<PAGE>
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 third quarterly period ended September 30, 1999
GIANT GROUP, LTD.
9000 Sunset Boulevard, 16/th/ Floor, Los Angeles, California 90069
Registrant's telephone number: (310) 273-5678
Commission File Number: 1-4323
I.R.S. Employer Identification Number: 23-0622690
State of Incorporation: Delaware
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
-
On November 12, 1999 the latest practicable date, there were 3,989,648 shares of
Common Stock outstanding.
<PAGE>
GIANT GROUP, LTD.
INDEX
PART I. FINANCIAL INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations -
Three and Nine-Month Periods Ended September 30, 1999 and 1998 3
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 4
Consolidated Statements of Cash Flows -
Nine-Month Periods Ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
Signature 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine-month periods ended September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three-months ended Nine-months ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 21,971 $ - $ 58,963 $ -
Cost of sales 17,608 - 46,166 -
---------- ---------- ---------- ----------
Gross profit 4,363 - 12,797 -
---------- ---------- ---------- ----------
Operating expenses:
Selling and shipping 2,692 - 6,659 -
General and administrative 1,950 794 5,351 2,603
Merger agreement and related legal - 325 - 325
Depreciation 95 46 290 234
Amortization of goodwill 172 - 515 -
Co-ownership program, net of
charter income of $812 and $1,308 - (354) - 140
---------- ---------- ---------- ----------
4,909 811 12,815 3,302
---------- ---------- ---------- ----------
Loss from operations (546) (811) (18) (3,302)
---------- ---------- ---------- ----------
Other income (expense):
Factoring and financing costs (1,015) - (2,317) (2)
Investment and other income 20 518 1,088 1,857
Gain on sale of property - 10 269 2,855
---------- ---------- ---------- ----------
(995) 528 (960) 4,710
---------- ---------- ---------- ----------
Income (loss) before benefit for income taxes (1,541) (283) (978) 1,408
Benefit for income taxes (505) (1,047) (103) (350)
---------- ---------- ---------- ----------
Net income (loss) $ (1,036) $ 764 $ (875) $ 1,758
========== ========== ========== ==========
Basic and diluted earnings (loss) per common share $ (0.26) $ 0.24 $ (0.22) $ 0.55
========== ========== ========== ==========
Weighted average shares - basic and diluted 3,960,000 3,181,000 3,938,000 3,181,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
GIANT GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,074 $ 4,226
Marketable securities 9,602 7,797
Current portion of note receivable from related party 2,145 2,002
Note and other receivables 975 4,752
Inventories 12,176 12,438
Prepaid expenses and other assets 608 690
Deferred income taxes 1,852 892
------------- ------------
Total current assets 28,432 32,797
Note receivable from related party 538 499
Property and equipment, net 1,936 1,983
Deferred income taxes 1,774 1,748
Goodwill, net of amortization of $553 and $38 27,252 27,415
Other assets 713 118
------------- ------------
Total assets $ 60,645 $ 64,560
============= ============
LIABILITIES
Current liabilities:
Due to factor $ 5,288 3,868
Accounts payable 4,051 7,134
Current portion of note payable to related party 400 400
Accrued expenses 1,223 1,297
Income taxes payable 252 554
------------- ------------
Total current liabilities 11,214 13,253
Capital lease obligations 204 252
Note payable to related party 1,318 1,227
Deferred income taxes 7 7
------------- ------------
Total liabilities 12,743 14,739
------------- ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 2,000,000 shares, none issued - -
Class A common stock, $.01 par value; authorized 5,000,000 shares, none issued - -
Common stock, $.01 par value; authorized 12,500,000 shares, 7,266,000 shares issued 73 73
Capital in excess of par value 35,008 35,196
Accumulated other comprehensive loss - unrealized losses on marketable securities, net (1,585) (190)
Retained earnings 42,708 43,583
------------- ------------
76,204 78,662
Less 3,276,000 shares of Common stock in treasury, at cost (28,302) (28,841)
------------- ------------
Total stockholders' equity 47,902 49,821
------------- ------------
Total liabilities and stockholders' equity $ 60,645 $ 64,560
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine-months ended
September 30,
----------------------------------
1999 1998
------- --------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (875) $ 1,758
Adjustments to reconcile net income (loss) to net cash (used)
provided by operating activities:
Depreciation and amortization 998 234
Provision for impairment of assets held-for-sale - 541
Gain on sale of land and property and equipment (269) (2,855)
Gain on sale of marketable securities (419) (128)
Deferred income taxes (56) (450)
Accretion of discounts on investments, net (323) (532)
Changes in assets and liabilities:
Decrease in income tax receivables - 1,100
Decrease in inventories 262 -
Decrease (increase) in receivables and prepaid expenses and 403 (455)
other assets
Increase in due to factor 1,420 -
Decrease in accounts payable and accrued expenses (3,161) (157)
(Decrease) increase in income taxes payable (302) 1,224
------- --------
Net cash (used) provided by operating activities (2,322) 280
------- --------
Investing Activities:
Sales of marketable securities 4,445 22,362
Purchases of marketable securities (5,111) (41,937)
Net proceeds from sale of assets 284 19,843
Debt payment - 99
Purchase of assets held-for-sale and related costs - (49)
Purchases of property and equipment (261) (46)
------- --------
Net cash (used) provided by investing activities (643) 272
------- --------
Financing Activities:
Proceeds from short-term loan 1,662 -
Principal payment on short-term loan (1,662) -
Principal payments on capital lease obligations (44) -
Increase in note receivable from related party (143) -
------- --------
Net cash used by financing activities (187) -
------- --------
(Decrease) increase in cash and cash equivalents (3,152) 552
Cash and cash equivalents:
Beginning of period 4,226 1,137
------- --------
End of period $ 1,074 $ 1,689
======= ========
Supplemental disclosure of cash (paid) received for:
Income taxes $ (323) $ 2,193
Interest (1,659) (2)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1999, the results of operations for the three and nine-month periods ended
September 30, 1999 and 1998 and cash flows for the nine-month periods ended
September 30, 1999 and 1998. These results have been determined on the basis of
generally accepted accounting principles and practices applied consistently with
those used in the preparation of the Company's 1998 Annual Report on Form 10-K.
However, for interim periods, customer returns and allowances are accrued based
on expected annualized activity and cost of sales are computed using the gross
profit method. Certain 1998 amounts have been reclassified to conform to the
1999 presentation. Operating results for the three and nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the full year. It is suggested that the accompanying unaudited
consolidated financial statements be read in conjunction with the financial
statements and notes in the Company's 1998 Annual Report on Form 10-K.
2. Acquisition
-----------
On December 11, 1998 the Company acquired 100% of the outstanding common
stock of Periscope, which designs, sources and markets an extensive line of high
quality moderate priced, women and children's clothing to mass merchandisers and
major retailers, primarily for sale under private labels. Periscope uses only
outside manufacturers, primarily in Mexico, and then ships direct to its retail
customers. It also imports finished products primarily from China and Taiwan. It
only manufactures products based on firm orders and, once a product is shipped
to a customer, returns are not accepted unless the product is defective or
delivered late.
The acquisition has been accounted for by the purchase method of
accounting, and, accordingly, Periscope's assets and liabilities have been
recorded at their fair value as of the date of acquisition. Periscope's results
of operations are included in the Company's consolidated statement of operations
for the three and nine-month periods ended September 30, 1999. On December 11,
1998, prior to the effective date of the acquisition, the Company made a gross
advance of $28,500 in cash to Periscope, which Periscope used to reduce certain
borrowings. On May 18, 1999, the Company's Board of Directors approved the
capitalization of this advance.
The initial cost of the acquisition included 953,093 shares of Company
common stock, which were held in treasury and valued at $6,493, 75,000 Company
warrants valued at $195 and exercisable at $7.25 over a five year period, and
transaction costs of $259. In August, the Company issued an additional 62,500
shares of common stock, valued at $352, to Periscope stockholders (see next
paragraph). The excess of the total cost over the estimated fair value of the
net assets acquired of $27,805, based on the Company's allocation of the
purchase price, was allocated to goodwill and is being amortized on a straight-
line basis over 40 years. The Company will finalize the allocation of the
purchase price during the year 1999, subject to any contingent shares issued in
2000 (see next paragraph).
The Company was under an obligation to issue 225,000 shares of additional
Company common stock to the former Periscope stockholders based on the level of
Periscope pre-tax profits, as defined in the merger agreement, which exceeded
$13 million dollars for the year ended December 31, 1999. On May 18, 1999, the
Company's Board of Directors approved an election that was given to the
Periscope stockholders on July 23, 1999. The election gave the Periscope
stockholders a choice of receiving their pro-rata portion of 62,500 shares of
the Company's common stock and also their pro-rata portion of an additional
62,500 shares of the Company's common stock should Periscope's pre-tax profits
for the twelve months ended June 30, 2000 exceed $13 million, instead of
receiving 225,000 shares of the Company's common stock, as previously discussed.
On August 13, 1999 ("Election Date"), all Periscope stockholders elected to
receive their pro-rata portion of 62,500 shares of the Company's common stock.
The Company valued the stock at $352, which represented the fair market value of
6
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
the common stock on the Election Date. The stockholders received the common
stock, which was held in treasury, in September of this year.
During the third quarter of 1999 the Company determined that a receivable
acquired in the acquisition would not be collected within one year. The Company
recorded a discount of $139 and has reclassified $602 to long-term other assets.
3. Factor and Financing Arrangements
---------------------------------
On August 10, 1999, Periscope signed an agreement ("Factoring Agreement")
with a major factor to obtain a new factoring line which permits, as defined in
the Factoring Agreement, daily working capital borrowing of 90.0% of eligible
accounts receivable (non-recourse), 50.0% of letters of credit outstanding
issued by Periscope and 50% of eligible inventory. The maximum borrowings under
the Factoring Agreement are $36 million. The outstanding debt is collateralized
by Periscope's receivables, inventory and other assets as defined in the
Factoring Agreement. In addition, $4million is guaranteed by the Company and
$1million is personally guaranteed by Glenn Sands, Periscope's President and
Chief Executive Officer. Borrowings are subject to a processing charge equal to
0.45% on factor credit approved accounts receivable and .30% on non-factor
credit approved accounts receivable. In addition, an interest charge is applied
to the total outstanding debt equal to the greater of 6% or the prime rate plus
one-quarter of one percent. On October 1, 1999 this interest rate is subject to
a 3% increase on certain borrowings as defined in the Factoring Agreement.
Periscope is required under the Factoring Agreement to maintain certain
financial ratios and places certain limitations on capital expenditures,
indebtedness and dividend payments. The factoring line shall continue until the
last day of the 24/th/ month from the date the Factoring Agreement was signed
and thereafter automatically renews from year to year unless terminated at the
option of Periscope with 60 days of acceptable written notice given to the
factor or terminated by the factor by giving 5 days written notice to Periscope.
The uncollected balance of receivables held by the factor was approximately $29
million and $12 million for the periods ended September 30, 1999 and December
31, 1998, respectively. The net outstanding balance under this factoring line
was $5.3 million at September 30, 1999 and $3.9 million under the previous
factoring line at December 31, 1998. Interest on the total outstanding debt was
8.50% and 8.25%, respectively, at September 30, 1999 and December 31, 1998.
Periscope had approximately $6.8 million of open letters of credit at September
30, 1999.
This Factoring Agreement arranged by Periscope replaced the Company's May
1999 new letter of credit agreement. Both agreements were with the same factor.
The new letter of credit agreement had provided for an additional letter of
credit accommodation to collateralize the Company's obligations to third parties
for Periscope's purchase of goods and inventory. The Company was subject to an
interest rate equal to the greater of 6% or prime plus one-quarter of one
percent on any money paid in connection with the New LC and other fees stated in
the agreement. Upon the termination of the new letter of credit agreement, the
Company received back from the factor its collateral security deposit of $2,000,
plus interest.
At September 30, 1999, Periscope was in technical default of certain
covenants under the Factoring Agreement. In addition, the factor has provided an
overadvance in excess of the amount provided for in the Factoring Agreement and
the total outstanding, including letters of credit of $6.8 million, exceeds the
maximum line of $36 million by approximately $2.2 million. As of November 1,
1999, the factor has restricted the borrowing by Periscope, availability being
based only on new shipments of goods, and is not issuing additional letters of
credit. It is expected that these restrictions will continue until the default
conditions have been resolved and the overadvance and excess above the maximum
line have been reduced to amounts acceptable to the factor. To date, no formal
demand to Periscope has been made by the factor. Periscope is having on-going
discussions with the factor to resolve these issues. If Periscope is successful
in resolving the issues, Periscope will again have credit available under the
Factoring Agreement. The Company is also exploring alternatives, should the
factor stop all borrowing, and believes that other sources of financing will be
available. However, no assurance can be given that the issues will be resolved
or that additional sources of financing will be identified.
7
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
4. Earnings (Loss) Per Share
-------------------------
Basic earnings (loss) per common share ("Basic EPS") is computed by
dividing reported net earnings or loss available to common stockholders by the
weighted average shares outstanding. The computation of diluted earnings (loss)
per common share ("Diluted EPS") using the treasury stock method includes shares
to be issued upon the assumed exercise of those stock options and warrants for
which the average market price of the Company's common stock for the period
exceeds the exercise price of the options and warrants. The calculation of
Diluted EPS for the three and nine-month periods ended September 30, 1999 does
not include 2,206,000 options and warrants, at a range of $5.44 to $8.25,
because the effect would be anti-dilutive as the Company recorded a net loss for
both periods. Options to purchase 2,101,000 shares of the Company's common stock
at a range of $5.44 to $8.25 were outstanding during the prior year periods but
were not included in the computation of Diluted EPS because the options prices
were greater than the average market price of the Company's common stock and the
effect would be anti-dilutive.
5. Comprehensive Income
--------------------
The changes in components of comprehensive income (loss), net of benefit
for income taxes, for the nine-month periods ended September 30, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- ---------------------------------------
Pre-tax Tax Net Pre-tax Tax Net
Amount Benefit Amount Amount Benefit Amount
------ ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Other comprehensive loss:
Unrealized losses on
marketable securities, net $ (2,325) $ (930) $ (1,395) $ (6,183) $ (2,473) $ (3,710)
Net income (loss) (875) 1,758
-------- --------
Comprehensive loss $ (2,270) $ (1,952)
-------- --------
</TABLE>
6. Affiliates' Transactions
------------------------
In March 1999, KCC signed an agreement with Santa Barbara Restaurant Group,
Inc. ("SBRG"). In accordance with the agreement, KCC exchanged its remaining
$2,995 of Checkers 13% restructured debt for 998,377 shares of SBRG's $.08 par
value common stock at a market price of $3.00. The Company recorded investment
income of approximately $129 equal to the remaining unamortized discount of the
13% restructured debt. In October 1999, the SBRG shares were registered under
the Securities Act of 1933.
On August 9, 1999, Checkers and Rally's merged in an all-stock transaction,
which was previously announced on January 29, 1999. The merger agreement,
approved by the stockholders of both Checkers and Rally's, provided that each
outstanding share of Rally's stock be exchanged for 1.99 shares of Checkers
stock. The Checkers common stock owned by Rally's (approximately 26% of Checkers
common stock) was retired after the merger. In addition, the Checkers
stockholders approved a post-merger one-for-twelve reverse stock split.
Subsequent to the merger and reverse stock split, the Company owns approximately
535,000 shares of Checkers common stock or 5.7% of the outstanding shares of
Checkers common stock and owns warrants to purchase approximately 237,000 shares
of Checkers common stock at a strike price of $3.00. The new company will
continue to operate restaurants under both the Checkers and Rally's brand names
for the foreseeable future.
8
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
7. Information Concerning Business Segments
----------------------------------------
The Company's one reportable segment, the design, manufacture and sale of
women and children's clothing, was acquired through an acquisition, effective
December 11, 1998. The Company's current period consolidated statement of
operations reflects the segment's results of operations for the three and nine
months ended September 30, 1999. Women and children's clothing sales made to
three major customers represented approximately 60% of net sales for the three
and nine-month periods ended September 30, 1999.
8. Recent Accounting Pronouncements
--------------------------------
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The statement is intended to eliminate the diversity in practice
in accounting for internal-use software costs and improve financial reporting.
The statement is effective for fiscal years beginning after December 15, 1998.
The Company has adopted this statement in the first quarter of 1999 and has
determined that the effect of this statement on the Company's current
consolidated financial position and consolidated results of operations is not
material.
In June 1998, the Financial Accounting Standards Board issued FASB 133
"Accounting for Derivative Instruments and Hedging Activities" ("FASB 133").
This statement increases the visibility, comparability, and understanding of the
risks associated with holding derivatives by requiring all entities to report
all derivatives at fair value as assets or liabilities. It also provides
guidance and practice by providing companies with comprehensive rules for all
derivatives and hedging activities. FASB 133 is effective for fiscal quarters of
fiscal years that begin after June 15, 2000. The Company will follow the
disclosure requirements set forth in this statement; however, the Company does
not currently hold or issue derivative instruments or nonderivative instruments
that are designated and qualify as hedging instruments.
9. Commitments and Contingencies
-----------------------------
The Company is involved in lawsuits as described in the Company's 1998
Annual Report on Form 10-K and as further described in the following paragraphs.
Mittman/Rally's. In January and February 1994, two putative class action
---------------
lawsuits were filed, purportedly on behalf of the shareholders of Rally's in the
United States District Court for the Western District of Kentucky, against
Rally's, certain of Rally's present and former officers, directors and
shareholders and its auditors and GIANT. The complaints allege defendants
violated the Securities Exchange Act of 1934, as amended, among other claims, by
issuing inaccurate public statements about Rally's in order to arbitrarily
inflate the price of Rally's common stock, and seek unspecified damages,
including punitive damages. On April 15, 1994, GIANT filed a motion to dismiss
and a motion to strike. On April 5, 1995, the Court struck certain provisions of
the complaint but otherwise denied GIANT's motion to dismiss. In addition, the
Court denied plaintiffs' motion for class certification. On July 31, 1995, the
plaintiffs renewed this motion, and on April 16, 1996, the Court certified the
class. Two settlement conferences have been conducted, most recently on December
7, 1998, but have been unsuccessful. Fact discovery was completed by summer
1999. Expert discovery will be completed by early spring of 2000. No trial date
has been scheduled. Management is unable to predict the outcome of this matter
at the present time. Rally's and GIANT deny all wrongdoing and intend to defend
themselves vigorously in this matter.
Harbor. In February 1996, Harbor Finance Partners ("Harbor") commenced a
------
derivative action, purportedly on behalf of Rally's, against Rally's officers
and directors and GIANT, David Gotterer, and Burt Sugarman before the Delaware
Chancery Courts. Harbor named Rally's as a nominal defendant. Harbor claims that
directors and officers of both Rally's and GIANT, along with GIANT breached
their fiduciary duties to the public shareholders of Rally's by causing Rally's
to repurchase certain Rally's Senior Notes at an inflated price. The NASDAQ
closing price of the Senior Notes as of August 5, 1999 was $89, approximately
31% higher than
9
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
the repurchase price of $67 7/8. Harbor seeks "millions of dollars in damages",
along with rescission of the repurchase transaction. In the fall of 1996, all
defendants moved to dismiss this action. On April 3, 1997, the Chancery Court
denied defendants' motion. In the second quarter of 1999, the plaintiffs filed
document requests and interrogatories. Because of the merger of Rally's into
Checkers (see Footnote 6), plaintiffs lost their standing to maintain this
action, and voluntarily dismissed the action on September 10, 1999.
KCC/Pike Santa Monica Action. In October 1996, KCC filed a complaint, in
----------------------------
the Los Angeles County Superior Court, against NeoGen Investors, L.P., N.D.
Management, Inc., NeoGen Holdings, L.P., Danco Laboratories, Inc. and NeoGen
Pharmaceutical, Inc. (collectively the "NeoGen Entities") and Joseph Pike,
stating causes of action for fraud, breach of fiduciary duty, fraudulent
concealment, breach of contract, unfair business practices and permanent and
preliminary injunctive relief and against the licensors of Mifepristone, the
Population Council, Inc. and Advances in Health Technology, Inc., on a
declaratory relief claim. The complaint seeks damages for the breach by Joseph
Pike and the NeoGen Entities of a July 24, 1996 agreement by which KCC agreed to
contribute $6,000, in return for a 26% equity interest in the entity producing
the drug, Mifepristone, in the United States and other parts of the world
("NeoGen Agreement"). The $6,000 contribution was not funded. On February 19,
1997, Joseph Pike and the NeoGen Entities filed an answer to the complaint,
denying its material allegations and raising affirmative defenses. On that date,
the NeoGen Entities also filed a cross-complaint against KCC, the Company, and
certain of the Company's directors, Terry Christensen, David Malcolm and Burt
Sugarman, which alleged causes of action for fraud, breach of contract,
intentional interference with prospective economic advantage, negligent
interference with prospective economic advantage and unfair business practices.
In October 1997, KCC settled their action with the licensors, the Population
Council, Inc. and Advances in Health Technology, Inc., and in November 1997, KCC
settled their action with Joseph Pike. On May 1, 1998, the court granted the
NeoGen Entities summary adjudication on KCC's cause of action for breach of
contract. Discovery in this action is complete. On October 2, 1998, the court
entered an order, which, among other things, effectively eliminates NeoGen
Entities' ability to obtain any money judgement from KCC and the other cross-
defendants. On February 23, 1999, the court entered judgement pursuant to a
Stipulation for Judgement, by which the parties' respective claims are dismissed
with prejudice, save and except for the right to appeal certain issues. On or
about April 22, 1999, NeoGen filed a notice of appeal of that judgement. On or
about June 8, 1999, KCC filed a notice of cross-appeal.
Neogen/ Danco v. KCC. This complaint for damages for trade libel was filed
--------------------
on October 30, 1998 in the Superior Court for the State of California for the
County of Los Angeles. The complaint alleged one cause of action for trade libel
against all defendants KCC, GIANT, Terry Christensen and Does 1 through 20,
regarding defendants' alleged statements to the media concerning plaintiffs
Neogen Investors, L.P., and Danco Laboratories, Inc. and Joseph Pike. The
complaint was never served. On August 3, 1999 Neogen filed a request for
dismissal of the entire action without prejudice and the dismissal of this
action was entered on that date by the court.
Since management does not believe that the previously mentioned lawsuits
and other claims and legal proceedings, in which the Company is a defendant,
contain meritorious claims, management believes that the ultimate resolution of
the lawsuits will not materially and adversely affect the Company's consolidated
financial position or results of operations.
On July 23, 1999, the Company amended the employment contract with the
President and Chief Executive Officer of Periscope by increasing his annual base
salary to $950 from $500 for the second and third year of his current employment
term, in lieu of the $450 performance based bonus.
The Company presently fails to meet the recently effective New York Stock
Exchange ("NYSE") continued listing standards requiring total market
capitalization of not less than $50 million and total stockholders' equity of
not less than $50 million. The Company is exploring options to maximize
shareholder value. Such options include, among other things, the sale of
Periscope Sportswear, Inc., a subsidiary of the Company.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (Dollars in thousands, except per share amounts)
On December 11, 1998, the Company acquired 100% of the outstanding common
stock of Periscope, a designer and manufacturer of women and children's apparel.
The acquisition has been accounted for by the purchase method of accounting.
Periscope's results of operations for the three and nine-month periods ended
September 30, 1999 are included in the Company's consolidated statement of
operations for the current period. Periscope's unaudited results of operations
for the three and nine-month periods ended September 30, 1998 are not included
in the Company's consolidated statement of operations for the prior period;
however, the prior period's unaudited results of operations for the Company and
Periscope have been combined for proforma comparative purposes in the
discussions that follow.
Results of Operations for the Three Months Ended September 30, 1999 Versus
- --------------------------------------------------------------------------
September 30, 1998
- ------------------
Net sales for the three-month period ended September 30, 1999 were $21,971.
On a comparable basis, this was a decrease of $5,913 from net sales of $27,884
in the prior period. The net sales decrease, included a decrease of $10,313 in
ladies' knit sportswear and children's apparel, partially offset by an increase
of $4,400 in wovens and imported apparel. The company's sales continued to be
adversely affected by the reduction of Periscope's available credit by the
company's factor which resulted in the company's inability to purchase raw
materials to produce goods and to ship orders. In August 1999, Periscope signed
a factoring agreement with a new major factor to obtain a higher level of
financing and lower interest rate than provided by the previous factor. However,
due to the timing of completing this agreement there was no significant impact
on sales for the third quarter.
Gross profit for the three-month period ended September 30, 1999 was $4,363
or 19.9% of net sales. On a comparable basis, the prior period was $3,608 or
12.9% of net sales. The decrease in gross profit from the second quarter of 1999
resulted from a year-to-date adjustment, recorded in the third quarter, relating
to higher returns and allowances than projected for the year. In addition, these
results were impacted by the same factors causing the decrease in sales. The
prior year Periscope historical gross profit was also affected by a year-to-date
adjustment, recorded in the quarter relating to higher returns and allowances
than projected for the year and an adjustment related to inventory obsolescence.
Operating expenses for the three-month period ended September 30, 1999
increased $4,098 to $4,909 from $811 in the prior period. This increase is
primarily due to the inclusion in the current period of the operating expenses
of the apparel operation of $3,784, goodwill amortization of $172 and an overall
increase in corporate expenses of $116. In the prior period, costs of $325
relating to the proposed merger of GIANT, Rally's and Checkers, was offset by
net charter income of $354 related to the yacht that was sold in October of
1998. On a comparable basis, proforma operating expenses decreased $3,467 to
$4,909 from $8,376 in the prior period which reflected expenses of $2,415
related to Periscope's attempted initial public offering, $325 related to the
proposed merger and lower shipping and selling expenses of $985 primarily due to
lower sales and the move of the apparel production and distribution facilities
to Mexico.
Other income (expense) for the three-month period ended September 30, 1999
decreased $1,523 to an expense of $995 from income of $528 in the prior period.
The decrease is primarily related to the inclusion in the current period of the
factoring and financing costs of the apparel operations of $1,003. In addition,
the Company recorded lower investment income of $498 in the current period
primarily due to lower interest income from the Company's investment in debt
securities and recording of a discount of $139 on a current receivable acquired
in the acquisition of Periscope that was determined will not be collected within
one year. On a comparable basis, proforma other expense decreased $95 to an
expense of $995 from $1,090 in the prior period reflecting the items previously
discussed in this paragraph, offset by the decrease in financing costs of $615
primarily due to the funds that were advanced by the Company in December 1998 to
the apparel operations to reduce certain borrowings.
Results of Operations for the Nine Months Ended September 30, 1999 Versus
- -------------------------------------------------------------------------
September 30, 1998
- ------------------
Net sales for the nine-month period ended September 30, 1999 were $58,963.
On a comparable basis this was a decrease of $7,423 from Periscope's net sales
of $66,386 in the prior period. The net sales decrease, included a decrease of
$15,217 in ladies' knit sportswear and children's apparel, partially offset by
an increase of $7,794 in wovens and imported apparel. The company's sales
continued to be adversely affected by the reduction of Periscope's available
credit by the company's factor which resulted in the company's inability to
purchase raw
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (cont.) (Dollars in thousands, except per share amounts)
materials to produce goods and to ship orders. In August 1999, Periscope signed
a factoring agreement with a new major factor to obtain a higher level of
financing and lower interest rate than provided by the previous factor. However,
due to the timing of completing the agreement, there was no significant impact
on sales for the third quarter.
Gross profit for the nine-month period ended September 30, 1999 was $12,797
or 21.7% of net sales. On a comparable basis Periscope's prior period was
$12,348 or 18.6% of net sales. The decrease in gross profit from the second
quarter of 1999 resulted from a year-to-date adjustment, recorded in the third
quarter, relating to higher returns and allowances than projected for the year.
In addition, these results were impacted by the same factors causing the
decrease in sales. The prior year gross profit was also affected by a year-to-
date adjustment, recorded in the quarter relating to higher returns and
allowances than projected for the year and an adjustment related to inventory
obsolescence.
Operating expenses for the nine-month period ended September 30, 1999
increased $9,513 to $12,815 from $3,302 in the prior period. The increase is
primarily due to the inclusion in the current period of the operating expenses
of the apparel operations of $9,546 and goodwill amortization of $515. This
increase in expenses is reduced by prior period Co-Ownership and charter
expenses of $140, net of $1,308 in charter income earned prior to the sale of
the yachts in April and October of 1998 and $325 related to the proposed merger
involving GIANT, Rally's and Checkers. On a comparable basis, proforma operating
expenses decreased $3,596 to $12,815 from $16,411in the prior period reflecting
the items previously discussed, and prior period expenses of $2,415 related to
Periscope's attempted initial public offering, and lower shipping and selling
expenses of $805 primarily due to lower sales and the move of the apparel
production and distribution facilities to Mexico.
Other income (expense) for the nine-month period ended September 30, 1999
decreased $5,670 to expense of $960 from income of $4,710 in the prior period.
The decrease is primarily related to the inclusion in the current period of the
factoring and financing costs of the apparel operations of $2,293. In addition,
the Company recorded lower investment income of $769 in the current period
primarily due to lower interest income from the Company's investment in debt
securities of $961 and recording of a discount of $139 on a current receivable
acquired in the acquisition of Periscope that was determined will not be
collected within one year, partially offset by higher gains on the sales of
marketable securities of $291 in the current period. The Company also recognized
a gain of $269 on the sale of land not used in the Company's operations in the
current period compared to a gain of $2,855 on the sale of property and
equipment recorded in the prior period. On a comparable basis, proforma other
income (expense) decreased $1,567 to an expense of $960 from income of $607 in
the prior period reflecting the items previously discussed in this paragraph,
partially offset by a decrease in financing costs of $1,810 primarily due to the
funds advanced by the Company in December 1998 to the apparel operations to
reduce certain borrowings.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents and marketable securities at September 30, 1999
totaled $10,676 compared with $12,023 at December 31, 1998. At September 30,
1999 and December 31, 1998, the Company had working capital of $17,218 and
$19,544 with current ratios of 2.5 and 2.5 to 1, respectively.
On August 10, 1999, Periscope signed an agreement ("Factoring Agreement")
with a major factor to obtain a new factoring line which permits, as defined in
the Factoring Agreement, daily working capital borrowing of 90.0% of eligible
accounts receivable (non-recourse), 50.0% of letters of credit outstanding
issued by Periscope and 50% of eligible inventory. The maximum borrowings under
the Factoring Agreement are $36 million. The outstanding debt is collateralized
by Periscope's receivables, inventory and other assets as defined in the
Factoring Agreement. In addition, $4 million is guaranteed by the Company and
$1million is personally guaranteed by Glenn Sands, Periscope's President and
Chief Executive Officer. Borrowings are subject to a processing charge equal to
0.45% on factor credit approved accounts receivable and .30% on non-factor
credit approved accounts receivable. In addition, an interest charge is applied
to the total outstanding debt equal to the greater of 6% or the prime rate plus
one-quarter of one percent. On October 1, 1999 this interest rate is subject to
a 3% increase on certain borrowings as defined in the Factoring Agreement.
Periscope is required under the Factoring Agreement to maintain certain
financial ratios and places certain limitations on capital expenditures,
indebtedness and dividend payments. The
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (cont.) (Dollars in thousands, except per share amounts)
factoring line shall continue until the last day of the 24/th/ month from the
date the Factoring Agreement was signed and thereafter automatically renews from
year to year unless terminated at the option of Periscope with 60 days of
acceptable written notice given to the factor or terminated by the factor by
giving 5 days written notice to Periscope. The uncollected balance of
receivables held by the factor was approximately $29 million and $12 million for
the periods ended September 30, 1999 and December 31, 1998, respectively. The
net outstanding balance under this factoring line was $5.3 million at September
30, 1999 and $3.9 million under the previous factoring line at December 31,
1998. Interest on the total outstanding debt was 8.50% and 8.25%, respectively,
at September 30, 1999 and December 31, 1998. Periscope had approximately $6.8
million of open letters of credit at September 30, 1999.
At September 30, 1999, Periscope was in technical default of certain
covenants under the Factoring Agreement. In addition, the factor has provided an
overadvance in excess of the amount provided for in the Factoring Agreement and
the total outstanding, including letters of credit of $6.8 million, exceeds the
maximum line of $36 million by approximately $2.2 million. As of November 1,
1999, the factor has restricted the borrowing by Periscope, availability being
based only on new shipments of goods, and is not issuing additional letters of
credit. It is expected that these restrictions will continue until the default
conditions have been resolved and the overadvance and excess above the maximum
line have been reduced to amounts acceptable to the factor. To date, no formal
demand to Periscope has been made by the factor. Periscope is having on-going
discussions with the factor to resolve these issues. If Periscope is successful
in resolving the issues, Periscope will again have credit available under the
Factoring Agreement. The Company is also exploring alternatives, should the
factor stop all borrowing, and believes that other sources of financing will be
available. However, no assurance can be given that the issues will be resolved
or that additional sources of financing will be identified.
This Factoring Agreement arranged by Periscope replaced the Company's May
1999 new letter of credit agreement. Both agreements were with the same factor.
The new letter of credit agreement had provided for an additional letter of
credit accommodation to collateralize the Company's obligations to third parties
for Periscope's purchase of goods and inventory. The Company was subject to an
interest rate equal to the greater of 6% or prime plus one-quarter of one
percent on any money paid in connection with the New LC and other fees stated in
the agreement. Upon the termination of the new letter of credit agreement, the
Company received back from the factor its collateral security deposit of $2,000,
plus interest.
Net cash used by operating activities for the nine months ended September
30, 1999 was $2,322 compared to cash provided by operating activities of $280
for the prior period. This increase in cash used for operations resulted from a
net loss of $875 compared to a net income of $1,758 in the prior period and by
higher liquidity requirements in the current period.
Net cash used by investing activities for the nine months ended September
30, 1999 was $643 compared to cash provided by investing activities of $272 for
the prior period. In the current period, purchases, net of sales of marketable
securities was $666 compared to $19,575 in the prior period. This higher use of
cash of $ 18,909 was off set by proceeds of $ 19,843 primarily from the sale of
its remaining luxury yacht and corporate plane in the prior period.
Net cash used by financing activities for the nine months ended September
30, 1999 was $187 compared with no financing activities for the prior period.
During the current period, the Company had a short-tem loan of $1,662 that was
taken out in May 1999 and repaid in August of 1999. In addition $143 was
advanced to Periscope's President and Chief Executive Officer and Periscope made
$44 of principal payments on capital lease obligations.
The Company's current liquidity is provided by cash and cash equivalents,
marketable securities, investment income, and borrowings under the Company's
factoring line. As discussed above, the Company has on-going discussions with
its factor to increase its available credit. In addition, the Company is
exploring other options. Such options include, among other things, the sale of
Periscope.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (cont.) (Dollars in thousands, except per share amounts)
Year 2000
- ---------
The Company has completed its evaluation of its information technology for
Year 2000 compliance. The cost incurred to modify its information technology
infrastructure to be Year 2000 compliant is not material to its consolidated
financial condition or results of operations. In addition, the remediation of
Year 2000 issues involving the Company's information systems has also been
completed. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance. The
Company has purchased new information technology platforms, which, among other
things, are Year 2000 compliant. Hardware and software costs are capitalized by
the Company and all other costs associated with Year 2000 compliance are
expensed as incurred. The Company has had discussions with its customers and
vendors and although the Company believes that the information systems of its
major customers and vendors (insofar as they relate to the Company's business)
comply with Year 2000 requirements, there can be no assurance that the Year 2000
issue will not affect the information systems of such customers and vendors as
they relate to the Company's business, or that any such impact on such customers
and vendors' information systems would not have a material adverse effect on the
Company's business, consolidated financial condition or results of operations.
Personal Holding Company
- ------------------------
Under the Internal Revenue Code, in addition to the regular corporate
income tax, an additional tax may be levied upon an entity that is classified as
a Personal holding company. In general, this tax is imposed on corporations
which are more than 50% owned, directly or indirectly, by 5 or fewer individuals
(the Ownership Test) and which derive 60% or more of their income from Personal
holding company sources, generally defined to be passive income (the Income
Test). If a corporation falls within the Ownership Test and the Income Test, it
is classified as a personal holding company, and will be taxed on its
undistributed personal holding company income at a rate of 39.6%. The Company
currently meets the stock ownership test. The Company has not met the income
requirement in recent years and therefore has not been subject to this
additional tax; however, no assurance can be given that the Income Test will not
be satisfied in the future.
Recent Accounting Pronouncements
- --------------------------------
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The statement is intended to eliminate the diversity in practice
in accounting for internal-use software costs and improve financial reporting.
The statement is effective for fiscal years beginning after December 15, 1998.
The Company has adopted this statement in the first quarter of 1999 and has
determined that the effect of this statement on the Company's consolidated
financial position and consolidated results of operations is not material.
In June 1998, the Financial Accounting Standards Board issued FASB 133
"Accounting for Derivative Instruments and Hedging Activities" ("FASB 133").
This statement increases the visibility, comparability, and understanding of the
risks associated with holding derivatives by requiring all entities to report
all derivatives at fair value as assets or liabilities. It also provides
guidance and practice by providing companies with comprehensive rules for all
derivatives and hedging activities. FASB 133 is effective for fiscal quarters of
fiscal years that begin after June 15, 2000. The Company will follow the
disclosure requirements set forth in this statement; however, the Company does
not currently hold or issue derivative instruments or nonderivative instruments
that are designated and qualify as hedging instruments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------
The Company's primary financial instruments consist of money market funds
paying interest at varying interest rates and equity securities and bond
investments with fixed interest rates. The Company's market risk is the
potential decrease in the value of the Company's financial instruments resulting
from lower interest rates and lower market prices. The Company does not enter
into derivatives for trading or interest rate exposure. Rather, the Company
actively manages its investment portfolio to increase the returns on investment
and to ensure liquidity and
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (cont.) (Dollars in thousands, except per share amounts)
invests in instruments with high credit quality provided through major financial
institutions. In addition, the Company attempts to make prudent and informed
business decisions before investing in equity securities.
For the nine-month period ended September 30, 1999, the Company believes
there was no material change in the Company's primary financial instruments and
related market risk as disclosed in the Company's 1998 Annual Report on Form
10-K.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
document (as well as information included in oral statements or other written
statements made or to be made by the Company) contains statements that are
forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include those
previously mentioned under Periscope, as well as those relating to the
development and implementation of the Company's business plan, domestic and
global economic conditions, manufacturing in Mexico and other foreign countries,
changes in consumer trends for apparel, acquisition strategy, activities of
competitors, changes in federal or state tax laws and of the administration of
such laws.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
For information regarding legal matters, see Note 9 of the Notes to
Consolidated Financial Statements on page 9 of this Form 10-Q and Item
3 "Legal Proceedings" as reported in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
Items 2,3,4 and 5 are not applicable.
Items 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
9.1 Voting Trust Agreement, by and among the Company, Burt
Sugarman, acting in his capacity as Chairman of the Board of
the Company as Trustee, and Glenn Sands
10.1 Amended and Restated Employment Agreement dated July 23,
1999, between Glenn Sands and Periscope
27 Financial Data Schedule
(b) During the quarter ended September 30, 1999, no reports on Form
8-K were filed.
16
<PAGE>
SIGNATURE
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.
GIANT GROUP, LTD. - Registrant
By: /s/ William H. Pennington
--------------------------
William H. Pennington
Vice President, Chief Financial Officer,
Secretary and Treasurer
Date: November 12, 1999
17
<PAGE>
EXHIBIT 9.1
VOTING TRUST AGREEMENT
Relating to Shares of Common Stock of
GIANT GROUP, LTD.
-----------------
This Voting Trust Agreement (the "Agreement") is made and entered into
as of this 10th day of August, 1999 by and among GIANT GROUP, LTD., a Delaware
corporation (the "Company"), Burt Sugarman, acting in his capacity as Chairman
of the Board of the Company, as trustee (the "Trustee") and Glenn Sands
("Sands").
WHEREAS, the parties hereto desire to record their arrangement with
respect to the shares of common stock, par value $.01 per share, of the Company
owned by Sands.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties hereto agree as follows:
1. Certain Definitions.
-------------------
(a) Additional Giant Common Stock shall have the meaning set
-----------------------------
forth in the Agreement and Plan of Merger dated as of December 4, 1998, by and
among Giant PS/ACQ Corporation, a Delaware corporation, Periscope Sportswear,
Inc., a Delaware corporation and the Company.
(b) Board means the Board of Directors of the Company.
-----
(c) Common Stock means the common stock of the Company, par value
------------
$0.01 per share.
(d) Holder means Sands and any transferee for whom shares of
------
Common Stock are held hereunder by the Trustee.
(e) Officer means the Chief Executive Officer, the President, the
-------
Treasurer, the Chief Financial Officer, the Controller, the Secretary or any
Vice-President of the Company
(f) Officer's Certificate means a certificate signed by two
---------------------
Officers of the Company that complies with the requirements of this Agreement.
(g) Opinion of Counsel means a written opinion from legal counsel
------------------
(such counsel may be an employee of or counsel to the Company or the Trustee)
that complies with the requirements of this Agreement.
<PAGE>
(h) Person means in addition to such person, all of the following
------
persons:
(i) any relative or spouse of such person, or any
relative of such spouse, any one of whom has the same home as such
person;
(ii) any trust or estate in which such person collectively
owns ten (10%) percent or more of the total beneficial interest or of
which any of such persons serve as trustee, executor or in any
similar capacity; and
(iii) any corporation or other organization (other than the
issuer) in which such person or any of the persons specified in (i)
are the beneficial owners collectively of ten (10%) percent or more
of any class of equity securities or ten percent or more of the
equity interest.
(i) Shares means the Holder's Shares and the Additional Shares
------
collectively, as adjusted pursuant to Section 8 hereto.
(j) Trust Certificate means a Voting Trust Certificate
-----------------
representing an interest in the Voting Trust, substantially in the form of
Schedule A attached hereto (with such modification as may be appropriate).
- ----------
(k) Voting Trust means the voting trust created by this
------------
Agreement.
2. Transfer of Holder's Shares to Trustee. The Holder hereby assigns
--------------------------------------
and delivers or has caused to be assigned and delivered to the Trustee to be
held pursuant to this Agreement all 721,386 shares of Common Stock, which
constitute all shares of Common Stock of which Holder is the beneficial owner
(not including Shares underlying stock options exercisable within sixty (60)
days of the date hereof) (the "Holder's Shares"). Holder shall take all action
and execute all documents as may be necessary in order to deliver the Holder's
Shares to the Trustee and to transfer the Holder's Shares to the Trustee on the
books of the Company.
3. Transfer of Additional Shares to Trustee. In the event additional
----------------------------------------
shares of Common Stock are acquired by Holder after the date of this Agreement
(the "Additional Shares") by reason of the exercise of stock options or warrants
or the acquisition of any additional shares of Common Stock, including but not
limited to the acquisition of the Additional Giant Common Stock, the Holder
shall assign and deliver or cause to be assigned and delivered to the Trustee to
be held pursuant to this Agreement all such Additional Shares within three (3)
business days of Holder's acquisition thereof. Holder shall take all action and
execute all documents as may be necessary in order to transfer the Additional
Shares to the Trustee on the books of the Company.
4. Transfer on Books of Company. The Trustee shall cause all Shares
----------------------------
transferred to or deposited with him in his capacity as Trustee, to be
transferred to the Trustee on the books of the Company and will issue and
deliver to the Holder a Voting Trust Certificate for the number of Shares so
transferred to the Trustee pursuant to this Agreement.
2
<PAGE>
5. Voting; Powers.
--------------
(a) At all times prior to the termination of the Voting Trust,
subject to Section 5(b), the Trustee shall have the sole and exclusive right to
vote the Shares or give written consent, in person or by proxy, at all meetings
of stockholders of the Company, and in all proceedings in which the vote or
consent, written or otherwise, of the holders of Shares may be required or
authorized by law.
(b) The Trustee shall vote all Shares: (i) in any election of
directors, in favor of the management slate of nominees and (ii) on any other
matters which may come before the Company's stockholders in accordance with the
recommendations of the Board, provided that in the event the Board makes no
recommendation as to a particular matter, the Trustee shall vote (or give
consent with respect to) the Shares in the same manner and in the same
proportions as all other shares of Common Stock not subject to this Agreement
are voted.
6. Transfer Restrictions.
---------------------
(a) The Shares or Trust Certificates may not be sold, assigned,
hypothecated, transferred, pledged, encumbered, gifted, attached, levied, or
otherwise disposed of or alienated, voluntarily or involuntarily by the Holder,
except in accordance with the terms and conditions of this Agreement.
(b) The provisions of Section 6(a) hereof shall not apply to
transfers of the Trust Certificates and the corresponding interests in the
Voting Trust, provided that any Holder of Trust Certificates and the
corresponding interests in the Voting Trust shall hold such certificates and
interests subject to this Agreement and further provided such transfers are
limited to the following:
(i) Transfers by operation of law, descent or succession;
(ii) Transfers by pledge or hypothecation to a financial
institution or broker, provided that the terms of such pledge or hypothecation
shall not prohibit the Trustee from exercising his rights pursuant to this
Agreement; and
(iii) Transfers with the written consent of the Board,
which may be granted or withheld by the Board in its sole discretion.
(c) The provisions of Section 6(a) hereof shall not apply to the
sale of Shares if the Holder delivers to the Trustee evidence satisfactory to
the Trustee, in his exercise of reasonable judgment, that the Holder has
disposed of such Shares pursuant to Rule 144 or its then equivalent promulgated
under the Securities Act of 1933, as amended (the "Sold Shares"). Upon receipt
of such satisfactory evidence, the Trustee shall deliver to the Holder or
Holder's designee, certificates representing the Sold Shares, duly endorsed for
transfer, in exchange for Trust Certificates representing the Sold Shares, duly
endorsed for transfer. Upon delivery by the
3
<PAGE>
Trustee of the Sold Shares to the Holder or Holder's designee, the Sold Shares
shall no longer be subject to this Agreement.
7. Dividends. If the Company shall pay or issue dividends or make other
---------
contributions with respect to the Shares, the Trustee shall accept and receive
such dividends and distributions. Any such dividends or distributions will be
distributed immediately to the Holder; provided, however, that if such dividend
or distribution is in shares of Common Stock or other voting securities of the
Company, such shares or other securities shall be held by the Trustee pursuant
to this Agreement and the Trustee shall issue an additional Trust Certificate or
Certificates to the Holder. The Trustee may, if required by applicable law,
require an IRS Form W-9 or other appropriate form from the Holder as a condition
to making any payment or distribution to the Holder without deduction.
8. Adjustment in Shares. In the event there is an increase in the number
--------------------
of Shares by reason of a stock split or dividend or a decrease in the number of
Shares because of a contraction of Shares or a change in the number of
outstanding Shares as a result of some other recapitalization in which the
Company receives no consideration for the issuance of the additional or reduced
number of Shares, the new additional or adjusted number of Shares shall be held
by the Trustee and a new Trust Certificate representing the appropriate changed
number of Shares shall be issued to the Holder upon surrender of the then
existing Trust Certificates.
9. Merger, etc. If the Company shall (i) merge, (ii) consolidate or (iii)
-----------
dissolve following the sale of all or substantially all of the assets of the
Company, and shares of capital stock or other voting securities of another
corporation are issued in payment or exchange for Shares and if following any
such transaction the stockholders of the Company hold a majority of the voting
power of the surviving corporation or the directors of the Company constitute a
majority of the directors of the surviving corporation, the shares or other
securities of the surviving corporation held by the Holder shall automatically
be and become subject to the terms of this Agreement and be held by the Trustee
hereunder in the same manner and upon the same terms as the Shares, and in such
event the Trustee shall issue to the Holder new Trust Certificates in lieu of
the old Trust Certificates for the appropriate number of shares and other voting
securities of such other corporation.
10. Successor Trustee. There shall initially be one Trustee, who shall be
-----------------
Burt Sugarman. Upon the then Trustee ceasing to be the Chairman of the Board (a
"Substitution Event"), the Board shall appoint the then Chairman of the Board to
act as successor Trustee. In the event a successor Trustee shall not have been
appointed within 30 days of the Substitution Event, the Company or Holder may
petition a court of competent jurisdiction to appoint a successor, who shall be
a member of the Board (other than Sands, or any other Holder if he or such
Holder is at that time a member of the Board).
11. Acceptance of Trustee; Trustee May Own Shares. The Trustee hereby
---------------------------------------------
accepts the trust created hereby and agrees to carry out the terms and
provisions hereof. Nothing in this Agreement shall prevent the Trustee from
owning shares of Common Stock, options to purchase
4
<PAGE>
shares of Common Stock or other securities of the Company in his individual
capacity or in any capacity other than as Trustee hereunder.
12. Expenses. Reasonable expenses lawfully incurred in the administration
--------
of the Trustee's duties hereunder shall be reimbursed to him by the Company.
13. Notices. All notices, reports, statements, consents and other
-------
communications directed to the Trustee from the Company shall be forwarded
promptly by the Trustee to the Holder. All notices, notices of sale, election,
consents and other communications required herein shall be given in writing by
overnight courier, telegram or facsimile transmission and shall be addressed, or
sent, to the appropriate address as set forth beneath the signature of each
party hereto.
14. Termination. (a) This Voting Trust shall terminate upon the earlier
-----------
to occur of the following:
(i) five (5) years from the date hereof, subject to extensions in
accordance with Section 218 of the Delaware Corporation Law, or
(ii) the election of the Board, in its sole discretion, to
terminate the Voting Trust.
(b) Upon the termination of the Voting Trust the Holder shall
surrender his Trust Certificates to the Trustee, and the Trustee shall deliver
to the Holder certificates for Shares properly endorsed for transfer (to the
extent possible), equivalent to the number of Shares represented by the
respective Trust Certificates surrendered.
15. Certain Calculations. For purposes of this Agreement, the Holder
--------------------
registered on the records of the Trustee as owing Trust Certificates
representing Shares shall, in respect of such ownership, be deemed to be the
Holder of Trust Certificates representing the number of shares of voting capital
stock of the Company that the Trustee, acting on behalf of such Holder, may
acquire, whether by conversion, subscription or otherwise, pursuant to or by
reason of ownership of such Shares.
16. Counterparts. This Agreement may be executed in multiple counterparts
------------
all of which counterparts together shall constitute one agreement. Upon
execution of this Agreement and the establishment of the Voting Trust, a copy of
this Agreement shall be filed in the registered office of the Company in the
State of Delaware and the Agreement shall be open to inspection in the manner
provided for inspection under the laws of the State of Delaware.
17. Choice of Law. This Agreement is intended by the parties to be
-------------
governed and construed in accordance with the laws of the State of Delaware
without regard to conflicts of laws principles.
5
<PAGE>
18. Bond. The Trustee shall not be required to provide any bond to secure
----
the performance of his duties hereunder.
19. Severability. In case any provision in this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
20. Amendment. This Agreement may only be amended by the written consent
---------
of the Company, the then Holder(s) and the then Trustee.
21. Rights of Trustee.
-----------------
(a) The Trustee may rely on any document he believes to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in any such document.
(b) Before the Trustee acts or refrains from acting, he may require
an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall
not be liable for any action he takes in good faith in reliance on such
Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel, and advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by him under this Agreement in good faith and in reliance on such
advice or opinion.
(c) The Trustee shall not be liable for any act or omission to act
which is in good faith and does not constitute gross negligence or willful
misconduct.
22. Trustee's Disclaimer. The Trustee shall not be responsible for and
--------------------
makes no representation as to the validity or adequacy of this Agreement; and he
shall not be accountable for voting the Shares, paying any dividends received
from the Company or releasing any Shares from the Voting Trust, provided, that
such vote, payment or release is performed in accordance with the provisions of
this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto has caused this Agreement to be
executed as of the date first above written.
TRUSTEE
By: /s/ Burt Sugarman
-----------------
Name: Burt Sugarman
Title: Chairman of the Board,
GIANT GROUP LTD.
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
Facsimile No.: (310) 273-5249
HOLDER
/s/ Glenn Sands
---------------
Name: Glenn Sands
_______________________________________
_______________________________________
_______________________________________
Address
GIANT GROUP LTD.
By: /s/ Burt Sugarman
-----------------
Name: Burt Sugarman
Title: Chairman and Chief Executive
Officer
9000 Sunset Boulevard
16th Floor
Los Angeles, CA 90069
Facsimile No.: (310) 273-5249
7
<PAGE>
SCHEDULE A
----------
THE TRANSFER OF THIS VOTING TRUST CERTIFICATE IS SUBJECT TO TERMS AND
CONDITIONS SET FORTH IN THE VOTING TRUST AGREEMENT DATED AS OF AUGUST __, 1999,
A COPY OF WHICH HAS BEEN FILED IN THE REGISTERED OFFICE IN THE STATE OF DELAWARE
OF GIANT GROUP, LTD., A DELAWARE CORPORATION (THE "CORPORATION"). SUCH COPY IS
OPEN TO INSPECTION DAILY DURING BUSINESS HOURS BY ANY STOCKHOLDER OF THE
CORPORATION OR ANY BENEFICIARY OF THE VOTING TRUST PURSUANT TO SUCH VOTING TRUST
AGREEMENT.
GIANT GROUP, LTD.
VOTING TRUST CERTIFICATE
Certificate No. No. of Shares
---- ----
This certifies that _____________ ("Holder") has transferred to the
undersigned Trustee or is otherwise the beneficial owner of the above-stated
number of voting shares of Common Stock, $.01 par value per share, of GIANT
GROUP, LTD., a Delaware corporation (the "Corporation"), to be held by the
Trustee pursuant to the terms of the Voting Trust Agreement dated as of August
__, 1999 (the "Voting Trust Agreement"), a copy of which agreement has been
delivered to the above-named Holder and filed in the registered office of the
Corporation in the State of Delaware. The Holder, or his registered assigns,
will be entitled (i) to receive payments equal to any and all cash dividends
collected by the Trustee on the above-stated number of shares, (ii) to receive
all other dividends or distributions except to the extent that property received
is required to be deposited in the trust created by the Voting Trust Agreement,
and (iii) to the delivery of a certificate or certificates for that number of
shares on the termination of the Voting Trust Agreement, in accordance with its
provisions.
This Voting Trust Certificate is transferable on the books maintained by
the Trustee at the principal office of the Trustee by the Holder hereof, in
person or by a duly authorized attorney, and upon surrender hereof; and until so
transferred the Trustee may treat the registered Holder hereof as the absolute
owner hereof for all purposes.
The Holder, by the acceptance of this Voting Trust Certificate, agrees
to be bound by all of the provisions of the Voting Trust Agreement as fully as
if the terms were set forth in this Voting Trust Certificate.
EXECUTED this __ day of August, 1999.
TRUSTEE
By:_________________________________
Name: Burt Sugarman
Title: Chairman of the Board, Giant Group Ltd.
8
<PAGE>
[Form of Assignment for Reverse of Voting Trust Certificate]
For value received, ___________________________ hereby sells, assigns,
and transfers unto ________________________ the within Voting Trust Certificate
and all rights and interests represented thereby, and does hereby irrevocably
constitute and appoint ________________ attorney to transfer such Voting Trust
Certificate on the books of the within-named Trustee with full power of
substitution in the premises.
Dated:______________________
Signed:______________________
Name:
(Name must appear exactly as set forth
on the face of this Certificate)
[Signature Guarantee]
9
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of July 23, 1999
between GLENN SANDS (the "Executive") and PERISCOPE SPORTSWEAR, INC., a Delaware
corporation (the "Company"), which amends and restates the Employment Agreement
between the Executive and the Company, dated as of January 1, 1998, as amended
by an Amendment to Employment Agreement, dated as of December 11, 1998.
1. Term of Agreement. Subject to the terms and conditions hereof, the
-----------------
term of employment of the Executive under this Employment Agreement shall be for
the period commencing on January 1, 1998 (the "Commencement Date") and
terminating on December 31, 2002, unless sooner terminated as provided in
accordance with the provisions of Section 6 hereof; provided, however, that the
Company shall have the option to extend the Executive's employment hereunder for
two additional one year periods (each, an "Extension Period") by giving the
Executive written notice of its exercise of such option no less than 90 days
prior to the expiration of the then current term. (Such term of employment,
including any Extension Period, is herein sometimes called the "Employment
Term".)
2. Employment. The Company hereby agrees to continue to employ the
----------
Executive as President and Chief Executive Officer and the Executive hereby
accepts such employment and agrees to perform his duties and responsibilities
hereunder in accordance with the terms and conditions hereinafter set forth.
3. Duties and Responsibilities. The Executive shall be President and
---------------------------
Chief Executive Officer of the Company during the Employment Term. The Executive
shall report to and be subject to the direction of the Board of Directors and
shall perform such duties consistent with his title and position as may be
assigned to him from time-to-time by the Board of
<PAGE>
Directors. During the Employment Term, Executive shall devote his full time,
skill, energy and attention to the business of the Company and shall perform his
duties in a diligent, trustworthy, loyal and businesslike manner.
4. Compensation. (a) The Company shall pay to Executive a salary
------------
(the "Base Salary") at the rate specified in the following sentence payable in
such manner as it shall determine, but in no event any less often than monthly,
less withholding required by law and other deductions agreed to by Executive.
The Company shall pay the Executive a salary at the rate of $500,000 per year
for the first, fourth and fifth years of the Employment Term, and at the rate of
$950,000 per year the second and third years of the Employment Term.
(b) In addition to the Base Salary, the Company shall pay the
Executive a $450,000 bonus (the "Bonus") for the first, fourth and fifth years
of the Employment Term and the first and second years of the Extension Period if
the following conditions are met as to the particular year:
(i) during the first year of the Employment Term (A) the Company
consummates an initial public offering, (B) the Company has net sales of at
least $87,000,000 and (C) the Executive is continually employed by the Company
through December 31, 1998;
(ii) during the fourth or fifth year, as applicable, of the Employment
Term, (A) the Company has net sales of at least $110,000,000 or $120,000,000,
respectively, and (B) the Executive is continually employed by the Company
through December 31, 2001 or December 31, 2002, respectively; and
(iii) during the first or second year, as applicable, of the Extension
Period of the Employment Term (A) the Company has net sales of at least
$130,000,000 or $140,000,000,
2
<PAGE>
respectively, and (B) the Executive is continually employed by the Company
through December 31, 2003 or December 31, 2004, respectively.
For purposes of this paragraph (b), net sales shall mean gross sales less
returns and allowances. Any Bonus payable hereunder shall be paid within forty-
five (45) days of the close of the applicable year of the Employment Term.
5. Expenses and Benefits.
---------------------
(a) The Company shall, consistent with its policy of reporting and
reimbursement of business expenses, reimburse the Executive for such ordinary
and necessary business related expenses as shall be incurred by the Executive in
the course of the performance of his duties under this Agreement. In addition,
the Executive shall be entitled to an annual $50,000 non-accountable expense
allowance.
(b) The Executive shall be eligible to participate to the extent
that he qualifies in all benefit plans, including without limitation, pension,
term life insurance, hospitalization, medical insurance and disability plans as
are made available from time-to-time to executives of the Company.
(c) Should the Company, in its sole discretion, obtain key-man
insurance policies on the life of the Executive, the Executive shall have the
right to designate a beneficiary of such policies for up to $1 million in
proceeds thereof (the "Designated Portion"). The Executive shall cooperate with
the Company in obtaining such key-man insurance, including timely submitting to
any required medical or other examination. The Executive acknowledges that (i)
the Company shall have the sole discretion to obtain and to maintain or
terminate any such key-man life insurance policies with respect to the
Executive, including the amount of the policies, (ii) if the Company does obtain
and maintain such life insurance policies, the Company
3
<PAGE>
shall be entitled to all proceeds from such insurance policies other than the
Designated Portion, and (iii) the Executive or any beneficiaries the Executive
may designate under such insurance policies shall have no rights with respect to
the maintenance or termination of such insurance policies or the proceeds of
such insurance policies other than the Designated Portion on non-terminated
policies.
(d) The Executive shall be entitled to four weeks of paid vacation
annually, which shall be taken in accordance with the procedures of the Company
in effect from time-to-time.
6. Termination.
-----------
(a) The Company shall have the right to terminate the employment
of the Executive under this Agreement for disability in the event Executive
suffers an injury, illness or incapacity of such character as to substantially
disable him from performing his duties hereunder for a period of more one
hundred eighty (180) consecutive days upon the Company giving at least thirty
(30) days written notice of termination; provided, however, that if the
Executive is eligible to receive disability payments pursuant to a disability
insurance policy paid for by the Company, the Executive shall assign such
benefits to the Company for all periods as to which he is receiving full payment
under this Agreement.
(b) This Agreement shall terminate upon the death of Executive.
(c) The Company may terminate this Agreement at any time because
of (i) the Executive's material breach of any term of this Agreement or (ii) the
willful engaging by the Executive in misconduct which is materially injurious to
the Company, monetarily or otherwise; provided, in each case, however, that the
Company shall not terminate this Agreement pursuant to this Section 6(c) unless
the Company shall first have delivered to the Executive a
4
<PAGE>
notice which specifically identifies such breach or misconduct and the Executive
shall not have cured the same within fifteen (15) days after receipt of such
notice.
(d) The Executive may terminate his employment for "Good Reason"
if:
(i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities, authority and
status with the Company as of the date hereof, or a change in his reporting
responsibilities or titles as in effect as of the date hereof, except in
connection with the termination of his employment by him without Good Reason;
(ii) his Base Salary compensation is reduced; or
(iii) any other material breach of this Agreement by the Company,
provided the Executive shall first have delivered to the Company a notice which
specifically identifies such breach and the Company shall not have cured the
same within fifteen (15) days after receipt of such notice.
7. Liquidated Damages. It is understood that if the Executive (i)
------------------
shall elect to terminate his employment for a Good Reason (as defined above) or
(ii) his employment is terminated by the Company otherwise than as provided in
Section 6, the Executive will suffer damages which will be difficult to
calculate. Consequently, in the event of a termination of the Executive's
employment for either of these reasons, the Executive shall be entitled by way
of liquidated damages and not as a penalty to receive a single lump sum payment
in an amount equal to the amount of the Base Salary payments that, but for his
termination of employment under this Section 7, would have been payable to the
Executive for the remainder of the Employment Term, and Sections 8 and 9 shall
be inapplicable and void. The Company shall
5
<PAGE>
make the lump-sum payment to the Executive within fifteen (15) days following
his termination of employment for the reason set forth in this Section 7. The
Executive shall not be required to mitigate the amount of any payment provided
in this Section 7 nor shall the amount payable under this Section be reduced by
any compensation earned by the Executive after the date of his termination of
employment.
8. Revealing of Trade Secrets, etc. The Executive acknowledges the
-------------------------------
interest of the Company in maintaining the confidentiality of information
related to its business and shall not at any time during the Employment Term or
thereafter, directly or indirectly, reveal or cause to be revealed to any person
or entity the supplier lists, customer lists or other confidential business
information of the Company or any of its affiliates; provided, however, that the
parties acknowledge that it is not the intention of this paragraph to include
within its subject matter (a) information not proprietary to the Company or its
affiliates, (b) information which is then in the public domain, or (c)
information required to be disclosed by law.
9. Covenants Not to Compete. (a) During the Covered Period (as defined
------------------------
below), the Executive shall not anywhere in North America, directly or
indirectly, with or without compensation, engage in, be employed by or control,
advise, manage, finance or receive any economic benefit from, or have any
interest (whether as a shareholder, director, officer, employee, subcontractor,
partner, consultant, agent or otherwise) in, any business, company, firm or
other entity which is engaged in, or conducts activities substantially similar
to or likely to be competitive with the business of the Company as conducted
from the date hereof until the date of termination of this Agreement (the
"Competitive Business"); provided, however, that nothing herein shall prohibit
the Executive from owning not more than five (5%) percent of the outstanding
stock of any publicly held corporation. Without limiting the foregoing, during
the
6
<PAGE>
Covered Period, the Executive shall not, in competition with the Competitive
Business, (i) solicit or deal with any supplier, contractor or customer of the
Company; (ii) seek to persuade any employee of the Company or any of its
subsidiaries or divisions to discontinue his or her status or employment
therewith; or (iii) hire or retain any employee of the Company or any of its
subsidiaries or divisions.
(b) For purposes of this Employment Agreement, the "Covered
Period" shall extend (i) from the Commencement Date until the date of
termination of this Agreement and for a period of three (3) years thereafter, if
the Executive shall terminate his employment with the Company without cause at
any time during the Employment Term (including during any Extension Period), or
if the Company shall terminate this Agreement pursuant to Section 6(c) above at
any time during the Employment Term (including during any Extension Period); or
(ii) from the Commencement Date until the date of termination of this Agreement
and for a period of one (1) year thereafter, if the Company shall exercise its
option to extend the Executive's employment hereunder for an Extension Period
and the Executive shall determine not to so extend his employment with the
Company.
(c) If the Executive shall continue to be employed by the Company
through the Employment Term, the provisions of Section 9(a) above shall not
apply and, in lieu thereof, the Executive agrees that, from the Commencement
Date until the date of termination of this Agreement and for a period of one (1)
year thereafter, the Executive shall not anywhere in North America, directly or
indirectly, on behalf of any business, company, firm or other entity which is
engaged in, or conducts activities substantially similar to or likely to be
competitive with the business of the Company as conducted from the date hereof
until the date of termination of this Agreement, (i) seek to persuade any
employee of the Company or any of its subsidiaries
7
<PAGE>
or divisions to discontinue his or her status or employment therewith; or (ii)
hire or retain any employee of the Company or any of its subsidiaries or
divisions.
(d) In the event that the provisions of this Section 9 should ever
be deemed to exceed the time or geographic limitations or any other limitations
permitted by applicable law, then such provisions shall be deemed amended to the
maximum permitted by applicable law. The Executive specifically acknowledges and
agrees that (x) the remedy at law for any breach of the foregoing covenants will
be inadequate, and (y) the Company, in addition to any other relief available to
it, shall be entitled to temporary and permanent injunctive relief in the event
the Executive violates the provisions of this Section 9.
10. Opportunities. During his employment with the Company, and for one
-------------
year thereafter, the Executive shall not take any action which might divert from
the Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
11. Survival. In the event that this Agreement shall be terminated,
--------
then notwithstanding such termination, the obligations of the Executive pursuant
to Sections 8 and 9 of this Agreement shall survive such termination, except to
the extent otherwise provided in Section 7 of this Agreement.
12. Contents of Agreement, Parties in Interest, Assignment, etc. This
-----------------------------------------------------------
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of the Executive
8
<PAGE>
hereunder which are of a personal nature shall neither be assigned nor
transferred in whole or in part by the Executive. This Agreement shall not be
amended except by a written instrument duly executed by the parties.
13. Severability. If any term or provision of this Agreement shall be
------------
held to be invalid, illegal or unenforceable for any reason, such term or
provision shall be ineffective to the extent of such invalidity, illegality or
unenforceability without invalidating the remaining terms and provisions hereof,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable term or provision had not been contained herein.
14. Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
If to the Company
addressed to: Periscope Sportswear, Inc.
1407 Broadway
Suite 620
New York, New York 10018
Attn: Secretary
with a copies to: GIANT GROUP, LTD.
9000 Sunset Boulevard
Los Angeles, California 90069
Attn: Burt Sugarman, President
and
Thelen Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attn: Bruce A. Rich, Esq.
If to Executive
9
<PAGE>
addressed to: Glenn Sands
2 Rio Vista Drive
Alpine, New Jersey 07620
with a copy to: Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, N.Y. 10103-0084
Attn: Donald L. Kreindler, Esq.
or to such other address as the one party shall specify to the other party in
writing.
15. Counterparts and Headings. This Agreement may be executed in one
-------------------------
or more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are inserted
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
PERISCOPE SPORTSWEAR, INC.
By: /s/ Scott Pianin
-----------------
Scott Pianin
Executive Vice President
/s/ Glenn Sands
----------------
Glenn Sands
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,074,000
<SECURITIES> 9,602,000
<RECEIVABLES> 3,120,000
<ALLOWANCES> 0
<INVENTORY> 12,176,000
<CURRENT-ASSETS> 28,432,000
<PP&E> 2,952,000
<DEPRECIATION> 1,016,000
<TOTAL-ASSETS> 60,645,000
<CURRENT-LIABILITIES> 11,214,000
<BONDS> 0
0
0
<COMMON> 73,000
<OTHER-SE> 47,829,000
<TOTAL-LIABILITY-AND-EQUITY> 60,645,000
<SALES> 58,963,000
<TOTAL-REVENUES> 58,963,000
<CGS> 46,166,000
<TOTAL-COSTS> 46,166,000
<OTHER-EXPENSES> 11,458,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,317,000
<INCOME-PRETAX> (978,000)
<INCOME-TAX> (103,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (875,000)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
