
Difference between tax
and book depreciation $ 282 $ (3,400) $ (4,080)
Difference between tax
and book allowance for
doubtful accounts (810) (13,430) 3,876
Difference between tax
and book basis of
merchandise inventories (20,072) (21,809) 1,890
Reserve for discounts 600 (2,361) 314
Deferred tax
(benefit) expense $(20,000) $(41,000) $ 2,000
Advertising costs
The Companys policy is to expense all advertising costs in the
period in which the advertising first takes place. Advertising expense
was approximately $208,000, $122,000 and $155,000 for the years ended May
31, 1998, 1997 and 1996, respectively.
<PAGE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Selected quarterly financial data (UNAUDITED)
First Quarter Second Quarter Third Quarter Fourth Quarter
Ended Ended Ended Ended
Aug 31,1997 Nov 30,1997 Feb 28,1998 May 31,1998
-------------- --------------- ---------------- ---------------
Net sales $3,680,093 $3,861,720 $3,276,419 $3,503,682
Gross profit 1,299,050 1,460,640 1,028,199 1,046,470
Income before
federal
income tax 265,460 259,988 80,217 20,733
Net income 170,196 168,996 43,682 19,047
Basic and diluted
earnings per share .16 .16 .04 .02
Average number
of shares
outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Aug 31,1996 Nov 30,1996 Feb 28,1997 May 31,1997
----------- ----------- ----------- -----------
Net sales $3,630,878 $3,640,522 $3,421,547 $3,549,119
Gross profit 1,218,155 1,348,966 1,183,709 1,098,896
Income before
federal
income tax 259,050 269,783 251,229 224,017
Net income 166,714 166,238 158,438 142,198
Basic and diluted
earnings per share .16 .16 .15 .13
Average number
of shares
outstanding 1,056,191 1,056,191 1,056,191 1,056,191
<PAGE>
Item 9. Changes in and disagreements with accountants
on accounting and financial disclosure matters
None
PART III
The information required by items 10, 11, 12 and 13 of Part III is
incorporated by reference from the indicated pages in the Company's
definitive proxy statement for its annual meeting of shareholders to be
held September 15, 1998.
Pages of Proxy
Statement
Item 10. Directors and Executive
Officers of the Registrant 3-4
Item 11. Executive Compensation 5
Item 12. Executive Ownership of Certain
Beneficial Owners and Management 2-3
Item 15. Certain Relationships and Related Transactions 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements and financial statement schedules
The financial statements and schedules listed in the accompanying
index to consolidated financial statements are filed as part of
this annual report.
3. Exhibits
None
(b) Report on Form 8-K
No reports were filed in the fourth quarter ended May 31, 1998.
<PAGE>
HOWARD B. WOLF, INC.
SCHEDULE II-ALLOWANCE FOR COLLECTION LOSSES AND DISCOUNTS
Years ended May 31, 1998, 1997 and 1996
000's Omitted
Balance at Additions Amount Balance
beginning charged charged Discounts at end
of year to income off(2) allowed of year
---------- --------- -------- --------- -------
Year ended
May 31,1998
Collection losses $116 $ 138 $136 $ - $ 119
Discounts 16 857(1) 1 857 14
$132 $ 995 $137 $ 857 $ 133
Year ended
May 31, 1997
Collection losses $ 77 $ 127 $ 88 $ - $ 116
Discounts 9 1,048(1) (7) 1,048 16
$ 86 $1,175 $ 81 $1,048 $ 13
Year ended
May 31, 1996
Collection losses $ 88 $ 60 $ 72 $ - $ 77
Discounts 10 1,027(1) 1 1,027 9
$ 99 $1,087 $ 73 $1,027 $ 86
(1) Charged to net sales.
(2) Net of recoveries.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Howard B. Wolf, Inc.
By:/s/ Robert D. Wolf
-----------------------
Robert D. Wolf
President
(Chief Executive Officer)
August 25,1998
By:/s/ Eugene K. Friesen
-----------------------
Eugene K. Friesen
Senior Vice President and Treasurer
(Principal Accounting Officer)
August 25,1998
Pursuant of 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:
/s/Creed L. Ford III
- --------------------
Creed L. Ford III
Director
August 25,1998
/s/Eugene K. Friesen
- --------------------
Eugene K. Friesen
Senior Vice President,Treasurer and Director
August 25,1998
/s/Joel Held
- --------------------
Joel Held
Director
August 25,1998
/s/Juan Villamizar
- --------------------
Juan Villamizar
Director
August 25,1998
/s/Howard B. Wolf
- --------------------
Howard B. Wolf
Chairman of the Board,Secretary and Director
August 25,1998
/s/Robert D. Wolf
- --------------------
Robert D. Wolf
President, Chief Executive Officer and Director
August 25,1998
<PAGE>
APPENDIX C
----------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1998
Commission file number 1-6775
HOWARD B. WOLF, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-0847571
(State of Incorporation) (IRS Employer Identification No.)
3809 Parry Avenue, Dallas, Texas 75226-1753
(Address of principal executive offices) (Zip Code)
(214) 823-9941
(Telephone number)
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 ____.
Common stock, par value $0.33 1/3 per share:
1,056,191 shares outstanding as of
January 13, 1999
HOWARD B. WOLF, INC.
<PAGE>
INDEX
Page
Number
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Operations and Retained Earnings for the
three-month and six-month periods ended
November 30, 1998 and November 30, 1997
(Unaudited) 3
Consolidated Balance Sheets
November 30, 1998 (Unaudited) and May 31, 1998 4
Consolidated Statements of Cash Flows for the
six month period ended November 30, 1998
and November 30, 1997 (Unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 7 & 8
PART II. OTHER INFORMATION
Item 9.
Exhibits and Reports on Form 8-K 8
<PAGE>
<TABLE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
November 30, November 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $2,641,063 $3,861,720 $5,789,293 $7,541,813
Cost and expenses:
Cost of sales 2,354,993 2,401,080 4,511,038 4,782,123
Selling, general and
administrative expenses 870,615 1,204,707 1,826,457 2,231,701
Provision for
bad debt expense 37,500 22,500 64,959 45,000
--------- --------- --------- ---------
3,263,108 3,628,287 6,402,454 7,058,824
--------- --------- --------- ---------
Income (loss) from operations (622,045) 233,433 (613,161) 482,989
Other income (expense) (4,595) 18,512 9,502 34,051
Interest income 6,836 15,945 9,865 26,080
Interest expense (4,814) (7,902) (24,514) (17,672)
--------- --------- --------- ---------
Income (loss) before
federal income tax (624,618) 259,988 (618,308) 525,448
Benefit (provision)
for federal income tax 183,155 (90,992) 182,079 (186,256)
--------- --------- --------- ---------
Net income (loss) (441,463) 168,996 (436,229) 339,192
Retained earnings -
beginning of period 5,354,522 5,455,545 5,433,783 5,369,844
Cash dividends (84,496) (84,496) (168,991) (168,991)
--------- --------- --------- ---------
Retained earnings -
end of period $4,828,563 $5,540,045 $4,828,563 $5,540,045
========= ========= ========= =========
Average number of
shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Basic and diluted
earnings (loss) per share ($.42) $.16 ($.41) $.32
Cash dividends per share $.08 $.08 $.16 $.16
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEETS
November 30, May 31,
ASSETS 1998 1998
(Unaudited) (Audited)
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,061,917 $1,128,991
Accounts receivable (net) 1,949,552 2,530,137
Inventories 4,029,193 4,620,568
Prepaid expenses 204,824 159,322
Refundable federal income tax 190,480 112,813
Deferred federal income tax 239,000 234,000
--------- ---------
Total current assets 7,674,966 8,785,831
Property, plant and equipment 2,481,852 2,494,332
Less accumulated depreciation
and amortization (1,649,439) (1,555,118)
--------- ---------
832,413 939,214
Property, plant and equipment
not used in operations,less
accumulated depreciation 0 678
Other assets 51,957 51,957
--------- ---------
$8,559,336 $9,777,680
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,093,626 $1,667,482
Accrued compensation 74,655 191,390
Accrued taxes 180,877 100,207
Other accrued liabilities 17,126 16,329
--------- ---------
Total current liabilities 1,366,284 1,975,408
Deferred federal income tax 70,000 74,000
Shareholders' equity:
Common stock, par value $.33-1/3;
3,000,000 shares authorized,
1,081,191 shares issued 360,400 360,400
Additional paid-in capital 2,034,088 2,034,088
Retained earnings 4,828,564 5,433,784
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
--------- ---------
7,123,052 7,728,272
--------- ---------
$8,559,336 $9,777,680
========= =========
Note: The consolidated balance sheet at May 31, 1998 has been taken from
the audited financial statements.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
November 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (436,229) $ 339,192
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization 95,000 72,000
Provision for losses on accounts
receivable 64,959 45,000
Abandonment of leasehold improvements 20,000 -
Changes in deferred federal income tax (9,000) 2,000
Net changes in assets and liabilities--
Accounts receivable 515,625 (181,651)
Inventories 591,375 (105,879)
Prepaid expenses (45,502) (97,814)
Refundable federal income tax (77,667)
Accounts payable and accrued liabilities (609,124) (187,396)
Federal income tax payable - (38,669)
--------- ---------
Net cash provided by (used in)
operating activities 109,437 (153,217)
Cash flow from investing activities:
Additions to property, plant and equipment (7,520) (58,471)
--------- ---------
Net cash used in investing activities (7,520) (58,471)
Cash flows from financing activities:
Cash dividends paid (168,991) (168,991)
--------- ---------
Net cash used in financing activities (168,991) (168,991)
--------- ---------
Net increase (decrease) in cash and cash
equivalents (67,075) (380,679)
Cash and cash equivalents at beginning of
period 1,128,991 1,921,415
--------- ---------
Cash and cash equivalents at end of period $1,061,917 $1,540,736
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of November 30, 1998, the consolidated
statements of operations and the consolidated statements of cash flows for
the three-month and six-month periods ended November 30, 1998 and 1997 have
been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and changes
in cash flows as of and for the periods ended November 30, 1998 and 1997
have been made.
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's May 31, 1998 annual report to shareholders. The results of
operations for the six-month period ended November 30, 1998 are not
necessarily indicative of the operating results for the full year ending
May 31, 1999.
November 30, 1998 May 31, 1998
(Unaudited) (Audited)
--------- ---------
Cash and cash equivalents consist of:
Cash $ 150,973 $ 290,833
Money market funds 211,728 207,461
Matured funds at factor 699,216 630,697
--------- ---------
$ 1,061,917 $ 1,128,991
Allowances for collection
losses and discounts are:
Collection losses $ 152,038 $ 118,609
Discounts 10,967 13,937
--------- ---------
$ 163,005 $ 132,546
Inventories consist of:
Raw materials $ 863,417 $ 991,748
Work-in-process 713,267 1,067,345
Finished goods 2,452,509 2,561,475
--------- ---------
$ 4,029,193 $ 4,620,568
Accumulated depreciation on
property, plant and equipment
not used in operations is: $ 136,327 $ 136,327
Provision for federal income
tax detail is:
Current tax (benefit) expense $ (173,079) $ 244,477
Deferred tax (benefit) expense (9,000) (20,000)
--------- ---------
$ (182,079) $ 224,477
Cash flow information:
Cash payments for interest $ 24,514 $ 35,133
Cash payments for
federal income taxes $ - $ 387,925
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1998 was $6,308,682, a decrease of
$501,741 from May 31, 1998. Cash and cash equivalents decreased $67,074
during the six-month period ended November 30, 1998. Cash was used to fund
normal working capital requirements, additions to property, plant and
equipment, payment of dividends and payment of matured accounts payable
and accrued liabilities. Accounts receivable decreased $580,585 primarily
due to the timing of shipments and decline in sales during the second quarter.
Inventories decreased approximately thirteen percent primarily to align with
the lower sales volume. Accounts payable and accrued liabilities decreased
approximately thirty-one percent primarily due to payment of normal
maturities and accrued expenses during the six-month period.
The current ratio at November 30, 1998 is 5.6 to 1 (4.4 to 1 at May 31,
1998). Total liabilities to assets equals seventeen percent (twenty-one
percent at May 31, 1998).
The Company factors its accounts receivable with a commercial factor on a
matured basis. (Funds are remitted by the factor upon maturity of the
invoices, plus a set number of collection days). The factor establishes a
credit line per customer on a non-recourse basis. Credit extended by the
Company in excess of the credit line is factored on a recourse basis
($1,288,990 at November 30, 1998 - $707,000 at May 31, 1998).
Capital acquisition and improvement expenditures totaled $7,520 during
the six-month period ended November 30, 1998. It is estimated that
approximately $100,000 additional capital expenditures will be made over
the next quarter, consisting of equipment and improvements to existing
facilities. Funding will come from cash flows generated through operating
activities. Leasehold improvements in the outlet mall store in Napa,
California were written off totaling $20,000 and is shown in the cash
flow statement as "abandonment of leasehold improvements". No other
significant dispositions of equipment occurred during the six-month period
ended November 30, 1998. The Company has entered into a contract of sale
of its principal office and manufacturing facility in the amount of
$2,500,000. If accepted, the transaction will be completed on January
14, 1999. A six-month leaseback was executed with the contract of sale.
The Company does not offer a retirement plan nor offer post retirement or
employment benefits. Accordingly, there will be no impact on the Company
due to SFAS 106, Employers' Accounting for Post Retirement Benefits Other
Than Pensions and SFAS 112, Employers' Accounting for Post Employment
Benefits.
Based on current operations and internally generated cash flows,
management believes that adequate resources will be available to meet
current and future liquidity requirements.
<PAGE>
The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date sensitive. Any of the Company's
programs that recognize a date using "00" as the year 1900 rather than the
year 2000 could result in errors or system failures. The Company utilizes
a number of computer programs across its entire operation. The Company has
not completed its assessment, but currently believes that costs of addressing
this issue will not have a material adverse impact on the Company's financial
position. However, if the Company and third parties upon which it relies
are unable to address this issue in a timely manner, it could result in a
material financial risk to the Company. In order to assure that this does
not occur, the Company is devoting all resources required to resolve any
significant year 2000 issues in a timely manner.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income,"
which is effective for the Company's fiscal year ending May 31, 1999. SFAS
No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full
set of general purpose financial statements. SFAS No. 130 has been adopted
by the Company. There are no components of comprehensive income for the
six-month and three-month period ended November 30, 1998 and therefore, no
change in the consolidated financial statement format for the Company as of
November 30, 1998.
The FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," which is effective for financial statements for
periods in fiscal years beginning after December 15, 1997, but does not need
to be applied to interim financial statements in the initial year of its
application. SFAS No. 131 changes the way public companies report
information about operating segments does not presently apply to the
Company's operations. If segment reporting becomes applicable in a future
period, the Company will adopt SFAS No. 131 in that period.
RESULTS OF OPERATIONS
Net sales for the second quarter and six-month periods ended November 30,
1998 decreased approximately thirty-two and twenty-three percent,
respectively, in each period compared to the 1997 second quarter and
six-month periods. Net sales for the second quarter ended November 30,
1998 were approximately sixteen percent lower than in the preceding first
quarter. The decrease in each period primarily reflects the very weak
apparel sales experienced by our customers which resulted in lower shipments.
The factory outlet mall store located in Napa, California was closed
September 8, 1998 due to lower than anticipated sales.
Cost of goods sold, as a percentage relationship to net sales for the
second quarter and six-month periods ended November 30, 1998 increased
approximately twenty-seven percentage points and fourteen percentage points,
respectively, over the 1997 second quarter and six-month periods. 1998
second quarter cost of sales, as a percentage relationship to net sales,
compared to the preceding first quarter was approximately twenty-one
percentage points higher. The increases in each period resulted primarily
from higher discounts and allowances and the effect of lower net sales.
<PAGE>
Selling, general and administrative expenses increased, as a percentage
relationship to net sales in the second quarter and six-month periods ended
November 30, 1998 and 1997, approximately two percentage points, respectively,
in each period compared to the comparable periods of the preceding year.
1998 second quarter selling, general and administrative expenses increased
as a percentage relationship to net sales by approximately three percentage
points as compared to the previous first quarter. The increases in each
period resulted from the effect of lower net sales as actual dollar expense
decreased. The provision for bad debts for the six-month periods ended
November 30, 1998 and 1997 is $64,959 and $45,000, respectively.
Other income in the second quarter and six-month periods ended November 30,
1998 increased $4,595 and 9,502, respectively, compared to the comparable
periods of the preceding year. Other income decreased $18,692 in the 1998
second quarter compared to the preceding first quarter ended August 31, 1998.
The decreases resulted primarily from rental income from property not used
in operations and a second quarter charge of $20,000 for the Napa, California
unamortized leasehold improvements which were written off.
Interest income in the three-month and six-month periods ended November 30,
1998 decreased approximately fifty-seven percent and sixty-two percent,
respectively, compared to the same periods in 1997. The decreases resulted
primarily from lower cash balances. Interest income increased
approximately one hundred twenty-six percent in the 1998 second quarter
compared to the preceding first quarter. The increase resulted primarily
due to higher second quarter average cash balances.
For the three-month and six-month periods ended November 30, 1998 interest
expense decreased approximately thirty-nine percent in each period compared
to the same periods ended in 1997. Interest expense in the November 30, 1998
second quarter decreased approximately seventy-six percent compared to the
preceding first quarter ended August 31,1998. The changes in each period
resulted primarily from factor interest costs on recourse accounts receivable.
The federal income tax refund effective tax rate of twenty nine percent
is lower than the statutory rate (thirty four percent) as a result of
nondeductible life insurance premiums, nondeductible portion of meals,
accelerated depreciation, capitalization of certain expenses in inventories
and the difference between the doubtful account reserve and write-offs.
Part II. OTHER INFORMATION
Item 9. No reports on Form 8-K were filed during the three-month period
ended November 30, 1998.
<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.
HOWARD B. WOLF, INC.
Eugene K. Friesen /s/
Eugene K. Friesen
Senior Vice President and Treasurer
(Chief Financial Officer)
Howard B. Wolf /s/
Howard B. Wolf
Chairman of the Board
January 13, 1999
<PAGE>
APPENDIX D
----------
- ---------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 3, 1999
-----------------
COMMISSION FILE NUMBER: 1-6775
--------------------
HOWARD B. WOLF, INC.
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its Charter)
Texas 75-0847571
- ------------------ -------------
(State of or Other (I.R.S. Employer
Jurisdiction of Identification Number)
Incorporation)
3809 PARRY AVENUE, DALLAS, TEXAS 75226-1753
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 823-9941
- -----------------------------------------------------------------
(Registrant's telephone number, including area code
Not applicable
- -----------------------------------------------------------------
(Former name or former address, if changed since last report)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
There is incorporated herein by reference a press release
dated February 3, 1999, included as Exhibit 99.1.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
See Item 5.
ITEM 5. OTHER EVENTS.
On February 3, 1999, at a special meeting (the "Special
Meeting") of the Board of Directors of the Company the Board of
Directors unanimously adopted a Plan of Complete Liquidation and
Dissolution of the Company (the "Plan"). Final approval and
adoption of the Plan is subject to approval by an affirmative
vote of two-thirds of the Company's common stock entitled to vote
at a special meeting of the Company's shareholders which will be
convened for such purpose. The Plan will be filed in due course.
<PAGE>
The Company wishes to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 with respect
to statements that my be deemed to be forward-looking statements
under the Act. Such forward-looking statements may include, but are
not limited to, statements regarding the liquidation of the Company's
assets. The Company cautions that numerous factors could cause
actual results to differ materially from any forward-looking
statements made by the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS
EXHIBIT NO. DOCUMENT DESCRIPTION
99.1 Press Release, dated February 3, 1999.
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.
HOWARD B. WOLF, INC.
(Registrant)
Date: February 16, 1999 By: /s/ EUGENE K. FRIESEN
------------------------------------
EUGENE K. FRIESEN
SENIOR VICE PRESIDENT AND TREASURER
(principal financial and duly
authorized officer)
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT DESCRIPTION
99.1 Press Release, dated February 3, 1999.
<PAGE>
FOR IMMEDIATE RELEASE
DALLAS, TEXAS..HOWARD B. WOLF, INC. (HBW-AMEX) Dallas based
women's fashion apparel manufacturer, announces plans to complete
their Spring and Summer commitments and shipments, discontinue
the Fall 1999 collection and adopt a Plan of Liquidation and
Dissolution which will be presented to the Company's Shareholders
for adoption at a duly convened special shareholder meeting.
For over forty-seven years this highly regarded fashion
leader has designed, manufactured and distributed fine women's
dresses and sportswear primarily to better specialty and
departmwnt stores. Generational and societal changes in women's
buying habits have created a difficult environment for the
survival of a great number of better specialty stores, the
Company's primary market. This along with massive foreign
imports, off-shore manufacturing and private labeling, without
a foreseeable reversal of this course, has resulted in a
climate in which the Company cannot operate profitably.
All further information regarding the Plan and the
Shareholders' meetings will be provided in due course. The Board
of Directors believes this action is appropriate in order to
continue to act in the bets interests of the Shareholders.
The Company wishes to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995 with respect to statements that may be deemed to be
forward-looking statements under the Act.
-End-
<PAGE>
APPENDIX E
----------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
February 16, 1999
Date of Report (Date of Earliest Event Reported)
HOWARD B. WOLF, INC.
State of Texas 1-6775 75-0847571
(State or other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
3809 Parry Avenue
Dallas, Texas 75226-1753
(Address of Principal Executive Offices) (Zip Code)
(214) 823-9941
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed since last Report)
<PAGE>
ITEM 5. OTHER EVENTS
On February 16, 1999, Howard B. Wolf, Inc. (the
"Registrant") entered into a purchase agreement (the
"Agreement") with Jean St. Germaine, a California
corporation ("JSG") pursuant to which the Registrant agreed
to sell JSG all of the assets necessary to produce
salesman's samples of the Howard Wolf Fall 1999 collection.
In addition, subject to either (a) the approval of the
Registrant's shareholders of that certain Plan of Complete
Liquidation and Dissolution adopted by the Registrant's
Board of Directors on February 3, 1999, or (b) a vote by the
Registrant's Board of Directors to proceed without such
approval, the Registrant shall sell to JSG its interest in
the Intellectual Property (as defined in the Agreement).
During the period between the date of the Agreement and the
I.P. Closing Date (as defined in the Agreement), the use of
the Intellectual Property by JSG shall be governed by that
certain license agreement by and between the Registrant and
JSG attached as Exhibit 1.4 to the Agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBIT NO. DESCRIPTION
2.1 Purchase Agreement by and between
Howard B. Wolf, Inc. and Jean St.
Germaine, Inc., dated February 16,
1999.
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.
HOWARD B. WOLF, INC.
(Registrant)
Date: February 26, 1999 By: /s/ EUGENE K. FRIESEN
---------------------------
EUGENE K. FRIESEN
SENIOR VICE PRESIDENT AND
TREASURER
(principal financial and duly
authorized officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Purchase Agreement by and between
Howard B. Wolf, Inc. and Jean St.
Germaine, Inc., dated February 16,
1999.
<PAGE>
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT (hereinafter the "Agreement"), is
effective as of the 16th day of February, 1999, by and between
HOWARD B. WOLF, INC., a Texas corporation (hereinafter
"Seller"), and JEAN ST. GERMAIN, INC., a California corporation
(hereinafter "Buyer").
W I T N E S S E T H:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires
to purchase from Seller, certain assets of Seller and the
goodwill associated therewith, all upon the terms and conditions
and subject to the limited exceptions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the
parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
words and phrases shall have the following meanings,
respectively:
1.1 ASSETS. Assets mean raw materials, patterns,
markers, hang tags and labels necessary to produce salesman's
samples of the Howard Wolf Fall 1999 Collection ("Collection) and
after Seller has completed the manufacture, marketing, sale and
distribution of any work in progress and the disposal of its
inventory, all remaining hang tags and labels.
1.2 CLOSING DATE. Closing Date shall have the meaning
set forth in Paragraph 4.
1.3 INTELLECTUAL PROPERTY. Intellectual Property
means and includes the VSOP, PRET-A-PORTE and HOWARD WOLF
trademarks, service marks, trade names and all other intellectual
property rights, trade secrets, and other proprietary
information, processes, and formulae relating to the Assets. All
of the Intellectual Property includes common law trademarks and
service marks.
1.4 LICENSE AGREEMENT. The License Agreement set forth
as Exhibit 1.4.
2. SALE AND PURCHASE OF SELLER'S ASSETS.
------------------------------------
2.1 PURCHASE AND SALE OF ASSETS. Upon the terms and
subject to the conditions of this Agreement, Buyer agrees to
purchase, accept, and acquire from Seller, and Seller agrees to
sell, transfer, assign, convey, and deliver to Buyer, on the
Closing Date, all right, title, and interest of Seller in and to
all of the Assets.
2.2 SALE OF INTELLECTUAL PROPERTY. Subject to the
approval by Seller's shareholders of that certain Plan of
Complete Liquidation and Dissolution adopted by Seller's
<PAGE>
Board of Directors on February 3, 1999 (the "Plan"), or a vote by
the Seller's Board of Directors to conduct the I.P. Closing (as
hereinafter defined) without such approval, Seller shall sell to
Buyer the Seller's interest in the Intellectual property set
forth in paragraph 1.3 and the goodwill and business associated
therewith. Should the shareholders of Seller not approve the
Plan, the purchase price set forth in paragraph 5.1 shall be
reduced to Two Hundred and Thirty Thousand Dollars ($230,000) as
more fully set forth in paragraph 5.2 herein.
2.3 LICENSE AGREEMENT. During the period between the
Asset Closing Date (as hereafter defined) and the I.P. Closing
Date (as hereinafter defined), the License Agreement shall govern
the use of the Intellectual Property by the Parties; provided,
however, that effective on the I.P. Closing Date, such License
Agreement shall terminate and, except for the rights granted to
Licensor in paragraph 1 thereof, be of no force and effect.
3. ASSUMPTION OF LIABILITIES.
-------------------------
3.1 Buyer shall not assume or be responsible for any
obligations of Seller, expressed or implied. Seller shall not
assume or be responsible for any obligations of Buyer, expressed
or implied; provided however that during the period between the
execution hereof and the I.P. Closing Date, but in no event later
than April 30, 1999, Seller shall assist Buyer in producing
salesman's samples of the Collection, for which assistance Buyer
shall pay or reimburse Seller, as the case may be, all direct
costs incurred by Seller in connection therewith and pre-approved
by Buyer, such payment to be made by Buyer within seven (7) days
of receipt by Buyer of all invoices from Seller for such costs;
provided that no pre-approval is necessary for costs under
$500.00.
4. CLOSING DATE. The closing of the Asset Purchase
------------
transaction contemplated by this Agreement (the "Asset Closing")
shall take place on February 16, 1999, or at such other time and
place as shall mutually be agreed upon by Seller and Buyer,
referred to as the "Asset Closing Date". The closing of the
Intellectual Property purchase transaction contemplated by this
Agreement (the "I.P. Closing") shall take place on the earlier of
five (5) days subsequent to the approval by Seller's shareholders
of the Plan or five (5) days subsequent to a resolution by the
Board of Directors of Seller to close the Intellectual Property
sale transaction contemplated herein without such approval (the
"I.P. Closing Date").
5. CONSIDERATION FOR ASSETS.
------------------------
5.1 PURCHASE PRICE. The purchase price for the Assets
shall equal Two Hundred Fifty Thousand Dollars ($250,000.00)
payable as follows: (a) on or before the Asset Closing Date,
Buyer shall deliver to Seller the sum of Seventy-Five Thousand
Dollars ($75,000.00) and (b) Buyer shall make payments of Fifty-
Eight Thousand Three Hundred Thirty-Three Dollars and Thirty-Two
Cents ($58,333.32) on September 30, 1999, October 31, 1999 and
November 30, 1999 (collectively the "Monthly Payments");
provided, however, that (i) in the event that the I.P. Closing
Date does not occur by November 30, 1999, the payment due by
Buyer to Seller on such date will be reduced by $20,000 and with
respect to such $20,000 the payment schedule referred to in
paragraph 4 of the License Agreement shall apply; (ii) should the
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<PAGE>
I.P. Closing occur subsequent thereto, any remaining payments
shall be accelerated and paid at such closing and the License
Agreement shall terminate; and (iii) should Buyer default in the
making of timely Monthly Payments, Buyer shall have ten (10) days
grace period from date of Sellers written notice, within which to
cure such default after which time if the default is not cured,
the remaining unpaid balance of Monthly Payments shall
immediately become due and payable and such event shall be deemed
an event of default ("Buyers Default") in which event, Buyer
shall cease and desist from using the Intellectual Property,
provided however that if, and only if, Seller receives payment of
such unpaid balance within thirty (30) days of Buyer's Default,
Buyer may resume use of the Intellectual Property. If the
Buyer's Default remains uncured after such thirty (30) day
period, all rights to the Intellectual Property shall revert back
to Seller.
6. REPRESENTATIONS AND WARRANTIES.
------------------------------
6.1 REPRESENTATIONS AND WARRANTIES OF SELLER. To
induce Buyer to purchase the Assets and Intellectual Property
upon the terms and conditions contained in this Agreement, Seller
represents and warrants to Buyer as follows:
(a) ORGANIZATION, GOOD STANDING, POWER, ETC.
Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, and has full
statutory power and authority to carry on the business which it
is now conducting, and to operate and own the Assets and
Intellectual Property, properties and business now owned or
leased and operated by it, including but not limited to the
Assets, is duly qualified to do business in every other state
where it is required to be so qualified in connection with its
business activities.
(b) AUTHORITY TO MAKE AND PERFORM THIS AGREEMENT.
Seller has been duly and validly authorized to make, execute,
deliver, enter into and perform any and all of its obligations
under and pursuant to this Agreement, to transfer all of the
Assets to Buyer pursuant to, and upon the terms and conditions
set forth in this Agreement and to consummate the transactions
contemplated by this Agreement.
(c) AUTHORITY RELATIVE TO THIS AGREEMENT. The
execution, delivery and performance of this Agreement by Seller
and the consummation of the transactions contemplated hereby will
not violate any provisions of law or any statutory or
governmental restriction applicable to Seller in such a manner as
to prevent or materially impede consummation of the transactions
contemplated hereby, and will not conflict with, or result in the
breach or termination of any provision of, or constitute (with or
without the giving of notice or the lapse of time, or both) a
violation of, a default under or result in the creation of any
lien, charge or encumbrance upon any of the properties, assets or
business of Seller pursuant to its Articles of Incorporation or
By-Laws, any of its statutory obligations imposed by any state or
federal governmental entity, or any indenture, mortgage, deed of
trust, or other instrument or agreement, or any order, judgment
or decree to which Seller is a party or by which the Assets are
bound.
(d) TITLE TO ASSETS. On the Asset Closing Date,
Seller will have good
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<PAGE>
and marketable title to the Assets, free and clear of all claims,
liens and encumbrances.
(e) TITLE TO INTELLECTUAL PROPERTY. On the I.P.
Closing Date, Seller will have good and marketable title to the
Intellectual Property, free and clear of all claims, liens and
encumbrances.
(f) TRADEMARKS, COPYRIGHTS OR TRADE SECRETS.
Seller represents and warrants that, to the best of Seller's
knowledge, none of the Intellectual Property infringes any United
States or foreign copyright, trademark, or trade secret of any
third party. Seller has received no notice from any third party
of any alleged infringement of any United States or foreign
copyright or trade secret.
(g) BROKER OR FINDER. Seller has not retained
the services of a broker or finder in connection with this
Agreement.
6.2 REPRESENTATIONS AND WARRANTIES OF BUYER. To
induce Seller to sell the Assets upon the terms and conditions
contained in this Agreement, Buyer represents and warrants to
Seller that:
(a) ORGANIZATION AND GOOD STANDING. Buyer is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California, and has full corporate
power to acquire and own the Assets and to perform its
obligations under this Agreement.
(b) AUTHORITY TO MAKE AND PERFORM THIS AGREEMENT.
Buyer has been duly and validly authorized to make, execute,
deliver, enter into and perform any and all of its obligations
under, and pursuant to, this Agreement and, upon the terms and
conditions set forth in this Agreement, and to consummate the
transactions contemplated hereby. No action is required by the
shareholders of record of Buyer to make the representation and
warranty contained in the preceding sentence complete and
accurate.
(c) AUTHORITY RELATIVE TO THIS AGREEMENT. The
execution, delivery and performance of this Agreement by Buyer
and the consummation of the transactions contemplated hereby will
not violate any provisions of law or any statutory or
governmental restriction applicable to Buyer in such a manner as
to prevent or materially impede consummation of the transactions,
contemplated hereby, and will not conflict with, or result in the
breach or termination of any provision of, or constitute (with or
without the giving of notice or the lapse of time, or both) a
default under or result in the creation of any lien, charge or
encumbrance upon any of the properties, assets or business of
Buyer pursuant to, its Articles of Incorporation or Bylaws, or
any indenture, mortgage, deed of trust, or other instrument or
agreement, or any order, judgment or decree to which Buyer is a
party or by which its assets are bound. Neither Buyer nor any of
its assets is subject to any provision in Buyer's Articles of
Incorporation or Bylaws or any mortgage, lease, agreement, order,
judgment or decree to which Buyer is a party or by which its
assets are bound, of any kind or character which would prevent
Buyer from entering into this Agreement or from consummating the
transactions contemplated here-by, and,
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<PAGE>
to the best of Buyer's knowledge and belief, no governmental
approvals of this Agreement are required.
(d) BROKER OR FINDER. Buyer has not retained the
services of a broker or finder in connection with this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
--------------------------------------------
The obligations of Buyer under this Agreement are subject to
the occurrence at or prior to the Closing Date of each of the
following conditions, any or all of which may be waived in whole
or in part by Buyer:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller herein contained shall
be true on and as of the Closing Date, except to the extent that
such representations and warranties were made as of a specified
date and as to such representations and warranties the same shall
have been true as of the specified date.
7.2 PERFORMANCE OF AGREEMENTS. Seller shall have
performed or caused to have been performed all obligations,
covenants and agreements and complied with all covenants and
conditions contained in this Agreement to be performed or
complied with by Seller at or prior to the Closing Date.
7.3 LICENSE AGREEMENT. Buyer and Seller shall have
entered into a License Agreement in the form of Exhibit 1.4.
7.4 INSTRUMENT OF TRANSFER AND RELATED DOCUMENTS.
Seller shall have executed and delivered to Buyer an Instrument
of Transfer, deeds, bill of sale, as attached hereto on
Exhibit 7.4.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
---------------------------------------------
The obligations of Seller under this Agreement are subject
to the occurrence, at or prior to the Assets and I.P. Closing
Dates, of each of the following conditions, any or all of which
may be waived in whole or in part by Seller:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer herein contained shall be
true on and as of the Closing Date, except to the extent that
such representations and warranties were made as of a specified
date and as to such representations and warranties the same shall
have been true as of the specified date.
8.2 PERFORMANCE OF AGREEMENTS. Buyer shall have
performed or caused to have been performed all obligations,
covenants and agreements and complied with all covenants and
conditions contained in this Agreement to be performed or
complied with by Buyer at or prior to the Closing Date.
8.3 SHAREHOLDER APPROVAL. With respect to the I.P.
Closing, Seller shall
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<PAGE>
have obtained the necessary Shareholder Approval of the Plan or
the Board of Directors approval of the I.P. Closing.
9. POST-CLOSING AGREEMENT. For a period of 90 days from
----------------------
and after the date hereof, at Buyer's request and without further
consideration, Seller shall execute and deliver to Buyer a Bill
of Sale regarding the assets and/or an assessment for the
Intellectual Property, if appropriate.
10. INDEMNIFICATION AND SETTLEMENT OF CLAIMS.
----------------------------------------
10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC.
Subject to Paragraph 10.4, all representations and warranties of
the parties made in this Agreement or as provided in this
Agreement shall survive the Closing Date for a period of thirty-
six (36) months thereafter notwithstanding any investigation at
any time made by or on behalf of the other party (the "Survival
Period"). All representations and warranties related to any claim
asserted in writing prior to the expiration of the Survival
Period shall survive until such claim shall be resolved and
payment in respect thereof, if any is owing, shall be made. If
no claim shall have been made against a party for any
incorrectness in or breach of any representation or warranty made
in this Agreement prior to the expiration of the Survival Period,
such party shall have no further liability under this Agreement
with respect to such representation and warranty.
10.2 SELLER'S AGREEMENT TO INDEMNIFY. Seller and its
principal members shall fully indemnify and hold harmless Buyer,
its officers, directors, employees and affiliates against and in
respect of any and all liabilities, obligations, losses, damages,
claims, actions, causes of action, proceedings, fines, penalties,
demands, suits, debts, dues, deficiencies, costs, or expenses,
known or unknown, directly or indirectly, (including, without
limitation, the reasonable fees and expenses of investigation and
counsel) (collectively, "Losses") resulting from:
(a) any misrepresentation or breach of any
representation or warranty, by Seller made in this Agreement
(including, without limitation, the Exhibits to this Agreement
and the certificates delivered under this Agreement) or as
provided in this Agreement;
(b) any and all chargebacks by customers of Buyer
resulting from merchandise shipped by Seller or for markdown
allowance, advertising or other claims made by customers of Buyer
as a result of or relating to transactions between Seller and its
customers or unrelated to the conduct of Buyer.
10.3 BUYER'S AGREEMENT TO INDEMNIFY. Buyer and its
principal members shall fully indemnify and hold harmless Seller,
its officers, directors, employees and affiliates against and in
respect of any and all liabilities, obligations, losses, damages,
claims, actions, causes of action, proceedings, fines, penalties,
demands, suits, debts, dues, deficiencies, costs, or expenses,
known or unknown, directly or indirectly, (including, without
limitation, the reasonable fees and expenses of investigation and
counsel) (collectively, "Losses") resulting from:
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<PAGE>
(a) any misrepresentation or breach of any
representation or warranty, by Buyer made in this Agreement
(including, without limitation, the Exhibits to this Agreement
and the certificates delivered under this Agreement) or as
provided in this Agreement;
(b) any and all chargebacks by customers of
Seller resulting from merchandise shipped by Buyer or for
markdown allowance, advertising or other claims made by customers
of Seller as a result of or relating to transactions between
Buyer and its customers or unrelated to the conduct of Seller.
10.4 PROCEDURE FOR INDEMNIFICATION. Any person
entitled to indemnification under this Agreement shall (1) give
prompt notice to the indemnifying party of any third party claim
with respect to which it seeks indemnification and (2) permit
such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party;
provided, that any person entitled to indemnification under this
Agreement shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person
unless (A) the indemnifying party has agreed to pay such fees or
expenses, (B) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably
satisfactory to such person, or (C) in the reasonable judgment of
any such person, based upon advice of its counsel, conflict of
interest may exist between such person and the indemnifying party
with respect to such claims (in which case, if the person
notifies the indemnifying party in writing that such person
elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such
person). If such defense is not assumed by the indemnifying
party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such
consent will not be unreasonably withheld, delayed or
conditioned). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel
for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any
indemnified party and any other of such indemnified parties with
respect to such claim, there may be legal defenses available to
one which are different from or additional to those available to
the other, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel
or counsels. No indemnifying party shall, except with the
consent of each indemnified party, consent to any settlement of a
claim which does not include only the payment of money and as an
unconditional term thereof the giving by the relevant third party
to each indemnified party a release of all liability in respect
of such claim and no obligation to perform or refrain from
performing any act so imposed on any indemnified party by reason
thereof.
11. MISCELLANEOUS.
-------------
11.1 EXPENSES. Whether or not the transactions
contemplated by this Agreement or the License Agreement are
consummated, each of the parties hereto shall pay its own fees
and expenses incident to the negotiation, preparation and
execution of this Agreement or the License Agreement, closing and
other documents required by the Agreement or the
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<PAGE>
License Agreement and counsel and accountant's fees, incident
thereto.
11.2 NOTICES. All notices, requests, demands and other
communications which are required or may be given under this
Agreement or the License Agreement shall be in writing and shall
be deemed to have been duly given if delivered or mailed, first
class, postage prepaid:
(a) If to Buyer:
Jean St. Germain, Inc.
2305 S. Santa Fe Avenue
Los Angeles, CA 90058
With a copy to:
Jeffrey H. Kapor, Esquire
Katz, Hoyt, Seigel & Kapor LLP
11500 W. Olympic Blvd.
Suite 550
Los Angeles, CA 90064
(b) If to Seller:
Howard B. Wolf, Inc.
3809 Parry Avenue
Dallas, TX 75226
With a copy to:
Joel Held, Esquire
Arter & Hadden
1717 Main
Suite 4100
Dallas, TX 75201
(or to such other address as either party shall have specified by
notice in writing to the other party).
11.3 ENTIRE AGREEMENT. This Agreement and the License
Agreement constitutes the entire agreement between the parties
and supersedes all prior agreements and understandings, oral and
written, between the parties hereto with respect to the subject
matter hereof.
11.4 AMENDMENT. Neither this Agreement nor the License
Agreement can be altered or amended except pursuant to an
instrument in writing signed by all of the parties hereto.
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<PAGE>
11.5 SUCCESSORS AND ASSIGNS. This Agreement and the
License Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors, assigns,
heirs, executors and administrators. This Agreement may not be
assigned by either party without the written consent of the
other.
11.6 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Agreement and the License Agreement
are for reference purposes only and shall not effect the meaning
or interpretation of this Agreement or the License Agreement.
11.7 KNOWLEDGE. For purposes of this Agreement and the
License Agreement, "to the knowledge of" or similar language
shall mean the actual knowledge after reasonable inquiry.
11.8 APPLICABLE LAW. This Agreement and the License
Agreement shall be governed by, and construed under and pursuant
to, the laws of the California.
11.9 COUNTERPARTS. This Agreement and the License
Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together
shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement and the License Agreement to be executed all as of the
date first above written.
HOWARD B. WOLF, INC.,
a Texas corporation
By: /s/ ROBERT WOLF
----------------------------
Name: Robert Wolf
--------------------------
Title: President
-------------------------
JEAN ST. GERMAIN, INC.,
a California corporation
By: /s/ GEORGE RUDES
----------------------------
Name: George Rudes
--------------------------
Title: President
-------------------------
<PAGE>
EXHIBIT 1.4
-----------
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made as of February 16, 1999, by
and between HOWARD B. WOLF, INC., whose principal place of
business is 3809 Parry Avenue, Dallas, Texas, 75226 (hereafter,
"Licensor"), and JEAN ST. GERMAIN, INC., whose principal place of
business is 2305 S. Santa Fe Avenue, Los Angeles, California,
90058 (hereafter, "Licensee").
Recitals
WHEREAS, Licensor and Licensee have entered into that
certain purchase agreement of even date herewith (the "Purchase
Agreement") to which this License Agreement ("License Agreement")
is annexed as an exhibit; and
WHEREAS, the defined terms of the Purchase Agreement as used
herein shall have the same meanings as defined in the Purchase
Agreement; and
WHEREAS, Licensor and Licensee desire to enter into this
Agreement with respect to the Intellectual Property (as defined
in the Purchase Agreement).
NOW, THEREFORE, for and in consideration of the foregoing
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Agreement
1. LICENSE. Subject to the terms and conditions provided
herein, Licensor grants to Licensee the exclusive right and
license to use the Intellectual Property throughout the United
States, Canada and Mexico (the "Territory") in connection with
the design, manufacture, marketing, sale and distribution of any
wearing apparel (the "Licensed Products"); provided, however,
that Licensor shall, in its sole and absolute discretion, have
the right to continue to use the Intellectual Property for a
period of one (1) year from the date hereof to complete the
manufacture, marketing, sale and distribution of any work in
process as of the date hereof, and to dispose of its inventory.
Commencing with the Howard Wolf Fall 1999 Collection (i) except
as herein provided, Licensor shall not use nor license the
Intellectual Property; and (ii) Licensee shall be the sole and
exclusive Licensee of the Intellectual Property.
2. QUALITY OF GOODS. The quality of the Licensed Products
shall be consistent with that of Licensee's other products. The
materials and workmanship used by Licensee in the manufacture of
Licensed Products shall be of a quality at least equal to the
materials and workmanship used in the manufacture of its other
products.
3. INSPECTION. Licensee shall permit duly authorized
representatives of Licensor, acceptable to Licensee, which
acceptance shall not be unreasonably withheld, to inspect, at all
reasonable times, and upon seven (7) days notice, Licensee's
manufacturing, distribution and sales facilities. Unless written
objection is received by Licensee within seven (7) days after
inspection of merchandise, items inspected pursuant to this
paragraph shall be deemed acceptable
<PAGE>
to Licensor. Licensor's Agents must use their reasonable
judgment to determine if the merchandise is not acceptable and if
Licenser's Agent makes such determination, Licensor's Agent's
notice to Licensee must specify in writing the cause of
Licensor's determination that the merchandise is unacceptable and
what steps must be taken by Licensee to make the merchandise
reasonably acceptable.
4. ROYALTIES. For the rights granted herein, Licensee
agrees to pay Licensor a royalty in the amount of One Thousand
Dollars ($1,000.00) per year, such amount to be paid on or before
December 31, of each year during the Term.
5. TERM. Unless sooner terminated pursuant to the
provisions of this Agreement, this Agreement shall commence as of
the date first stated above, and shall terminate the earlier of
the I.P. Closing Date or the twentieth (20th) anniversary of the
date hereof.
6. DISPOSAL OF INVENTORY. Should this Agreement expire or
be terminated, Licensee shall have one (1) year from the
effective date of such termination or expiration to complete the
manufacture of any work in process as of such date, and to
dispose of its inventory of Licensed Products within the
Territory.
7. LICENSEE'S OBLIGATIONS ON TERMINATION. Upon expiration
of the term, the occurrence of Buyers Default (as defined in the
Purchase Agreement) or other termination of this Agreement, all
of Licensee's rights under this Agreement shall terminate subject
to the provisions of this Agreement allowing for the disposal of
Licensed Products and the terms of the Purchase Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
LICENSOR: LICENSEE:
HOWARD B. WOLF, INC. JEAN ST. GERMAIN, INC.
By: /s/ ROBERT WOLF By: /s/ GEORGE RUDES
----------------------- ------------------------
Its: President Its: President
---------------------- -----------------------
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<PAGE>
Exhibit "A"
-----------
Property
VSOP
HOWARD WOLF
PRET-A-PORTE
<PAGE>
Exhibit "B"
-----------
Form of Common Law Assignment
ASSIGNMENT
WHEREAS, Howard B. Wolf, Inc., whose principal place of
business is 3809 Parry Avenue, Dallas, Texas, 75226,
(hereinafter, "Assignor"), has adopted and is using the marks
VSOP, PRET-A-PORTE and HOWARD WOLF on the following
goods/services:
women's apparel;
WHEREAS, Assignor adopted and began usage of such mark for
such goods/services on September, 1974, and adopted and began
usage of such mark for such goods/services in interstate commerce
on September, 1974;
WHEREAS, the mark is not registered with any Federal, state,
local or foreign governmental or regulatory agency, and Assignor
is not in the process of seeking registration with any such
governmental or regulatory agency;
WHEREAS, Jean St. Germain, Inc., a California corporation,
with its principal place of business at 2305 S. Santa Fe Avenue,
Los Angeles, California, 90058 (hereinafter, "Assignee"), is
desirous of acquiring said mark and all of Assignor's right,
title and interest in said mark, plus the goodwill of the
business in connection with which such mark is used;
NOW, THEREFORE, on the 17th day of February, 1999, for good
and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Assignor does hereby assign and transfer
unto Assignee, its successors and assigns, all of Assignor's
right, title and interest in and to said mark, together with the
goodwill of the business symbolized by the mark and any and all
claims and demands at law or in equity that Assignor now has or
may hereafter acquire on account of any infringement of the
trademark prior to the date hereof.
ASSIGNOR:
HOWARD B. WOLF, INC.
Date: February 17, 1999 By: /s/ ROBERT WOLF
-----------------------------
Its: President
----------------------------
<PAGE>
STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
On this 17th day of February, 1999, before me, the
undersigned, a Notary Public in and for said State, personally
appeared George Rudes and Robert Wolf, personally known to me or
proved to me on the basis of satisfactory evidence to be the
person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the
instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ LAHONDA G. HOLLE
----------------------------
[seal] Notary Public
<PAGE>
HOWARD B. WOLF, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MAY 6, 1999
The undersigned, having received the Notice of Special Meeting
and Proxy Statement dated April 15, 1999, appoints Robert D. Wolf
and Eugene K. Friesen, and each of them, as Proxies with full
power of substitution to represent the undersigned and to vote all
shares of Common Stock of Howard B. Wolf, Inc., which the undersigned
is entitled to vote at the Special Meeting of Shareholders, to be
held on May 6, 1999 at 10:00 am, Dallas, Texas time, at the
Crescent Club, 200 Crescent Court, Dallas, Texas, and at any
adjournment or adjournments thereof.
YOUR VOTE IS IMPORTANT! Please sign and date on the reverse and
return promptly to Howard B. Wolf, Inc., 3809 Parry Avenue, Dallas,
Texas 75226-1753 in the enclosed envelope, so that your shares can
be represented at the meeting. The undersigned hereby ratifies and
confirms all that said Proxies, agents and attorneys, or any of them,
or their substitutes, may lawfully exercise all powers hereby granted,
and hereby revokes any prior proxies given by the undersigned to
vote at said meeting or any adjournment thereof.
The undersigned hereby acknowledges receipt of the Notice of
Meeting and Proxy Statement dated April 15, 1999.
(Continued and to be signed on the reverse)
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE,
IT WILL BE VOTED "FOR" THE PROPOSAL SET FORTH BELOW. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL.
A proposal to approve and adopt the Plan of Complete
Liquidation and Dissolution of Howard B. Wolf, Inc. (the "Company")
pursuant to which the Company will liquidate itself and distribute
its assets to the shareholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: _____________________________________, 1999
_____________________________________________
Signature
_____________________________________________
Signature
Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as a
fiduciary or for an estate, trust, corporation or
partnership, your title or capacity should be
stated.
PLEASE DATE, SIGN AND MAIL THIS PROXY PROMPTLY
To: Howard B. Wolf, Inc., 3809 Parry Avenue,
Dallas, Texas 75226-1753
